How many of you have paid off your home?

Take an hour or so to figure it out for yourself. How much would you pay with each course of action?

Too many depend on financial institutions and financial experts to come up with the answers. Unfortunately, their salaries are totally the result of many folks not making the above calculations. (Hint, the difference in the above two numbers goes into their pockets.)

 

I personally would just because I like to pay off loans. My last two car loans I paid off about a year early just because it was so easily within sight I threw a check at the lender and that was that. 2 years on the house I'd set it as a hardcore goal and just get it done and then treat myself afterward.

 

Easiest rule of thumb - always put money wherever the highest interest rate is. Doesn't matter if it's interest to you or interest to the financial institution (though generally it's the latter).

Two caveats: always meet your minimum obligations, and keep enough in savings that you can survive a layoff or other financial hardship for several months.

Credit cards are obviously on top, then the student loans usually, car loans, mortgage, then savings accounts or CDs, then checking account/cash. YMMV. The big gray area is anything with variable rates of return (anything based on the stock market), just because something made 10% return in the past doesn't mean it will do that this year, and it might lose you money. That said, 401(k) and Roth IRAs are still good ideas to force you to save money for retirement (and save on taxes).

I'm 11-12 years from paying off our house - would've been 20 years at this point according to the terms of the first loan, but we paid extra and then refinanced in 2009, now we're looking at maybe refinancing again, since it's a full percentage point lower yet again.

 

This may be nit-picking, but there are some high interest rates on junk bonds. Not a good place to put more than a small amount of your savings. If we're talking about paying down loans, I agree with you. If we're talking about investment, yield has to be balanced against risk. I do have a small amount in Vanguard's junk bond fund (they don't call it that, they call it high-yield corporate, but junk bond is what it is). Very nice return but high risk. The risk is moderated by being a fund, and by Vanguard's experienced managers, but it's still a significant risk and should be no more than a small part of a balanced portfolio, and then only if you can afford the risk.

 

We pay off all loans early. I pay $300 extra each month to accelerate the pay off. We own several rental units. The renters make our payments. We are building a new super efficient home and expect to pay that off early.

 

I agree, and that's what I tried to raise as a caveat with my 3rd paragraph, although you said it better. For comparing guaranteed rates of return, then my rule stands.

 

Higher interest is a good general rule.

I have a HELOC at something like 2.75% right now and pull about .75% or 1% on my ING account (savings). I've not put that money into the HELOC because once I do it's impossible to pull out again (HELOC granted during the wonder years of the housing bubble), and so I'm paying a couple percent penalty, but then it's money I can access if I need to.

 

It's not just guaranteed rate of return. It's risk on capital. Junk bonds typically (if not always???) pay a fixed rate of return for the life of the bond. But since they are not insured or secured (they wouldn't be junk if they were) there's always the chance of default, in which case you lose everything. The rate is guaranteed. Actually getting paid is not. Still, a good fund manager should have a better than average ability to select companies that are less likely to default. YMMV.

Preferred shares are another complication: Basically they are extremely long-term bonds with a fixed rate, but the company can decide not to pay. They have a strong incentive to pay because failure to pay will affect their credit rating and ability to raise money. But it's always a possibility. If you can accept the risk, you can sometimes get very high returns. As above, the rate is guaranteed, but getting paid is not.

 

I paid off our first house in just under 8 years. I was paying a bit extra with each payment, on the order of an extra $150 to $300 or so. After a few years I was amazed at how much paydown that amounted to. That motivated me to make even bigger extra payments, including an extra few thousand from my e-o-y bonus. Before I knew it the house was paid off.

You really don't save much money until your house is paid off.

Fortunately, we had some great earning years thereafter and saved a bunch of money. So we bought a winter home in AZ for cash. Then we sold the first home and bought a nicer one here in CO for cash. We both retired before 60 and now split our time between CO and AZ.

My advice: Marry a good woman, pay off your home early and save your money by living below your means.

 

How?

 

We considered paying off the mortgage this year vs. refinancing. Ultimately decided to take a great deal on a sub-4-percent loan and pay extra monthly to retire it in 5 years, when our oldest goes to college... This way, in the event of job loss or really bad economy, we have the cash and can fall back on a lower monthly payment if needed.

On the flipside, dad owns his house outright. He's going to have to do a reverse mortgage or HELOC to pay for ongoing health care expenses next year. You can never save too much for retirement, I guess.

 

Probably dummy corporations.

 

Took me three times to get that part right... then I made it good after I found Susan, the woman I wish I had met first....

 

I hope not; that would be illegal.

 

Actually, it's perfectly legal to set up a corporation for something like that. Maybe my use of "dummy" corporation was not precisely correct. But you could set up a corporation, sell the home to it, and then rent the home from the corporation. A good tax lawyer could set it up so as to be perfectly legal.

 

I am too debt averse to act wisely, which is to put the home on a low fixed APR loan. Why wise ? Because it is a really good hedge against inflation, and the best move against hyper-inflation.

 

I say, you don't seem to have provided for the possibility of someone owning a home but never having had a mortgage. I paid for the bally thing with a check, you see. I seem to have been left out of the fun.

 

I'm risk averse (too much) and I set aside weekly or monthly for predicted future outgoings*. We're net in the black but not quite to matching our HELOC line.

Years ago I set a target of buying and paying off a house before I was 40. I nearly bought one, but realized it was a bit excessive and I pulled out. Then, having given up through most of the ridiculous property boom, I married someone who already had a house. I might just make my target. But, at some point in the next 10 years we'll likely be downsizing to a nicer house and therefore I'll end up with another mortgage to pay off.

* E.g. I started saving for our next cars as soon as we bought our current ones and I've adjusted with a change in target and with price changes.