Mortgage Post: and some commentary

Mortgage stats:

Balance Start (October): $169,254.89
Years left: 17.0833333
Interest rate: 4.75%
Hm… I don’t know what else is interesting here.
Monthly payment: $1,806.35
That’s P = 544.44, I = 669.97, Escrow =591.95

It’s kind of depressing how interest is the biggest and principal is the smallest.  Taxes and insurance round these parts are expensive.

This month I consolidated some low interest savings accounts and released the extra cash that had been sitting in there to avoid fees. DH also got some consulting money this month (the project was finished months ago, but there was an accounting hold-up), some of that will go into savings and some has gone here. Most months I won’t have 18K extra just sitting around. I’m a little concerned if we have a big emergency that I won’t have as many places to draw money from, but we do have one and a half month’s expenses in savings, so hopefully it will be ok. We also have some taxable stocks that could be sold in a true emergency.

So, according to my handy GRS amortization spreadsheet, this month the updated numbers will be:
Balance: $150,516.80
Years left: 14.42
P = 618.61, I = 595.80, Escrow = 591.95
One month savings (difference between predicted interest for next month vs. actual interest): $72.01 ( which is a lot more than the $8 it would have made in savings this month).

So paying a big chunk up front fairly early into the mortgage can make a huge difference. This is pretty exciting! All of a sudden our remaining mortgage debt is less than the amount of a house I’d be willing to live in locally. If only I had an extra 18K each month, I’d knock this mortgage out of the ballpark. Sadly 18K is quite a bit more than our take-home pay each month. I am looking forward to funneling quarterly dividends (from my remaining single stock holding) and daycare savings account reimbursements into here in the future.

Let’s see, I already talked about how much I like the no-fee refinance from Wells Fargo.  Another thing I like about Wells Fargo is that they make it very easy for you to direct your money into different bins… on the monthly bill they send you there’s a spot for directing your extra payment into escrow, principal, late fees, or just future payments.  I’ve read that some mortgage companies make it very difficult and automatically put extra money towards future payments.  Some places recommend sending additional payments certified, but we definitely do not have to do that.  WF may not be my favorite place to bank, but we have been very happy with the mortgage service.

We did get a notice that our mortgage has been sold to Freddie Mac, though Wells Fargo is still servicing, so I don’t know if we’ll still have the no-fee refinance option in the future.  Hopefully if we’re good it won’t matter!

How are your savings/repayment goals going?

13 Responses to “Mortgage Post: and some commentary”

  1. First Gen American Says:

    My state has a law against free refinancing (because I have a wells fargo mortgage at 5.75%).

    I remember my first mortgage milestone was to get to that point where I was paying more principal than interest every month.

    My one bit of advice is try to put something extra in every month. Even in months I didn’t have a whole lot extra, I would always round up to the nearest $100.

    Time does fly, especially as you get older and you’ll blink and 10 years will have gone by and suddenly you’re balance is within striking distance of being paid off.

    I paid off 1 mortg in 10 years and 1 to go. I can’t wait to get the second one done. I’m already dreaming of what I can do with that extra income…seed money for a business of my own, college funds, I can start calculating early retirement possibilities. It’s a huge mindset change.

    • nicoleandmaggie Says:

      I’ve always been paying 2000 per month, even when it wasn’t so obvious that prepaying the mortgage was a good idea. Mainly that’s because I’m a bit OCD and like round numbers.

      Honestly the extra income once this is paid off doesn’t seem so huge… the escrow payment is still going to have to be paid. One can think of the principal as a form of investment (on a somewhat risky asset). So really it’s only $600/month or so that I’ll be gaining. Which is nice, but not life-changing. Less than the preschool payment. One hopes that I will start getting raises again, or at least get a big raise with tenure, before this is paid off.

  2. Roshawn @ Watson Inc Says:

    Playing Devil’s Advocate Here…Not Being Contentious

    Wouldn’t the extra monthly cash flow of $1200, which could be put into less risky “assets”, put you in a substantially better financial position long-term compared to keeping that mortgage?

    BTW, I know you didn’t suggest keeping the mortgage. I’m really just interested in your thoughts

    • nicoleandmaggie Says:

      We don’t have any REITs and we do have stock market holdings, and the recommended bond allocation for our age, so I consider this to be our real estate diversification. Right now I’m thinking of this as our “safe” rate of return– we’re getting 4.75% back by paying this down. When outside interest rates go up, if our mortgage isn’t paid off by then, we’ll consider scaling back on repayment. Of course, we may have moved and completely changed jobs by then.

      Instead of pre-paying the mortgage, we could be putting that money away into less risky assets. Since we’re still relatively young, we probably will not be putting the extra 1200 into “safe” assets, but into the stock market once our mortgage is paid off. After all, there’s still another 32K retirement saving we could be doing tax advantaged at work. (Or, it’ll go towards infertility treatment and daycare… but I’m not thinking about that yet)

  3. imawindycitygal Says:

    I guess I’m being lazy about my mortgage. I did refinance last year to 4.875% on a 30 year mortgage, but I’m only paying an extra $100 a month on it. Last year I was so focused on building up an EF and establishing savings goals for things like car replacement and vacation. I could have nixed the vacation fund, but I love to travel and life should be about more than drudgery and work, right?

    I’m sure I could run some numbers to figure out cost/benefit of pre-paying on the mortgage to get the real answer to this: is it always better to pay off the mortgage early? I get some tax benefits and I may not stay in this house the rest of my life. In this case, perhaps it’s good to pay some extra but to also diversify my savings so that all extra money doesn’t go into the house.

    • nicoleandmaggie Says:

      Yes, life should be about more than drudgery and work. Yes, you should run some numbers. Last year we had something that we were saving for that was more important than mortgage prepayment. It ended up costing less than we’d planned for. Right now we don’t have a big goal, so mortgage it is. And our savings accounts dropped in interest again so there didn’t seem to be much point in keeping money in there even for emergency.

      We actually address this question in a lot more depth in this post where we discuss why not to JUST prepay your mortgage, but to diversify additional savings (and living too– I’m not giving up my fancy cheeses unless DH quits his job and we have to).

      p.s. The post also links to a calculator that has tax info.

      • imawindycitygal Says:

        So, you don’t have an emergency fund, then? Do you plan to tap into home equity instead if you need money badly? Just curious.

        I went to your post and checked those calculators. I’m getting about a 3.23% return now without any extra payment, so if I kick up the extra money every month (at the expense of the vacation fund, perhaps…there goes that Smithsonian trip through ancient Venetian trade routes, I guess, damn it!) then my rate of return would go up even higher, right?

        My job really complicates investing since the company I work for is publicly regulated and there are many restrictions on what sorts of investments I can make. Funding retirement, investing in real estate through my house, and cash savings are pretty much it for me now.

      • nicoleandmaggie Says:

        No no, we have an emergency fund. There’s about 1 month’s expenses in our credit union savings (actually right now there’s almost 2 months because we paid the mortgage from another account we liquidated this month, and also the tree guy hasn’t planted our trees yet, but that will change soon). We’ll build that up to 4 months before summer gets here (since we don’t get paid over the summer). Also in a true emergency I can get off my rear end and get our daycare savings account that’s accumulated so far reimbursed (I usually put that off until it’s about half full) and we have some money in taxable stock market funds from before we had good retirement fund options that could be sold if needed.

        If you’re publicly regulated, can you invest in broad index funds outside of your retirement account? I would think they’d let you have a full market fund (through Vanguard), which is what a lot of people recommend anyway, since you can’t influence the entire market unless your name is actually Ben Bernanke.

        I like doing a little kludge re: mortgage return– what’s the amount of interest I save over the next month. We would have paid 667.81 in interest next month, but instead we’ll be paying 595.80. That’s a lot more of a monthly return than the $8 we would have gotten in the savings account.

  4. Bardiac Says:

    I’m a little confused; when you say your escrow is still going to need to be paid, do you mean that the escrow account goes towards your real estate or other taxes (and insurance), which have to be paid?

    In my very limited experience, once you’ve paid off a certain amount of the principle, you can avoid using an escrow account and pay the taxes and insurance yourself, and avoid the escrow fee, no? Depending on the original loan and current assessment, with a payment of 18k, you may have dropped to that level, which could save you a little money, perhaps?

    • nicoleandmaggie Says:

      The money going towards taxes and insurance will still have to be paid.

      I don’t mind letting Wells Fargo pay it because most years we come up short, so it ends up being an interest free loan for us from Wells Fargo. Interest rates are so low in savings that there’s no much point in keeping it ourselves.

  5. Everyday Tips Says:

    Congratulations! I am with you in that our house is our real estate diversification. We have so much in stocks that I don’t mind putting extra into our mortgage. I will be done with mine in 7 years and I cannot wait. (hopefully sooner)

    Great job!

  6. The Last Mortgage Payment | Grumpy Rumblings (of the formerly untenured) Says:

    […] because I have nothing left to track!  It’s the end of an era!  For nostalgia’s sake, here’s the first one from November 2010.  (And here’s an earlier post about refinancing before I started tracking […]

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