First the mortgage update:
Last month (April):
Years left: 11.41666667
P = $701.53, I =$512.87, Escrow = 591.95
This month (May):
Years left: 11.25
P = $707.05, I =$507.35, Escrow = 591.95
This prepayment includes quarterly dividends. One month’s interest savings of $4.72. Didn’t get grants with summer salary, so this is my second-to-last paycheck until October. We should get a substantial tax refund soon. What we’re doing for DC’s school next year is up in the air, so we may or may not need to pay a lump sum of a year’s tuition before August.
And now for the fascinating post on how they can take your paid-off home.
So one argument that people often make about prepaying your mortgage is that “they” can’t take your home away from you if it’s paid off.
Even ignoring say, imminent domain (for which you’re supposed to be compensated fairly), “they” can still take away a paid off home, even if it is a different “they.” In fact, “they” may have an easier time taking away your home if you don’t have a mortgage from a big bank to protect you.
But you say, how can they take away my home? I own it fair and square.
Not if you live in a home owners association. In some states it is very easy for a home owners association to foreclose on you. They can foreclose if you owe annual dues. They can foreclose if your grass is too long or if your house is the wrong color. And when they foreclose they don’t have to get fair market price for your house.
Here’s a sad sad story from NPR about one former homeowner’s experience. Luckily the husband involved is a service member and there’s a law specifically protecting him, but it’s still a long drawn out court battle. If he hadn’t been overseas serving our country he would have no protections at all. If he’d had a mortgage company on his side, it is very unlikely that his $300+K house would have been sold on the steps of the capitol building for $3,500. A mortgage company wouldn’t have allowed that.
Ok, sure, you can afford your annual HOA dues or you’ve wisely opted not to buy in a HOA. But “they” can still get you if you run out of money.
That’s right, you can be foreclosed on if you don’t pay your property taxes.
Additionally, even if home owner’s insurance is not required, if you don’t have insurance, you can lose your home equity in a fire or other emergency. My property taxes + home owners insurance is equal to a full third of my mortgage payment each month. If I didn’t have the mortgage payment, that means I would still be paying half what is going towards principal and interest directly to the government and the insurance company. That’s not chump change. After the mortgage is paid off, the straight out housing expense does not go to zero.
Finally, it costs money to upkeep your house. If you let things go too far it becomes dangerous to live in and can be condemned, even if you’re not in an HOA that will force you to keep it up.
So no, your housing expenses do not go away just because your house is paid off. And you’re not 100% secure for shelter unless you have the money to pay the expenses that go along with homeownership, including taxes, HOA dues, and upkeep. Paying off your house does not provide infinite security. It’s not a magic bullet. Your housing expenses are lower but they do not just disappear.
Still, we’re doing some mortgage prepayment. It is a form of diversification, into a safe asset rather than our retirement accounts and the stock market. At 4.75% interest (not counting the deduction) it’s still a better use of our extra “safe” money than CDs or termshares. Plus it adds some real estate into our portfolio, though admittedly not a very diversified kind of real estate. Whether or not we’ll go back to making large pre-payments come fall when we get paid again is something we will have to think about in the future.