Last month (March):
Years left: 9.25
P = $781.78, I =$432.62, Escrow = 726.93
This month (April):
Years left: 9.166666667
P = $781.78, I =$432.62, Escrow = 726.93
One months savings from this month’s prepayment: ~$2.22.
The mortgage company finally realized we were overpaying escrow. They still say we’re underpaying it but by less. I figure this is the last time they’re going to try to readjust for almost a year so I sent them a check (~$185) and our required monthly payment will drop back down. This change means our prepayment will go up by about $100/month starting next month.
Minting nickels had a great post in February that we wanted to link to in March but with that whole academic guest blog thing decided to swap out for a different post.
Minting Nickels asks, “How soon would you be debt free if you went all out?” Like, if you went totes gazelle intense rice and beans, everything at the debt.
As you can see, we have about 106.6K of mortgage debt. (It’s at a somewhat high, somewhat low interest rate of 4.75%. Paying to refinance to a lower rate doesn’t make sense in most of the scenarios I’ve run through, so it just sits there.)
And yet, we’ve been putting away crazy amounts of money each year to retirement accounts, a 529… and we buy fancy cheeses and just generally tend not to worry about money. We’ve come a long way from making 36K a year with rent costing 20K of that (and still managing to pay off student loans and generate an emergency fund). God and nature willing I will never lose my ability to digest red meat again. (Even if the thought of pancakes makes me queasy.)
So we’ve got a few scenarios (besides, of course, selling the house) that could answer Minting Nickel’s question.
The first one is, what if we threw all of our current taxable assets at the mortgage. The stock market has been doing insanely well and we’ve regained all that we’ve lost since the recession and a little more (although getting back to a pre-recession high doesn’t make up for all those years during and after the recession when the money could have been invested elsewhere!). Now, of course, if we liquidated all that, we’d be hit by a capital gains tax… The resulting cash leftover would leave something like 35K left in the mortgage to repay, give or take. Where could we find 35K? Well, we’ve been saving up so that we can live over the summer, pay school tuition and so on. We’ve got about 20K there… and who needs to eat or prepay school? Maybe we could forage until the October paycheck. Actually, there are a few months of paychecks left that might allow us to replenish some of that, even if we couldn’t be fancy (and we wouldn’t be paying 1200 towards the mortgage every month after the mortgage was paid off, just the equivalent of escrow). That leaves 15K. I think there’s about 2K left in the daycare reimbursement fund, some of which I have to fight with payflex about since they denied something for not having a signature even though it has a signature, which wouldn’t be so annoying if their stupid fax machine hadn’t been down for a full day of me trying to send things (anyway…). So that’s 13K left… Well… we could dip into the remaining fund my father gave me for charitable work for education (and swear to pay it back), and the mortgage is gone. So, basically we could get rid of the mortgage after a couple of weeks of moving money around.
But all that money is there for a reason. My father’s money will eventually go to DC’s school and to DH’s relative’s education. The summer money will pay for water and air conditioning (also: food) so we don’t have to rack up credit card debt (or pass out, or get nasty letters from the HOA), DC’s tuition for next year and childcare for the new baby. The taxable funds are there as a secondary emergency fund and as a way to diversify our available cash. So… that’s no go.
The second route then is to move money around and cut our expenses. We have another year or two of both of us having salaries. We’re putting an insane amount towards retirement and will be easing up in the future. Right now we’re putting about 45K towards retirement accounts that could be going elsewhere, 55K if you include the Roth IRAs I seem unable to not fund. If DH keeps his current job and we stop contributing so much to retirement, then the mortgage could be paid off in 2 years without me having to cut back my fancy cheese habit. Of course, that’s ignoring the additional childcare expenses we’ll be having… however, we will pay down about an equivalent amount on the mortgage with regular payments in two years, so that should balance out.
Though maybe we don’t want to cut the entire amount contributed to retirement. Maybe we only want to cut 30K/year from our retirement savings. Of course, that only works for at most two years since after that DH may no longer be employed if we stay here (if we don’t stay here, then hopefully we sell the house!) So that would be 60K over 2 years. Stop contributing to 529 at $6000/year. If we stopped spending so much on food, we could probably cut 6000/year from our budget (but but… I like fancy cheeses!) We could drop some insurances to get down another $500/year. Then we start getting into smaller cuts. Cutting down our netflix subscription doesn’t help much, maybe $100/year. In theory I could try to get more summer money, but that has been more difficult to come by (not to say I haven’t tried!) I’ve also been being offered fewer little writing/editing gigs, but those occasionally come in at $500/year give or take. We could try selling some stuff rather than sending it to goodwill or the relatives, and that might net $100 give or take (who knows, maybe more if we were smart about it). All of these together and I think we’d probably be able to pay off the mortgage in around 3-4 years.
If we just keep doing what we’ve been doing, paying $2500/month to the mortgage (assuming the escrow doesn’t go up again, which is a silly assumption), the mortgage will be gone in 5.33 years.
So: bottom line. The things we could do to get rid of our mortgage debt right away seem penny wise and pound foolish. We do think we’ll be shifting some money from retirement to mortgage next year (more on that in a future post), but not enough to really get rid of that mortgage debt in a really short time-frame. If we don’t shift around that money, then the cuts we would have to make to our spending before DH leaves his job would be painful and would not shorten the timeframe enough to make the suffering worthwhile (or at least not worth getting rid of our taxable assets for).
How soon would you be completely debt free if you went all out? How soon could you be completely debt free with less painful scenarios? Are any of them worth pursuing?
p.s. We were an editor’s pick in this week’s Carnival of Personal Finance!