September Mortgage Update: Changing Plans (Help?)

Last month (August):

Balance: $100,747.56
Years left: 8.5
P = $803.97, I =$410.44, Escrow = 621.66

This month (September):

Balance: $99,268.01
Years left: 8.25
P = $809.78, I =$404.63, Escrow = 621.66

One month’s savings from prepayment:  $2.62

This month I was going to talk about being under 100K and playing with the amortization spreadsheet, explaining exactly how mortgage loans are different than student loans or credit card loans, and go into the details of how student loans and CC loans basically recast automatically, but you have to pay money to recast a mortgage loan.  Instead a modified version of that post will be next month.

The tenure committee voted 7-1 against tenure for DH.  He’s teaching 4 days a week, with a 3/3 load not counting the capstones he is advising, no graders or TAs, and they just switched out his elective with the second introductory course.  (He’s already teaching the 101.  Now he has 101 and a new prep for 102.)  The department is dysfunctional, the students are terrible (though the worst ones flunk out by the time they get to the 300-level courses!).  As a spousal hire, he makes about 20K less than the other folks hired the same year.  And quite a bit less than someone with his degrees and experience and productivity should be making.  I do *like* having his salary, but today we decided we needed his time and happiness more than we needed two years of salary.

So he’s going to withdraw his tenure packet on Monday and leave the university in August 2013.  We don’t know what he’s going to do next.

I still don’t want to go on the market this year– I’d still like to stick around another 2 years.  I have an interdisciplinary project that I would really like to finish and it is a 2 year project.   Though going on the market would be worth a raise of at least one month’s worth of summer salary equivalent, so maybe that’s not reason enough.

So this weekend we sat down with our credit card statements and bank accounts and calculated how much we actually spend each year.  It’s a lot.  (Where does our money go?  Childcare, mortgage, private school, insurance, food, limited but overpriced travel to such exotic places as the rural midwest, medical, auto upkeep.)  Then I added projected childcare expenses for DC2.  Then I calculated my projected take-home pay with projected additional benefits with DH on my plan.

If, once DH leaves his job, we stop prepaying the mortgage and stop putting extra away for retirement, and stop the 529 payments, then our spending is about equal to my take-home pay.  There’s not a lot of wiggle room.  We can recast the mortgage (from 8.25 years back to ~18 years) and that will bring our required monthly expenses down about $530/month (0r ~$6300/year) given our current pre-payment so far.  We also already have a nice emergency fund saved, so it might not be horrible if we didn’t have extra to add to that immediately.

I did a few thought exercises… if we spend $200/week at the grocery store, we would have to stop shopping for almost an entire year to save $10K.  If we assume $100 of eating out per week (I don’t think we actually spend that much), not eating at all would take 33 weeks to save $10K.  We already went through and negotiated on things like insurance and cell phone bills and so on.  It makes more sense to try to make additional money.

My interdisciplinary project has been funded for one year with promise of a second should this year work out.  One of my colleagues who wants me to stay has also added me to a two year grant to replace a colleague who just left for greener pastures.  If these work out then I’ll have two months of summer money for two summers.  I have an additional two grants awaiting word from the government, one of which may actually get funded, though only for a year.  Pubs are light this year, but grant applications were heavy!

DH is also worth a lot more than what he’s been paid.  But I want him to be happy more than I want him to be a wage slave.  He’s a scanner (in Barbara Sher’s terminology) and contract work may be a better fit for him than working locally (unless locally means moving to Northern California), but contract work takes some time to build up into real income.  So I don’t think we can count on him bringing in regular income, at least not right away.

So that leaves us with the question of what to do with DH’s salary this year.

With the two-year plan, we were going to put his additional salary towards the mortgage rather than towards the 457 plan he’d been funding this year.  Then in the second year we were going to put the extra money towards cash in case we have to move.

Now we’re on a one-year plan.  I’m not sure what to do.

(Note:  We’re required to put 12% of our income into a 403(b), the retirement savings I talk about below is on top of that saving.)

DH is going to stop contributing to his 457 plan.  That frees up ~15K.  Some of that money is going to be going to mother’s helpers who are more expensive than daycare will be the following year.

Maybe we should cut off my extra 403b payment as well and/or DH’s, for an additional 16.5K in cash (each), though we’d have to pay some of the retirement money in taxes come tax time.  And what would we do with that cash?  Another year and a half from the mortgage is still more than 5 years remaining (and still only cuts another $50 off a recast monthly payment).  If DH starts making income sooner rather than later, or if I get nice grants, we might regret the decision not to put money away while DH still has access to these tax advantaged funds (though presumably we could figure out a SEP if he did contract work).

The mortgage may not be the best place to put the money.  15K would cut 1.5 years off the mortgage as it currently stands, and after a recast an additional 15K would only cut $50 off each mortgage payment, or $600/year.  Since we have 8.25 years remaining and are going to have to stop any pre-payment to keep up with expenses in August, we can’t pay the mortgage down enough to make a real difference in our monthly payments.

We could even stop the pre-payment on the mortgage we’re already doing.  That’s about $650/month or $7800 for the year.  But where would that go?  Cash?

Cash is still paying nothing, and we’re not sure when we’re going to need to tap into that money, or if we’ll need to tap into it.  I can’t get fired, so our first tier emergency fund generally sits at 2 months of regular expenses (plus whatever we’re saving for the unpaid summer).

I’ve already funded our 2012 IRAs (had to sell some taxable stock because a company was getting acquired), but we could put 10K towards the 2013 IRAs in 2013.  Roth IRAs can be used as emergency funds if you’re willing to take out principal.

We could buy taxable stocks with that money.  We could even undrip dividends in the future.  The risks would be that the stocks could lose rather than gain value before we have to sell in the near future rather than the far future.

Another thing we could do would be to convert taxable stocks we already own into tax-deferred savings.  But then we no longer have that secondary emergency fund.

We don’t know what we’re going to be doing in two years.  On top of that, the uni has messed with sabbaticals so in two years when I’m eligible again I may have to be able to commit to not getting paid even half a salary if I want to take time off.  The timing between applying for a sabbatical at the university (October) and applying for and getting an external fellowship or external teaching assignment (generally March) doesn’t mesh with the new competitive sabbatical process at the uni, so having money I can access would really help with planning, even if I don’t end up needing it in the end.  I suppose I could try to sabbatical at Berkeley or Stanford assuming that DH would get a real job to pay our bills.  Not so easy to get a real job if I sabbatical at say, Michigan.  (#2 is insanely jealous that #1 has already had a sabbatical, and has even the chance of going such awesome places as Stanford or even Michigan.  Sigh.  I am in the wrong field.  Whine over.)

So I don’t know what to do.  Keep money in tax-deferred savings we can’t access, move it to cash where it won’t be making any interest, buy taxable stocks, pre-pay the mortgage?  What we can’t do is get used to having it around and spending it.  I’m really going to miss having that income cushion– the knowledge that if I screw up with money one month I can untap DH’s hidden salary in the future to make up for it.  When your income and your outgo are really close, you don’t have that luxury anymore.  I really liked not having to worry about money and it is difficult to have one’s income cut rather than having it grow each year.  But more difficult having an unhappy DH who has no time to do anything other than teach and do service.

(#2 thinks DH needs to quit sooner rather than later.  Otherwise, I got nuthin’.  Help out, homies! #1 notes that DH is contracted through the year and wants to quit responsibly and we can use the transition time money-wise, so quitting any sooner isn’t really an option.  We did talk about quitting at the semester but he doesn’t want to.)

Any thoughts?