Last month (February):
Years left: 2.083333333333
P =$1,091.24, I =$123.16, Escrow =$788.73
This month (March):
Years left: 2
P =$1,103.46, I =$110.94, Escrow =$788.73
One month’s prepayment savings: $0
After a lot of time on Craigslist and Zillow looking at apartments and houses in Paradise, and quizzing people on utilities costs, and so on, and then sitting down and doing a bare-bones BOE about income vs. outflow, I started getting titchy.
If we 1. stop contributing to my retirement next year other than the required 6% plus match (not counting the changes I made last month to max out the 2015 403(b)), and 2. stop contributing to 529s, 3. get someone to cat-sit for the cost of utilities rather than rent our house and 4. don’t cut back our frivolous spending, then, given only our take-home pay, we can afford to spend 2K/month on housing from our cashflow.
Of course, we cannot get a 2br/1ba apartment even in an awful part of paradise for 2K/month. And we have our heart set on someplace in walking distance to school and public transportation and a library (that allows pets and has w/d and a dishwasher).
We planned for that though. As of this writing, we have 72K just sitting in a savings account doing nothing waiting to be turned into goods and services. Some of that is going to need to go to get our house painted [Update: This has happened– we’re down $4500, but the bathroom is no longer shredded]. Some of that is going to go towards moving expenses. Some of that will go towards travel costs to find housing, and deposits and so on. But some of that is earmarked to go towards rent. (And some of it will go towards weekend trips to places a day’s drive away from Paradise that I’m longing to show my family! Camping! Bed and Breakfasts! The beauties of nature!)
We’re aiming for rent between 3K/month and 5K/month, depending on what we end up with. We won’t know what we end up with until closer to the time we need to go. The market seems to be 2-8 weeks before you move in. And some of those 3K/month apartment reviews are really scary (maintenance badly needed but never coming, paper-thin walls and floors, etc.). Many of them aren’t, but we won’t know what’s available when we need it– right now is a slower part of the year than summer and we only have a limited window for shopping. Wiggle room is nice to have.
And even at 5K/month, we’ll still have wiggle room given our savings.
So why stop the mortgage pre-payment (thus freeing up 6K total that we wouldn’t have had had we continued those last three paid months)? Because our scenario above assumed that other than the 2015 403(b), we wouldn’t be contributing to any tax-advantaged accounts. And tax-advantaged accounts are a bigger priority.
Previously when we started prepaying without maxing out our retirement savings, that was in order to manage risk. Pre-paying the mortgage meant that we could lower our monthly fixed payments in an emergency through recasting or get some of that money back when needed by selling the house while we were still young. Now, with the mortgage balance so low, we don’t really need to get it down much lower in order to manager risk– we could re-amortize at any time and our monthly payment wouldn’t be much more than escrow. It makes more sense to direct our money towards use-it-or-lose it savings.
So now these tax-advantaged accounts are a greater priority than mortgage pre-payment (with which we could save at most, 2K in total interest over the remaining life of the loan, at this point). We can pre-pay the mortgage any time, but 457s are use it or lose it. We might be IRA eligible next year, and that’s use it or lose it. 529s aren’t use it or lose it, but contributing early helps more than contributing later. And there’s charitable donations… we’re not paying school for DC1 next year but we’re thinking of offering a scholarship to another student while we’re gone. We’re not sure yet.
So that’s why we’re not pre-paying the mortgage. Because we don’t want to cut our frivolous spending because we’re really not Mustachian (though we’re also not Vanderkamdian). Because tax-advantaged retirement savings is a bigger priority than mortgage prepayment right now. Because we want to enjoy our year in paradise without worrying too much about money, even the unexpected expenses. Because we think 6K more in cash savings will make me feel a little less anxious.
(This is actually the first time we haven’t done *any* prepayment… given increases in property taxes, the bill is just a little bit over 2000, so I can’t round up to 2000 and rounding up to the next 500 is just too much. I feel really weird writing a check that isn’t a round number. Makes me wish I’d prepaid the escrow difference when I had a chance to keep the monthly payment under 2K.)