January Mortgage Update and Wells Fargo thinks we’re ready to buy a new home

Last month (December)
Years left: 0.25
P =$1,198.91, I =$15.49, Escrow =$812.79

This month (January)
Years left: 0.166666667
P =$1,214.40, I =$10.74, Escrow =$812.79

For the past few months our mortgage statement has come with a sheet not about the usual refinancing or home equity line of credit options, but about getting a new mortgage on a new home.  We must have clicked into the “almost done with the mortgage” advertising.

This thought of being ready for a new loan once you’ve finished the old mortgage must be appealing.  With increased incomes over time folks can afford a larger monthly housing payment.  Why go from a small payment to no payment when you could just pay a little more and get a bigger house to go with it?  Many of my colleagues bought much larger homes when they got tenured or promoted, effectively doubling the cost of their housing.

That same thought process can go along with car loans.  Buy a new car after 5 years when your loan is done.  You’re used to the payment, why not get something nicer for about the same cost or only a little more?

We’re a bit odd– most tenured faculty in my department started out with houses under 3K sq feet and now have houses more than 4K sq feet… we have 3K sq ft exactly.  No starter home, no McMansion, just a big house.  While we occasionally think about down-sizing because it means paying less for all the services and upkeep that come with a house, we never think about up-sizing.  Given that we have no need/desire for a larger house than the one we’ve got, it really doesn’t make sense to get a new mortgage.  Maybe there was a benefit to not getting a starter home, even if we ended up paying more for utilities and property tax and so on, because it means we didn’t go crazy with custom-building something even bigger.

We’ve also never gotten used to having a car loan.  Our first car that we owned jointly and paid the insurance on was a graduation/wedding gift/hand-me-down.  We paid for our next car with cash.  We’ve only had a short car loan for the third car that was paid off in well under a year.  So the thought of starting another required monthly payment for a car seems odd.  Going from not paying anything to a regular monthly payment seems painful to us.  But if we’d had a long-term loan, maybe it would seem like business as usual.  Why not get a nicer car for a monthly payment we can afford?

I wonder how much of this buying bigger and better is partly habitual.  You get into the habit of monthly payments, so you don’t think about what you were paying before as a loss, even if you wouldn’t have to pay it anymore if you didn’t buy the shiny new thing.  You compare the additional monthly payment to the niceness of having something new, rather than comparing the full cost of all payments to the increase in niceness over what you already have.

In other words, it feels like the original payment is a sunk cost even if it isn’t because you’re already used to paying it.  We fell prey to this miscalculation ourselves when we bought our house– part of why we didn’t get a starter home was because the mortgage payment for our big house was about the same size as what we had been used to paying in rent for our grad school apartment!

One problem with not having the habit of regular payments is that we’re also in the situation where if we want to buy a new car, we have to come up with 20-30K in a relatively short time-frame to keep up with our usual not having a car payment.  That’s a bit of a spending shock.  Still, it’s one that can be put to rest with a large enough emergency fund and/or a willingness to take on a short temporary loan if it takes time to move around/accumulate assets.  Even if the larger emergency fund isn’t the best use of money, it’s still more efficient in terms of savings than buying a new car every few years would be.

Fortunately one generally doesn’t have to replace a house like one replaces a car (and we’re keeping our home insurance in case of a catastrophic event).  We won’t be buying a new house any time soon.  Even if Wells Fargo wants us to.

How do you think about revolving debt and new purchases?  When do you/have you decide(d) to buy a new house or car?

37 Responses to “January Mortgage Update and Wells Fargo thinks we’re ready to buy a new home”

  1. Rosa Says:

    I do think it’s habitual, and also really normalized – when people say “everyone has bills to pay” most people mean debts. I’ve never had debt until/except our mortgage, and the freedom of not having those big fixed costs is a great feeling. Life costs money no matter what but being able to choose where the money goes is a great feeling.

    Our mortgage is a huge anchor on our choices, even though it’s not that much money – if we were renting, the costs of just walking away would be very small. I’ve never done it, but it was always an option, and when my life was really unstable I rented month to month informally, which means I could have left at just about any time (needing to give my landlady enough notice to keep her friendship). If we want to leave this place, we’d be walking away from a huge investment unless we go through all the rigmarole of selling, which has pretty steep time and money costs. Plus my husband’s emotional need to do everything “right” and maximize any investment – if we had to we could just sell the place as-is but he’d feel like a failure over it forever, so moving would also include months of fixing and painting and staging and landscaping.

    But since most people have the anchor of debt keeping them tied to a job, they can’t really imagine how it feels to not have that. So why not have the nice stuff? They know that feels good.

    Though, man – bigger house is so not enticing to me. If I were going to spend a lot of money on housing it would be on having someone else clean, repair, and keep up the landcscaping so I didn’t have to.

    • nicoleandmaggie Says:

      It’s kind of weird thinking that soon we’re going to be “debt-free” though I suppose if that mattered to us we could have been debt free ages ago.

      You’re definitely right that walking away from rent is a lot easier than from a bought and paid for house whether with a mortgage or not. Losing deposit and last month’s rent is nothing compared to foreclosing or short-selling a house.

      Even if DH loses his job, we’re still going to keep landscaping services (though I dunno, maybe our 10 year old is old enough to start mowing…). If we ever do buy another house, it will likely have a much smaller front lawn.

    • nicoleandmaggie Says:

      Doh, AAP says to wait another 2 years before lawn-mowing.

    • Rosa Says:

      I wish that when people talked about the benefits of owning they were more clear about most of the gain being forced savings, not real estate gains, and how high the risk of no gain at all is – I really watched that screw people over during the recession. I am pretty sure we would be financially better off if we’d put our money into more rent over time + the stock market, instead of home repairs. Definitely it would be true if we put the time we’ve put into upkeep and repairs into working more paid hours.

  2. xykademiqz Says:

    We are not moving out of this house unless/until 1) I change jobs so we are moving out of state or 2) we are old and are moving to a retirement community. We will be done with mortgage after Eldest starts college but before Middle Boy does, so our plans are to use the former mortgage payment to amp up the savings for college for Middle Boy and Smurf and our own retirement. Our house is 3400 sq ft and with 3 kids it’s a perfect size; we use every square inch of it, except for the basement, which is finished and could be used if we needed more space. My husband recently bought a new car, but before we had years without a car payment and it’s glorious. All debt sucks. And, as Rosa said, if I had extra money to invest in the house, it would be so someone else would do the housework so I didn’t have to.

  3. Solitary Diner Says:

    When I was in medical training, I paid very little attention to my regular expenses (car payments, rent, utilities) because I knew that my line of credit was going to increase in size regardless of what I did, and I didn’t like to think about it. (Bad idea.) Now that I’m working and I’ve saved up enough that I could pay off my LOC if I wanted to, I’m much more cognizant of what I’m spending. I have almost 10 years of LOC payments ahead of me, and I will be very happy once they’re done with! I will definitely not be looking for another debt to replace the LOC payments once they’re done. My partner and I are looking into buying our first home together, and I don’t even want to take on the responsibility of mortgage payments, even though I recognize that a home is a reasonably good investment.

  4. Mr. Millionaire Says:

    I detest moving. When I was moving from graduate school to where I am now, I contemplated burning everything and start afresh. So, when I bought my house, I bypassed the idea of a “starter home” and thought more of “forever home.”

  5. First Gen American Says:

    We moved when our house no longer fit our needs….and even then, it was more of a want, not a need. We figured that moving my mom in with us before it became an emergency situation allowed us to make a more thoughtful decision about our next place instead of rushing into something once it became an emergency. I really had no desire to move otherwise. The prospect of going back into debt and back into big time house renovation mode wasn’t that appealing and we definitely did not rush into it.

    It’ll be interesting to hear your commentary the few months after the mortgage is all said and done. When you’re 100% debt free and have already been saving for all those things you need to save for, then what’s next? It does sound like you have a pile of house maintenance things next….it is a PIA arranging reliable contractors though. It’s part of the reason we do so much ourselves.

    • nicoleandmaggie Says:

      How’s the renovation going?

      We’re probably not going to do any house maintenance things for a while. We did all the needs before going on leave and are so busy (stupid election causing us to have to waste time trying to keep elected officials from doing bad things) we probably won’t get around to wants any time soon.

      Right now we’re considering upping our 529 contributions and we’re saving for DH potentially losing his job in March when their current funding runs out. We spend a little bit more than my take-home pay each month (and I don’t get paid over the summer) and I’d rather eat down taxable income than cut down retirement savings even though we’re “over-saving” for retirement because of the tax advantage.

      And really, not having a mortgage is not going to be a huge boon to our finances because property tax/insurance is such a large proportion of each payment. Not nothing, but not life-changing either.

  6. gasstationwithoutpumps Says:

    An owned house becomes a very good deal once the mortgage is paid off. Our house is just under 2000 sq ft, and we’ve been living in it for 29 years. We have spent a fair amount on remodels (adding skylights, insulating, replacing windows, changing half of garage into a library), but the total cost over the time we’ve lived here is still less somewhat than rent would have been. Of course, Santa Cruz housing has gotten steadily more expensive, so there has been substantial appreciation—in parts of the country with shrinking populations owning a home may not be such a good deal financially.

    My wife sometimes talks about moving to a smaller place, but clearing out our accumulation of books and junk would be a massive undertaking.

    If you move every 10 years or more often, then renting may make more sense than owning.

    We’ve been debt-free for about 15 years, I think (I forget exactly when I paid off the mortgage). With no car we have no car loan, and I always pay off the credit card bills in full (usually within the grace period). Mostly I now use debit cards, so that there isn’t even a bill to pay.

    After the mortgage was over, we put most of our money into 529 and retirement funds. Now it is retirement funds and tax-free bond funds.

  7. Revanche @ A Gai Shan Life Says:

    I look at all committed / fixed expenses with the same view – reduce or eliminate as many as possible, ASAP. Always have. I got my first auto loan, the fifth in the family and considered perfectly normal then, but I was so annoyed with the very idea of it that I paid it off in just about half the usual 5 years. I was determined to graduate without a student loan or an auto loan and I’m still happy that I was able to escape with that much done.

    We had a sizeable mortgage payment until this spring, and reducing it makes me even itchier to eliminate it entirely.

    At the same time, we do feel a little antsy to have a little more room. I don’t want more STUFF but I want a bit more room. And more dogs. We go back and forth, and back and forth, on looking for a bigger place because I hate the idea of being tied to another enormous mortgage. I also hate the idea of living near the horrible crank that is our neighbor, or the other dozen terrible neighbors, forever. I’ll let you know when and if I finally decide to accept more debt.

    • nicoleandmaggie Says:

      The most we’ve wanted to handle since leaving grad school was a duplex, and a duplex that shared only a tiny part of a wall. It is really hard in an expensive place like SF.

      #2 has an apartment with really thick walls.

      • Revanche @ A Gai Shan Life Says:

        Our walls aren’t great but they’re acceptable under these circumstances. It’s the part where our homes are super close together so we can’t help but run into Horrible Awful Neighbors most times we go out. I make it a point to try and time our walks for lowest traffic times because of this. It’s also why I want some actual land between our home and the neighbors if we buy – I hate sharing walls or being close enough to reach over and tap a neighbor’s window out of your open window.

  8. SP Says:

    I really hope we can make this house work indefinitely (as long as we are in the area, which the plan is also indefinitely). It depends on how it goes with having kids and what life looks like in this house with them. In theory, it should work and was the plan of getting a 3 bdrm. Then again, my sister-in-law and her husband had a similarly sized home and two kids, and they just moved to something almost 2x as big – they were dying for more space. But they are in the midwest, so it is a little different. They still have the same amount of bedrooms, just bigger ones and larger/more common areas.

    We just replaced our car due to the VW diesel emissions scandal. I don’t know what our criteria will be for replacing the next one – repairs become too expensive? I get anxious about adding recurring costs, but they offered 0% financing, so we took it.

    • nicoleandmaggie Says:

      3 br in a place in walking distance to amenities like a park and/or library and food is totally doable with kids. It’s when you’re out in a car area with bad weather that you start feeling cooped up in a smaller place.

      • SP Says:

        We are close to parks, but less close to other things. I do agree though – the weather thing makes a difference. I expect it to work which was why we bought it – but can’t say for sure until it happens!

        As you know, there are pretty big property tax disadvantages to changing houses in Cali, aside from the obvious expense of a bigger house. I wonder if it is realistic that CA will ever change prop 13.

      • nicoleandmaggie Says:

        Given that it has been around my entire lifetime at this point I would tend to doubt it.

    • Susan Says:

      SP, what was your replacement vehicle? We will be doing the diesel trade-in this spring.

      • SP Says:

        A subaru outback – so very different class of car. We did take the opportunity to get more space in the car as a one car family. We bought new again, which was (of course) a want rather than a need.

  9. Leigh Says:

    It amuses me that they sent you a letter suggesting you might need a mortgage. That’s really weird. Does it feel like you’ve been “debt free” for a while since the mortgage is so much smaller than your taxable account?

    Debt is just so accepted as normal in our society. A friend’s parents bought a car for them on a *lease* while the friend was in college and then when the friend was out of college told the friend it was theirs now and they could pay for the lease from then out. The friend ended up returning it when the lease was up because they had no real need for a car living in the city. Gifts like that with strings drive me crazy.

    It’s funny that you mention doubling the cost of housing because had I continued to rent, my housing costs would be double what they are now. Renting a similar place to what we have would now cost about double what this place costs per year, including the principal part of the minimum mortgage payment. We looked around at moving last summer, but we’re both far more enamored with the size of the mortgage left on this place, what property taxes are here, and all the little things we’ve done to help ourselves love this place.

    I hate monthly payments, even things like music subscription services. I prefer to pay as much as possible yearly. At some point I plan to just start paying my condo fees yearly instead of monthly because it’s such a pain to get them a check every month.

    You could probably put at least part of a new car on a credit card, temporarily until you get money moved around to pay for it. That would help with getting money out of a savings account or selling index funds.

    • Leigh Says:

      I’m pretty sure our criteria for buying a new house basically falls down to wanting/needing to move to a different city or deciding to have children. Thankfully since we got married, my in-laws have stopped asking my husband when he’s going to buy a house.

      As for when we’ll buy a replace the current car? I’m not really sure on that one. It’s just over six years old and I haven’t cracked 30,000 miles yet, so I think I’ll have it for a while yet… My goal is 12 years. I would replace it, though not nearly as urgently as you. I would simply use other means of transportation for the cases where I currently drive until I can figure out a new car.

    • Leah Says:

      We bought a new car this summer and tried to put a lot on the CC. They only let us put $5k on our credit card and made us do the rest in loans (we had a similar money shuffling thing). I paid almost all of it once enough money transferred. Then, we got a little lazy. Kind of kicking myself at paying the interest for 5 months when we didn’t have to, but it’s my husband’s car, so I was letting him work on stuff. I read a statement mid-December and was all “do you know we’re paying 44 cents a day in interest?”

      To him, that seemed low. To me, that’s almost $15 a month, and that adds up!

      So, I wrote a check for the payoff amount. Agreed that our society is far too normalized to debt. As I told him, it’s one thing if we really needed the loan and couldn’t afford the car. But when we have cash saved up and are earning less on that cash than the interest on the loan, that’s something we should pay off immediately.

      Then again, I’m the one who figured out a way to hustle and make enough money to pay off my subsidized student loan from professional grad school before it was due and thus got two years of money for absolutely free.

    • nicoleandmaggie Says:

      It does sort of seem like we’ve been debt free since we passed the mark where we could easily pay off the mortgage in an emergency. But we’ll see if it feels any different once we start paying annual checks for property taxes and insurance instead of monthly checks.

      I also prefer paying annually but have stopped doing that since we lost so much when dc2s daycare went out of business before the year was up.

  10. nicoleandmaggie Says:

    Today’s action item is a comparatively easy one. Talking Points Memo needs you to contact your representative http://talkingpointsmemo.com/edblog/help-us-count-the-vote to find out how they voted on the closed door session last night that gutted the house ethics bill.


    Ask, “How did Congressman/Congresswoman vote on the Goodlatte proposal?” And then say, “I’m disappointed to hear that, please let him/her know” if yes and “That’s great to hear, please pass along my thanks,” if no.

    Then email talk@talkingpointsmemo.com or tweet @joshtpm with what they told you.

    (Goodlatte pronounced: Good-ladht)

    Update: If you have a congressman who voted yes, it is likely that his aides will “not have been told” how he voted. You may be asked how he should have voted. “He should have voted no. If he voted yes, then he is voting for corruption. [Is he corrupt?]”

  11. eemusings Says:

    My (Asian) family is very big on saving for things. 3 things that struck me really hard about normalising debt:

    1) a throwaway line by a (non PF) blogger in a sort of pep talk post that said ‘people have families, stress, debt’.
    2) a good friend at work mentioning she only half owned her (not that flash) car
    3) a self employed contractor at work who was also starting the mortgage application/house hunting process when I was thinking about it – casually mentioning she had $7k on a CC but as long as the minimums were being paid the banks didn’t really care.

    I hope to literally never move again. Our 2nd and 3rd bedrooms are tiny but functional for future kids. That said, local schools are not the best – the good school suburbs are the million dollar plus suburbs in this city. And although PT is within walking distance, it would be nice to be closer (like 5-10 min). Aside from that, I love it here – almost on the rural fringe, lots of green, flat land, our own driveway, stone cladding (low maintenance), fruit trees.I keep looking at listings almost compulsively (I’m a bit of an RE junkie…), but in the almost 1 year I’ve been here, I’ve yet to see anything else in this price range that I would have preferred.

    I would prefer not to borrow for a car in the future, but would be fine doing so and paying off the loan as fast as possible.

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