The Last Mortgage Payment

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

This month (February):
Years left: 0
P =$1,214.40, I =$5.98, Escrow=$0, Recording fee: $30
Amount of interest saved in this month’s prepayment: $1.20

So, I know that this is ending a month early.  But what happened is my regular mortgage payment is $2027.19, and there was only $1510.75 left on the mortgage (technically $1510.79 because Wells Fargo steals micropennies from us), so it seemed silly to write a bigger check this month and then another check for ~$1100 in March, only to have them send back ~$1600 from the escrow for those two months (along with the ~$500 that’s still in there after they paid our property taxes).  Cashflow and interest argue that in this specific instance, it is better to pay off the loan than to let them have two months of escrow.

[Update:  After we paid off the mortgage in full, we got the bill for the next month’s mortgage.  Then a few days later we got a note saying that we were not allowed to pay the bill (that we had just gotten), instead we would have to pay the mortgage in full because the mortgage balance was less than a payment.  And the in-full payment was due three weeks before the regular mortgage bill!  For a mortgage that had already been paid. Wells Fargo’s departments really need to talk to each other.]

So we got a final payment slip and sent off a final payment check.  Now we wait for our final paperwork to return to us.

So what does this all mean?

Well, the house cost $265,000.  We have paid down that $265,000 including the $53K downpayment in principal in ~10.5 years.  In total, we have paid $364,161.71 on the house, or about 100K in interest more than the house cost initially (but only $20,761 of that since we refinanced 76 months ago– those big interest costs really do come at the beginning of the loan). We paid $114,873.36 extra in pre-payments since our last refinance.  We’ve saved $18,783.83 in interest (not accounting for inflation at all) by prepaying since we refinanced, but I don’t know how much we’ve saved overall since I wasn’t tracking before the refinance.

As we’ve said many times, we will not ever really own the house free and clear.  This year we’re paying about $8K/year in property tax and $2K/year in insurance.  Those numbers will only go up.  We could rent a 2br apartment in town for about that amount and not have to worry about repair bills.  But we won’t.

How does this change our lives?  Well, we now have about $14,573 extra cash flow each year that we had been sending to our mortgage as principal or interest payments.   And I no longer have to write out a mortgage check every month which should save ~12 checks a year meaning we should have to buy new checks less frequently (daycare still takes checks out of the credit union account– I have lessons and incidentals coming out of the Wells Fargo account right now).

It also means that we will need to keep a high enough balance in both Wells Fargo savings and checking to not get charged monthly fees on those two accounts.  Right now we are already doing that because that’s where we’ve been depositing DH’s reimbursement checks and any side payments or gifts that we get.  But I’ll have to be careful going forward.

Also… I guess I won’t be writing these monthly posts anymore, because I have nothing left to track!  It’s the end of an era!  For nostalgia’s sake, here’s the first one from November 2010.  (And here’s an earlier post about refinancing before I started tracking monthly.  And here’s a popular post on why we did some prepayment of the mortgage but didn’t focus everything on prepaying.)  Here’s the mortgage tab if you want to read them all.

Given that I don’t think #2 wants to be pressured into saving up for a down-payment, any thoughts on what should go in this space?  Anything?  Nothing?

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?

November mortgage update and dealing with escrow after the mortgage is gone

Last month (October)
Years left: 0.416666667
P =$1,189.48, I =$24.93, Escrow =$812.79

This month (November)
Years left: 0.333333333
P =$1,194.19, I =$20.22, Escrow =$812.79

Right now we spend $812.79 each month in escrow.  After the mortgage is gone we will be paying property taxes and insurance directly.

There are a number of different options for how to pay for these.  I could continue saving $812.79 each month.  I could pay the insurance monthly via credit card (for a small “processing” fee), and the property taxes in two lump sums.  Or I could save up an additional 10k in our all-purpose emergency fund and pay each of the bills once a year when they’re due.

The last option seems the least hassle, mental and otherwise for me.  Starting in March I will aim to keep our savings account at 31k (though it may take a few months to get there).  In July we pay insurance and in December we pay property tax.  Then we’ll refill as we get paid.  We’ll lose some in say, stock market gains, but it’ll be safer in case DH loses his job.  (Dear Hillary Clinton, please get congress to fund research.)

It is possible that if we both continue to have high incomes that I’ll start playing the pay property taxes twice in one year (and itemizing) and zero times the next (and taking the standard deduction) game and time donations to match, but we don’t have to worry about that this year given my leave last year.

Do any of you pay house insurance and property taxes directly?  How do you save for them?  How do you time payments?

October Mortgage update and totally wasn’t paying attention

Last month (September)
Years left: 0.5
P =$1,184.79, I =$29.62, Escrow =$812.79

This month (October)
Years left: 0.416666667
P =$1,189.48, I =$24.93, Escrow =$812.79

Turns out these mortgage updates have been a lie since March 2015.  We accidentally double paid our mortgage in March 2015 because our check got delayed in the mail somehow an then we did a last minute online transfer so there was a double payment.  We vaguely remember when this happened, even though we clearly didn’t put it into medium-term memory long enough to wait to send a mortgage check.

I noticed that this happened last month when we got the Sept bill a little early and I was like… wait… why is this not due until October?  Some sleuthing reminded us of the previous mix-up and I decided to just not pay the October bill until this month.  So now the numbers above aren’t a lie except for the few pennies that Wells Fargo steals from us with rounding errors every few months.  I get the numbers directly from our mortgage spreadsheet and apparently haven’t tried to reconcile them since March 2015 or earlier.  I mean, I look at the check and make sure our previous month’s payment went through but I’ve never paid that much attention to the balance– by the time we get the new bill I’m already thinking about the next month’s balance, so the number never threw me off since it looked familiar.  Maybe if I’d gotten two months off…

I’ve definitely had a lot more inattention to our finances than we used to.  That’s mostly because the penalty for getting things wrong isn’t a big deal right now.  Being able to be relaxed about finances is pretty amazing.  We are lucky and I’m glad we made earlier sacrifices to be able to capitalize on that luck.

I thought about just paying off the mortgage again this month, but then I was like… ungh, I’d still have to figure out how we’re going to be saving for escrow and that sounds like a pain.  Plus all the paperwork with actually closing out the mortgage and making sure all the escrow they’re keeping gets back to us and so on and so forth.  We have enough money in our Wells Fargo accounts from reimbursements right now that we wouldn’t have to worry about paying a $15/mo checking fee, but keeping track of that also sounds like a pain.  I am so hassle-averse.

If we have time over the holidays maybe I’ll deal with all of that then.  Otherwise I’ll just keep writing a check each month until March.  Except, you know, last month, when I let things catch up.

September Mortgage Update: And what did we do with the leftover money?

Last month (August)
Years left: 0.5833333333333333
P =$1,180.12, I =$34.29, Escrow =$812.79

This month (September)
Years left: 0.5
P =$1,184.79, I =$29.62, Escrow =$812.79

Saved from prepayment ($0)

I have to admit, I was pretty tempted to pay off the mortgage this month just so I could put off some of the decision of what to do with our unspent leftover money from paradise.  That would only save $52.43 and only account for $6,296.99 and, to be honest, I’m not yet ready to give up this monthly post.  Plus I kind of like the idea of being done with the mortgage on my birthday.  Irrational!

Here’s what I did:

  1. I did have some pre-payment I could do, specifically to the US government.  I sent them the remainder of our estimated taxes plus some extra since I got some untaxed honoraria and writing fees.  $4,305.
  2. Hid traces of my stupidity from last summer when I scraped my car against the side of our garage TWICE right before leaving for paradise.  New bumper, front lamp, and fender:  $1,265.  (Surprisingly, this is still less than the car is worth!)
  3. Bought a second (custom-made Amish wood) filing cabinet:  $1,479.
  4. Tree removal and stump grinding (one of our remaining two ornamental pears fell over):  $563.
  5. Donors Choose.  I know I said I wasn’t going to do charity with this money, and I probably shouldn’t even count this since it’s only $200, but NPR had this story about a school in Louisiana losing its entire library and… (we also sent $100 to DH’s sister as a housewarming gift since they just bought, but I’m not counting that):  $200.
  6. Home laser removal thing:  $450
  7.  Vanguard Admiral Shares VTSAX:  Vanguard Total Stock Market Index Fund.  Because it has the lowest expense ratio and it seems pretty diversified and I have plenty enough bonds in our retirement accounts and emerging markets etc. are just so expensive.  Please don’t let Trump be elected president so I won’t regret not having put more money in international funds.  (Not that international funds will necessarily be doing well either!  Not even US Treasury bonds!):  $30K.

That leaves about 2K extra over and above what I want as an emergency fund, but I’m not getting paid for another month, and the stock market could be in freefall, and etc., so I think I’ll be happy to have the emergency fund stay a little extra padded this month.  I think what I will want to do is wait until we get 10K extra in savings and then put money into more admiral funds.  Maybe I’ll be more adventurous with diversification with additional 1oK lumps.

Fingers crossed, other than the cosmetic damage, my car seems to be in pretty good shape.  Hopefully I can put off car-buying for another few years.

If we didn’t have this extra cash, we definitely wouldn’t have spent more than a thousand dollars on cosmetic damage on my car, and instead of getting a second filing cabinet, we would have either culled, scanned, and shredded or we would have stuck some bankers boxes in the attic.  I feel a little bit guilty about the filing cabinet but it is so beautiful.  Oddly I didn’t feel guilty about the first cabinet or the similarly priced Amish recliner that I sat in while pregnant with DC1 and had to get, but maybe it’s because we had to save up several months and make sacrifices for both of those items.  In this case we already had the money.

We also started maxing out DH’s retirement, but it turned out we’d actually already been contributing more than I had thought, so that’s only 5K more over the course of the year.

We decided not to do a backdoor IRA because we’d like access to the money should we need it short-term without hassle.  (Also we want to avoid the hassle of putting it in there.)

We opted no on the kitchen renovation for now mainly because we just don’t have the time.  Partly because DH’s company only has enough money to get through February and cash in hand (or in the stock market) is better than a mostly done kitchen renovation that has gone over budget and taken all our time.  DH has gotten 3 head-hunter emails over the past month so it’s hopeful that he’d be able to find work should his current company go under, but we might not end up staying here and the market for houses in our neighborhood is so hot we could probably get away with not redoing the kitchen.

DH was pushing for cosmetic updates on the bathroom, but I wasn’t excited about them, so we decided not to do that.

DH went all over our neighborhood to see if anybody xeriscapes and only people with tiny lawns, big shady trees, and in hidden areas that aren’t immediately visible from the main roads seem to.  Plus we can’t think of anything that wouldn’t have to be sprayed to prevent bermuda grass (other than, of course, our thirsty St. Augustine).  So we’ve tabled that.

Not only do people not have solar panels in town, but the BBB has some really nasty reviews about the solar panel provider.  Plus our roof is neither new nor in need of immediate replacement, so…

And we’re not redoing the floors because we’re lazy.

So… yeah, laziness.  (I just spent 5 min trying to find our post where we talk about how being lazy can lead to saving money, but I gave up…)

August’s mortgage payment and rejiggering the emergency fund

Last month (July):
Years left: 0.666666666667
P =$1,175.46, I =$38.94, Escrow =$812.79

This month (August):
Years left: 0.5833333333333333
P =$1,180.12, I =$34.29, Escrow =$812.79

This is the first time in a long while that we’re not saving up for something big.  DH may lose his job, because jobs aren’t guaranteed, but he’s not planning on leaving his job any time soon.  I’m not eligible for leave for another 5+ years.  There’s not really any reason to hold onto large amounts of cash.  Certainly not the 84K that we ended up having in savings before we left for Paradise.

DH’s salary is also substantive enough and year round enough that we don’t really have a long unpaid summer like we used to.  I think we will be spending more than his take-home pay in the summer, especially since that’s when a bunch of our big annual bills come due (mostly insurance), but there’s a big difference between being a little short and having literally no summer income.  We don’t have to have quite as big a chunk come May as we used to.

On top of that, we were paying a year’s tuition of daycare and/or salary in September, about a month before we got paid so we needed money for that as well.  We’re no longer doing that because DC1 is going to public school and we no longer trust daycares to not go out of business.

Previously I mentally partitioned our savings account into “summer expenses” for the 3 summer months without income, “DC1 tuition”, “DC1 summer camp”, “DC2 daycare”, and “emergency fund”.

This year I’m going to try something different.  I’m going to try to maintain 21K in savings all year round and call it the “emergency fund”.  I won’t save extra from each paycheck for summer expenses leading to a gradually increasing savings amount.  I’m just going to have 21K in there.  I will allow it to dip below that during the summer, but I’ll try to keep it above, say 14K.  If DH loses his job or something, then we’ll sell some stocks, but otherwise 21K should get us through until the next paycheck(s).

It occurs to me that if I weren’t lazy and if rates weren’t so low, it would make a lot of sense to put that 21K into a 9mo CD or into a three month ladder of CDs that come due.

Where did I get the number 21K?  Well, mostly I just pulled it out of my posterior region, but IIRC, it’s about 3 months of expenses (when we’re not living in Paradise) when we’re living large and then some.  It is also enough to cover pretty much any major emergency other than a car purchase.

What will we do with the rest of our income?  No idea!  Maybe we’ll figure something out next month after everything has settled down.  Right now I’m leaning towards lumps to a taxable Vanguard account, but first I will need to drive my car for a month to see if it needs to be replaced.

What are you all doing for an emergency fund these days?  Does how much cash you have in savings change over time?

July Mortgage Payment and what to do with ~40K, give or take

Last month (June):
Years left: 0.75
P =$1,170.83, I =$43.57, Escrow =$812.79

This month (July):
Years left: 0.666666666667
P =$1,175.46, I =$38.94, Escrow =$812.79

Amount saved from prepayment:  $0

Before going on leave we saved up $84K in the slush fund so that we could live in Paradise (where everything is at least 2x as expensive as where we normally live) on a lower income without worrying about money.  It looks like we will have about 40K leftover (give or take) after subtracting out our summer emergency fund and moving back expenses.

We have been doing quite nicely since DH quit academia and got an industry job.  I still can’t believe our good fortune.  (Though I am not sure how long it will last!)  Definitely a different world than the one we were inhabiting even 3 years ago.  For the first time in a long time there aren’t obvious places to stash more money.

Last time we had ~25K extra, we threw it into the mortgage.  Before that when we had large chunks of extra untargeted money, we saved them in retirement vehicles.

So, for people who aren’t long-term readers, here’s where our monthly nut after bills has been going since DH got his industry job:

  1. We max out all of my retirement options
  2. We pay up to the match with DH’s retirement (it has bad fees)
  3. We are no longer eligible for tax advantaged IRAs unless we do a backdoor conversion.  So we don’t do IRAs anymore.  If we were eligible we’d totally to this.
  4. $500/mo in each child’s 529 (This is not enough for 4 year private schools without financial aid, but DC1’s is getting too big for 4 year public or even a 4 year private should our income fall and we become eligible for financial aid.  I debate on whether or not to stop contributing, but figure we can stop DC2’s contributions later if DC1 has too much.)
  5. Previously we had been saving for a year in paradise with me at half salary, but we won’t be doing that anymore.
  6. Mortgage.  You will note that the mortgage runs out in 8 months and there’s not much point to prepaying at this juncture.

We have a LOT of money put away for retirement and for college.  Most of our money is in retirement savings, and most of that money is in the most difficult to tap form of retirement saving (the 403b).  That makes maxing out DH’s retirement account with the high fees potentially less attractive than saving the money outside of retirement accounts (in case we move to Paradise someday and want to buy a house), or you know, just spending it.

In terms of taxable stocks, we have around 125K in an account we could just tap.  We have about $300K in home equity.  Sadly, this is not enough money to buy a house in paradise with 20% down in a good school district, and it would be pretty risky to try.  We do, however, think this makes a pretty reasonable secondary emergency fund.  Combined with our primary emergency fund in savings, we figure that if DH loses his job we’ll be ok just living on my salary where we normally live until we figure what else to do.

So that leads us to this money we saved for Paradise but didn’t spend.  Here are our options (in no particular order):

  1. Start maxing out DH’s retirement even though it has crappy fees (~15K/year over what he’s already contributing).  We may do this anyway as we’ll probably be generating a surplus with both our salaries next year.  [update:  I miscalculated, it’s actually only 5K more than what he’s currently contributing– we put in the request to max out today.]
  2. Figure out how to do a backdoor IRA ~11K
  3. New car (if my 2005 Hyundai Accent that I love continues to have check engine problems once we get back) ~$30K
  4. Kitchen Renovation ~$30K.  The triangle just isn’t quite right and our countertops suck and the sink is chipped.  The problem with this is that it will take our time which will be in short supply when we get back and there’s been a small construction boom in our town meaning that construction costs are higher and take longer than usual.  We don’t know how long the boom is going to last.
  5. Bathroom renovation ~$10K.  We don’t really need this, but we’d kind of like to replace the plastic shower with a tile one and maybe get rid of the gold accents in the bathroom.  Totally cosmetic and unnecessary.  This would be unlike us since we don’t normally replace things until they need to be replaced.
  6. Xeriscape the lawn ~$?? We have no idea.  Problem:  Bermuda grass may make Xeriscaping an expensive failed dream unless we can get more trees to stay alive (an endeavor we’ve already lost quite a bit of money on).
  7. Solar panels ~$20K.  There’s basically nobody in our town with solar and we’re wondering if there’s a reason for that.  Lots of people do, however, have the black shades over the outside of their windows.
  8. Charity– I don’t think we’re going to direct this money to that.  We usually do charitable giving in December.
  9. Looking through old “things we wish we had money to do” posts, I notice that we wanted to replace carpet with hardwood in our dining room.  We probably still want to do that, though it’s not a high priority.  I think that would cost under $5K, though I’m not sure how much under.

Also… since we’re not saving for Paradise and we’re not putting extra to the mortgage and DC1 is trying out public school… we’re probably going to have extra untargeted money once school starts and I start getting paid again.  I don’t yet know how much that is going to be.  Or what to do with it.  I’m thinking DH’s retirement (even though it has ridiculous fees) or backdoor IRA Roths (the lower fees may make the hassle factor worthwhile) and then more taxable stocks. But I dunno.  It’s like, we would need so much more saved to be able to buy a house in Paradise, but we don’t need that much to live in our small town.  But might as well save until there’s a good reason to spend, you know?

What would you do with a 40K windfall (of money you’d saved but didn’t need in the end)?  If you’d save it, how would you save it?  If you’d spend it, what would you spend it on?