Money Management Insights

[lacarnut]

It is 5.75%. We have always paid more on the principal (because banks are fucking shysters) and I agree about the retirement thing. I believe if you have your home paid off, you are way ahead of the game. But other considerations come into play at that point. Do I really want to do all the maintenance when I am 65 or would it be better just to get a condo downtown and watch the city hum?

I think the faster you pay off the house the better. Without debt (house, credit cards, etc), you can not imagine that feeling and how much happier you will be.

When my dad passed away, I thought I would move to a condo on the beach. However, living year round next to noisy people shut that idea down. A condo may be for you or you may want to downsize and buy a smaller house. I hire people to maintain my small house and maintenance is not that big a deal. With a condo, your neighbors are bunched up all around you. So, you are stuck if you have a shitty neighbor next door. I have one next door to my house so I put up an 8 foot fence so I would not have to look at their trashy house and yard.

[Articulate_Ape]

Paying off you house early, while emotionally satisfying, can actually a poor financial choice these days given how low interest rates are, falling home values, and the fact that mortgage interest is still tax deductible. Investing that extra cash in even a conservative bond or equity mutual fund in an IRA or not will very likely grow those same dollars at a higher rate of return than if they were put toward an early payoff of your mortgage. Obviously, if any of the current dynamics change, then this equation changes as well.

[Madisonian]

Regarding paying off the house early...

This may or may not make sense, depending on a lot of factors.
Can you deduct the interest on your taxes? If you can, you might as well let the goobermint subsidize it. This could effectively reduce the rate by a point or two.

What is the rate you are paying? If you have a 4.5% rate and could invest that money at 8% in an IRA, 401K, mutual funds, etc, it may not make sense to give away the difference.

Do you have an insurance policy (credit or disability) that pays off the mortgage should you die or become disabled? In itself, this is not usually a wise investment, but if you do have that, the more you pay down, the less it will cover.

How do you feel about inflation? With the Fed printing trillions in new Monopoly money, today's dollar will be worth more than tomorrow's. Your mortgage is set in the dollar value of when it was taken out. If the payment is $1000 per month today in 2011 dollars, it will still be $1000 in 2020 dollars, but that same $1000 will buy less in the future than it does now, so in constant dollars you will be paying less in the future than you are now.

With the recent housing crash, do you have positive or negative equity and how much longer do you plan on living in it?

You really need to talk to an financial adviser that you trust, lay it all out and get an opinion. Depending on your individual circumstances, it may or may not make sense.

[Articulate_Ape]

Regarding paying off the house early...

This may or may not make sense, depending on a lot of factors.
Can you deduct the interest on your taxes? If you can, you might as well let the goobermint subsidize it. This could effectively reduce the rate by a point or two.

What is the rate you are paying? If you have a 4.5% rate and could invest that money at 8% in an IRA, 401K, mutual funds, etc, it may not make sense to give away the difference.

Do you have an insurance policy (credit or disability) that pays off the mortgage should you die or become disabled? In itself, this is not usually a wise investment, but if you do have that, the more you pay down, the less it will cover.

How do you feel about inflation? With the Fed printing trillions in new Monopoly money, today's dollar will be worth more than tomorrow's. Your mortgage is set in the dollar value of when it was taken out. If the payment is $1000 per month today in 2011 dollars, it will still be $1000 in 2020 dollars, but that same $1000 will buy less in the future than it does now, so in constant dollars you will be paying less in the future than you are now.

With the recent housing crash, do you have positive or negative equity and how much longer do you plan on living in it?

You really need to talk to an financial adviser that you trust, lay it all out and get an opinion. Depending on your individual circumstances, it may or may not make sense.

Copycat. :p

[Gingersnap]

I agree that your long term goals influence the decision to pay off or not. I'm within a couple of years of paying it off so there's real incentive for me to delay. We also have no plans to sell and move in the foreseeable future and no financial obligations to kids (college, inheritance, etc.). All of those factors are factors.

[lacarnut]

I agree that your long term goals influence the decision to pay off or not. I'm within a couple of years of paying it off so there's real incentive for me to delay. We also have no plans to sell and move in the foreseeable future and no financial obligations to kids (college, inheritance, etc.). All of those factors are factors.

When you retire, you should be debt free. Several of my co-workers retired in their mid to late 50's. They were drawing out their 401k to pay off their mortgage. The state's 401 plan was earning around 8% interest while I assume their mortgage rate was much lower. So, paying the mortgage off early is a bad move on their part.

Every one's financial plan is different. I know that not having a mortgage gives me many more financial options when your are flush with cash, and it is a great feeling.

[Gingersnap]

In terms of other money tips, I think I save a lot of money because we don't eat much in the way of processed foods outside of condiments and crackers and that sort of thing. I admire the extreme couponing people but it doesn't fit our lifestyle.

I do grocery shop with an eye toward the sales and we have enough freezer space so I can take advantage of very good deals when they happen. It also pays to buy beef by the side if you have the space for it. Most of our grocery shopping is along the outside aisles.

Taking a sack lunch to work and getting off the flavored coffee merry-go-round will also save you a lot of money.

[linda22003]

Carrying lunch is a good moneysaver, I'm sure, but I cannot face making a sandwich at 6.15 in the morning.

[Gingersnap]

Carrying lunch is a good moneysaver, I'm sure, but I cannot face making a sandwich at 6.15 in the morning.

I put all that stuff together the night before. ;)

[JB]

Make more. Spend less. :p

And get rid of your freaking cell phone. If you really rarely use it, get a Tracfone. They're like $7 a month, no contract. Just have to buy time every few months.

Renegotiate your cable, homeowners and car insurance premiums. Get a new 0% interest credit card and transfer all your balances there and pay as much as you can down. Shop at BJs or Sams Club.