Housing expenses

[kirsten]

#3343

I’m sure I’m not alone in having our biggest monthly expense be our mortgage.  We signed up for fairly aggressive payments of $350 every week when we got the mortgage 3.5 years ago.  We went with a variable rate mortgage, which has been a great deal for us – with the interest rates having dropped the way they have, we’re currently paying only 3.5% interest.  (Hm… I never noticed that ’35’ is the theme for our mortgage.)

Current projections say we’ll pay it off right at the end of 2012, but of course that depends on interest rates.  We’re not making extra payments right now because I’m using our excess each month to buy corporate bonds that yield more than 3.5%, so I figure there’s no point in paying down.

I think we’re doing all the right things – variable rate, accelerated weekly payments, and putting a decent chunk of our income into the mortgage.  Are there any frugal tips I’m missing?

[Eric Poulin]

#3627

My opinion is: you’re dong what’s best according to the current market situation and according to the math.

However, you need to factor in your risk tolerance.  I know of someone who, at the first opportunity, paid off his mortgage, even though interest rates were low and he could have invested the money in other places.  We’ve seen wild fluctuations in the financial markets over recent months/years and one’s investments could quickly become devalued and mortgage rates can go higher than expected.  Yes, corporate bonds are relatively safe compared with mutual funds and other riskier investments.  However, as the end of this story about this person goes… once they paid off their mortgage (early in life) they had no debt and walked around with a smile on their face whistling :) 

For me, although I know the math is better the way you are doing it, I’m planning to balance my effort between investing and prepaying mortgage, with an emphasis on paying off that mortgage and eliminating all debt for the personal satisfaction and just in case interest rates go crazy, as has happened in the past.

[kirsten]

#3628

I should have pointed out, too, that we owe very little on the mortgage.  Both of us owned our residences before we got married, so by selling two places and buying one, it helped us out a ton on the equity front.

I’m a little older, and that also helps.  :)  I bought my first house in 1994 for $152,000, so the mortgage was small by today’s standards.  I paid it off aggressively from 1994 to 2001, and I used to love looking at the amortization tables and seeing how making an extra month’s payment would take three or four months off the end of the mortgage.  Not to mention how much interest I was denying the bank by doing so!

Now, when I make an extra weekly payment… it only takes a week off the mortgage.  The amount and the interest rate are so small that the effects of compound interest aren’t as large as they normally are.  I agree that for anyone who isn’t in the last few years of paying off their mortgage, or don’t have a variable rate, paying it down is definitely the way to go.

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