Rate was not ideal (5.99%), and we hate debts. Bought in Sept 2024, our mortgage starts at November. Since then, We ended up paying a lot extra towards principal the last 2 months and we have a balance of 28 years now.
Reasons:
We are not comfortable with our current mortgage in the long run (2750), with property tax/insurance/hoa == $3700.
we hope rates will go down and we could refinance into another 30 years where mortgage payment is more comfortable (less than $2000). The goal is, we hope, if we continue to pay the same mortgage now, we will be on track to pay off by around 15 years. But the mortgage monthly will be a lot manageable and less stressful.
we currently in a luxury place to not have kids yet. While we have a lot left over to pay extra monthly, this will change over time with kids.
Health is another issue that might prevent one of us working in the future, and hence, the whole reasons is to reduce the stress then.
While I know some say it’s crazy we did what we did, and the money can be invested elsewhere, we have some specific situations that we want to reduce the mortgage payment significantly and pay off early (final goal).
Penn said:
I can’t answer if you are crazy or not, but 5.99 is a good rate. Conventional? Did you buy it down?
Yes, conventional (no point), we both have excellent credit, no debt, and put more than 30% down, and super low LTI. So a combination of that.
To add on this, We closed a bit early, but the lowest mortgage we could be given is 5.7 a few days before closing. we were not able to convince our lender to float down to close on time (even though float down was an option when we locked).
It’s ok to do this if you have tons of money stashed away anyways, but if that were the case I assume you would have just made a bigger down payment in the first place and lowered your monthly. So instead I’ll assume you’re trying to pay down the loan as fast as possible while living paycheck to paycheck.
The problem is you trick yourself into thinking you’re way ahead and you won’t need to make another payment for 2 years. Then suddenly a huge repair expense comes up or one of you loses your job. You still have to make that same monthly payment even though you’ve paid down the principal. The bank doesn’t give a flying F if you’ve paid off 99% of the loan already, they’ll still foreclose on you if you can’t make the next payment.
Point is, above all else - make sure you have money stashed to continue making monthly payments if disaster strikes.
By all means, pay it down as fast as you want. But I wouldn’t want to be years ahead on my 6% loan, and then suddenly have to put a $25,000 roof on my 30% credit card because I never saved any cash.
Clay said:
You may want to consider saving up for a recast, it could make the payment more manageable.
We will think about it, looks like we can earn interest on it. One thing I like about making extra payment is it reflects the remaining year change and our principal portion gets larger each month wrt interest. But we’ll talk about the benefit of having cash on hand too. We normally maintain only $15k in HYSA. We either invested in the market or pay toward principal. Our thinking is, if we need more cash, either we can draw from investment/HELOC.
Honestly, we hope that interest will go down in a year or two, and at that point, we hope to refinance to a lower rate to further improve the payment.
If you can afford it do it… but might I suggest an offset account - same benefits but easy access to the cash if needed.
I have an offset account and knocked about 7yrs off my loan in 2024 because of it… looking to refinance once the banks open again to a 20yr loan, and hope to possibly knock a heap more years off that too!
Just make sure you do the math when/if you refinance to a lower rate. For example if you’re 5 years into a 30 year, you might end up paying more in interest dollars if you refinance into another 30 year, even at a much lower rate because of the extended time frame.
Ask your mortgage broker about a 20 or 25 year refinance.
Mathematically, yes, most people will tell you it is smarter to invest that money at a higher rate than your mortgage rate.
However, I’m in camp pay it off as fast as reasonably possible. We don’t want the debt hanging over our heads and that is worth more to us than better investment returns.