Greg, it's great to see you posting again! I missed your thoughts around here.

Greg Moore:

Do you know how much equity to expect after 10 or 20 years of mortgage payments? Here's a hint: Look up your amortization schedule you received with your mortgage.

With the deep drop in house values, I would think many are actually upside down with their mortgages now making the whole rent vs own a different ballgame.

But then I was never one to think a home made a good investment. 

 

I have to ask this question:  if one has a mortgage, does that mean that one should not put money in savings while one pays off the mortgage?  This seems, Mr. Moore, to be what you are saying - pay down the mortgage first, at the expense of all else - and I have a problem with that.  I have had unexpected expenses (mostly related to emergency car repairs from accidents caused by other drivers) and was able to pay cash out of my savings account - but putting money in that account every month means that my house (along with all of my other debt - mostly from student loans) will be paid off 12 years from today - 17 years after I purchased the house.  If I don't put money in savings each month, I could cut the time it takes me to repay my mortgage - but I'll have no emergency fund.  Is that truly what you're suggesting? 

Yes, I bought a house I couldn't pay off in 5-7 years - but I did it by selling my condo (which I lived in for the 6 years I owned it) to get the down payment.  Did I pay it off in the 6 years I lived in it?  No,  I didn't - but I turned a $3000 down payment on the condo into a $40,000 down payment on a house that was exactly what I wanted.  There's no way I could have saved that kind of money while renting - and even now, 5 years after I bought the house, and 11 years after I bought the condo, it's unlikely I'd have that much, never mind enough to buy a house outright.  Should I, then, stop saving money every month in my emergency fund (which is not anywhere near as large as I feel it should be - I only have 2 months expenses, and want at least 6) in favor of paying off the mortgage and student loans?   Or should I continue as I am -  pay off the student loans, then roll that money into the second (which I recently refinanced at prime -.51%) - those will both be paid off in less than 4 years - and then roll that money into the first, which will, as I said be paid off in 12 years?  I'm watching mortgage rates carefully, I assure you - but they're going to have to be damned good to beat the 4.24% I'm paying on the second, or the 5.5% I'm paying on the first, before I'll refinance.

I would love to pay off my house sooner - but not at the cost of risking not having an emergency fund - as a special education teacher who's been in the same school for 13  years,  I'm unlikely to get laid off... but I'd still rather have more savings.  My goal - and very reachable at my current payment rates - is to pay off the house before I retire (12 years to pay off the house, 15 to retirement), thus massively reducing my post-retirement income needs.  I could accelerate the mortgage payoff by not putting money in savings and my Roth IRA - but I don't currently plan to do so.  So again, I ask:  Are you suggestiing I should stop saving in any way to further accelerate my mortgage?

juju_mommy:

I feel the same way Brandy!!!! We are actually starting to see progress now....

Good! May you continue to move forward.

We are at this time taking those two steps back again. For the last three years we have not made it past six months without him having to switch companies or go through a slow period of work.

 

its great to pay off debt but I think it depends where you live. houses are $500,000 and starting here.   lucky that we bought before the market price doubled. and in our area, prices have come down a bit but they are not going to come down much further.  

We will try and pay off our mortgage as soon as possible but it is going to be a few years.  all choices and economy.

I'm not trying to put words into Greg's mouth but I've read enough of his stuff that I think what you're missing is the "whatever it takes" point. Paying off a mortgage could be done a lot faster than most do it. Most people don't know how to knuckle down and quit spending money in the wrong places. It doesn't seem to sink in how much a mortgage actually costs. Even at low interest rates, you're paying about 3 times more than the cost of the house if all you do is make payments on time.  Do the math. Once a house is paid off, you can use your money to do whatever you like... like actually gain wealth.

I hope Greg comes back to explain this because he can much, much better than I.  

But I'm not "just making payments on time" - I've never made a minimum payment on my mortgage, and (barring unforeseen emergencies) I don't intend to ever make a minimum payment.  Every time I get a raise, I increase what I pay to debts; even so, my projections assume that I won't be increasing the total amount I pay - just rolling over payments as debts are paid off, which means my projections are underestimates, and I did that on purpose (worst case scenario - not best - so I can be happily surprised rather than otherwise).  I've worked out quite a  few scenarios as projections, and paying off the other bills first and then rolling the payments pays off all the bills in the shortest time and at the lowest cost to me.  I asked what I did for a reason:  I want to know if he thinks that I should pay off my mortgage faster at the expense of other bills and savings.  Based on my projections and particular experiences, I don't think I should; from what's been said, Mr. Moore does think I - and everyone else - should.  I'd like to know why, and I don't think it's an unreasonable question.

karenteacher:

I have to ask this question:  if one has a mortgage, does that mean that one should not put money in savings while one pays off the mortgage?  This seems, Mr. Moore, to be what you are saying - pay down the mortgage first, at the expense of all else - and I have a problem with that. 

This is not the problem. The problem is you are operating under an illusion.

The money you perceive as "savings" does not in fact belong to you. This money belongs to your creditors. If you doubt this, quit/lose your job and try not giving this money to your creditors when your various payments are due. They will sue you for it. Bankruptcy is no escape as this will result in a forced distribution of these funds in a manner not under your control. It's not your money, remember? You're just storing up their money for the future and paying them for the privelege through increased interest cost. Giving them back their money, instead of setting it aside in fake "savings," is the only way to eliminate their claim on your income/savings.

karenteacher:

Should I, then, stop saving money every month in my emergency fund (which is not anywhere near as large as I feel it should be - I only have 2 months expenses, and want at least 6)

This is another illusion: Why is it you can only survive for  2 months after having worked for at least 15 years? At this rate, it will take you another 30 years to have enough funds to survive for 6 months.

karenteacher:

So again, I ask:  Are you suggestiing I should stop saving in any way to further accelerate my mortgage?

I am suggesting that what you perceive as "savings" is merely stored up future debt payments. The fact that people will struggle for 15 years to store up 2 months of future debt payments, and pay the lender for the privelege of doing so, is a testament to the power of debt marketing.

 

 

You make some interesting assumptions - for example, you assume that it took me 15 years to save 2 months income; as it happens, I had saved 5 months, which took me a couple of years, but used part of it to replace the windows in my home, which I paid cash for, and the rest for an emergency (that is, after all, the purpose of "emergency funds") and I have not yet finished replacing the funds.

I understand the point you're making about debt; however, I disagree with your interpretation, that savings are "merely stored up future debt payments", and therefore disagree with your conclusions as well.  If your outlook works for you and others - great!  But to accept that any one person's view, no matter how respected that person is - and only that person's view - is the only way to look at things is a self-limiting option that I choose not to take.   I appreciate your response, but disagree with your statements.  Yes, I have debt - and yes, I have a plan for getting rid of it, and no, I won't be following your method at this time, as it does not suit my preferences, my lifestyle, or beliefs about debt in general.

 

Greg Moore:

I am suggesting that what you perceive as "savings"

 Greg, I think I am getting something different from what Karen is on what you wrote.

I felt when you suggested house payment before savings, you were not referring to an amount kept on hand for anticipated expenses that come up like needing new tires, paying for new clothes or smaller emergencies like the washing machine breaking but was speaking of large savings like retirement funds. Am I correct in that?

 

I see the point that Greg is making. 

 The value of your assets are diminished by the amount of debt that you have. If you have no debt and $50,000 in savings, then you own the full amount of that $50,000. If you have $100,000. in debt and $50,000. in savings then you don't own your savings, the lender does, and can file a lien or other legal action to claim it. The lender has a legal interest in your assets. Edey