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Mortgage Savings/Payoff Strategy
Posted on 10/10/23 at 10:44 am
Posted on 10/10/23 at 10:44 am
Hello All,
I have been contemplating a tactic for paying off my mortgage and wanted some thoughts. In April 2021 I purchased a non-warrantable condo with a 30-year ARM mortgage. The structure of the mortgage is a fixed rate of 3.25% for 10 years and then an adjustable rate in which the interest % can increase by a max of 2% annually with a max annual rate for the loan of 14.25%... (WOOF)
My plan at the time was to refinance once the condo became warrantable (which it now is) but it did so right when rates bumped up. Obviously, if they drop back down to <4% I will just refinance and call it a day. In the event that they don't, I'd like to prepare to pay off the mortgage at the expiration of the 10 year fixed period. I currently have ~$212,000 left on the principal and at the current split, with some very rough math, that amount would be closer to $174,000 at year 10.
I'm contemplating using the HYSA (4.35% APY) that I currently have as an emergency fund and applying $1,400/month into it starting this month to create a ~$175,000 nest egg in the event that I'm unable to refinance/sell and want to pay it off. The other thought with this is if I'm able to refinance/sell then the savings accrued could be use for next home purchase, car, etc. Long term plans are flexible as I'm currently single with no kids - in the event of a relationship/family this would obviously be impacted.
Any critiques? Things I'm not thinking of? I'm pretty comfortable with my retirement contributions currently as I max out my HSA, roth IRA, and contribute well above my employer match for 401K (and will increase contribution % with future raises or increases in allowed contributions to HSA/roth IRA). Saving the extra $1,400 is doable with my current budget but would divert funds that otherwise would likely go towards my brokerage.
Thanks for the input!
I have been contemplating a tactic for paying off my mortgage and wanted some thoughts. In April 2021 I purchased a non-warrantable condo with a 30-year ARM mortgage. The structure of the mortgage is a fixed rate of 3.25% for 10 years and then an adjustable rate in which the interest % can increase by a max of 2% annually with a max annual rate for the loan of 14.25%... (WOOF)
My plan at the time was to refinance once the condo became warrantable (which it now is) but it did so right when rates bumped up. Obviously, if they drop back down to <4% I will just refinance and call it a day. In the event that they don't, I'd like to prepare to pay off the mortgage at the expiration of the 10 year fixed period. I currently have ~$212,000 left on the principal and at the current split, with some very rough math, that amount would be closer to $174,000 at year 10.
I'm contemplating using the HYSA (4.35% APY) that I currently have as an emergency fund and applying $1,400/month into it starting this month to create a ~$175,000 nest egg in the event that I'm unable to refinance/sell and want to pay it off. The other thought with this is if I'm able to refinance/sell then the savings accrued could be use for next home purchase, car, etc. Long term plans are flexible as I'm currently single with no kids - in the event of a relationship/family this would obviously be impacted.
Any critiques? Things I'm not thinking of? I'm pretty comfortable with my retirement contributions currently as I max out my HSA, roth IRA, and contribute well above my employer match for 401K (and will increase contribution % with future raises or increases in allowed contributions to HSA/roth IRA). Saving the extra $1,400 is doable with my current budget but would divert funds that otherwise would likely go towards my brokerage.
Thanks for the input!
This post was edited on 10/10/23 at 11:28 am
8
Posted on 10/10/23 at 11:06 am to BigOrangeVols
I'd probably at the very least split that 1400 into 700 extra on the mortgage principal monthly and 700 into the high yield savings. You'll reduce years off your mortgage and take off tens of thousands in interest, while still growing your HYSA account a decent amount. Then along the way if you refinance you'll have a lot more equity in the place or have the option of a smaller bite to pay it all off.
But I'm someone who doesn't subscribe to the "low interest debt is good" mentality and takes great satisfaction in knocking out big chunks of long term installments. Totally up to your personal preferences in that regard.
But I'm someone who doesn't subscribe to the "low interest debt is good" mentality and takes great satisfaction in knocking out big chunks of long term installments. Totally up to your personal preferences in that regard.
Posted on 10/10/23 at 11:11 am to Thundercles
My mortgage is paid off.
But I would say that 10 years is long enough for his strategy to be better.
Interest rates are a non-factor over short periods of time and with low balances.
He has 10 years.
And he's looking at $170k balance.
There may be other good options other than the OP.
But i like that it is leveraging time with the better rate variable and I like that it is flexible (no front loads. No added maintenance expenses. He can shift strategy if another solid one comes along).
But I would say that 10 years is long enough for his strategy to be better.
Interest rates are a non-factor over short periods of time and with low balances.
He has 10 years.
And he's looking at $170k balance.
There may be other good options other than the OP.
But i like that it is leveraging time with the better rate variable and I like that it is flexible (no front loads. No added maintenance expenses. He can shift strategy if another solid one comes along).
Posted on 10/10/23 at 11:16 am to meansonny
To clarify it'll be ~7.5 years till I hit that 10-year mark but I agree. I think the flexibility of control over what the money can go towards is preferable to paying extra onto the mortgage now.
Posted on 10/10/23 at 11:49 am to BigOrangeVols
The other thing to consider is that a low balance at a higher interest rate for a short amount of time is not that big of a deal.
It isn't the "ideal".
But some people get crazy paranoid about interest rates like they are some televised dick measuring contest.
If you are paying 8% on a $25k balance for over a year as you keep hammering money at the principle, I still call that a win.
I've seen people try to refinance a $50k mortgage and I wonder "why?".
It isn't the "ideal".
But some people get crazy paranoid about interest rates like they are some televised dick measuring contest.
If you are paying 8% on a $25k balance for over a year as you keep hammering money at the principle, I still call that a win.
I've seen people try to refinance a $50k mortgage and I wonder "why?".
Posted on 10/10/23 at 1:30 pm to BigOrangeVols
Your situation makes you sound pretty young (20s/30s), but very bright. If you’re in your 20s, life will change dramatically in the next 7.5 years. I like your strategy of throwing $1400/month in your HYSA. That way you’ll have the flexibility and easy access to the cash for whatever situation actually plays out down the road. You just have to have the discipline to continue doing that every month.
Either way, great work planning (for this and your retirement) and good luck!
Either way, great work planning (for this and your retirement) and good luck!
Posted on 10/10/23 at 2:58 pm to BigOrangeVols
watch videos on youtube on how to do velocity banking
Posted on 10/11/23 at 7:40 am to BigOrangeVols
It seems like a solid plan for resolving the mortgage but it may be overly conservative for the overall scope of the problem. The mortgage appears to be a fairly small portion of your NW based on your aggressive plan to tackle it. Also, the mortgage has a max rate increase of 2% which gives you another year or 2 before the rate is a problem.
You might consider throwing a portion of that $1,400/mo into something more aggressive like an index fund. You will likely beat the current yield in the HYSA (which is obviously subject to go lower over this duration) over a 7+ year time frame. This also give you more options in the event you want a bigger home (you will). Maybe split the $1,400 to savings and an index?
You might consider throwing a portion of that $1,400/mo into something more aggressive like an index fund. You will likely beat the current yield in the HYSA (which is obviously subject to go lower over this duration) over a 7+ year time frame. This also give you more options in the event you want a bigger home (you will). Maybe split the $1,400 to savings and an index?
Posted on 10/11/23 at 9:59 pm to BigOrangeVols
quote:
Any critiques? Things I'm not thinking of?
If you will hit age 59.5 in ten years or close to it, you can put some of that extra $1400 into your Roth and draw it out without taxes when you hit 59.5. A year or two of higher interest might not be a big deal if you can make the Roth work for you.
If you have a large tax deferred IRA balance now, you could use a Roth conversion ladder to try to create enough Roth Conversion funds to tip the scale.
IF you are close enough to age 55 you might even use the Rule of 55 tap your 401K if you know you are going to change jobs in that time frame.
But also keep in mind that a ten year horizon is a reasonable horizon for investing in the stock market. At least year 0 and year 1 have plenty of time to gain in the stock market. Who knows what returns will be in the future, but through most market cycles, ten years stands a good chance of doubling your money.
The best solution might be to use some of all these approaches: some savings/investment, some Roth Conversions, and maybe a little tweaking on the 401K if it fits your timeline. Also keep in mind it is probable that you will be making more money in ten years. Spreading it out across different assets and vehicles might help you gain a lot more money overall, for the long haul.
This post was edited on 10/11/23 at 10:01 pm
Posted on 10/12/23 at 7:44 am to Fat Bastard
quote:
watch videos on youtube on how to do velocity banking
Noted financial advisor hater suggests OP research velocity banking on YouTube.
You’re why I have a job.
Posted on 10/12/23 at 1:58 pm to BigOrangeVols
quote:
I'm currently single with no kids
your plan works only if you stay single.
if you want to keep it that way my advise is to consume doritos and mountain dew every day as your only source of nutrition and play video games until 2 am every morning.
or you could get married in the next 3 years and have two incomes to add to the Honeypot savings...
Posted on 10/12/23 at 2:55 pm to BigOrangeVols
quote:My reaction is you can afford to wait YEARS before doing anything big. To me, it doesn't make much sense to take 4.35% money NOW to pay off 3.25% debt. (Also, you should be getting more like 5.5% on your short-term money).
I'm contemplating using the HYSA (4.35% APY) that I currently have as an emergency fund and applying $1,400/month into it starting this month to create a ~$175,000 nest egg in the event that I'm unable to refinance/sell and want to pay it off. The other thought with this is if I'm able to refinance/sell then the savings accrued could be use for next home purchase, car, etc. Long term plans are flexible as I'm currently single with no kids - in the event of a relationship/family this would obviously be impacted.
Any critiques? Things I'm not thinking of? I'm pretty comfortable with my retirement contributions currently as I max out my HSA, roth IRA, and contribute well above my employer match for 401K (and will increase contribution % with future raises or increases in allowed contributions to HSA/roth IRA). Saving the extra $1,400 is doable with my current budget but would divert funds that otherwise would likely go towards my brokerage.
Posted on 10/12/23 at 4:01 pm to slackster
quote:
Noted financial advisor hater
still so mad? fricking edward jones butthurt clown.
quote:
research velocity banking on YouTube.
it actually can work well especially using to pay down homes and giving liquidity which you have none of if you send extra payments straight from your bank account to the mortgage lender instead of using a HELOC or LOC.
educate yourself.
quote:
You’re why I have a job.
preying on dumbasses?
i know WTF i am doing i do not need you jagoff.
if there were more of me you would have no job. you have it reversed.
This post was edited on 10/12/23 at 4:10 pm
Posted on 10/12/23 at 5:25 pm to Fat Bastard
quote:
it actually can work well especially using to pay down homes and giving liquidity which you have none of if you send extra payments straight from your bank account to the mortgage lender instead of using a HELOC or LOC. educate yourself.
Getting a 9%+ HELOC to pay off a 3.25% mortgage doesn’t make sense virtually ever.
A lot of real estate ideas over the past 15 years simply don’t work in this rate environment.
Posted on 10/12/23 at 7:05 pm to slackster
Posted on 10/12/23 at 8:42 pm to BigOrangeVols
Debt is for losers.
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