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I would say refi to a 15 year term paying less in percentage as well as using the bi-monthly system to pay on the mortgage. This way you essentially save over 100k in bank interest and own your home in a very reasonable time frame, while seeing what the market holds in that next 10 years. Things may get better, the value of your home may increase and all the more reasons to stay in it. THEN, of course once your home is paid off, take that money and invest it in stocks or Roths. It may be too late for the Roth option for you, but hey, I took a stab at it
Well, while I've heard of him, I've never heard him.
There are so many factors to consider. Can you afford to walk away from a house (i.e. sell) if the value drops by 50%. Are you young enough to ride out the storm? Do you like where you live enough to ride out the storm? Do you even think the storm will ever end? What about your job security? If would be unfortunate to not pay it off and pay mostly interest for YEARS and then get foreclosed on.
What do you ultimately see happening to other investments? Where do you see both our country headed and the value of the dollar? What is your tolerance for risk in investments?
All I can say is that for me I paid off my house in 2003. What price tag do you put on PEACE OF MIND? Plus, the way things went, I guess it was better than losing more of my portfolio than I did. Plus, my house value hasn't dropped by more than 10% and that is a good thing, considering I live in the country's worst city for drop in values.
I am not really one for psychological warm fuzzies, so I'll leave that "benefit" of owning a home outright aside. But, as someone else previously mentioned, don't neglect to include property taxes (as well as maintenance, etc) in your calculation of "owning outright." And equity in a home is about the least liquid place it can be.
Whether you have 1% or 100% equity in your house, whatever appreciation the asset has over time is yours. Paying down your mortgage saves you the interest expense, and that's all. Thus, it really only comes down to comparing that interest expense to alternative investments. And one needs to consider a reasonable time horizon for this comparison, based on age. As a few others have said, the current mortgage interest rate enviornment is at absolute historic lows. The younger you are, the harder it would be to pass up the opportunity to borrow at these rates.
I was once a Dave Ramsey groupie. But no longer. You see, living just outside Detroit in Eastpointe, I was caught in the middle of the housing bust with a $130k house now worth about $40k, which was a price not seen since the 1960s. I had prepaid down $65k of the house's principal balance, putting every extra penny I earned into prepaying the mortgage. I lost it all. I was able to make the house shine and sell it for $47k, but it was still a short sale so it ruined my credit for 2 years. You see, to the credit bureaus, the guy who gets an extra job and prepays tens of thousands of $ down on his mortgage but still can't keep above water is no better than the next door neighbor who maxes out his home equity, uses the extra money to buy new cars and put a down payment on his dream home, then walks from the house owing the full amount. They both do a short sale, and both have the same bad credit. Why didn't I stay in the house? Gangs were starting to roam the streets. I was surrounded by 3 abandoned and decaying houses. Eastpointe was turning into Detroit. No place to raise kids. Dave Ramsey sucks. He cost me at least $100k, when you add the updates I put into that house and the hundreds of hours of my own labor, combined with the $65k of principal I had paid off ahead of time. Dave Ramsey's advice essentially took every cent of my disposable income over 4 years and flushed it down the toilet. I want those years of my life back, thank you very much.
Pay it off. If you're laid off or become disabled you'll really appreciate having a cheap place to live, plus you'll save a lot in not paying interest on the house.
How long do you plan to live in that house or keep the mortgage?
Suppose it's 5 years. Then making extra principal payment on 4.375% loan is financially identical to getting 4.375% 5-yr CD, assuming entire mortgage interests are tax-deductible.
If you are willing to buy 4.375% 5-yr CD now, then make extra principal payment. Determine how to allocate $150k.
If I were in your position, I'd gamble that hyper inflation will kick in before much more of your mortgage is paid in, and you'll be making payments with cheaper and cheaper dollars. I don't think it's a bad bet. Hold off a year or two to see which way it goes.
I was once a Dave Ramsey groupie. But no longer. You see, living just outside Detroit in Eastpointe, I was caught in the middle of the housing bust with a $130k house now worth about $40k, which was a price not seen since the 1960s. I had prepaid down $65k of the house's principal balance, putting every extra penny I earned into prepaying the mortgage. I lost it all. I was able to make the house shine and sell it for $47k, but it was still a short sale so it ruined my credit for 2 years. You see, to the credit bureaus, the guy who gets an extra job and prepays tens of thousands of $ down on his mortgage but still can't keep above water is no better than the next door neighbor who maxes out his home equity, uses the extra money to buy new cars and put a down payment on his dream home, then walks from the house owing the full amount. They both do a short sale, and both have the same bad credit. Why didn't I stay in the house? Gangs were starting to roam the streets. I was surrounded by 3 abandoned and decaying houses. Eastpointe was turning into Detroit. No place to raise kids. Dave Ramsey sucks. He cost me at least $100k, when you add the updates I put into that house and the hundreds of hours of my own labor, combined with the $65k of principal I had paid off ahead of time. Dave Ramsey's advice essentially took every cent of my disposable income over 4 years and flushed it down the toilet. I want those years of my life back, thank you very much.
If you hadn't paid down the $65K the bank probably wouldn't have allowed the short sale. So you would be looking at foreclosure, which would have left you on the hook for the difference between the mortgage balance and whatever the bank sold the house for (which would have probably been much less than $47K after the foreclosure) and ruined your credit for 7 years. Or, if you had kept the $65K in savings or other investments, you could have put that money toward the balance at the closing which would have left you in the exact same position you wound up in.
Not saying Dave Ramsey is right in every circumstance, but it's hardly his fault that you lost $80K in equity in your home.
I admit I like Dave Ramsey for the most part. Not for everything but for the most part.
My husband and I actively trying to pay off our 300K (remaining) mortgage. At the same time we have a fully funded emergency fund and fully contribute to our retirement accounts.
Here's my thinking and it comes more from my parents than any radio host. The 300K is a debt that we owe because we bought something that we couldn't afford to pay in full. Once that debt is paid I have the freedom to invest where I like, spend money where I like, send my kids to whatever college I like without the risk of losing my home..which is just a place I live, not an investment. It really doesn't matter if the value of my house drops from 400K (what we paid for it) to 200K, we still agreed to pay the mortgage amount we signed the papers for. So we're trying to pay it off, have a paid for house and then worry about other stuff. At this rate we're about 8yrs out, we'll be 44.
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