Did you pay off a mortgage at a reasonably young age and live mortgage free? How did that impact retirement? (divorce, divorced)
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Mathjak you're one of the posters I most respect on here but we'll agree to disagree on this one.
MOST people won't have the discipline to continue to pay extra on a 30 year mortgage.
Set up auto draft with the extra principle coming out every month, that way it happens automatically without thinking about it too much. I had mine set up like that, and got it paid down enough last year that I could go ahead and pay it off.
MOST people won't have the discipline to continue to pay extra on a 30 year mortgage.
It's very easy. The payment will be automatically withdrawn (in most cases) so just go online, add $xxx extra to be paid monthly on the principle and forget about it.
I just turned 29 and am looking at buying my first home over the next year. I work in Indianapolis but don't want to live in the inner city. I'm looking at reasonably priced condos and small SFHs in the better parts of the city and suburbs and am finding quite a bit I can afford, but I can go to small towns outside of Indy and probably save considerable amounts of money. I'm currently renting a 2BR and with rent, water/sewer, and electric, I'm up to $1,000/month. It's a decently kept but very dated apartment, and it's money down the drain. There are smokers/animals beside me and I want neither, and I want something on one level, with a basement possibly for optional use. There is a possibility of me getting married but can't foresee any kids.
I have been thinking of buying with a small mortgage ($50k-$110k or so) and trying to pay it off as fast as possible (hopefully by 40-45). This would give me the ability to be completely debt free for ten to twenty years prior to retirement, and to contribute a considerable amount.
Did you pay off a mortgage early and find it helpful or that the money was better allocated elsewhere? Even if it was better allocated elsewhere, did you find the peace of mind of being debt free worth it?
If you want to pay a house off early, that's great. And it's definitely better to go small rather than to stretch yourself too much because you can't count on huge appreciation on real estate these days.
But DON"T do it at the cost of under-funding your 401(k) EARLY in your career. You lose out on years of compounding if you wait until the house is paid off to make big contributions to your retirement. It may FEEL simple to concentrate on paying off a house...but it may not be the smartest thing to do in the end. Life is about balance and sometimes you have to balance multiple priorities at the same time.
Finally ---- someone who GETS it! I paid off my mortgage last year at age 45. Done for good with banks, mortgage statements, and interest being flushed down the drain.
You are on the right track.
1. Small mortgage. Yes sir! Buy a moderate sized house you can afford rather than trying to keep up with the Jones's
2. You didn't mention this one, but put 20% down when you purchase, if you can, in order to avoid PMI, private mortgage insurance (a good deal/bad deal: good deal for the bank. bad deal for you).
3. Take out a 20 year mortgage -- yes, they exist, and then pay it down as quickly as you can. It took me about 12 1/2 years.
4. Ditch the landlord. Another person you can do without in your life, making rules for you and making life more complicated than it needs to be. Raising your rent, and tying you into a lease. Run your own life, your way, in your own house.
5. Disregard some of the advice of rjm1cc. Do not take out a 30 year mortgage just because interest rates are low. It's more important to get the house paid off, than to be throwing a ton of money into your retirement account when you won't be able to touch the money for another 30 years. He/she is correct about maintenance costs, so do your homework on whatever house you do decide to buy.
Good luck.
Yes. We live in a modest 1,300 sqft brick rancher, which is perfectly adequate for the two of us. I see people my age buying these huge 3,500 sqft houses and living paycheck to paycheck. This is in addition to the new $40k Tahoe parked in the garage. The sad part is I know some people like this make HALF the income we do.
I think you are wise to choose a home that is smaller and will allow you to pay off the mortgage sooner than buying a larger more expensive place. We took out a mortgage on our home back when interest rates were 10%. You Hetch we paid the 15 year mortgage off early. It cost around $100 k back when and is worth about six times that now. We definitely don't miss the payments but the property taxes are escalating. Try to find a low maintenance home so you aren't pouring funds into repairs. Best of luck.
Mathjak you're one of the posters I most respect on here but we'll agree to disagree on this one.
MOST people won't have the discipline to continue to pay extra on a 30 year mortgage.
Then I don't know that they have the wherewithal to make a bigger-than-optimal payment on a 15 or 20 year mortgage. Always better to give yourself flexibility in case you hit hard times or need the money for a better investment.
The OP can easily afford a 15 yr mortgage. There's a break on the interest rate and in all reality most of us don't have the discipline or get distracted. The OP should have a savings plan too, which I realize takes discipline as well but a cushion can be achieved in less that a year at that salary.
Nice thing about the lower price ranges is you could rent it out and make money/break even if necessary due to job transfer.
But remind me why we are having this conversation in the retirement thread?
I think it's great to offer helpful advice to young people interested in planning for retirement.
No spouse or kids, now or possibly in the future? If that's a possibility, consider buying more house than you really need now, with decent schools, so you don't have to move later.
A good sized 4 bedroom home was the first house my husband and I bought. It was more than we needed right then, but we were planning on having kids. Only had one, but she was born and raised in that house until she went off to college. We did have it paid off before that, and expected to live there a few more years until retirement elsewhere, but life had other plans. We ended up with a new mortgage on a new house after a job relocation, as we were hoping for the housing market to recover before we sold our old house, but at least we didn't have two mortgages and a home we were upside down in.
It's possible I could get married, but I don't ever see myself having kids. I should be completely debt free by 32, and this will open up more options on the budget front.
i agree with all except the don't take a 30 year mortgage part.
that can be a mistake . you can pay a 30 year off in 15 or 20 years years but if money gets tight you cannot pay a 15 or 20 year off in 30.
take a 30 and pay it off earlier , at least you have that choice .
I don't agree. A 15/15 ARM has a lower interest rate than a 30 and makes more sense for those wanting a 15-year payoff. Getting a 30 year mortgage with the plan of paying off in 15 is a waste of money when a 15/15 has a rate 0.5% lower.
A 30/15 balloon is another option. The difference between a 30/15 balloon and a 15/15 ARM is that if you went though a time where you dropped back to the minimum payments and thus will have a small balance remaining in 15 years, with a 15/15 you just keep paying, whereas with a 30/15 you must find a home equity loan or credit line to roll over the remaining amount owing. Unless you're unemployed though, getting a loan/line shouldn't be too difficult.
1. We bought our first 'home' using a 'First-time-home-owner' loan, that qualified for zero-down. The 'home' was three houses on a single lot. All three had been rentals. We rented out the two up by the road, while we lived in the third house that is behind the other two. My employer at the time [US Navy] paid us BAQ [Basic-Allowance-for-Quarters] since renamed as BAH [Basic-Allowance-for-housing]. Our BAQ was equal to our mortgage payment. My employer paid me a bit extra to cover the mortgage, and we used the rental receipts to cover insurance and maintenance. That was a 30-year mortgage [lower payments], and we made $200/month principle-only payments separately from our monthly P&I&Escrow payment. A few years later, we were transferred to a different location, so we hired out the management of that property.
2. The next location was overseas, we bought a property that had 5 units [a large portion for my family to live in and 4 other units]. This time we needed to pay a small down-payment, but it was not too bad. Again my employer [US Navy] gave me BAQ which covered the monthly mortgage payment and we had 4 rental receipts each month. They do their mortgages differently, it is up-front an insurance policy that you pay premiums on. When the policy matures, then it flips and pays off the principle. In the mean time you only pay the interest charges every month, in that nation things are heavily subsidized by the crown, so of our mortgage interest we only paid half of it, the crown pays the other half, every month. When we left that duty station, we were forced to sell that property. We used the proceeds to further pay down the principal on our property #1 [the tri-plex].
3. When we returned stateside, we bought another tri-plex. This one is a single building, three stories high, each floor is a separate apartment. The bank went with the idea that since we had not owned a home in that state before, we were First-Time-Homeowners, so we got a second mortgage with zero-down. Again my employer [US Navy] gave us BAQ to cover the monthly mortgage payment [P&I] and we had two rental receipts every month. We then began making monthly principal-only payments on that mortgage of $200/month, to buy down the outstanding principle.
4. After a few more years, we were transferred again. We hired out the management of #3. We bought a 4-plex at our next duty station. We had to make a down payment, but it was not too bad. My employer again gave us the mortgage payments, and we had rental income. When we left that property, we again went overseas. We put that property on the market, the realtor was an idiot. It went on and off the market. The realtor could not decide. I really should have flown back and handled it in-person. But we tried to deal with the realtor through the mail. Often months went by where he refused to speak with us. We carried that mortgage out of our savings for a year. Before we were finally able to sell it.
When we returned stateside the next time, we returned to property #3 and lived in it again a few years. We sold #1, and refinanced #3 to use the equity to buy our retirement home.
I retired at 42. Our retirement home is mortgage-free.
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