Progress to Date

  • Original Loan Amount: $204,000.00
  • Balance at Beginning of 5-year Goal (1/1/08): $188,983.82 @ 6.00%
  • Balance at Refinance in February 2009: $148,000.00 @ 4.625%
  • Outstanding Balance: $0.00 (PAID IN FULL!!!)
  • Latest Payment Date: April 2011
  • Latest Additional Principal Amount: $17,623.22
  • Amount Ahead of Schedule (since refinance): $121,462
  • Time Ahead of Schedule (since refinance): 7 years 10 months
  • Interest Saved Last Month: $23,972.48
  • Total Interest Saved: $28,435.55 ($1,037.74 on original mortgage; $27,397.81 on current mortgage)
  • Months Remaining in 5-year Goal: 20
  • Average Monthly Principal Needed to Meet Goal: N/A (Goal achieved)
  • Progress List Explained

Wednesday, June 25, 2008

Falling Equity

Every day it seems like I notice another headline about home prices falling around the US, occasionally accompanied by similar news from other parts of the world. For example, today's financial reports include an article from the Associated Press which states that sales of new homes in the US are down when measured two ways: (1) the number of homes sold, and (2) the median sale price. Similar trends are occurring in sales of existing homes.

Websites like track approximate prices of homes around the US. Our house's estimated price has been falling steadily during the few months I've been checking (an exercise to help establish our monthly net worth). [By the way, "net worth" is a term I absolutely despise, because it values an individual or household only by monetary assets, when a person's true worth rarely has anything to do with money; but in the absence of a better term, it seems that I'm stuck with it for now.]

Does it bother us that my wife and I agreed to pay thousands of dollars more for our house than it would likely sell for now? Not really. I owned a townhouse condo before we bought our current residence, and used the proceeds from the condo's sale as our down payment. Had we waited until housing prices moved lower before selling the condo and buying a house, I wouldn't have received as much from the sale of my previous property, and therefore, our available down payment fund would be proportionally smaller. Sure, we could have sold the condo and rented for a while, but we would have dealt with the hassle and costs associated with moving more than once. And there's simply no way for anyone to know when the housing market has "hit bottom," so what would have been our cue to stop renting and buy a house?

There are a few important reasons why I'm not bothered by the downward trend in home prices.
First, the decline in our assessed property value's translates directly into lower taxes every six months. This is the silver lining of the housing slump, and since we have no plans to move anytime soon (and turn a paper loss into a realized loss), the tax savings become a miniature windfall which we can funnel back into our mortgage principal payments.

Second, our goal is to eliminate our debt completely, which means we don't want to tap the equity in our home for any reason. I was delighted to pay off (and close) the HELOC we had used for initial expenses when we bought our house (such as replacing windows and doors). If the equity in our home falls, it does not affect our spending plan, as we don't rely on equity borrowing to finance the rest of our life.

Third, and most importantly, we didn't buy our house as an investment property; we bought it because we wanted a place to live, and really liked what it had to offer. At the time we were ready to begin our lives together, my wife and I spent months searching for the house that best suited our anticipated wants. This house continues to be a source of daily enjoyment for both of us. Its primary value is its utility: we sleep, eat, clean up, work, relax, find shelter, store and organize, entertain, provide for our dogs, and feel secure inside its walls. I'm grateful to have this place to call our home.

The June mortgage payment is complete. I'm excited about our progress this month. I'll elaborate on that in a few days.


SavingDiva said...

I think if you're planning on staying in your house for a while, then the actual value shouldn't matter. My parents have been living in the same house for 25 years. I think they only know the value for taxes...

The Executioner said...

I hope they paid it off already! We're not sure how long we'll be here, but it probably won't be for 25 years. Still, as long as we have a place to live, and we don't have a mortgage payment, I'll be happy.