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

Thursday, August 12, 2010

Personal Finance Articles

Two articles intrigued me over the past several weeks.

The first is about choosing a modest lifestyle in exchange for more freedom from professional obligations and the associated stress, baggage, and politics that accompany a full-time job.

This article puts into words exactly what my wife and I are striving toward: the ability to reduce or eliminate our monthly obligations so that we can step back from full-time employment, and enjoy our (simple) lives together. We'll be making memories together instead of accumulating possessions (and the maintenance, upkeep, and other responsibilities that accompany them).

The second article discusses (among other things) viewing mortgage debt reduction as a type of fixed-rate investment.

My favorite part:

In the past, financial planners typically recommended that homeowners devote as little cash to real estate as possible, and to invest it in the financial markets instead. But with stocks essentially where they were 11 years ago and market volatility seemingly on the rise, people are rethinking that wisdom. Devoting extra cash to repay a mortgage early is among the safest ways to produce an investment return.
I never agreed with the advice which said that it was wiser to invest in stocks than to pay down a mortgage. This relies on an assumption that past returns in stocks over the long term (meaning the span of a human life, or longer) will continue into the foreseeable future. This to me is a risky assumption to make.

If by some series of fortunate events, you were able to invest in safe, guaranteed debt instruments (think government debt with a fixed coupon) which pay a higher rate than the rate on a fixed mortgage, then I do think it would make sense to invest in those securities instead of paying down a mortgage. But I can't think of a realistic example of how any homeowners would find themselves in that scenario. For now, the only non-retirement money we have set aside is held in cash -- all of the rest goes toward the mortgage debt.


Daizy said...

I am so glad I made the choice to pay down my mortgage instead of invest 3 1/2 years ago. CD rates were 5%. My mortage rate is 5.8%. I was tempted but went for the security that comes with not owing anyone anything instead and soon I will get there. The advice back then was paying down your home was for risk-adverse wimps. Well, paying down the mortgage is also a risk and in this case it paid off.

Anonymous said...

My brother-in-law is terminal with cancer, so my sister is facing the reality of becoming a widow and a single mum to 4 young girls (age 7-12), and the loss of her husband's wage. Their mortgage is as high as it has ever been, and the main concern for my sister is that she be able to keep the family home and keep everything going. Everybody, pay off your mortgage, as you don't know what life is going to bring tomorrow. We all hope and dream for a wonderful simple life in old age, but life is short. The sooner we can free ourselves from debt and the mortgage, the better off we become.

The Executioner said...

Thanks for the comments. Eliminating mortgage debt removes what is often the largest monthly obligation most people face, which in turn hedges the risk of diminished quality of life (foreclosure, eviction, forced sale of assets) due to future loss of cash flow (income from work, investments, etc).

Sandy L said...

I can't think of another safe investment vehicle that has a return of 5.75%.

We always paid extra on our mortgage and at the end of last year, we paid off our primary home (my mom lives in a second home we also pay on). I don't regret it at all, and can't wait to pay off the second one.

The extra cash flow has been great. Investing instead of debt reduction seems like putting the cart before the horse.