Money in Savings Acct OR Pay off Mortgage?

Money in Savings Acct OR Pay off Mortgage?

PostBy: leowis1 On: Fri Sep 11, 2009 8:46 pm

Hi All,

I work for a big health insurance company. They're cutting back. They have offered early retirement packages to the people who've been there a long time. I am not one of them. And am still young, 39. A couple guys I know are in their early 50's. The package is not that great. And these guys realize that they're going to need another job. Its tough for them. Mortgage + bills and now are going to lose a big part of their salary. It has me thinking... Is it better to put extra money in a savings account? Or put extra money on the principal of the mortgage? There's no gaurantee that I would have the mortgage paid off by the time I'm 55. So money in the back would help. Its a tough call. What do you all think?

Leo
Last edited by Richard S. on Fri Sep 11, 2009 8:54 pm, edited 1 time in total.
Reason: Moved to Money and Finance
leowis1
 

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: Cap On: Fri Sep 11, 2009 9:34 pm

I much as I hate to say it, save your money. Don't pay off your mortgage. Don't make extra payments.

There was a law put in place after the Great Depression which doesn't allow banks to call in your mortgage. So as long as you don't miss a payment, they can't take your home. On the other hand, if you pay down your mortgage but don't pay it off, the bank will not return the extra principal payment nor will they care if you run into hard times. Read Ric Edelman's page.
http://www.ricedelman.com/cs/education/ ... g+Mortgage

He describes it well. I recently researched this topic and no matter how I slice it, it doesn't pay to payoff early. So I just sent a few thousand to my IRA.
Cap
 
Hand Fed Coal Boiler: Harman SF 250, domestic hot water loop, heat accumulator

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: Black_And_Blue On: Fri Sep 11, 2009 9:39 pm

I'm not following, are YOU the one taking the early severance package or speaking in general terms thinking what you would do in someone elses shoes.

Either way, take a look at the headlines, things are going negative and it's not going to be pretty. I'd keep some cash on hand, pay the mortgage on time for as long as possible, stock up on hard assets, food reserves, guns and ammo.

Anything in a bank will be trapped there should a bank holiday be declared, at a minimum be prepared as though a natural disaster is about to hit your town.

Otherwise live your life and enjoy everyday that you have a hot shower, toilet paper and electricity.
Black_And_Blue
 
Hot Air Coal Stoker Stove: Alaska 140


Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: RMA On: Fri Sep 11, 2009 10:24 pm

PAYOFF MORTGAGE?? Maybe I don't understand but doesn't the term "Paying off the Mortgage" mean that you would no longer have a mortgage?
If it means what I think...and your current income is sufficient to make your monthly payments and live comfortably and you have sufficient cash; then you should payoff your mortgage...Definitely. Then put together a rigid savings and retirement account with the monthly mortgage payments you no longer have! Part of which should be a conservative stock portfolio, as the market is now low...

Bob
RMA
 

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: Paulie On: Sat Sep 12, 2009 1:07 am

Depends on how much you owe, what you paid for the house, could you sell it and for how much. Unless you can pay off house
in total, do not bother. Cash is king, always has been, always will be. Maybe we are coming out of this economic mess, maybe
the other shoe is ready to drop. Hoard your cash, invest it conservatively. The guns and ammo thing....well, if it comes to
the point that you need that stuff, your house payments will be the least of your worries. You can use some of the cash for
the armory.
Why are they cutting back? Are they reading the writing on the wall in terms of health care reform?
Paulie
 
Stove/Furnace Make: leisure Line
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Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: Freddy On: Sat Sep 12, 2009 5:01 am

Are you going to stay in this house? is this home? Is this where you will be 20 yrs from now? If yes, then I look at it this way: Money in the bank pays maybe 1% interest, money paid on the mortgage pays whatever your rate is.... 5%? 7%? Higher? It's a no brainer for me. Let's guess your payment is $500. If it's early in the mortgage when you pay that $500, perhaps $40 is principal, $460 is interest. If you pay an extra $40 that month, you just put $460 IN YOUR POCKET. I don't care what the economy does, the bank is going to want their money. Pay it off, pay toward it as much as you can, any time you can. People will say "But you lose your tax deduction". Poppy cock! I'd rather pay my taxes and keep what's left over, then to give it all to the bank just so I can "deduct it." Deduct it? There is no "it". It's gone! At least if you're mortgage is paid off and you pay taxes on it, you get to keep 70% of it.
Freddy
 
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Coal Size/Type: Pea size, Superior, deep mined

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: cabinover On: Sat Sep 12, 2009 7:20 am

A friend last week was telling me a quick way to pay down your mortgage and I called BS. After he swore it was possible I went online the next morning and started looking around. I still don't see how it's possible and maybe I'll start another thread on it for the math gurus here to tell me but here is a site I came upon while searching.

http://www.getrichslowly.org/blog/2008/ ... -the-time/

I read it all, even the comments section since that's where the interesting parts are. Many pros and cons that you have to weigh out on your end.

All I can say is we started another 15 year mortgage in August, plan to have it payed off in less than 10 years with an extra couple hundred dollars a month (soon as this boiler deal is done), and if extra $$ comes in from the garage it could be around 6 years.

We've never had enough deductions to allow use of the mortgage interest paid so Freddy and I are on the same page there, it's a useless argument. I'll take the $460 savings per $40 extra towards principal.

Just my $.02
cabinover
 
Stoker Coal Boiler: Hybrid Axeman Anderson 130
Baseburners & Antiques: Sparkle #12
Coal Size/Type: Pea, Buckwheat, Nut
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Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: Cap On: Sat Sep 12, 2009 7:50 am

From --get rich slowly website posted by cabinover:
Financial freedom
"If we have a substantial emergency fund, if we’re fully-funding our retirement plans, and if we’re saving for other goals, I believe that paying down the mortgage makes sense for us. We understand that we’re sacrificing some theoretical (and probable) future investment returns, but we’re also working to create a financial situation that’s easier for us to maintain in the long run."

I agree with this and statement but as in most cases, it has to fit your situation.
Cap
 
Hand Fed Coal Boiler: Harman SF 250, domestic hot water loop, heat accumulator

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: cabinover On: Sat Sep 12, 2009 8:05 am

Cap you're right. It would be nice if all these things could happen at the same time. I do think the emergency savings is the most important part. Used to be the folks said 6 months savings is fine but now it's grown to 1 year.
cabinover
 
Stoker Coal Boiler: Hybrid Axeman Anderson 130
Baseburners & Antiques: Sparkle #12
Coal Size/Type: Pea, Buckwheat, Nut
Other Heating: LP Hot air. WA TX for coal use.

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: Yanche On: Sat Sep 12, 2009 9:42 am

Financial matters are highly dependent on personal situations and your tolerance for risk. Except for the few that believe the world is collapsing around us the world's economy will recover and grow. The USA included. Investing ones hard earned money takes thought and effort. I would suggest at a minimum buying a financial calculator and playing "what if" investment ideas. Don't just look for the cheapest calculator but also look at the size of the manual that come with it. Go to the manufactures web site and see if there are application notes on it's use. If you have Microsoft Excel on your computer buy a book on how to use if for financial calculations. Look for one that comes with a CD full of examples. Life's financial rewards are much like everything else in like in life, you have to work hard at it. If you can't calculate to the penny your home mortgage loan payment you are under educated and need to take steps to correct it.

Personally I like HP financial calculators. It uses RPN notation which is a natural for my engineering mind. It comes with a paperback book sized manual. There are lots of other good brands, TI, Casio, etc. Buy one and learn. Understand your retirement savings plans. Read and understand the investment options. Above all assess the risk and make a judgment if the plan advisor's are looking out for your long term interest. It's work, but work that must be done. Otherwise you will be taken advantage of, and in many cases you will not even know it.
Yanche
 
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Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: leowis1 On: Sat Sep 12, 2009 10:17 pm

Thanks for your replies. I'm pretty good at math. I studied to be an actuary. Know all about present value, payments and interest very well. My wife is a CPA. She's not working now because she's staying home with the kids. They're 3 1/2yrs old twins. In 2 1/2yrs they'll go to school full time. At which point she'll go to work part time. I still have a long way to go on the mortgage. I was just pondering the idea of using her income to pay down the mortgage. She believes strongly in just putting the money in the bank. You can always sell the house. We do not plan on dieing in this house. Its a big old house which is great to raise a family. But it'll be too big when the kids are grown. So I would probably sell it in 15-17yrs.

My company has been losing members due to layoffs/economy. Thus our admin cost are high. The HR department went through my department a few months ago and I survived. Looking at the guys faces who are in their early 50s and facing unemployment is sobering. It makes you think of your own mortality. I just want to make sure that I'm making the right decisions. Its scary!
leowis1
 

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: djackman On: Sun Sep 13, 2009 3:09 am

I'm struggling with the same question, it depends on your goals. I haven't paid it off in full because I'm watching for an investment property to come along at a firesale price and I'd don't want to tie up the funds for that purchase.

What I have done is work towards getting the mortgage to the point each monthly payment is going more towards principle than interest. 4.5 years into a 30 year mortgage I'm already at 12 years on the amortization schedule. If things really go belly up I can stop making the extra payments.
djackman
 
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Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: mozz On: Sun Sep 13, 2009 12:28 pm

Here is what to watch out for. If you pay extra on your house principal, that's fine. But be sure to be saving some money at the same time. If you get laid-off,can't find a job, etc,etc, you still have a house payment to make. The bank won't care if you made extra payments, they just want the next one when due. If there is a chance you might get laid-off, start saving everything you possibly can right now. On the other hand if you have been making extra payments and feel there is no problem, i would recommend refinancing to a 10-15 year loan instead. I probably have enough saved to pay off the house right now but i won't. My cd's make 4.65% and more while my mortgage is 4.5% for 15 years. I give $100 extra each month on the principal, it's a small amount but it is something to cut it down. Like it was said before, each situation is totally different. I have come to find out, 75% or more of the people have no idea on how to handle home finances. See what your mortgage would be for 15 years and how much you will save in interest payments alone.
mozz
 
Stoker Coal Boiler: Axeman Anderson 1982 AA-130 Steam

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: Black_And_Blue On: Sun Sep 13, 2009 7:01 pm

How can anyone make long term plans when all the rules of the game have been thrown out the window?

No one knows where 2 Trillion of Federal Reserve loans went (Sept 30 2009 deadline per FOIA court ruling, FED seeking overturn of ruling in another court)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=home

Look at the headlines just this weekend : Trade war started with China over tires(can anyone say Smoot-Hawley?) China is already retaliating.

Bank problems now bigger than BEFORE bailouts :

“The question then is who is going to finance the U.S. government,” Stiglitz said.

Full article at Bloomberg : http://www.bloomberg.com/apps/news?pid=20601087&sid=aYdgQkXu9eBg

Foreclosures and unemployment continue to climb. Insider trading hits 95x http://www.zerohedge.com/article/most-recent-insider-sellingbuying-ratio-hits-95x

Sorry to be the we sock but everyone needs to get up to speed ASAP, don't get surprised with your pants down.
Black_And_Blue
 
Hot Air Coal Stoker Stove: Alaska 140

Re: Money in Savings Acct OR Pay off Mortgage?

PostBy: Black_And_Blue On: Sun Sep 13, 2009 7:19 pm

Oh yeah, forgot this link, this should cheer you up :

http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html

The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year.
Black_And_Blue
 
Hot Air Coal Stoker Stove: Alaska 140