Submitted by jws1300 t3_10oathi in personalfinance
Only major payment I have is house. Payoff is $53k, at 3.785%, house appraised for 345k. Typical payment is around 1k per month but I send 500 extra principal each month.
Also have 26k in savings which varies but is at 3.3% right now.
Do I dump savings into mortgage with such a low discrepancy in rates? Dont really need "emergency" money.
It is somewhat. Getting a HELOC isn't very hard.
You have to pay money to access your own equity.
And if you don't have income for whatever reason, you won't even get that HELOC
Yeah, I know you pay interest. I was speaking mainly to the liquidity. Also, why I used the word "somewhat". I'm not sure what you are trying to rebut here.
Liquidity isn't generally used in that context.
"A liquid asset is an asset that can easily be converted into cash in a short amount of time. Liquid assets include things like cash, money market instruments, and marketable securities."
It's not all that different from saying you can take out a personal loan.
I know it is similar to a personal loan. The difference is that you have the home equity as collateral, so the odds of approval are higher, and the rate should be better.
But I agree that a home is not a liquid asset, but the equity can be tapped somewhat easily with a HELOC. That was the only point. And I don't think this is a replacement for an emergency fund.
I wouldn't dump all the savings into the mortgage since it's not enough to pay it off anyway. I'd just increase the extra principal payment.
Why don’t you need emergency money?
"hold my beer"
-OP's car, kitchen appliances, and HVAC system
I think its important to have some liquidity laying around don't get me wrong - but I think for someone with stable income, good credit, ability to borrow from family in a sticky situation, and liquid assets that could be sold, etc, emergency money isn't that important.
Oh no
Guess people forget with a mortgage paid off I would have $1500 /mo immediately going into savings again and whatever interest I was paying would be null.
Did you also cancel your car insurance since you’re a good driver?
No, that would be illegal
You can reduce to a bare minimum policy
First, I'd like to know why you don't need emergency money? I mean, technically you don't need it until you need it. But why take the risk of not having it?
Anyway, just keep paying more on principal. You have a healthy amount in saving should something financially catastrophic happen to you.
Based off the info you have provided, I'd say you're in an ideal situation already.
Edit: stop contributing to your current savings and put that extra money toward principal.
I guess I'd have to see examples of "emergencies". I have insurance for my home and everything in it, same for vehicles, same for health. With an 820 credit score, what can you not get with 0% financing in an "emergency"? I don't condone financing things but in an emergency I don't see a reason not to.
Emergency fund is usually synonymous with job loss replacement fund. Anyone can lose his job, and you still have expenses that can’t be financed. Lots of factors can decrease the amount you need, like being a two income household, working in a public union job, not having kids, etc. So if all those factors are in place, your emergency fund can be closer to the 3 month amount of the recommended 3-6 months of expenses.
For someone with kids, private company, no union, spouse doesn’t work, etc the job loss fund should be more like 6 months of expenses.
Plus Expenses are not the same as income, 3 months of expenses should hopefully be substantially lower than 3 months of income.
Good point. I'm a single father so just one income. I want to have no debt asap so if I did lose my job I wouldnt be scurrying to get income.
Once the mortgage is paid off the only expenses would be the normal life expenses (water, food, electricity, etc).
> I want to have no debt asap so if I did lose my job I wouldnt be scurrying to get income.
Don't do that. If you lose your job, you want cash, not equity. You can fund the mortgage for many months even if you lose your job if you have the money liquid.
6-12 months seems to be the new 3-6 months
Paying off your house is not an emergency, so you shouldn’t use any emergency fund dollars to do this.
Any non emergency fund dollars you have could be used to pay this off, but at such a low interest rate under 4%, I would argue that there are much better places to be putting that money rather than paying your house off.
Never had an emergency, huh? Just wait.
Seems we should complicate your decision making process:
I'm 44 yrs old, biggest emergency I've had was a $8k air conditioner / furnace and I didnt even use cash because its at 0% interest.
THAT is good financial planning. Use other people's money when it doesn't cost you if you can. I still think having an oh-sh*t stash will pay off for you in the future. :)
I think it's unwise to assume you don't need "emergency money" because you never know what will happen. That being said, you probably don't need more than 10k on hand if you're in a stable situation
True. And I think the 10k is a good rule of thumb.
What do you mean when you say you don't need emergency money? Is your emergency fund somewhere else or do you literally believe that you don't need an emergency fund?
I guess I shouldnt say I dont need it, theres always a chance. If I need a couple grand I can reach out to the folks or something.
*this would be an extreme emergency btw
Wouldn't you feel better knowing you have the money on hand though? I have some recent debt I could pay off right now but choose not to simply because I don't want to use my emergency fund.
Depends on if that debt was higher interest than what savings was pulling... Which answers my original OP question - I just didnt know if there was anything crafty these days to give me an even better position that I was missing.
It doesn't hurt to ask. My debt interest is like 6% so it sucks to have but it will be paid off soon without paying too much in interest.
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Once you get $60k i would pay it off
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Keep in savings. We could pay off our mortgage but instead hold money in stocks/cash.
This mentality is wrong-headed. Debt isn’t bad, expensive debt is bad. Never pay off cheap debt faster than you have to, instead put that extra money to work making better returns than your borrowing rate.
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I did and haven’t regretted it. You could always get an equity line at the same time. In case you needed do access money
You don't need an emergency fund until you have an emergency. If I were you, I would not dump my savings into the mortgage payment. By having an emergency fund, you probably are probably in a position to absorb a financial emergency.
To set my mind at ease, I would calculate how much longer it would take to pay off the mortgage at the rate you are paying it. Then I would recalculate how much I would have to increase the payments to pay off 12 months earlier. Then I would make a decision of how much to pay off. If your mortgage doesn't have balloon payments, I would just maintain your regular practice.
I’ll probably maintain. I’ve shaved a decade off the loan paying extra and decreased interest by over 30k already.
Shaving a decade off a your mortgage is no small achievement. Be Proud!
Don't dump your cash on hand into paying off the house. Just pay the mortgage plus the additional $500. Mortgage will be paid off in less than 3 years.
Put the money for payoff aside in a HYSA. When you have enough, pay it off if you want.
Nope, actually would not even be putting money in principle, allocate that money to a retirement account or if you are maxing that out an investment account. The hard money you put in your house does not earn you money.
But the extra principal does decrease the interest, even though there’s not a ton of interest remaining?
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If emotionally it makes you feel better, then sure. It really depends on your situation and calculations.
In the 2008 financial crisis, we were a single-income family and my dad was unemployed (6-8months) and taking short contract work where he could. My mom was the stay-at-home-parent but self-taught herself trading/investing. She pulled out all the money from her investment accounts to lump sum pay off the mortgage since the instability of steady income had mortgage interest payments eating away at savings.
Her reasoning was that property tax would be less instead of letting the mortgage slow bleed money away. Luckily my dad found a really great government job a few months later. I think they were close paying it off anyways, so she just accelerated it by a few years.
For my husband and I, we put down 20% and had locked in a low 3.01% fixed rate for next 4-5 years. So for us the question is where can the same money get better returns. For example, we keep part of our emergency fund in a high-yield (5%) GIC for 6 months.
Even if we could buy our place for full cash, I'd probably still only do 20% downpayment (maybe higher if it's an investment rental property and I'd calculate the most efficient time/money ratio to see returns) because the house equity is probably not going to outpace the money being invested in something else with higher returns.
Also, I would want to diversify and not have majority of net worth be tied to something as illiquid as housing.
I’m a huge advocate of being mortgage-free. You’re so close but not close enough. You’re executing a great plan. Keep doing what you’re doing.
Thanks. Just making sure I wasnt missing something obvious. I just have a big desire to pay the mortgage off ASAP even though the interest isnt that great anymore.
8% yield in stocks > 3.785%.
If you want to piss away money and pay down your loan, go ahead.
Lol SPY is down -10% in the last year.
Pissing away money is paying guaranteed interest to a bank.
Do you mean playing the stock market or investing in stocks in a different way?
Your basically working tword saving your self 10 seconds of work per month when you knock out that mortgage. That 10 seconds will not compound like the money could have. You'll still have to pay property taxes twice a year, so that 2 minuites you get back every year will actually be more like 1:40.....I personally would rather have the cash on hand, even if it was hard cash under the matress. You never know when that dream car you've always wanted pops up from a guy in your neighborhood on a Sunday morning. By the time you refi, get out the money, go back and make an offer, the car has long been sold. (I lost my dream car on a Saturday night to a guy who bought it on Sunday afternoon with cash). I still loose sleep over that one.
yes_its_him t1_j6dgacd wrote
I wouldn't.
Equity isn't liquid.