Is Our Mortgage Payoff Too Aggressive?

Four years ago, we made the decision to refinance our mortgage.  We hit the time when rates were about the lowest they’ve ever been, and decided to get into a 15-year mortgage.  This would increase our payments but lower our total interest.  It would also move forward our mortgage payoff date.

From a financial perspective, the move has been a big win so far.

The Benefits Of Our 15 Year Mortgage

  • Low rate – We got a 3.375% rate, if memory serves, so we are paying very little in interest and more toward principle.
  • Modestly higher payments – Our payments went up a bit from our previous 30-year mortgage
  • Getting in line my payoff date objective – I’ve always said that in an ideal situation, the mortgage would be paid off before our kids started college.  This timing would actually have the payoff occur during senior year of high school for our oldest.  I’d be 52 which is a pretty good target age to be mortgage free, all things considered!

However, with everything positive, there is a downside.  It’s only one item, but it’s definitely a noticeable one.

The Drawbacks

The payment takes a big percentage of our take-home pay.  Between the mortgage payment, and our tax and insurance payments, the payments take away about 33% of our take home pay.  I learned by example (from my parents) the benefits that a 15-year payoff can have and have applied it via re-finances for my condo (back in my single days) and our current home.

I’ve read that the ideal number is around 25%, with the target range that most would suggest going no higher than 35%.

So, we’re on the upper end and we definitely can feel the pinch at times.  As I look back at the application of the lesson I learned from my parents, I realize that in principle, applying the practice is a no brainer, but from a situational standpoint, we have one big difference: Right now, we’re a single income family.  We made the choice for my wife to stay at home  when we had kids, and we have no regrets on that, but we always knew there would be tradeoffs involved from a financial perspective. We’re fine with that, but it does mean that we have to approach things from different angles.

Home Vs. Car

The reason I’m noticing this is that I’m starting to pay close attention toward our New Car Savings Fund.  We save what we can toward new cars, and as our cars are 8 and 9 years old, the time is coming faster and faster that we’ll need to address this.  Over the years, the amount we’ve added toward this fund hasn’t kept up with the combined cost of depreciation on our current cars plus the overall rise in cost as prices have gone up.

This means that if we were to buy a new car today, we wouldn’t be able to meet the objective of being able to do so without taking on a new loan.  And if we look at both cars, then we’re definitely nowhere close.

Will The Mortgage Payoff Be Worth It?

So, I guess the question to ask is has it been worth it over the last four years, and will it be worth it over the next eleven years to have this situation?  Some of the variables to consider:

  • Income – We counted on our income to go up.  This would lower our percentage of payment vs. income.  With the recent economic slowdown, this hasn’t happened to my projections.mb-2015-11-checkbook
  • Other costs – In truth, the squeeze has been felt not so much from the mortgage, but simply because of the rise in other costs.  Grocery bills have gone up as a lot of food costs have risen, plus our kids are getting older and eating more.
  • Side income– My wife has a nice side gig that she’s dedicated toward paying for a Disney World trip that we’ll soon be taking, that is definitely a luxury.  However, it’s a trip that is a once-in-a-few year type thing, and now that the costs will largely be done, her income could help supplement other things….like bolstering the car fund!
  • Money chunks – Tax refunds are always a good way to address big ticket items.  They’ve helped us fund a new roof, landscaping, and other things we’ve looked to do.  We need a new furnace.  Plus, we’ll have new cars to pay for eventually. The current ones won’t last forever!
  • Another refinance – One option would could certainly consider is refinancing again to another 15-year mortgage.  The rates are higher and we’d be adding years back onto the end, but it would free up cash flow, and we could always pay the same amount as we were anyway.

Staying The Course (For Now)

As of right now, we’re staying the course and I’m not looking into refinance options.  I like the rate at which we’re paying things down.  I’d certainly love the flexibility in our cash flow.  However, I want to make sure to look at all of our available options.   Our family does a good job of balancing present needs with saving for the future.

Even though we do things like plan trips to Disney and camp frequently, we’re not living on Easy Street.  We aren’t rolling in the dough, and with only one full-time income, we don’t make decisions without careful consideration.  Every decision we make includes a lot of potential trade-offs and variables that come into play.

Readers, how do you approach housing costs as a percentage of your take home pay?  How does this play into other decisions on big-cost items like travel and automobiles?  

8 thoughts on “Is Our Mortgage Payoff Too Aggressive?”

  1. You won’t care in 15 years. I know we are 8 years in to our house and it has gone by fast and we were thinking how 15 years seemed like forever, but to have that payment gone forever will be amazing. I’d rather it go to the house than to just be spent elsewhere. I know plenty of folks that barely qualified for a 30 year loan with no money down and one emergency pops up and they are toast. You can always refinance back but when you are done in 15, everyone else will be so jealous and wish they had done what you did.

  2. Our housing (mortgage, taxes and insurance) is about 20% net pay…for now. When we move in a few years it will likely be between 25% and 28%…One reason being the mortgage term will change. When we got our mortgage we could still get a 30 year one, now the max you can take out in Canada is 25 (which is still more than fair). At this point in our life we’ll probably take a 20-25 yr mortgage because, honestly we’ve been paying off debt so friggin long we want more cashflow in our budget for a while and as our income increases we’ll make more payments towards it, or refi when the time comes. Also our current rate is only 2.29% so I can’t complain.

  3. Couple of things….I’m a bit ahead of you in age and have reached “homeowner nirvana”…a paid for home. But I struggle if I made the right decision. I can borrow money right now for 2- 2.25%…fixed….with a 30 amortization and balloon payment due in 10 years. I wonder would I be wiser to borrow once more and invest the money ? Bottom line….interest rates are going up and I’m thinking borrowing money at 2% when rates return to their historic norm could just be smart in these challenging times. A wise man once told me…”the time to borrow money , is when you don’t need it”…
    As for the kids and college….save your money….I just put two thru school and the costs are “breathtaking”….books, tuition, board…you name it… It is not cheap…Worth every cent IMHO but still not cheap. My advice…start preparing early and get as much info as you can…and if at all possible don’t let the kids take on debt in the form of student loans. We lucked out with oldest and she was able to borrow money at 1.625% (no misprint) for a small student loan. Those days are over…
    As for the aging cars….I swear, I feel like “Rip Van Winkle”….the truck that I purchased 12 years ago for $11K new has been discontinued and a replacement would cost at least $30K. What happened? Suddenly it feels as though cars and trucks are a luxury. Price tags and assumed payments are just scary…
    Best of Luck and enjoy Disney….word of advice…take a bunch of pictures….20 years from now you’ll treasure them….

    • Thanks for all the great advice. In addition to our camera phones and my wifes camera, we actually paid for a service where we can get our picture taken all over the place, and get access to the photos. It’s not cheap but people say it’s well worth the price.

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