As I wrote about in my last post, a mortgage is a debt that must be paid within a prescribed and agreed-upon time frame. And as with all debts, it often hangs as a giant dark cloud over your overall personal finances, an anchor that holds you back from achieving all of your other financial goals.
Or that’s the way I used to think about it…
I’ve had a love-hate relationship with my home ownership experience these past 13+ years. To quickly recap:
- I was in a rush to buy a place during the hot housing market of 2006.
- Sudden market crash and ensuing economic downturn
- I spent several years either unemployed or underemployed, living out of state, just barely keeping my mortgage current.
- A chance encounter on a vacation trip to Florida (to stay in my house) led to a job offer that allowed me to move back into my house.
- I’ve been back here for nearly 8 years since that job offer came through for me.
For the past couple years, I have been making irregular extra principal payments towards my mortgage, in an effort to pay it off more quickly. Then in December 2018, I tweeted:
I've definitely for some work to do, but here's a new goal, by EOY 2025: pic.twitter.com/tv49Wu1kwW
— Josh Overmyer (@Jovermyer1) December 24, 2018
By March 13, 2019, I was on the Fire Drill podcast voicing my intention that I had tweeted to the world in December. I was going to pay off the mortgage in 7 more years, a little before my mortgage turned 20 years old, and right as I was turning 43 myself. But some of the other guests on that episode talked about keeping the mortgage around and investing the difference. I was intrigued. I started to do some research on the prevailing rates at the time, which were low, but not all-time lows like we had seen a few years ago.
But when *he who shall not be named* started threatening trade wars with China and Mexico, interest rates began to drop quickly. By the end of June 2019, I stumbled upon the prevailing rates from my credit union, and found that I could get a 3.125% rate on a 15-year fixed mortgage, and even pull out a small amount of cash from my equity. <– do you see that, Dear Reader? I had equity for the first time in my 13 years of being a homeowner! Now I wanted to recapture that cash and put it to work for me in my investments.
I’m currently less than 48 hours away from the closing table on my refinance. The process has taken about 7 weeks, due to other homeowners making a mad dash for the refinancing table to lock in these low rates. If my process had taken another week, I could have jumped on an even lower rate (2.875%) that came out as a result of the Fed’s recent ¼ point rate cut.
The process was a little underwhelming, but thankfully most of it was handled digitally. I even signed most of the initial documents on my smartphone, while in the parking lot of a Pizza Hut. That detail isn’t important, but kinda fun 😊
My appraisal came back at $103,000, which was disappointing considering that I paid $175,000 in April 2006. For funsies (AKA to torture myself), I used an inflation calculator and put $175,000 worth of 2006 dollars in to see what that amount would be worth today if my house had only kept up with inflation. Answer: $222,346. Which makes my $103,000 appraisal even more sad. It’s worth less than half of what it could be expected to be worth, based on keeping up with inflation.
I’ve also had an Adjustable Rate Mortgage for these past 13 years and 3 months, so it will be nice to get a 15-year fixed rate. I have been lucky that in the rate environment we’ve been in the past decade or so, my rate started at 4.75% and has only dropped down to the rate floor of 4%, where it has been since 2009. But gone are my worries about rates starting to creep back up and wrecking any progress I’ve made with my mortgage paydown. I’ll have a low fixed rate for the next decade and a half, and I don’t plan to make even 1 dime worth of extra payments. The 3.125% fixed rate is barely above the long-term rate of inflation, and probably the cheapest money I will be able to borrow for the rest of my life! I don’t want to squander this opportunity.
So what do you think, reader? Is it a good idea to lock in low rates today and plan to keep that debt for the next 15 years? Do you *actually* sleep better at night with no debt, or is that just something people say?