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Dutchess_III's avatar

Can you give me some financial advice on paying off our house?

Asked by Dutchess_III (41912points) December 13th, 2015

We recently came into a fairly substantial sum of money, $55,000, that will allow us to pay off the house, except for about $20,000. Figure we’ll take a regular loan at the bank to pay that bit off.

My husband brought up a good point. He said that when I pay it, do it in two installments. Instruct them to pay off the interest that is owed on the last two months (we’re 2 months past due) and a second payment, with instructions to put that toward the principal.

This sounds like sound advice to me. What are you thoughts? And do you have any other suggestions?

I gotta tell you, I’m so excited I’m about to pee my pants! To flow into retirement with the house paid off!! ZOMG!

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22 Answers

elbanditoroso's avatar

Yes, he’s right.

Any time you’re doing something ‘special’ (i.e. non-routine) think of all the ways they could screw it up, and plan for that.

Meaning: write a separate check for the past due interest, and make sure that it goes in with the past-due coupons. And then check the next day to see that it has been properly applied to the account.

Then, as an entirely separate transaction, do the $55K payment, and again, make sure that it’s on the “principal” line of the coupon.

Better yet, if you can pay in person (as opposed to mailing the check to a PO Box) do that, so it has a better chance of being applied properly, and you have someone to talk to if it doesn’t.

But one question. Given that mortgage rates are in the 2–3% range, and regular bank loans are in the 6–8% range (or higher), are you thinking of the last $20K as a mortgage or a straight bank loan or what? Don’t get a higher interest rate and squander your money,

SQUEEKY2's avatar

@elbanditoroso is right about the interest rate, better talk to the bank and if you possibly can see about doubling up your payments meaning pay every two weeks instead of once a month and in most cases you can put and extra 10% on it and the end of the year with no penalties,if you can do that and you wont believe how fast it will be payed off.

Dutchess_III's avatar

Well, I pay over the phone, @elbanditoroso. I talk to humans,or I pay through the automated system over the phone. I also loaded a ‘record call” app onto my husband’s phone so I’ll record the call.

They may be in the 2–3% range now, but they weren’t when I took the loan out in 1998. I know, I know. We should have refinanced,but we didn’t.
Perhaps I should look at taking out an actual mortgage loan instead of just a bank loan?

@SQUEEKY2 Oh, I’m working on all that. I don’t feel comfortable with paying every two weeks, because the paycheck amounts fluctuate and I can’t count on having X-amount every two weeks. But I will increase the amount I pay every month.

When I got the land paid off, I immediately increased the payments on the other 3 loans by $50 each. Then I sold the 63 bug, and increased them another $50. When it comes to the house, I’ll increase the payment amounts by $100 a month, on the two biggest loans we still have out (the RV and the Mountaineer.)

chyna's avatar

If you refinance you house, you will pay at least 4k in costs. You might want to just continue paying the loan you already have.

CWOTUS's avatar

Save the cash to the extent that you can once you’re caught up to date with your payments.

Since you have been in an “emergency” situation (as I have determined since you were two months in arrears on the current loan), then your husband’s advice to make a payment to bring you “current” is perfectly sound. After that, however, since you do not have enough to pay off the loan in full, you should maintain the cash in a safe place (even a low-interest personal savings account where you won’t be tempted to spend it) so that you can have it as a cash reserve should you ever fall behind again. (You haven’t said – and I’m not asking – why you fell behind, but that’s always a dangerous place to be, because instead of the current windfall you could have had instead an unexpected additional emergency expense, and what then? So you don’t want to be in that position again.)

When you have enough cash to pay off the loan with a lump sum payment (and assuming there are no penalties on your loan for early payment), then you may wish to pay it off in full and be done with it. But it’s not wise to do that if there’s a chance that you could get into the same straits that you were in before this windfall.

filmfann's avatar

Compare the current interest rate you are paying with the rate of a potential new loan.
Before using all the money on your house, pay off any credit cards, whose interest rates are probably much higher than your home loan.

tedibear's avatar

I don’t know your tax situation, but remember that, typically, you can deduct the amount of interest you pay on your mortgage.

@CWOTUS and @filmfann – excellent advice!

Dutchess_III's avatar

I don’t have any credit cards @filmfann. ;)

@chyna…. My husband will be 64 this year. He plans to work until he’s 70, but there is no guarantee. That only gives us a couple of years to get out of debt. We can’t go into retirement still paying $1000 a month for the next 15 years on a mortgage. I just want completely out of debt, and fast.

This isn’t the first time we’ve fallen behind since I lost my job, @CWOTUS. It’s a real struggle every month.

Dutchess_III's avatar

Anyway, so should I get an actual mortgage loan on the last $20K, rather than a personal note with the house as collateral?

Dutchess_III's avatar

Also, should I write two checks with instructions of where to apply it in the memo so I have written proof?

Tropical_Willie's avatar

Don’t get personal note, interest is high. See how much a “refi” would cost in closing fees. Calculate the per month cost of current mortgage against the new month mortgage and divide the closing cost over the life of the mortgage. Use half of the windfall to pay down the balance either way. Put the rest into a savings account.
Two checks with documentation is the way to take care of today and tomorrow.

Dutchess_III's avatar

Thank you @Tropical_Willie. But you kind of lost me at “windfall.” What windfall?

chyna's avatar

Windfall: unexpected profit

Dutchess_III's avatar

I know what it is. I just don’t see a windfall in the scenario Trop Willie gave me.

Tropical_Willie's avatar

Windfall “We recently came into a fairly substantial sum of money, $55,000”

Dutchess_III's avatar

OK, that windfall! IDK. I just want the hell out from under the house payment, period.

Pandora's avatar

Do you have equity on the home?

Pandora's avatar

Is it enough to borrow the 20 thousand needed? Then you may be able to take it out for 10 years and slowly pay it back.
Try the lendingtree.com. I think it’s one of those comparing sites that allows you to check rates from different lenders.

Dutchess_III's avatar

@Pandora Oh, we’ll have plenty of equity if I put $48,000 on the house. That will pay off all but $20,000. Using the house as collateral is what I was thinking of, but, as folks are saying, that’s the most expensive type of loan.
I don’t know why, but I just have a funny feeling about this. I have a feeling that it’s not like paying off a car or a regular loan…..

Pandora's avatar

Well provided your current interest rate isn’t ridiculous than I would just stick with the current amount of the loan.You could always put the money aside and let it build money while making monthly payments. Then whatever you would’ve physically paid yourself, set aside and add to your savings till you save 20,000. If you can save 5000 a year you will have the full amount and be able to pay it off without ever borrowing again. In the mean time, you can make two extra monthly payments going toward principle to reduce the interest rate amount per year.
It’s better that way any way. Usually the moment you outright own your own home the property tax rate can become higher because it is seen as an asset. You might want to check. Also check to see how much you will have to pay in taxes with the added money you made. It may take you into a different tax bracket for next year and I believe gift or winnings are also taxed higher. You don’t want to be in a jam for next years taxes.

Dutchess_III's avatar

@Pandora We have a hell of a time saving any money. We’re looking at retirement in a year for my husband, 5 years for me…assuming I can even find a job. We can’t possibly pay the mortgage at the rate we’re paying it now, when our income will be SS, period.

Yeah, the taxes worry me too. I contacted my attorney. She should have some good advice for me, or refer me to someone who does.

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