Expensive vehicles

Greg

Old Mossy Horns
My point exactly. I don't have any of those things either, but I could. I chose to fully fund IRA & 401k funds instead.

My wife and I are driving 15+ year old vehicles, but our house is paid off and we are debt free......

^ This ....... ;)
 

appmtnhntr

Twelve Pointer
The wife and I both have new vehicles. Mine was a '16 (off the lot under $28k) bought new with a 4 year term on 1.5%, but I pay extra every month, and a vehicle stipend from employer covers well over my payments and upkeep (less fuel)
Hers was a 2012 Optima trade-in worth $18k on a new '17 Sorento, so she financed the rest ($12k) for 3yrs at 0% just to spread the cost out even though we could have covered the cash.

I'm the type to drive a vehicle past 200k miles and then trade in and get something new. Don't need high-dollar or flashy. Just something presentable to clients and dependable. (FYI my last vehicle was a 2000 outback with 260k miles. Only got a new one when upkeep and repair was going to be more than the value of the car)

Our rule is we don't have any more debt or living expenses than only one of our TAKE HOME incomes can cover (cars, house (well under $1k), food), in case something happens.
About 40% of the remainder goes in savings/invest/retirement since we're young and have reasonable expenses
The other 10% is what we squirrel away for our fun stuff like guns:) or we save to take one or two small trips a year.

I'm all for people doing whatever they want with their money, but I still wonder how a lot of people our age (late 20's) can stand being leveraged to their eyeballs with big house/cars/etc.
I've seen, and still see, a lot of young people drown on credit card, mortgage, and vehicle debt when something unexpected like medical expenses or a layoff comes around.

That would keep me up at nights worrying.
Stability and planning makes me happy like a security blanket. :)
 

Homebrewale

Old Mossy Horns
My point exactly. I don't have any of those things either, but I could. I chose to fully fund IRA & 401k funds instead.

My wife and I are driving 15+ year old vehicles, but our house is paid off and we are debt free......

I purposely don't pay any extra towards my mortgage. A paid-off house is not important to me.
 

KTMan

Twelve Pointer
Contributor
Hard to justify buying a 50k vehicle even if I can pay cash, when I can buy a rental property for same price and draw $500+ a month off it. I'm too rough on a truck to put that kinda of money in one. I do on the other hand like for my wife to have a nice new vehicle. But she drives it until it cost more to keep on road than its value. But we also (other than personal home) are debt free.
 

nckeith

Ten Pointer
The wife and I both have new vehicles. Mine was a '16 (off the lot under $28k) bought new with a 4 year term on 1.5%, but I pay extra every month, and a vehicle stipend from employer covers well over my payments and upkeep (less fuel)
Hers was a 2012 Optima trade-in worth $18k on a new '17 Sorento, so she financed the rest ($12k) for 3yrs at 0% just to spread the cost out even though we could have covered the cash.

I'm the type to drive a vehicle past 200k miles and then trade in and get something new. Don't need high-dollar or flashy. Just something presentable to clients and dependable. (FYI my last vehicle was a 2000 outback with 260k miles. Only got a new one when upkeep and repair was going to be more than the value of the car)

Our rule is we don't have any more debt or living expenses than only one of our TAKE HOME incomes can cover (cars, house (well under $1k), food), in case something happens.
About 40% of the remainder goes in savings/invest/retirement since we're young and have reasonable expenses
The other 10% is what we squirrel away for our fun stuff like guns:) or we save to take one or two small trips a year.

I'm all for people doing whatever they want with their money, but I still wonder how a lot of people our age (late 20's) can stand being leveraged to their eyeballs with big house/cars/etc.
I've seen, and still see, a lot of young people drown on credit card, mortgage, and vehicle debt when something unexpected like medical expenses or a layoff comes around.

That would keep me up at nights worrying.
Stability and planning makes me happy like a security blanket. :)

Again, I think the point was about expensive vehicles. Since you never know anyone's situation, there is no use worrying about it. Do what makes you feel comfortable. For your situation specifically, pertaining to folks in their 20's, they could be making more then you, they could be in debt up to their eyeballs, or they could be living with help from mom and dad. You never know.
 

Mr.Gadget

Old Mossy Horns
I purposely don't pay any extra towards my mortgage. A paid-off house is not important to me.

A paid off house is not really important to me also.
Not paying interest is.
The interest I would be paying if I had a mortgage has paid for my trucks.
 

Firefly

Old Mossy Horns
My point exactly. I don't have any of those things either, but I could. I chose to fully fund IRA & 401k funds instead.

My wife and I are driving 15+ year old vehicles, but our house is paid off and we are debt free......

My Wife and I are debt free as well, haven't had a house or car payment for many years it feels good not to be in debt.. I figure if we can't pay cash for something we don't need it at all. We still have 2 perfectly good boats that we rarely use, at our age we will never buy another one..I offered to buy my Wife a new SUV last year but she said no her Dodge Dakota only has 65K miles on it its an 07 model...
 
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Homebrewale

Old Mossy Horns
A paid off house is not really important to me also.
Not paying interest is.
The interest I would be paying if I had a mortgage has paid for my trucks.

Instead of putting extra payments towards the mortgage, I invest them. The capital gains pay for my vehicles.

Paying extra on a mortgage carries a lot of risk.
 

KTMan

Twelve Pointer
Contributor
Instead of putting extra payments towards the mortgage, I invest them. The capital gains pay for my vehicles.

Paying extra on a mortgage carries a lot of risk.

I do this as well. Figure (hoping) my money is making more than the interest on my mortgage. Plus can write the interest off on my taxes. I do plan not to have a mortgage when I retire.

But, I too am curious as to your thought o f paying off a mortgage is a lot of risk.
 

Mr.Gadget

Old Mossy Horns
Only had 2 people say I should keep paying on a mortgage and invest.
I know one went to jail and they other closed up shop.

I would need to see a spreedsheet on how you can take the money you pay extra on a mortgage and then invest it making enough to cover the cost of mortgage and also pay for a vehicle.

I remember paying 600 to 800 a month on interest for a mortgage. I do not see how 200 to 300 a month invested could cover the 600 to 800 interest and a 400 to 500 truck payment.

You are talking about turning say 250 invested turning into 1000$ per month.

I could only see this long term say after 20 years but I never had a mortgage that long.

Maybe I did something wrong.
 

Mr.Gadget

Old Mossy Horns
I do this as well. Figure (hoping) my money is making more than the interest on my mortgage. Plus can write the interest off on my taxes. I do plan not to have a mortgage when I retire.

But, I too am curious as to your thought o f paying off a mortgage is a lot of risk.
I had some good CPA's and one that is CFA also look into it.
Looked at total income, taxes, mortgage, IRA and everything..
Like I said 2 said dont pay it off,.they want me to get a second and invest that. As I said one went to jail the other no longer around the others said pay the house off fast, pay cash for what you need and invest extra.

After my house got paid off I have had more money to invest and more mad money.

30 year mortgage would have cost me 200000 in interest.
 
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Homebrewale

Old Mossy Horns
How does paying extra or paying it off carry lot of risk?

Let's differentiate the two things. To be more exact, there is a lot of risk to paying extra towards the mortgage up until you pay the mortgage off.

Here's an example. Person A and B both have 6 month emergency funds. Both homes are bought for $250k with 30 year loans. Person A over a 15 year period paid $100k extra towards the mortgage. Person B stuffed $100k under the mattress. There is a sudden job loss. New jobs are hard to come by. In month 7, Person A has exhausted the emergency fund. Person A calls the bank and asks since they're ahead by $100k on their mortgage, could they skip a few payments? Bank says no and if they don't get a payment, foreclosure proceedings with start. Person B pulls out $5k from under the mattress for that month's expenses. For another 19 months after that, Person B can pull $5k monthly.

Moral of the story: Locking your money up in the house instead of under the mattress or more ideally in an investment account increases your risk up until the house is completely paid off.

On another website, a mortgage broker recommended a Mortgage Freedom Account. It's an account where you put your extra mortgage payments instead of putting them towards the mortgage. When the Mortgage Freedom Account equals the principal on the mortgage, withdraw all the money and pay off the mortgage. If any disaster such as unemployment or sickness occurs before the MFA equals the principal, use the MFA to pay your monthly expenses until you are earning income again.

The MFA could be your money under your mattress, savings accounts, CDs, bonds, or stocks. The higher return on your MFA, the faster you can pay off your house. There is higher risk with higher return.

Personally, my mortgage interest rate is 2.625%. While some years I may earn less than that or even lose money, if my investments can't beat 2.625% over longer periods, I shouldn't be investing. 2.625% is not a high hurdle to jump.
 

nckeith

Ten Pointer
Let's differentiate the two things. To be more exact, there is a lot of risk to paying extra towards the mortgage up until you pay the mortgage off.

Here's an example. Person A and B both have 6 month emergency funds. Both homes are bought for $250k with 30 year loans. Person A over a 15 year period paid $100k extra towards the mortgage. Person B stuffed $100k under the mattress. There is a sudden job loss. New jobs are hard to come by. In month 7, Person A has exhausted the emergency fund. Person A calls the bank and asks since they're ahead by $100k on their mortgage, could they skip a few payments? Bank says no and if they don't get a payment, foreclosure proceedings with start. Person B pulls out $5k from under the mattress for that month's expenses. For another 19 months after that, Person B can pull $5k monthly.

Moral of the story: Locking your money up in the house instead of under the mattress or more ideally in an investment account increases your risk up until the house is completely paid off.

On another website, a mortgage broker recommended a Mortgage Freedom Account. It's an account where you put your extra mortgage payments instead of putting them towards the mortgage. When the Mortgage Freedom Account equals the principal on the mortgage, withdraw all the money and pay off the mortgage. If any disaster such as unemployment or sickness occurs before the MFA equals the principal, use the MFA to pay your monthly expenses until you are earning income again.

The MFA could be your money under your mattress, savings accounts, CDs, bonds, or stocks. The higher return on your MFA, the faster you can pay off your house. There is higher risk with higher return.

Personally, my mortgage interest rate is 2.625%. While some years I may earn less than that or even lose money, if my investments can't beat 2.625% over longer periods, I shouldn't be investing. 2.625% is not a high hurdle to jump.
Not to mention inflation.
I go back and forth on this issue as well. While I would say don't ever retire with a mortgage, those of us with ultra low rates such as 3.5% and under may have a different thought then peers when 7-10% was more the norm. I can't help but think I would stay in my existing house since I have a 3% mortgage during my prime working years.
i think like all decisions, the answer will be, it depends. Right now I pay the mortgage since I can and have human capital to do so. The danger is that the bill comes due every month. i can hedge that with insurance which I do and savings, so if I die the wife and kids have a fully paid for house. However, I darn sure don't want a note over my head in retirement. So for me the answer is both. Save as much as possible with investing and try to pay off the house. i rationalize the extra house payments as purchasing a bond that is about 2.5%. Which is my effective mortgage rate after deducting the interest. In an ideal world interest rates will go up and my saving account % will be greater then the mortgage amount and it would be an easier decision. But for now its a compromise like most things.
 

Mr.Gadget

Old Mossy Horns
Lot of factors in that.

Few things to CYA.
Always have a second mortage set up or a home equity line of credit.

That can be used in a crunch if needed and they have low payment and risk. Mine was always prime plus 0% and 50 $ min payment.
Have enough money set aside for payments for one year.
Be marketable, learn and know what you can do to make money if your job is gone.
Always best to live inside your means. My case we used a % of one paycheck, we have 2.

Never live paycheck to paycheck if you dont need to... And believe me I know how that is.

But is you are getting a house a lot of that stuff should be talked about and planned for.
After the fact is hard to plan for.
 

KTMan

Twelve Pointer
Contributor
Not to mention inflation.
I go back and forth on this issue as well. While I would say don't ever retire with a mortgage, those of us with ultra low rates such as 3.5% and under may have a different thought then peers when 7-10% was more the norm. I can't help but think I would stay in my existing house since I have a 3% mortgage during my prime working years.
i think like all decisions, the answer will be, it depends. Right now I pay the mortgage since I can and have human capital to do so. The danger is that the bill comes due every month. i can hedge that with insurance which I do and savings, so if I die the wife and kids have a fully paid for house. However, I darn sure don't want a note over my head in retirement. So for me the answer is both. Save as much as possible with investing and try to pay off the house. i rationalize the extra house payments as purchasing a bond that is about 2.5%. Which is my effective mortgage rate after deducting the interest. In an ideal world interest rates will go up and my saving account % will be greater then the mortgage amount and it would be an easier decision. But for now its a compromise like most things.

Good explanation. Guess that's what I do without looking at it that way. My rate is somewhere slightly under 3%. I still put a little on my house payment but basically just rounded number up. We financed for 30 years only as a safety net.

Like stated early I am debt free except for mortgage. We built in 2010 on my farm and I am schedule to retire in 2023. I'm putting the extra in a mutual fund that is doing fairly well and plan to pay off house before I retire. I want to be truly debt free at that time.

I think a lot of things have to be what the individual is comfortable with and a lot of people will give different advice. But still back to the original topic. I personally think I can pick up a nice enough truck around the 20k. Pay cash for it and drive it in the ground and be happy.
 

KTMan

Twelve Pointer
Contributor
I had some good CPA's and one that is CFA also look into it.
Looked at total income, taxes, mortgage, IRA and everything..
Like I said 2 said dont pay it off,.they want me to get a second and invest that. As I said one went to jail the other no longer around the others said pay the house off fast, pay cash for what you need and invest extra.

After my house got paid off I have had more money to invest and more mad money.

30 year mortgage would have cost me 200000 in interest.

This is exactly what my father believed. Pay off house fast and keep money for yourself and not pay to bank. The big difference was that was in the time of 13%+ interest rates.
 

Trappertod

Six Pointer
As far as trucks go, I buy older trucks when I buy, but newer than what I own. I only drive one hunting fishing etc...

One day I will be debt free, one thing I do not have is a mortgage on my house, I inherited it. I do have a payment on a mobile home however I wish I didn't have. I listen to Dave Ramsey quite a bit, I think cash is always best. I did go to a hotel one time that did not take cash, I didn't stay there either.
 

Homebrewale

Old Mossy Horns
Mortgage example:

$250k house, $50k down, $200k mortgage
current 30 year mortgage rate = 4.35%
mortgage payment per month = $995

extra $500 payment per month toward mortgage
mortgage will be paid off in 15.33 years

no extra payment towards mortgage
extra $500 invested per month
mortgage balance in 15.33 years = $131,494
6% return on investments = $145,412
8% return on investments = $173,022

20% capital gain tax on investment
$164,367 return will be $131,494 after taxes (same as mortgage balance)

So if you earn 6%, you will not have enough to pay off mortgage completely but at 8%, you will have $8655 left over by not paying extra to the mortgage. But over those years, you will have the security of the money in the mortgage freedom account to handle any bumps in the road. In the house, the extra payments are locked up in an illiquid asset that could be tapped with a HELOC. Hopefully, the HELOC is there when you need it.
 

TravisLH

Old Mossy Horns
Most of the couples my wife's and my age that we know have nice cars and either rent their homes or are upside down in their mortgage despite having a similar income. I hear to often how about so and so wishing they could save money or just barely scraping by week to week. I just dont get it, we're far from rich but well over the poverty line and manage to go on vacations twice a year all the hunting and fishing trips we want and still manage to keep 20% of our annual income in a savings acct plus retirement accts. I definitely see a trend in how poorly my generation is at both saving and spending money, many live way outside of their means in trying to "keep up with the Jones's"


Sent from my iPhone using Tapatalk
 

Mr.Gadget

Old Mossy Horns
How many people had their HELOCs cancelled during the bursting of the housing bubble where the houses were suddenly upside-down?

No one I know.
I have had one or two set up from 95 ish and never anything other then a 10 year update asking to keep open or close. If open and that was what we did you update info and that was it.
Not something most would talk about but I bet there were large numbers and they maybe shouldn't have to start.
 

nchawkeye

Old Mossy Horns
I don't know how they do, but I don't...My current truck, a 1998 GMC has 330,000 miles on it...It had 17,000 when I bought it in 1999...The previous vehicle I owned was a 1983 Jeep Grand Wagoneer that I bought new for $16,500 and paid cash...All a vehicle does for me is carry me from point A to point B and sometimes tows my boat and trailer...Both boat and 4 wheeler were bought used and paid for at time of sale... :)
 

Mr.Gadget

Old Mossy Horns
Mortgage example:

$250k house, $50k down, $200k mortgage
current 30 year mortgage rate = 4.35%
mortgage payment per month = $995

extra $500 payment per month toward mortgage
mortgage will be paid off in 15.33 years

no extra payment towards mortgage
extra $500 invested per month
mortgage balance in 15.33 years = $131,494
6% return on investments = $145,412
8% return on investments = $173,022

20% capital gain tax on investment
$164,367 return will be $131,494 after taxes (same as mortgage balance)

So if you earn 6%, you will not have enough to pay off mortgage completely but at 8%, you will have $8655 left over by not paying extra to the mortgage. But over those years, you will have the security of the money in the mortgage freedom account to handle any bumps in the road. In the house, the extra payments are locked up in an illiquid asset that could be tapped with a HELOC. Hopefully, the HELOC is there when you need it.

Would need to take the time to run numbers but your look correct.

Based on that and the market at the time I was looking the risk of lost investment was very high....
Never really put the time in to look at the difference then and now.
The markets were crashing then so now with your numbers it may work good to invest. But there is still good risk when you invest to make money vs pay your bills to start and pay off something early.
 

Homebrewale

Old Mossy Horns
Would need to take the time to run numbers but your look correct.

Based on that and the market at the time I was looking the risk of lost investment was very high....
Never really put the time in to look at the difference then and now.
The markets were crashing then so now with your numbers it may work good to invest. But there is still good risk when you invest to make money vs pay your bills to start and pay off something early.

I agree it's all in the timing. My first mortgage was 8.25%. It would make sense to pay down the mortgage. With today's rates, I think investing has the advantage. It would take some more sophisticated calculations, not my simple ones, to find the interest rate where paying extra versus investing is about equal. I ignored things like mortgage interest deductions and any dividends on investments.

I think the most important factor when you make the decision to pay extra toward the mortgage is what is the size of your emergency fund and your contingency plans such as the HELOC. If you're living month to month, don't risk extra payments. If you have a good plan, I don't think there is a right answer unless you have a time machine. For some people, paid off mortgage gives them a good night sleep. How can you put a price on that?
 
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aya28ga

Old Mossy Horns
Contributor
Times sure have changed.

I can vividly remember my parents sweating out a $15,000 mortgage back in the 1970s......
 
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