If you could pay off your house would you??

[NHCharger]

Bill, met with the lawyer today about the trust. There are a lot of other things to consider besides just putting your house into a trust. He went over all our assets and is going to do a Lifetime Planning Program as well.

Right now the house is just in my wife's name. We both have a will. However if she dies first the house still goes into probate. He said lawyers love writing wills because they get paid twice, once for writing the will, and once for probating the will. Because we are still semi-young (55 & 56)  he said a revocable trust is what to set up. In this trust we can put our house, all the rental properties and my cars. He said an irrevocable trust is something you set up when you start to get close to nursing home age. If I want to sell any of my rental properties it's very easy to remove it from the trust. He said think of a revocable trust as a big protective basket, that you can add or remove items from. An irrevocable trust is much different because you do not have direct control over it.

As far as the Lifetime Planning he is setting up a Health Care power of Attorney, Living Will, and a Financial (Durable) Power of Attorney.

He also strongly advised us to add an insurance umbrella policy for our house, said it is well worth the extra 300-400 a year. Said most people only carry the minimum and a 100k per incident policy won't be enough if your grandsons friend falls out of a tree on your property, lands on his head and has a long term hospital stay. I checked with my insurance company (I have the minimum  ) , 100/300k policy. In order to get an umbrella policy I would need to raise the coverage to 200/500k. So doing that, plus a one million dollar umbrella policy would cost me an additional $360.00/year.

It really irritates me that I have to spend my money to protect all my assets that I have busted my ass to get over the years. One thing that promted this was a flooring contractor I know rearended a pregnant woman at a stop light, 2 mph impact, no damage to either car. She refused medical treatment at the scene and drove home. Friend said she was screaming she had to get home to make supper for her husband. A year later he gets served papers. Physical and emotional trauma to her, possible brain damage to her infant son, she's now afraid to ride in a car, can't work, wants to be compensated for all the income she will now lose for the rest of her life, etc... He has the same insurance coverage I have. He's afraid he will lose everything. His attorney fees are emptying his bank account.

[BSB67]

Bill, met with the lawyer today about the trust. There are a lot of other things to consider besides just putting your house into a trust. He went over all our assets and is going to do a Lifetime Planning Program as well.

Right now the house is just in my wife's name. We both have a will. However if she dies first the house still goes into probate. He said lawyers love writing wills because they get paid twice, once for writing the will, and once for probating the will. Because we are still semi-young (55 & 56)  he said a revocable trust is what to set up. In this trust we can put our house, all the rental properties and my cars. He said an irrevocable trust is something you set up when you start to get close to nursing home age. If I want to sell any of my rental properties it's very easy to remove it from the trust. He said think of a revocable trust as a big protective basket, that you can add or remove items from. An irrevocable trust is much different because you do not have direct control over it.

As far as the Lifetime Planning he is setting up a Health Care power of Attorney, Living Will, and a Financial (Durable) Power of Attorney.

He also strongly advised us to add an insurance umbrella policy for our house, said it is well worth the extra 300-400 a year. Said most people only carry the minimum and a 100k per incident policy won't be enough if your grandsons friend falls out of a tree on your property, lands on his head and has a long term hospital stay. I checked with my insurance company (I have the minimum   ) , 100/300k policy. In order to get an umbrella policy I would need to raise the coverage to 200/500k. So doing that, plus a one million dollar umbrella policy would cost me an additional $360.00/year.

It really irritates me that I have to spend my money to protect all my assets that I have busted my ass to get over the years. One thing that promted this was a flooring contractor I know rearended a pregnant woman at a stop light, 2 mph impact, no damage to either car. She refused medical treatment at the scene and drove home. Friend said she was screaming she had to get home to make supper for her husband. A year later he gets served papers. Physical and emotional trauma to her, possible brain damage to her infant son, she's now afraid to ride in a car, can't work, wants to be compensated for all the income she will now lose for the rest of her life, etc... He has the same insurance coverage I have. He's afraid he will lose everything. His attorney fees are emptying his bank account.

Good info here.

It is stupid what you need to do to protect your assets.  You need a lawyer, and accountant, and a financial/estate planner, and they have to specialize in this specifically.

The challenge with the irrevocable trust (and you need one if you plan to truly past along something to you kids with certainty) is to know when to get it.  You should have it at least 5 years before you go into a care system. 

The government at large has been taking our money forever and they are really really good at it.  They control the rule book.  IMO it is really hard for middle class to leave a legacy.

I would not be surprised if they start doing some sort of a money grab on 401Ks soon (in some fashion) .  It is just too much money sitting out their that they actually believe it theirs.

[BSB67]

Simple math: if your annual mortgage interest tax refund + annual investment return > your annual mortgage payment amount, you would make money. I seriously doubt that's possible though.

Your simple math is wrong.

And it is interesting that you doubt that it is possible with the mortgage rates where they have been and the DJI going from 8000 to 18000 in 6 years.  

How is my math wrong? All I said basically is if A makes you more money than B, invest in A.

There may, or may not be tax implications on both sides of the equation, and the effect of compounding interest over time.  And if you need to sell your house for whatever reason, your return on that investment will be less, assuming an appreciating market.

[AKcharger]

Thanks for the info NH

- will get more data on the revocable trust
- already have increased insurance, with our pool, I saw that as a threat
- messed up about contractor friend. Is his car insurance fighting it??? Was there a police report. If not I'd say...prove I hit you! Still messed up no matter how ya slice it

[bull]

DC.com is a great place for Charger advice but I'd take advice on marriage, finances, legal issues, etc., wih a big grain of salt.

[stripedelete]

I would not be surprised if they start doing some sort of a money grab on 401Ks soon (in some fashion) .  It is just too much money sitting out their that they actually believe it theirs.

We have until the first two thirds of the baby-boom is dead and then it's Katie-bar-the-door........

[ws23rt]

DC.com is a great place for Charger advice but I'd take advice on marriage, finances, legal issues, etc., wih a big grain of salt.

I'm with you on this.    I'd also expect that most are just wanting to chat about the subject to get a feel for what others are going through.

I for one am at the time of retirement and now more than ever am looking at the math as well as the political trends.
My pension (that I am not yet taking) is very good and I have worked at building it for 40 years. I don't have a warm fuzzy feel that I will get it as promised for the next 20 years.
This is an example of what I think many are up against when planning for the future.

[NHCharger]

Bull, I'm just giving a general synopsis of my one hour meeting. Putting your property into a trust certainly isn't for everybody. If you only have one property and plan on selling and moving to a retirement home in your golden years a trust probably isn't needed. I plan on being carried out of my house (or shop) in a pine box.
Besides owning my house outright, my wife and I also own six rental units. I also co-own three with my Dad, so I potentially have a lot to lose. I should have done this ten years ago. I'm not endorsing any particular method of home ownership. Simply showing that there are alternatives that can make things easier for you and your heirs, and possibly save a lot of time and money if your estate planning is done right.

If anyone is interested all this planning is going to cost me $3,000.00. The majority of it for transferring ten deeds into the new trust. I would think that lawyers fees for probating a will would easily be more than that.

[BSB67]

DC.com is a great place for Charger advice but I'd take advice on marriage, finances, legal issues, etc., wih a big grain of salt.

I'm with you on this.    I'd also expect that most are just wanting to chat about the subject to get a feel for what others are going through.

I for one am at the time of retirement and now more than ever am looking at the math as well as the political trends.
My pension (that I am not yet taking) is very good and I have worked at building it for 40 years. I don't have a warm fuzzy feel that I will get it as promised for the next 20 years.
This is an example of what I think many are up against when planning for the future.

Right.  Are you in the private or public sector?

For the private sector, several years ago, Congress passed a law to require companies to do more to fund their pension obligations, which I believe has helped.  But many companies are still falling behind and the governments Pension Benefit Guarantee program is running out of money.  They are concerned that the pension obligations will cause more bankruptcy's. Just late last year Congress passed a law that allows companies with defined benefit plans to cut back on promised private sector pension pay-out to retirees.  So, the retirees retirement pension check just gets smaller.  No bankruptcy.  This is for retirees that are currently receiving benefits.   

Public sector pensions will be a train wreck too, but for state and federal employees, the tax payer will likely eat most of that.

The housing/economic crash, the tuition debt bubble (which is now on the tax payer due to Obama Care), and the pension debt bubble.  Where will all the money come from?  The Administration just made known that the they plan to expand the tuition debt forgiveness program.  If you paid for your own college, and/or you and your children are paying for their own way to college a education, this is unbelievably frustrating.

Okay, I'm convinced, I'm going to pay off the house and get a irrevocable trust.

[AKcharger]

DC.com is a great place for Charger advice but I'd take advice on marriage, finances, legal issues, etc., wih a big grain of salt.

I'd actually say it's a pretty good place for advice. Our demographics on D-C.com are pretty much white, middle to upper middle class males 40-60 so our experience are going to be somewhat similar, why not benefit from another's experience? Now of course ya' have to filter but this place was spot on whe I asked about staying in the Air Force and giving Meth a try just once.

Now one more house question:
If I pay off all but say $30,000, do I still pay the same percentage to interest as I do now or does it work the same way as if I paid it down to $30,000 and most of the payment goes to the principle?

[Paul G]

Now one more house question:
If I pay off all but say $30,000, do I still pay the same percentage to interest as I do now or does it work the same way as if I paid it down to $30,000 and most of the payment goes to the principle?

The more you reduce your principal balance the less interest you will pay over the life of the loan. The monthly payment amount stays the same, the number of payments you have to make is reduced.

Check this option out;
If you get paid every two weeks and allow one half of the mortgage payment to be set aside each pay, then make your payment once a month, when you have a 3 payday month send them an extra half payment to be applied to principal, your 30 year fixed rate loan will be paid off in 21 years.

[AKcharger]

Well I'm thinking that if I have to pay a realitor I'm going to be about 20-30K short on the pay off so I was hoping most of my current payment would change and go mostly to principle

[ws23rt]

I've read your original post and your last post and still find it hard to understand what you intend/want to do. ??

This is my understanding of how (for example) a 5% 30 year fixed loan works.---$100,000---

-- 5% of $100,000 = $5000. This is the annual interest.---
--divide this $5000 by 12 (months in a year) and you get about $417. This is the interest per month.
--$536.82 would be the monthly payment. (for 30 years)
--The first monthly payment will lower the principal by $119.82 leaving $99,880.18 principal owing.
--The second month payment would be interest on the balance ($99,880.18) %05= $4994.01 divide this by 12 (months) =$416.17
--The second month interest is- eighty three cents- less that the first month.
--The total of all payments would be $193,256.49

If you are near the end of the mortgage term your $536.82 monthly payment is mostly against the principal like the interest is at the beginning.

The same loan over 15 years would be at $790.79 per month and a total of payments $142,343.24. ---A savings of $50,913.25---

The only way your current payment could change is if you established a new contract/mortgage  for the balance you owe.

Bottom line is owing money for less time equals less money spent.

[taxspeaker]

OK I think the advice that this is a great place for car info, but be careful about tax/financial/legal advice is spot on. There is a lot of good info here and some things that kind of concern me. Just to establish bona fides, no other purpose:I am a 40 year practicing CPA and CFP in individual and small business tax and financial planning who put himself through college as a Chrysler mechanic and happen to have written Amazon's best seller on Social Security and Medicare and quoted often on Fox business.

Here are some absolutes:
Umbrella liability insurance-absolutely
"Paid For"-absolutely-we always forget the psychological value of these words, more important than tax issues
Pay off high rates first-absolutely
Wills-absolutely
Health care directive & living wills-absolutely
401-k is the best tax loophole in America for the average person(right now anyway)
Shania Twain-absolutely (oops)

Not so absolute-see a professional attorney AND CPA:
Trusts for home ownership-you almost always lose your home sale tax exclusion if its in a trust-few attorneys consider this
Living trusts-excellent on paper, hard to accomplish in real life because things change daily
Pay off the home early-good on paper but talk with a financial planner and see above!

Side comments:
If you pay off the home in some states you lose a property tax mortgage exemption
State taxes play a significant part of planning, but not in AK or Florida!
Social Security, no matter what you hear or read, is not broke-read the trustee's report (I have), but Medicare is in trouble
Tax on wealth, Roth's etc-yes I worry about that for my kids but not so much for me
Inflation-will come screaming down the pike in a few years like a Mustang trying to get out of the way of a HemiCuda

I'm not meaning to offend anyone trying to be helpful here since we are all trying to help each other.
Thanks
Bob

[AKcharger]

WS - I apologize for any confusion. Let me rephrase:
Yes, as a natural course of things as you pay down your loan over time more of the payment goes to the principle...I got that. My question is if you just dump $70k on the loan will the mortgage company AUTOMATICALLY change a majority of your payment to the remaining (smaller) principle OR since the loan is only a a year and a half old, continue the formula where most of the payment still goes to interest as the term of the loan is short and SLOWLY phase in that ratio to pay down the principle..they want to make $$

Taxspeaker - copy all, and thanks for the tips. I understand where $$$ is involved professional help is required, but nice to get ideas here...I've picked up on things I've never considered....oh and I didn't know you were semi-famous...cool 

[Paul G]

The mortgage company recalculates your interest payment every month. You can get an amortization schedule from them with each months payment amount, interest and principal, for the full term of the loan. When you send additional money to be applied to the principal, the next month when they recalculate your interest portion of the payment, they calculate the interest owed on a smaller principal amount.  

Go here; http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

You can enter your mortgage balance, term in months or years, interest rate of the loan, and it will calculate the payment amount and show an amortization schedule. You can even put in one time additional principal payments, (like you asking about) or additional principal payments each month. It will show you how making additional principal payments will shorten the life of the loan. Saving you TONS of money in the long run.

To some this may be the first time you are hearing this. Or the first time you are using a mortgage calculator. But paying down your mortgage by sending additional principal payments, in my opinion, is the smartest thing a person can do. The amount of money you save on the other end of the loan, by paying a little more each month in the beginning of the loan, is the smartest money you can spend.

I am at the back end of the my mortgage loan. I pre paid principal for years. I decided to stop sending in additional principal now. I only have 24 months left to pay. The additional money I would send in at this point is almost a 1 to 1. Meaning, $100 sent in today only takes about $100 of the loan at the other end, the other end being 24 month from now.

I took out the mortgage in 1998. It should have been paid in 2028. It will be paid off in 2017. A 30 year mortgage paid off in about 19 years. I did this by sending in an additional 1/2 of a monthly mortgage payment, doing that twice a year, every 3 payday month. When you get paid every two weeks there are 2 three payday months every year. It was virtually painless. Every paycheck I took out the same amount for the mortgage. Plus bonuses got sent in to pay down principal once in a while over the years.

I am 56, in two years I could retire if I really wanted to. No mortgage payment at that point. Paying the mortgage early is a wonderful thing.

[Paul G]

BTW, you must specify to your mortgage company what you want them to do with the additional money you give them. It could go to escrow instead of principal. You must specify that you are paying down principal, and check them each month to make sure they get it right. Call them and let them know what you intend to do. GMAC gave me a different address to send additional principal payments.

I hope this helps.

[ws23rt]

WS - I apologize for any confusion. Let me rephrase:
Yes, as a natural course of things as you pay down your loan over time more of the payment goes to the principle...I got that. My question is if you just dump $70k on the loan will the mortgage company AUTOMATICALLY change a majority of your payment to the remaining (smaller) principle OR since the loan is only a a year and a half old, continue the formula where most of the payment still goes to interest as the term of the loan is short and SLOWLY phase in that ratio to pay down the principle..they want to make $$


I have confusion about this stuff myself and don't consider myself an accurate authority. What I learned was from my experience with my mortgages.

When the mortgage contract is established the term --monthly payment--( for example) is fixed.  One owes the monthly payment every month.

If there is no "prepayment penalty" in the contract then every dollar extra you pay goes to the principal. This does not lower the monthly payment due but does bring the pay off date closer. Their is no recalculation of the original loan by the mortgage company. Their is however a change in how much of the monthly payment goes to interest vs principal. This change is generated by the size of your payment.

Others may have said this in other ways.  

Sometimes looking at something like this needs to be done in different ways until the light bulb flashes.--The ah ha moment-- this is simple.  Owe as little as possible for the least amount of time.

The title of this thread is "If you could pay off your house would you?"---The simple answer is a question. It will cost more money if you don't so how much are you willing to spend to put it off?

[ws23rt]

BTW, you must specify to your mortgage company what you want them to do with the additional money you give them. It could go to escrow instead of principal. You must specify that you are paying down principal, and check them each month to make sure they get it right. Call them and let them know what you intend to do. GMAC gave me a different address to send additional principal payments.

I hope this helps.

That's a good point  One needs to know if they have a prepayment penalty and what it is if they do.

I had a very rough time paying my mortgage in the eighties when the work market cut my wages. The discomfort I felt at that time made a lasting impression. As things picked up I started paying extra every month and soon 1k extra per month was the norm.
When I made the last payment about ten years ago I encountered another problem.  What to do with the money I used to spend on the mortgage.  A whole new set of issues to be solved. I now need to pay attention to how much others are paying me for using my money.

[skip68]

Very very smart Paul.      
If you can afford it Paul's method is the way to go.  You can cut a 30 year loan down to a 15 year by just applying extra money towards the principal every month.  

[AKcharger]

When I made the last payment about ten years ago I encountered another problem.  What to do with the money I used to spend on the mortgage.

I hope to struggle with this "problem" myself in a few months