Move #8: Mortgage Strategy

Buying a home should be a great experience, not your worst nightmare. 

THE WHY

Let's jump right in. There are two sides to this Move: Home Buying and Paying It Off. The latter portion seems logical. You don't want a mortgage payment, so you knock it out as fast as possible. There is, however, some debate about whether or not to pay off your home early. Rather than posting a separate article (which I may still do) I am going to answer that right now. The Motley Fool says "Let's say you're in the 25% tax bracket and currently pay $24,000 in mortgage interest per year. That's a $6,000 tax break you'd be giving up by paying off your mortgage."

Think about that for a second. You are going to pay $24,000 in interest on a home, annually, to get a $6,000 tax break. Does that make sense to you? If it does, we need to talk. This goes back to the philosophy of Move #4: No payments is better than payments. Moreover, if you did not have a mortgage payment that is more money you can allocate towards your Flex Cash which will inturn help you retire in a better position. 

THE HOW

Let's look at home-buying for a moment. In the 9 Moves booklet, I call these "Rob's Rules for Home-Buying": 

  1. Don’t let your payment, interest, taxes, and insurance total
    over 30% of your monthly net income.
    This isn't a hard and fast rule, it is just something to be mindful of. You don't want to wind up "house poor" and have all of your monthly capital going towards housing. 
  2. Put at least 10% down and have some money banked. You always want to go into a home with some equity. I strongly recommend 20% to avoid Private Mortgage Insurance (PMI), but I'll settle for 10%. 
  3. Survey the neighborhood. When my wife I first went home shopping, we called a local police department to get some information on an area of Lansing that we weren't familiar with. They were very helpful. Friends and co-workers are great resources too. You never want to move into a bad neighborhood. Make sure it's solid before you move!
  4. Choose a smart mortgage. Adjustable rate mortgages (ARM) and other variable rate mortgages are very risky. The best types of mortgages are 15-year fixed and 30-year fixed
    rate mortgages. I would try for a 15-year mortgage if you can swing it!
  5. Don’t be pressured. I hear people tell young couples who are renting that they need to buy
    a home instead of wasting their money renting. You may not be in a good financial position to purchase a home. Don’t succumb to pressure. You know what's right for you. 

On the other side of things there's the payoff. If you can cut your mortgage payoff in half, that's a huge win. Don't forget to have fun so you don't get burned out. If you want to drop more cash into retirement during Move #8, that's fine as well. Just make sure it's a justifiable decision that makes logical sense. I don't want to see anyone shackled to a mortgage into their retirement. Flex Cash leads the way on this Move. 

THE WHAT

There are two pieces to this "what". Once you've develop a plan to knock your mortgage out early, you can start prep work on Move #9. Once you've finished paying off your mortgage, execute Move #9 like a pro. You've come this far, never turn back.