The American Dollar
One industrious American family's focus on a financial goal of freedom. Through worldly personal finance education, here is our story.
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Our Story: Both my wife and I are 27 years old and have gone through financial hell and back. Now we are on track to financial freedom, however we are not financial advisors or professionals, just everyday people. Share our journey from a negative networth and email us if you have questions or comments! :)


Monday, April 30, 2007

Should we pay off the house?

The dreaded mortgage question lingers, should we pay off the house? Of course, people like us that absolutely hate debt with a passion say, "Why shouldn't we?". Given our situation, if things were to go the same financially and paying off this house meant a monthly commitment, we will have the house paid off in 4 years... by January 2011 to be exact. Lets go over some numbers first... we have remaining a $73,000 30-yr fixed rate mortgage at a 5.62% interest rate, which calculates to a monthly payment of roughly $430. Heres my issue... I would love to pay this house off by the time we were 30 years old. This will give us plenty of wiggle room in our budget to play with and thus be able to do save, invest, and maybe have a little fun too.

Yes that would be fine and dandy to own a $200K+ house outright. 3 beds, 2 bath, garage and a spacious fenced backyard... but what then? I was going over in my mind what some of my options were at that point. Heres the list:

1. Save aggressively another $100-$200K which could take another 5-10 years (making us 35-40 respectively) and then build/purchase our $300-$400K dreamhome, by selling our current home and moving up with no debt.

2. Purchase another home around $150-$200K and rent out our first home, which would cover our new mortgage amount and be able to pay down that one quicker; again when this done we would still be 5-10 years out. But do I really want to be a landlord and have the hassles of going through tenants and future repairs?

3. Sell our home now and move into dreamhome with a $135K downpayment.

4. Rent our home now and move into dreamhome with a small downpayment and use montly rent to cover mortgages on both.

5. Stay in our current home. Great neighborhood, awesome schools. Nice-semi nice neighbors. Ride it out and Invest.

I'd like to go over option 4 because although it may sound really good. My wife isnt attached to this house and although you can probably fit about a 7-person-family in this house, if we decide to have another child, 3 bedrooms (1 of which is our office) isnt going to cut it for the 4 of us. Sounds crazy but I guess we grew accustomed to having all this space and when the baby came, it was like... ok the guest bedroom just turned to the baby's room. With all of her toys and the baby knicknacks, it seems like our spacious simple space is being taken over! (in a good way of course). Maybe these thoughts of losing our space will blow over. I mean if you ask me 4 years, at 22, if I ever would be a homeowner and asking these questions, I would have laughed. Most of my time was consumed by getting drunk, hanging out with the guys, and trying to get the right girl. Well whatever decision we make, I guess we can consider ourselves very blessed in our position, but there is nothing wrong with thinking ahead. I wasnt born to be mediocre.


Blogger moneymonk said...

option #4 takes times and energy. To be a landlord is not easy.

I will choose option #5, because you are young.

Then again that is just my opinion. What do I know, I am not even close to owning my home as you!

2:05 PM  
Blogger Amdollar said...

I like option 5, but my wife thinks a 3 bed 2 bath is too small if we have another little one. Right know we are riding it out. :)

7:41 PM  

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