Meager Income

Pay Off Debt, Retire Comfortably on Meager Income, Win the Lottery, Not Necessarily in that Order

My Mortgages

Posted on | March 20, 2021 | No Comments

My goal is is to be free of debt when I retire. I’m currently focused on paying down my mortgage which consists of two loans. The combined interest rate is fixed at 3.25. If I were to adhere to the amortization schedule the last payment will be due in 2044.

Due the drop in interest rates last year, I explored refinancing the loans but decided it wasn’t worth it in the end.

I explored three options. Option #1, refinance mortgage #1 and and keep the current terms on the second loan. Option #2, consolidate the loans. Option #3, recast mortgage #1.

Option #1 did not go through because the second loan is with SLS (Specialized Loan Servicing) and they would not approve the subordination. This was my preferred option. The interest rate I was quoted was very good and I would have lowered my monthly payment significantly while the overall interest would have stayed the same. It was a very good situation.

Option #2 was to consolidate and refinance the loans. However, the combined payment would have meant paying more interest over the life of the new loan versus the current loan terms. I almost went this route. However, I also didn’t want to pay the second early after SLS denied the subordination. It felt like I would be bailing out Specialized Loan Servicing if I were to payoff the loan early. Instead, SLS will need to wait for their payments in accordance with the amortization schedule and hopefully some inflation sets in and erodes the value of their payment receipts.

Option #3, was to send in a lump sum and recast the loan. While preparing to refinance, I raised some funds to pay for closing costs in cash. I had the option to included the closing costs in the new loan but I didn’t want to increase the outstanding principal and have it amortized over the life of the loan. I plugged in the terms of the loan and down payment amount into a calculator and decided that the payment wasn’t going to decrease significantly.

Instead of recasting the loan, I decided to start a Mortgage Payoff Fund. I purchased dividend paying stocks with a higher yield than the interest amount I’m paying. As I receive dividend payments, I’ll apply the money toward paying off the principal ahead of schedule. As long as the dividend yield is higher than the interest on the loan, I’ll have the advantage. Additionally, if I choose to recast the loan in the future, I’ll still have the money available for a lump sum payment.

I did hesitate to invest the money instead of sending in a payment. The immediate payoff would have a fixed return. However, by investing the money instead, I’m at risk of losing money on my investments should the stock market crash or if the shares or dividends don’t appreciate and keep up with inflation. Let’s see if this plays out.


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