Financial Samurai

Slicing Through Money's Mysteries

  • About
  • Invest In Real Estate
  • Free Wealth Management
  • Top Financial Products
  • Negotiate A Severance

The Biggest Downside To Paying Off Your Mortgage Early

Published: 01/07/2021 | Updated: 02/14/2021 by Financial Samurai 203 Comments

If you’re focused on paying off your mortgage, good for you. It’s generally always good to pay down debt. However, I’d also like to share with you the biggest downside to paying off your mortgage that may surprise you.

It’s been six years since I paid off my rental property mortgage. It was a mortgage for $464,400 I took on in 2003.

For the first year after paying off my mortgage, I felt great. But after that, the satisfying feeling of getting rid of debt wore off.

Perhaps the reason why the feeling was so ephemeral was because there was no congratulations card or fancy French Laundry dinner celebration. The only thing that changed was the extra ~$2,500 a month in cash flow, which went straight to savings or investing.

Before taking on this mortgage, I experienced an eerily similar feeling of ambivalence in my early 20s. After working for 60 – 70 hours a week from 1999 – 2001, while saving 100% of every bonus and 50% of each paycheck, I started thinking: what’s the point of it all? 

Maybe I was experiencing a quarter life crisis back then. What I did know was that my enthusiasm for working in finance faded after the September 11, 2001 terrorist attack.

In 2003, with my lack of enthusiasm, I was *this* close to leaving San Francisco for Honolulu until I found a 2/2 condo overlooking a park in Pacific Heights for $580,000. Once I took out the $464,400 mortgage, my motivation to work hard shot through the roof!

Suddenly, my work felt more meaningful because if I stopped paying my mortgage, I’d lose my $116,000 down payment and trash my credit score. Without dependents, finally, I had something tangible to work hard for.



Read More…

Why I Won’t Pay Off My Mortgage Until I Retire

Published: 12/01/2020 | Updated: 01/11/2021 by Financial Samurai 58 Comments

Back in 2011, I decided I wouldn’t pay off my mortgage until I retired. I was still working in banking and had a strong amount of cash flow. I thought I was going to work for at least another five years. Then, in 2012, I retired by negotiating a severance package that provided for six years of living expenses.

What transpired was interesting. I ended up paying off one condo mortgage in 2015 and selling my primary residence in 2017, which ultimately paid off its $815,000 mortgage as well.

Today, my family and I live in a home we bought in early 2019 with cash. We are full-time parents and part-time writers. It feels great not to have a mortgage in retirement.

Let me share my reasoning from 2011 on why I didn’t want to pay off my mortgage until I retired. Back then, I was a 33-year-old Executive Director who was focused on career growth. However, I was also starting to burn out.



Read More…

Mortgage Market Abnormalities: Take Advantage To Get The Best Rates

Published: 11/11/2020 | Updated: 02/10/2021 by Financial Samurai 44 Comments

When there are mortgage market abnormalities, we must take advantage to get the lowest rate and best terms possible.

Currently, there are two mortgage abnormalities in 2021 to be aware of:

1) The average 15-year mortgage rate is way below the average 5/1 ARM rate. Therefore, you should take advantage.

and

2) The average 30-year mortgage rate has been going down while the 10-year bond yield has been going up. Therefore, the 30-year fixed rate mortgage looks very enticing as well.

As a result, if you are looking to refinance your mortgage or are buying a house, get either a 30-year fixed or a 15-year fixed. Both are offering the best value out of all the mortgage products that current exist today.

Credible is my favorite place to refinance a mortgage or get a new mortgage. You’ll get real, no-obligation quotes from competing lenders in minutes. Take advantage of the current mortgage market abnormality!



Read More…

How To Get The Lowest Mortgage Interest Rate Possible

Published: 11/03/2020 | Updated: 01/16/2021 by Financial Samurai 83 Comments

Refinancing a mortgage today is a smart move because interest rates have fallen to all-time lows due to the coronavirus pandemic. Investors fled from stocks and into the safety of bonds, thereby pushing Treasury yields and mortgage interest rates to the lowest they’ve ever been. This post will teach you how to get the lowest mortgage interest rate possible to save money.

Thankfully, homeowners have gained a huge amount of equity since 2012. They aren’t going to foreclose or short-sale for nothing. In fact, I think 2021 and beyond is a good opportunity to buy real estate due to rising affordability and an underperformance in real estate prices compared to the S&P 500 in 2019 and 2020, which was up 31% and 16%, respectively.

I’ve refinanced multiple mortgages across multiple properties since 2003. I also recently refinanced my mortgage in late 2019 and got a new mortgage for only 2.125% in 2020. Here are my strategies for how you can get the lowest mortgage rate possible.



Read More…

Can You Get A Mortgage In One State To Buy Property In Another State?

Published: 10/25/2020 | Updated: 01/16/2021 by Financial Samurai 21 Comments

Yes, you can get a mortgage in one state to buy a property in another state. Many people are now considering moving to a lower cost state due to the acceptance of working from home.

Due to the extended lockdowns, I’m more motivated than ever to relocate from San Francisco to Honolulu. I have been looking seriously at Honolulu property since 2015 and I’m finally seeing some great deals in the area.

My logic for moving is this: If I’m going to shelter-in-place for months on end in the future, why not shelter-in-place in a nice property that has plenty of land, lots of indoor space, a pool, a hot tub, a garden, good weather, and is close to the beach?

When you have kids, you crave for as much space as possible to enable them to run around and have fun. Hearing their screams of delight is so wonderful.

Given we have enough passive retirement income to sustain our lifestyle, there’s really no need to remain in expensive San Francisco.



Read More…

Why Does It Take So Long To Refinance A Mortgage?

Published: 09/20/2020 | Updated: 01/30/2021 by Financial Samurai 37 Comments

Are you wondering why does it take so long to refinance a mortgage? The simple answer is because lending standards have tightened tremendously since the financial crisis. The banking sector lent too loosely before the crisis. As a result, regulators locked down.

In 2020, the average credit score for an approved mortgage applicant was 760. And in order to get the lowest mortgage rate possible with the lowest amount of fees, you need a credit score of 800+.

Further, many banks are requiring at least 20% down, especially if you are going to take out a jumbo loan. The mortgage lending industry has really tightened, especially during the pandemic. The lending industry doesn’t want to go back to the 2008-2009 financial crisis days where they experienced a wave of defaults from borrowers who couldn’t afford their mortgages.



Read More…

The Maximum Mortgage Tax Deduction Depends On Income

Published: 09/12/2020 | Updated: 01/30/2021 by Financial Samurai 80 Comments

Victorian San Francisco House

The US government has blessed us with the ability to deduct our mortgage interest expense from our income. This thereby enables us to lower our tax liability. The maximum mortgage tax deduction ultimately depends on income, which I’ll get into below.

Although you could deduct mortgage interest on up to $1 million in mortgage indebtedness in the past, that’s no longer the case. The amount was lowered to $750,000 due to the Tax Cut & Jobs Act passing in 2017 for 2018 and beyond.

While the decrease is unfortunate for property owners with large mortgages, at least we still have something. If you go to Canada, Australia, Asia, and Europe, there is no such mortgage tax deduction benefit. Then again, at least they’ve got cheap healthcare!

That said, mortgage rates have collapsed and many homeowners hav smartly been able to refinance their mortgages. If you haven’t taken advantage of record-low mortgage rates yet, get a free mortgage rate quote with Credible. Credible is one of the leading mortgage lending marketplaces where qualified lenders compete for your business.

I personally was about to get a 7/1 ARM jumbo for only 2.125% and minimal fees in 2020!

Average Mortgage Rates - Maximum Mortgage Tax Deduction

To understand the maximum mortgage tax deduction, we should first do an overview of the marginal income tax rates in America.



Read More…

Mortgage Interest Rates By Race: The Differences Are Significant

Published: 08/27/2020 | Updated: 02/03/2021 by Financial Samurai 95 Comments

One of the most common paths to building wealth is through homeownership. However, when there isn’t a level playing field for all people to buy a home, then there’s a problem. This article looks at mortgage interest rates by race to see if there are any differences.

Below is a chart highlighting mortgage rates by race by Pew Research. The chart is from 2015 when mortgage rates were much higher than they are in 2021. However, the data is being used to form a baseline.

Mortgage interest rates by race

The first area of the chart to look at is the ALL row to find your baseline. Then you compare the ALL percentage with the percentage next to each race by mortgage rate.

For example, 31 percent of all races paid a mortgage rate of between 3 – 3.9 percent. In comparison, only 25 percent of Blacks paid a 3 – 3.9 percent mortgage rate. Conversely, 38 percent of all Asians paid a 3 – 3.9 percent mortgage rate.

Said differently, 19.35% fewer Blacks paid a mortgage rate of 3 – 3.9 percent compared to all races. Conversely, 22.5% more Asians paid a 3 – 3.9 percent mortgage rate than all races.

Thankfully, mortgage rates between 4 – 5.9 percent don’t look too distorted across all races compared to the baseline.

Notice how the All row percentages are very similar across all mortgage rates to the Whites percentages. This is likely because Whites are the majority race in America.

Obviously, it is better to have a higher percentage of your race paying the lowest mortgage interest rate. With mortgage rates at-or-near all-time lows, hopefully, every race is taking advantage.



Read More…

Average 30-Year Fixed Mortgage Rate At Record Low: Who Is Buying?

Published: 08/21/2020 | Updated: 02/25/2021 by Financial Samurai 109 Comments

Average 30-Year Fixed Mortgage Rate At A Record Low: Who Is Buying?

For the longest time, I’ve been a proponent of the adjustable rate mortgage (ARM). Paying a higher rate for a longer duration than necessary doesn’t make economic sense. However, with the average 30-year fixed mortgage rate now under 3%, the bias is no longer as heavily weighted towards adjustable rate mortgages.

A sub-3% average 30-year fixed mortgage rate is so low, it must be spurring more people to buy homes. In fact, the average 30-year fixed mortgage rate is just under 3%, despite the 10-year yield ticking up in 2021.

If you’re looking to refinance, check out Credible, my favorite place to refinance a mortgage or get a new mortgage. You’ll get real, no-obligation quotes from competing lenders in minutes. Take advantage of the current mortgage market abnormality!

With a global pandemic still raging on, I am curious to know who is buying a home in this environment. Let’s read some homebuyer profiles of people taking advantage of record low mortgage rates.



Read More…

Mortgage Interest Rate Extension: The Cost And Why You Might Need One

Published: 07/27/2020 by Financial Samurai 1 Comment

As soon as your real estate offer gets accepted, you notify your lender with the relevant ratification documents and lock in a rate. The rate lock is usually for 30 – 60 days. However, sometimes things take longer than expected and you need to get a mortgage interest rate extension. A mortgage interest rate extension is also sometimes called a rate lock extension.

A rate lock is a guarantee assuring that a mortgage lender will honor a specified interest rate at a specific cost for a set period. If mortgage rates go up during the rate lock, the lender will still keep your mortgage rate the same. If mortgage rates go down during the rate lock, you can ask for a new rate lock.

Given the rate lock is usually only for 30 – 60 days, there is pressure on borrowers to make sure they close on homes before the rate lock period expires. If it’s looking like the property will not close within the initial rate lock period, you may need to pay a mortgage rate extension fee.



Read More…

  • 1
  • 2
  • 3
  • …
  • 8
  • Next Page »

Top Product Reviews

  • Personal Capital review (free financial tools)
  • Fundrise review (real estate marketplace)
  • CrowdStreet review (real estate marketplace)
  • Credible review (student loans, mortgages, personal loans)
  • PolicyGenius review (life insurance)
  • LendingTree review (mortgages)
  • Allstate review (auto insurance)
  • Masterworks review (art investing)

Financial Samurai Featured In

Categories

  • Automobiles
  • Big Government
  • Budgeting & Savings
  • Career & Employment
  • Credit Cards
  • Credit Score
  • Debt
  • Education
  • Entrepreneurship
  • Family Finances
  • Gig Economy
  • Health & Fitness
  • Insurance
  • Investments
  • Mortgages
  • Most Popular
  • Motivation
  • Podcast
  • Product Reviews
  • Real Estate
  • Relationships
  • Retirement
  • San Francisco
  • Taxes
  • Travel
Copyright © 2009–2021 Financial Samurai · Read our disclosures

PRIVACY: We will never disclose or sell your email address or any of your data from this site. We do highly welcome posts and community interaction, and registering is simply part of the posting system.
DISCLAIMER: Financial Samurai exists to thought provoke and learn from the community. Your decisions are yours alone and we are in no way responsible for your actions. Stay on the righteous path and think long and hard before making any financial transaction! Disclosures