kencrawleysc 11 Posted December 14, 2009 Report Share Posted December 14, 2009 (edited) Gentlemen, and Ladies. I have grown to admire the opinions of all of you, and I figured I would share a personal plan of mine. A year ago I had 25 years left on my 30 year mortgage after a divorce and "life reset." I was 56 years old. A year ago my 401k retirement, expertly managed, had lost 30% -- about $70,00 between January and October. Was I pissed. And motivated. Out of this desperation and anger I realized that something is fundamentally wrong with my life planning (other than stocking up on food, tools, ammo, S-17, reloading gear, and my 99% compatible e-Harmony fiance`) I had previously paid off the used car, and was salting the money away for a replacement. I did resurrect a 94 Volvo from the junk yard and get it in great shape for $1,500 as my "spare." (ok, I can fix cars) What did I do?? I decided to apply 6% of my 11% 401k retirement savings allotment (the non-matched part) and the car payment to paying down the PRINCIPAL of my mortgage. And I refinanced to a 15 year mortgage. When I ran the spreadsheet I was surprised to see that the loan will be paid off in 5 years. So I did it. That was November 2008. Now, a year later, with "4 more years left on the mortgage" I have been thinking it really would be nice to move away from South Carolina and go to Montana, or Wyoming and live off the grid when I hit 62 (I'm an electronics engineer, who is fortunately still employed (as you can tell, I'm in Kuwait). But that plan ASSUMES I will employed for 6 more years. That is the problem, we don't know where this economy is going. So I thought, how could I make it so that if I lost my job or ability to work, that I would own my home now? MY SOLUTION: Take a maximum allowed loan out against my 401k ($50k), which has to be paid back at an interest rate of 2.8%, and zero all my "emergency savings" to pay the balance on the mortgage. So, my mortgage will be paid off, I will owe a 5 year "repayment" against my 401k. That payment is $200/month less than the current mortgage. And I will be like most folks, living paycheck to paycheck while building up a nest egg with the money that was paying the mortgage. But, If I lose the ability to work during this time, all that happens is the IRS taxes the unpaid loan balance as income. BUT I OWN MY HOME OUTRIGHT! Isn't it much better to do your dumpster-diving "food runs" and return to a house, than to a cardboard box? BTW I could give a rat's ass about the "mortgage interest deduction" that will be lost. That marketing strategy is from "da Man" - not in my personal best interest. And if I lost my job, there would be no taxes anyway. I will own my house, and start saving up for Montana. Does anyone in Montana, Wyoming, Idaho, or Utah, any gun-friendly state with mountains and dry air, want to house trade this summer for a few weeks near the beach? We can swap cars, I can leave you the S-17 and the Desert Eagle to play with, but not my woman from Boulder. She goes with me. Ken Edited December 14, 2009 by kencrawleysc Quote Link to post Share on other sites
Spartacus 1,619 Posted December 14, 2009 Report Share Posted December 14, 2009 I inherited some money and that's what I did with it, paid off my mortgage (wasn't really that much by todays standards). My wife thought I was crazy to pay off the house, but that was before the collapse hit. Now she thinks I'm a genius and she's very grateful that I did it. After the recent recovery, I even pulled a small 401K I had and paid down unsecured debt. The 401K will be worthless anyway when the economy hits rock bottom and the US dollar is dead. I want to have as little debt as possible at that point. IMHO, yes it would be a great idea to pay off the house. Who knows what will happen, but it seems wise to pay off any secured debt as much as possible, especially the mortgage. I'm still concerned about property taxes if "SHTF". The govt. may still want their money even if there is no money. Things could get ugly in that case. Quote Link to post Share on other sites
lakedweller 10 Posted December 14, 2009 Report Share Posted December 14, 2009 I did it in a different way. I married a woman 38 years ago and she always hated our mortgage and obsessed about paying it off. We built a new house in 1995 and she payed it off in less than 7 years. She worked overtime and put us on a strict budget. I admire her iron will and attention to detail. We are now debt free as she followed paying the house off by paying off the cars and a new 5th wheel off. Still on a budget while she prepares for retirement. She wants a 6 month emergency fund and now she is more confident that we can retire.... Just hope Maobama doesn't fuck everything up for all of us... Quote Link to post Share on other sites
yakdung 2,926 Posted December 14, 2009 Report Share Posted December 14, 2009 A couple of thoughts... If you only lost 70k in value in your IRA/401K you are doing really good. The money is only lost if you cash out of your positions at the bottom of the market and they should recover if they were good investments in time. It is a really good feeling to pay off you mortgage. I managed to pay mine off several years ago. If you are still employed you are way ahead of the game. Good luck to you, Yakdung Quote Link to post Share on other sites
G O B 3,516 Posted December 14, 2009 Report Share Posted December 14, 2009 I stayed put on my 401k and am now making 26.55%. When I retire, I may have to use this to pay a 10 year mortgage on the difference between what I can get out of this place ( with a mortgage rate of 5.5% on this place I'm standing pat until I sell) and what the next will cost. Any excess will go into State bonds in the State I retire to. Strange way 401k's pay out. 2 payment a year for 10 years. 1st payment 1/20 of assets. 2nd payment 2/20ts of remaining assets, until final payment of 20/20ths of remaining assets. Quote Link to post Share on other sites
ktcm7271 999 Posted December 14, 2009 Report Share Posted December 14, 2009 Damn good plan, shame you didn't do it before the economy tanked, but you're still way better off. I got lucky myself. My best friend got divorced and wanted out of his trailer-bad memories and such. So he found a place and sold it to me for his closing costs-$1,500. He coated the roof every 3 years and installed a $3,500 central a.c. Lot rent is $360/mo and covers water, sewer, trash. My wife and I pull down a little over $60,000/year, and we're staying put as long as it takes. It's not gonna appear in better homes and gardens, but it's no shit hole either and we're not struggling. Quote Link to post Share on other sites
IndyArms 10,186 Posted December 15, 2009 Report Share Posted December 15, 2009 I too used the 401K option to buy my house... I got the loan, paid the house off, and DONE... I have 3.5 years left to pay on my 401K loan to myself, which is earning me decent interest at the "stable return" rate. The rest is in high risk blue chip and overseas stocks... so thats doing well, too... Once the loan is paid off, hell, I may even look to buy another property with it... why not? I would be able to own another property, and I am thinking off the grid, wilderness type major acreage... It worked for me!! Quote Link to post Share on other sites
Ryann 8 Posted December 15, 2009 Report Share Posted December 15, 2009 Using your own money to essentially refi a higher mortgage with a cheaper mortgage is not only a good idea, but a very good idea. Odds are that you'll have a job for a few years, maybe 1, 2, 6, 10 who knows? I say you go for it. Rent out your paid off house and use that money to repay your 401k. Go off grid in Montana? If you work a few extra years, and do your new Montana off-grid shack with a super-low interest rate loan, using your current employment and rental income, by the time your SSD kicks in, you'll be golden. The only problem I felt your plan had is that you assume all debt is evil. It can be a tool if used well and interest rates are really really low and so is real estate. If the economy goes inflationary, it's not like having a fixed rate mortgage is going to up-adjust rates... every month of inflation will make your Montana getaway more affordable. If I had a 401k with enough money to do something like this, I already would have. You da man. Live the dream. Quote Link to post Share on other sites
IndyArms 10,186 Posted December 16, 2009 Report Share Posted December 16, 2009 I dunno about Montana... but SOMEWHERE... LOL Just gotta be warm enough in winter that I dont have to worry about a lot of fuel... I would probably go with solar panels, and solar water heat units, as well as a few windmills... and high enough that I dont have to worry about flooding EVER... Like Noah's ark kind of forever... Far enough away from people that I can do what I want when I want, and no one knows but me, yet still close enough that a trip to the grocery doesnt require an all day field trip and a full tank of gas both ways. Quote Link to post Share on other sites
camon 233 Posted December 16, 2009 Report Share Posted December 16, 2009 I moved my old 401k's to precious metals and what I had from my current job to EuroPac. Quote Link to post Share on other sites
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