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Is that an elephant in the corner?

November 14th, 2008 at 03:02 pm

So yesterday, I had that feeling I had last year. You know the one where you look at your outstanding debt and have that moment – how am I ever going to pay that off?

The day started innocent enough. I was taking a look at how much consumer debt I had left to pay off, rerunning numbers to make sure I could pay it all off this year. I was feeling pretty good.

Then I decided to take a look over at my 2009 spreadsheets and my goals. I basically follow Dave Ramsey's baby steps. 2008 was the first 2 steps. And 2009 are steps 3-5. I do max my 401(k) contributions every year. I know I could be using that towards other goals. But we each have our quirks.

My last goal of 2009 is to start nibbling on the elephant in the corner that no one wants to talk about. Yes, the mortgage.

So, yesterday I sent my mortgage payment in and I decided to take a look at how it's broken down and the balance. And, I got that feeling I had last year when I started this journey - a sense of hopelessness. I mean this mountain is too hard to climb. I am paying $472 in principal on a balance of $341,900. Are you kidding me? I'll never get to the end of this tunnel. It would take you 60 years to pay off $472 in principal every month and I only have a 30 year mortgage. (You can throw up your hands if you want for dramatical effect.)

Then I looked back at how much principal I paid last month - $470. A $2 increase in the principal. Not a big increase that's for sure, but an increase nonetheless. I remember first starting that snowball last year. It was sure small. But then it got pretty big pretty quick.

I am not saying that there is much to snowball. I pretty much at the end of building that snowball. But any new money (raises, bonuses, tax returns, etc.) can go directly towards this. And I remember what I kept telling myself in those early snow ball days – how do you eat an elephant? One bite at a time.

Right now, I'm not sure how I will balance life and paying down the mortgage. But right now, I don't have to worry about that. I have to finish pay of my current debt, top off the emergency fund, save for retirement, and top of the kids college funds. A lot of work to do before I get to the mortgage.

Interesting aside, during this whole journey, my mortgage has/had the highest interest rate at 5.5%.

13 Responses to “Is that an elephant in the corner?”

  1. Joan.of.the.Arch Says:

    Just curious---Did you feel like it was an elephant when you bought it? Could you have bought a sturdy draft horse instead of an elephant? Or would only the elephant fill your housing needs?

  2. Broken Arrow Says:

    Oh man, do I know that feeling of having that elephant breathing down me. 2005 through 2007 was like that. Actually, I've worried about our finances from well before that.

    I'm not trying to dismiss your sentiments or anything, but I think you'll be OK. You've got the moves, you got the plan, it's just a matter of time eh?

  3. merch Says:

    Had to laugh at "sturdy draft horse".

    Just some background. I live outside Boston and housing is extremely expensive for decent areas. My house is a colonial of 4 bedrooms about 2800 sq feet and cost $640K. Also, the mortage is less then 25% of my take home.

    Could we have gone cheaper? Yes, but not substantially. House built in the 1950's around me are priced from $500k to $650k.

    My blog was more of an observation then I have too much house. Like, you have credit card debt of $10,000 and pay the minimums and it just feels like a daunting task.

    But good question.

  4. merch Says:

    BA,

    Yea, I am not worried. More have just a "man not again" moment. Just like my credit card example.

  5. creditcardfree Says:

    You are working your plan! That elephant will be eaten before you know it.

    I'm sure you know that your principal payment will increase every month...and significantly once you start making extra principal payments. By the end of the loan most of your payment will be going to principal. That will be the most exciting time...like eating a whole elephant leg!

  6. merch Says:

    So true creditcardfree. Thanks.

  7. Snoopycool Says:

    ...and elephant legs are sooo yummy deep-fried Wink

  8. JJ76 Says:

    Merch,
    You may have your few quiet moments of hopelessness... but after that I demand you get back up on that elephant and ride like the wind!! You have goals. You inspire me, and several other people around here. You can do it!! (not that you don't already know this; I just wanted to reiterate it).

    =)

  9. my english castle Says:

    You need to look at the gazelle in the field, right Dave Ramsey? Look at your total debt from last year and how much it's shrunk. Once that nasty debt goes, you'll start gnawing off that mortgage. I think you're doing an admirable job!

  10. Petunia Says:

    Elephant is so tasty with a little salt and pepper. . .

    Sometimes the facts can take the wind out of one's sails for a minute . . . you've done great this year with achieving your goals, and I've no doubt you'll do great again next year.

  11. scfr Says:

    A fun interim goal with a mortgage is to reach the point where a larger percentage of your payment goes to principal than to interest. When DH & I reached that point, we practically started doing a happy dance of joy! I can still remember sitting and staring at the computer screen after checking the payment and it's break-down, and how excited I felt. It may sound hard to believe, but that was actually a more memorable moment than the day we paid off the mortgage.

  12. zetta Says:

    Based on your comments, I'm guessing you are likely in the 25% tax bracket, so the mortgage deduction is likely a very welcome tax break for you. A mortgage at 5.5% is a great rate, especially if it is 30-year fixed.

    Have you considered that from an overall wealth perspective, it may make more sense for you to focus on investing in mutual funds rather than paying down the mortgage? Over the next 20 years, would you prefer that any "extra" money that you could save earn a guaranteed 5.5%, or a historically likely (but not guaranteed) 8-10%? Factor in that in the first scenario, you will pay more taxes overall as you lose the mortgage deduction faster.

    An alternative goal that I would suggest is building your non-retirement investment portofolio to where you *could* pay off your mortgage in one fell swoop *if you chose to*. Last year my portfolio crossed this threshold and I have to say it was a great feeling. (With the recent downturn in the stock market I am no longer there, but I have confidence that the market will recover within 5-10 years. Since I won't retire for at least 20 years, I am comfortable waiting.)

    There will be many who will counter that the emotional benefit of having a paid-off mortgage is priceless, and would choose it over having a higher net worth. Certainly for someone nearing retirement or in the 15% tax bracket that is a powerful argument. With your business-like approach to your goals I think it might suit you to focus on increasing net worth rather than just reducing debt.

  13. merch Says:

    Thanks everyone.

    Zetta - excellent point. And this is what I am struggling with. I do have more goals to accomplish before I look at the mortgage.

    So I'll probably have more blogs going back an forth. And I believe you are right with the market coming back.

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