Day 19: Knowing When You Did the Right Thing!
by Edward Smith
24 Jul 2020
Never Give Up
In my last article, entitled 🤠How to Take a Tragedy, and Turn it Into a Victory! you learned that my family moved across country, and that this decision allowed me to stay at home, and become a full time dad.
In California, every dollar that I made was vital and important. Here we had wiggle room, and extra money could be used to move things faster or work as play money. I could work anywhere and make minimum wage. Or I could stay home and take care of the kids and not make a dime. It didn't matter anymore, because every dollar that I made was a bonus that we didn't really need.
We saw the opportunity for what it was. This one decision, though painful, would likely fix a decade worth of mistakes and would make our household stronger. We'd get a reset, and this time we could do things right. That was the day we decided to sell the house, and that's when things got super interesting.
Inflation Works Both Ways. Befriend Your Equity!
Paying more for our mortgage each month voluntarily was one of the smartest financial decisions we ever made. If you can do it, you should do it. Not only do you cut off years from your mortgage, you make your house more valuable and useful from a financial perspective. It becomes leverage, and leverage is a tool. Here is how that worked.
Every month we paid around a month and a half worth of mortgage instead of the required one month's worth. By paying ahead, we essentially made our 30 year mortgage turn into a 20 year mortgage, which was our initial goal when we first started. It gets better though. As we pumped the house full of extra cash, that cash didn't disappear, it just remained dormant.
The house acted like a savings account and the dollars were all sitting there waiting for something to happen. When we decided to sell the house, the buyer would be told to pay a price. If they paid the price, the house would become theirs, and we would end up with all money that was left over after our outstanding loan was subtracted from the house price (not counting closing costs, repairs and inspections).
This meant, that the more money we had paid down on the mortgage's principal before this point, the more equity was sitting in the house, and the more money we got back after the house was sold.
Our habit of paying down our house aggressively for five years, had actually worked out in our favor. There was now $100,000 of our own money sitting in the house. When the house was sold, we were presented with that amount in cash. An unexpected win.
It got better after that.
Quick Disclaimer: I don't promote the use of reverse mortgages. This scenario was positive for us, because we were cutting ties with the house completely and were taking our winnings and running.
Never take money away from your house if you intend to keep your house. You're giving part of your house away. Why would you reset a loan backwards when you're making progress and are getting closer to being done? If you're short on cash, get a job. If you like giving money away, go donate it to a church or worthwhile cause. Reverse mortgages are predatory and are bad for your health.
Your eventual goal here is to pay down your mortgage to zero, and own your house in entirety. Once you do that, ignore it, and enjoy the benefit of never having to pay another house payment again. If you do that, your house will reach it's golden "the end" moment, where the story is done, and you just leave it alone after that point and enjoy living in it. Use the opportunity to start something new and keep your house out of it. Houses are for living. They're not toys. Don't play house with strangers!
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