My Financial Journey

Kind of a weird scenario happened last month. The amount of money that my wife and I have saved up for building our next house has actually surpassed the amount of the mortgage on our existing house. We have been living in our first house now for a little under 6.5 years which also ironically is pretty close to how long I have been writing this blog and now I am to the point if I wanted to could have my house paid off free and clear with a couple clicks of a mouse button.

My wife and I have never paid extra on our mortgage and currently have it locked into an 5 year ARM at 4.0% that I think has three years before it adjusts. Our savings is currently sitting in an ING checking account earning us a paltry 1%. So even while our mortgage is tax deductible even a 1st grader can probably figure out that I am losing money every single day I do not pay off my mortgage free and clear.

So why haven’t I done it? Well the main reason I have not made the smart financial move is that if I were to pay off my home mortgage I lose the flexibility I may need if a piece of land comes available that I need to purchase. Most lenders require a significant amount of money down to by vacant land and the rates for vacant land are likely to be quite a bit higher than the interest rate I currently have my mortgage locked in at. So as soon as I make the purchase I am then losing money on the higher interest rate between my existing mortgage and the land loan.

If I were to pay off my house I would also possibly need to wait to sell my house before I could purchase the land which would put a big kink in things and potentially cost me losing out on a piece of property and while it didn’t seem quite so obvious when I originally wrote this post during the housing boom – its pretty obvious now that you might have trouble just turning around and selling your house right away. So I am willing to take a 3% hit on a pretty significant chunk of money every day for the flexibility it is affording me in my pursuit for a large chunk of land to build a house on.

Another ironic note is that even if paid off my mortgage it would save me my $589 mortgage payment each month but I as I pointed out in the post referenced above I still have to drop about $400-$500 a month on taxes, insurance, heating/cooling each month so its not like you write the check and live for free the rest of your life. The cost of a home goes far beyond your mortgage payment and for some of these dufusses who build extravagant houses their tax bill is the biggest liability they have on their balance sheet going forward.

When we purchase our property and build our next house I will have two big financial considerations on the forefront of our decision making process – property taxes and heating/cooling costs. These are two costs that can be significant and are guaranteed to go up exponentially every year for the rest of your life. The mortgage itself does not scare me because that is a fixed cost at a fixed rate that eventually over time inflation will eat away at and it costs you less and less each year and is also potentially offset by a gradual increase in real estate value. Taxes and energy costs on the other hand go up hand in hand or exceed the cost of inflation in many cases so every year you own that house it costs you more and more.

So you might be asking MFJ what is the deal man – you talk like some frugal dude that thinks owning a house is a waste of money and you’d be a dufus to build an extravagant house – yet here you are with a 6 figure savings account “downpayment” for your next house are you a crazy hyporcit? The answer is maybe.

First things first we are going to spend a crapload on our next house compared to what we would really need. We could live in our current house forever and it would be more than adequate. For the record we currently live in a less than 10 year old 1800 sq ft ranch house in a nice subdivision with an unfinished basement that could easily house our family of 5 even with some incremental family growth.

However life is all about balance and we need to balance between saving for tomorrow as we are with our retirement nestegg and enjoying some of our financial blessings now. It’s always important to give myself a reality check and making sure I’m being frugal and not being cheap – there is a big difference. So is a big fancy house going to make me and my wife anymore happy or our lives any better – the answer is no. We don’t need shiny new things to make us feel more important or make our lives more exciting. We enjoy living relatively simple lives and don’t spend much of any money at shopping malls, on new cars, or on other things that seem to excite other people.

The main reason we are saving so much money for our next house is that we want to purchase a large chunk of property (20+ acres) out in the country to build a house and start a fruit orchard. All in all I expect the cost of the land to be pretty close to the cost of the actual house which explains the large price tag for the combined purchase.

Overall I don’t expect our house to be that extravagant and one could actually view the additional land and fruit orchard as an investment, but to be honest I’m not even sure if I can grow anything so I’m not going to mix the two. This will be strictly for personal enjoyment and some place where my family will grow and where my wife and I will live for the rest of our lives. Because the land will be put to agricultural use the taxes will be very affordable and like I said if I’m able to grow a few things there could be the opportunity where the land could actually pay some dividends back to me.

Now off to find some land…

I’ve been filing my returns electronically for the last 4-5 years and each year the process gets smoother and smoother.  This year I filed by taxes electronically last Sunday.  My state return showed up in my bank account on Wednesday and my federal return showed up on Friday.  I was impressed to file and get my money back in the same week.  Maybe I hit a dead spot, but either way it with that fast of a turnaround it makes me think that things are getting more and more automated so even in peak times I would think turn around should be pretty fast if done electronically. 

In case anyone is wondering I took my tax money and then some and used it to pay down my HELOC.  I haven’t talked too much about my HELOC on this blog partly because I’ve been pretty diligent about paying it off on my own.  I took it out 1.5 years ago when we purchased our house and the balance was at $16,500.  After yesterdays payment I only have $1,000 remaining, I’m still trying to estimate my cash flow out for next month and may be able to just go ahead and pay the entire thing off as I’ve seen to had a good string of luck lately running into unexpected money.

Edit: I actually just paid it off entirely. Feels good to pay off debt 🙂

Back to taxes – remember you have until April 17th this year to file your taxes, but if you are getting a refund you may want to go ahead and get your money back before then, it’s painless and quick if you file electronically.