The Balanced Spreadsheet-Financial News, Budget Advice, Debt help, Financial Tips, and other advice

February 1, 2010

January ’10 Net Worth Update (+1.95%)

Filed under: Excel fun, Net Worth, Personal Finance, Real Example, Uncategorized — Tags: , , , , — thebalancedspreadsheet @ 11:53 am

2010 started out with the lowest increase since June and included an actual dip in total assets but still an overall increase none the less.

Net worth Jan '10

Cash-The quarterly sale of stock in the employee stock purchase program was the main reason for the increase. The cash is made up of a $10,000 emergency fund while the rest is mostly in savings for a car/vacation.

Employee Stock Purchase Program– As previously noted, our ESPP account was depleted to buy stock on December 31st. That stock was sold on January 10th and put into our cash reserves. The January amount equals one month’s pay that will be used to buy stock at the end of the fourth quarter.

House-I have recently tried some of the online home valuators and got a wide range of values. The average was around the $95,000 and I will be using the amount for a while.

Retirement-For the first time in a while the stock market hit a downturn. The actual loss was much greater considering we contributed about $1,100 into our 401(K) and ROTH IRA accounts. Starting this month my company will be began offering a ROTH 401(K) feature which I started to participate in.

Pension-A new year means a reset on the level on contributions put into my pension each month. The $172.76 will be constant for most of 2010.

Mortgage-Another triple mortgage payment reduces the principal by ~$1,800!  I have discussed our decision to pay down the mortgage as quickly as we can before. It is really cool to see the principle reduced by big chunks every month. At our current rate, we will pay the mortgage off on July, 2013. We have decided against refinancing for now due to the breakeven point being 24 months.

You can see past net worth updates at the net worth history page.

January 2, 2010

December ’09 Net Worth Update (+4.67%)

Another good month to close out a great 2009. The most significant thing that occurred this month was the fact our net worth is now greater then our liabilities!

Net Worth Dec '09

Net Worth Dec '09

Cash-Dropped a little more the normal do to the Christmas season. Still a $13,000 increase since this time last year is always pleasant. The cash is made up of a $10,000 emergency fund while the rest is mostly in savings for a car/vacation.

Employee Stock Purchase Program– End of a quarter so the amount is maxed out at ~$5,000. Stock was bought at the close of business on Dec 31st and will be posted to my account in about a week. I’ll sell it soon after for a quick 11% profit.

House-I have recently tried some of the online home valuators and got a wide range of values. The average was around the $95,000 and I will be using the amount for a while.

Retirement-Another good month in the stock market as about half of the gain was due to appreciation while the other half was contributions. Starting in January, my company will be offering a ROTH 401(K) feature which I will be participating in. Overall our investments are up around or over 30% since the beginning of the year.

Pension-I passed the income threshold in November so that is the reason for the increase. From month to month you barely notice the $200 increase, but over time it is nice to see that build up.

Mortgage-Another triple mortgage payment reduces the principal by ~$1,775! I have discussed our decision to pay down the mortgage as quickly as we can before. It is really cool to see the principle reduced by big chunks every month. At our current rate, we will pay the mortgage off on July, 2013. We have decided against refinancing for now due to the breakeven point being 24 months. For 2009 we paid off over $21,000 in principal.

You can see past net worth updates at the net worth history page.

October 29, 2009

The Mortgage Interest Myth

Filed under: Goals, Mortgage, Personal Finance — Tags: , , , , , — thebalancedspreadsheet @ 8:33 am

Those of you who have visited The Balanced Spreadsheet for a while now, know that one of our financial goals is to pay off the mortgage as soon as possible.  As I wrote in “To pay or not to pay” some people cite the mortgage interest tax deduction as a reason to not pay down the mortgage.  Today I am going to explain why this reason is a complete myth. 

For our example, let us assume you have a mortgage balance of $200,000 at 6.0%.    That means you will pay $12,000 of interest during the year.  If you itemize your deductions you will be able to deduct the $12,000 off of your income.  If your income for the year was $100,000 you would then pay taxes on $88,000.  This would put you in the 25% federal tax bracket if you are married filing jointly.  This means you would have a tax savings of $3,000 ($12,000 x .25).  So basically you are paying the bank $12,000 so you do not have to pay the IRS $3,000.  That is definitely not a winning game plan.  If you really want the tax deduction just give $12,000 to a charity of your choice, that way you still get the deduction but you do not have to go into debt to get it. 

Bottom line is this:  If you have a mortgage and are able to deduct the interest on your income taxes then do it!  It is a nice benefit to have come tax time.  However there is absolutely no reason to keep the mortgage just for the tax deduction.  Sadly there are some financial and tax advisers, who are other wise good, that will advise you to keep the tax deduction.  If my advisers give me that advice then I am getting a new one.  🙂

September 24, 2009

Should I Refinance? Part II-The Final decesion

Filed under: Excel fun, Mortgage, Personal Finance, Real Example, Simulation — Tags: , , , , , — thebalancedspreadsheet @ 8:03 am

I would like to wrap up today my series of posts on refinancing with the decision on whether or not to refinance my $90,435 6.1% mortgage. You first might want to first ready my thoughts on why we are paying our mortgage down quickly, why to refinance and the reasoning behind refinancing with a 15 year 4.75% fixed loan.

Closing Costs-With refinancing the first question is, how much are the closing costs going to be associated with the refinance? Refinance closing costs can kind of be tricky to determine. The best I can find is a refinance closing cost calculator from Freddie Mac’s website. It estimates my closing cost to be approx $1,687 before tax savings. That means I need to have savings greater then that for a refinance to be a good financial decision.

6.1% vs. 4.75%-After I calculate my closing cost I am now ready to run the simulations. While keeping the same $2,218.10 principal and interest payment as my accelerated monthly payment , I come up with the following amortizations schedules:


When comparing the two schedules, the gross interest saved is $2,772 ($11,142.75-$8,370.58).

After tax savings-The $2,772 is pre-tax however. Because mortgage interest can be written off your federal income taxes as an itemized deduction, paying less mortgage interest means paying more federal income taxes. Now no one knows what tax rates will do in the future and I am not trying to predict what congress will do . I am using a 15% tax rate which is the bracket my wife and mine’s are in for 2009. When adjusting for taxes I find that I would approx save $696 by refinancing. The breakdown:

Total Interest saved

Total Interest saved

Breakeven point-I then found out that my breakeven point would be after the 24 month mark, which would be September 2011.

refi after tax breakeven point

refi after tax breakeven point


The Final Verdict-So is it worth it to refinance to save a grand total of $696 but only if I stayed in the condo more then 24 months would I see any return?  In the end my family decided against refinancing.  The savings simply was not worth the time it would take back to recoup my costs.  If we were not planning on paying down the mortgage as quickly as we are, then refinancing would probably make more sense.

Even though we did not end up refinancing it was still worth it to run the simulations and figure out what the best option was.  I hope you found the mortgage series worthwhile and educational.

September 18, 2009

Five things to consider before you Refinance the mortgage

Filed under: Personal Finance — Tags: , , , — thebalancedspreadsheet @ 8:31 am

As mentioned yesterday, I am going to discuss the possibility of refinancing my primary residence. Before I go into the details I first want to discuss the reason to refinance as well as some things to consider before you refinance.

Reason(s) to Refinance-To lower your interest rate is really the only reason to refinance. Lowering your interest rate will obviously cause your payment to decreasing, thus increase cash flow if desired. However, lowering the payment period (IE from a 30 year to a 20 year mortgage) without lowering the interest rate is unnecessary. Instead just pay off the longer term mortgage like the lower term mortgage and you will pay it off in the same time you would without the closing costs.

Things to consider before refinancing:

1. What is my breakeven point? This question could be rephrased as, how many months will it take to recover my closing costs? Since all closing cost are either paid up front at the time of the refinance or rolled into the new mortgage, you will want to know how many months will it be before the lower payments make up for the closing costs. To determine your breakeven point, take your closing costs and divide them by the difference between your old payment and new payment. That number is the number of months it will take you to break even on your refinance.

2. How long are you planning to stay in the house? If you are planning on moving in the next 12-24 months and your breakeven point is 36 months, then it would be unwise to refinance.

3. Am I getting the best rate on the market? Do not simply refinance with your current lender just because you get something in the mail from them offering you a lower rate then what you already had. Check websites like Bankrate and Lending Tree and see if you can get a better rate elsewhere.

4. What kind of loan am I getting? I do not recommend anybody get anything except a fixed rate loan. Especially in the 4.5%-4.75% world we currently live in. Adjustable Rate Mortgage (ARM’s), Interest only, and Balloon Mortgages might offer a lower interest rate initially but are more risky over the long term and can adjust upward. Why not lock in a low interest rate now with mortgage rates at the lowest they have been in 40 years? Another thing to look at it how many points am I paying? Points are simply prepaid interest that is paid at closing. 1 point means that you will pay 1% of the loan value upfront at closing. Points will then lower your rate, but unless the difference in rates is significant (.375-.5%) it might be better for you to pay no points and not prepay the interest.

5. What is my home’s current value? This is important to know before you start the process because due to the housing bubble popping, many homes are now underwater. This makes it virtually impossible to refinance your mortgage unless you can bring a large sum of $$$ to the table at closing to bring the loan amount to what the house is worth.

With rates being as low as they have been in years, now is a great time to refinance. Has anybody got any other suggestions or recommendations to consider before refinancing?

Early next week I will post my analysis on whether or not I should refinance my 6.1% mortgage based on my amortization schedule that I’ve calculated.

August 26, 2009

To pay down or not to pay down?

Filed under: Goals, Mortgage, Personal Finance — Tags: , , , , , — thebalancedspreadsheet @ 2:47 pm

One of the greatest debates in the financial world today is whether or not to pay off your mortgage early or ride the mortgage out for the full term.  There is very passionate debate in the blogosphere world from both sides on this.  There are those like Ric Edelman who believe in never paying off your mortgage, while others believe in paying off the mortgage ASAP.  If you have read our financials goals summary or the full post you know that my wife and I believe in paying off the mortgage, but only after 15% of our pre tax income is going towards retirement.  This plan is similar to the one Dave Ramsey uses.  Below are some points each side makes followed by what my family settled on:

Reasons to keep the mortgage-The main reason to keep your mortgage and not pay it off is because you can invest your money at a higher interest rate.  While most mortgages are in the neighborhood of 4.5-7%, there are many mutual funds that have a long track record of returns greater then 10% annually.  Instead of paying down the mortgage, just invest extra into these funds and over time you will have more wealth.  Another argument made by people who keep their mortgage is that you get a tax write off on the interest paid on your federal income taxes if you itemize.  So essentially a portion of your interest on the mortgage is being paid by the federal government.

Reasons against keeping the mortgage- To sum it up in one word . . . . RISK!  Finding investments that earn greater returns then your mortgage rate sounds great but what happens if when your investment returns go south and your house value plummets?  If it sounds like I am talking about our current housing environment, it is because I am!!!  In the last few years we have seen housing prices plummet all over the country.  By not paying down the mortgage you could be underwater (you owe more on the house then it is worth) and your investments worth about 60% of what they were two years ago.  You get handcuffed because if anything happens to you like you lose your income due to job loss or have health problems and need to move, you will not be able to move unless you can pull off a short sell.

Reasons to pay down the mortgage-Not owing anybody a dime is a felling that I can only imagine.  Paying down the mortgage is a safe, guaranteed investment.  My paying extra on the mortgage it is essentially like a savings account at whatever interest rate your mortgage rate is.  Since interest rates are currently at all time lows, paying down the mortgage is a better “investment” then a CD or money market account.  For those who struggle savings this is a good tool because it is a lot harder to get the money out in equity in your home then to take out money in the bank to make impulse buys.  In addition, once the house if fully paid off there is increased cash flow.  Mortgage payments makeup somewhere in the neighborhood of 25-35% of take home pay for the average worker.  This freed up cash allows them to make other investment as well as enjoy more things.

Reasons to not pay down the mortgage- Having a mortgage is a good hedge against inflation.  I am not going to explain in detail how having a mortgage can be a good thing during periods of inflation.  Truthful lending explains it a lot better then I ever can.  However this is a really interesting point to ponder because most people feel that will all the government borrowing we have had in the past year that inflation is due to occur.

After taking arguments from both sides and comparing the pros and cons, my wife and I decided that paying off the mortgage will be the best thing for our financial future in the short term and the long term.  Being able to walk through our house while having title free and clear will be a great feeling as well as free us to do save more cash which will in turn create more wealth. 

Coming up in the next few posts I will explain our plan to pay off the mortgage sooner.  That will include an amortization schedule, possible refinancing issues, as well as plans that help you pay off your mortgage sooner such as bi-weekly plan and mortgage acceleration plans.

So what is your opinion of the mortgage?  Get it and keep it or get it and pay it off?  Let me know your experiences below.

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