Does your spending plan include the mortgage?

I wrote this as a kind of an addendum to Corey’s post Myths About Budgeting, which has some very good information that some people seem to overlook at times.
In the past 2 years, I updated our spending plan (a.k.a. budget) so that it didn’t include the mortgage payment. This may sound counter-intuitive to normal budgeting, however it seems to work for us. I simply shred the paper printout that they send every month (because I can’t seem to cancel them sending it) after glancing at the value. Meanwhile of course I have an amortization data/chart of it at almost a touch of a button using a custom application I built to do just that and other things … Finance 101. I built it mostly because I wanted it to be a complete financial application that didn’t need an installation. And yes it does print too (just not the graph).

Sorry, I got side-tracked … now back to the topic at hand …

Here are the reasons that I eliminated mortgage payments from our budget spreadsheet:

  • We do not (and never have thankfully) escrowed our property taxes or homeowner’s insurance. We’ve paid property taxes quarterly as required, and homeowner’s insurance once a year.
  • I set up an automatic distribution from my paycheck to an account specifically for the mortgage payment. And allowed the bank to go into that account to pick up the automatic payment around the 12th of the month. The only funds that go into or out of this account are mortgage only.
  • We plan on not having a mortgage when I am at “traditional” retirement age … about when I’m 61 years old if not sooner.
  • We don’t plan on refinancing anytime soon, but if we did it would be set up the exact same way.

What does this give us?

  • Some peace of mind knowing that the mortgage will always be paid on time without our intervention.
  • More automation of our finances, so that we can focus on the “variables” in our budget that can easily be changed.
  • This is similar to our 401k withdrawals. They are automatically taken out of the paycheck, and are therefore less of a worry that we aren’t funding our retirement.
  • This is also similar to us automatically sending money into our savings account 1-2 days after the paycheck is deposited. Again, an automatic method to ensure that we are starting to save without having to make sure that it happens or doesn’t if we happen to be away on vacation or have family matters to attend to … whatever can/does come up it will happen.

Well, do you have a value in your spending plan for your mortgage?

This entry was posted in budget, budgeting, financial directive, spending plan. Bookmark the permalink.

16 Responses to Does your spending plan include the mortgage?

  1. More Help says:

    You’re so awesome! I do not suppose I’ve read something like that before. So great to discover another person with unique thoughts on this subject. Really.. many thanks for starting this up. This site is one thing that is needed on the internet, someone with a bit of originality!

  2. Thaysa says:

    We have a fixed rate mortgage and when we got it 3 1/2 yrs ago, we deedcid that the best thing for us (not for everyone, obviously) was to lock in for a 10-yr term at 5.5%. Yes, the variable rates are super low and have been for the last 2 yrs or so, but we sleep well at night knowing we calculated what we could afford monthly for a 10 yr period and we have no worries about what the rates will do for the remaining 6.5 yrs left on our term. We can afford 5.5% and probably upwards of 7-8% if necessary and we also have some wiggle room to temporarily extend the amortization from the current 16 yrs back up to 20-25 or even 30 yrs if we are suddenly down a significant amount of income. We’d hate to do that, but it’s an option in the case of a sudden temporary income loss.

  3. Nobuhiro says:

    I have a variable mogrgate. As a matter of fact I just moved it to another lender (paying the penalty) for a better variable rate ( 0.6 + prime to -.3 below prime) after only 1 year with our current lender (of a 5 year term). So yes I went from 2.85% to 1.95% on a 305K mogrgate. For me it was worth it. My payments are exactly what they were when we started at the first lender a year ago + ago when my rate was at 4.10% (just before the decline in the interest rate). I was able to knock 7 YEARS off my ammorization in 10 months (based on the annual mogrgate statement) just by leaving my payment at the higher amount while the interest rate took a dive. A fixed rate would not have allowed me to do that despite using the accelerated optoins available with fixed rates.When the interest rates increase my mogrgate will be less as I have been making payments. The increase of the variable rate will establish my new payment on my current mogrgate amount. So my breaking point today is different than what my breaking point will be July 1st when my mortage is $5K less than what it is now (and so on as the BoC rate changes). But point is that if interest rates literally doubled (ie; 2.25% to 5% for example) today then I might be worried but if they gradually increase then I will be fine. And I always have the option of removing the accerated option as well.

  4. Hey there! I know this is kind of off topic but I was wondering which blog platform are you using for this site? I’m getting sick and tired of WordPress because I’ve had issues with hackers and I’m looking at options for another platform. I would be fantastic if you could point me in the direction of a good platform.

    • I’m using WordPress running on a *nix type server.

      • Fauzan says:

        Our mortgages are at 1.35% and 1.5% rpceestively.When we bought our home 2 1/2 yrs ago, it was 4.5% so I guess I’ll consider making a change once rates match what I started with.Banks can lock in and switch mortgages from variable to fix rate in 24hrs that’s what I’ve been told and a phone call is all that’s needed.Also, our timeline is 2 1/2 yrs for being done with the mortgages. So should rates go crazy, I’d be locking in for maybe a 2 yr or under term which tend to be a higher rate as a 5 yr term. I’ll have to consider that too.

  5. Certainly. Feel free to point them to the site. Hopefully they can get something out of it.

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  12. Derek says:

    I’m glad that Corey’s article prompted you to expand on the topic! Looks like you’re diving right into the blogging world. Congrats again! Can’t wait to see the great things you achieve!

    • Thank you as well Derek! After all, you’ve provided an excellent forum. :-)
      And I should also say that folks like yourself, Sam, John, and a host of many others have been and continue to be an inspiration.

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