On the Right (Financial) Path

Living in a small town in a very rural area, wages are not great & job options are limited. At the same time, we are close to a fancy ski resort area, so our property values are actually pretty darn high compared to most rural areas in the country. We always say we’re paying for the views and plethora of outdoor activities available in our area, not the size of our homes. 🙂 The header on this blog was taken on my walk around town, looking back towards town. Yep, that’s my view!

At any rate, 4.5 years ago, in the midst of TTC hell, Charlie and I were able to buy a small 1,400 sq. ft. home in town that had a great backyard and was within walking distance of everything. At the time we had a 30 year fixed FHA loan, and thanks to Infertility costs draining our savings, it was all we could do to swing that 3.5% down payment and closing costs on a short sale purchase (roughly $20k). We were happy to have managed to get into the housing market here though, so it was worth it.

This past summer we started talking about refinancing to try to save some money since interest rates were so low, and when I contacted a local mortgage lender who was a friend of mine when I worked in real estate, he confirmed that now was a great time to do it because rates were low and thanks to the market coming back and the improvements we’ve done to the property, would could break that 80/20 equity mark (our house appraised at $313k) so we could finally drop the Private Mortgage Insurance (PMI) payment. I asked him to look into a new 30 year fixed conventional loan, and he went ahead and sent me the breakdown for a new 15 year fixed conventional term loan as well. Thank God!

These numbers are fascinating to me, so I’m going to share them with you today, just because I hope it inspires someone else out there to question their current payments and try to get a better deal, be it for a $100,000 home or a $1,000,000 home! I’ve rounded things a bit just to make it easier to follow.

  • Current $255k FHA loan @ 4.875% interest: $1,600/mo – $486k ($83k already paid)
    • In 52 payments totaling $83k, we have paid down only $17k of principal. Interest is a beast!
  • New $240k 30 yr term conventional loan @ 4.25% interest: $1320/mo – $423k
    • This would cost us an extra $20k overall, but would save us $280/month for the next 30 years
  • New $240k 15 yr term conventional loan @ 3.5% interest: $1880.00/mo – $308k
    • This would save us $96k overall, but would cost us an extra $280/month
  • Out of pocket closing costs: $1,600 (settlement charges were $3,600, but some of that got rolled into the new loan)

So yeah, even though we went into this process thinking we’d try to save on our monthly payments, once we looked at those fully amortized amounts, it was clear to us that we were crazy not to try to swing the 15 year loan in order to save ourselves nearly $100 grand. Also, OUR HOUSE WILL BE PAID OFF BEFORE OUR KIDS GRADUATE. #HFS! Even the idea of that is insane to me, and SO so cool.

I took this when I walked up to the house at lunch today. No idea why it has the rainbow on it, but I kinda like it. :)

I took this when I walked up to the house at lunch today. No idea why it has the rainbow on it, but I kinda like it. 🙂

We have been trying to follow some of Dave Ramsey’s teachings, and I know we’re doing this a little out of order according to him, but with interest rates where they were, we needed to jump on this now. Here are his recommendations:

The Seven Baby Steps

  1. $1,000 to start an emergency fund (<– DONE)
  2. Pay off all debt using the debt snowball ( <– DONE. I actually just paid off my student loans yesterday!!!!)
    1. We do have an existing loan for Charlie’s company that we are working on, but that will be paid off in 2.5 years & we are currently paying more than the minimum in order to avoid a balloon payment at the end. I consider that a separate thing because it has to do with his business income, which is pretty much a side/supplemental thing lately in addition to the full time work he has been doing for a different company.
  3. 3 to 6 months of living expenses in savings <– This is what we need to start working on. Our savings is abysmal right now.
  4. Invest 15% of household income into ROTH IRAs and pre-tax retirement <– I’ve put $125/mo into my ROTH since I was 19 years old and never increased that amount. Neither of us work for employers that offer 401ks or anything either, so once we get some living expenses in savings, we will definitely need to start addressing this!
  5. College funding for children <– NOPE. After talking to my sister (who works at a D1 university), this is actually LOWEST on my list because of the way those savings are penalized when scholarships and grants are being distributed. I’ll go into this more at a later time. We do have 529 Accounts sent up for both kids that I have been putting money into, but I’ve now dropped those monthly amounts to the minimum ($15/mo each) while we focus our extra money on savings & the new slightly higher mortgage amount.
  6. Pay off home early <– working on that! I’d say a 15 yr loan instead of a 30 yr loan is a great start!
  7. Build wealth and give! <– I can’t wait to get to this point. 🙂

So yeah, it’s been a huge financial week in our lives, and I hope and pray this was the right decision and we are well on our way to owning our home free & clear and being debt free!

What have you done with your mortgage? Did you try to save up more to put more down at time of purchase or just go for it when you could hit the minimum like we did? Did you have a “starter” home first or go straight to your forever home? Did you do a 15 yr or 30 yr loan? I find all of this stuff so fascinating because there are so many variables that can affect what is the best option for you!

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40 comments

  1. Yay!!!! I’m so glad it’s happening for you! I’d love to see your post about the college stuff. We’re on house #3(!!!!) that we’ve bought. We sold the other ones, don’t own three homes 🙂 And we refinanced one of them halfway though. McMister always wants to see the 15-year loans before we decide, but we just haven’t been able to make them work with me staying at home. Maybe someday 🙂 I hope someone reads this post and gets to do what you did. That’d be so cool!

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    1. Phew, I can’t imagine being in my 3rd owned home! Have you bought new homes for size or location considerations?

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      1. Location location location.

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  2. This is so awesome! I find all of this really fascinating too! None of it works like that down here. No loans, no mortgages.. which is good in some ways, bad in others. We were lucky to come here debt free and then get a loan through my parents for the house so that is our only debt but would really love to work more on the savings.. especially for things like the $3000 USD hospital bill we had for Esme last month. :/ We luckily have a small emergency savings but not as much as I’d like… but hard to save when we really make no extra money at all right now. Ugggg money stress. Anyway… awesome news on paying off your house in half the time!!! And also yay for being done ith student loans!! 🙂

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    1. In a lot of ways I think it’s fantastic to have to buy everything with cash only, but it also must preclude a lot of people from buying since most people are better at paying a monthly bill than saving a monthly sum to pay with cash later. I’m glad your parents were able to help you finagle that purchase!

      BOO about Esme’s bill, but man, so thankful she is here and healthy and recovered. So worth it.

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      1. Yep, absolutely (on Esme)! I didn’t even think about money for a second at the time because of course, it didn’t matter, her health was all I cared about!

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  3. Esperanza · · Reply

    Wow, a 15 year loan! That is amazing. I was just thinking how old we’ll be when we pay off our house and holy shit, we’ll be old. Having said that, I’m just so, so, SO THANKFUL that we were able to even buy in San Francisco because that shit is NUTS. It’s more expensive here than in NYC right now (though that includes the burrows, so not as expensive as Manhattan I don’t think, although with the tech boom right now, it might be–real estate is INSANE here right now).

    We have a fixed 30 year loan at 3%. We were “gifted” (ie loaned) $100K from my parents (who refinanced their loan to give it to us) to avoid the PMI and we’re paying that back on a fixed 15 year loan at 2.9% (that is a huge $685/mo payment for us, actually). Our home loan is huge ($600K total which comes out to about $3000 a month, including a monthly property tax payment and NOT including what we pay my parents) for a 1600 square foot house, (though we only live in 1200 sq ft of it and rent the other 400 sq ft out) and we can only afford it with a tenant living in the inlaw unit below and paying 1/3 of our monthly mortgage payment (we bought a house we couldn’t actually afford, knowing we’d be renting the inlaw unit for the first 10-15 years there).

    We are most probably in our house forever, as we plan to eventually stop renting the downstairs unit, building inside stairs that connects the top and bottom unit and making the downstairs unit our master bedroom (right now we sleep in the “living room” and what is supposed to be the “dining room” is our living room. We eat in a small sun room off the kitchen that has no insulation so it’s FREEZING in the winter, but it’s useable 3/4 of the year). We know that it was a pretty big miracle we were able to buy in the city and we don’t expect to move again, and we are lucky we can “expand” into our own house because with only one bathroom upstairs and a Japanese screen between our bedroom and the living room, it would be hard to stay here when our kids are older.

    We love living in San Francisco though and we love the part of the city we moved into, so we’re REALLY happy with our house and situation. We don’t have any savings and I’m working to pay off some credit card debt we accrued last year. We both have student loans though mine should be paid off in about 3 years. My husband says he’ll be paying his off forever (he went to Columbia for law school). So that is us financially. I also find all this fascinating. I look forward to reading other people’s responses.

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    1. 30yr fixed at 3% is fantastic!!! Our parents wouldn’t have been able to comprehend those interest rates 30 years ago. It sounds like a perfect situation really with the rental below. Space to expand once things are paid down a bit and hopefully money isn’t so tight. Yay! I totally get stretching yourself thin in order to live where it makes you happy. Our wages are super low out here so a $300k house is still pretty spendy for us, but it makes us happy to be here so it’s worth it!

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  4. Congrats on paying off your student loans! Awesome!

    we should re-look at out mortgage. We refinanced a couple years ago with a 30-year knowing we will likely move. If/when we move, we’d seriously consider a 15 year loan. I wish we had done that two years ago, but with Brian’s pay structure (commission, big payout IF it’s a good year), we didn’t want to risk it.

    Brian and I disagree on college saving. He insists on maxing each kid out and I don’t. He won that battle. I’d rather use that $12k each year to pay down the house!

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    1. Brian should talk to my sister and I bet he changes his mind on the college savings accounts. WAY better to pay down your mortgage IMO, based on my conversations with Audrey.

      Charlie was all 1099 self employment income last year when we first talked about doing this as well – that’s why we decided to go for it this fall when he had a few months of W2 income on the books (the mortgage lender wanted a 3month snapshot of income for verification purposes). WAY easier to deal with qualification stuff without having to mess with self-employment / commission sorts of numbers.

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  5. Way to go!! After taking DR’s class almost two years ago JJ and I said we’d never get into another 30-year loan again. Well, here we are doing just that. Our thought was that we could refinance down the road, but with interest rates where they are now, it may not do us any good and we are getting a pretty good deal on our new house. And we are paying the PMI up front plus a slightly higher interest rate so we don’t have that ugly beast hanging over our heads! The $1,600 you are paying now on a $255K loan, is that your total monthly mortgage payment?? Ours is almost that for a house $100k less!!

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    1. Property taxes and insurance might have something to do with the difference there? I know our property taxes are really low here to give people incentive to buy 2nd homes here. But yes, $1600/mo is what we have paid total for PITI payments every month since the beginning.

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      1. I wouldn’t think property taxes and insurance would have that much of an impact but I’m pretty clueless when it comes to all of this stuff. It’s crazy the cost of living depending on where you live isn’t it?

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        1. Property taxes can actually make a massive difference! For example, we only paid $1,045 in real estate taxes last year. How much did you pay?

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        2. Our property taxes make up roughly $700 of our monthly payment. I bet the KC area is similar in tax rates to DSM, if not higher. It’s insane!

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  6. Wow, good for you guys for saving 10 years on your mortgage by switching to the 15 year loan, that’s incredible. We started with a downtown condo (which in hindsight we should have just rented), then moved to be closer to family and weren’t able to sell the condo so we were forced to rent it out. When we moved to be closer to family we bought a small bungalow, then 2 years later we were relocated for a job. Luckily we were able to sell house #2, which made us able to buy house #3. We went with a big one this time because we were so sick of moving that we didn’t want to have to relocate again. We’re currently on a 25 year fixed rate loan….and it suits is just fine. We will be able to drop the PMI at the end of next year….can’t wait!!

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    1. Phew, that’s so much moving – I can’t imagine! Dropping the PMI can definitely make a huge difference – yay for dropping it!

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      1. Right?? And the unfortunate part for us, since we bought our first place in 2008 (height of the market)……is that we lost money on both of our first places. Which was another reason we just wanted to go ahead and buy our “forever home”. I will be doing a victory dance when PMI is finally gone!

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        1. Ya, if we hadn’t bought in a short sale situation we’d have been way upside down at this point. The house was on the market for close to $350 and we bought for $265 I think? Just now we appraised for $313k after we gutted/redid the kitchen, added a 3rd bedroom, and put in a new back desk. I shudder to think how upside down we’d have been if we had bought full price in 2010.

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        2. Yea, it was not fun!! Hindsight is def 20/20 though, right??

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  7. Yay for getting that 15 year mortgage! We moved to a new state 4 years ago for my husband’s job. We took a hit selling our old house, but got a awesome deal on the (at the time) 4 year old home we bought.

    We had a 30 year, but refinanced 1.5 years ago to a 15 year mortgage at 3 percent. We have a lot of equity in the house (it’s almost half paid off) and we pay a little extra every month, as well as when my husband gets his yearly bonus. We would love to have the house paid off in 7-10 years if we can swing it.

    We are on one income, I have a college degree but am at home with 4 kids. I am trying to be more diligent about saving for my own retirement as well. My husband maxes out 401K, we have no student or car loans or any debt except the mortgage and a decent savings. Right now we are trying to figure the next steps on how to invest more and save more. We cut cable, his work pays for his car and cell phone and gas, and I am a frugal shopper 😉

    I LOVE Dave Ramsey and Suze Orman too! We have never been in debt but a few times we did over spend a few years back and had to pull from savings so those guys helped us have a total reality check! We save for retirement first, then mortgage then all 4 kids have college accounts from baptism, bday and Christmas money.

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  8. justwedding · · Reply

    I am a huge fan of 15 year loans. My husband is almost 40, so I don’t think we can really justify a 30 year loan at this point. We bought a house recently, and I feel great about our 15 year loan.

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  9. Jos, that is amazing!

    Luckily, mark and I saved 8 months emergency fund, because were lion off of month 3 of it right now :/ scary stuff, I hate watching it dwindle, but I can’t imagine if we had not prepared for our unexpected layoffs! Our cobra ins alone is 1500 a month.

    I cannot cannot wait until he is back to work and we can focus on our financial future again!

    When I got laid off though and received a severance we paid off or cars, student loans and we sold our house for a profit so our expenses here are way less than they would be in the Bay Area.

    It’s nice you and Charlie are on the same page and like to talk about this stuff. Money stress can really weigh on a marriage and I’m happy that we do to have that, and we have the same goals.

    So jealous of your 15 year loan! A definite dream of ours!!

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    1. Living off of, not lion. 🙂

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    2. Oof – cobra payments are insane. Can you see if you qualify for ACA insurance (“obama care”) while you’re both between jobs? We have a high deductible plan through the ACA, but we only pay $400/mo for the 4 of us after our APTCs (Advance Premium Tax Credits). Maybe they have a good plan with a low deductible for maternity reasons that can save you some money?

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  10. We made some big changes this year around houses and financial decisions. We have opted for the very unconventional thing to do here. We sold our house and went back to renting. The mortgage structures are different here (NZ) and interest rates a lot higher. You don’t set your mortgage for the entire length of the mortgage I think the maximum you can set your interest rate is for 5 years and that’s not that normal it’s normally for about 2 years. So you really have to be aware on what it happening in the economy to make some wise decisions (often). When we bought our first house in 2008 the interest rate was 9.25% we were paying $1800 a fortnight. It did dramatically decrease over the years and it’s now about 6% but predicted to increase due to changes in the economy. House prices where I live are high. NZ is one of the highest house prices compared to income in the world not the highest but it gets up there. We opted for location and no responsibility for house maintenance. We dropped a lot of expenses due to our move and it also gives us a lot of freedom. We walk to work before we were tied to commuting together car and then Train. This gives us so much flexibility with work and child care. We can walk into the central city in 20 minutes but live right next to the Botanical gardens (lovely). We do make sure that we save the mortgage money we were paying after we have paid the rent as well. With high mortgage rates means higher saving rates so our money is earning more. We don’t have to have health insurance here it’s publically funded. We do have some private insurance as a back up but it’s not the same as the States. Food prices here are high so that’s a big cost for us. Although we are pretty careful in this area so it’s not too bad. We both have retirement funds that our employer and the Government add into so that is adding up quite fast. We will move based on the schools we want to send Toby to when the appropriate time come(toby’s the same age as Stella). My husband is not a great DIY person and getting him motivated is hard work. We renovated out first house quite a lot – it cost a lot and my parents helped a lot with the actual work but they are not young anymore. Since we have done this move we have a lot more money and less stress. It’s been great. We paid off our Student loans a number of years ago and have no other debts. We were able to easily pay for our last (and final) round of IVF easily and can plan for overseas trips every year – can be quite a cost as we are soooo far away from anywhere. We are hoping that the next house we buy with careful saving will be mortgage free(this may be a dream as houses are so expensive), This seems to be working for us but for others I think it freaks people out not to own.

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    1. My husband and I do not believe in the manufactured “American Dream.”. Not at all! If we could rent a decent house where we live, we would! Homes, in my opinion, are durable goods that just don’t really increase in value in most areas. We’re seeing this as the rate of value increase has corrected itself to be less than inflation.

      Good for you for doing what makes sense for you and not what others (the government) have said you should do! Well done!

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    2. This totally seems like the right path for you! We pay about the same for our mortgage as we would for a rental around here (my friends actually pay MORE than us for their rental here in town!) so it made more sense for us to at least be gaining equity in something. I like your focus on travel and such though!

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  11. I couldn’t respond up above, but our taxes were about $3,000. But still, that broken up monthly is only $250. I can’t believe Courtney pays so much a month in taxes, wow!! So interesting to hear about all these different places.

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    1. Yeah, so you pay another $167/mo more than us just in property taxes. It makes a difference!

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  12. We live in a rapidly growing east coast suburb so our prices are not super low, but def not as high as your resort community! When we bought the house 7 years ago it was 2000sf, we paid $240k, and our payment was $1700/month. We finished the 3rd floor (attic) of our house into an office and extra bathroom and bedroom. Our now 2500sf house was appraised at $265k after the reno so we refinanced, got a lower rate, dropped PMI and got our payment down to $1250/month! I work full time and we have 3 kids, 2 of whom are in all-day preschool for a cost of over $2k a month. So minimizing our monthly payment was our top priority. Our only debt is the house and one of our cars. I have a decent sized retirement account considering I’m still 30+ years from retirement. We have not started saving for college. But if we can swing over $2000/month in preschool costs, we can do the same when they get to college.

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    1. We thought the same re: college payments. I’d rather pay down the house, afford the nanny, own our cars outright, etc. now…and then when college comes, we will have the extra funds to help out with monthly costs if that’s the path we choose. Refinancing and dropping the PMI makes SO much sense, and so many people just don’t know to even do it!

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  13. We original had a 30 year mortgage at 4.5% interest. We were lucky to have inherited money to be able to put 20% down and not have to worry about PMI. Our home is 2,500 sq. ftish. with 5 acres. It is by no means a starter home but neither of us see it as our final home either. We both want more land and I want a single story. We have refinanced twice now for lower rates. This last time we did a 20 yr loan. The payments are actually lower than the 30 year loan. It has been nice to have less payments.

    I need to reread your 529 savings for the kids and follow up on the financial aid thing with college. I work at a university but I haven’t dealt with financial aid yet. I understand we may not have enough money to cover the kids education costs but I want to be able to put a dent in for them. Ben has student loans but I didn’t and man do I hate paying those payments!

    We are working on adjusting our budget to accommodate two in daycare. Congrats on moving in the right direction!!! These are very good goals to have. It is hard to stay on budget but it is doable!!

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    1. I’m curious what you’ll think about saving for your kids’ college educations once you look more into it. From what I’ve learned (through research and talking to my sis who works as a coach at a D1 uni), it really doesn’t make a lot of sense, because you get 2 kids in front of you where everything else is equal but one kid’s parents saved up for them & one didn’t, the human at the desk making scholarship determinations will offer more to the kid without the big 529 account. It’s just the way it works. Our goal now is to be debt free (house, vehicles, everything) before the kids start school so then we will have the extra cash flow every month to help out that way if we so choose.

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  14. We’re doing the debt snowball with our school loans as well. Two private school undergrad degrees and a couple of masters degrees = major monthly payments. And with Andrew going back to school in the spring, we are really trying to get our ducks in a row. Lately though, I’ve kind of been slacking (i.e.spending), so thanks for inspiring me to stay on the right path! (-: Looks like you and Charlie are doing great. And your house couldn’t be cuter.

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    1. Oof. Ya, that’s some serious bills. Charlie only went to a 2yr state college, and though I did a 4 yr private school, I was lucky to have a ton of grants & scholarships, so my debt wasn’t too bad when I walked away. I have friends who are paying SERIOUS payments every month though – I can’t imagine what a relief it would be to get those things paid off!

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  15. I do find this stuff fascinating too, and your post is good timing since we just went under contract! I don’t subscribe to everything Dave Ramsey preaches *cough cough* but some of his financial advice is just great – I love the debt snowball. We’ve had an expensive few years with IF, adoption, starting then canceling a second adoption, selling our place in Chicago, and getting ready to put a down payment in Denver. I cannot wait to debt snowball the shit out of my student loans starting next year 😉

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    1. Yeah, I don’t honestly know a whole lot about his entire program since we’ve never officially taken it, but I do love his general ideas of paying off debt & buying things when you can afford to buy them outright!

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  16. We refinanced 2 years ago when the rates were low. We ended up doing a 20yr @3.875%. My dad came over and wrote out how much interest we would pay on a 30yr vs a 15yr loan. Crazy! But since I stay home I wanted to have some wiggle room.

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    1. Yeah, I totally get that. We just can’t seem to swing me staying home, so I figured the trade off is me working and bringing in enough extra income to have the house paid off sooner and more freedom to travel & spend time with our kids in the future. Everyone needs to figure out what works best for their family & situation!

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