Our Debt Load

Posted on | October 18, 2007 |

I’ve read a lot of personal finance blogs that are dedicated primarily to tracking the blogger’s journey out from under overwhelming debts. I applaud both the impetus (shedding debt) and the effort of journaling their trek out of the abyss.

There but for the grace of God…

In our case, despite daily credit card use, The Husband and I do not carry a credit card debt load. Our debt load consists only of one car loan and our mortgage.

The Car
We bought our 2007 Subaru Impreza wagon in July of this year — the same month that we made the loan-retiring payment on The Tank (our SUV). The new Subaru was purchased to replace the Subaru Legacy wagon we purchased new in 1994. The day we brought home the new Impreza, we sold the Legacy for $900. It was 13 years old and had in the neighborhood of 224,000 miles on it and still ran well with no major issues. The dealership wanted nothing to do with it

We bought the Impreza through the Costco Auto Buying program. If you ask me, it’s the only way to buy a new car. First of all there are no pushy salesmen to deal with — Costco purchases are all run through the dealer’s fleet sales department. From what I understand, the deal one gets through the Costco program varies depending on the manufacturer of the car you’re buying. It’s typically in the neighborhood of $100.00 over dealer invoice.

We couldn’t be happier with the Subaru and we couldn’t have been happier with our purchasing experience either. Because we were buying a 2007 (the 2008’s weren’t out yet but were due out soon and the new ‘08 was a model redesign year), our deal was particularly sweet. We paid nothing over invoice (that’s right, actual invoice price only and yes, we saw the invoice) plus we retained the Subaru incentive being offered that month (the pot was sweetened in July) of $1,500 cash back. We also opted for the 2-year 1.9% financing.

The Husband made a payment today and showed me the payment details. Our monthly payment is $904.15. Of that amount, $871.63 is applied to the principal of the loan with only $32.52 in interest charges.

The House
We bought our house in the spring of 2002. The Husband has owned several homes over his lifetime [he loves reminiscing about buying his first home -- a brand-new 2-bed, 2-bath in Boulder, CO for $18,000] but I was a first-timer. Before buying the house, we’d rented a house for 8 years and rented an 2-bedroom apartment for about 5 years before that.

The Husband had a pretty definite budget in mind — which was about 1/2 of what we qualified for. We got a VA loan (The Husband had previously bought a house with a VA loan and didn’t think he could use it again; his brilliant wife did the research and found out that he could). We had nothing to put down and thus financed the entire purchase price. I don’t remember what the final numbers were but the seller accepted our offer of $224,000 (it had been sitting vacant for nearly a year). We got a 30-year fixed rate at 6%.

Shortly after buying the house I read somewhere that by simply making one extra house payment per year a homeowner can effectively take 8 years off of a 30-year mortgage. I was floored! So I mentioned it to The Husband and we agreed make it our plan.

According to our this month’s mortgage payment statement, our unpaid principal amount is $208,910.83. Our October payment was $1,640.10 and of that amount only $342.58 was principal. Interest was $1,046.27 and $251.25 was applied to escrow.

Each spring The Husband sends in a check for $3,000 in lieu of our $1,640.10 payment. So once each year, we apply (approximately) an extra $1,360 to our principal pay-down. That’s like making 5-1/2 principal payments and saves us approximately $5,755 in interest each year. And with each extra payment, the principal paydown portion (how’s that for alliteration?) gets bigger.

I’ve seen it argued that homeowners are better off applying that annual extra house payment to higher yield investments. That may well be — in some cases. However, in our case, that extra payment brings me peace of mind. With The Husband turning 73 next spring and battling cancer for the third time (a battle that, statistically he will not win this time), anything we can do to make the future a less scary place is good.

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