Paying off the house

I’ve always heard that it’s a good goal to pay off your mortgage.  So I did.  I thought it was a great idea.  My mortgage interest was over 6%, it was costing me every month, and I happily spent my annual bonus to pay it off.  Only good things can come of this, right?

Not necessarily.  I do have a lot more breathing room on the budget.  There seems to be a little more money at the end of the month.  But my credit rating took a hit.  I didn’t know why at first, but I went from 820 or so to 760.  For a couple of months, it didn’t offer an explanation, but then it said “no payment on installment loan” or something like that.  Yep.  Paying off the house cost me 60 points.

Not a big deal, I thought.  A score of 760 is still pretty respectable.  So with the next year’s bonus, I bought a van for the wife.  I got a really nice one, put 40% down, and got a great rate financing the rest.  The car note is now about what I was paying in principle and interest, so I feel like I can afford it.  Then I got my annual home insurance bill.  Wham!  Up 50%!

I called the insurance company, and sure enough, they ran a credit check.  Didn’t bother to look at my score.  They looked at my debt.  Apparently, if you owe more than $23K, they knock you up a price notch.  That’s everything – car, credit card, etc. – except a mortgage.  I could owe $100K on the house and they wouldn’t care.  In other words, I could take out a second mortgage on the house, indebting myself for 30 more years, pay off the car, and the banks would reward me for having more credit-worthiness.

This is dreadfully unfair and illogical, but what are you going to do?  When life hurls lemons at you with a potato gun, your only option is to stand there and take it.  Not like you can dodge big yellow bullets.  Or, don’t buy anything expensive.  Unless it’s a house.  I just wish I had known about that magic number.  I could have re-arranged some things and probably gotten it down below $23K.

Who knew that paying off the house would cost me over a thousand dollars extra per year?  I’m definitely paying down my debt to get under that magic number as soon as I can.  But if you’re thinking about paying off the house, beware: banks want you in debt to them, but not to car dealerships.

-Mark

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