For many reasons, I recently chose to fully repay one of two mortgages upon my principal residence early which one of my credit profiles now reflects.
I’ve been a solid 820-835 FAKO/805-820 FICO for years with no negs, no inquiries, 15 tradelines (9 open/2 mortgage - 7 revolving), with near-zero revolving balances and an average open account age of 11.5 years. I repaid the final $70K of the $180K 15-year mortgage 4 years into the loan.
Doing so took me from 9 to 8 open tradelines with an average account age of 12.4 years. It also substantially reduced my overall indebtedness (now consisting entirely of my primary mortgage balance) and my monthly payment nut by 40%. All good news, one might think. Not necessarily, apparently.
Depending upon whether or not I carry a zero revolving balance or 1% of my total capacity spread across my revolvers, my score generally will fluctuate by as much as 3 points (lower with zero balance). I generally don’t finance vehicles except as a means of replacing previous loans which age-off my credit history to its detriment. I’m always loathe to give up even a single hard pull (and 2 points) for 2 whole years just to borrow a few thousand dollars I don’t really need. One never knows what a future prospective lender may find bothersome, so I don’t even let it become an issue if I can help it. I digress.
In short, my credit history is about as rock solid as one can actively manage short of subordinaring major financial decisions for the sake of FICO points. I expected repaying the 2nd mortgage not to have a significant impact but nevertheless thought any effect upon scoring would be positive to about the same degree as paying down a substantial portion of principal a year or so ago which raised my score by 4 solid points (despite not reducing my monthly payment obligation by a single dollar at the time).
Apart from the lender adding a snarky little comment to the tradeline reading, “Account closed at customer request,” rather than a more courteous, “Fully repaid in advance”, the net effect upon my scoring was a 3 point hit. It’s inconsequential in the grand scheme, but still enough to piss a person off after writing a $70K check.
Of course, points notwithstanding, repaying the mortgage early dramatically strengthens my actual financial profile. I’m fortunate that 3 points at my score range isn’t likely to impact any future credit opportunities, but that may not always be so for all. That’s why I thought I’d offer up this little cautionary tale for those who may be considering early repayment amid actively trying to manage scores upward within a range where a few points can affect rates or limits if not the entire decision.
Good luck to all.
I’ve been a solid 820-835 FAKO/805-820 FICO for years with no negs, no inquiries, 15 tradelines (9 open/2 mortgage - 7 revolving), with near-zero revolving balances and an average open account age of 11.5 years. I repaid the final $70K of the $180K 15-year mortgage 4 years into the loan.
Doing so took me from 9 to 8 open tradelines with an average account age of 12.4 years. It also substantially reduced my overall indebtedness (now consisting entirely of my primary mortgage balance) and my monthly payment nut by 40%. All good news, one might think. Not necessarily, apparently.
Depending upon whether or not I carry a zero revolving balance or 1% of my total capacity spread across my revolvers, my score generally will fluctuate by as much as 3 points (lower with zero balance). I generally don’t finance vehicles except as a means of replacing previous loans which age-off my credit history to its detriment. I’m always loathe to give up even a single hard pull (and 2 points) for 2 whole years just to borrow a few thousand dollars I don’t really need. One never knows what a future prospective lender may find bothersome, so I don’t even let it become an issue if I can help it. I digress.
In short, my credit history is about as rock solid as one can actively manage short of subordinaring major financial decisions for the sake of FICO points. I expected repaying the 2nd mortgage not to have a significant impact but nevertheless thought any effect upon scoring would be positive to about the same degree as paying down a substantial portion of principal a year or so ago which raised my score by 4 solid points (despite not reducing my monthly payment obligation by a single dollar at the time).
Apart from the lender adding a snarky little comment to the tradeline reading, “Account closed at customer request,” rather than a more courteous, “Fully repaid in advance”, the net effect upon my scoring was a 3 point hit. It’s inconsequential in the grand scheme, but still enough to piss a person off after writing a $70K check.
Of course, points notwithstanding, repaying the mortgage early dramatically strengthens my actual financial profile. I’m fortunate that 3 points at my score range isn’t likely to impact any future credit opportunities, but that may not always be so for all. That’s why I thought I’d offer up this little cautionary tale for those who may be considering early repayment amid actively trying to manage scores upward within a range where a few points can affect rates or limits if not the entire decision.
Good luck to all.
Starting Score: Lower than it is
Probably so.
That’s a real bugger about how many mortgages work. One can’t simply pay down huge blocks of principal in advance without both pulling forward the effective payoff safe and a payment still being due as usual the next month. I otherwise would’ve been all-too-happy to pay down all but a few bucks and pay off the balance at the loan’s normal payoff date to benefit from both the positive effect upon score and to forestall the future date at which the positive tradeline ages off.
Before pursuing any principal reduction in earnest, we usually pay in advance as many monthly payments as the lender will allow to establish a time cushion during which no payments would be due as protection against job loss or other unforeseens, knowing that we forego some interest savings. We’ve encountered lenders which accept as few as 2 monthly payments in advance or as many as two years before holding any further non-principal reduction payments in forbearance.
Further, with 2 mortgages, fully repaying one is the only practical way to begin paying down the second without dedicating sizable amounts of additional cash each month and the slightly-negative score impact that comes with it.
That’s a real bugger about how many mortgages work. One can’t simply pay down huge blocks of principal in advance without both pulling forward the effective payoff safe and a payment still being due as usual the next month. I otherwise would’ve been all-too-happy to pay down all but a few bucks and pay off the balance at the loan’s normal payoff date to benefit from both the positive effect upon score and to forestall the future date at which the positive tradeline ages off.
Before pursuing any principal reduction in earnest, we usually pay in advance as many monthly payments as the lender will allow to establish a time cushion during which no payments would be due as protection against job loss or other unforeseens, knowing that we forego some interest savings. We’ve encountered lenders which accept as few as 2 monthly payments in advance or as many as two years before holding any further non-principal reduction payments in forbearance.
Further, with 2 mortgages, fully repaying one is the only practical way to begin paying down the second without dedicating sizable amounts of additional cash each month and the slightly-negative score impact that comes with it.
3 points. Ok. At your score level, you are so far above “top tier” that it makes zero difference in any borrowing rate you seek.
You aren’t paying interest on $70k.
Congrats!
You aren’t paying interest on $70k.
Congrats!
True that (as “they” supposedly say). Though when it was fully deductible, the tax savings made the extra liquidity a no brained. Such is no longer the case for me. But that’s a good kind of problem which I’d be utterly hypocritical and hubristic to the point of begging The Good Lord to smite me to bemoan.
The accelerated paydown now may proceed upon the primary which I also may refinance into a lower-rate over 15 years. We built new and saved considerable closing costs by borrowing from the builder’s preferred lender. Dual conforming loans was the alternative to a single jumbo at a much higher overall rate.
Having made four years of payments upon the primary and amassed a year’s worth of contingency payments made in advance, the principal balance now is substantially lower than the $417K maximum. Our decision now is whether to continuing to further accelerate the exiting mortgage’s paydown using the monthly payments which otherwise would’ve gone toward the now-repaid second, or to refinance over 15 years to save about 1.25% APR and the opportunity cost of a higher monthly payment which we can’t accelerate as much and the basic rigmarole that comes with any mortgage process (including two years of staring at hard pulls which send my OCD into overdrive). Again, all are the kind of dilemmas I’m blessed to face. The one negative aspect of accelerating a mortgage pay down which doesn’t necessarily apply to other types of installment loans is how doing so necessarily pulls forward the payoff date and the date ten years hence when a very powerful tradeline ages off. This isn’t something one who intends to minimize subsequent indebtedness necessarily relishes. A decades-long history of meeting obligations can become a Reader’s Digest version (let the millennials chew on that reference) in very short order.
I’m otherwise estimating 2-3 years from being fully unencumbered which I hope to be a status I never again would relinquish. I then may be able to look forward to managing my credit almost entirely on my own terms. By the time others reach my age and point in life, they hopefully will have avoided many of the costly lessons in both money and opportunity I’ve made.
The accelerated paydown now may proceed upon the primary which I also may refinance into a lower-rate over 15 years. We built new and saved considerable closing costs by borrowing from the builder’s preferred lender. Dual conforming loans was the alternative to a single jumbo at a much higher overall rate.
Having made four years of payments upon the primary and amassed a year’s worth of contingency payments made in advance, the principal balance now is substantially lower than the $417K maximum. Our decision now is whether to continuing to further accelerate the exiting mortgage’s paydown using the monthly payments which otherwise would’ve gone toward the now-repaid second, or to refinance over 15 years to save about 1.25% APR and the opportunity cost of a higher monthly payment which we can’t accelerate as much and the basic rigmarole that comes with any mortgage process (including two years of staring at hard pulls which send my OCD into overdrive). Again, all are the kind of dilemmas I’m blessed to face. The one negative aspect of accelerating a mortgage pay down which doesn’t necessarily apply to other types of installment loans is how doing so necessarily pulls forward the payoff date and the date ten years hence when a very powerful tradeline ages off. This isn’t something one who intends to minimize subsequent indebtedness necessarily relishes. A decades-long history of meeting obligations can become a Reader’s Digest version (let the millennials chew on that reference) in very short order.
I’m otherwise estimating 2-3 years from being fully unencumbered which I hope to be a status I never again would relinquish. I then may be able to look forward to managing my credit almost entirely on my own terms. By the time others reach my age and point in life, they hopefully will have avoided many of the costly lessons in both money and opportunity I’ve made.
With your plans to get out of Installment / Mortgage debt, and desire to maximize score, that means you want to maintain an Installment Debt.
You should consider starting a $500 Share Secured Loan at a local Credit Union. Not a LOC, but a true Installment Loan. Mine runs 5 years, $9 per month, and is just past half way through. Low APR due to the 5 year $500 CD that earns nearly offsetting interest now. Others on this board had Alliant that allowed nearly all of that $500 to be paid down, leaving a nice low utilization metric for years. That seems no longer to be available, and I like my steady amortization schedule anyway.
Starting now with one of these small installment loans, then starting another in 3 or 4 years from now, then continuing the ladder for as long as your OCD insists, gets you a continuous FICO population of Installment Loan contribution to your score, stabilizing that part of your FICO Mix. And keeps your CU mildly active.
FORTY flipping points for a single hard pull? Good Lord! They must’ve pulled you right out of your socks by your toes. I wonder if they pulled a muscle in so doing.
I realize that a new loan generally would reflect a higher utilization. However, because the present mortgage’s principal balance now is substantially lower than the $417K maximum and represents less than half the home’s conservative market value, I’d refinance for the full $417 and immediately pay down a hunk of principal with the proceeds to yield the same utilization rate as exists today.
It’s very much not what most would do, or how most would use equity withdrawn, but having that flexibility is yet one more benefit of the fortunate circumstances aggressive repayment so far affords.
I realize that a new loan generally would reflect a higher utilization. However, because the present mortgage’s principal balance now is substantially lower than the $417K maximum and represents less than half the home’s conservative market value, I’d refinance for the full $417 and immediately pay down a hunk of principal with the proceeds to yield the same utilization rate as exists today.
It’s very much not what most would do, or how most would use equity withdrawn, but having that flexibility is yet one more benefit of the fortunate circumstances aggressive repayment so far affords.