Author Topic: Should I pay off my house?  (Read 2115 times)

YTProphet

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Should I pay off my house?
« on: March 20, 2017, 09:02:00 AM »
I'm thiiiiiiis close to being able to pay off my house. About $100k left on it and I have nearly $100k in cash. Have $100k in my 401k and am maxing that out. 33 y/o, married with a couple kids.

I'm a box checker and someone who likes the feeling of accomplishment. Agnostic about future stock market performance. Any reason not to do it? I already have a HELOC set up so that if I need a big chunk of cash for whatever reason I can draw on it.

shaybro

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Re: Should I pay off my house?
« Reply #1 on: March 20, 2017, 09:08:59 AM »
What is the interest rate? Refer to this thread:
https://forum.mrmoneymustache.com/investor-alley/investment-order-65299/

Why do you have 100k in cash? Is your 6 month emergency fund really that big? I would fill you and your spouse's IRAs, keep 6 months emergency fund, and put the rest in Vanguard.

2Birds1Stone

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Re: Should I pay off my house?
« Reply #2 on: March 20, 2017, 09:11:53 AM »
If your interest rate is <5% I would not. There is something to be said about liquidity.
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YTProphet

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Re: Should I pay off my house?
« Reply #3 on: March 20, 2017, 09:18:35 AM »
What is the interest rate? Refer to this thread:
https://forum.mrmoneymustache.com/investor-alley/investment-order-65299/

Why do you have 100k in cash? Is your 6 month emergency fund really that big? I would fill you and your spouse's IRAs, keep 6 months emergency fund, and put the rest in Vanguard.

Interest rate is 3.25%. 15 year note. I happen to have a lot of cash due to a liquidity event from an investment that just paid out.

I max roth IRA's and normally keep a 6 month emergency fund, but I guess I don't really see the difference between keeping a cash emergency fund and having a readily accessible HELOC.  I realize a HELOC is more volatile (interest rates could spike, the bank could take it away from me for some reason, etc), but without a mortgage my cash cushion will jump up very quickly since I currently pay $1500/month toward my mortgage.

YTProphet

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Re: Should I pay off my house?
« Reply #4 on: March 20, 2017, 09:23:54 AM »
If your interest rate is <5% I would not. There is something to be said about liquidity.
It's 3.25%, which I know is dirt cheap money, but I just want the high from being debt free. LOL. I know that sounds a bit weird, but I'd love to just be able to say "I paid off a $200k+ house and $160k in student loans in 6 years and I'm now debt free."


Fishindude

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Re: Should I pay off my house?
« Reply #6 on: March 20, 2017, 09:40:02 AM »
As long as you can pay it off without robbing your 401K or other such retirement account(s), while still leaving yourself a little liquid cash to use as emergency fund, etc., I'd say pay it off.
No mortgage frees up a bunch of cash every month for other types of spending and investing, plus it just feels good not to have debt.

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Re: Should I pay off my house?
« Reply #7 on: March 20, 2017, 09:54:18 AM »
We are going to see something similar soon and decided to keep the money invested. The determining factor for us though wasn't interest rate but "How long until you plan to retire?"

If you're planning on retiring relatively soon and doing the standard 5 year IRA ladder, you'll need 5 years of expenses saved up either in taxable accounts or Roth IRA contributions while your ladder matures. This money could give you the liquidity to cover much of that period. Otherwise you'll need to look into SEPPs or taking the 10% penalty or needing to earn more than you'd like for the first 5 years of your "retirement."

If you still have a long time before retirement and you'll likely be able to save up the 5 years of liquidity between now and then, then you can decide on interest rate arbitrage vs peace of mind of no mortgage.
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boarder42

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Re: Should I pay off my house?
« Reply #8 on: March 20, 2017, 10:05:30 AM »
As long as you can pay it off without robbing your 401K or other such retirement account(s), while still leaving yourself a little liquid cash to use as emergency fund, etc., I'd say pay it off.
No mortgage frees up a bunch of cash every month for other types of spending and investing, plus it just feels good not to have debt.

you have to spend the cash to pay it off. it creates future cash flow at a higher rate that could lead to increased spending which is bad so i dont know why you even included.  But this is at the expense of 100k earning money now today.  all extra cash flow should go to investing.  and with that logic the best way to do it is to not pay it off and to put all cash into investments now b/c that rate is low.

your last statement on feelings is the only reason to pay off the mortgage.
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Easye418

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Re: Should I pay off my house?
« Reply #9 on: March 20, 2017, 11:17:00 AM »
It sounds like you are looking for validation on paying off mortgage.  Most here will say not to do it and stay liquid.

I would do what makes yourself feel better.  It sounds like you would like to have that emotional feeling of accomplishment and having a paid off house by 33 is pretty cool. 
You either cut expenses, raise income, or both.  Simple as that.

frugaliknowit

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Re: Should I pay off my house?
« Reply #10 on: March 20, 2017, 11:29:40 AM »
I just went through the same query last fall. 

I decided it would suck if I lost my job, then had to start drawing on my heloc (while unemployed...).  I have been "throwing grenades at it", and will be done with it in about 3 more months with some cash to spare.

YTProphet

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Re: Should I pay off my house?
« Reply #11 on: March 20, 2017, 11:30:24 AM »
It sounds like you are looking for validation on paying off mortgage.  Most here will say not to do it and stay liquid.

I would do what makes yourself feel better.  It sounds like you would like to have that emotional feeling of accomplishment and having a paid off house by 33 is pretty cool.

Yeah, I think I am looking for something like emotional validation. You work so hard but there's no emotional checkpoints to take a breather and feel good. You just keep saving. At least with this, it's like a pit stop in the life long financial journey. From a mathematical perspective, I know it probably makes more sense to keep the dirt cheap debt, but then it's just more slogging along to save more money.

bender

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Re: Should I pay off my house?
« Reply #12 on: March 20, 2017, 11:33:10 AM »
Do it!  Pay off the mortgage!

There's some encouragement.  I'm doing the same, though not all at once, yet (will take several months).  If you're not comfortable putting the money in the market, then it's certainly better to pay off the mortgage rather than sitting on the cash.  If you're already maxing all pre-tax investment options, it makes even more sense to pay down the mortgage.

boarder42

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Re: Should I pay off my house?
« Reply #13 on: March 20, 2017, 11:44:06 AM »
Pit stops in the literal sense make it longer to cross the finish line.

So from your analogy of wanting a pit stop for a breather.   Let's look at it from that sense. You could cross the finish line sooner without the pit stop.  So as long as you understand your breather will cost you months and likely years on your fire date sure go ahead and take it. But a NASCAR driver with plenty of fuel and solid tires wouldn't take a pit stop for his emotional satisfaction and to take a break. But that choice is yours.

Maybe you dump it into your house and the market crashes this year and you're thinking great I made the right Calli avoided that crash. Well the problem is you are missing out on the recovery which in 15 years will likely still lead to you coming out behind. In the same way a NASCAR driver wouldn't take a pit bc a crash  may happen and he can avoid it while catching a 15 second break. Done continuously he would lose his job and be fired.
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acroy

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Re: Should I pay off my house?
« Reply #14 on: March 20, 2017, 12:20:56 PM »
No.
Paid off house  = overweight invested in a non-liquid asset. (Unless the value of the house is only 10-15% of your NW.)
Let the bank own it, and use their money to generate more little green men :)
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boarder42

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Re: Should I pay off my house?
« Reply #15 on: March 20, 2017, 12:28:05 PM »
at the end of 15 years assuming 10% annual returns on your investment investing your payment is ~300k and investing the 400k now is ~420k.  so youre gonna make an extra 120k over the next 15 years investing it.

so go join the dont pay off your mortgage club thread and make it a good feeling everytime you buy some more VTSAX .
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GizmoTX

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Re: Should I pay off my house?
« Reply #16 on: March 20, 2017, 02:49:27 PM »
As long as you can pay it off without robbing your 401K or other such retirement account(s), while still leaving yourself a little liquid cash to use as emergency fund, etc., I'd say pay it off.
No mortgage frees up a bunch of cash every month for other types of spending and investing, plus it just feels good not to have debt.

Plus you no longer have to pay mortgage interest to the bank.

You should put aside enough to cover your property tax & insurance every year, since you will no longer have escrow.

boarder42

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Re: Should I pay off my house?
« Reply #17 on: March 20, 2017, 02:56:14 PM »
As long as you can pay it off without robbing your 401K or other such retirement account(s), while still leaving yourself a little liquid cash to use as emergency fund, etc., I'd say pay it off.
No mortgage frees up a bunch of cash every month for other types of spending and investing, plus it just feels good not to have debt.

Plus you no longer have to pay mortgage interest to the bank.

You should put aside enough to cover your property tax & insurance every year, since you will no longer have escrow.

biggest joke and misconception period brought up as reason to pay off a mortgage.  you pay off your mortgage b/c it feels good ... not to avoid 3.25% in interest fees.  if you're in the 15% tax bracket and itemize thats 2.8% real interest, which is less than inflation.  so as long as you're investing  it you're beating inflation itself by not paying it down.  such a joke and the most annoying statement i hear about not paying down a mortgage.
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Fishindude

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Re: Should I pay off my house?
« Reply #18 on: March 20, 2017, 03:51:18 PM »
This debate goes round and round on this forum every thirty days or so.  I'm firmly entrenched in the "get out of debt and quit paying interest to the bank" camp and nothing will change my mind on that.  Do whatever feels good for you.

iowajes

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Re: Should I pay off my house?
« Reply #19 on: March 20, 2017, 03:55:08 PM »
I'm way too nervous to lose the liquidity if I made a large lump sum payment to the house.

We alternate any windfalls to Vanguard or Mortgage; but I'm not getting rid of my savings for the house.  I don't want to have to sell my house to be able to buy food if I lose my job; however, the fact that I have the money to pay it off means I'd be able to keep making payments in the meantime!

samsonator54321

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Re: Should I pay off my house?
« Reply #20 on: March 20, 2017, 07:21:28 PM »
I have a desire to payoff my mortgage early for peace of mind. If we have another recession and I lose my job, I'd love to not have to worry about rent.  And I'd hate to dip into my depleted investments to pay rent.  I realize that the market may make me more money then my house does, so that when that recession happens I would likely have bigger cushion, but that is a risk I'm not willing to take.

JLee

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Re: Should I pay off my house?
« Reply #21 on: March 20, 2017, 07:30:24 PM »
This debate goes round and round on this forum every thirty days or so.  I'm firmly entrenched in the "get out of debt and quit paying interest to the bank" camp and nothing will change my mind on that.  Do whatever feels good for you.

More power to you...I'm glad I didn't miss out on this year, though.


Agg97

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Re: Should I pay off my house?
« Reply #22 on: March 20, 2017, 09:13:18 PM »
You're asking the question as an either/or.  Why not pay it off, wait 3-6 months, and then evaluate if you want to take out a new mortgage just so you can invest it.  Think of it as an experiment rather than an all-or-nothing approach.


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babybug

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Re: Should I pay off my house?
« Reply #23 on: March 20, 2017, 10:57:02 PM »
If I had 100k cash I'd also hesitate to invest it as a lump in this high market. If you pay off the house you can then invest the 1200/month, i.e. dollar cost average. And get the guaranteed 3.5 % return.  It's just a function of risk tolerance.  I don't see anything wrong with that.

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JLee

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Re: Should I pay off my house?
« Reply #24 on: March 20, 2017, 11:03:00 PM »
If I had 100k cash I'd also hesitate to invest it as a lump in this high market. If you pay off the house you can then invest the 1200/month, i.e. dollar cost average. And get the guaranteed 3.5 % return.  It's just a function of risk tolerance.  I don't see anything wrong with that.

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Mathematically, lump sum wins over DCA.

http://www.businessinsider.com/lump-sum-vs-dollar-cost-averaging-2014-12

babybug

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Re: Should I pay off my house?
« Reply #25 on: March 21, 2017, 12:18:39 AM »
If I had 100k cash I'd also hesitate to invest it as a lump in this high market. If you pay off the house you can then invest the 1200/month, i.e. dollar cost average. And get the guaranteed 3.5 % return.  It's just a function of risk tolerance.  I don't see anything wrong with that.

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Mathematically, lump sum wins over DCA.

http://www.businessinsider.com/lump-sum-vs-dollar-cost-averaging-2014-12
That is clearly so from the data, but in this case we have to consider:
1. that's the average over an 87 year period, not many investors are truly long haul and it may not be the case for say, every 10-yr period.
2. In the OP case, the balance would be in a 3.25% return mortgage payoff rather than in cash... so the difference is not really that huge.
3. Emotional side of the equation

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boarder42

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Re: Should I pay off my house?
« Reply #26 on: March 21, 2017, 05:35:51 AM »
If I had 100k cash I'd also hesitate to invest it as a lump in this high market. If you pay off the house you can then invest the 1200/month, i.e. dollar cost average. And get the guaranteed 3.5 % return.  It's just a function of risk tolerance.  I don't see anything wrong with that.

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Mathematically, lump sum wins over DCA.

http://www.businessinsider.com/lump-sum-vs-dollar-cost-averaging-2014-12
That is clearly so from the data, but in this case we have to consider:
1. that's the average over an 87 year period, not many investors are truly long haul and it may not be the case for say, every 10-yr period.
2. In the OP case, the balance would be in a 3.25% return mortgage payoff rather than in cash... so the difference is not really that huge.
3. Emotional side of the equation

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its not a function of risk tolerance its been clearly laid out many time that those who pay down their mortgage are actually adding risk to their FIRE timeline as well as their safety once FIREd ... its volatility tolerance. but at the end of the day there is no equation you can layout that says paying down the mortgage at that rate ever makes sense. 

1.  this place is all about the long haul.
2. the difference is huge i dont know what 120k means to you but thats an extra 5k per year you can spend or a year or 2 off your FIRE timeline
3. Yes when you take logic and math out of the equation and rely on emotion this is how you can feel better about making a mathmatically flawed decision.
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YTProphet

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Re: Should I pay off my house?
« Reply #27 on: March 21, 2017, 06:30:52 AM »
If I had 100k cash I'd also hesitate to invest it as a lump in this high market. If you pay off the house you can then invest the 1200/month, i.e. dollar cost average. And get the guaranteed 3.5 % return.  It's just a function of risk tolerance.  I don't see anything wrong with that.

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Yeah, I think it's really 2 things for me:

1. Emotional validation
2. I'm a little bit leery given the fact that we've been in a nice bull market for 8 years and they almost never last longer than that. I realize market timing is taboo around here, but cmon. 8 year bull market and no one else would be nervous about dropping $100k into the market?

On the flip side, I do worry about having my net worth predominantly tied up in one asset (it's a little more liquid than others since I love in a very hot r.e. market).

boarder42

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Re: Should I pay off my house?
« Reply #28 on: March 21, 2017, 06:42:54 AM »
If I had 100k cash I'd also hesitate to invest it as a lump in this high market. If you pay off the house you can then invest the 1200/month, i.e. dollar cost average. And get the guaranteed 3.5 % return.  It's just a function of risk tolerance.  I don't see anything wrong with that.

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Yeah, I think it's really 2 things for me:

1. Emotional validation
2. I'm a little bit leery given the fact that we've been in a nice bull market for 8 years and they almost never last longer than that. I realize market timing is taboo around here, but cmon. 8 year bull market and no one else would be nervous about dropping $100k into the market?

On the flip side, I do worry about having my net worth predominantly tied up in one asset (it's a little more liquid than others since I love in a very hot r.e. market).

you can worry all you want but you can predict anything.  the shiller PE isnt all that high right now.  1 year of a flat market with stable earnings would put it right back in line.  Its also inflated b/c of the incredibly low 2009 earnings which will be dropping off in 2 years.  so who cares.. my dad is about to gift me 20k tomorrow... its going straight into the market.  You CANNOT market time.  but even if the market were to fall and you'd put that money in your house, when it recovers that money is still just sunk in your house, it cant then be invested.  it could but not at a 3.25% loan most likely as rates are rising right now. 


The oracle of omaha himself even said its the greatest gift ever.  30 year fixed low interest debt.  you're at 15 years but still.  take emotion out and make future you happier when you can quit the rat race a year sooner b/c old you made the smart decision and dumped it in the market. 
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Fishindude

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Re: Should I pay off my house?
« Reply #29 on: March 21, 2017, 06:51:18 AM »
This debate goes round and round on this forum every thirty days or so.  I'm firmly entrenched in the "get out of debt and quit paying interest to the bank" camp and nothing will change my mind on that.  Do whatever feels good for you.

More power to you...I'm glad I didn't miss out on this year, though.




Folks that were mortgage free last year had a whole lot more available cash on hand to invest in the market if they saw fit to do so.

ShoulderThingThatGoesUp

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Re: Should I pay off my house?
« Reply #30 on: March 21, 2017, 06:56:39 AM »
I bought my house for cash, but you've already paid the fees and everything else to have the mortgage. It's a great rate; why waste the expense you went to in setting it up?

boarder42

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Re: Should I pay off my house?
« Reply #31 on: March 21, 2017, 07:03:43 AM »
This debate goes round and round on this forum every thirty days or so.  I'm firmly entrenched in the "get out of debt and quit paying interest to the bank" camp and nothing will change my mind on that.  Do whatever feels good for you.

More power to you...I'm glad I didn't miss out on this year, though.




Folks that were mortgage free last year had a whole lot more available cash on hand to invest in the market if they saw fit to do so.

this is asinine and a terrible statement ... if you cant see that i cant help you.  you have 10s to 100s of thousands sunk in your house that missed that run up b/c you paid it off.  it made whatever houses appreciated at in your area - which is wait for it exactly what houses would have made without a mortgage so all that money sunk into your house essentially returned -17% Year over Year vs the stock market, b/c a mortgage could have been easily had for 4% last year ...

the concept you are presenting is an assbackwards way to think about it.

YOU CANNOT HAVE  MORE MONEY IN THE MARKET b/c of a paid off house than someone who has been investing the whole time given the same starting point and funding ...

Your very statement just presents the point as to the problem with people who really dont understand math and you clearly think you're making a better mathematical choice.  Just a joke.
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Fishindude

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Re: Should I pay off my house?
« Reply #32 on: March 21, 2017, 07:42:27 AM »
this is asinine and a terrible statement ... if you cant see that i cant help you.  you have 10s to 100s of thousands sunk in your house that missed that run up b/c you paid it off.  it made whatever houses appreciated at in your area - which is wait for it exactly what houses would have made without a mortgage so all that money sunk into your house essentially returned -17% Year over Year vs the stock market, b/c a mortgage could have been easily had for 4% last year ...

the concept you are presenting is an assbackwards way to think about it.

YOU CANNOT HAVE  MORE MONEY IN THE MARKET b/c of a paid off house than someone who has been investing the whole time given the same starting point and funding ...

Your very statement just presents the point as to the problem with people who really dont understand math and you clearly think you're making a better mathematical choice.  Just a joke.

We're never going to agree on this.
My house has been paid for, for for a long time.  All I need is a little money for taxes, utilities and upkeep and I have a roof over my head for nearly nothing.
It's never an "all or nothing" thing.  You can still pay off a house rapidly while investing along the way as you see fit.

People in your camp talk as if the stock market is a guaranteed steady return we can all count on.  That's simply not the case and there are thousands of people who have lost everything putting too much faith in the stock market.  I'll take sitting free and clear of debt with real assets, cash on hand, and other investments within my realm of control over scattering all of my money in the stock market, through a broker, in unknown companies and investments.   

Having said the above, I do invest in the market and have about 20% of my net worth riding there.  It's a good tool and should be part of just about anyone's investment portfolio.   A paid off home is nice to be sitting on too.




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Re: Should I pay off my house?
« Reply #33 on: March 21, 2017, 07:45:28 AM »
Folks that were mortgage free last year had a whole lot more available cash on hand to invest in the market if they saw fit to do so.

Let's look at some math since you gave a specific time period we can calculate instead of speculating about the future:

End of December 2015, you have $100k in cash, $100k mortgage balance at 3.25% fixed for 15 years on a house worth $100k. Your principal/interest mortgage payment is $703/month.
Scenario 1: Pay off mortgage. $0 cash, $703/month invested. Value of portfolio on January 2017: $9122.54 + $100k equity + 1.6% 2016 house inflation = $110,722.54
Scenario 2: Keep the mortgage. $100k invested immediately. Value of portfolio on January 2017 $120,909 + $5,259.92 equity + 1.6% 2016 house inflation = $127,768.92

That's a $17k difference (or 15% more) for only one year, no compounding!

JLee

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Re: Should I pay off my house?
« Reply #34 on: March 21, 2017, 08:47:47 AM »
Folks that were mortgage free last year had a whole lot more available cash on hand to invest in the market if they saw fit to do so.

Let's look at some math since you gave a specific time period we can calculate instead of speculating about the future:

End of December 2015, you have $100k in cash, $100k mortgage balance at 3.25% fixed for 15 years on a house worth $100k. Your principal/interest mortgage payment is $703/month.
Scenario 1: Pay off mortgage. $0 cash, $703/month invested. Value of portfolio on January 2017: $9122.54 + $100k equity + 1.6% 2016 house inflation = $110,722.54
Scenario 2: Keep the mortgage. $100k invested immediately. Value of portfolio on January 2017 $120,909 + $5,259.92 equity + 1.6% 2016 house inflation = $127,768.92

That's a $17k difference (or 15% more) for only one year, no compounding!

A major portion of the "I want to pay off my mortgage" argument is because it "feels good."  That really should be the entire argument -- pretending that the math supports it is futile at best.

boarder42

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Re: Should I pay off my house?
« Reply #35 on: March 21, 2017, 09:16:26 AM »
Folks that were mortgage free last year had a whole lot more available cash on hand to invest in the market if they saw fit to do so.

Let's look at some math since you gave a specific time period we can calculate instead of speculating about the future:

End of December 2015, you have $100k in cash, $100k mortgage balance at 3.25% fixed for 15 years on a house worth $100k. Your principal/interest mortgage payment is $703/month.
Scenario 1: Pay off mortgage. $0 cash, $703/month invested. Value of portfolio on January 2017: $9122.54 + $100k equity + 1.6% 2016 house inflation = $110,722.54
Scenario 2: Keep the mortgage. $100k invested immediately. Value of portfolio on January 2017 $120,909 + $5,259.92 equity + 1.6% 2016 house inflation = $127,768.92

That's a $17k difference (or 15% more) for only one year, no compounding!

A major portion of the "I want to pay off my mortgage" argument is because it "feels good."  That really should be the entire argument -- pretending that the math supports it is futile at best.

yes 100% ... if you want to claim we wont get avg market returns for 30 years and you dont plan for the stock market to support part of your retirement plan then sure go ahead and work with whatever your other investment is but i'd say greater than 90% of this forum plans to use some version of the 4% rule and if thats the case paying down your mortgage for fear or feelings about getting a fixed rate means you had better just avoid the stock market all together and look to real estate or bonds etc. b/c if you dont trust the market enought to not pay down sub 4% fixed debt then how the hell can you trust it to fund your retirement.
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bender

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Re: Should I pay off my house?
« Reply #36 on: March 21, 2017, 10:32:25 AM »
I don't feel I need to invest every spare dime into the market, given we're already putting in a large sum.  We already max all tax advantaged accounts, and invest a significant amount after tax each month on top of that.  What to do with the extra cash?  We could buy bonds, but it seems to make more sense to retire mortgage debt.

Slee_stack

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Re: Should I pay off my house?
« Reply #37 on: March 21, 2017, 11:20:43 AM »
Peace of Mind is VERY expensive.

Make sure its really worth it to you deep down.  Is a completely arbitrary bragging right (paid off house) worth the likely future cost? 

I'll reinforce considering diversification.  I personally wouldn't want to be too heavy in any one asset class, and definitely not if a personal residence represents the bulk of the RE class.

If the OP favors Real Estate, they are better off getting investment property for that $100k and generating an additional income stream.

If the OP wants a checkbox, I suggest milestones for Net Worth or reaching asset class balance targets.

frugaliknowit

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Re: Should I pay off my house?
« Reply #38 on: March 21, 2017, 12:00:04 PM »
I don't feel I need to invest every spare dime into the market, given we're already putting in a large sum.  We already max all tax advantaged accounts, and invest a significant amount after tax each month on top of that.  What to do with the extra cash?  We could buy bonds, but it seems to make more sense to retire mortgage debt.

Totally agree that mortgage prepayment is better than bonds.  In fact, that's kind of what I've done, but I am OLDER and considered "pre-retirement" age.

BlueHouse

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Re: Should I pay off my house?
« Reply #39 on: March 21, 2017, 12:46:36 PM »
I think the answer depends on what you'll do with the money if you don't pay it off. 

If you would leave it in savings or buy bonds with it, then yes, I would pay it off. 

Heck, if my remaining mortgage amount were under $100k, I'd just pay it off for the hell of it.  I agree it would feel great to have a paid off mortgage. 

Sometimes nothing can be a real cool hand

Scortius

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Re: Should I pay off my house?
« Reply #40 on: March 21, 2017, 02:21:18 PM »
This goes round and round because it's an emotional decision.  Some people simply get a high amount of satisfaction from paying off their mortgage early.  That's fine, and if that's you, go ahead.

On the other hand, the math is extremely clear.  If you can get a better return in the market, you are better off riding the mortgage and investing the excess, period.  That should not be up for debate.  With today's sub-4 mortgage rates, you will lose money by paying the mortgage off early rather than investing.  It's still a totally reasonable thing to do if you want to reduce risk or if you have an emotional gain from a paid off house.  Just don't argue that the math says paying off early is financially beneficial.

« Last Edit: March 21, 2017, 03:03:45 PM by Scortius »

tomsang

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Re: Should I pay off my house?
« Reply #41 on: March 21, 2017, 02:51:26 PM »
Read through this thread if you truly want to understand the math, risks of paying off a mortgage and how badly it pushes back your FI or retirement date.

https://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/

The attached Excel file calculates how paying off your mortgage effects your financial well being.

Paying off a 30 year fixed rate sub 4% mortgage is purely an emotional decision that hurts your financial well being.  Don't let emotions make you do something that will hurt your financial well being.  Just like don't let emotions make you buy a new car every year, or a new purse, or any other capitalistic trinket.  You would be significantly better off if your emotions were to buy new shoes or clothes vs. paying off your mortgage.

MrMoneySaver

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Re: Should I pay off my house?
« Reply #42 on: March 21, 2017, 05:52:14 PM »
Quote
If you can get a better return in the market, you are better off riding the mortgage and investing the excess, period.  That should not be up for debate.  With today's sub-4 mortgage rates, you will lose money by paying the mortgage off early rather than investing.  It's still a totally reasonable thing to do if you want to reduce risk or if you have an emotional gain from a paid off house.  Just don't argue that the math says paying off early is financially beneficial.

Past performance is not indicative of future results.

tomsang

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Re: Should I pay off my house?
« Reply #43 on: March 21, 2017, 06:07:06 PM »
Past performance is not indicative of future results.

If you are not very confident that you can beat sub 4% nominal over 30 years, then you had better make sure that your Safe Withdrawal Rate is less than 1%.  All models are based on a nominal return of over 7% as that has been the worst stretch in history.

JustOneJboothOfMany

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Re: Should I pay off my house?
« Reply #44 on: March 21, 2017, 06:57:34 PM »
Financial well being is not all there is to it. We paid off our mortgage at the 10 year (of 30) mark, which you might say was silly, but it meant we had a large enough HELOC available on our house that when a piece of land we wanted to pick up with plans to eventually build-our-own-house / retire-to came up but with such huge issues for the (too many tiny) buildings on it that banks were balking at financing it, we paid cash via the HELOC.

Consider your goals, your values, and the context they set. Make your decision based on those. Did paying it off early hurt my financial well being? Maybe. Is it aligned with my goals? Turns out yes, it was. Should I have done it? Current answer: yes!

boarder42

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Re: Should I pay off my house?
« Reply #45 on: March 22, 2017, 04:35:11 AM »
You could have sold stock vs having money tied up in an asset that keeps pace with inflation and you likely would have still come out ahead.  Your scenario actually screams you should have invested.
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boarder42

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Re: Should I pay off my house?
« Reply #46 on: March 22, 2017, 04:55:28 AM »
Financial well being is not all there is to it. We paid off our mortgage at the 10 year (of 30) mark, which you might say was silly, but it meant we had a large enough HELOC available on our house that when a piece of land we wanted to pick up with plans to eventually build-our-own-house / retire-to came up but with such huge issues for the (too many tiny) buildings on it that banks were balking at financing it, we paid cash via the HELOC.

Consider your goals, your values, and the context they set. Make your decision based on those. Did paying it off early hurt my financial well being? Maybe. Is it aligned with my goals? Turns out yes, it was. Should I have done it? Current answer: yes!

I'd like to know how much your mortgage was, what year you paid it off, and what year you needed the money.
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bender

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Re: Should I pay off my house?
« Reply #47 on: March 22, 2017, 07:16:40 AM »
So what Is advised when your mortgage gets paid off in 30 years?  Get another mortgage and put all the money in the market in a lump sum?

boarder42

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Re: Should I pay off my house?
« Reply #48 on: March 22, 2017, 07:57:35 AM »
So what Is advised when your mortgage gets paid off in 30 years?  Get another mortgage and put all the money in the market in a lump sum?

thats what i would do assuming a similar rate scenario.  I'd keep refinancing if rates are lower thru out the mortgage as well.  Personally i'm at a 3.25 on a 30 year i dont think i'll see those rates again.  but i think there is some math that could be done to figure out when to REFI based on increasing a rate even depending on equity etc.  I havent reached a point of equity its worth it yet.
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MrMoneySaver

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Re: Should I pay off my house?
« Reply #49 on: March 22, 2017, 08:21:44 AM »
Past performance is not indicative of future results.

If you are not very confident that you can beat sub 4% nominal over 30 years, then you had better make sure that your Safe Withdrawal Rate is less than 1%.  All models are based on a nominal return of over 7% as that has been the worst stretch in history.
That's very much a circular argument. Someone may choose to look at more than just the past XX number of years of the US stock market.