Author Topic: Paying off Mortgage Early – How bad is it for your FI Date?  (Read 226440 times)

Faraday

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #500 on: July 20, 2015, 09:36:26 AM »
No offense taken. I don't care THAT much.
However...OP hasn't responded. I am wondering if it's a real question or trollbait.

I don't view ljsurfer's lack of follow-up as an indication that his/her question was trollbait
.....stuf stuf stuf was here.........

I'm doing both pre-tax investment and mortgage paydown as a diversified investment plan that leans toward conservatism because I LIKE the effect paying down the mortgage has on my portfolio.

FYI: This is a path similar to what MMM and Mr. Frugal Toque have taken:
http://www.mrmoneymustache.com/2015/01/21/mortgage-freedom/
http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/

« Last Edit: July 20, 2015, 12:06:45 PM by mefla »

boarder42

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #501 on: July 21, 2015, 06:21:28 AM »
No offense taken. I don't care THAT much.
However...OP hasn't responded. I am wondering if it's a real question or trollbait.

I don't view ljsurfer's lack of follow-up as an indication that his/her question was trollbait
.....stuf stuf stuf was here.........

I'm doing both pre-tax investment and mortgage paydown as a diversified investment plan that leans toward conservatism because I LIKE the effect paying down the mortgage has on my portfolio.

FYI: This is a path similar to what MMM and Mr. Frugal Toque have taken:
http://www.mrmoneymustache.com/2015/01/21/mortgage-freedom/
http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/

MMM was paying down a mortgage at a time of all time high interest rates - and later he was already FI and has enough money laying around/ couldnt get a loan so he just bought it outright
Frugal Toque lives in canada and doesnt have the crazy low rates of the US.

i mean to each his own but paying down a mortgage is actually doing the opposite of diversification.  your house is an inflation hedge and the faster it is paid off at current intrest rates the less diversified you become.
« Last Edit: July 21, 2015, 06:24:25 AM by boarder42 »

FLBiker

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #502 on: July 21, 2015, 07:46:56 AM »
In a lot of these posts, I'm seeing 3.5% for a 30 year loan.  We've got a 30 year loan @ 4.125%, and we've been making an extra payment a year (for about 4 years).  I was under the impression that we shouldn't refinance (because of closing costs).  If we're not going to pay it off early, though, maybe this is different?  Also, it's only ~$100K mortgage so we don't deduct any interest.

Do these two facts (4.25% interest, no deduction) change opinions on whether or not we should pay it off early?  And do you think we should refinance? 

And in all honesty, part of the reason we haven't refinanced, is that our mortgage is held by our credit union, and (emotionally) I like being able to go to a place, rather than some online entity. 

GumbyPickles

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #503 on: July 21, 2015, 08:48:41 AM »
In a lot of these posts, I'm seeing 3.5% for a 30 year loan.  We've got a 30 year loan @ 4.125%, and we've been making an extra payment a year (for about 4 years).  I was under the impression that we shouldn't refinance (because of closing costs).  If we're not going to pay it off early, though, maybe this is different?  Also, it's only ~$100K mortgage so we don't deduct any interest.

Do these two facts (4.25% interest, no deduction) change opinions on whether or not we should pay it off early?  And do you think we should refinance? 

And in all honesty, part of the reason we haven't refinanced, is that our mortgage is held by our credit union, and (emotionally) I like being able to go to a place, rather than some online entity.

Rates have gone back up beyond the 3.5% in the past month. 

Faraday

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #504 on: July 21, 2015, 09:01:22 AM »
In a lot of these posts, I'm seeing 3.5% for a 30 year loan.  We've got a 30 year loan @ 4.125%, and we've been making an extra payment a year (for about 4 years).  I was under the impression that we shouldn't refinance (because of closing costs).  If we're not going to pay it off early, though, maybe this is different?  Also, it's only ~$100K mortgage so we don't deduct any interest.

Do these two facts (4.25% interest, no deduction) change opinions on whether or not we should pay it off early?  And do you think we should refinance? 

And in all honesty, part of the reason we haven't refinanced, is that our mortgage is held by our credit union, and (emotionally) I like being able to go to a place, rather than some online entity.

Wow. Your monthly P&I comes in around $500. But you are paying a buttload of interest if you are still early in the loan lifetime - around $340 interest vs. $140 principal in the first year.

Refinancing back into a 30 year, 3.5% gets you under $300/month interest and just under $160/month principal.

Here's the "what if" calculator I'm using:
https://www.provident.com/
(it's just a good calculator - I'm not selling or profiting off the link...)

If you are staying with the Credit Onion no-matter-what, and if that 3.5% is the best they can do for you on a 30 year, you aren't really changing much by refinancing, especially if you are more than, say, 3 years into the current loan.

Now, question for you: Won't they cut you a .25% interest rate savings if you let them auto-draft the mortgage payment? Our credit union will do stuff like that.

If you have great credit and you are a long-time customer of the Credit Union, man, I'd go down there and try to sweet talk them into taking care of you, see if you can get a better deal.

FLBiker

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #505 on: July 21, 2015, 09:14:39 AM »
In a lot of these posts, I'm seeing 3.5% for a 30 year loan.  We've got a 30 year loan @ 4.125%, and we've been making an extra payment a year (for about 4 years).  I was under the impression that we shouldn't refinance (because of closing costs).  If we're not going to pay it off early, though, maybe this is different?  Also, it's only ~$100K mortgage so we don't deduct any interest.

Do these two facts (4.25% interest, no deduction) change opinions on whether or not we should pay it off early?  And do you think we should refinance? 

And in all honesty, part of the reason we haven't refinanced, is that our mortgage is held by our credit union, and (emotionally) I like being able to go to a place, rather than some online entity.

Wow. Your monthly P&I comes in around $500. But you are paying a buttload of interest if you are still early in the loan lifetime - around $340 interest vs. $140 principal in the first year.

Refinancing back into a 30 year, 3.5% gets you under $300/month interest and just under $160/month principal.

Here's the "what if" calculator I'm using:
https://www.provident.com/
(it's just a good calculator - I'm not selling or profiting off the link...)

If you are staying with the Credit Onion no-matter-what, and if that 3.5% is the best they can do for you on a 30 year, you aren't really changing much by refinancing, especially if you are more than, say, 3 years into the current loan.

Now, question for you: Won't they cut you a .25% interest rate savings if you let them auto-draft the mortgage payment? Our credit union will do stuff like that.

If you have great credit and you are a long-time customer of the Credit Union, man, I'd go down there and try to sweet talk them into taking care of you, see if you can get a better deal.

Hmm. we've had the house (and the mortgage) for 4 years, and we've made ~ 1 extra payment each year.  Our current breakdown (- the extra payment) is ~$200 principal and ~$350 interest.

I like the idea of talking to the credit union.  We do have great credit and I've been a customer for ~8 years.  I'm going to be out of town for the next couple of weeks, but I've put this on my calendar for when I get back.  Thanks!

Basenji

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #506 on: July 21, 2015, 04:34:27 PM »
So is it logical to assume anyone who is following this strategy of paying the minimum mortgage payment has 0% allocation to bonds and is 100% stocks?

No, but it is arguably logical to assume that they should do so, assuming they are capable of completely excising all emotion from their investing decisions (which most people (or all people?) aren't).  Some of us (including me) routinely argue that there is no logical reason to hold bonds, period, if you can be absolutely certain that your time horizon is sufficiently long (30 years passes that test, IMO), except to the extent the bonds operate as self-restraint tool to prevent your own irrational, emotionally-driven self to panic-sell during a market downturn (there are lots of threads on that topic, like this one).  But it is especially illogical to do so while simultaneously carrying a mortgage (which effectively operates as a bond holding and can be used as a substitute for the desired bond portion of your allocation).

Except for the whole rebalancing thing.

Reading whole thread, on page 8 so far, but this concept just blew my mind. Posting to follow and mark this.

BarkyardBQ

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #507 on: July 21, 2015, 04:36:02 PM »
Hmm. we've had the house (and the mortgage) for 4 years, and we've made ~ 1 extra payment each year.  Our current breakdown (- the extra payment) is ~$200 principal and ~$350 interest.

I like the idea of talking to the credit union.  We do have great credit and I've been a customer for ~8 years.  I'm going to be out of town for the next couple of weeks, but I've put this on my calendar for when I get back.  Thanks!


Paying off the mortgage early at 4.5% is still less effective than investing in equities, but with numbers like that it could still be advantageous to refi. Your numbers look similar to ours so I will outline.

We had a 30 year mortgage at 4.625%, and were 4 years in, we were paying about $125 in principal and 270 in interest. When the interest rates dropped during the start of the year to ~3% and lower for 15 year mortgages we ran the numbers and found that we could refi for a 15 year mortgage at 2.875% and basically reversing the principal/interest to $311 principal and $165 interest. This added about $80/month to our mortgage payment (because we did 5 year instead of 30), not enough to hurt our after tax investing but definitely a major improvement for paying it off. The closing costs were about $3000, but we now pay off >3k per year. We end up saving ~52k in interest, where the closing costs plus additional monthly of $80 could become 33k if invested.

Play with the numbers and interest rates and see if you can put the numbers in your favor. It definitely 'feels' better to be paying more principal than interest and still getting to invest everything else we want to save.

http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

Faraday

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #508 on: July 21, 2015, 05:00:47 PM »
Paying off the mortgage early at 4.5% is still less effective than investing in equities, but with numbers like that it could still be advantageous to refi. Your numbers look similar to ours so I will outline.

We had a 30 year mortgage at 4.625%, ... we could refi for a 15 year mortgage at 2.875% and basically reversing the principal/interest to $311 principal and $165 interest. This added about $80/month to our mortgage payment ...

We end up saving ~52k in interest, where the closing costs plus additional monthly of $80 could become 33k if invested.
...
http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

zdrave is dead-on right. I've refi'ed the house I'm in four times, I paid no out-of-pocket closing/points the last two times and been able to drop 1% the first two times and at least 1/2% the last two. I'm 2.875% now, with the objective of going to a 10 year at 2.75% or less.

I didn't go into this because you seemed quite happy with your 30 year loan, your credit union, and you apparently don't itemize/deduct interest. If you flipped to a 15 year or so to save money, those factors might need to change and the situation gets a tad more complicated.

Compared to the original 30 year loan I had to take when I closed on the house (it was a construction loan that converted directly to a mortgage with no further paperwork), I've saved vast amounts of money over the interest charges in the first loan and dropped the life of the loan from 30 years to 18 total (15 year term right now). I've not looked at the amortization tables lately, but compared to the original loan I've saved somewhere north of $200k.

powersuitrecall

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #509 on: July 22, 2015, 11:16:31 AM »
Frugal Toque lives in canada and doesnt have the crazy low rates of the US.

The Bank of Canada just cut their overnight rate to 0.5%.  Canadian mortgages rates are actually very good, but only for shorter terms (Eg; 2.43% fixed for a 5 year term).  The longest commonly term available is 10 years and that's at about 3.6%.  Still pretty great, actually.  Most folks take 5 year terms and will get stung on renewal if rates increase.

Canadians also can't deduct mortgage interest from their income for tax benefits.

Le Barbu

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #510 on: October 24, 2015, 08:23:33 PM »
Frugal Toque lives in canada and doesnt have the crazy low rates of the US.

The Bank of Canada just cut their overnight rate to 0.5%.  Canadian mortgages rates are actually very good, but only for shorter terms (Eg; 2.43% fixed for a 5 year term).  The longest commonly term available is 10 years and that's at about 3.6%.  Still pretty great, actually.  Most folks take 5 year terms and will get stung on renewal if rates increase.

Canadians also can't deduct mortgage interest from their income for tax benefits.

But we can do the Smith Manœuvre to mimic that US deduction scheme

stache-it

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #511 on: October 26, 2015, 02:02:48 PM »
Whew, just caught up on this incredibly long thread, glad it's been revived. I'm interested to get some anonymous (maybe even poo-flinging) expert advice on our plan.

We're 2.5 years into our mortgage, we've just begun aggressively pre-paying.

Starting balance 360K
Current Balance 297K
Interest Rate 3.725%

This year, and for at least the next 3 years we're expecting our income to stay way higher than it has been(750k+). This is high enough that we could cash-flow paying this balance by the end of 2016 while still maxing our 401ks. We're well on our way to being FI, but not planning to retire as soon as we hit our number because we're still pretty young (both < 35).

Some more pertinent facts:

  • We have 6+ months in cash for emergencies and quite a bit in taxable accounts in case things go very bad
  • We don't plan on living in this house for 27.5 more years, 10 more seems like the maximum.
  • We've put enough into our kids (~6 months and ~2.5 yrs) 529s that we expect them to grow to the appropriate size once they get to the right age.
  • We've been investing about $2,000/week into our taxable account with Vanguard (VTSAX).
  • We're trying to keep our asset allocation with at least 10% bonds so we have some ability to adjust with market changes.

We recently crossed over 90% equity, so I started looking at my options. I could convert equity funds into bond funds in our tax-sheltered accounts (39.6% marginal bracket is rough on interest), or start directing some of the excess cashflow to purchasing bonds. However, VBTLX is yielding around 2.2%, well under interest rate. Putting more money here seems like a bad move when the rate is lower than our mortgage interest rate. If we consider the mortgage a "negative bond" we're skewed even further toward equities than our numbers suggest.

We could just keep cash in a money market account and pay it off in a lump sum, but instead I'm looking at using this approach.

  • Continue maxing tax-advantages accounts.
  • Add 20,000 prepayment to the mortgage each month.
  • If the market takes a dive, return to DCA into equities to return to the 90/10 allocation.

Doing this will let us remain flexible (it's not an all-or-nothing pay off) and gives us some guide rails that will let us alter course to take advantage of a market downturn.

The big downsides I see are:
  • We're losing about 12k in mortgage interest deduction (which equates to around 4,750/year in tax savings).
  • The house will be around 30% of our assets once it's paid off, that's a pretty significant chunk.
  • Depending on how the next 10 years go for equities, we could do a lot better by putting 300K there than 3.725% (or we could do a lot worse).

So is this a bad plan? I'm sure someone thinks I should go buy 20 leveraged rentals and call it good and others will ask why I'm not retired yet, but it's the kind of real-life scenario that people in this thread have been discussing that isn't quite as simple as the math indicates.





MDM

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #512 on: October 26, 2015, 02:48:04 PM »
The big downsides I see are:
  • We're losing about 12k in mortgage interest deduction (which equates to around 4,750/year in tax savings).
  • The house will be around 30% of our assets once it's paid off, that's a pretty significant chunk.
  • Depending on how the next 10 years go for equities, we could do a lot better by putting 300K there than 3.725% (or we could do a lot worse).
So is this a bad plan? ...it's the kind of real-life scenario that people in this thread have been discussing that isn't quite as simple as the math indicates.

The math, once you have made your assumption on "how the next 10 years go for equities," is still simple.

If you can pay off the house and still meet your FIRE goal, why not pay it off?  If the downsides (and all are worth considering) mean you will not meet your FIRE goal, then you get to decide which of "non-mortgaged home ownership" vs. "retire earlier" is more important to you.

Rubic

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #513 on: October 29, 2015, 10:19:10 AM »
Interesting discussion.  I have a 3.5% mortgage with 10 years remaining, but I'm considering paying it off when FIRE'd for the following reasons:
  • A fully paid house would reduce the amount of income I'd need to generate from selling equities, which would in turn reduce MAGI and keep me in lower brackets for income taxes, ACA, etc.
  • The mortgage interest tax deduction won't apply to my situation once I'm FIRE'd.
  • I'm already close to 100% equities, so paying off the mortgage would reduce my market exposure to something closer to 85%.  This would not be an emotional decision, but rather an observation that we can have long stretches of near flat to negative performance in the market, so it could be considered a form of diversification.
I'll need to run the numbers on the first item.  I think the ACA cliff may be the determining factor.  Has this been a consideration for anyone else here?

My third reason above has been playing out in different variations throughout this discussion.  I only mention it because it would be dishonest for me not to admit it wouldn't be a factor in my decision.  Actuarial-ly my expiration date is under 30 years.




Faraday

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Re: Paying off Mortgage Early – How bad is it for your FI Date?
« Reply #514 on: October 29, 2015, 11:15:10 AM »
    Interesting discussion.  I have a 3.5% mortgage with 10 years remaining, but I'm considering paying it off when FIRE'd for the following reasons:
    • A fully paid house would reduce the amount of income I'd need to generate from selling equities, which would in turn reduce MAGI and keep me in lower brackets for income taxes, ACA, etc.
    yes!
    • The mortgage interest tax deduction won't apply to my situation once I'm FIRE'd.
    yes!
    • I'm already close to 100% equities, so paying off the mortgage would reduce my market exposure to something closer to 85%.  This would not be an emotional decision, but rather an observation that we can have long stretches of near flat to negative performance in the market, so it could be considered a form of diversification.
    yes!

    I'll need to run the numbers on the first item.  I think the ACA cliff may be the determining factor.  Has this been a consideration for anyone else here?

    My third reason above has been playing out in different variations throughout this discussion.  I only mention it because it would be dishonest for me not to admit it wouldn't be a factor in my decision.  Actuarial-ly my expiration date is under 30 years.

    Beautiful, beautiful points, rubic. (I struck through your "selling equities" because I don't expect to have to sell equities to generate income, but that's a whole 'nother discussion.) My percentage equities vs. mortgage is very similar to yours, maybe differs by a few percent, not much.

    My home is part of my portfolio and early payoff is a fluid strategy: I will emphasize buildup of the 'stache, but also exercise mortgage abatement to both generate opportunities for refinancing plus keep improving cash flow by lowering the monthly mortgage payment. I have been very happy this year despite lackluster performance in equities.

    I'm currently 3 years into a 15 year 2.875% mortgage. I'm hoping to go next into a 10 year 2.5% with the expectation of paying that mortgage off before FIRE. I hope to do this with little-to-no closing costs.

    My strategy is simply to  constantly optimize the cost of the capital for the mortgage part of my portfolio while ensuring the cash flow I require becomes lower and lower with time. I've optimized so many things so far, that now the mortgage is really the last area where I can see big gains. After mortgage is optimized, I'm re-iterating again on energy, taxes, insurance, internet and cellphone. I'm looking for another $600/month lower expenses and I believe that will be easy to achieve with a refi in January. 

    Granted: as I travel down the compound interest curve, funding emphasis (my term) can change. During the ordinary year, I might push a lot of post-tax money toward principal. Right now, I'm leaning toward pushing more toward equities and Roth IRA so I can maximize those opportunities before year-end (or before April in the case of the Roth).

    I might not get to refi, and if so, no problem. I'll keep going with the current plan, which has been working pretty darn great this year as it stands.[/list][/list]
    « Last Edit: October 29, 2015, 11:16:51 AM by Faraday »

    MDM

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #515 on: October 29, 2015, 12:55:42 PM »
    Interesting discussion.  I have a 3.5% mortgage with 10 years remaining, but I'm considering paying it off when FIRE'd for the following reasons:
    • A fully paid house would reduce the amount of income I'd need to generate from selling equities, which would in turn reduce MAGI and keep me in lower brackets for income taxes, ACA, etc.
    What is the source of the money for the large upfront payoff, vs. the source of the money for continuing minimum payments?

    Rubic

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #516 on: October 29, 2015, 01:50:20 PM »
    Interesting discussion.  I have a 3.5% mortgage with 10 years remaining, but I'm considering paying it off when FIRE'd for the following reasons:
    • A fully paid house would reduce the amount of income I'd need to generate from selling equities, which would in turn reduce MAGI and keep me in lower brackets for income taxes, ACA, etc.
    What is the source of the money for the large upfront payoff, vs. the source of the money for continuing minimum payments?

    @MDM:  Excellent question.  pre-FIRE windfall, unavoidably taxed (but there are worse problems to have).



    Scandium

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #517 on: October 29, 2015, 01:56:37 PM »
    Interesting discussion.  I have a 3.5% mortgage with 10 years remaining, but I'm considering paying it off when FIRE'd for the following reasons:
    • A fully paid house would reduce the amount of income I'd need to generate from selling equities, which would in turn reduce MAGI and keep me in lower brackets for income taxes, ACA, etc.
    • The mortgage interest tax deduction won't apply to my situation once I'm FIRE'd.
    • I'm already close to 100% equities, so paying off the mortgage would reduce my market exposure to something closer to 85%.  This would not be an emotional decision, but rather an observation that we can have long stretches of near flat to negative performance in the market, so it could be considered a form of diversification.
    I'll need to run the numbers on the first item.  I think the ACA cliff may be the determining factor.  Has this been a consideration for anyone else here?

    My third reason above has been playing out in different variations throughout this discussion.  I only mention it because it would be dishonest for me not to admit it wouldn't be a factor in my decision.  Actuarial-ly my expiration date is under 30 years.

    This is what I consider the most optimal solution, and what I plan on doing. Pay the minimum while working and rather invest in a taxable account. Then if it's convenient to lower my spending needs, use the taxable account to pay off the house. This gives the flexibility of liquid investments, rather than having money stuck in an iliquid house, and the (hopefully) higher growth of equities. Only problem might be a market crash just before I want to pay off, but that can be solved by for example increasing bonds before that date, or simply continuing minimum payments. And I'll still be better off with a larger portfolio crashing, than an not-quite paid off house and a smaller portfolio.. 

    MDM

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #518 on: October 29, 2015, 02:45:53 PM »
    pre-FIRE windfall, unavoidably taxed (but there are worse problems to have).
    Indeed there are, and it appears you can't make a wrong decision (i.e., one that will cause you significant harm) here.

    Given that the windfall has already been taxed, whatever you invest now becomes the tax basis for that investment.  You would then pay tax only on the long term capital gains from that investment if you need to withdraw cash, so the tax bite could be minimal (or even zero if your total taxable income stayed below the 25% bracket start).

    brooklynguy

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #519 on: October 29, 2015, 03:54:19 PM »
    You would then pay tax only on the long term capital gains from that investment if you need to withdraw cash

    And you would only realize income that feeds into MAGI for ACA purposes (which rubic highlighted as the potential determining factor) to the extent of capital gains (and not return of basis).

    I think the ACA cliff may be the determining factor.  Has this been a consideration for anyone else here?

    This thread has some useful discussion on that consideration, primarily starting at post # 104 but also in earlier and later parts of the thread:  The great "pay off mortgage" vs "invest in stocks" debate

    powskier

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #520 on: October 30, 2015, 12:01:29 AM »
    One question I did not see in this or the other threads on this subject is if your house is destroyed from some natural disaster is it better to own the home outright or have a mortgage on it?  Does anyone know how that works? Is there a tax write off for equity lost? Do banks write off loan if Feds qualify it as natural disaster?
    I realize this is a fringe concept in this debate but am curious about it since various forms of hedging have been discussed. Any insight is appreciated.

    Cheddar Stacker

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #521 on: October 30, 2015, 08:10:45 AM »
    One question I did not see in this or the other threads on this subject is if your house is destroyed from some natural disaster is it better to own the home outright or have a mortgage on it?  Does anyone know how that works? Is there a tax write off for equity lost? Do banks write off loan if Feds qualify it as natural disaster?
    I realize this is a fringe concept in this debate but am curious about it since various forms of hedging have been discussed. Any insight is appreciated.

    I'm not aware of anything that would force the bank to forgive the debt. If you have a mortgage, you are (likely) required to carry homeowners insurance. This is bad because of cash flow, but it would be good in your scenario above. Insurance would allow for rebuilding a like residence, provide for temporary shelter, etc.

    Taxes - Normal rule is this is a casualty loss subject to a 10% floor. So your house was worth $150,000, insurance only pays $130,000 for fill in the blank reason, you're out $20,000 as a casualty loss. If your AGI is $100,000, you would only get an itemized deduction for $10,000 (20,000-(100,000x10%=)10,000=10,000). During some natural disasters the gubmint will remove this 10% AGI floor and allow for other special tax deductible circumstances, but it's not guaranteed.

    In any case, I don't think holding a mortgage would be any different than paying off a mortgage in these circumstances, only the insurance variable would matter.

    Faraday

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #522 on: October 30, 2015, 09:22:36 AM »
    One question I did not see in this or the other threads on this subject is if your house is destroyed from some natural disaster is it better to own the home outright or have a mortgage on it?  Does anyone know how that works? Is there a tax write off for equity lost? Do banks write off loan if Feds qualify it as natural disaster?
    I realize this is a fringe concept in this debate but am curious about it since various forms of hedging have been discussed. Any insight is appreciated.

    Cheddar had it right. In the US we're required to carry property insurance on the home, so if it's destroyed, property insurance pays out. Using that money, you pay the balance owed to the bank and then decide, using what's left in your possession, whether or not you want to rebuild.

    Of course, when things like this happen, the insurance company tries to minimize and control the payout. So it's not like you can take out a million dollars of insurance in a flood-prone or tornado-prone area and when all hell breaks loose, get instant FIRE.

    Because of this, I do not think banks write off loans because of natural disasters. it's still personal property and they still hold the deed.

    brooklynguy

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #523 on: October 30, 2015, 09:22:59 AM »
    One question I did not see in this or the other threads on this subject is if your house is destroyed from some natural disaster is it better to own the home outright or have a mortgage on it?  Does anyone know how that works?

    If I'm going to suffer the total loss of an asset, I'd prefer to have as little equity in that asset as possible.  In the worst case scenario, you're no worse off than you would be with 100% equity (namely, the loss of the total value of the asset), but the possibility exists to come out ahead if the lender has limited recourse or otherwise offers debt relief in connection with the loss event.

    Le Barbu

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #524 on: October 30, 2015, 09:33:04 AM »
    One question I did not see in this or the other threads on this subject is if your house is destroyed from some natural disaster is it better to own the home outright or have a mortgage on it?  Does anyone know how that works?

    If I'm going to suffer the total loss of an asset, I'd prefer to have as little equity in that asset as possible.  In the worst case scenario, you're no worse off than you would be with 100% equity (namely, the loss of the total value of the asset), but the possibility exists to come out ahead if the lender has limited recourse or otherwise offers debt relief in connection with the loss event.

    I would think the same as brooklynguy here. In some major/rare/catastrophe, even the authorities take into account "how bad you suffer" from a lost because it's leveraged. A pragmatic way to think about it is "what does it changes if you were in debt or not for this asset?" but in real life, your chances to get a better compensation increase. Emo/medias/politicians will not give a shit to your situation if your not deep in trouble (debt fit the category percfectly).

    Full_Beard

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #525 on: October 30, 2015, 12:10:49 PM »

    We're 2.5 years into our mortgage, we've just begun aggressively pre-paying.

    Starting balance 360K
    Current Balance 297K
    Interest Rate 3.725%

    This year, and for at least the next 3 years we're expecting our income to stay way higher than it has been(750k+). This is high enough that we could cash-flow paying this balance by the end of 2016 while still maxing our 401ks. We're well on our way to being FI, but not planning to retire as soon as we hit our number because we're still pretty young (both < 35).
    I tend to look at the home as investment with perks, and at a fixed rate of 3.725%, I wouldn't be paying it down as aggressively as you plan. At your age, I'd invest more in index funds and diversify with international and emerging markets, and perhaps some REITs. I don't buy rental properties because I don't like dealing with tenants or property managers (or people generally). If I were in your shoes, I'd personally focus on retiring at 50 (unless you hate your job) and set up the house payments so that it would be done in 15 years (and if you sell in 10, no big deal).

    LukeHeinz57

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #526 on: August 22, 2016, 01:09:32 PM »
         Just read this entire thread and I am on board! Only question to me know is which mortgage refinance product to use to accomplish my goal...

         Currently I have a 5/1ARM with 2 yrs left at 2.49% that I had been prepaying...the plan was to pay off entirely from portfolio after rate lock period ended if rates were above 3%. There's $112,000 in Equity trapped in there I would now rather have invested.

         I can get a 30yr fixed with the traditional $3,000+ in closing costs at 3.59% or a 15yr fixed at 2.89% Or my preferred lender has low cost no gimmick $295 closing cost refinances for 10yr fixed at 2.85% or 5/1 30yr loans at 2.85%.

         I really hate the idea of paying any more in interest and closing costs than is absolutely necessary, but if I really am taking this thing out for 15 or 30 years and not prepaying it at all to grow the portfolio I guess those are more incidental? FWIW, Almost no chance of us moving for 20+ years. (Young family, rooted in community, very stable job, dream home etc.) Money will be going to after tax investments as Tax advantaged space is already being fully utilized. 15%-25% federal tax bracket depending upon the year.

         I was hoping the guru's on here who successfully changed my mind regarding paying off the mortgage as quickly as possible would have a thought or two to share regarding today's rates and closing costs...Thanks again for the thread it's been very insightful for me as a former/recovering Dave Ramsey acolyte!
    « Last Edit: August 22, 2016, 01:17:54 PM by LukeHeinz57 »

    MDM

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #527 on: August 22, 2016, 04:28:55 PM »
    ...my preferred lender has low cost no gimmick $295 closing cost refinances for 10yr fixed at 2.85%....

    Money will be going to after tax investments as Tax advantaged space is already being fully utilized. 15%-25% federal tax bracket depending upon the year.

    Might think differently after seeing a full Case Study, but the kneejerk reaction is to pick the terms quoted, assuming you are stock-heavy in your other investments mentioned, because you are already investing a good amount.

    tomsang

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #528 on: August 24, 2016, 11:25:34 AM »
    Another article on why you should not pay off your mortgage.  He does not talk about the added incentive of the reducing your tax bill by itemizing your deduction. 

    http://www.businessinsider.com/im-worth-15-million-and-id-never-recommend-paying-off-your-mortgage-early-2016-8/#-9

    brooklynguy

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #529 on: August 24, 2016, 11:54:04 AM »
    Another article on why you should not pay off your mortgage.  He does not talk about the added incentive of the reducing your tax bill by itemizing your deduction. 

    http://www.businessinsider.com/im-worth-15-million-and-id-never-recommend-paying-off-your-mortgage-early-2016-8/#-9

    That article provides a good summary of the logic behind not prepaying low-rate mortgage debt, but the author makes a couple of mistakes that lead him to overstate the benefits of leveraged-investing-via-mortgage.

    1.  He treats the entire original mortgage loan balance as if it remains fully invested for the entire life of the loan, forgetting to account for amortization of principal (so the math is incorrect in his comparison between the "mortgage" and "no mortgage" scenarios).

    2.  His point that "mortgage interest decreases over time" is incorrect, or at least seriously misleading.  It's true that the absolute dollar amount of interest payable decreases over the life of the loan, but that's only because the outstanding principal amount decreases over the life of the loan due to the mandatory principal repayments (which the author forgets to account for, per # 1 above).  The interest rate does not change over time (with respect to fixed-rate debt, which is what he is discussing).  Given that the expected return on investments exceeds the interest rate on the mortgage debt, it would actually be better if interest payments did not decrease over time (i.e., if no principal prepayments were required), so that you could keep the entire loan balance fully invested for the entire life of the loan.

    tomsang

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #530 on: August 24, 2016, 12:59:32 PM »
    That article provides a good summary of the logic behind not prepaying low-rate mortgage debt, but the author makes a couple of mistakes that lead him to overstate the benefits of leveraged-investing-via-mortgage.

    My bar is fairly low on articles on prepaying.  This one was above average, but still missing a number of important variables.

    tomsang

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #531 on: March 04, 2017, 04:10:39 PM »
    Warren Buffett had a mortgage on one of his houses.  This paragraph sums up the interest rate hedge.

    "If you get a 30-year mortgage it's the best instrument in the world, because if you're wrong and rates go to 2 percent, which I don't think they will, you pay it off," he said. "It's a one-way renegotiation. I mean it is an incredibly attractive instrument for the homeowner and you've got a one-way bet."

    http://www.cnbc.com/2017/03/04/the-oracle-of-omaha-is-selling-this-time-its-real-estate.html

    arebelspy

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #532 on: March 04, 2017, 07:18:11 PM »
    "It's a one-way renegotiation."

    Oh yeah!

    Fixed rate = you can renegotiate (pay off or refi) and they can't.

    (Assuming no prepayment penalty.)
    I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
    If you want to know more about me, this Business Insider profile tells the story pretty well.
    I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

    SnackDog

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #533 on: March 07, 2017, 05:28:40 AM »
    The options are all yours -
    Pay as planned
    Refinance to lower rate
    Pay faster than required or pay all off
    Pay slower, suspend payments for ages until they foreclose

    The foreclosure can be a very slow process. Banks never come out ahead on that one. Has anyone resumed payments and averted foreclosure but never been made to catch up?

    tomsang

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #534 on: January 04, 2018, 01:02:42 PM »
    This thread is coming up on 5 years.  Have people that paid down their mortgage each month, calculated what it cost them in FI?

    https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0585&ps_disable_redirect=true

    Total Market average annual return has been 15.55% over the past five years.

    Per the calculator that I provided so that you can see the benefit of keeping your sub 4% mortgage, I am up over $165,000 by deploying all of my excess dollars to the stock market vs. paying down my artificially low mortgage rate.

    As mortgage interest rates creep up over the coming years, I think it will be completely clear what a gift was that provided to the citizens of the US by providing below market mortgages.  This was a once in a lifetime gift to spark the US economy.  Those that pay it off early, are throwing away the gift. 

    Retire-Canada

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #535 on: January 04, 2018, 01:08:06 PM »
    Per the calculator that I provided so that you can see the benefit of keeping your sub 4% mortgage, I am up over $165,000 by deploying all of my excess dollars to the stock market vs. paying down my artificially low mortgage rate.

    I'm up ~$120K vs. having paid down my mortgage over the last 3yrs.

    boarder42

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #536 on: January 04, 2018, 02:20:19 PM »
    As mortgage interest rates creep up over the coming years, I think it will be completely clear what a gift was that provided to the citizens of the US by providing below market mortgages.  This was a once in a lifetime gift to spark the US economy.  Those that pay it off early, are throwing away the gift.

    I agree 100% - you often see posts from people saying they can just go get another mortgage if they ever change their thinking but the truth is you might not be able to get those rates - and in all likelihood we wont see this again.  i'm locked at the bottom at 3.25% for 30 years.  thats insane and paying that down would be more insane.

    hadabeardonce

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #537 on: January 04, 2018, 06:04:47 PM »
    This thread is coming up on 5 years.  Have people that paid down their mortgage each month, calculated what it cost them in FI?

    https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0585&ps_disable_redirect=true

    Total Market average annual return has been 15.55% over the past five years.

    Per the calculator that I provided so that you can see the benefit of keeping your sub 4% mortgage, I am up over $165,000 by deploying all of my excess dollars to the stock market vs. paying down my artificially low mortgage rate.

    As mortgage interest rates creep up over the coming years, I think it will be completely clear what a gift was that provided to the citizens of the US by providing below market mortgages.  This was a once in a lifetime gift to spark the US economy.  Those that pay it off early, are throwing away the gift.

    This is what my wife and I ended up doing last year with our money:
    Code: [Select]
    2017 Investment Info
     65,000.00 403b(x2),457,rIRA Contributions (Maxed)
     14,193.12 Mortgage Payment (Required)
     15,000.00 Mortgage Payment (Extra)

    Mortgage Payment Breakdown (Required)
      3,973.45 Principal
      6,611.27 Mortgage Interest
        322.32 Property Insurance
      3,221.99 County Tax

    Mortgage Loan Info
        4.125% Interest Rate
    182,000.00 Original Loan Amt
       07/2012 Origination Date
           30Y Term
    148,081.44 Current Loan Balance

    It was the first year we made an additional payment(15k), mostly because the money was just sitting in the bank doing nothing. The TL;DR of the thread makes it sound like we should have started a taxable investment account, but it does feel nice to pay down debt and move toward eliminating a bill. We were getting close to the standard deduction anyway, so paying down things felt like a decent decision - it felt like there was no significant advantage to the mortgage.

    boarder42

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #538 on: January 04, 2018, 06:12:27 PM »
    Feeling like a 4.125% mortgage has no advantages and doing the math to understand it's large advantages are 2 different things. You shouldn't be paying that down. Start a taxable account. Your future self will thank you.

    hadabeardonce

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #539 on: January 05, 2018, 01:13:58 AM »
    Feeling like a 4.125% mortgage has no advantages and doing the math to understand it's large advantages are 2 different things. You shouldn't be paying that down. Start a taxable account. Your future self will thank you.
    Understood. I just finished going back through this thead for details.

    There was an afford anything blog post link around post #99 that really helped explain the advantages of not paying off a mortgage early and good comments regarding why a liquid taxable account is better than having money locked away in a home.

    2018 resolution: open that taxable account and don't reply to a thread 5 mins before leaving work.

    Thanks for bumping this thread.

    Sent from my ONE A2005 using Tapatalk


    tomsang

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #540 on: March 15, 2018, 02:24:12 PM »
    I am coming up on 5 years since this post.  As a simplistic way to see how well I did by investing vs. paying off my mortgage, I ran the numbers through the MMM Mortgage Payment calculator.  If I thought it was a better investment, I probably would have paid down the mortgage in larger amounts but I kept it at a level that I could easily afford.  Fortunately, I did the math and invested.  According to the Calculator that increased my Net Worth by $65,555.  Crazy, what the market has been doing over the past five years.

    Plug in your numbers to see how you faired:
    For those that paid down their mortgage, what did that cost you?  For those that were contemplating paying down your mortgage, how much did this help you?

    I just used the S&P500 5 year performance as an estimated return.  https://finance.yahoo.com/quote/SPY/performance/
    « Last Edit: March 15, 2018, 02:27:35 PM by tomsang »

    DreamFIRE

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #541 on: March 15, 2018, 03:13:54 PM »
    It been a long time now, but I paid off my mortgage in two years because I put most of the purchase price down.

    My mortgage interest rate was close to 7%.  Over that time, the Dow was down about 2.5%.

    boarder42

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #542 on: March 15, 2018, 06:15:56 PM »
    It been a long time now, but I paid off my mortgage in two years because I put most of the purchase price down.

    My mortgage interest rate was close to 7%.  Over that time, the Dow was down about 2.5%.

    This thread isn't about high rates did you read it or just post random single pointed fact that doesn't have anything to do with the theory discussed here.

    But remortgaging your house at today's low rates is always an option.

    boarder42

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #543 on: March 15, 2018, 06:19:44 PM »
    I am coming up on 5 years since this post.  As a simplistic way to see how well I did by investing vs. paying off my mortgage, I ran the numbers through the MMM Mortgage Payment calculator.  If I thought it was a better investment, I probably would have paid down the mortgage in larger amounts but I kept it at a level that I could easily afford.  Fortunately, I did the math and invested.  According to the Calculator that increased my Net Worth by $65,555.  Crazy, what the market has been doing over the past five years.

    Plug in your numbers to see how you faired:
    For those that paid down their mortgage, what did that cost you?  For those that were contemplating paying down your mortgage, how much did this help you?

    I just used the S&P500 5 year performance as an estimated return.  https://finance.yahoo.com/quote/SPY/performance/
    That's awesome and it's unfortunate that rates are returning to normal. At least for future buyers or those who paid down their home. The 10yr yield is rapidly approaching my mortgage rate on a 30 year note.

    DreamFIRE

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #544 on: March 15, 2018, 06:44:45 PM »
    I am coming up on 5 years since this post.  As a simplistic way to see how well I did by investing vs. paying off my mortgage, I ran the numbers through the MMM Mortgage Payment calculator.  If I thought it was a better investment, I probably would have paid down the mortgage in larger amounts but I kept it at a level that I could easily afford.  Fortunately, I did the math and invested.  According to the Calculator that increased my Net Worth by $65,555.  Crazy, what the market has been doing over the past five years.

    Plug in your numbers to see how you faired:
    For those that paid down their mortgage, what did that cost you?  For those that were contemplating paying down your mortgage, how much did this help you?

    I just used the S&P500 5 year performance as an estimated return.  https://finance.yahoo.com/quote/SPY/performance/
    That's awesome and it's unfortunate that rates are returning to normal. At least for future buyers or those who paid down their home. The 10yr yield is rapidly approaching my mortgage rate on a 30 year note.
    I read the OP and some of the replies.  What are you?  Forum police?  My comment was right on topic.  Rates always change, up or down, with time.  No one thought 7% was high at the time.  I paid closer to 8% a decade earlier, but I paid that one off early also.

    I'll probably be selling my house within 2 years, so maybe I'll end up with my third mortgage that I can pay off early.  lol

    LWYRUP

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #545 on: March 15, 2018, 07:11:51 PM »

    I'm sure this has been said somewhere in the thread, but comparing a risk free mortgage payoff with a risky stock investment is comparing apples to oranges.

    Paying down a mortgage is more like buying bonds.

    I purposefully have kept my bond allocation very low but also prepaid my mortgage a bit.

    Knowing that I am getting a guaranteed return with some of my money makes me feel better about having 90% of the rest in the stock market at continual all-time highs.

    Mortgage prepayment can be one part of an overall investment and liquidity strategy that includes stocks, bonds, commercial real estate, savings accounts, etc.

    boarder42

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #546 on: March 15, 2018, 07:13:23 PM »

    I'm sure this has been said somewhere in the thread, but comparing a risk free mortgage payoff with a risky stock investment is comparing apples to oranges.

    Paying down a mortgage is more like buying bonds.

    I purposefully have kept my bond allocation very low but also prepaid my mortgage a bit.

    Knowing that I am getting a guaranteed return with some of my money makes me feel better about having 90% of the rest in the stock market at continual all-time highs.

    Mortgage prepayment can be one part of an overall investment and liquidity strategy that includes stocks, bonds, commercial real estate, savings accounts, etc.

    You should go read the thread

    rolliefingers

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #547 on: April 11, 2018, 03:53:14 AM »
    In a nutshell - well said arebelspy.  Thanks for encapsulating the solution to this debate so succinctly.

    This is an oft discussed topic on the e-r.org forums.

    So rather than recreate the wheel, here's plenty of reading for you.

    You'll find people arguing both sides.  Since I prefer the keep a mortgage option (mainly due to inflation risk - holding the mortgage is an amazing inflation hedge, as your payment stays fixed while your portfolio can grow - and inflation is the #1 enemy to retirement, especially an early retirement that lasts a long time), I'll cherry pick some quotes to support that. ;)

    Quote
    FIRECalc simulations confirm that holding a low interest, long-term mortgage increases portfolio survivability. The reason is easy to understand. After a bad bear market, a portfolio survives if it has enough dollars left to grow in the recovery that follows. The more portfolio left to grow, the greater the chance for survival. A mortgage holder will have more money left to grow since the starting portfolio was not reduced by a mortgage payoff.

    You have to run your own specific numbers in FIRECalc, but historically, paying off a mortgage has often resulted in greater portfolio risk -- not less. 

    Quote
    run the numbers and you will see -- for balanced portfolios, ~6.25% mortgage rates or lower, remaining time on loans >~10 years, the financial advantage has historically been with keeping the mortgage. Paying off the mortgage actually increases the risk of running out of money in retirement.

    That is, not only should you not pay it off early as it will delay your ER, you shouldn't pay it off at ALL when you ER!  Keep the larger portfolio and the mortgage.

    I support paying off the mortgage for people who don't have the discipline to invest the money otherwise.  That shouldn't describe a Mustachian, however.

    KTG

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #548 on: April 11, 2018, 08:01:44 AM »
    This topic always fascinates me, and honestly its one of the reasons that got me reading in these forums.

    I actually have enough cash to pay my home off, and most of it is in ETFs. I dream, no. . . I fantasize about not having a mortgage. I have read the back and forth on the pros and cons of doing so, and missing out on future earnings in the stock market, etc. I also got my home in 2012 at the bottom of the V in prices and rates, so many of you would probably say I got my home for dirt cheap. The thing is, its still a big monthly payment. And I'm paying a little additional each month to pay it off a little early. I have the whole amortization schedule on excel in my phone to refer to if I ever want to play with the numbers.

    And seeing all those people lose their homes in the Great Recession has never left me.

    So I was torn for a long time. But what finally did me in, was a poster stating by paying off your home, is like putting your all of your eggs in one basket, and that is violating the rule of diversification. Nevermind that the area might go down hill, natural disaster, etc etc. I think mine is going to be ok for a few decades (most homes in my area are more expensive than mine), but the thought of diversifying has kept me from paying off my home.

    If I had some $1.2 million in assets, that would be another story. I would pay the damn thing off an be done with it. So it really depends how much wealth you have, and how much you owe on your home. If you have enough cash to still grow and weather the bad time, the peace of mind of being mortgage free has to be awesome. Just in my case I can't do it yet.
    « Last Edit: April 11, 2018, 08:04:57 AM by KTG »

    ysette9

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    Re: Paying off Mortgage Early – How bad is it for your FI Date?
    « Reply #549 on: April 11, 2018, 02:57:52 PM »
    I’ve read most of this thread and I hope I am not rehashing something that I missed.

     I have run the cFIREsim scenarios for myself and see how keeping the mortgage is the better option. However, I found this article gave me things to think about I hadn’t considered before. https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

    “The lesson from this exercise: If you are risk-averse and like to hedge out the tail risk it’s best to have no mortgage and a moderate bond allocation. If you are a risk-taker (degenerate gambler?) then you might as well go all-in: Have a mortgage and 100% equities in the portfolio as well. Having both a mortgage and a bond portfolio doesn’t make any sense.”

    In short, on average keeping the mortgage is best, but if you are concerned about limiting risk for sequence-of-returns failures and protect against the low probability worst-case scenarios it is better to not have a mortgage.