Author Topic: Paid off my mortgage  (Read 8449 times)

Mr. Boh

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Re: Paid off my mortgage
« Reply #50 on: September 16, 2017, 01:51:46 PM »
Congrats on paying off the mortgage!   It was an awesome feeling when we paid ours off!

However, why do these threads *always* have to digress into a 'which is better' debate.   Not to piss people off...but it gets rather annoying after a while.  There are many, many other threads on here to debate that issue.   Just congratulate the person and move on....

b/c you will get destroyed in these forums for driving an SUV to work or paying for someone to mow your lawn etc. but something as simple as not paying down a mortgage which takes 0 life energy or effort gets the run around with people making statements about feelings like its some personnal decision that is different from someone paying to have their lawn mowed. I dont pay to have my lawn mowed.  but if i did i could easily make the arguement that i am preserving my life from a risk of dieing mowing my lawn due to one of any number of things including increasing risk of skin cancer from being outside.  the probability that lawn mowing kills me is about the same as the stock market not outperforming a low fixed rate mortgage.

back to has this forum gone soft we should be congratulating people for buying boats the deserve and SUVs and McMansions.  hiring a grounds keeper ... you're awesome you earned it! ... doesnt it feel good to have all that.

awful

Down boy! It's going to be okay.

There is no one size fits all. Your reasoning centers around "all things being equal" as you said. Real life is not usually equal. You seem to be making a lot of assumptions about peoples net worth and the terms of their loans not to mention their age, asset allocations and tolerance for risk.

I understand the math. I've been 100% stocks for 28 of the past 30 years. I've had a mortgage for the last twenty years since I started buying houses. In the last two years I decided to pay off my rentals and I even bought some bonds (the horror!). And you know what? It's going to be okay. At this point I don't feel the need to try to absolutely maximize my gains. But I sleep well at night. And I'm guessing all the people on this thread who have paid off their mortgages sleep well too. I still have a mortgage for many of the reasons you recommend but I'm not going to flame anyone for not having one. In my opinion it's a nice achievement. There's a lot of freedom in not having a mortgage.


doggyfizzle

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Re: Paid off my mortgage
« Reply #51 on: September 16, 2017, 02:08:31 PM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Lmoot

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Re: Paid off my mortgage
« Reply #52 on: September 16, 2017, 02:30:14 PM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

It's easy to try to prove a point using worst case scenario. Not effective, but easy.

SugarMountain

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Re: Paid off my mortgage
« Reply #53 on: September 18, 2017, 03:00:17 PM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Eh, I bought my house in '98 and could have sold it in 2009 for at least a 50% gain, probably closer to 75% gain.  (Now it's worth about 350% of what I paid for it, although that did require some significant investments.)  Denver didn't really get hurt nearly as badly with the bubble popping in 2008/09 as many other locales, mostly prices were just flat from '08-'11 and have been skyrocketing since.  Now I feel like we're in a bubble.

Average home price in Denver in 1999 - $208k
Average home price in Denver in 2009 - $264k
SP 500 beginning of 1999 - 1,229
SP 500 beginning of 2009 - 929

Now, this does ignore the 1.5-2% annual dividend you'd have gotten for those 10 years, which would have softened the blow, although really amounts to 1% after taxes.


SugarMountain

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Re: Paid off my mortgage
« Reply #54 on: September 18, 2017, 03:43:54 PM »
There wasn't that much left, so I just did it.  It is actually a little anti-climactic.

Congratulations, SugarMountain!

What do you think were the big keys for you in hitting this awesome financial milestone? 

Any tips or lessons learned?  Anything you would do differently if you were starting the journey again?

Well done.  Seriously, well done.
Slow & steady wins the race.  I started with a 30 year loan in '98, refinanced a couple of times, the last time converted to a 15 year mortgage.  I also have been paying an extra $400/month pretty much the whole way through.  It's now down to $24k, so I just paid it off. (Except I didn't really, the bank effed up the wire transfer and now I'm holding off because I have another real estate deal in the works.)  Really if I were to redo the wire transfer it would have been just over 19 years, so really not that impressive.  The thing I never did was take money out when I refi'ed as the equity of my increased.  Doing that can get you two ways - you end up with more debt and can restart the clock. 

SugarMountain

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Re: Paid off my mortgage
« Reply #55 on: September 18, 2017, 04:45:51 PM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

It's easy to try to prove a point using worst case scenario. Not effective, but easy.

One other note, what this all really comes down to is whether to leverage your primary residence to buy stocks.  Maybe, maybe not.  A lot depends on your risk tolerance and phase of your retirement plan. (As well as the valuation of both the home and the stock market.)   I don't think there are absolute right answers either way. 

boarder42

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Re: Paid off my mortgage
« Reply #56 on: September 19, 2017, 06:07:36 AM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Eh, I bought my house in '98 and could have sold it in 2009 for at least a 50% gain, probably closer to 75% gain.  (Now it's worth about 350% of what I paid for it, although that did require some significant investments.)  Denver didn't really get hurt nearly as badly with the bubble popping in 2008/09 as many other locales, mostly prices were just flat from '08-'11 and have been skyrocketing since.  Now I feel like we're in a bubble.

Average home price in Denver in 1999 - $208k
Average home price in Denver in 2009 - $264k
SP 500 beginning of 1999 - 1,229
SP 500 beginning of 2009 - 929

Now, this does ignore the 1.5-2% annual dividend you'd have gotten for those 10 years, which would have softened the blow, although really amounts to 1% after taxes.

whether you pay down your mortgage or not you get the increased home value.  so comparing those 2 things make 0 sense. 
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doggyfizzle

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Re: Paid off my mortgage
« Reply #57 on: September 19, 2017, 07:03:33 AM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Eh, I bought my house in '98 and could have sold it in 2009 for at least a 50% gain, probably closer to 75% gain.  (Now it's worth about 350% of what I paid for it, although that did require some significant investments.)  Denver didn't really get hurt nearly as badly with the bubble popping in 2008/09 as many other locales, mostly prices were just flat from '08-'11 and have been skyrocketing since.  Now I feel like we're in a bubble.

Average home price in Denver in 1999 - $208k
Average home price in Denver in 2009 - $264k
SP 500 beginning of 1999 - 1,229
SP 500 beginning of 2009 - 929

Now, this does ignore the 1.5-2% annual dividend you'd have gotten for those 10 years, which would have softened the blow, although really amounts to 1% after taxes.

whether you pay down your mortgage or not you get the increased home value.  so comparing those 2 things make 0 sense.

Also using home prices in a single city vs broad market index misses the national pattern of home price values (see Case-Schiller National or 20-city indices) for 2000-2009.  Most major markets US housing experienced a dramatic correction in prices in 2007-2009.  Factor in the typical 6% commission paid to a realtor and most US citizens still come out far ahead 2000-2009 if you had just put the extra money into the S&P 500 vs extra principal on your mortgage.  This is especially true since US markets reached a nadir in March 2009, and appreciated through the rest of that year.

Lmoot

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Re: Paid off my mortgage
« Reply #58 on: September 19, 2017, 07:38:01 AM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Eh, I bought my house in '98 and could have sold it in 2009 for at least a 50% gain, probably closer to 75% gain.  (Now it's worth about 350% of what I paid for it, although that did require some significant investments.)  Denver didn't really get hurt nearly as badly with the bubble popping in 2008/09 as many other locales, mostly prices were just flat from '08-'11 and have been skyrocketing since.  Now I feel like we're in a bubble.

Average home price in Denver in 1999 - $208k
Average home price in Denver in 2009 - $264k
SP 500 beginning of 1999 - 1,229
SP 500 beginning of 2009 - 929

Now, this does ignore the 1.5-2% annual dividend you'd have gotten for those 10 years, which would have softened the blow, although really amounts to 1% after taxes.

whether you pay down your mortgage or not you get the increased home value.  so comparing those 2 things make 0 sense.

They weren't comparing. They were refuting doggyfizzle's straw man claim that one must have bought an over priced house and must have been ass over head upside down.

SugarMountain

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Re: Paid off my mortgage
« Reply #59 on: September 19, 2017, 11:28:43 AM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Eh, I bought my house in '98 and could have sold it in 2009 for at least a 50% gain, probably closer to 75% gain.  (Now it's worth about 350% of what I paid for it, although that did require some significant investments.)  Denver didn't really get hurt nearly as badly with the bubble popping in 2008/09 as many other locales, mostly prices were just flat from '08-'11 and have been skyrocketing since.  Now I feel like we're in a bubble.

Average home price in Denver in 1999 - $208k
Average home price in Denver in 2009 - $264k
SP 500 beginning of 1999 - 1,229
SP 500 beginning of 2009 - 929

Now, this does ignore the 1.5-2% annual dividend you'd have gotten for those 10 years, which would have softened the blow, although really amounts to 1% after taxes.

whether you pay down your mortgage or not you get the increased home value.  so comparing those 2 things make 0 sense.

Right, I probably should have done the RoR based on what reducing future interest payments was. My mortgage rate was 7% on the original mortgage in '98, so paying down significantly outperformed the stock market back then.  I threw out a 10 year example where I was better off paying down the mortgage since the market returns were negative during that 10 year period.  (It probably gets more interesting if it we dollar cost averaged and looked at $400 monthly stock buys over the 10 years compared to $400 monthly towards the mortgage.)

The question could be framed as "should you use home equity to leverage stock market purchases?"  I mean, I could refi and convert $600k in home equity into cash and put that in the stock market, paying ~4% interest for the privilege. Should I?  I mean over time, the market always goes up 7%/year so it's an easy 3%!  But, what if the market drops and at the same time I lose my job and need to sell shares at a bad time to continue paying my now very large mortgage? Will I be better off in 10 years if I do this?  Can anyone guarantee it?

These things are never black and white, and my preference at this point is to have a diversified portfolio, mostly in the market, and a paid off house, especially when paying it off is about 1% of my net worth.  One of the biggest advantages of a paid off house is it significantly reduces your monthly nut of "must pay" bills, so you can ride out fluctuations in the markets more easily.


boarder42

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Re: Paid off my mortgage
« Reply #60 on: September 19, 2017, 12:07:38 PM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Eh, I bought my house in '98 and could have sold it in 2009 for at least a 50% gain, probably closer to 75% gain.  (Now it's worth about 350% of what I paid for it, although that did require some significant investments.)  Denver didn't really get hurt nearly as badly with the bubble popping in 2008/09 as many other locales, mostly prices were just flat from '08-'11 and have been skyrocketing since.  Now I feel like we're in a bubble.

Average home price in Denver in 1999 - $208k
Average home price in Denver in 2009 - $264k
SP 500 beginning of 1999 - 1,229
SP 500 beginning of 2009 - 929

Now, this does ignore the 1.5-2% annual dividend you'd have gotten for those 10 years, which would have softened the blow, although really amounts to 1% after taxes.

whether you pay down your mortgage or not you get the increased home value.  so comparing those 2 things make 0 sense.

Right, I probably should have done the RoR based on what reducing future interest payments was. My mortgage rate was 7% on the original mortgage in '98, so paying down significantly outperformed the stock market back then.  I threw out a 10 year example where I was better off paying down the mortgage since the market returns were negative during that 10 year period.  (It probably gets more interesting if it we dollar cost averaged and looked at $400 monthly stock buys over the 10 years compared to $400 monthly towards the mortgage.)

The question could be framed as "should you use home equity to leverage stock market purchases?"  I mean, I could refi and convert $600k in home equity into cash and put that in the stock market, paying ~4% interest for the privilege. Should I?  I mean over time, the market always goes up 7%/year so it's an easy 3%!  But, what if the market drops and at the same time I lose my job and need to sell shares at a bad time to continue paying my now very large mortgage? Will I be better off in 10 years if I do this?  Can anyone guarantee it?

These things are never black and white, and my preference at this point is to have a diversified portfolio, mostly in the market, and a paid off house, especially when paying it off is about 1% of my net worth.  One of the biggest advantages of a paid off house is it significantly reduces your monthly nut of "must pay" bills, so you can ride out fluctuations in the markets more easily.

if you cant sleep well at night with the random assumptions and lack of guarantees you are claiming here how will you ever be able to retire b/c thats the entire premise of FIRE. and its really much better than 3% with a 600k property you're likely itemizing taxes so your 4% rate is really a 2.8%(ithere are some rules around cash out Refi's and interest deductions but you could probably figure out a way around that, i assume 25% bracket and 5% state bracket)  then we have the fact that the 600k is fixed in time at the date you take it out so your 7% comparison is deducting inflation when really it should be ... you either have to deduct inflation from your interest rate or add it to the annual returns which are typically greater than 10% ... so you're looking at a difference that is more than double your assumption of 3% at 7.2%

that being said paying down 7% i would do that as well.  but rates arent at that today so leveraging your mortgage to invest makes a whole lot of sense.  around 7.2% annualized return sense.  or at a minium 6% if you cant get the tax breaks.
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mizzourah2006

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Re: Paid off my mortgage
« Reply #61 on: September 19, 2017, 12:40:22 PM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Eh, I bought my house in '98 and could have sold it in 2009 for at least a 50% gain, probably closer to 75% gain.  (Now it's worth about 350% of what I paid for it, although that did require some significant investments.)  Denver didn't really get hurt nearly as badly with the bubble popping in 2008/09 as many other locales, mostly prices were just flat from '08-'11 and have been skyrocketing since.  Now I feel like we're in a bubble.

Average home price in Denver in 1999 - $208k
Average home price in Denver in 2009 - $264k
SP 500 beginning of 1999 - 1,229
SP 500 beginning of 2009 - 929

Now, this does ignore the 1.5-2% annual dividend you'd have gotten for those 10 years, which would have softened the blow, although really amounts to 1% after taxes.

whether you pay down your mortgage or not you get the increased home value.  so comparing those 2 things make 0 sense.

Right, I probably should have done the RoR based on what reducing future interest payments was. My mortgage rate was 7% on the original mortgage in '98, so paying down significantly outperformed the stock market back then.  I threw out a 10 year example where I was better off paying down the mortgage since the market returns were negative during that 10 year period.  (It probably gets more interesting if it we dollar cost averaged and looked at $400 monthly stock buys over the 10 years compared to $400 monthly towards the mortgage.)

The question could be framed as "should you use home equity to leverage stock market purchases?"  I mean, I could refi and convert $600k in home equity into cash and put that in the stock market, paying ~4% interest for the privilege. Should I?  I mean over time, the market always goes up 7%/year so it's an easy 3%!  But, what if the market drops and at the same time I lose my job and need to sell shares at a bad time to continue paying my now very large mortgage? Will I be better off in 10 years if I do this?  Can anyone guarantee it?

These things are never black and white, and my preference at this point is to have a diversified portfolio, mostly in the market, and a paid off house, especially when paying it off is about 1% of my net worth.  One of the biggest advantages of a paid off house is it significantly reduces your monthly nut of "must pay" bills, so you can ride out fluctuations in the markets more easily.

Are you as diversified as you think? What % of your NW is comprised of your primary residence? I wouldn't even consider myself very diversified and I only have 21% of my NW in my primary residence. If I decided to cash out my brokerage account and pay it towards the mortgage I'd have 40% of my NW in my home and still have another $60k to go on the mortgage.

If I told you I had 20% of my NW invested in a single stock would you say I was diversified? What about 40%?

I think people over-exaggerate how 'safe' it is to have so much of their NW tied up in an illiquid asset that could very well get crushed just like the stock market in a recession. What happens if you lose your job and get a job opportunity in another city? Now you have a paid off primary residence (that is worth 50-75% of what it was 12 months ago) and you have this opportunity to pursue a new job opportunity in a new city, but limited cash flow to rent a place there and maintain your property taxes/insurance, etc. until you can either get a qualified renter or sell it at a depressed value to get the liquidity you need to take the new opportunity.

Just saying that the what-if's can go both ways.

SugarMountain

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Re: Paid off my mortgage
« Reply #62 on: September 19, 2017, 01:07:02 PM »
First of all big congrats for paying off the mortgage. It's quite an accomplishment and you should be happy.

To address the investing vs paying off house there really isn't a right answer. Over a 30 year time period (the average time period of a mortgage) the odds are greatly in favor of the investor having a considerable amount of more money. That's not a guarantee of course as it depends on a number of factors. I say doing either is better than spending your money on consumerist BS. So I won't chide anyone for paying off their mortgage early.

So far investing in the market has been a far batter choice for us over the last several years. Heck I would still be working had we decided to pay down the house instead. Yet I still toggle with the ideal of chipping away more on the mortgage. So I understand the mentality of those who do decide to pay it off early.

the menality is flawed ... investing hasnt just been a better choice the last several years investing with mortgages at todays rates has ALWAYS been a better choice since we started tracking the markets.

Depends on the time horizon.  The decade from '99-2009 you'd have been better off paying off your mortgage.

Unlikely, as you'd have probably bought a house during the inflation of the national housirknng bubble, plowed money into it only to have seen the value crater, and then had to deal with your highly illiquid property being worth way less than the sum of the payments you made if you exhausted an emergency fund after losing a job during the recession.

Eh, I bought my house in '98 and could have sold it in 2009 for at least a 50% gain, probably closer to 75% gain.  (Now it's worth about 350% of what I paid for it, although that did require some significant investments.)  Denver didn't really get hurt nearly as badly with the bubble popping in 2008/09 as many other locales, mostly prices were just flat from '08-'11 and have been skyrocketing since.  Now I feel like we're in a bubble.

Average home price in Denver in 1999 - $208k
Average home price in Denver in 2009 - $264k
SP 500 beginning of 1999 - 1,229
SP 500 beginning of 2009 - 929

Now, this does ignore the 1.5-2% annual dividend you'd have gotten for those 10 years, which would have softened the blow, although really amounts to 1% after taxes.

whether you pay down your mortgage or not you get the increased home value.  so comparing those 2 things make 0 sense.

Right, I probably should have done the RoR based on what reducing future interest payments was. My mortgage rate was 7% on the original mortgage in '98, so paying down significantly outperformed the stock market back then.  I threw out a 10 year example where I was better off paying down the mortgage since the market returns were negative during that 10 year period.  (It probably gets more interesting if it we dollar cost averaged and looked at $400 monthly stock buys over the 10 years compared to $400 monthly towards the mortgage.)

The question could be framed as "should you use home equity to leverage stock market purchases?"  I mean, I could refi and convert $600k in home equity into cash and put that in the stock market, paying ~4% interest for the privilege. Should I?  I mean over time, the market always goes up 7%/year so it's an easy 3%!  But, what if the market drops and at the same time I lose my job and need to sell shares at a bad time to continue paying my now very large mortgage? Will I be better off in 10 years if I do this?  Can anyone guarantee it?

These things are never black and white, and my preference at this point is to have a diversified portfolio, mostly in the market, and a paid off house, especially when paying it off is about 1% of my net worth.  One of the biggest advantages of a paid off house is it significantly reduces your monthly nut of "must pay" bills, so you can ride out fluctuations in the markets more easily.

Are you as diversified as you think? What % of your NW is comprised of your primary residence? I wouldn't even consider myself very diversified and I only have 21% of my NW in my primary residence. If I decided to cash out my brokerage account and pay it towards the mortgage I'd have 40% of my NW in my home and still have another $60k to go on the mortgage.

If I told you I had 20% of my NW invested in a single stock would you say I was diversified? What about 40%?

I think people over-exaggerate how 'safe' it is to have so much of their NW tied up in an illiquid asset that could very well get crushed just like the stock market in a recession. What happens if you lose your job and get a job opportunity in another city? Now you have a paid off primary residence (that is worth 50-75% of what it was 12 months ago) and you have this opportunity to pursue a new job opportunity in a new city, but limited cash flow to rent a place there and maintain your property taxes/insurance, etc. until you can either get a qualified renter or sell it at a depressed value to get the liquidity you need to take the new opportunity.

Just saying that the what-if's can go both ways.

Absolutely what-ifs can go both ways.  If I'd leveraged it and dumped the money into the market in 2009 I'd be in great shape, and you certainly could argue that I'd be in better shape had I dumped the $400/month into the market for the last 8 years instead of paying down a ~4% mortgage.  (And I should probably have refi'ed one more time a few years ago.) 

My home equity is about 20% of my net worth.  I don't count it in my 'stache.  My remaining mortgage (that I thought I had paid off, which started this thread, but the bank screwed up the wire) is about 1.5% of my net worth, so it's more of a nuisance than anything. The reality is I'm basically in a OMY situation, so if my job did demand that I move, I would probably just quit, especially if there was a package as an option.

Absolutely there are bad things that can happen with the value of my house.  But who cares? Gotta live somewhere and you can't live in stock certificates.  Not having a house payment or rent will make the annual nut easier to meet. My current retirement plans don't involve selling it, but we might.  My heirs can worry about whether or not the value has cratered (although my hope is that it's simply a risk mitigation strategy and available to sell or reverse mortgage if I hit 85 and run out of money).

farmecologist

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Re: Paid off my mortgage
« Reply #63 on: September 19, 2017, 02:42:17 PM »
Gee I guess my point above about 'these threads always digressing into a which-is-better debate' stands.   ;-)

I'd recommending just letting it slide at this point.  I've learned that arguing about paying off mortgages amounts to a 'religious war' to some around here.


SugarMountain

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Re: Paid off my mortgage
« Reply #64 on: September 19, 2017, 04:54:18 PM »
Gee I guess my point above about 'these threads always digressing into a which-is-better debate' stands.   ;-)

I'd recommending just letting it slide at this point.  I've learned that arguing about paying off mortgages amounts to a 'religious war' to some around here.

https://xkcd.com/386/

Highbeam

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Re: Paid off my mortgage
« Reply #65 on: September 19, 2017, 05:23:51 PM »
Two often false assumptions people make in these debates to prove their points are that:

1) The situation is that only part of the mortgage is being paid down, or reduced, vs. paying it off entirely with one check. Many of us save up a mortgage payoff fund in a taxable account until the balances match.
2) That people can actually deduct the mortgage interest. Many of us can't. Many of us don't itemize. It's pretty hard to beat the standard deduction unless you have high state taxes.


boarder42

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Re: Paid off my mortgage
« Reply #66 on: September 20, 2017, 05:42:47 AM »
Two often false assumptions people make in these debates to prove their points are that:

1) The situation is that only part of the mortgage is being paid down, or reduced, vs. paying it off entirely with one check. Many of us save up a mortgage payoff fund in a taxable account until the balances match.
2) That people can actually deduct the mortgage interest. Many of us can't. Many of us don't itemize. It's pretty hard to beat the standard deduction unless you have high state taxes.

1 is not correct there is an entire thread devoted to the opposite of this
2. who cares if you can deduct it that just creates a lower rate the 4% rate available today regardless of deduction puts you at greater than 6% return difference based on the history of the US stock market over the 30 year life of the mortgage.

my 3.25% makes it even better since i do deduct creating a return difference greater than 8.5%

the most common arguement they try to make is that returns arent guaranteed.  which i guess you could say they arent but then we should be having the conversation about WTF we are doing in this forum anyways as MOST people here plan to use those returns to sustain their lifestyle for 50-80 years not just the 30 year mortgage time frame
« Last Edit: September 20, 2017, 05:45:44 AM by boarder42 »
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dougules

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Re: Paid off my mortgage
« Reply #67 on: September 20, 2017, 11:14:47 AM »
Congrats Sugar!  Don't listen to the haters; you're doing a good job. 

SugarMountain

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Re: Paid off my mortgage
« Reply #68 on: September 20, 2017, 11:28:35 AM »
Congrats Sugar!  Don't listen to the haters; you're doing a good job.

None of what anybody has said bothers me in the least.  I think it's valid that if someone wants to carry a higher debt load and buy more stocks with the money, that's a fine strategy.  It's just not what I choose to do.

farmecologist

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Re: Paid off my mortgage
« Reply #69 on: September 21, 2017, 08:45:31 AM »
Gee I guess my point above about 'these threads always digressing into a which-is-better debate' stands.   ;-)

I'd recommending just letting it slide at this point.  I've learned that arguing about paying off mortgages amounts to a 'religious war' to some around here.

https://xkcd.com/386/

Yep...pretty much spot on there. 

dougules

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Re: Paid off my mortgage
« Reply #70 on: September 21, 2017, 11:06:01 AM »
Congrats Sugar!  Don't listen to the haters; you're doing a good job.

None of what anybody has said bothers me in the least.  I think it's valid that if someone wants to carry a higher debt load and buy more stocks with the money, that's a fine strategy.  It's just not what I choose to do.

I paid off my mortgage, even though I was definitely losing money on paper.  Really, you win either way. 

Brother Esau

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Re: Paid off my mortgage
« Reply #71 on: September 23, 2017, 05:31:17 PM »
Congratulations SugarMountain! Are you a fellow Neil Young fan?