Author Topic: Paid-off mortgage people: How long did it take you to pay off the house?  (Read 20185 times)

SKL-HOU

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #100 on: September 26, 2018, 10:30:40 AM »
The question was how long did it take you to pay off the house, not whether or not you should pay off a mortgage. So I don't understand this argument. Please let people post their answers to the question so we can read the responses to the actual question and have your don't pay off your mortgage rant elsewhere.

Slee_stack

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #101 on: September 26, 2018, 10:38:08 AM »
Its apparent (via posters themselves) in multiple threads that at least a handful of people have come around to b42's gospel.


I also believe that congratulatory threads that promote statistically poor choices (for this forum's audience), are a huge disservice to people who haven't yet done the math or even realize that they need to.

Is there anyone arguing that a new reader might not get confused and choose a path that is against his own self-interest.... as a result of a POTM thread?  Or do we just want to say 'Ahh well, if they choose wrong well too bad...fuck them for not doing more research'.   I seriously hope not.  I thought we wanted to help each other reach FIRE.

Nearly everyone here has good intentions, but I also think there are many people who just don't fathom the potential negative impact they might be making on someone else.... even though they themselves are stoked that they killed one of their own debts.  It just putting proverbial blinders on.

Even if they do patronize the opportunity cost, its done with a hand waving caveat that marginalizes it.  Almost always we see just 'well it was right for me, I hate debt, etc' type of comments. 

There's a potentially huge sum of money that is left on the table when choosing to pay down the mortgage. 

Debt-is-evil...peace-of-mind...etc. type placards trivialize the opportunity costs.  Why do we want to mislead a new reader on one of the biggest impact financial choices they may make to accelerate FIRE?  Seriously....why?!

If a new reader can come to a conclusion that 'sleeping well at night' is worth $XXX k to them, that's fantastic!  That's the goal!

Let's not pretend that Peace Of Mind is worth ANY AND EVERY cent possible.
« Last Edit: September 26, 2018, 10:43:29 AM by Slee_stack »

Dicey

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #102 on: September 26, 2018, 10:44:40 AM »
good suggestion on the IPS.

the buydown to the 4.5% is the .7 points and the normal closing costs to refi so about $2800 + closing   there's no rate advantage at 80% LTV or lower with a VA loan.  Essentially the Veteran's Administration guarantees the mortgage against default on behalf of the veteran borrower  There's normally a funding fee (.5% of the mortgage balance) that the veteran borrower pays into a guarantee pool at closing; when a default happens, the VA pays the lender a certain amount to offset their loss if the veteran borrower defaults.  Since I have a documented VA disability, the fee is waived so I can do the 90% LTV and at a slightly lower rate than a normal mortgage refi (because of the added protection of the VA guarantee)--there's just more paperwork.  It's a good deal....I was just on the fence on whether or not I should take on additional mortgage debt in order to free up some extra capital for taxable investments .  Should that scenario you described come to fruition, I can use a streamlined refinance program called IRRL to lower the rate on the note with minimal cost and hassle.

this seems win win all around to me.  I'd pull the trigger in your shoes.
Yup.

Dicey

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #103 on: September 26, 2018, 11:09:41 AM »
Its apparent (via posters themselves) in multiple threads that at least a handful of people have come around to b42's gospel.


I also believe that congratulatory threads that promote statistically poor choices (for this forum's audience), are a huge disservice to people who haven't yet done the math or even realize that they need to.

Is there anyone arguing that a new reader might not get confused and choose a path that is against his own self-interest.... as a result of a POTM thread?  Or do we just want to say 'Ahh well, if they choose wrong well too bad...fuck them for not doing more research'.   I seriously hope not.  I thought we wanted to help each other reach FIRE.

Nearly everyone here has good intentions, but I also think there are many people who just don't fathom the potential negative impact they might be making on someone else.... even though they themselves are stoked that they killed one of their own debts.  It just putting proverbial blinders on.

Even if they do patronize the opportunity cost, its done with a hand waving caveat that marginalizes it.  Almost always we see just 'well it was right for me, I hate debt, etc' type of comments. 

There's a potentially huge sum of money that is left on the table when choosing to pay down the mortgage. 

Debt-is-evil...peace-of-mind...etc. type placards trivialize the opportunity costs.  Why do we want to mislead a new reader on one of the biggest impact financial choices they may make to accelerate FIRE?  Seriously....why?!

If a new reader can come to a conclusion that 'sleeping well at night' is worth $XXX k to them, that's fantastic!  That's the goal!

Let's not pretend that Peace Of Mind is worth ANY AND EVERY cent possible.
Love this @Slee_stack, thank you! Blinders and placards are apt terms.

On the threads cheering on and celebrating mortgage payoffs, those with alternate points of view were shouted off. This led to the formation of the DPOYM thread. Sad that on a forum devoted to figuring out how to live and FIRE as efficiently as possible this was allowed to occur. Seems quite a few self-professed mustachians passionately embrace their sacred cows.

To suggest that all discussion on this topic should be limited to a single thread and no other is face punch worthy to the highest degree.

I applaud everyone who has the patience to explain this counter-intuitive concept over and over, so that many may learn and improve their financial trajectories.

Funny thing about managing your finances in sub-optimal order: often the consequences don't reveal themselves until very late in life, when it's far too late to do anything about it.

Understanding that the earlier you invest, the fewer dollars you will need to invest is relatively simple. Understanding that focusing on prepaying a mortgage to the detriment of investing is a sub-optimal approach is so logical that it's shocking it generates any controversy at all, especially here.

PizzaSteve

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #104 on: September 26, 2018, 11:20:26 AM »
Promoting good information is laudable.

Disrupting dialog when valid points are being made is not.

The strategy of using leverage may speed up FIRE or may not.  It is a good strategy, but not one without risks.  Statistics are not a pure predictor of any future outcome in this case, and advocating strongly that they are is over stating a case.  I have business and economics degrees and over 30 years of business strategy experience advising CEOs and business leaders on value creation at the worlds top firms to back up my position.

The FACT is that leveraged stock investing AND debt reduction BOTH improve FIRE success.  One is optimized for speed, but contains some increased risk of losses.  The other is guaranteed in terms of return, but is likely to ultimately produce somewhat smaller investment returns.

I dont see what all the fuss is about. Both strategies are fine and one is not de facto better than the other despite people who chose to troll anyone who doesnt choose the former.  Keeping a mortgage is using leverage, low cost efficient leverage, but leverage nonetheless. 

Agree people should understand the trade offs of using leverage, both good and bad, but shouting down anyone describing the risks is not fair to anyone and is generally poor form.
« Last Edit: September 26, 2018, 03:58:22 PM by PizzaSteve »

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #105 on: September 26, 2018, 11:26:55 AM »
Haha @Dicey he still for some reason thinks we're the same person.

Impressive.

Dicey

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #106 on: September 26, 2018, 11:27:54 AM »
Promoting good information is laudable.

Disrupting dialog when valid points are being made is not.

The strategy of using leverage may speed up FIRE or may not.  It is a good strategy, but not one without risks.  Statistics are not a pure predictor of any future outcome in this case, and advocating strongly that they are is over stating a case.  I have business and economics degrees and over 30 years of business strategy experience advising CEOs and business leaders on value creation at the worlds top firms to back up my position.

The FACT is that leveraged stock investing AND debt reduction BOTH improve FIRE success.  One is optimized for speed, but contains some increased risk of losses.  The other is guaranteed in terms of return, but is likely to ultimately produce somewhat smaller investment returns.

I dont see what all the fuss is about. Both strategies are fine and one is not de facto better than the other despite people who chose to troll anyone who doesnt choose the former.  Keeping a mortgage is using leverage, low cost efficient leverage, but leverage nonetheless. 

Agree people should understand the trade offs of using leverage, both good and bad, but shouting down anyone describing the risks is not fair to anyone and is generally poor form, no matter how many sock puppets or legitimate defenders chime in.
Oh, PizzaSteve, you're so reliable. If you don't see what the fuss is about, at least you clearly understand the concepts. So many more people could benefit if they knew what you know, but they don't. Not yet, anyway. Thank you for sharing your expertise.

Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #107 on: September 26, 2018, 12:20:00 PM »
3. paying down a house faster over time vs investing increases financial insecurity during the paydown period only once 100% paid off does it add the security of protecting against SORR <- thats its only minor benefit.  This has nothing to do with long term math you inflated the risk you were trying to mitigate during paydown.

I'll (again) gently remind you here that a re-cast can be a viable way of mitigating the oft-mentioned financial Armageddon (job loss, etc.) risk before the mortgage is 100% paid off.  A re-cast is unlike a refinance, 2nd mortgage, or HEL/HELOC in that it doesn't have income/asset/LTV requirements.  With my mortgage company -- and from what I've read this is typical -- you just need to have over-paid a certain amount of principal in the past N months ($10k over 12 months in my case).

If I lost my job tomorrow, we could recast and our P&I would drop from ~$1,700/mo to $500/mo.  Our EF could handle the mortgage payments for a couple years at least.  Heck, unemployment insurance would cover twice the mortgage each year.  As a bonus, if the job loss coincided with a market crash, we wouldn't have to sell depreciated assets to cover the mortgage.  Paydown/re-cast seems like a valid way to mitigate portfolio depletion in that particular scenario.  This might be looking at risk from a different perspective than you tend to.

I will also note that "either one or the other" is a false dichotomy.  I've been maxing out my pre-tax accounts for a couple decades now.  I also view our home equity as a bond-like part of our assets (I realize they're not exactly the same), and this allows us to be a little more aggressive with our retirement investments which will hopefully pay off over the long run.

To answer the OP, our mortgage isn't paid off, but we are on track to pay our 20 year mortgage off in 10 years (22 months from now).

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #108 on: September 26, 2018, 12:32:48 PM »
3. paying down a house faster over time vs investing increases financial insecurity during the paydown period only once 100% paid off does it add the security of protecting against SORR <- thats its only minor benefit.  This has nothing to do with long term math you inflated the risk you were trying to mitigate during paydown.

I'll (again) gently remind you here that a re-cast can be a viable way of mitigating the oft-mentioned financial Armageddon (job loss, etc.) risk before the mortgage is 100% paid off.  A re-cast is unlike a refinance, 2nd mortgage, or HEL/HELOC in that it doesn't have income/asset/LTV requirements.  With my mortgage company -- and from what I've read this is typical -- you just need to have over-paid a certain amount of principal in the past N months ($10k over 12 months in my case).

If I lost my job tomorrow, we could recast and our P&I would drop from ~$1,700/mo to $500/mo.  Our EF could handle the mortgage payments for a couple years at least.  Heck, unemployment insurance would cover twice the mortgage each year.  As a bonus, if the job loss coincided with a market crash, we wouldn't have to sell depreciated assets to cover the mortgage.  Paydown/re-cast seems like a valid way to mitigate portfolio depletion in that particular scenario.  This might be looking at risk from a different perspective than you tend to.

I will also note that "either one or the other" is a false dichotomy.  I've been maxing out my pre-tax accounts for a couple decades now.  I also view our home equity as a bond-like part of our assets (I realize they're not exactly the same), and this allows us to be a little more aggressive with our retirement investments which will hopefully pay off over the long run.

To answer the OP, our mortgage isn't paid off, but we are on track to pay our 20 year mortgage off in 10 years (22 months from now).

you're still increasing your risk of total financial failure in this situation you have less funds to keep you afloat even when you have lowered your current payment by 1200 dollars - whats the value of the money that could have been invested.  You have less money liquid in your situation creating a higher risk of total failure. 

the selling of depreciated assets is actually over stated by just about everyone electing to pay down the mortgage b/c you skip the fact that they appreciated- the market is up way more than its down and the risk of selling a depreciated asset is small in most circumstances - when we do these calculations we dont even take into account the appreciation before the depreciation and it still comes out less risky even when you consider a recast.  assuming a bank will even consider recasting you in the face of a job loss and your house severly depreciating. 

these are common supposed risk mitigation answers to prepaying a mortgage - i'll just recast - i'll just take out a heloc(read i'll just take on more risk than my original mortgage was)

you're litterally creating bandaids for a risk that was dumb to take on in the first place

99% of people die jumping off this bridge.  - i'll go ahead and jump b/c i think i can hit the sweet spot! - if i miss i'll just have an ambulance on the bridge so they can save me

but again you clearly have researched this and understand and determined for whatever personal reason that you're ok with all these increased risks.  Promoting your paydown as a victory and celebrating it is determintal to joe schmoe walking in off the street - and i dont see how you dont understand that and just continue to pat each other on the back-
« Last Edit: September 26, 2018, 12:38:59 PM by boarder42 »

Dicey

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #109 on: September 26, 2018, 12:46:58 PM »
3. paying down a house faster over time vs investing increases financial insecurity during the paydown period only once 100% paid off does it add the security of protecting against SORR <- thats its only minor benefit.  This has nothing to do with long term math you inflated the risk you were trying to mitigate during paydown.

I'll (again) gently remind you here that a re-cast can be a viable way of mitigating the oft-mentioned financial Armageddon (job loss, etc.) risk before the mortgage is 100% paid off.  A re-cast is unlike a refinance, 2nd mortgage, or HEL/HELOC in that it doesn't have income/asset/LTV requirements.  With my mortgage company -- and from what I've read this is typical -- you just need to have over-paid a certain amount of principal in the past N months ($10k over 12 months in my case).

If I lost my job tomorrow, we could recast and our P&I would drop from ~$1,700/mo to $500/mo.  Our EF could handle the mortgage payments for a couple years at least.  Heck, unemployment insurance would cover twice the mortgage each year.  As a bonus, if the job loss coincided with a market crash, we wouldn't have to sell depreciated assets to cover the mortgage.  Paydown/re-cast seems like a valid way to mitigate portfolio depletion in that particular scenario.  This might be looking at risk from a different perspective than you tend to.

I will also note that "either one or the other" is a false dichotomy.  I've been maxing out my pre-tax accounts for a couple decades now.  I also view our home equity as a bond-like part of our assets (I realize they're not exactly the same), and this allows us to be a little more aggressive with our retirement investments which will hopefully pay off over the long run.

To answer the OP, our mortgage isn't paid off, but we are on track to pay our 20 year mortgage off in 10 years (22 months from now).
Just because they'll do a recast now when things are good, doesn't guarantee they will be so readily available in the future. I'd hate to find myself jobless and begging the bank for a recast. Better to just stay in a position of strength.

One

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #110 on: September 26, 2018, 12:49:17 PM »
Paying off the house is a sure thing, 100%, Investing in the stock market has risk and any idiot knows that. could have a 30 year slowdown, past performance doesn't guarantee future results.  Either choice is probably 1000 times better than what most do so no reason to hate. You could also take out a heloc with your equity and pull from it if there's a slowdown. There's also the known risk of panic selling in the stock market, unless you've been through a long downturn you don't know how you'll react.         
« Last Edit: September 26, 2018, 12:54:54 PM by One »

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #111 on: September 26, 2018, 12:56:11 PM »
Paying off the house is a sure thing, 100%, Investing in the stock market has risk and any idiot knows that. could have a 30 year slowdown, past performance doesn't guarantee future results.  Either choice is probably 1000 times better than what most do so no reason to hate. You could also take out a heloc with your equity and pull from it if there's a slowdown     

i dont even know where to start so many flawed statements here.  that have been addressed multiple times.

1. paying off your house 100% is a sure thing you'll avoid SORR and increase inflation risk
1a. while paying off its a sure thing you're at higher risk than investing.
2. a 30 year slow down in the market would mean it doesnt matter what the fuck anyone here did we're all fucked so go ahead keeping throwing around ridiculous hyperbole
3. If you truly believe past performance doesnt indicate future results what do you plan to rely on when you FIRE for income?
4. We're not on a site for mainstream americans yes both are better than blowing it on hookers and blow thats not the debate
5. Lets mitigate this undue risk i'm taking on by taking on an even larger risk - which is probably not untainable after you really need it - HELOC - variable callable debt - all b/c you paid off your fixed non callable debt - piling risk on risk - fun!
6. i didnt catch your edit in your post about panic selling - this forum should be here to support people and help them make the best decisions like not selling in a downturn- though b/c the mortgage payer downers are doing it or primarily emotional reasons i could see bond support groups forming and everyone patting each other on the back for getting out of that crazy market b/c you never know what its going to do next - buy more bonds pay down more fixed low interest debt - When you throw logic out the window and pay down a mortgage i think its highly likely you'll do the same in a downturn


Seriously this post right here is why i keep posting in all of this.  A normal everyday person wanting to be better can walk in and read this and go that makes sense but what have you accomplished with it

1. you're telling them its not risky to pay down
2. you're scaring them about investing in the market - which most people already are gun shy of
4. You're making both seem equal by comparing them to putting your money in a paper shreader - they arent
5. You're acting like a HELOC provides the same security as a mortgage and is easily attainable in jobloss with a bad economy
6. You're trying to hint back at number 2 which we should be encouraging people of the safety of the market b/c at its core its safe unless capitalism fails then who cares.
« Last Edit: September 26, 2018, 01:14:33 PM by boarder42 »

One

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #112 on: September 26, 2018, 01:27:00 PM »
The huge psychological advantage of paying off the house is that it's a hedge against panic during a major downturn.  If the house is paid off you'll be less worried about the stocks taking a hit. You may think you won't panic sell but unfortunately were not all robots. If all your money is in the stock market you could panic sell low and also lose your house. If your house is paid off you could also rent out part of it receive some income to help you get through the depression/recession. 

Cranky

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #113 on: September 26, 2018, 01:33:33 PM »
Because I posted earlier in this thread, I'm going to add in my own motivations and caveats. I do not deny the math, but I will say that it will be stronger in some cases than others.

1. In 30 years, I'll be dead, so I'm working on a shorter timeline than some people.
2. We could afford to retire now, except that I don't like worrying about the healthcare mess (we still have a kid in college) plus I'm not convinced that I'll ever really pry dh out of there.
3. Our mortgage wasn't very big to begin with, because we live in the back of beyond and houses are cheap, cheap, cheap. When we paid off the house we weren't getting a mortgage deduction any more, so honestly, it wasn't worth the bother of refinancing to me.
4. Some people have moral/ethical concerns about interest, which I do not care to discuss here, but buying a house with a mortgage felt like a big compromise to us in the first place.
5. My goal was not to accumulate the biggest pot of $ ever. Enough has been enough for us. YMMV.
6. I'm not stupid about numbers; I actually have an accounting degree.

GuitarStv

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #114 on: September 26, 2018, 01:40:37 PM »
We paid our home off in the 7th year of the mortgage.  :P

Lan Mandragoran

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #115 on: September 26, 2018, 01:44:35 PM »

Quote
1.  MMM paid off his house when rates were much different - his opinion today may be much different but he doesnt care anymore

2. Yes paying down your mortgage guarantees you're at higher risk of total financial failure until its 100% paid off that the only thing you're Guaranteed during that paydown period - just about no one paying off their mortgage actually grasps this concept.

3. the non guaranteed return you're saying the market provides is likely what you're basing your FIRE income on so good luck with that since its no guaranteed in your eyes.  How long do you plan to work til you feel its guaranteed - worst case inflation so you can keep all your money in the mattress? good luck with that.

4. many here like me at one point in time thought a paid off mortgage would be essential to FIRE - til i wised up and was taught by others here.  People in these forums should come to learn and have their views of the world pushed past what society tells them they should be doing.  I dont care how many of you head in the sands dont want to listen stating youre doing it for risk when you're actually increasing risk b/c you dont understand it types want to keep fighting back - you're wrong and the inbox full of thank you messages i have is proof of it many people dont like conflict so they dont push the issue here - many people dont really care that much about what other people do with their money.  I dont really care i just want to present the best information to everyone so they can make the best decision and celebratory threads like these with half facts and in the case of this thread - a very poor question from the start do not assist people in making the best decision.  Just like the other 3 threads i started they are dumb and belong in the antimustachian wall of shame and comedy.

The craziest thing about this post is that it was actually edited and still reads as it does.

Your stance is clear, and is mathematically right for most people.  But your seething anger has overwhelmed your ability to communicate in a cohesive, non-belligerent manner.  It's off putting.  I suggest you put down the phone or keyboard and do some light stretching, maybe a little meditation.

Get ahold of yourself.  Go hug your mortgage and let these folks hug their unencumbered deeds.

Never. Feel free to ignore it if you don't like it.  May as well have people post about Ferraris and yachts and not care about that here too.

The craziest thing about this post is you didn't even have an answer to the facts. You just chose to attack grammar

I will call you Rorschach ;P. For your hilarious ability/dedication to never compromise lol.

there is no reason to compromise on this - compromising on this would lead to more people making poor decisions while thinking they are good.  The people who are paying down their mortgages can keep doing so blindly or learn and decide. some have learned and decided its worth it for them to keep paying it down.  Celebrating a decision thats not minorly suboptimal but majorly suboptimal is detrimental to those who may not even know.  I really don't care about changing the minds of these far strung people who are paying down at all costs in the face of intentional ingorance or those who Know the math and have chosen a different path - i care about those who stumble into this forum and arent aware .

I dont know how many times i've said it in different forums but this is an ultra counter logical method to use to get to FIRE faster compared to what most people are brainwashed with their whole life.  So it needs a larger spot light on it - it also doesnt need people sitting there saying its awesome to pay off your house.  b/c paying off your house is worse for your FIRE date than eating out every day or paying a lawn service company every week or paying a maid to clean - its actually worse than the combination of the 3 for your FIRE date for most - Its a BIG deal.  and people get their shit slapped silly for hiring a maid or a lawn service around here - i just wish we could all agree that mortgage paydowns deserve face punches and outside of Australia should not be celebrated with the current rate environment in the other parts of the western world.  - but that will never happen so i will relentlessly post these rambling half nonsensical sentences to challenge the subject every time its raised.

Hah yeah I get it/agree just being light-hearted/applauding the tenacity ^^. I tend to make everyone I interact with into a book character anyway lol.

Lan Mandragoran

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #116 on: September 26, 2018, 01:49:41 PM »
The huge psychological advantage of paying off the house is that it's a hedge against panic during a major downturn.  If the house is paid off you'll be less worried about the stocks taking a hit. You may think you won't panic sell but unfortunately were not all robots. If all your money is in the stock market you could panic sell low and also lose your house. If your house is paid off you could also rent out part of it receive some income to help you get through the depression/recession.

Or... you could not do that. You could follow the sage advice of the hitchhikers guide to the universe and decide you "dont panic". Maybe grab a towel as well, and throw back one of those pangalactic gargle blasters, heres a recipe. http://hitchhikers.wikia.com/wiki/Pan_Galactic_Gargle_Blaster.


"The Pan Galactic Gargle Blaster is an alcoholic beverage invented by ex-President of the Universe Zaphod Beeblebrox, considered by the Guide to be the "Best Drink in Existence"[1]. Its effects are similar to "having your brains smashed in by a slice of lemon wrapped round a large gold brick".

Beeblebrox advised that you should "never drink more than two Pan Galactic Gargle Blasters unless you are a thirty ton mega elephant with bronchial pneumonia".[1] However, Ford Prefect ignored this advice and consumed three Pan Galactic Gargle Blasters while at Milliways.[2]


Mixing InstructionsEdit
Take the juice from one bottle of Ol' Janx Spirit.
Pour into it one measure of water from the seas of Santraginus V ó Oh, that Santraginean seawater! Oh, those Santraginean fish!
Allow three cubes of Arcturan Mega-gin to melt into the mixture (it must be properly iced or the benzene is lost).
Allow four litres of Fallian marsh gas to bubble through it, in memory of all those happy hikers who have died of pleasure in the Marshes of Fallia.
Over the back of a silver spoon float a measure of Qualactin Hypermint extract, redolent of all the heady odours of the dark Qualactin Zones, subtle, sweet and mystic.
Drop in the tooth of an Algolian Suntiger. Watch it dissolve, spreading the fires of the Algolian Suns deep into the heart of the drink.
Sprinkle Zamphuor.
Add an olive.
Drink... but... very carefully..."

You should be good after that. You have avoided nonsensical anti-mustachian monkey choices. Enjoy your vast quantity of monies ;P.

Sweet I've helped ^^.

Edit: Sry, bored :|.
Edit2: I'm just teasing, I fall into the dont pay off camp, but yeah w/e =]. I personally think you should just do the best in your situation, if your not its just a disservice to you. If it's really best for you despite the downsides thats cool, just throw out the illogical and wimpy self as much as possible when choosing.
« Last Edit: September 26, 2018, 02:04:14 PM by Lan Mandragoran »

Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #117 on: September 26, 2018, 01:52:57 PM »
Just because they'll do a recast now when things are good, doesn't guarantee they will be so readily available in the future. I'd hate to find myself jobless and begging the bank for a recast.

Certainly that's a possibility, but I think it's extremely unlikely.  In almost all cases it is really not in the bank's best interest to foreclose vs just recast based on the original loan terms.  If you're the kind of mortgagee who has fastidiously made extra payments in the past, you're probably considered a very low-risk borrower from the bank's perspective.  Also you don't call up your mortgage company and say "I just lost my job, please let me re-cast!"  :D

For my part, I usually ping my mortgage company about once a year to verify the terms/availability of re-casting hasn't changed.

And of course "pay off mortgage or invest" is a silly false dichotomy and not really applicable to most of us.  The risk of paying down the mortgage doesn't look very scary to me if you're also maxing out pre-tax accounts, living frugally, etc.

elysianfields

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #118 on: September 26, 2018, 01:58:15 PM »
Let's see if we can summarize the arguments for taking out a mortgage and not paying it off early:

1. Mortgages are probably the cheapest loans you can obtain (thanks to government subsidy, government-sponsored mortgage securitization, etc.)
2. Mortgage interest is tax-deductible (YMMV)
3. Mortgage payments become easier over time (inflation favors the borrower, who repays in depreciated money)
4. Mortgages allow you to extract equity without selling
5. Mortgages allow you to invest more than you otherwise could (mortgages provide some leveraged investment money)
6. Historically, index investing provides higher returns than the cost of the mortgage, especially after-tax
7. Mortgages provide greater liquidity - you only need to make next month's payment
8. The greater liquidity mortgages provide reduces your risk
9. Mortgages allow you to minimize opportunity costs (cash used to pay your mortgage costs you because you could have invested it more profitably)

To illustrate #7 & 8, I'll borrow a story from Ric Edelman.  It's wordier than I would write it, but that's Edelman's style:

Quote from: Ric Edelman
To help you understand this, let me introduce you to Nervous Nick and Smart Sam.

They have the same income and expenses, and are in the 25% tax bracket. Each has $100,000 in cash; each wants to buy a $300,000 house.

Smart Sam gets a $240,000 30-year mortgage at 4%. He makes no extra payments. But Nervous Nick takes a different approach. Nick hates mortgages and wants to get rid of his mortgage as quickly as he can. He fears that if he has a mortgage, he might one day lose his house. He doesnít quite understand how that could actually happen, but his granddaddy told him that mortgages are bad, and Nick believes his granddaddy, so he goes with a small mortgage ó as small as possible. That means he uses his entire $100,000 in cash to make a down payment. His mortgage is therefore smaller than Smart Samís ó $200,000.

Nervous Nick also gets a 15-year loan instead of a 30-year loan, because he hates mortgages and he figures the 15-year loan will let him get rid of his loan in half the time. Nick also knows that this clever ploy garners him a lower interest rate, because lenders charge less for 15-year loans than they charge for 30-year loans. So while Sam is paying 4%, Nick is paying only 3.5%.

Nick, in fact, is so obsessed with getting rid of his mortgage that every month he sends an extra $100 to his lender. He knows that the more he sends in, the faster his loan will be paid off. So, compared to Sam, Nick has a smaller mortgage, a shorter mortgage, a lower interest rate ó and heís adding money to each payment.

Smart Samís monthly payment is $1,146. Thanks to amortization, almost all of Samís payment ó 70% of it ó is comprised of interest. Thus, on an after-tax basis in the 25% federal income tax bracket Smart Samís payment costs him $946 a month.

Meanwhile, Nervous Nickís payment is $1,530 a month. But only 38% is interest. Thatís because Nickís loan is for 15 years: The shorter the term, the more principal you must pay each month, and principal payments are not tax-deductible (only the interest is deductible). So even though Nervous Nick is paying more per month than Smart Sam, heís deducting less. Nickís after-tax cost, therefore, is $1,384.

Thus, Smart Sam is paying $438 less per month than Nervous Nick. But Nick doesnít mind. He doesnít mind the extra monthly cost because he knows heíll get rid of his mortgage quicker.

So for the next five years, Smart Sam makes his monthly mortgage payments. And instead of sending an extra $100 every month to his lender like Nick does, Sam puts that $100 into exchange-traded funds. Then both men lose their jobs. Or perhaps one develops a medical condition, or his wife has a baby and quits work. Whatever the cause, something happens in five years that causes their income to fall or expenses to rise ó or both.

Nickís been busy paying down his mortgage; the outstanding balance is only $149,000. But does that matter? The guy just lost his job, but he still has to make his monthly mortgage payment. So it doesnít matter that his mortgage balance is $149,000; what matters is that his mortgage payment of $1,530 is due at the end of the month.

This is a real problem for Nick, because with no job, he has no income. He also has no money, because heís given every available dollar to the bank in the form of extra payments. Nervous Nickís nightmare is coming true! Heís about to lose his house!

Sam, though, is in much better financial condition. Oh, sure, his mortgage balance is higher than Nickís but does that matter? Not at all. What matters is that he has to find some way to make his $1,146 payment.

But Sam is not in the same predicament as Nick. Thatís because Sam has lots of savings. First, he gave the bank a smaller down payment, enabling him to invest $40,000. Based on an average annual return of 7%, that money grew to $56,102.

Smart Sam also took advantage of the fact that his monthly payment was $438 less than Nickís; he invested that money too, which is now worth $31,367. And instead of sending $100 a month to his lender like Nick, Sam added $100 to his investments; those investments are worth $7,159. All told, Smart Sam has $94,628. So even though heís out of work, heíll be able to make his mortgage payments for another six years!

How ironic that Nick, who wanted to get rid of his mortgage so he wouldnít lose his house, is about to suffer the fate he was so desperately trying to avoid. This fable shows you why it is so important that you minimize both your down payment and your monthly payment. By doing so, you retain more of your money.

By keeping control over access to your money, you maintain liquidity. But when you give your money to your lender, you lose control of it. After giving money to your lender, the only way to get your money back is to sell the house ó and thatís the one thing Nervous Nick does not want to do.

This reveals the fatal flaw in the logic of those who lie to you about mortgages. Sure, owning a home mortgage-free is an appealing concept. But it is completely unrealistic! I mean, sure, paying off your mortgage is great ó if thatís the only thing you need to do with your money. But what about paying for college? Saving for retirement? Caring for elderly parents? Or even just paying for car repairs!?!?

Indeed, the fatal flaw of those who tell you to do everything you can to pay off your loan as quickly as you can is that they are completely ignoring everything else thatís happening in your life! If you succeed in paying off the loan, you might fail in paying for college, or covering costs in the event of a job loss, medical problem, marital issue, or other family concern.

Thatís why you must stop listening to those who pretend that the only thing that matters is paying off a mortgage. Your life is more complicated than that, and by realizing this, you see that trying to pay off the mortgage like Nervous Nick is actually a risky thing to do. Instead, the smarter and safer approach is to carry a big, long mortgage and donít bother trying to pay it off!

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #119 on: September 26, 2018, 02:18:22 PM »
...b/c paying off your house is worse for your FIRE date than eating out every day or paying a lawn service company every week or paying a maid to clean - its actually worse than the combination of the 3 for your FIRE date for most - Its a BIG deal.  and people get their shit slapped silly for hiring a maid or a lawn service around here...

In principle, I'm on your side, but I'm having trouble finding the truth in statements like this unless you have a monumental mortgage or are assuming some completely irrational returns on your investment gains. I calculate the difference, for me personally, to be about +1 year to FIRE (10 years vs. 9 years) if I pay off the house over the next 10 years instead of hanging onto a 30-year mortgage to maturity. Most of the long-term differences in expected net worth occur many years after FIRE. The difference between paying the house off in 10 years vs. 30 doesn't even approach the effect of a $100/week house-cleaning service over a lifetime.
« Last Edit: September 26, 2018, 02:27:33 PM by Mississippi Mudstache »

Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #120 on: September 26, 2018, 02:20:23 PM »
To illustrate #7 & 8, I'll borrow a story from Ric Edelman.  It's wordier than I would write it, but that's Edelman's style:

Aside from the fact that the 25% mortgage interest deduction doesn't actually exist anymore for the example given, I'd say the "fatal flaw" in Ric's anecdote is the all-or-nothing comparison.  Nervous Nick is a nitwit for pouring every cent into his mortgage with no contingency plan.  Here in Mustachianland, we have EF's (or at least Roth IRAs) and max out our pre-tax accounts first, at a minimum, and then branch off along various other financial paths depending on our ages, goals, life situations, and tolerance for different types of risk.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #121 on: September 26, 2018, 02:29:41 PM »
To illustrate #7 & 8, I'll borrow a story from Ric Edelman.  It's wordier than I would write it, but that's Edelman's style:

Aside from the fact that the 25% mortgage interest deduction doesn't actually exist anymore for the example given, I'd say the "fatal flaw" in Ric's anecdote is the all-or-nothing comparison.  Nervous Nick is a nitwit for pouring every cent into his mortgage with no contingency plan.  Here in Mustachianland, we have EF's (or at least Roth IRAs) and max out our pre-tax accounts first, at a minimum, and then branch off along various other financial paths depending on our ages, goals, life situations, and tolerance for different types of risk.

so now you have more money sitting on the sideline in your EF that you could have invested further making the mortgage a worse decision .

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #122 on: September 26, 2018, 02:32:19 PM »
...b/c paying off your house is worse for your FIRE date than eating out every day or paying a lawn service company every week or paying a maid to clean - its actually worse than the combination of the 3 for your FIRE date for most - Its a BIG deal.  and people get their shit slapped silly for hiring a maid or a lawn service around here...

In principle, I'm on your side, but I'm having trouble finding the truth in statements like this unless you have a monumental mortgage or are assuming some completely irrational returns on your investment gains. I calculate the difference, for me personally, to be about +1 year to FIRE (10 years vs. 9 years) if I pay off the house over the next 10 years instead of hanging onto a 30-year mortgage to maturity. Most of the long-term differences in expected net worth occur many years after FIRE. The difference between paying the house off in 10 years vs. 30 doesn't even approach the effect of a $100/week house-cleaning service over a lifetime.

https://forum.mrmoneymustache.com/welcome-to-the-forum/why-do-you-do-and-pay-off-your-mortgage-early/

100 a week for house cleaning is high where i'm from i could be wrong i dont use it

obviously the larger the mortgage the larger the impact and the larger the networth gains.  we bought a house for 440k and have a 348k mortgage left but when we bought it - it was probably worth 500k and now is probably in the ball park of 550-600k just 2-3 years later.  so on top of not paying it down our investment in our house is returning much more money since its smaller than the total cost.
« Last Edit: September 26, 2018, 02:35:41 PM by boarder42 »

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #123 on: September 26, 2018, 02:42:32 PM »
...b/c paying off your house is worse for your FIRE date than eating out every day or paying a lawn service company every week or paying a maid to clean - its actually worse than the combination of the 3 for your FIRE date for most - Its a BIG deal.  and people get their shit slapped silly for hiring a maid or a lawn service around here...

In principle, I'm on your side, but I'm having trouble finding the truth in statements like this unless you have a monumental mortgage or are assuming some completely irrational returns on your investment gains. I calculate the difference, for me personally, to be about +1 year to FIRE (10 years vs. 9 years) if I pay off the house over the next 10 years instead of hanging onto a 30-year mortgage to maturity. Most of the long-term differences in expected net worth occur many years after FIRE. The difference between paying the house off in 10 years vs. 30 doesn't even approach the effect of a $100/week house-cleaning service over a lifetime.

https://forum.mrmoneymustache.com/welcome-to-the-forum/why-do-you-do-and-pay-off-your-mortgage-early/

100 a week for house cleaning is high where i'm from i could be wrong i dont use it

obviously the larger the mortgage the larger the impact and the larger the networth gains.  we bought a house for 440k and have a 348k mortgage left but when we bought it - it was probably worth 500k and now is probably in the ball park of 550-600k just 2-3 years later.  so on top of not paying it down our investment in our house is returning much more money since its smaller than the total cost.

That makes more sense. Our mortgage is about half of yours. $440K would buy an outright mansion in our market. Our mortgage rate is also higher than some (4.25%). If rates get well below 4% again, I'm refinancing and locking the sucker in for 30 years. The housekeeping cost is what my Dad pays, and he lives 10 miles away. I think it's high, but then again I do my own housecleaning.

Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #124 on: September 26, 2018, 02:43:33 PM »
so now you have more money sitting on the sideline in your EF that you could have invested further making the mortgage a worse decision

I lol'd at your selective reading.  I even tried to throw you a bone with the Roth IRA-as-EF thing.  Guess you really can't teach an old dog new tricks.

Also, are we now to the point where even EF's are verboten because they are statistically very likely to underperform long-term versus VTSAX?  "He could have FIREd 2 months earlier if he had only bought VTSAX instead of having a money-market EF!"  :D

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #125 on: September 26, 2018, 02:44:27 PM »
...b/c paying off your house is worse for your FIRE date than eating out every day or paying a lawn service company every week or paying a maid to clean - its actually worse than the combination of the 3 for your FIRE date for most - Its a BIG deal.  and people get their shit slapped silly for hiring a maid or a lawn service around here...

In principle, I'm on your side, but I'm having trouble finding the truth in statements like this unless you have a monumental mortgage or are assuming some completely irrational returns on your investment gains. I calculate the difference, for me personally, to be about +1 year to FIRE (10 years vs. 9 years) if I pay off the house over the next 10 years instead of hanging onto a 30-year mortgage to maturity. Most of the long-term differences in expected net worth occur many years after FIRE. The difference between paying the house off in 10 years vs. 30 doesn't even approach the effect of a $100/week house-cleaning service over a lifetime.

https://forum.mrmoneymustache.com/welcome-to-the-forum/why-do-you-do-and-pay-off-your-mortgage-early/

100 a week for house cleaning is high where i'm from i could be wrong i dont use it

obviously the larger the mortgage the larger the impact and the larger the networth gains.  we bought a house for 440k and have a 348k mortgage left but when we bought it - it was probably worth 500k and now is probably in the ball park of 550-600k just 2-3 years later.  so on top of not paying it down our investment in our house is returning much more money since its smaller than the total cost.

That makes more sense. Our mortgage is about half of yours. $440K would buy an outright mansion in our market. Our mortgage rate is also higher than some (4.25%). If rates get well below 4% again, I'm refinancing and locking the sucker in for 30 years. The housekeeping cost is what my Dad pays, and he lives 10 miles away. I think it's high, but then again I do my own housecleaning.

oh its a mansion - a lake front mansion - i didnt want a house this large but the deal was right - i know my market so i scooped it up - its worked out amazingly so far.  i have a very select market of lake front homes to pick from and had to buy much larger than i wanted to but the price couldnt be beat.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #126 on: September 26, 2018, 02:47:08 PM »
so now you have more money sitting on the sideline in your EF that you could have invested further making the mortgage a worse decision

I lol'd at your selective reading.  I even tried to throw you a bone with the Roth IRA-as-EF thing.  Guess you really can't teach an old dog new tricks.

Also, are we now to the point where even EF's are verboten because they are statistically very likely to underperform long-term versus VTSAX?  "He could have FIREd 2 months earlier if he had only bought VTSAX instead of having a money-market EF!"  :D

in my opinion if you're not paying down your mortgage and you're investing your investment accounts will reach a point in the taxable side where you dont feel the need for an EF and wasting little green soldiers.  People could have different cash flow situations than i do that require keeping more cash liquid.  but in general one large part of the puzzle often over looked is the size of the EF the paydown club keeps sidelined that they may feel comfortable investing if they had a larger taxable savings already from not paying down a house.  i'm not going to shame anyone for having whatever they feel is comfy for them in an EF just stating what the human reactions typically are - you hear a lot of peopple going to 0 EF once they have large taxable savings

elysianfields

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #127 on: September 26, 2018, 02:47:51 PM »
To illustrate #7 & 8, I'll borrow a story from Ric Edelman.  It's wordier than I would write it, but that's Edelman's style:

Aside from the fact that the 25% mortgage interest deduction doesn't actually exist anymore for the example given, I'd say the "fatal flaw" in Ric's anecdote is the all-or-nothing comparison.  Nervous Nick is a nitwit for pouring every cent into his mortgage with no contingency plan.  Here in Mustachianland, we have EF's (or at least Roth IRAs) and max out our pre-tax accounts first, at a minimum, and then branch off along various other financial paths depending on our ages, goals, life situations, and tolerance for different types of risk.
Oh FFS, news flash, tax laws change!  This article is probably 15 years old.  Aside from the reference to the old marginal tax rates, the remainder of the story is still relevant today.

You also didn't comment on the other seven advantages of mortgages.

elysianfields

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #128 on: September 26, 2018, 02:49:34 PM »
so now you have more money sitting on the sideline in your EF that you could have invested further making the mortgage a worse decision

I lol'd at your selective reading.  I even tried to throw you a bone with the Roth IRA-as-EF thing.  Guess you really can't teach an old dog new tricks.

Also, are we now to the point where even EF's are verboten because they are statistically very likely to underperform long-term versus VTSAX?  "He could have FIREd 2 months earlier if he had only bought VTSAX instead of having a money-market EF!"  :D
Like MMM, my HELOC is my EF.  Yes, I consequently keep maximizing my investments.

Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #129 on: September 26, 2018, 02:55:02 PM »
in my opinion if you're not paying down your mortgage and you're investing your investment accounts will reach a point in the taxable side where you dont feel the need for an EF and wasting little green soldiers.  People could have different cash flow situations than i do that require keeping more cash liquid.  but in general one large part of the puzzle often over looked is the size of the EF the paydown club keeps sidelined that they may feel comfortable investing if they had a larger taxable savings already from not paying down a house.  i'm not going to shame anyone for having whatever they feel is comfy for them in an EF just stating what the human reactions typically are - you hear a lot of peopple going to 0 EF once they have large taxable savings

Personally we keep a relatively small EF in online banks, CD's and such.  I've long been a fan of maxing out Roth IRAs and treating those as a de-facto EF, should our regular EF become depleted all at once for some reason.  Not that I'd be happy about dipping into the Roths, but at least it could be done without tax (and meanwhile the earnings grow tax-free).

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #130 on: September 26, 2018, 03:13:47 PM »
I've said it before, but thank you, boarder42.  Your posts and posts like it have made me see the light and actually do the math.

If you are in the US, have a low (<5%) rate, it's fixed, and otherwise have your shit together (ie not spending like an idiot), you'd be hard pressed to find a scenario where you come out ahead by paying off your mortgage, risk-adjusted.  To those who say "yes, but it's riskier" IT'S NOT.  It's not always intuitive (it sure wasn't for me at first), but it is indeed less risky to carry long-term low-interest debt than to pay it off in lieu of investing.  If you run 1000 historical scenarios, each with paying off your mortgage as early as possible or paying over 30 years, you come out ahead FAR MORE OFTEN carrying the debt.  Usually by a lot.  Things have to go pretty sideways to even break even with paying off the mortgage early.

I'm not a pro evangelizer on the topic so I don't have real numbers on hand, but I'm sure boarder42 and co can hop in with those if he hasn't already.

I liked his laundry list of things that cost less than paying off your fixed, low-interest, mortgage early.  Cable TV, having a house-cleaner, etc.  We as a community openly mock that, so why not a common math error that is even more expensive?  He and I are not saying that you absolutely must carry your mortgage forever.  We're saying that the cost of doing so is very much non-zero, and almost all the time that cost is very very high.  Feel free to do it, but be aware what your false feeling of security is costing you.  If you're fine with that, go for it.  Just don't pretend something is optimal when the math says otherwise.  Call a spade a spade.

Now to address the actual question posed in the OP:

I paid off a five year mortgage in five years.  This was seller-financed at 5%.

I am three and a half years into a 30 year mortgage (3.625%) with no plans to pay it off early.

My parents paid off their ~280k house they bought in 2000 in around seven years.  They had a leg up since they rolled a bunch of equity from their previous house into it, so that's quite as crazy-fast as it sounds.  I think their rate was around 8%.  My mom is a bit timid about investing (she didn't sell stock in 2008 thank fuck, but stopped investing her cash until mid-way into the recovery...).

Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #131 on: September 26, 2018, 03:17:25 PM »
Oh FFS, news flash, tax laws change!  This article is probably 15 years old.  Aside from the reference to the old marginal tax rates, the remainder of the story is still relevant today.

The numbers in the article are derived from that initial 25% tax savings.  I don't fault the author for not anticipating the change in tax laws 15 years in the future, but I think it's important to note that essentially all the numbers that are used to compare the two situations are off as a result.

I think my main point was clear enough.  I wasn't disagreeing with the anecdote, merely pointing out that the anecdote relies on a false dichotomy that (IMO) isn't very realistic.

Quote
You also didn't comment on the other seven advantages of mortgages.

Oh FFS, do I have to comment on every #@$%! bulleted point in your list?  :D

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #132 on: September 27, 2018, 12:27:14 AM »
Oh FFS, news flash, tax laws change!  This article is probably 15 years old.  Aside from the reference to the old marginal tax rates, the remainder of the story is still relevant today.

The numbers in the article are derived from that initial 25% tax savings.  I don't fault the author for not anticipating the change in tax laws 15 years in the future, but I think it's important to note that essentially all the numbers that are used to compare the two situations are off as a result.

I think my main point was clear enough.  I wasn't disagreeing with the anecdote, merely pointing out that the anecdote relies on a false dichotomy that (IMO) isn't very realistic.

Quote
You also didn't comment on the other seven advantages of mortgages.

Oh FFS, do I have to comment on every #@$%! bulleted point in your list?  :D
Yes!

I must say, I adore b42's passion. He could just as easily keep what he knows to himself and few would be the wiser. Instead, he's pulling hard for everyone to discover the easiest and fastest route to FI. Pretty damn altruistic if you ask me.

To those of you who follow the MMM Investment Order, and stuff full every single investment vehicle available to you, and still have money with which to prepay your mortgage, I salute you. You are not really the people this discussion is aimed at.

elysianfields

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #133 on: September 27, 2018, 03:08:23 AM »
Apparently one guy has taken 6,000 years:  God Excited He's Only Two Payments Away From Owning Heaven


Cranky

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #134 on: September 27, 2018, 05:38:24 AM »
For $450k, I could buy a mansion with actual serfs here. So my numbers are way, way different. LOL

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #135 on: September 27, 2018, 05:47:09 AM »
For $450k, I could buy a mansion with actual serfs here. So my numbers are way, way different. LOL

the example assumes 200k house which is below the median home price in the us

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #136 on: September 27, 2018, 06:37:45 AM »
My house is less than half of that...

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #137 on: September 27, 2018, 06:57:47 AM »
My house is less than half of that...

Same. Iím not paying off my mortgage early, but it makes way less of a difference at this level.

Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #138 on: September 27, 2018, 07:27:34 AM »
The strategy of using leverage may speed up FIRE or may not.  It is a good strategy, but not one without risks.  Statistics are not a pure predictor of any future outcome in this case, and advocating strongly that they are is over stating a case.  I have business and economics degrees and over 30 years of business strategy experience advising CEOs and business leaders on value creation at the worlds top firms to back up my position.

The FACT is that leveraged stock investing AND debt reduction BOTH improve FIRE success.  One is optimized for speed, but contains some increased risk of losses.  The other is guaranteed in terms of return, but is likely to ultimately produce somewhat smaller investment returns.

I dont see what all the fuss is about. Both strategies are fine and one is not de facto better than the other despite people who chose to troll anyone who doesnt choose the former.  Keeping a mortgage is using leverage, low cost efficient leverage, but leverage nonetheless. 

Agree people should understand the trade offs of using leverage, both good and bad, but shouting down anyone describing the risks is not fair to anyone and is generally poor form.

Best post on the thread so far IMO.  I appreciate a well-articulated argument that avoids snark and excessive hyperbole, and acknowledges that reality is more nuanced than "I'm 100% right therefore you're 100% wrong."

Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #139 on: September 27, 2018, 08:03:00 AM »
My house is less than half of that...

Same. Iím not paying off my mortgage early, but it makes way less of a difference at this level.

I think this is a very important point that is usually overlooked in these discussions.

The potential for leveraging a low-rate mortgage and coming out ahead by investing scales with the size of the mortgage, timeline, and (inversely) with the rate.

For those of us with smaller mortgages, the potential gains from leveraging are relatively smaller.  The risk and consequences of "total failure" during payoff is relatively smaller.  The ability to pay off the mortgage in a short period of time without sacrificing other investment priorities is relatively easier.

If we had started with a $500k mortgage instead of a $274k mortgage, there's no way (at our income level) we could have paid it off in 10 years without sacrificing pre-tax savings, among other things.  We would have had a different investment strategy in that case.

One size really does not fit all.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #140 on: September 27, 2018, 08:15:00 AM »
My house is less than half of that...

Same. Iím not paying off my mortgage early, but it makes way less of a difference at this level.

I think this is a very important point that is usually overlooked in these discussions.

The potential for leveraging a low-rate mortgage and coming out ahead by investing scales with the size of the mortgage, timeline, and (inversely) with the rate.

For those of us with smaller mortgages, the potential gains from leveraging are relatively smaller.  The risk and consequences of "total failure" during payoff is relatively smaller.  The ability to pay off the mortgage in a short period of time without sacrificing other investment priorities is relatively easier.

If we had started with a $500k mortgage instead of a $274k mortgage, there's no way (at our income level) we could have paid it off in 10 years without sacrificing pre-tax savings, among other things.  We would have had a different investment strategy in that case.

One size really does not fit all.

a 274k mortgage is not a small mortgage its 40% higher than the simulation test i ran against these other items. 

OtherJen

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #141 on: September 27, 2018, 08:21:38 AM »
My house is less than half of that...

Same. Iím not paying off my mortgage early, but it makes way less of a difference at this level.

I think this is a very important point that is usually overlooked in these discussions.

The potential for leveraging a low-rate mortgage and coming out ahead by investing scales with the size of the mortgage, timeline, and (inversely) with the rate.

For those of us with smaller mortgages, the potential gains from leveraging are relatively smaller.  The risk and consequences of "total failure" during payoff is relatively smaller.  The ability to pay off the mortgage in a short period of time without sacrificing other investment priorities is relatively easier.

If we had started with a $500k mortgage instead of a $274k mortgage, there's no way (at our income level) we could have paid it off in 10 years without sacrificing pre-tax savings, among other things.  We would have had a different investment strategy in that case.

One size really does not fit all.

a 274k mortgage is not a small mortgage its 40% higher than the simulation test i ran against these other items.

My mortgage was for $80K. But again, no reason to pay it off early. It's still far cheaper than renting would ever be, and we like having the cash flow to save/invest.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #142 on: September 27, 2018, 08:39:34 AM »
My house is less than half of that...

Same. Iím not paying off my mortgage early, but it makes way less of a difference at this level.

I think this is a very important point that is usually overlooked in these discussions.

The potential for leveraging a low-rate mortgage and coming out ahead by investing scales with the size of the mortgage, timeline, and (inversely) with the rate.

For those of us with smaller mortgages, the potential gains from leveraging are relatively smaller.  The risk and consequences of "total failure" during payoff is relatively smaller.  The ability to pay off the mortgage in a short period of time without sacrificing other investment priorities is relatively easier.

If we had started with a $500k mortgage instead of a $274k mortgage, there's no way (at our income level) we could have paid it off in 10 years without sacrificing pre-tax savings, among other things.  We would have had a different investment strategy in that case.

One size really does not fit all.

a 274k mortgage is not a small mortgage its 40% higher than the simulation test i ran against these other items.

My mortgage was for $80K. But again, no reason to pay it off early. It's still far cheaper than renting would ever be, and we like having the cash flow to save/invest.

yeha you're not gaining as large a benefit unless its proportional to your income level the other peice of this we're over looking right now.

MustacheAnxiety

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #143 on: September 27, 2018, 11:49:40 AM »
We went mortgage free for our second home after making minimum payments for 4 years on our first.  The down payment plus appreciation covered 3/4 of the downsized home.  But we mostly did it because we thought we could time the stock market and avoid putting a bunch of cash in during the summer of 2017.  So far we have been proven pretty horribly wrong.  But we will see.

Why did you put anything down? That was money you could have invested. What is PMI, 0.5% or something? Clean Shaven has it right, you folks should not talk in such absolutes.

Yeah, PMI is like 0.5-1%, but it can also affect the mortgage rate. So, yes, you are rightóif I were a purist, I might not put anything down. I totally understand the rationale and the psychology behind wanting to pay your house off. That psychology combined with PMI, and wanting to hedge my bets a bit are why I put 20% down.

By no means am I trying to talk in absolutes. Iím just saying that you are kidding yourself if you say you are paying off your mortgage because the math tells you to. Iím just saying that it is best to be honest with yourself about why you are paying off your mortgage.


Late response, but please remember to be nice.  And if you cannot be nice don't use misleading math to make your point.  Paying PMI is rarely a good idea.

PMI is .5-1% of the entire principal of the loan but it only gives you access to an extra 5-20% of the principal.  So the calculation on whether to put 20% down to avoid PMI would be: PMI percentage/% decrease in down payment.  If you get a 5% down mortgage with .6% PMI each year it costs .006/.15 = an extra 4% in interest even as you are paying off that 15%.  If you have a 3.5% interest rate, you would be giving up a 7.5% guaranteed return.  Factor in an additional .1 or .2% mortgage interest for the duration of the loan and it starts to get real ugly.

(Lazy math note: Some people will be able to deduct the mortgage interest and PMI, but everyone will pay overall more than the 4% because they are still saddled with the full PMI payment even as the original 15% is being repaid.  I am calling this a wash and ignoring both.)

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #144 on: September 27, 2018, 12:36:14 PM »
There is nothing wrong with paying PMI. You're doing the math wrong to favor not paying PMI. The PMI is a percentage of the total loan so it adds only a marginal cost to the total loan rate. I'll try to go dig up the post MDM put together about this a year or 2 ago where we both arrived at the same conclusion thru different equations.

Fishindude

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #145 on: September 27, 2018, 01:08:02 PM »
All this debate puts me in the mood to remortgage my paid off house :)
Just kidding.  I like being debt free and not having payments.  Borrowing and keeping the banks in business was something I did earlier in life when I had to.  Now we pay cash for everything and have enough money set aside and working (retired a year ago) to handle anything we need and then some.   

I don't disagree with the math of the keep the mortgage crowd assuming steady stock market returns, but you can still build wealth via other methods and pay off your debt rapidly.

Fun debate, none the less.   Do whatever makes you happy.

Still Being

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #146 on: September 27, 2018, 01:18:17 PM »
All this debate puts me in the mood to continue renting :)

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #147 on: September 27, 2018, 02:38:43 PM »
All this debate puts me in the mood to remortgage my paid off house :)
Just kidding.  I like being debt free and not having payments.  Borrowing and keeping the banks in business was something I did earlier in life when I had to.  Now we pay cash for everything and have enough money set aside and working (retired a year ago) to handle anything we need and then some.   

I don't disagree with the math of the keep the mortgage crowd assuming steady stock market returns, but you can still build wealth via other methods and pay off your debt rapidly.

Fun debate, none the less.   Do whatever makes you happy.

just like you can build wealth and eat out our buying monster trucks you can build wealth while doing anything as long as youre saving something it doesnt mean that should be promoted.

Slee_stack

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #148 on: September 27, 2018, 03:01:44 PM »
All this debate puts me in the mood to continue renting :)
Homeownership isn't always better than Renting.  All depends on your market and the flexibility you may need to leave that market.



Bird In Hand

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #149 on: September 27, 2018, 03:36:35 PM »
just like you can build wealth and eat out our buying monster trucks you can build wealth while doing anything as long as youre saving something it doesnt mean that should be promoted.

Sorry, but the false equivalence between eating out/buying trucks (subtracting from your net wealth) and paying down mortgage (adding to your net wealth -- but likely more slowly than index investing) is just ridiculous.