Author Topic: Paid-off mortgage people: How long did it take you to pay off the house?  (Read 15425 times)

Slee_stack

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #200 on: September 28, 2018, 12:30:42 PM »

Curious what you will do when the stock market crashes, you lose your money, your job, and still have a mortgage on your back. My home is paid off so I'll sleep well at night..
I presume all your money will be in FDIC accounts and you will be living off the close to nearly 100% principal and near zero percent interest you will be getting.

Everyone else's homes could be paid off too...from their remaining investments!

Unless you are saying the market is going to zero...

Trust me, your paid off house will be meaningless if that happens...

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #201 on: September 28, 2018, 12:41:22 PM »
Curious what you will do when the stock market crashes, you lose your money, your job, and still have a mortgage on your back. My home is paid off so I'll sleep well at night..

Can you please give a specific scenario with numbers that match this scenario? Also, if you have a paid off mortgage you aren't making a choice of investing vs. paying off early, so it's not a decision point.

But let's assume that you started with a $120k 5% mortgage. Monthly payment of $644.19. You could double up with $630 of extra and pay it off in 10 years. In comparison, Joe Schmoe invests $630 each month and gets a typical average of 7% returns before inflation. At the end of ten years, you have a paid off house, and they have $107,763 and a balance on their mortgage of $97,610.

OK, we agree that's better. Because the market return exceeded the mortgage rate.

What about at 9 years? The investor has a mortgage of $100,384 and $93,423 in investments. You have a mortgage of $9,795 and no investments. You both lose your job. You have $0 to make a mortgage payment. The investor loses 98% of their investment in a completely horrible market crisis. But they still have $2000 to make their next 3 ($644) mortgage payments. Which scenario lets you sleep better at night?

Run the same scenario with a negative 7% return.

If you truly believe returns will be this poor I ask again what are you planning for FIRE income. You projecting something that's never happened.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #202 on: September 28, 2018, 12:44:38 PM »
For everyone including me trying to talk numbers to one he doesn't understand doesn't care to understand and just trolls this shit he's done it a few times. As Ron white would say you can't fix stupid.

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #203 on: September 28, 2018, 12:52:27 PM »
Curious what you will do when the stock market crashes, you lose your money, your job, and still have a mortgage on your back. My home is paid off so I'll sleep well at night..

Can you please give a specific scenario with numbers that match this scenario? Also, if you have a paid off mortgage you aren't making a choice of investing vs. paying off early, so it's not a decision point.

But let's assume that you started with a $120k 5% mortgage. Monthly payment of $644.19. You could double up with $630 of extra and pay it off in 10 years. In comparison, Joe Schmoe invests $630 each month and gets a typical average of 7% returns before inflation. At the end of ten years, you have a paid off house, and they have $107,763 and a balance on their mortgage of $97,610.

OK, we agree that's better. Because the market return exceeded the mortgage rate.

What about at 9 years? The investor has a mortgage of $100,384 and $93,423 in investments. You have a mortgage of $9,795 and no investments. You both lose your job. You have $0 to make a mortgage payment. The investor loses 98% of their investment in a completely horrible market crisis. But they still have $2000 to make their next 3 ($644) mortgage payments. Which scenario lets you sleep better at night?

Run the same scenario with a negative 7% return.

If you truly believe returns will be this poor I ask again what are you planning for FIRE income. You projecting something that's never happened.

I'm not predicting anything,  that's the whole point, for many a 4.75% is better than the unpredictable and this should not be portrayed as a foolish investment idea even if you disagree.

Slee_stack

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #204 on: September 28, 2018, 12:53:31 PM »
I am saying that data mining the past does not guarantee future returns, nothing more, nothing less.  If people used reasonable rhetoric I wouldnt even post, but saying math can predict the future without error is a false statement about stock markets and market related models of returns.  No where did I write that returns would be poor, just unknown.  They could be the best ever.
Out of genuine curiosity, what data do you personally use to predict the future?

Even if someone is 100% out of the market, they are, sometimes without realizing, using past statistics to guide their decisions.

Being a landlord, owning your own business, relying on CD/T-Bills, whatever...is done with an assumption that demand and/or interest rates and/or policy is fairly predictable because....well because past data suggests it!  Can we be 100% confident about anything?

Who is to say that cash in any denomination couldn't devalue 'overnight'?  Would (and could) someone diversify infinitely to ensure that NEVER, EVER happens?

Everything is risk.  The only surefire, risk-free way to FIRE is to die.

Another option might be to plan for a sub 1% SWR (with RISK!!) and FIRE years later.  Is that what we intend to encourage?

So what's the deal with defending people that make a choice that is better in only a 'doomsday' or incredibly improbable scenario?

Betting on the improbable is fairly insane.  I don't deny it can be fun in small value situations...but not when the wager is FIRE date.  Should we start promoting buying lottery tickets as an equally noble strategy?

This type of stuff just screams disservice to me...especially on this type of forum.

Its obvious that this is one of the more difficult to understand concepts on this forum.  SAVE SAVE SAVE and KILL DEBT KILL DEBT KILL DEBT can be so plastered upon people here that it...just perhaps...warrants someone with a proverbial bat chasing folks around to knock some cents into them.
« Last Edit: September 28, 2018, 01:21:35 PM by Slee_stack »

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #205 on: September 28, 2018, 12:54:03 PM »
Curious what you will do when the stock market crashes, you lose your money, your job, and still have a mortgage on your back. My home is paid off so I'll sleep well at night..

Can you please give a specific scenario with numbers that match this scenario? Also, if you have a paid off mortgage you aren't making a choice of investing vs. paying off early, so it's not a decision point.

But let's assume that you started with a $120k 5% mortgage. Monthly payment of $644.19. You could double up with $630 of extra and pay it off in 10 years. In comparison, Joe Schmoe invests $630 each month and gets a typical average of 7% returns before inflation. At the end of ten years, you have a paid off house, and they have $107,763 and a balance on their mortgage of $97,610.

OK, we agree that's better. Because the market return exceeded the mortgage rate.

What about at 9 years? The investor has a mortgage of $100,384 and $93,423 in investments. You have a mortgage of $9,795 and no investments. You both lose your job. You have $0 to make a mortgage payment. The investor loses 98% of their investment in a completely horrible market crisis. But they still have $2000 to make their next 3 ($644) mortgage payments. Which scenario lets you sleep better at night?

Run the same scenario with a negative 7% return.

If you truly believe returns will be this poor I ask again what are you planning for FIRE income. You projecting something that's never happened.

I'm not predicting anything,  that's the whole point, for many a 4.75% is better than the unpredictable and this should not be portrayed as a foolish investment idea even if you disagree.

You still have told me what you plan to use for income. Are you using a sub 1.75% swr?  If not then you are projecting better returns.

Slee_stack

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #206 on: September 28, 2018, 01:02:25 PM »

I'm not predicting anything,  that's the whole point, for many a 4.75% is better than the unpredictable and this should not be portrayed as a foolish investment idea even if you disagree.
To be fair, I agree that calling someone foolish is probably inappropriate.

I would stick with poorer financial choice... and in direct conflict with the generally accepted concept of SWR on this forum. 

One cannot subscribe to Paying off the Mortgage while also embracing a SWR in FIRE.  Its illogical.  They both are based on the same historical data and future statistical confidence set.

*edited to add (in most scenarios).  There will always be exceptions (usually shorter term focused ones) such as being ready to fire soon and structuring income to lower taxes, already have enough right now, etc.
« Last Edit: September 28, 2018, 01:09:32 PM by Slee_stack »

neo von retorch

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #207 on: September 28, 2018, 01:13:38 PM »
My biggest confusion is the "peace of mind" that people get. A mortgage is a secured loan, where you pay principal and interest. Owning a home requires lots of monthly bills including property taxes, homeowner's insurance and utilities. Removing the loan does not remove many of the monthly bills that you still need to pay. (OK, you can argue the taxes are only due once per year!)

But whether you have a loan with an equivalent (or greater) value of invested assets, or you don't have a loan, and you a much smaller set of invested assets doesn't materially affect your ongoing ability to pay your monthly bills and remain in your residence. It's only on certain edge cases (most purely speculative) where things get dicey.

As I pointed out, if you used all of your income to pay towards your mortgage, at any point up until your mortgage pay-off, a loss of income would instantly erase your ability to pay that mortgage, let alone all the other bills you have. No one is really being a proponent of that particular scenario, thankfully, but many are celebrating trading in hundreds of thousands of monetary soldiers for a reduced loan principal, when they could be putting those soldiers out in the field where they go to work recruiting more soldiers.

Along with that, those on both sides have various emergency fund plans to deal with loss of income to cover all monthly bills, whether or not they include a mortgage.

Those of us that think it's (terribly) sub-optimal to pay off a mortgage early, of course, agree to certain stipulations that must apply.
  • You have a low fixed rate mortgage (I've seen <= 5% as a rough benchmark)
  • You are choosing only between extra money going towards your mortgage or being invested in low-cost index funds
  • You are not touching your investments for a while, as any short-term cash needs should be handled differently
  • The "market" (particularly U.S. equities) generally goes up, and has historically returned something like 7% annually even accounting for inflation
  • You will invest in a reasonable "investment order" (see MDM's thread) to optimize for matches, taxes, fees, rates, etc
Given the above, I am struggling with my original question. While I'm accumulating money towards financial independence, how does paying extra on a mortgage increase my peace of mind over regular contributions to my investments, that in almost any (historical, real world) scenario results in you having a lot more money along the way, as well as when you do finally pay off your mortgage?
« Last Edit: September 28, 2018, 01:17:02 PM by neo von retorch »

Boofinator

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #208 on: September 28, 2018, 04:41:07 PM »
For everyone including me trying to talk numbers to one he doesn't understand doesn't care to understand and just trolls this shit he's done it a few times. As Ron white would say you can't fix stupid.

boarder42, thanks for giving me the impetus to join this forum.

So let's talk numbers. In general, I agree that most people most of the time should contribute to a taxable account of equities prior to paying down their mortgage (after of course maxing out as much traditional tax-deferred savings vessels as possible). However, there is clearly a time and a place for Mustachians to minimize the time to reach FI by choosing mortgage payments prior to additional assets going into a taxable account. (Note that minimizing time to FI is the goal, not maximizing expected assets.) Rather than spending a large amount of time going through the various scenarios and mathematical formulas, I'll provide a scenario where the choice should be clear even for the most determined dogmatists:

If the mortgage interest rate exceeds the SWR, and if the money is available to pay off the mortgage, and if after doing so one can reach FI, then the math unequivocally states that paying off the mortgage is the optimal scenario. Here's a hypothetical:

'Moe' has an asset allocation that gives him a presumed SWR of 4% (with 95% past success rate). He has a 30-yr $100k mortgage at 5% interest rate, with payments of $5k per year (simplification). He also has assets of $1M and current expenses of $45k per year. Moe's dear Aunt Sally passed away and left him $100k. How should Moe allocate his money to minimize the time to FI?

Note that the answer is completely independent of estimated equity returns. But if equity risk is taken into account, a prolonged market dip could add years to Moe's FI date.

All of this being said, here's where it makes most sense to invest rather than pay down a mortgage:

1) When you have tax-deferred space to fill.
2) When you have little to no liquid assets, leaving you open to liquidity risk.
3) Early in the FI journey, when all money has a long-term horizon where you can expect to receive historical market returns.
4) When mortgage interest rates are below historical market returns.

And here's where it makes most sense to pay off the mortgage rather than invest in a taxable account:
1) Late in your FI journey, when no mortgage payment would help achieve the desired SWR for FI in a short time period, thereby eliminating equity risk.
2) When mortgage interest rates are above historical market returns.

There are lots of scenarios that fall somewhere in the middle. At this point it comes down to risk tolerance, personal opinions, and expected outlook.

Bottom line, we should be strongly encouraging many people who have a long time horizon and a low-interest rate mortgage to be pumping money into a taxable account. But to act like this is the solution for everybody (or "99%") shows an immature understanding of risk and very basic math.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #209 on: September 28, 2018, 04:44:27 PM »
Go run those numbers thru cfiresim. Mortgage wins historically.  These ideas have been discussed for days. I highly doubt your going to bring some new OMG I never thought of that too the table. Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

You can spend some time learning or sick to your preconceived notions.
« Last Edit: September 28, 2018, 04:48:45 PM by boarder42 »

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #210 on: September 28, 2018, 04:49:29 PM »
For everyone including me trying to talk numbers to one he doesn't understand doesn't care to understand and just trolls this shit he's done it a few times. As Ron white would say you can't fix stupid.

No troll here, just not irrationally exuberant. You sound like the guys right before the dot com bubble.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #211 on: September 28, 2018, 04:54:29 PM »
For everyone including me trying to talk numbers to one he doesn't understand doesn't care to understand and just trolls this shit he's done it a few times. As Ron white would say you can't fix stupid.

No troll here, just not irrationally exuberant. You sound like the guys right before the dot com bubble.

So you're really old then and still not retired. Not sure why is listen to any nonsense you spout

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #212 on: September 28, 2018, 04:58:23 PM »
You know what you're all correct I'll now support paying down mortgages. You've convinced me the market is so unpredictable I will never be able FIRE. Going to need enough cash to survive 1960s inflation in FDIC accounts.  Oh crap that's relying on the us govt to remain solvent and back the dollar. I'm not sure what I'm going to do. Better just but a bunker with cash and fill it with bullets and beans.

One

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #213 on: September 28, 2018, 05:00:36 PM »
For everyone including me trying to talk numbers to one he doesn't understand doesn't care to understand and just trolls this shit he's done it a few times. As Ron white would say you can't fix stupid.

No troll here, just not irrationally exuberant. You sound like the guys right before the dot com bubble.

So you're really old then and still not retired. Not sure why is listen to any nonsense you spout

Not old, just informed, also never said I wasn't retired.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #214 on: September 28, 2018, 05:07:38 PM »
For everyone including me trying to talk numbers to one he doesn't understand doesn't care to understand and just trolls this shit he's done it a few times. As Ron white would say you can't fix stupid.

No troll here, just not irrationally exuberant. You sound like the guys right before the dot com bubble.

So you're really old then and still not retired. Not sure why is listen to any nonsense you spout

Not old, just informed, also never said I wasn't retired.

Your informed stance many times has equated investing to gambling yet you fail to ever show any actual numbers of what you're doing. So if your next post doesn't out your plan to deal with any of this market being gambling you have nothing left to say bc all your arguements are bullshit straw man statements.

You need to go to a doomsdayer blog and forum if half of what youve said is what you believe.

jim555

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #215 on: September 28, 2018, 05:12:28 PM »
There is one advantage to a paid off house, ACA subsidies.  With a paid off housing you can live on very little income due to lower expenses.  This could save hundreds a month in health insurance premiums.  If you had investment income and higher expenses it becomes much more difficult to get large subsidies.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #216 on: September 28, 2018, 05:16:14 PM »
There is one advantage to a paid off house, ACA subsidies.  With a paid off housing you can live on very little income due to lower expenses.  This could save hundreds a month in health insurance premiums.  If you had investment income and higher expenses it becomes much more difficult to get large subsidies.

At 75k spending in my state with two kids ACA is free. Pretty easy to fit a mortgage payment into spending at that level.

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #217 on: September 28, 2018, 05:19:20 PM »
For everyone including me trying to talk numbers to one he doesn't understand doesn't care to understand and just trolls this shit he's done it a few times. As Ron white would say you can't fix stupid.

No troll here, just not irrationally exuberant. You sound like the guys right before the dot com bubble.

So you're really old then and still not retired. Not sure why is listen to any nonsense you spout

Not old, just informed, also never said I wasn't retired.

Your informed stance many times has equated investing to gambling yet you fail to ever show any actual numbers of what you're doing. So if your next post doesn't out your plan to deal with any of this market being gambling you have nothing left to say bc all your arguements are bullshit straw man statements.

You need to go to a doomsdayer blog and forum if half of what youve said is what you believe.

A hypothetical 7% compared to a fixed 4.75% technically is gambling. I think investing is great but you have to balance the risks. Pre tax vs post tax. Many variables. You are too one size fits all. Seem like a know it all.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #218 on: September 28, 2018, 05:24:11 PM »
If you don't answer this question I'm done responding to you I've asked it 15 times.

If that 7% is so hypothetical how do you plan to fund your FIRE? 
« Last Edit: September 28, 2018, 07:02:44 PM by boarder42 »

jim555

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #219 on: September 28, 2018, 05:26:39 PM »
There is one advantage to a paid off house, ACA subsidies.  With a paid off housing you can live on very little income due to lower expenses.  This could save hundreds a month in health insurance premiums.  If you had investment income and higher expenses it becomes much more difficult to get large subsidies.

At 75k spending in my state with two kids ACA is free. Pretty easy to fit a mortgage payment into spending at that level.
It is very individual, some houses have people with chronic health conditions and use a lot of care.  Also geographical locations insurance rates can vary wildly.  It takes deep calculus to see if it makes sense for each person.

K-ice

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #220 on: September 28, 2018, 06:18:30 PM »
Do you have dates that you paid it down over so I can calculate the huge not minor loss to your stage you incurred. I'm sure I could go over to the thread that belongs in the anitmustachian wall of shame and comedy and figure it out.

Ive wondered if such a calculator exists. If it did Id plug in my numbers & cry because we could probably be millionaires on paper by now.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #221 on: September 28, 2018, 07:47:25 PM »
You all forgot to answer my question.

They ignore them because they can't answer them without realizing they are making a poor decision.

See all of my questions that are identical. Not 1 will answer it.

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #222 on: September 28, 2018, 07:51:33 PM »
You all forgot to answer my question.

They ignore them because they can't answer them without realizing they are making a poor decision.

See all of my questions that are identical. Not 1 will answer it.

My question is at what interest rate would you pay a fixed income mortgage. Your blanket statements seem to imply never.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #223 on: September 28, 2018, 08:05:51 PM »
You all forgot to answer my question.

They ignore them because they can't answer them without realizing they are making a poor decision.

See all of my questions that are identical. Not 1 will answer it.

See what I mean.

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #224 on: September 28, 2018, 09:01:51 PM »
I've answered that question numerous times throughout this forum somewhere between 6-8% I've never said don't pay off your mortgage at all costs. But since you did say you plan to use stocks and bonds unless you plan to save all the way down to a 1.75% swr. Youre 4.75% statement is fucked.

Also your answer was abtuse and retarded. Guess keeping your status quo. You can't fix stupid. You're a waste of my words.

You're funny

Boofinator

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #225 on: September 28, 2018, 09:27:43 PM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.

Boofinator

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #226 on: September 28, 2018, 09:51:37 PM »
Uhh... my question was: please explain the peace of mind thing to me, so I can better understand how you can assign value to it. How is that obtuse and retarded?

Personally I assign a great deal of peace of mind to the dividends and increased account balances in my investment accounts. Yes there are down periods, and there's some feelings there. But overall I've gone from $20k invested 10 years ago to $320k invested now. That makes me feel really good about my approach. In that time, I increased my debt from $155k to $365k, as I took on a second mortgage (rental + primary residence.)

To answer your question - personally I would probably pay down a fixed rate mortgage of about 6% or higher. Maybe not, maybe if it was 7%. Because I feel like 7% investment returns, accounting for inflation, are reasonable. And a fixed mortgage payment will seem to shrink over time, thanks to inflation

I'll answer your question. Some people get emotional over financial matters, which is generally unwise. But leaving emotions out of it, paying off your mortgage will get you to FIRE quicker in a number of short-term scenarios. So yes, one should have peace of mind if they made the logical decision after having done the math. (And fortunately, our mathematical models are made by humans, so they are not going to have the same inputs, outputs, and operators.)

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #227 on: September 29, 2018, 02:47:50 AM »
Uhh... my question was: please explain the peace of mind thing to me, so I can better understand how you can assign value to it. How is that obtuse and retarded?

Personally I assign a great deal of peace of mind to the dividends and increased account balances in my investment accounts. Yes there are down periods, and there's some feelings there. But overall I've gone from $20k invested 10 years ago to $320k invested now. That makes me feel really good about my approach. In that time, I increased my debt from $155k to $365k, as I took on a second mortgage (rental + primary residence.)

To answer your question - personally I would probably pay down a fixed rate mortgage of about 6% or higher. Maybe not, maybe if it was 7%. Because I feel like 7% investment returns, accounting for inflation, are reasonable. And a fixed mortgage payment will seem to shrink over time, thanks to inflation

I'll answer your question. Some people get emotional over financial matters, which is generally unwise. But leaving emotions out of it, paying off your mortgage will get you to FIRE quicker in a number of short-term scenarios. So yes, one should have peace of mind if they made the logical decision after having done the math. (And fortunately, our mathematical models are made by humans, so they are not going to have the same inputs, outputs, and operators.)

There are only two ways your answer that you can win with a mortgage paydown are correct one involves getting extremely lucky using actual historical numbers. The odds you hit the right paydown window are less than 1% to have it beat investing in the market. Or you have to assume inputs that break a 2% swr at currently attainable 30yesr mortgage rates in the us. So you're either saying you plan to market time which is a big no-no around these parts or you're so insecure about the future returns of the market that not only are you going to over save you're planning to over save all the way down to a 2% swr. While historically a 3.5% has never failed. So which boat are you in?

Also please go read this entire thread bc most all of your points have been answered. If you'd like to put actual real numbers to something to prove your point please state what your planned swr is for fire or how you plan to obtain your income prior to posting something that's never happened before.

Dicey

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #228 on: September 29, 2018, 04:54:46 AM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.
« Last Edit: September 29, 2018, 04:58:44 AM by Dicey »

One

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #229 on: September 29, 2018, 05:04:42 AM »
People have different risk profiles. Obviously a family making 300,000 a year vs 50,000 with similar expenses will have a different risk tolerance. People with higher income may prefer lower risk to fire because they don't need to take the extra risk of a fixed rate of return vs an assumed rate of return. This is why a dogmatic one size fits all approach is so weak.

Cranky

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #230 on: September 29, 2018, 05:24:35 AM »
My house gives me "peace of mind" because it's a tangible thing, and I'll always have a place to live. (My insurance/taxes are shockingly low, too.)

My investment accounts, which are handsome numbers at this point, are just numbers. They go up, they go down. This year, they are way up, 2009, they were way down. But they are just numbers to me, and when you get right down to it, emotionally they feel about as imaginary as unicorns.

YMMV

Dicey

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #231 on: September 29, 2018, 05:49:38 AM »
People have different risk profiles. Obviously a family making 300,000 a year vs 50,000 with similar expenses will have a different risk tolerance. People with higher income may prefer lower risk to fire because they don't need to take the extra risk of a fixed rate of return vs an assumed rate of return. This is why a dogmatic one size fits all approach is so weak.
Nobody is saying "One size fits all". We're saying "Don't payoff the mortgage before you fully understand what you're doing." Huge difference.

There are plenty of legitimate reasons to pay off a mortgage, but for many who desire FIRE, it may well be woefully sub-optimal. What does anyone have to lose by studying the subject thoroughly before making a decision? To blindly follow someone's financial advice (looking at you, Dave Ramsey) without doing the research yourself is not smart. Being smarter with your money is what this site is all about. Of course there's going to be blowback here when people make (and even brag about making) less than optimal decisions.

As for the term "risk profiles", it's easy to fear what you don't understand. Knowledge is power.

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #232 on: September 29, 2018, 06:00:54 AM »
People have different risk profiles. Obviously a family making 300,000 a year vs 50,000 with similar expenses will have a different risk tolerance. People with higher income may prefer lower risk to fire because they don't need to take the extra risk of a fixed rate of return vs an assumed rate of return. This is why a dogmatic one size fits all approach is so weak.
Nobody is saying "One size fits all". We're saying "Don't payoff the mortgage before you fully understand what you're doing." Huge difference.

There are plenty of legitimate reasons to pay off a mortgage, but for many who desire FIRE, it may well be woefully sub-optimal. What does anyone have to lose by studying the subject thoroughly before making a decision? To blindly follow someone's financial advice (looking at you, Dave Ramsey) without doing the research yourself is not smart. Being smarter with your money is what this site is all about. Of course there's going to be blowback here when people make (and even brag about making) less than optimal decisions.

As for the term "risk profiles", it's easy to fear what you don't understand. Knowledge is power.

Nah, the thread was hijacked to rag on people who were excited about paying off their homes.

frugalecon

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #233 on: September 29, 2018, 06:02:02 AM »
People have different risk profiles. Obviously a family making 300,000 a year vs 50,000 with similar expenses will have a different risk tolerance. People with higher income may prefer lower risk to fire because they don't need to take the extra risk of a fixed rate of return vs an assumed rate of return. This is why a dogmatic one size fits all approach is so weak.
Nobody is saying "One size fits all". We're saying "Don't payoff the mortgage before you fully understand what you're doing." Huge difference.

There are plenty of legitimate reasons to pay off a mortgage, but for many who desire FIRE, it may well be woefully sub-optimal. What does anyone have to lose by studying the subject thoroughly before making a decision? To blindly follow someone's financial advice (looking at you, Dave Ramsey) without doing the research yourself is not smart. Being smarter with your money is what this site is all about. Of course there's going to be blowback here when people make (and even brag about making) less than optimal decisions.

As for the term "risk profiles", it's easy to fear what you don't understand. Knowledge is power.

Dicey, I like the way you disagree without being disagreeable.

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #234 on: September 29, 2018, 06:33:32 AM »
People have different risk profiles. Obviously a family making 300,000 a year vs 50,000 with similar expenses will have a different risk tolerance. People with higher income may prefer lower risk to fire because they don't need to take the extra risk of a fixed rate of return vs an assumed rate of return. This is why a dogmatic one size fits all approach is so weak.
Nobody is saying "One size fits all". We're saying "Don't payoff the mortgage before you fully understand what you're doing." Huge difference.

There are plenty of legitimate reasons to pay off a mortgage, but for many who desire FIRE, it may well be woefully sub-optimal. What does anyone have to lose by studying the subject thoroughly before making a decision? To blindly follow someone's financial advice (looking at you, Dave Ramsey) without doing the research yourself is not smart. Being smarter with your money is what this site is all about. Of course there's going to be blowback here when people make (and even brag about making) less than optimal decisions.

As for the term "risk profiles", it's easy to fear what you don't understand. Knowledge is power.

Nah, the thread was hijacked to rag on people who were excited about paying off their homes.

The thread wasn't hijacked. Whatever the hell that means. Just because you ask a question doesn't mean it's the correct question to be asking. This is a forum where you should come to learn not pay yourself on the back for doing something that inhibits your actual end goal.  Like reducing risk. You keep throwing it around like it's a risk reduction. It's mathmatically not during paydown  if you prescribe to any version of the 4% swr you're already projecting the future will be similar to the past so to call stock returns extremely high risk and gambling etc. Is a huge disservice to all forum members.

And since you still haven't even mentioned a withdrawal rate you're using I'll just have to assume it's bc it 100% contradicts your position that the stock market is gambling.

You were the one who hijacked the thread in post 10 on page one.  The thread was directed at people who had paid off their homes, all was going well, most had paid off in just a short time frame, then you joined the tread bragging about how smart you were to have a 30 year mortgage. I feel bad for the OP because you ruined the whole point of the thread with your arrogance.

FrugalToque

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #235 on: September 29, 2018, 06:37:08 AM »
MOD NOTE:
I've removed a bunch of posts full of insults and responses to insults in the hopes that this thread can get back on track.

While I realize the whole "paying off your mortgage isn't the most efficient way to go" idea is a valid argument, making it everywhere, and to the point where you're hammering on people trying to celebrate, isn't appropriate.

Also, boarder42 is no longer with us for numerous (and mostly unrelated) trolling violations, so don't bother replying to those particular posts (many of which I've removed).

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #236 on: September 29, 2018, 07:58:45 AM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.

tralfamadorian

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #237 on: September 29, 2018, 08:21:46 AM »
Wow, rip b42.

Dicey

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #238 on: September 29, 2018, 09:25:03 AM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.
Okay, I'm willing to listen. Can you provide examples, please?.

PizzaSteve

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #239 on: September 29, 2018, 11:58:53 AM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.
Okay, I'm willing to listen. Can you provide examples, please?.
Ive got one.  A dentist friend retired early by selling home and moving to LCOL area with 100% stock leveraged portfolio and new mortgage (of about 1M). The heavy stock was to make up a bit for not saving quite what they felt they needed, but they really wanted to retire in snow county while young enough to enjoy it.  This was just before the 2008 crash. 

When the portfolio tanked, he panicked a bit because the stash was only now 500k and he had to make house payments (sold house had been 100% paid off).  He both moved to more conservative investment positions (had a special needs dependents) and also the couple both went back to work part time.

If they had a more balanced portfolio and just moved the old equity to the new home, I believe they would have stuck it out better, both with the stocks and work.  Ultimately they ended up just working more years while they rebuilt their stash.  While not a pure math example (their behaviors were imperfect with hind sight), it is a true one about a real person I know well (somewhat older than me).  None of us knew the markers would roar back at the time, and it was fast.  A few years out meant you missed the bounce back, then everyone was saying (like now) markets are overvalued again, etc.

For me, the value of a paid of house to building confidence in skittish investors to stick with their stock portfolio long term is well worth the earnings drag of lost leverage, for many.  Maybe not so much for those with iron wills and locked in investment plans.  Hence I find room to praise both groups.
« Last Edit: September 29, 2018, 12:14:54 PM by PizzaSteve »

Boofinator

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #240 on: September 29, 2018, 02:40:33 PM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.
Okay, I'm willing to listen. Can you provide examples, please?.

This is the hypothetical I posted earlier in this thread. It is intended to show that irrespective of future returns, there are realistic scenarios where paying off the mortgage first makes sense. When one takes into account the volatility of equities, it is easy to picture numerous scenarios where paying off the mortgage would result in an expected earlier FI date.

"'Moe' has an asset allocation that gives him a presumed SWR of 4% (with 95% past success rate). He has a 30-yr $100k mortgage at 5% interest rate, with payments of $5k per year (simplification). He also has assets of $1M and current expenses of $45k per year. Moe's dear Aunt Sally passed away and left him $100k. How should Moe allocate his money to minimize the time to FI?"

NOTE: I have not payed off my mortgage early, as I have a medium term horizon. If I was older, wanting to retire, and close to my FI number, I would probably be pumping all extra money into my mortgage at the moment.

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #241 on: September 29, 2018, 02:49:42 PM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.
Okay, I'm willing to listen. Can you provide examples, please?.

This is the hypothetical I posted earlier in this thread. It is intended to show that irrespective of future returns, there are realistic scenarios where paying off the mortgage first makes sense. When one takes into account the volatility of equities, it is easy to picture numerous scenarios where paying off the mortgage would result in an expected earlier FI date.

"'Moe' has an asset allocation that gives him a presumed SWR of 4% (with 95% past success rate). He has a 30-yr $100k mortgage at 5% interest rate, with payments of $5k per year (simplification). He also has assets of $1M and current expenses of $45k per year. Moe's dear Aunt Sally passed away and left him $100k. How should Moe allocate his money to minimize the time to FI?"

NOTE: I have not payed off my mortgage early, as I have a medium term horizon. If I was older, wanting to retire, and close to my FI number, I would probably be pumping all extra money into my mortgage at the moment.
Both allow him to fire. One allows him to be safer in fire by 2-3%
He should put it in the stock market and FIRE it maximizes his chances of success. Please plug your scenario into cfiresim.com. And you'll see that he is safer in fire by investing it. The years this still fails you run out of money with or without a mortgage.

You don't need 25x your mortgage payment to fire. You need 25x you expenses excluding your PI payment on your mortgage. Plus your remaining mortgage balance.  Mortgages don't index to inflation and end at a certain point

Your original post that sparked this question included the word often can you please present data that backs up that "often" paying down the mortgage allows you to fire earlier. Not using a scenario but using all scenarios historically. You can even use 5% for the mortgage payment.
« Last Edit: September 29, 2018, 02:56:45 PM by boarder42 »

Boofinator

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #242 on: September 29, 2018, 04:08:07 PM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.
Okay, I'm willing to listen. Can you provide examples, please?.

This is the hypothetical I posted earlier in this thread. It is intended to show that irrespective of future returns, there are realistic scenarios where paying off the mortgage first makes sense. When one takes into account the volatility of equities, it is easy to picture numerous scenarios where paying off the mortgage would result in an expected earlier FI date.

"'Moe' has an asset allocation that gives him a presumed SWR of 4% (with 95% past success rate). He has a 30-yr $100k mortgage at 5% interest rate, with payments of $5k per year (simplification). He also has assets of $1M and current expenses of $45k per year. Moe's dear Aunt Sally passed away and left him $100k. How should Moe allocate his money to minimize the time to FI?"

NOTE: I have not payed off my mortgage early, as I have a medium term horizon. If I was older, wanting to retire, and close to my FI number, I would probably be pumping all extra money into my mortgage at the moment.
Both allow him to fire. One allows him to be safer in fire by 2-3%
He should put it in the stock market and FIRE it maximizes his chances of success. Please plug your scenario into cfiresim.com. And you'll see that he is safer in fire by investing it. The years this still fails you run out of money with or without a mortgage.

You don't need 25x your mortgage payment to fire. You need 25x you expenses excluding your PI payment on your mortgage. Plus your remaining mortgage balance.  Mortgages don't index to inflation and end at a certain point

Your original post that sparked this question included the word often can you please present data that backs up that "often" paying down the mortgage allows you to fire earlier. Not using a scenario but using all scenarios historically. You can even use 5% for the mortgage payment.

I explicitly stated Moe was using a 4% withdrawal rate model, not the CFIRESIM model. The math is elementary at that point to show he FIREs immediately paying off the mortgage, but doesn't FIRE immediately putting the money into equity, and also has the risk of the stock market taking a dip and thereby prolonging his timeframe.

But since you requested so kindly, let's use CFIRESIM and adjust the conditions to show the short-term equity risk. Now, Moe wants to FIRE as quickly as possible. He is five years from receiving social security and a pension which will cover all of his expenses. He just needs to bridge the gap. His dear Aunt Sally has bequeathed him $320k, he has 5 years and $100k remaining on the mortgage (5%), and he has literally no savings (he's a new convert to MMM). Current expenses are $40k plus the mortgage payment. He is using CFIRESIM as his model; what asset allocation should he use to minimize his chance of having to take a job as a Walmart greeter in the next five years? (Spoiler: he doubles his risk of failure by not paying off the mortgage.)

ACyclist

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #243 on: September 29, 2018, 04:23:45 PM »
As of last week, I entered this club. It felt strangely anti-climactic. 

I stopped making extra payments and started putting more towards my investments. It got so close that I just finally made the final payment.  We took a 30 yr in 2008.  During the beginning of that, we paid it down hardcore style.  I found this place and got advice, and stopped making extra payments (thank you Boarder42).  We had a modest amount of cash in a personal impound account where I place yearly tax, insurance monies and emergency fund.  The rate is so low on the emergency fund, that it made no sense to me.  I used 4000 to finish it off.  We have been saving in a taxable trading account with Vanguard, thank you to people that suggested that they are easy to open, so we essentially still have a rather large emergency fund over there now.  It felt like a reasonable choice.

665K net worth now, and no debt.  Estimated date for partial retirement is 2023.  We will have to work a little bit each year to pay the excessively high premiums for medical insurance, but we will mostly be free.  Mostly. 

boarder42

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #244 on: September 29, 2018, 04:27:52 PM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.
Okay, I'm willing to listen. Can you provide examples, please?.

This is the hypothetical I posted earlier in this thread. It is intended to show that irrespective of future returns, there are realistic scenarios where paying off the mortgage first makes sense. When one takes into account the volatility of equities, it is easy to picture numerous scenarios where paying off the mortgage would result in an expected earlier FI date.

"'Moe' has an asset allocation that gives him a presumed SWR of 4% (with 95% past success rate). He has a 30-yr $100k mortgage at 5% interest rate, with payments of $5k per year (simplification). He also has assets of $1M and current expenses of $45k per year. Moe's dear Aunt Sally passed away and left him $100k. How should Moe allocate his money to minimize the time to FI?"

NOTE: I have not payed off my mortgage early, as I have a medium term horizon. If I was older, wanting to retire, and close to my FI number, I would probably be pumping all extra money into my mortgage at the moment.
Both allow him to fire. One allows him to be safer in fire by 2-3%
He should put it in the stock market and FIRE it maximizes his chances of success. Please plug your scenario into cfiresim.com. And you'll see that he is safer in fire by investing it. The years this still fails you run out of money with or without a mortgage.

You don't need 25x your mortgage payment to fire. You need 25x you expenses excluding your PI payment on your mortgage. Plus your remaining mortgage balance.  Mortgages don't index to inflation and end at a certain point

Your original post that sparked this question included the word often can you please present data that backs up that "often" paying down the mortgage allows you to fire earlier. Not using a scenario but using all scenarios historically. You can even use 5% for the mortgage payment.

I explicitly stated Moe was using a 4% withdrawal rate model, not the CFIRESIM model. The math is elementary at that point to show he FIREs immediately paying off the mortgage, but doesn't FIRE immediately putting the money into equity, and also has the risk of the stock market taking a dip and thereby prolonging his timeframe.

But since you requested so kindly, let's use CFIRESIM and adjust the conditions to show the short-term equity risk. Now, Moe wants to FIRE as quickly as possible. He is five years from receiving social security and a pension which will cover all of his expenses. He just needs to bridge the gap. His dear Aunt Sally has bequeathed him $320k, he has 5 years and $100k remaining on the mortgage (5%), and he has literally no savings (he's a new convert to MMM). Current expenses are $40k plus the mortgage payment. He is using CFIRESIM as his model; what asset allocation should he use to minimize his chance of having to take a job as a Walmart greeter in the next five years? (Spoiler: he doubles his risk of failure by not paying off the mortgage.)

Cfiresim is just a historical model to back test things the 4% swr was developed by the Trinity study using historical back testing. Cfiresim isn't a model it's just a way you can test a theory vs historical market data.

PizzaSteve

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #245 on: September 29, 2018, 05:25:01 PM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.
Okay, I'm willing to listen. Can you provide examples, please?.

This is the hypothetical I posted earlier in this thread. It is intended to show that irrespective of future returns, there are realistic scenarios where paying off the mortgage first makes sense. When one takes into account the volatility of equities, it is easy to picture numerous scenarios where paying off the mortgage would result in an expected earlier FI date.

"'Moe' has an asset allocation that gives him a presumed SWR of 4% (with 95% past success rate). He has a 30-yr $100k mortgage at 5% interest rate, with payments of $5k per year (simplification). He also has assets of $1M and current expenses of $45k per year. Moe's dear Aunt Sally passed away and left him $100k. How should Moe allocate his money to minimize the time to FI?"

NOTE: I have not payed off my mortgage early, as I have a medium term horizon. If I was older, wanting to retire, and close to my FI number, I would probably be pumping all extra money into my mortgage at the moment.
Both allow him to fire. One allows him to be safer in fire by 2-3%
He should put it in the stock market and FIRE it maximizes his chances of success. Please plug your scenario into cfiresim.com. And you'll see that he is safer in fire by investing it. The years this still fails you run out of money with or without a mortgage.

You don't need 25x your mortgage payment to fire. You need 25x you expenses excluding your PI payment on your mortgage. Plus your remaining mortgage balance.  Mortgages don't index to inflation and end at a certain point

Your original post that sparked this question included the word often can you please present data that backs up that "often" paying down the mortgage allows you to fire earlier. Not using a scenario but using all scenarios historically. You can even use 5% for the mortgage payment.

I explicitly stated Moe was using a 4% withdrawal rate model, not the CFIRESIM model. The math is elementary at that point to show he FIREs immediately paying off the mortgage, but doesn't FIRE immediately putting the money into equity, and also has the risk of the stock market taking a dip and thereby prolonging his timeframe.

But since you requested so kindly, let's use CFIRESIM and adjust the conditions to show the short-term equity risk. Now, Moe wants to FIRE as quickly as possible. He is five years from receiving social security and a pension which will cover all of his expenses. He just needs to bridge the gap. His dear Aunt Sally has bequeathed him $320k, he has 5 years and $100k remaining on the mortgage (5%), and he has literally no savings (he's a new convert to MMM). Current expenses are $40k plus the mortgage payment. He is using CFIRESIM as his model; what asset allocation should he use to minimize his chance of having to take a job as a Walmart greeter in the next five years? (Spoiler: he doubles his risk of failure by not paying off the mortgage.)

Cfiresim is just a historical model to back test things the 4% swr was developed by the Trinity study using historical back testing. Cfiresim isn't a model it's just a way you can test a theory vs historical market data.
Huh?  He literally fullfilled your request, very respectfully, and rather than thank him you vaguely dismiss it for no reason rather than admit mathematical scenarios do exist?  Hmmm....ego in the way of reason?

Let me put it this way, I and many others thank you for your enthusiasm and sharing information about a faster, in theory, path to FIRE.  However, it is not for everyone and they are not dummies for not blindly maximizing theoretical potential earnings in the face of a certain, but possibly lower (if history repeats) return.

Peace and love bro.
« Last Edit: September 29, 2018, 05:28:55 PM by PizzaSteve »

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #246 on: September 29, 2018, 06:10:31 PM »
Was that the fastest ban and un-ban in forum history?

Boofinator

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #247 on: September 29, 2018, 07:34:17 PM »
Also  a5% mortgage is effectively 2% when compared to inflation so you need to use that since the 4% swr accounts for inflation.

With all due respect, you're talking apples and oranges. We're comparing returns from mortgage payments to that of equity (not to the concept of SWR). Yes, we could calculate and compare the expected real returns for mortgage and equity, where of course equity would win. But we aren't going to get expected returns, we are going to get actual returns (especially over short time periods). The actual return for the mortgage will be 5%; the actual return for stocks is a mystery, but we can look at historical returns to get a picture of probable outcomes. This is where persons with short time horizons to FI are well-served to consider paying off the mortgage.
You do realize it's completely possible to be FI and still have a mortgage?
You do realize it's completely possible to be FIRE and still have a mortgage?
From your writing, it doesn't seem so.

ETA: I should have asked Boofinator the same questions.

Yes. I do realize, and have realized for a long time, that it is completely possible to have a mortgage and FIRE. Nowhere in my writing did it suggest otherwise. What many people here don't seem to realize is that even though paying off the mortgage almost always results in a lower expected value than stocks over a long time period, it often reduces time to FI during short time periods due to equity risk.
Okay, I'm willing to listen. Can you provide examples, please?.

This is the hypothetical I posted earlier in this thread. It is intended to show that irrespective of future returns, there are realistic scenarios where paying off the mortgage first makes sense. When one takes into account the volatility of equities, it is easy to picture numerous scenarios where paying off the mortgage would result in an expected earlier FI date.

"'Moe' has an asset allocation that gives him a presumed SWR of 4% (with 95% past success rate). He has a 30-yr $100k mortgage at 5% interest rate, with payments of $5k per year (simplification). He also has assets of $1M and current expenses of $45k per year. Moe's dear Aunt Sally passed away and left him $100k. How should Moe allocate his money to minimize the time to FI?"

NOTE: I have not payed off my mortgage early, as I have a medium term horizon. If I was older, wanting to retire, and close to my FI number, I would probably be pumping all extra money into my mortgage at the moment.
Both allow him to fire. One allows him to be safer in fire by 2-3%
He should put it in the stock market and FIRE it maximizes his chances of success. Please plug your scenario into cfiresim.com. And you'll see that he is safer in fire by investing it. The years this still fails you run out of money with or without a mortgage.

You don't need 25x your mortgage payment to fire. You need 25x you expenses excluding your PI payment on your mortgage. Plus your remaining mortgage balance.  Mortgages don't index to inflation and end at a certain point

Your original post that sparked this question included the word often can you please present data that backs up that "often" paying down the mortgage allows you to fire earlier. Not using a scenario but using all scenarios historically. You can even use 5% for the mortgage payment.

I explicitly stated Moe was using a 4% withdrawal rate model, not the CFIRESIM model. The math is elementary at that point to show he FIREs immediately paying off the mortgage, but doesn't FIRE immediately putting the money into equity, and also has the risk of the stock market taking a dip and thereby prolonging his timeframe.

But since you requested so kindly, let's use CFIRESIM and adjust the conditions to show the short-term equity risk. Now, Moe wants to FIRE as quickly as possible. He is five years from receiving social security and a pension which will cover all of his expenses. He just needs to bridge the gap. His dear Aunt Sally has bequeathed him $320k, he has 5 years and $100k remaining on the mortgage (5%), and he has literally no savings (he's a new convert to MMM). Current expenses are $40k plus the mortgage payment. He is using CFIRESIM as his model; what asset allocation should he use to minimize his chance of having to take a job as a Walmart greeter in the next five years? (Spoiler: he doubles his risk of failure by not paying off the mortgage.)

Cfiresim is just a historical model to back test things the 4% swr was developed by the Trinity study using historical back testing. Cfiresim isn't a model it's just a way you can test a theory vs historical market data.

Can't have it both ways.

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #248 on: September 30, 2018, 09:46:43 AM »
Was that the fastest ban and un-ban in forum history?

He must have had some compromising pictures of the mods paying off their mortgages.  ;)

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Re: Paid-off mortgage people: How long did it take you to pay off the house?
« Reply #249 on: September 30, 2018, 10:25:39 AM »
I'd like to thank b42 (and others) for keeping this thread in check; you provide a valuable service to newcomers such as myself. The personal attacks were unnecessary, but holding the celebrators' feet to the fire seems absolutely appropriate, especially when the thread is in a forum section called "Share Your Badassity".  Instead of "Yay, I paid off my mortgage early!", I'd like to see "Yay, I paid off my mortgage early, and here are the reasons/math for why it made sense in my rare situation, because I realize the vast majority of the time paying off a mortgage early increases risk and delays FIRE, so I want to make sure any new people to this forum don't assume paying off a mortgage early is always an optimal choice!"

I just bought my first house 4 months ago, and unfortunately I discovered the world of FIRE after I had already put down enough to avoid PMI (face punch!), but fortunately, since then I've learned enough on this forum to scrap my plan of paying down my mortgage at lightning speed.

I'm glad that the celebrators' feel good about their decision, which is certainly closer to the "smart" end on the continuum of financial choices, but to frame it as "Badassity" without explaining why it's more badass than investing the extra money does a disservice.