Author Topic: Paying Down Mortgage Agressively Failure  (Read 4419 times)

ChewBarker

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Paying Down Mortgage Agressively Failure
« on: November 13, 2017, 03:13:10 PM »
The intention was to pay an extra $4500 a month on the residential mortgage to knock it into touch in 2.5 years. I canít maintain this aggression so have reduced the extra payments to $3500 monthly which is costing me $2500 in interest and 6 months extra before its paid off. Better than 11 years paying interest to the bank anyway!

lexde

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Re: Paying Down Mortgage Agressively Failure
« Reply #1 on: November 13, 2017, 03:47:19 PM »
If you don’t mind me asking... What caused you to decide on $4500 to begin with? What caused you to be unable to meet that goal?

Still totally awesome!! Keep at it!


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ChewBarker

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Re: Paying Down Mortgage Agressively Failure
« Reply #2 on: November 13, 2017, 04:26:10 PM »
Thanks Lexde, Iíve only just started the extra payments and it appears Iím too tight on funds to keep going at this rate. I took a punt on $4500 extra because I thought I could afford it. But $3500 each month is more realistic.
« Last Edit: November 13, 2017, 05:26:27 PM by ChewBarker »

ACyclist

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Re: Paying Down Mortgage Agressively Failure
« Reply #3 on: November 13, 2017, 05:46:11 PM »
Good job.

BTW, your "failure"  is really better than most people's goals.

We will have paid ours off in 10 yrs.  We have 10 payments left.  I am doubling the payment every month these days.  I cuold just pay it off right now, but I want more liquidity.  We have taxes coming up, and that is going to hurt.

boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #4 on: November 13, 2017, 05:48:41 PM »
I was hoping to pop in here and find someone who had started paying down their mortgage and determined they had failed bc they were doing so.

Paying it down slower or not at all is likely more advantages.

So you're slowly making steps in the right direction.
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ChewBarker

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Re: Paying Down Mortgage Agressively Failure
« Reply #5 on: November 13, 2017, 07:51:15 PM »
I see your point boarder42 but my position is maybe a little different. I will retire in 4 years and have a good passive income from a commercial property and a superfund so the intention is to wipe out all debt quickly. We donít get tax advantages in New Zealand on residential property. Iíll be saving $50k by paying this mortgage down aggressively. However if you see holes in my argument, fire away. :-)

Eucalyptus

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Re: Paying Down Mortgage Agressively Failure
« Reply #6 on: November 13, 2017, 08:20:31 PM »
What interest rates do you get there across the ditch? My home loan is currently on 3.99%, its a variable loan. This is pretty low, historically, for Australia, just about everyone expects them to go up again at some point, so paying off your mortgage is relatively wise, vs US loans where they get amazing fixed rates well below 4% for 30 year terms...

ACyclist

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Re: Paying Down Mortgage Agressively Failure
« Reply #7 on: November 13, 2017, 08:27:16 PM »
Why would there de disdain for being debt free?

Carrying a mortgage into retirement seems foolish, so wouldn't you want to remove that debt?  Of course, this is assuming that you can max out your pretax retirement savings, invest in roth and a little extra.

We are aggressively paying ours down as well.  We have a rental, and that is paid off as well.  Peace of mind is a good thing. 

ChewBarker

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Re: Paying Down Mortgage Agressively Failure
« Reply #8 on: November 13, 2017, 08:47:40 PM »
Eucalyptus yeah Iíve got 4.79 floating, not quite as good as your 3.99 (very nice).
The Americans have a point with low rates fixed for 30 years but at some point ridding yourself of debt is a good thing, as you near retirement I think. I doubt rates will go up in the short/medium term as banks are squeezing the last out of over indebtedness of the Aussies and NZ suckers. Interesting to see how this pans out.

Goooo ACyclist, like how you think and what youíre doing.

dcamnc

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Re: Paying Down Mortgage Agressively Failure
« Reply #9 on: November 14, 2017, 02:33:14 AM »
Why would there de disdain for being debt free?

Carrying a mortgage into retirement seems foolish, so wouldn't you want to remove that debt?  Of course, this is assuming that you can max out your pretax retirement savings, invest in roth and a little extra.

We are aggressively paying ours down as well.  We have a rental, and that is paid off as well.  Peace of mind is a good thing.

There's a large crew here that dislikes the paying of mortgages early. They cite interest rate and inflation hedging math as the reasons not to. They have a point, the math usually works out in favor of not paying it off early, and investing the money instead. I paid mine off early as well.

boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #10 on: November 14, 2017, 03:35:56 AM »
Why would there de disdain for being debt free?

Carrying a mortgage into retirement seems foolish, so wouldn't you want to remove that debt?  Of course, this is assuming that you can max out your pretax retirement savings, invest in roth and a little extra.

We are aggressively paying ours down as well.  We have a rental, and that is paid off as well.  Peace of mind is a good thing.
So I used to think like you as well but that's why we come to these great forums. To learn

1. Paying down a low fixed mortgage over time creates more risk than lump sum paying it off so if you're going to do it don't pay it down over time. 

2. Keeping a mortgage in fire actually helps your chances of your money lasting the extent of fire.

3. Piece of mind about not having debt is one thing but in reality doing the math will show you the advantages of not paying down low fixed interest debt and investing the money. This works the same whether it's a primary residence or rental. 

4. You should evaluate your rental to make sure it's worth the investment. Most times when people talk of paying them down it's for cash flow with more often than not indicates a poor rental and money would be better off invested in a reit if you want real estate exposure.

My comments were more directed at the general Americans who may be viewing this and not understand vs the op bc they're from a country that doesn't have the insane low interest fixed debt the US graciously gives us and so few take true advantage of.
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MightyAl

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Re: Paying Down Mortgage Agressively Failure
« Reply #11 on: November 14, 2017, 05:21:17 AM »
Why would there de disdain for being debt free?

Carrying a mortgage into retirement seems foolish, so wouldn't you want to remove that debt?  Of course, this is assuming that you can max out your pretax retirement savings, invest in roth and a little extra.

We are aggressively paying ours down as well.  We have a rental, and that is paid off as well.  Peace of mind is a good thing.
So I used to think like you as well but that's why we come to these great forums. To learn

1. Paying down a low fixed mortgage over time creates more risk than lump sum paying it off so if you're going to do it don't pay it down over time. 

2. Keeping a mortgage in fire actually helps your chances of your money lasting the extent of fire.

3. Piece of mind about not having debt is one thing but in reality doing the math will show you the advantages of not paying down low fixed interest debt and investing the money. This works the same whether it's a primary residence or rental. 

4. You should evaluate your rental to make sure it's worth the investment. Most times when people talk of paying them down it's for cash flow with more often than not indicates a poor rental and money would be better off invested in a reit if you want real estate exposure.

My comments were more directed at the general Americans who may be viewing this and not understand vs the op bc they're from a country that doesn't have the insane low interest fixed debt the US graciously gives us and so few take true advantage of.

It also sounds like they don't get the interest deduction on their taxes in NZ so the mortgage debt is even less advantageous.

boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #12 on: November 14, 2017, 05:27:26 AM »
Why would there de disdain for being debt free?

Carrying a mortgage into retirement seems foolish, so wouldn't you want to remove that debt?  Of course, this is assuming that you can max out your pretax retirement savings, invest in roth and a little extra.

We are aggressively paying ours down as well.  We have a rental, and that is paid off as well.  Peace of mind is a good thing.
So I used to think like you as well but that's why we come to these great forums. To learn

1. Paying down a low fixed mortgage over time creates more risk than lump sum paying it off so if you're going to do it don't pay it down over time. 

2. Keeping a mortgage in fire actually helps your chances of your money lasting the extent of fire.

3. Piece of mind about not having debt is one thing but in reality doing the math will show you the advantages of not paying down low fixed interest debt and investing the money. This works the same whether it's a primary residence or rental. 

4. You should evaluate your rental to make sure it's worth the investment. Most times when people talk of paying them down it's for cash flow with more often than not indicates a poor rental and money would be better off invested in a reit if you want real estate exposure.

My comments were more directed at the general Americans who may be viewing this and not understand vs the op bc they're from a country that doesn't have the insane low interest fixed debt the US graciously gives us and so few take true advantage of.

It also sounds like they don't get the interest deduction on their taxes in NZ so the mortgage debt is even less advantageous.

in all likelihood thats going away in the states now if tax changes go through as planned.  but yes for those outside the US and our sub 4% fixed for 30 year mortgages the math and risks are different.  inside the US its pretty crazy to pay it down unless you can somehow get the math to work for you with healthcare subsidies or something of that nature.
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ChewBarker

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Re: Paying Down Mortgage Agressively Failure
« Reply #13 on: November 14, 2017, 11:58:58 AM »
Smart group just here, thanks for the discussion. It appears that presently if youíre American based paying down your mortgage aggressively is counter productive. If youíre in Aussie or New Zealand, in a different environment, paying down debt aggressively is the way to go.

GnomeErcy

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Re: Paying Down Mortgage Agressively Failure
« Reply #14 on: November 14, 2017, 03:12:27 PM »
Smart group just here, thanks for the discussion. It appears that presently if youíre American based paying down your mortgage aggressively is counter productive. If youíre in Aussie or New Zealand, in a different environment, paying down debt aggressively is the way to go.

All depends on your goals.

boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #15 on: November 14, 2017, 06:18:48 PM »
Smart group just here, thanks for the discussion. It appears that presently if youíre American based paying down your mortgage aggressively is counter productive. If youíre in Aussie or New Zealand, in a different environment, paying down debt aggressively is the way to go.

All depends on your goals.

On an early retirement site. The goal is to cut costs and maximize passive gains. Not paying a mortgage faster is the most efficient way to get to retirement be it on rental properties or personal residence.
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ChewBarker

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Re: Paying Down Mortgage Agressively Failure
« Reply #16 on: November 14, 2017, 07:34:31 PM »
Thatíll depend on the environment you live in. It appears more benefits are available in the states if you pay down over the long run, not so in other countries. Also from my personal standpoint Iíll be saving $50k by paying mortgage debt over 2.5 yrs vs 11yrs. Iím retiring in 4 years and generate $75k from passive income on a commercial property plus have a decent superfund. I think itís difficult to prove that all people in all environments benefit from paying down a mortgage slowly. For me the end goal is to have no overheads when I retire and a passive income of $100k. That goal is being realised.

boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #17 on: November 15, 2017, 03:57:53 AM »
Thatíll depend on the environment you live in. It appears more benefits are available in the states if you pay down over the long run, not so in other countries. Also from my personal standpoint Iíll be saving $50k by paying mortgage debt over 2.5 yrs vs 11yrs. Iím retiring in 4 years and generate $75k from passive income on a commercial property plus have a decent superfund. I think itís difficult to prove that all people in all environments benefit from paying down a mortgage slowly. For me the end goal is to have no overheads when I retire and a passive income of $100k. That goal is being realised.

This is a common fallacy in the calculation. Figuring out what your saving in interest with out calculating the opportunity cost of what the money could be doing invested.  Having a goal is one thing.  But truly understanding the costs and implications of a goal is another and your statement indicates strongly you haven't looked at the other side with an open mind.
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ACyclist

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Re: Paying Down Mortgage Agressively Failure
« Reply #18 on: November 15, 2017, 07:59:59 AM »
In my mind, I don't see a lot of benefit in owing people money.  The thoughts of having debt give me stress.  I try to avoid stress at all costs.

When the recession hit, my husband lost his job.  I worked to put him through nursing school and barely maintained owning a home and a rental, with debt.  Weathering a rainy day would have been much easier without that debt.  Plus, less stressful.  If I put more in the market and maintained debt, a downturn would stress me out tremendously.  That is the rub for me.

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Re: Paying Down Mortgage Agressively Failure
« Reply #19 on: November 15, 2017, 08:12:30 AM »
Thatíll depend on the environment you live in. It appears more benefits are available in the states if you pay down over the long run, not so in other countries. Also from my personal standpoint Iíll be saving $50k by paying mortgage debt over 2.5 yrs vs 11yrs. Iím retiring in 4 years and generate $75k from passive income on a commercial property plus have a decent superfund. I think itís difficult to prove that all people in all environments benefit from paying down a mortgage slowly. For me the end goal is to have no overheads when I retire and a passive income of $100k. That goal is being realised.

This is a common fallacy in the calculation. Figuring out what your saving in interest with out calculating the opportunity cost of what the money could be doing invested.  Having a goal is one thing.  But truly understanding the costs and implications of a goal is another and your statement indicates strongly you haven't looked at the other side with an open mind.

boarder's right here. Ok, so you'll save 50k on interest. How much would that money have earned in the market over the life of your mortgage, if you were investing rather than making extra payments?

Get out the calculator!

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boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #20 on: November 15, 2017, 08:17:13 AM »
In my mind, I don't see a lot of benefit in owing people money.  The thoughts of having debt give me stress.  I try to avoid stress at all costs.

When the recession hit, my husband lost his job.  I worked to put him through nursing school and barely maintained owning a home and a rental, with debt.  Weathering a rainy day would have been much easier without that debt.  Plus, less stressful.  If I put more in the market and maintained debt, a downturn would stress me out tremendously.  That is the rub for me.

paying down a house over time contradicts the exact thing you're trying to mitigate. 

person A has a mortgage and is slowly paying it down over 30 years and is investing an extra 1k per year in VTSAX

person B has a mortgage and is paying an extra 1k per year into the house

both people go thru your situation

Person A has more liquidable capital to sustain their lifestyle longer than person B.  even if the market crashed 30% the same time the job was lost ... if you do plan to pay off your house to mitigate the risk situation you're proposing it should be in one lump sum.  This diminishes sequence of return risk but increases the risk that your money will not sustain you over the course of FIRE. 

If your house is half paid off the bank doesnt care that you made all those extra payments you still owe them your monthly payment.  and person A will easily be able to sustain their life much longer than person B

So you're creating a higher stress situation with your strategy as well you're just not considering that side of it currently. 

If there were two situations in the future

1. your husband loses his job again - this time you owe 50k on your house and have to make monthly payments still

or

2. your husband loses his job again - you owe 100k on your house but have 30k(40% drop in your 50k you paid off) invested that you can liquidate to help maintain your lifestyle

which of these situation is more stressful?
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boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #21 on: November 15, 2017, 08:55:03 AM »
this is one of those topics that takes you a bit to wrap your brain around - it did for me- you have to unprogram "debt is bad" and understand some debt is good even great - like my 3.25%(basically inflation) mortgage for 30 years.

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ACyclist

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Re: Paying Down Mortgage Agressively Failure
« Reply #22 on: November 15, 2017, 09:23:45 AM »
Your numbers are making sense, but that mitigate the stress.  The stress that I feel over debt is real. 

I've paid extra over time.  It does make me feel happier to know that I will have zero debt, by my 50th birthday, which is next June.  Then, I will take that entire payment and put it in the market. 

My parents drilled into me to pay extra on credit.  It is very hard to step away from this mind set.  I'm going to try to pay a little less, but I can't bring myself to do the minimum.  ;)

boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #23 on: November 15, 2017, 10:39:32 AM »
well if you ever really break thru and get over that owing a bank mortgage debt is an incredibly useful tool at today's rates we've got a great club for that

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/400/?topicseen

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ketchup

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Re: Paying Down Mortgage Agressively Failure
« Reply #24 on: November 15, 2017, 11:51:57 AM »
At the very least, if you still decide it's not worth the "stress" (and I get that), at least realize how much that perception is costing you.  It's for you to decide if that's worth it.

Personally, I pay the minimum on my 3.625% fixed 30yr, and happily.  Even if I was very debt-averse, I wouldn't even think of paying extra unless I was, at a minimum, maxing all available tax-advantaged retirement accounts (401k/IRA/HSA).  Otherwise, at the very absolute minimum, I'm paying a "penalty" of my marginal tax bracket (all of which are much higher than 3.625%), not even including investment gains or compounding, both of which are substantial.

EDIT: Realized this is confusing.  What I mean is that if you're not maxing your tax-advantaged accounts, you're paying extra in taxes in order to pay your mortgage.  So every $1000 extra you pay on your mortgage and don't contribute to a retirement account instead really costs you $1000 + your marginal tax rate.  So for example, if you're in the 15% bracket, it costs you $1150 ($1000 plus $150 in taxes) to pay your mortgage down by an extra $1000.
« Last Edit: November 15, 2017, 11:56:17 AM by ketchup »

GnomeErcy

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Re: Paying Down Mortgage Agressively Failure
« Reply #25 on: November 15, 2017, 11:57:22 AM »
At the very least, if you still decide it's not worth the "stress" (and I get that), at least realize how much that perception is costing you.  It's for you to decide if that's worth it.

Personally, I pay the minimum on my 3.625% fixed 30yr, and happily.  Even if I was very debt-averse, I wouldn't even think of paying extra unless I was, at a minimum, maxing all available tax-advantaged retirement accounts (401k/IRA/HSA).  Otherwise, at the very absolute minimum, I'm paying a "penalty" of my marginal tax bracket (all of which are much higher than 3.625%), not even including investment gains or compounding, both of which are substantial.

That mortgage interest only matters if you itemize for more than the standard deduction, and then it's only valid on the amount above the standard deduction for which it'd make a difference.

I'm not saying it's an invalid argument, just that it's not as simple as saying that you're paying a penalty of your marginal tax bracket - because that's frequently not the case for people.

ketchup

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Re: Paying Down Mortgage Agressively Failure
« Reply #26 on: November 15, 2017, 11:59:08 AM »
At the very least, if you still decide it's not worth the "stress" (and I get that), at least realize how much that perception is costing you.  It's for you to decide if that's worth it.

Personally, I pay the minimum on my 3.625% fixed 30yr, and happily.  Even if I was very debt-averse, I wouldn't even think of paying extra unless I was, at a minimum, maxing all available tax-advantaged retirement accounts (401k/IRA/HSA).  Otherwise, at the very absolute minimum, I'm paying a "penalty" of my marginal tax bracket (all of which are much higher than 3.625%), not even including investment gains or compounding, both of which are substantial.

That mortgage interest only matters if you itemize for more than the standard deduction, and then it's only valid on the amount above the standard deduction for which it'd make a difference.

I'm not saying it's an invalid argument, just that it's not as simple as saying that you're paying a penalty of your marginal tax bracket - because that's frequently not the case for people.
I'm not talking about the interest deduction; that would be a separate savings.  I don't itemize so I don't even think about that.

I'm talking about being able to contribute less to tax-advantaged retirement accounts because you're paying down your mortgage instead.

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Re: Paying Down Mortgage Agressively Failure
« Reply #27 on: November 15, 2017, 12:00:54 PM »
The "wait, why do you have mortgages" section of this post addresses ACyclist's point as well. http://www.frugalwoods.com/2017/01/24/our-low-cost-no-fuss-diy-money-management-system/

The key concepts are of "opportunity cost" (ie, how much would I make in the market instead), liquidity (how easy is it to get your money back OUT of your house if you need it?), and that of an "inflationary hedge" (ie, your mortgage is REAL DOLLARS, not indexed to inflation, so if you keep a mortgage payment your living expenses are significantly shielded from hyperinflation scenarios, and esentially, your housing becomes much cheaper over time). As Gnome mentioned, the mortgage interest deduction tends to be way overstated in importance.
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ACyclist

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Re: Paying Down Mortgage Agressively Failure
« Reply #28 on: November 15, 2017, 12:17:09 PM »
At the very least, if you still decide it's not worth the "stress" (and I get that), at least realize how much that perception is costing you.  It's for you to decide if that's worth it.

Personally, I pay the minimum on my 3.625% fixed 30yr, and happily.  Even if I was very debt-averse, I wouldn't even think of paying extra unless I was, at a minimum, maxing all available tax-advantaged retirement accounts (401k/IRA/HSA).  Otherwise, at the very absolute minimum, I'm paying a "penalty" of my marginal tax bracket (all of which are much higher than 3.625%), not even including investment gains or compounding, both of which are substantial.

That mortgage interest only matters if you itemize for more than the standard deduction, and then it's only valid on the amount above the standard deduction for which it'd make a difference.

I'm not saying it's an invalid argument, just that it's not as simple as saying that you're paying a penalty of your marginal tax bracket - because that's frequently not the case for people.
I'm not talking about the interest deduction; that would be a separate savings.  I don't itemize so I don't even think about that.

I'm talking about being able to contribute less to tax-advantaged retirement accounts because you're paying down your mortgage instead.

We max out the pre-tax 18.5K, and roth to max allowable.  There is also monies saved on top of these amounts to our taxable trading fund.  This year, I turn 50, so my pre-tax goes up as well as the roth contribution. 

ketchup

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Re: Paying Down Mortgage Agressively Failure
« Reply #29 on: November 15, 2017, 12:22:48 PM »
At the very least, if you still decide it's not worth the "stress" (and I get that), at least realize how much that perception is costing you.  It's for you to decide if that's worth it.

Personally, I pay the minimum on my 3.625% fixed 30yr, and happily.  Even if I was very debt-averse, I wouldn't even think of paying extra unless I was, at a minimum, maxing all available tax-advantaged retirement accounts (401k/IRA/HSA).  Otherwise, at the very absolute minimum, I'm paying a "penalty" of my marginal tax bracket (all of which are much higher than 3.625%), not even including investment gains or compounding, both of which are substantial.

That mortgage interest only matters if you itemize for more than the standard deduction, and then it's only valid on the amount above the standard deduction for which it'd make a difference.

I'm not saying it's an invalid argument, just that it's not as simple as saying that you're paying a penalty of your marginal tax bracket - because that's frequently not the case for people.
I'm not talking about the interest deduction; that would be a separate savings.  I don't itemize so I don't even think about that.

I'm talking about being able to contribute less to tax-advantaged retirement accounts because you're paying down your mortgage instead.

We max out the pre-tax 18.5K, and roth to max allowable.  There is also monies saved on top of these amounts to our taxable trading fund.  This year, I turn 50, so my pre-tax goes up as well as the roth contribution.
And that's great.  Maxing all that would be, like I said, the minimum situation I would need to be in before even considering paying any extra on my mortgage.  That makes the decision a little less clear-but, but still in favor of keeping the mortgage.  You can likely accumulate assets that pay your mortgage for you faster than you can pay off your mortgage.  "Your money can work harder than you can." and all that.

boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #30 on: November 15, 2017, 02:21:22 PM »
At the very least, if you still decide it's not worth the "stress" (and I get that), at least realize how much that perception is costing you.  It's for you to decide if that's worth it.

Personally, I pay the minimum on my 3.625% fixed 30yr, and happily.  Even if I was very debt-averse, I wouldn't even think of paying extra unless I was, at a minimum, maxing all available tax-advantaged retirement accounts (401k/IRA/HSA).  Otherwise, at the very absolute minimum, I'm paying a "penalty" of my marginal tax bracket (all of which are much higher than 3.625%), not even including investment gains or compounding, both of which are substantial.

That mortgage interest only matters if you itemize for more than the standard deduction, and then it's only valid on the amount above the standard deduction for which it'd make a difference.

I'm not saying it's an invalid argument, just that it's not as simple as saying that you're paying a penalty of your marginal tax bracket - because that's frequently not the case for people.
I'm not talking about the interest deduction; that would be a separate savings.  I don't itemize so I don't even think about that.

I'm talking about being able to contribute less to tax-advantaged retirement accounts because you're paying down your mortgage instead.

We max out the pre-tax 18.5K, and roth to max allowable.  There is also monies saved on top of these amounts to our taxable trading fund.  This year, I turn 50, so my pre-tax goes up as well as the roth contribution.

maybe there is talk of eliminating that

IMO unless you can do math that makes sense to pay down a mortgage vs keep it - ala ACA subsidies or other tax advantages - then mortgages should be kept in perpetuity at these rates. if you're 50 and maxing those accounts still though you've likely oversaved
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ChewBarker

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Re: Paying Down Mortgage Agressively Failure
« Reply #31 on: November 17, 2017, 01:49:31 AM »
Many live outside America without the low interest rates fixed for 30 yrs. As Iíve mentioned before, the environment can be very different outside the states and what I mean by this is rates can be higher (and more volatile) for much shorter terms. Ive pulled out the calculator and for my situation, dropping debt works out financially and emotionally. $100k yearly passive income is the end result... if youíve done the figures and it agrees with your long term paying down of debt then thatís your call. Go for it!

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Re: Paying Down Mortgage Agressively Failure
« Reply #32 on: November 17, 2017, 05:58:25 AM »
this is one of those topics that takes you a bit to wrap your brain around - it did for me- you have to unprogram "debt is bad" and understand some debt is good even great - like my 3.25%(basically inflation) mortgage for 30 years.

You seem to have a very US centric view. OP is paying 4.79% VARIABLE and cannot access a mortgage like yours (or mine.) They don't have the luxury of the super-low rates in the US, nor the 30 year lock on the rates.

Some stagflation is NBD to someone with your mortgage. It would be killer in the OP's situation. Even "regular" high inflation would be rough.

The risks are very different.
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Re: Paying Down Mortgage Agressively Failure
« Reply #33 on: November 17, 2017, 07:29:40 AM »
this is one of those topics that takes you a bit to wrap your brain around - it did for me- you have to unprogram "debt is bad" and understand some debt is good even great - like my 3.25%(basically inflation) mortgage for 30 years.

You seem to have a very US centric view. OP is paying 4.79% VARIABLE and cannot access a mortgage like yours (or mine.) They don't have the luxury of the super-low rates in the US, nor the 30 year lock on the rates.

Some stagflation is NBD to someone with your mortgage. It would be killer in the OP's situation. Even "regular" high inflation would be rough.

The risks are very different.

I think (hope?) he shifted over to responding to ACyclist, who is US based. It seems evident to me that ChewBarker should be paying down his or her mortgage, given exactly the reasons you state.

Chew- hope my link and response upthread didn't come across as being to you at that point (I should have spelled that out more clearly). It seems like you've got your ducks in a row on this. Variable rates really change things!
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Re: Paying Down Mortgage Agressively Failure
« Reply #34 on: November 17, 2017, 07:55:51 AM »
this is one of those topics that takes you a bit to wrap your brain around - it did for me- you have to unprogram "debt is bad" and understand some debt is good even great - like my 3.25%(basically inflation) mortgage for 30 years.

You seem to have a very US centric view. OP is paying 4.79% VARIABLE and cannot access a mortgage like yours (or mine.) They don't have the luxury of the super-low rates in the US, nor the 30 year lock on the rates.

Some stagflation is NBD to someone with your mortgage. It would be killer in the OP's situation. Even "regular" high inflation would be rough.

The risks are very different.

I think (hope?) he shifted over to responding to ACyclist, who is US based. It seems evident to me that ChewBarker should be paying down his or her mortgage, given exactly the reasons you state.

Chew- hope my link and response upthread didn't come across as being to you at that point (I should have spelled that out more clearly). It seems like you've got your ducks in a row on this. Variable rates really change things!

Correct 90% of my responses were indicated towards Acyclist.  with the minor responses to Chewy of making some very poor statements that most people make with out doing a true analysis of the opportunity cost.  Out side of the US where mortgages are not fixed for 30 years your equation may be slightly different but the statement "i'm saving 50k in interest" is a terrbile statement made often by people who do not understand the true cost to save 50k.  this was followed by "after this is paid off i'll cash flow 100k" - which is another statement often made not completely understanding how everything actually works to produce income and what your cost to produce said income is.
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PizzaSteve

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Re: Paying Down Mortgage Agressively Failure
« Reply #35 on: November 17, 2017, 08:33:24 AM »
I would avoid trying to discuss this topic and refer to the discussions in prior threads where folks chose to argue ad nauseam. 

The fundamental issue to consider is whether the concept of interest rate and real estate holding risks have been properly priced. Real estate financed leverage as an arbitrage play is not a `free lunch`.

While I agree that leverage and arbitrage can be a wealth accellerators, I also applaud folks for chosing an asset allocation that makes the best sense for their risk tollerance.  Backtesting of markets may or may not suggest future returns will always grow.  Debt reduction has a guaranteed return.  Either way, saving is the key to FI.

Good job! 
« Last Edit: November 17, 2017, 08:37:08 AM by PizzaSteve »
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ChewBarker

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Re: Paying Down Mortgage Agressively Failure
« Reply #36 on: November 17, 2017, 12:26:02 PM »
Some very well formed ideas on this thread and I appreciate all opinions, even the ones with not so subtle digs on comments made :-). Iíve certainly opened the door to a wider understanding of the present argument, pay debt quickly vs hold debt. Iím in the lucky position of kicking back in a few years. My only real concern is how the next few years play out globally.

boarder42

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Re: Paying Down Mortgage Agressively Failure
« Reply #37 on: November 17, 2017, 12:34:52 PM »
Some very well formed ideas on this thread and I appreciate all opinions, even the ones with not so subtle digs on comments made :-). Iíve certainly opened the door to a wider understanding of the present argument, pay debt quickly vs hold debt. Iím in the lucky position of kicking back in a few years. My only real concern is how the next few years play out globally.
[/b]

market timing - dnt do this.
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Re: Paying Down Mortgage Agressively Failure
« Reply #38 on: November 19, 2017, 10:06:21 AM »
Iím retiring in 4 years and generate $75k from passive income on a commercial property plus havje a decent superfund.

What is a superfund?  In the U.S. it is a polluted old industrial site that the government is cleaning up.

dreams_and_discoveries

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Re: Paying Down Mortgage Agressively Failure
« Reply #39 on: November 19, 2017, 11:32:43 AM »
I like saying I'm mortgage neutral; I've got enough invested to pay off my mortgage, but at 1.5% there is no way I'm paying it off.

Given the pounds fall from grace my portfolio is up 16% in a year.


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Re: Paying Down Mortgage Agressively Failure
« Reply #40 on: November 19, 2017, 11:57:49 AM »
Your numbers are making sense, but that mitigate the stress.  The stress that I feel over debt is real. 

I've paid extra over time.  It does make me feel happier to know that I will have zero debt, by my 50th birthday, which is next June.  Then, I will take that entire payment and put it in the market. 

My parents drilled into me to pay extra on credit.  It is very hard to step away from this mind set.  I'm going to try to pay a little less, but I can't bring myself to do the minimum.  ;)
It's great that your parents taught you about finances. My parents did the same thing, but they knew nothing about investing and creating wealth. There's a world of difference between "credit" and secured debt on an appreciating asset. If you do not understand that concept, I beg you to take the time to learn. It can make a huge difference to your financial future. Also, drill yourself on the concept of the Time Value of Money,  or Compound Interest. What these tools can do for you is astounding.

My motto is "Do what you want, but first learn everything you can, so you know you're making the very best choice." All boarder42 and I, among a growing cadre of others, are asking you to do is open your mind and learn a little more before you act. If you don't understand what we're talking about, maybe that should be a hint. What's so difficult about doing a little more research before you act? Your future potential millionaire self will thank you.

You know what's even better than zero debt? More money to your name than you ever thought possible. Look at me, ma, I'm a feckin' multimillionaire
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ACyclist

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Re: Paying Down Mortgage Agressively Failure
« Reply #41 on: November 19, 2017, 12:16:50 PM »
Starting today we will pay the minimum and invest the rest.  We don't gain much at this point anyway.  Interest is $34 a month.  :)

The payment just went down drastically.   That will be extra trading account money.

Bracken_Joy

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Re: Paying Down Mortgage Agressively Failure
« Reply #42 on: November 19, 2017, 12:20:49 PM »
Starting today we will pay the minimum and invest the rest.  We don't gain much at this point anyway.  Interest is $34 a month.  :)

The payment just went down drastically.   That will be extra trading account money.

Wow! Well done. It can be hard to make big changes and get through the "cognitive dissonance" gauntlet to get there. Really impressed.
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ACyclist

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Re: Paying Down Mortgage Agressively Failure
« Reply #43 on: November 19, 2017, 12:27:48 PM »
Starting today we will pay the minimum and invest the rest.  We don't gain much at this point anyway.  Interest is $34 a month.  :)

The payment just went down drastically.   That will be extra trading account money.

Wow! Well done. It can be hard to make big changes and get through the "cognitive dissonance" gauntlet to get there. Really impressed.

Had to look that up.  :) 

Yes, cognitive dissonance. 

Wait till all the laughs in my case study.  <groan> 

Still trying to grasp it all.

Bracken_Joy

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Re: Paying Down Mortgage Agressively Failure
« Reply #44 on: November 19, 2017, 12:58:17 PM »
Starting today we will pay the minimum and invest the rest.  We don't gain much at this point anyway.  Interest is $34 a month.  :)

The payment just went down drastically.   That will be extra trading account money.

Wow! Well done. It can be hard to make big changes and get through the "cognitive dissonance" gauntlet to get there. Really impressed.

Had to look that up.  :) 

Yes, cognitive dissonance. 

Wait till all the laughs in my case study.  <groan> 

Still trying to grasp it all.

Cognitive dissonance is one of the most useful concepts I ever learned in college. Understanding it helps to identify it, and helps you process it better/faster. A useful concept, IMO.

Haha I'll make it over to your new case study soon, I saw it over there =P
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PizzaSteve

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Re: Paying Down Mortgage Agressively Failure
« Reply #45 on: November 20, 2017, 05:40:51 PM »
Iím retiring in 4 years and generate $75k from passive income on a commercial property plus havje a decent superfund.

What is a superfund?  In the U.S. it is a polluted old industrial site that the government is cleaning up.
Actually, Superfund is the money earmarked for cleanup projects that us taxpayers are using to clean the sites, as well as legislation that allows us to go after the assets of the original polluter.  It is a fund of money.  We did this so we could get started on cleanup work prior to the inevitable decades of legal battles that would have made groundwater and other speading just that much worse, as metal drums corroded or tanks leaked (my favorite sub fund was the LUST Trust (Leaking Undergeound Storage Tank Trust Fund).  The Superfund sites are just that, horrible poluted sites, so bad the govt has decided to fund cleanup right away, prior to working out all the legal liability messes and collecting from obligators.

This fund was a huge bi partisan success and wish people appretiated it more. It was a sort of environmental moon shot in terms of success and new technology spawned.
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Oil Patch Adams

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Re: Paying Down Mortgage Agressively Failure
« Reply #46 on: November 22, 2017, 07:51:59 AM »

I've got enough invested to pay off my mortgage
This makes me sleep well at night.

Slee_stack

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Re: Paying Down Mortgage Agressively Failure
« Reply #47 on: November 22, 2017, 11:26:59 AM »
At the very least, if you still decide it's not worth the "stress" (and I get that), at least realize how much that perception is costing you.  It's for you to decide if that's worth it.

Personally, I pay the minimum on my 3.625% fixed 30yr, and happily.  Even if I was very debt-averse, I wouldn't even think of paying extra unless I was, at a minimum, maxing all available tax-advantaged retirement accounts (401k/IRA/HSA).  Otherwise, at the very absolute minimum, I'm paying a "penalty" of my marginal tax bracket (all of which are much higher than 3.625%), not even including investment gains or compounding, both of which are substantial.

That mortgage interest only matters if you itemize for more than the standard deduction, and then it's only valid on the amount above the standard deduction for which it'd make a difference.

I'm not saying it's an invalid argument, just that it's not as simple as saying that you're paying a penalty of your marginal tax bracket - because that's frequently not the case for people.

As an FYI...even if you do use the Standard Deduction...mortgage interest does indeed matter on Investment (Rental) properties.  Admittedly, some people may not refer to investment property loans as 'mortgages'. 

Slee_stack

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Re: Paying Down Mortgage Agressively Failure
« Reply #48 on: November 22, 2017, 11:29:35 AM »
I was hoping to pop in here and find someone who had started paying down their mortgage and determined they had failed bc they were doing so.
I was hoping for exactly the same...but kind of knew it wouldn't be that :D

Dicey

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Re: Paying Down Mortgage Agressively Failure
« Reply #49 on: November 22, 2017, 12:27:12 PM »
I was hoping to pop in here and find someone who had started paying down their mortgage and determined they had failed bc they were doing so.
I was hoping for exactly the same...but kind of knew it wouldn't be that :D
One day...
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