Author Topic: DONT Payoff your Mortgage Club  (Read 25532 times)

SwedishMoustache

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Re: DONT Payoff your Mortgage Club
« Reply #100 on: March 05, 2017, 02:10:52 AM »
I'm in on this thread. Paying off my mortgage beyond the rate that swedish law requires would actually be a loss for me, given the average 4.36% Yield (4.78% YoC) that my dividend portfolio currently nets.

After much haggling, i've gotten my mortgage down to 1.19% using a local bank. The only way for me to get this lower, would be to have assets/cash of more than 500 000$ on the bank, after which i could get a 0.99% interest rate. Unfortunately, that is not the case.

Still, any penny spent on my mortgage right now is actually loss for me, since it could be spent on dividend stocks, increasing my net worth and yielding dividends.

I'll have to see if i fix it for 3-5 years. The current fixable rate for me is 1.87%, which is still good but...think i'll wait a bit :).

Lmoot

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Re: DONT Payoff your Mortgage Club
« Reply #101 on: March 06, 2017, 03:29:40 AM »
I have kind of gone back and forth on this myself. I prepaid my mortgage (5.375% rate on a rental property) but stopped after about $15k paid down. I only have about $40k left, which I could wipe out in less than 2 years and be mortgage free at 33. If I paid it off I would lower my DTI allowing me to more easily qualify for other investment properties, for cheaper. I don't make much (even with the rental income included) and so it doesn't take much debt to put me out of reach of the loans I would need to get this rolling.

Obviously I am investing in real estate because I am seeking to beat the market with rental properties. I currently only have retirement in stocks, which I contribute up to the employer max (since age 25), but never more, and some cash in a ROTH I do not currently contribute to.

For now I think I will hold off on paying off the mortgage on my one rental, and instead recast it as I believe that will reduce the monthly payment enough to give me a qualifying DTI. I plan on using the cash I would have used to pay it off, to purchase a second rental early next year. I do want to pay off property 1 before buying a 3rd property as it used to be my primary property, and I plan on making it my primary property again one day, and I don't want it to be at risk of foreclosure if something should happen. Since I don't have any stock investments that don't come with a penalty, I don't have an incentive to turn to my investments to pay my mortgage in a time of crisis; I would be paying a steep price to do that.

I do want to start investing in mutual, because I believe in a well-rounded portfolio (that is the main reason I don't want to automatically pour all of my money into stocks). I just want to first get over the hurdle of buying at least a second and 3rd property, so I can use the cashflow from them to run my real estate game, while I can use my earned income for investments. I highly expect someone to tell me I am doing it all wrong LOL.

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Re: DONT Payoff your Mortgage Club
« Reply #102 on: March 06, 2017, 06:00:21 AM »
I have kind of gone back and forth on this myself. I prepaid my mortgage (5.375% rate on a rental property) but stopped after about $15k paid down. I only have about $40k left, which I could wipe out in less than 2 years and be mortgage free at 33. If I paid it off I would lower my DTI allowing me to more easily qualify for other investment properties, for cheaper. I don't make much (even with the rental income included) and so it doesn't take much debt to put me out of reach of the loans I would need to get this rolling.

Obviously I am investing in real estate because I am seeking to beat the market with rental properties. I currently only have retirement in stocks, which I contribute up to the employer max (since age 25), but never more, and some cash in a ROTH I do not currently contribute to.

For now I think I will hold off on paying off the mortgage on my one rental, and instead recast it as I believe that will reduce the monthly payment enough to give me a qualifying DTI. I plan on using the cash I would have used to pay it off, to purchase a second rental early next year. I do want to pay off property 1 before buying a 3rd property as it used to be my primary property, and I plan on making it my primary property again one day, and I don't want it to be at risk of foreclosure if something should happen. Since I don't have any stock investments that don't come with a penalty, I don't have an incentive to turn to my investments to pay my mortgage in a time of crisis; I would be paying a steep price to do that.

I do want to start investing in mutual, because I believe in a well-rounded portfolio (that is the main reason I don't want to automatically pour all of my money into stocks). I just want to first get over the hurdle of buying at least a second and 3rd property, so I can use the cashflow from them to run my real estate game, while I can use my earned income for investments. I highly expect someone to tell me I am doing it all wrong LOL.

Depends of the real estate market prices vs rents in your area. Real estate can bring good cashflow and ROI due to leverage. On the other hand, this investment comes with downsides: high cost to buy/sell/maintain, not very liquid, not diversified, interest rates sensible. Here (where I live), it's a no-no (dumb investment) maybe you can own 1 rental and invest in stocks?
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Lmoot

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Re: DONT Payoff your Mortgage Club
« Reply #103 on: March 06, 2017, 06:53:11 AM »
 I am very lucky that when I purchased my first house it was in a highly rentable area. I purchased it as a primary property as a 20 something that wanted to be in the middle of it all, during the recession so I got it for a steal;plus I got the $8000 first time homebuyer tax credit. It was a stars aligning type of situation.

I want to continue to buy in the same area because I have had back to back (awesome) renters for this house and even people waiting for the current tenants to move out (the new tenants have only been there 2 weeks). It's close to employment and tourist attractions and most of my renters have been full time employees at jobs within short walking distance. However what has been a well kept secret coming into light, and a booming housing market here, plus inventory that had been purchased during the low, by investors only to be flipped and listed at over valued imo, prices, I fear being priced out by the time I am ready to buy next year. I couldn't afford my own home today. If I can't buy here, my plan is to buy student housing by the university.

powskier

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Re: DONT Payoff your Mortgage Club
« Reply #104 on: March 07, 2017, 12:45:59 AM »
13 years left of 230k @ 3% no PMI
and 13 years left on  an investment property 235k @ 5%.
The best part is that the investment property pays BOTH of these mortgages.

twistedfirestarter

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DONT Payoff your Mortgage Club
« Reply #105 on: March 07, 2017, 09:41:50 AM »
Hi all, my first post here, loving the community and wish I'd discovered this sooner.

I'd been proudly paying off my mortgage at a good rate before hearing about the MMM route to FI, now almost all my capital is tied up in the house.

I owe £30k on a ~£150k house. Currently on 1.9% interest rate.

I think I should probably remortgage and stick the money into some index linked funds (stocks and shares isa) but I'd like some reassurance. Please an you help me with the pros and cons.

Thanks in advance.
« Last Edit: March 07, 2017, 09:43:28 AM by clickhappy »

FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #106 on: March 07, 2017, 10:33:11 AM »
13 years left of 230k @ 3% no PMI
and 13 years left on  an investment property 235k @ 5%.
The best part is that the investment property pays BOTH of these mortgages.

Nice!  When did you purchase the investment property and for how much?  That's some awesome cash flow right there!

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Re: DONT Payoff your Mortgage Club
« Reply #107 on: March 07, 2017, 10:36:06 AM »
Hi all, my first post here, loving the community and wish I'd discovered this sooner.

I'd been proudly paying off my mortgage at a good rate before hearing about the MMM route to FI, now almost all my capital is tied up in the house.

I owe 30k on a ~150k house. Currently on 1.9% interest rate.

I think I should probably remortgage and stick the money into some index linked funds (stocks and shares isa) but I'd like some reassurance. Please an you help me with the pros and cons.

Thanks in advance.

Welcome!  Can you provide some more details on what rate you would be able to remortgage for and the term?  Would it be 120k at 1.9% adjusted after five years with a 30 year amortization?  Is it fixed or do you have the option for a 30 year fixed?

runewell

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Re: DONT Payoff your Mortgage Club
« Reply #108 on: March 07, 2017, 11:34:05 AM »
Hi all, my first post here, loving the community and wish I'd discovered this sooner.

I'd been proudly paying off my mortgage at a good rate before hearing about the MMM route to FI, now almost all my capital is tied up in the house.

I owe 30k on a ~150k house. Currently on 1.9% interest rate.

I think I should probably remortgage and stick the money into some index linked funds (stocks and shares isa) but I'd like some reassurance. Please an you help me with the pros and cons.

Thanks in advance.

I don't recommend having all my money tied up in a house.  Let's say you refinance to a nice round number like 100k.  The interest in year 1 will cost less than 1,900.  If the stock market goes up as little 5-10% you would make 5k-10k with the potential for further compounding.  Yes, it could also go down.  Perhaps you should put it in a Vanguard mutual fund that is a portion of bonds and a bit less in stocks for some stability.  You miss out on upside but don't get hit as much on the downside.

Go back and look at the 10-yr returns on ETF's and mutual funds out there.  It will include the 2007-08 recession as well as the nice recovery.  You will see that a 10-yr time frame under those circumstances was much preferable to a 2% return (even if it was a wild ride). 

Of course there are no guarantees, it could be all downhill from here.
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evensjw

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Re: DONT Payoff your Mortgage Club
« Reply #109 on: March 07, 2017, 08:11:02 PM »
I think I might be sold on this idea, but it's amazing how resilient my brain is being to cold hard math.  For so long I have believed in the mantra of paying off a mortgage.  Just think how much money I'll save in interest! 

I currently owe about $145,000 at 3.75%.  I'm putting an extra $300 towards principal each month, but after reading this thread I might just be persuaded to save that $300 instead.
I have 17 years left if I just pay the regular amount.  With the extra $300 I could be done in 12.
If my math is correct, if I save the $300 per month at 7%, in 17 years I will have $114000.  If I pay of the mortgage in 12 years then save what my mortgage payment was, plus the $300, I'll have $92000, so about $22000 different.
Plus more years with a likelihood of being able to itemize my taxes. 

More realistically, I would like to sell my house in about 10 years and downsize as step one in RE.  The difference between making the extra payment or not is either a mortgage balance of $(28000) or, a mortgage balance of $(71000) and savings of $50000.  Not making the extra payment will still leave me in a good place in terms of proceed from the sale for a smaller house, plus $7000 richer.






Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #110 on: March 07, 2017, 09:26:32 PM »
Hi all, my first post here, loving the community and wish I'd discovered this sooner.

I'd been proudly paying off my mortgage at a good rate before hearing about the MMM route to FI, now almost all my capital is tied up in the house.

I owe 30k on a ~150k house. Currently on 1.9% interest rate.

I think I should probably remortgage and stick the money into some index linked funds (stocks and shares isa) but I'd like some reassurance. Please an you help me with the pros and cons.

Thanks in advance.
Consider yourself reassured and welcomed, clickhappy!

If you can comfortably afford the payment and will be vigilant about saving and investing, I say go for it!

Be sure you have a healthy EF. If anything awful happens, knowing you can keep making payments will help.
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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #111 on: March 07, 2017, 09:30:03 PM »
I think I might be sold on this idea, but it's amazing how resilient my brain is being to cold hard math.  For so long I have believed in the mantra of paying off a mortgage.  Just think how much money I'll save in interest! 

I currently owe about $145,000 at 3.75%.  I'm putting an extra $300 towards principal each month, but after reading this thread I might just be persuaded to save that $300 instead.
I have 17 years left if I just pay the regular amount.  With the extra $300 I could be done in 12.
If my math is correct, if I save the $300 per month at 7%, in 17 years I will have $114000.  If I pay of the mortgage in 12 years then save what my mortgage payment was, plus the $300, I'll have $92000, so about $22000 different.
Plus more years with a likelihood of being able to itemize my taxes. 

More realistically, I would like to sell my house in about 10 years and downsize as step one in RE.  The difference between making the extra payment or not is either a mortgage balance of $(28000) or, a mortgage balance of $(71000) and savings of $50000.  Not making the extra payment will still leave me in a good place in terms of proceed from the sale for a smaller house, plus $7000 richer.
The missing piece I see is that you have not factored for inflation. The older your mortgage gets, the more inflation works in your favor. Makes the math even better.
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davisgang90

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Re: DONT Payoff your Mortgage Club
« Reply #112 on: March 08, 2017, 05:58:49 AM »
Thanks to all for the insights, especially Nords as I'm in the military pension category.

I'm currently renting in Northern VA.  We plan to buy a home in Roanoke VA after I retire next year.  Plan is to keep that mortgage and pay it off per schedule.  My pension will cover mortgage and all monthly expenses.  Plan to take 4% via Roth ladder for extra expenses, vacations etc.
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Nords

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Re: DONT Payoff your Mortgage Club
« Reply #113 on: March 11, 2017, 06:28:49 PM »
Thanks to all for the insights, especially Nords as I'm in the military pension category.

I'm currently renting in Northern VA.  We plan to buy a home in Roanoke VA after I retire next year.  Plan is to keep that mortgage and pay it off per schedule.  My pension will cover mortgage and all monthly expenses.  Plan to take 4% via Roth ladder for extra expenses, vacations etc.
We're in the middle of a refinance.  The mortgage processor is having a very difficult time understanding Roth IRA conversions.  She sees income on the tax return (because it's a taxable event) but she locks up over the idea that the money is just going from one asset account to another.  Luckily the criteria for a VA loan are considerably looser than an FHA mortgage so it might not matter, but I hope I don't have to explain to her how the Roth ladder works.

The processor also did not care about the DFAS income verification letter (for our pension) or the electronic Retiree Account Statement on myPay.  The only evidence she'd accept was two months of checking account statements showing the deposit (where I had to explain the difference between "pension" and "VA compensation") and two years of income-tax returns (with 1099-Rs).

I'm told that she has 14 years of experience.  I suspect it's mostly been on applications with debt, not so much with assets & income.
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bacchi

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Re: DONT Payoff your Mortgage Club
« Reply #114 on: March 20, 2017, 10:00:07 AM »
I am not paying down my 30 year 3.875% mortgage (28 years left). In fact, I've pulled out equity -- about $100k -- to invest.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #115 on: March 20, 2017, 10:06:19 AM »
I am not paying down my 30 year 3.875% mortgage (28 years left). In fact, I've pulled out equity -- about $100k -- to invest.

Thats the way to do it !!
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talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #116 on: March 21, 2017, 01:37:52 PM »
I'm not persuaded that actively moving new equity out for investment is optimal without more information. You might be able to convince the bank the property will appraise today, but can you convince a buyer of that price in 3 years when you change jobs?

Having a stable cash flow for servicing the debt helps, though.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #117 on: March 21, 2017, 03:28:51 PM »
I'm not persuaded that actively moving new equity out for investment is optimal without more information. You might be able to convince the bank the property will appraise today, but can you convince a buyer of that price in 3 years when you change jobs?

Having a stable cash flow for servicing the debt helps, though.

who cares if the house doesnt apprasie you money has been making you more money in the markets in most cases than depreciating in your house as you are indicating.  also pulling out 100k in equity doesnt mean the house appreciated it could have been paid down equity
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talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #118 on: March 22, 2017, 01:18:33 PM »
Don't you need the appraisal for the bank to let you do a cash-out refinance?

I agree that letting investment gains from stocks be rebalanced into additional principal when your house has gone down in value is nice, but that will ultimately reduce your mortgage balance, which is not the goal of people on this thread.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #119 on: March 22, 2017, 01:53:20 PM »
Don't you need the appraisal for the bank to let you do a cash-out refinance?

I agree that letting investment gains from stocks be rebalanced into additional principal when your house has gone down in value is nice, but that will ultimately reduce your mortgage balance, which is not the goal of people on this thread.

yes you need an appraisal but there are many low to no cost companies that will do REFI's i REFId at no cost to a 30 year at 3.25% in august.  i dont quite get your point.  pay 400 dollars for an appraisal to take 100k out.  100k earns say 3% more than the 4% interest loan in the market.  so you're making an extra 3k per year on the money for a fee of an appraisal. 
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twell1

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Re: DONT Payoff your Mortgage Club
« Reply #120 on: March 24, 2017, 08:59:58 AM »
I always figured it was better to keep the mortgage as opposed to paying it off based on the low interest rate,  2.25% tax affected, but wow!  I plugged in my numbers in the excel example mentioned earlier in the post and it produced a $74k savings from maintaining the mortgage.  I used to make extra payments through out the year.  Will immediately stop. 

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #121 on: March 24, 2017, 09:12:49 AM »
I always figured it was better to keep the mortgage as opposed to paying it off based on the low interest rate,  2.25% tax affected, but wow!  I plugged in my numbers in the excel example mentioned earlier in the post and it produced a $74k savings from maintaining the mortgage.  I used to make extra payments through out the year.  Will immediately stop.

congrats.  Yes its quite staggering when you look at it from a real numbers side.  all those who pay it down are leaving 10s if not 100s of thousands on the table. for nothing more than feelings.
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Nords

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Re: DONT Payoff your Mortgage Club
« Reply #122 on: March 24, 2017, 09:51:34 AM »
for nothing more than feelings.
I think those who are accustomed to making decisions based on logic & math will struggle to understand the emotions of behavioral financial psychology. 

It's much simpler to figure out which type of decision an investor is likely to make, to highlight the issue (for their self-awareness), and then to say "So if you're going to decide on that basis, then here's what will build your wealth while still helping you sleep better at night."

For example, people who have more money than they need (for whatever reason, including "for the rest of their lives") may choose to stop taking what they used to view as prudent risks. They're still leaving hundreds of thousands of dollars on the table "for nothing more than feelings" but they're much happier about it.  They already have "enough".  Why run up the score?  Why work so hard?

I know several people like this.  It usually involves military retirees (perhaps from senior ranks) with inflation-fighting pensions and cheap healthcare.  One of them, in particular, has the vast majority of their wealth in whole life insurance policies.  We come from very similar backgrounds so I can't simply explain it away by saying "Oh, just one of them emotional types..."
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Lmoot

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Re: DONT Payoff your Mortgage Club
« Reply #123 on: March 24, 2017, 12:57:16 PM »
 Emotions are strong, and they are valid. Motivation is a feeling. If someone is more motivated to put money towards their house than they are motivated to invest it, then they will likely earn more money by paying down their house. Obviously that case study is less likely in this crowd.

FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #124 on: March 24, 2017, 02:09:54 PM »
Emotions are strong, and they are valid. Motivation is a feeling. If someone is more motivated to put money towards their house than they are motivated to invest it, then they will likely earn more money by paying down their house. Obviously that case study is less likely in this crowd.

True, but what I find funny is much of what MMM teaches is directly involved with overcoming emotions in order to build a better life for yourself.  Like learning to overcome emotions that make you spend money on crap you don't need.  The whole philosophy of MMM is based around efficiently deploying your little green army so it grows as fast as possible.

It seems like a lot of the MMM community will bash people for making many decisions based on emotions, but as soon as it comes to pre-paying mortgages, well then emotions are totally valid.  And this decision can have a 200k swing in our 30 year time frame, kind of hypocritical IMO.

What they should really be doing is focusing on is overcoming or re-wiring their emotions to the rewards of what the numbers come out to over the long term.  That's what I did, and now investing motivates me more than anything else.  It wasn't always like that though....

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #125 on: March 28, 2017, 09:48:37 AM »
Correct Frozenbits

We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate.  this is pinching pennies while leaving thousands of dollars on the side lines.  Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings.  WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things. 

Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.
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Re: DONT Payoff your Mortgage Club
« Reply #126 on: March 28, 2017, 10:19:03 AM »
Correct Frozenbits

We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate.  this is pinching pennies while leaving thousands of dollars on the side lines.  Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings.  WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things. 

Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.

Good to read you boarder42!

What is you opinion about EF? Do you think it's a good idea to keep +/-3 months of living expenses or so in cash (or cash like assets) or just lives from cashflow?

I am 120% stocks, 90% of my available HELOC is used for investing but I still keep 10k$ siting stil in checking account wich is 1% of our NW...

I used to be a lot tigther than this, like 1-3k$ and dump the rest through investing account for the last 25 years
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FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #127 on: March 28, 2017, 10:45:59 AM »
Correct Frozenbits

We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate.  this is pinching pennies while leaving thousands of dollars on the side lines.  Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings.  WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things. 

Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.

Good to read you boarder42!

What is you opinion about EF? Do you think it's a good idea to keep +/-3 months of living expenses or so in cash (or cash like assets) or just lives from cashflow?

I am 120% stocks, 90% of my available HELOC is used for investing but I still keep 10k$ siting stil in checking account wich is 1% of our NW...

I used to be a lot tigther than this, like 1-3k$ and dump the rest through investing account for the last 25 years
I personally have a 10k emergency cash buffer as well.

Proving an all invested approach is better than an emergency fund can be hard.  Mostly because your investment timeline is much shorter in my opinion.  I am fairly confident that I will need to use that 10k in the next 5 years in order to fix or get through something.

Now 10k is about 2.5 months spending for us so it isn't a huge amount.  I think most married mustachians with dual income should have smaller emergency funds if they are saving 50% or more.  This is because that savings rate alone is a built in emergency fund.  One of you loses your job? No biggie, you still have your expenses covered 100%.

It's really going to be different for each couple or person.  But in general, I don't see an issue with having 2-6 months of expenses in cash.  I'm personally keeping the 2.5 months in cash and will begin building a larger after tax investment account to cover anything over that amount.

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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #128 on: March 28, 2017, 10:57:25 AM »
https://forum.mrmoneymustache.com/welcome-to-the-forum/why-do-you-do-and-pay-off-your-mortgage-early/

new thread.  for a slightly different topic. maybe we can win a few over.
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acroy

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Re: DONT Payoff your Mortgage Club
« Reply #129 on: March 28, 2017, 11:01:59 AM »
I like this thread :) It is Financial Badassity at it's finest!!

Home loans are heavily subsidized; so make the system work for you.

8 years into our 30yr 3.25% fixed $140k loan. Gonna ride it all the way out, long as we stay here.
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Re: DONT Payoff your Mortgage Club
« Reply #130 on: March 28, 2017, 11:05:15 AM »
on the EF front i dont have one.  We are in a low cost of living area with 2 very high incomes.  100k and 70k .  one salary can support both.  We are also well into saving and ahve over 30k in Taxable accounts and lots of roth contributions if push came to shove.  if large unexpected expenses come up here is how i handle them. - i'm actually doing this right now.  we had a miscarriage and have 3k in medical bills hitting so i am following below.  we have an HSA with plenty but would prefer to let it grow tax free

0. pay with credit card
1. halt taxable contributions - ~2k per month
2. halt roth contributions 1.1k per month - this was enough to meet the medical bills
3. halt 401k contributions - I'd probably actually do 4 here first to not need to do this
4. use Manufactured spending to create a buffer for a couple months to allow 1 and 2 to catch up to what is owed.
5. hit up taxable
6. if its really bad go to roth contributions

once you get all the way to 5 you should have been able to really assess what you need and develop a real plan moving forward.

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FireHiker

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Re: DONT Payoff your Mortgage Club
« Reply #131 on: March 28, 2017, 11:51:16 AM »
I came over here from your other thread. We are definitely in this club, although we may have the highest mortgage in the group so far...

We re-financed last August/September, 30 year fixed at 3.25%. We currently have $575k remaining on our mortgage. We don't plan to retire in place, and are currently sitting on $523k of home equity (according to zillow; seems pretty accurate based on recent comps). Rent for a comparable house would be at least $1000 more than we pay for our mortgage. I would LOVE to downsize to something much smaller, but given the rapid appreciation we saw in the first 2 years after buying (bought in 2012), the math doesn't make sense.

We will pay the minimum on this mortgage until we either do sell and downsize locally, or hit FIRE and cash out to a lower cost of living area where we ultimately want to live. Even my "worst" return on my 401K, the 10 year number, is 5.6%. Last year I think I had something ridiculous, 16%? There's no way we're paying the mortgage early.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #132 on: March 29, 2017, 05:55:19 AM »
Correct Frozenbits

We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate.  this is pinching pennies while leaving thousands of dollars on the side lines.  Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings.  WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things. 

Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.

I don't dis-agree.

BUT

You won't get your home taken away because your dryer line broke and you can't hang clothes (it's not a perfect analogy, I get it).

You WILL get your home taken away if you lose your job/income and can't pay the mortgage. Hence, there is an un-calculated value to paying your home off early and being debt free.

YES, you can still lose a paid off home if you can't pay the yearly taxes etc. BUT, that risk goes way down.

Your statement indicates that you are clearly aware that many people are not rationale (saving pennies yet, from your POV, losing a lot more due to failure to take advantage of an "advanced" way of thinking about money/mortgage etc.). What we have to remember is that just because we are rational about XXXX, the next person may BE thinking in a rational manner (if all I owe is my house, I have cash in savings, funding ALL other types of retirement accounts and STILL paying off my mortgage early for the purpose of being debt free) that may LOOK irrational to you yet still be completely rational. What I guess I'm saying is that don't judge what appears to be irrational behavior without knowing the underlying cause behind that behavior. We judge ourselves by our intentions, we judge others by there actions....

Case in point, all of the above being said and even with my intent to not focus on paying off my mortgage early, I still could not resist putting an extra hundred on the autopayment for last week while filling it out. A chance to take just 1200 a year off the principle and lower my low rate even further towards the idea of being 100% debt free, couldn't pass it up. I was acting fully rationally. I don't hang clothes on a line though, that will have to wait until I retire.....

Good discussion!

if you have the ability to pay your home off early that means you had the option to save and invest the money which has been discussed in depth here as being the far safer way ... if you're 40k away from paying off your home and you've been making extra payments the bank could give 2 flying F's if you start missing payments you lose it ... where as everyone else who has been investing has a much larger liquid buffer to ride out any storm.  This arguement is fundamentally flawed using emotion in place of logic. 

the way you're paying off your home puts you at much higher risk than someone investing just so you know. you THINK its safer but in reality its alot less safe. 
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Lmoot

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Re: DONT Payoff your Mortgage Club
« Reply #133 on: March 29, 2017, 05:59:44 AM »
You can recast for free or less than $200 to take advantage of pre-payments.

moonpalace

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Re: DONT Payoff your Mortgage Club
« Reply #134 on: March 29, 2017, 06:47:43 AM »
What are folks' thoughts on paying down a mortgage just enough to get out of PMI? I've got ~2.5 years left of PMI ($91/month) unless I pay down principal faster than minimum. Mortgage is 15-year fixed at 2.75%.

I've been inclined to just let it ride, max out pre-tax savings, and when there's a chunk of extra $ around, pay off some student loans (3.8%).

What's the calculation here? I'm worried that I've fallen into the trap of basically ignoring the PMI as "small" because it's part of the mortgage payment. But I would scrutinize the hell out of any other $91/month expense...

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #135 on: March 29, 2017, 07:06:12 AM »
What are folks' thoughts on paying down a mortgage just enough to get out of PMI? I've got ~2.5 years left of PMI ($91/month) unless I pay down principal faster than minimum. Mortgage is 15-year fixed at 2.75%.

I've been inclined to just let it ride, max out pre-tax savings, and when there's a chunk of extra $ around, pay off some student loans (3.8%).

What's the calculation here? I'm worried that I've fallen into the trap of basically ignoring the PMI as "small" because it's part of the mortgage payment. But I would scrutinize the hell out of any other $91/month expense...

whats the total loan balance.  and what percent of that is 1092.  likely if you just included it in your rate you'd still not pay it down faster.
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Bruizer

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Re: DONT Payoff your Mortgage Club
« Reply #136 on: March 29, 2017, 09:38:54 AM »
Correct Frozenbits

We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate.  this is pinching pennies while leaving thousands of dollars on the side lines.  Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings.  WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things. 

Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.

I don't dis-agree.

BUT

You won't get your home taken away because your dryer line broke and you can't hang clothes (it's not a perfect analogy, I get it).

You WILL get your home taken away if you lose your job/income and can't pay the mortgage. Hence, there is an un-calculated value to paying your home off early and being debt free.

YES, you can still lose a paid off home if you can't pay the yearly taxes etc. BUT, that risk goes way down.

Your statement indicates that you are clearly aware that many people are not rationale (saving pennies yet, from your POV, losing a lot more due to failure to take advantage of an "advanced" way of thinking about money/mortgage etc.). What we have to remember is that just because we are rational about XXXX, the next person may BE thinking in a rational manner (if all I owe is my house, I have cash in savings, funding ALL other types of retirement accounts and STILL paying off my mortgage early for the purpose of being debt free) that may LOOK irrational to you yet still be completely rational. What I guess I'm saying is that don't judge what appears to be irrational behavior without knowing the underlying cause behind that behavior. We judge ourselves by our intentions, we judge others by there actions....

Case in point, all of the above being said and even with my intent to not focus on paying off my mortgage early, I still could not resist putting an extra hundred on the autopayment for last week while filling it out. A chance to take just 1200 a year off the principle and lower my low rate even further towards the idea of being 100% debt free, couldn't pass it up. I was acting fully rationally. I don't hang clothes on a line though, that will have to wait until I retire.....

Good discussion!

if you have the ability to pay your home off early that means you had the option to save and invest the money which has been discussed in depth here as being the far safer way ... if you're 40k away from paying off your home and you've been making extra payments the bank could give 2 flying F's if you start missing payments you lose it ... where as everyone else who has been investing has a much larger liquid buffer to ride out any storm.  This arguement is fundamentally flawed using emotion in place of logic. 

the way you're paying off your home puts you at much higher risk than someone investing just so you know. you THINK its safer but in reality its alot less safe.

This argument would be valid if you had a guaranteed rate of return greater than your mortgage interest rate on your investment of the funds you don't use to prepay your mortgage, taking into account inflation and taxes.  Your investments are just that - there is a risk of gains and losses.  Who knows if over the next 15 years you would have come out ahead by prepaying your mortgage or investing the funds.  You need to quick calling this an emotional versus logic decision. Both sides have logic and emotion involved, and both have valid reasons.  I myself plan to keep my mortgage as long as possible, but if my financial situation changes, I may consider paying it off sooner.   


tyort1

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Re: DONT Payoff your Mortgage Club
« Reply #137 on: March 29, 2017, 09:47:54 AM »
The only way investing comes out worse than mortgage is if returns are less than 3.5% over the long term.  In that case doing the mortgage would be marginally better. 

From a risk standpoint, it's possible that will happen.  But based on history its not very likely.
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Bruizer

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Re: DONT Payoff your Mortgage Club
« Reply #138 on: March 29, 2017, 09:51:30 AM »
The only way investing comes out worse than mortgage is if returns are less than 3.5% over the long term.  In that case doing the mortgage would be marginally better. 

From a risk standpoint, it's possible that will happen.  But based on history its not very likely.

It depends how you define "long term".  The shorter your mortgage is, the higher the investment risk is over that term.


tyort1

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Re: DONT Payoff your Mortgage Club
« Reply #139 on: March 29, 2017, 10:16:28 AM »
The only way investing comes out worse than mortgage is if returns are less than 3.5% over the long term.  In that case doing the mortgage would be marginally better. 

From a risk standpoint, it's possible that will happen.  But based on history its not very likely.

It depends how you define "long term".  The shorter your mortgage is, the higher the investment risk is over that term.

Absolutely agree.  If I could pay off my mortgage in 3 to 5 years, I'd do that in order to reduce a monthly payment/bills.  In my case I owe $355k and that's going to be 15 years at least even if I did no other saving/investing.  So for me it makes more sense to dump everything into the market because of the time horizon. 
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moonpalace

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Re: DONT Payoff your Mortgage Club
« Reply #140 on: March 29, 2017, 11:19:15 AM »
whats the total loan balance.  and what percent of that is 1092.  likely if you just included it in your rate you'd still not pay it down faster.
Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.

Not sure I understand the "what percent of that is 1092" part of your question?

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #141 on: March 29, 2017, 11:28:55 AM »
whats the total loan balance.  and what percent of that is 1092.  likely if you just included it in your rate you'd still not pay it down faster.
Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.

Not sure I understand the "what percent of that is 1092" part of your question?

1092 is your total annual PMI cost which is .3% so no I wouldn't pay it down faster to save .3%
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RWD

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Re: DONT Payoff your Mortgage Club
« Reply #142 on: March 29, 2017, 11:29:49 AM »
Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.

At $91/month you're essentially paying [an additional] 3% on the first $36k. Your effective interest rate for the whole loan is 3.1% with PMI.

FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #143 on: March 29, 2017, 11:48:09 AM »
whats the total loan balance.  and what percent of that is 1092.  likely if you just included it in your rate you'd still not pay it down faster.
Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.

Not sure I understand the "what percent of that is 1092" part of your question?

1092 is your total annual PMI cost which is .3% so no I wouldn't pay it down faster to save .3%

So previously I have looked at PMI differently than what you reference.  Since PMI is basically a penalty for being over 80% LTV, I never ran the % calculations against the entire loan amount.  I would only run them against the amount that was ensuring I paid PMI.  So in this case it would be..

1092/36000=.03 or 3%

So the added interest rate on the portion of the loan that is requiring PMI is 3%.  Add that to the 2.75% mortgage rate and that 36000 part of the mortgage has an actually rate of 5.75%.

At this rate I would still advise maxing out all pre-tax accounts before even considering pay down to drop PMI.  After you max out pre-tax accounts it becomes a little more favorable since you would effectively be getting a 5.75% return over 2.5 years if you dropped 36k down to take off PMI.  Although that 36k would then be tied up in a non liquid asset returning 2.75% over the remainder of the mortgage.

I would still just invest the money in order to keep my stache more liquid in case of emergency and in order to have that 36k in an investment than could bring much higher returns after the first 2.5 years.  Idk, maybe I am over thinking the numbers in this particular scenario lol


boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #144 on: March 29, 2017, 12:10:58 PM »
whats the total loan balance.  and what percent of that is 1092.  likely if you just included it in your rate you'd still not pay it down faster.
Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.

Not sure I understand the "what percent of that is 1092" part of your question?

1092 is your total annual PMI cost which is .3% so no I wouldn't pay it down faster to save .3%

So previously I have looked at PMI differently than what you reference.  Since PMI is basically a penalty for being over 80% LTV, I never ran the % calculations against the entire loan amount.  I would only run them against the amount that was ensuring I paid PMI.  So in this case it would be..

1092/36000=.03 or 3%

So the added interest rate on the portion of the loan that is requiring PMI is 3%.  Add that to the 2.75% mortgage rate and that 36000 part of the mortgage has an actually rate of 5.75%.

At this rate I would still advise maxing out all pre-tax accounts before even considering pay down to drop PMI.  After you max out pre-tax accounts it becomes a little more favorable since you would effectively be getting a 5.75% return over 2.5 years if you dropped 36k down to take off PMI.  Although that 36k would then be tied up in a non liquid asset returning 2.75% over the remainder of the mortgage.

I would still just invest the money in order to keep my stache more liquid in case of emergency and in order to have that 36k in an investment than could bring much higher returns after the first 2.5 years.  Idk, maybe I am over thinking the numbers in this particular scenario lol

we both did math half correct.  RWD did it the fully correct way.  You have 5.75% interest on the 36k but the rest of the balance is at 2.75% averaging that out its really 3.1% making it still not worth paying down.
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moonpalace

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Re: DONT Payoff your Mortgage Club
« Reply #145 on: March 29, 2017, 12:14:00 PM »
So previously I have looked at PMI differently than what you reference.  Since PMI is basically a penalty for being over 80% LTV, I never ran the % calculations against the entire loan amount.  I would only run them against the amount that was ensuring I paid PMI.  So in this case it would be..

1092/36000=.03 or 3%

So the added interest rate on the portion of the loan that is requiring PMI is 3%.  Add that to the 2.75% mortgage rate and that 36000 part of the mortgage has an actually rate of 5.75%.

At this rate I would still advise maxing out all pre-tax accounts before even considering pay down to drop PMI.  After you max out pre-tax accounts it becomes a little more favorable since you would effectively be getting a 5.75% return over 2.5 years if you dropped 36k down to take off PMI.  Although that 36k would then be tied up in a non liquid asset returning 2.75% over the remainder of the mortgage.

I would still just invest the money in order to keep my stache more liquid in case of emergency and in order to have that 36k in an investment than could bring much higher returns after the first 2.5 years.  Idk, maybe I am over thinking the numbers in this particular scenario lol

Thanks! Glad that my no-math gut feeling was steering me right. And thanks, everyone else, for the replies! This forum never ceases to amaze me! :-)

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #146 on: March 29, 2017, 12:40:50 PM »
One thing to keep in mind is that if your PMI payment isn't reducing linearly with as you approach 80% LTV (i.e. such that it would be ~$0/month at 80% LTV) then the equation for whether it's worth paying down faster is constantly changing (in favor of trying to get rid of PMI). You may want to reevaluate in a year.

To help understand this, imagine that your PMI isn't being reduced at all as you pay down the mortgage balance. Imagine you're down to $250k and still paying $91/month in PMI. In that scenario the additional $5k to get rid of PMI would save you an effective ~22% interest rate.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #147 on: March 29, 2017, 12:42:40 PM »
Another "Should I pay down my mortgage just to get out of PMI" question.

Loan Information: $266,222.39 @ 3.125% with 29.5 years left.
P&I: $1,190.48
PMI: $42.64
80% LTV @ $255,270.80, 78% LTV @ $248,041.58

Your PMI is adding 4.67% interest for the amount remaining to get to 80% LTV. Or 2.81% more interest for the amount remaining to get to 78%.

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Re: DONT Payoff your Mortgage Club
« Reply #148 on: March 29, 2017, 05:55:27 PM »


boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #149 on: March 29, 2017, 07:11:06 PM »
Infromsea go debate this in my other thread you can literally argue the emotion fact on anything we face punch people for.

This is for people to see the light or to join in the fun of not paying it down. And to help people FiRE early
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