Author Topic: DONT Payoff your Mortgage Club  (Read 127663 times)

mtnman125

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Re: DONT Payoff your Mortgage Club
« Reply #1000 on: December 14, 2018, 08:27:51 PM »
There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.

Iíll take a look for that calculator. New home is in a great town walking/biking distance to schools, groceries, and close family. So I anticipate being there long term. 

The 15yr would have house paid off when daughter is in high school, but lower payment of 30y gives flexibility for one or both of us to go part time work at some point.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1001 on: December 15, 2018, 02:06:34 AM »
Dag I messed up and paid off the mortgage today.  I blame MMM's accountant.  Granted, he's already FIRE'd.

https://wealthyaccountant.com/2018/09/24/paying-off-the-mortgage-vs-investing-the-difference/

Should I take out a HELOC and invest in the market?
Sorry, if we can't comment on that other thread, comments like yours are not welcome here. Take it to the proper thead. Unless you're joking. In which case, welcome to the world of the enlightened.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1002 on: December 15, 2018, 10:01:09 AM »
Our mortgage just got paid off.  Although, it happened, cause I already paid too much in.  Otherwise, it had just ran it's course,

It was paid off in 10 years. 

We just sold our other home.  Planning to invest it.  Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out.  Well, it happened.  Couldn't come at a better time, in our opinion.
Again, there's a thread for celebrating premature mortgage payoff and this is not it.

As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?

It seems unnecessarily antagonistic.

ACyclist

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Re: DONT Payoff your Mortgage Club
« Reply #1003 on: December 15, 2018, 10:13:41 AM »
Our mortgage just got paid off.  Although, it happened, cause I already paid too much in.  Otherwise, it had just ran it's course,

It was paid off in 10 years. 

We just sold our other home.  Planning to invest it.  Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out.  Well, it happened.  Couldn't come at a better time, in our opinion.
Again, there's a thread for celebrating premature mortgage payoff and this is not it.

As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?

It seems unnecessarily antagonistic.

Antagonistic.  I am so sorry, if it came off that way.  Not intended.  I followed his advice and am honestly looking for what the next step should be. 

I thought he was the author of the thread.  Just making conversation. 

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1004 on: December 15, 2018, 10:24:43 AM »
Our mortgage just got paid off.  Although, it happened, cause I already paid too much in.  Otherwise, it had just ran it's course,

It was paid off in 10 years. 

We just sold our other home.  Planning to invest it.  Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out.  Well, it happened.  Couldn't come at a better time, in our opinion.
Again, there's a thread for celebrating premature mortgage payoff and this is not it.

As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?

It seems unnecessarily antagonistic.

Antagonistic.  I am so sorry, if it came off that way.  Not intended.  I followed his advice and am honestly looking for what the next step should be. 

I thought he was the author of the thread.  Just making conversation.
He was, but has since been banned for multiple forum decorum violations.  For those of us who considered him an integral part of this forum it is sad to not have him around, regardless of whether we agreed with 100% of his postings.

I think Dicey's point is that this thread was created for those of us who choose not to pay off our mortgage.  There are lots (LOTS) of additional threads dedicated to discussing the pro's & con's of this approach.  Unfortunately it attracts some posters who want to congratulate themselves for doing the opposite of the thread's stated purpose.

ACyclist

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Re: DONT Payoff your Mortgage Club
« Reply #1005 on: December 15, 2018, 10:26:55 AM »
We rode ours to the end, after chatting with boarder

<exiting>

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1006 on: December 15, 2018, 10:36:03 AM »
Our mortgage just got paid off.  Although, it happened, cause I already paid too much in.  Otherwise, it had just ran it's course,

It was paid off in 10 years. 

We just sold our other home.  Planning to invest it.  Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out.  Well, it happened.  Couldn't come at a better time, in our opinion.
Again, there's a thread for celebrating premature mortgage payoff and this is not it.

As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?

It seems unnecessarily antagonistic.

Antagonistic.  I am so sorry, if it came off that way.  Not intended.  I followed his advice and am honestly looking for what the next step should be. 

I thought he was the author of the thread.  Just making conversation.
Just making conversation with someone who is banned? If you really want him to know, you can compose a message, pm it to me and I will forward it to him. Otherwise, please take this topic to the other thread(s).

And yes, boarder42 did start this thread, at my suggestion. Seems people who were blithely celebrating paying off their mortgages, often at the expense of better options like saving enough to get their full employer match, had no tolerance for the possibility that their decisions were potentially sub-optimal. The mods asked us to lay off so this thread was born.

Boarder42 also started another great motivational thread. As 2018 wraps up, I fervently hope he reaches his goal.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/1mm-networth-by-the-end-of-2018/

And @ACyclist, your comment is about to cross with mine. I'm not asking you to leave, just please stay on topic.

ACyclist

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Re: DONT Payoff your Mortgage Club
« Reply #1007 on: December 15, 2018, 10:51:40 AM »
I didn't know Boarder was banned.  That makes me sad.  I was in celebratory mode about selling off the rental.

Was waiting for him to reply to me thread in another place on the site.  LOL  We better get that removed. 

Sad.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1008 on: December 15, 2018, 10:57:06 AM »
I didn't know Boarder was banned.  That makes me sad.  I was in celebratory mode about selling off the rental.

Was waiting for him to reply to me thread in another place on the site.  LOL  We better get that removed. 

Sad.
Or you could let the mods know you'd like him back :-))

There's this thread, which he hopefully reads on occasion. https://forum.mrmoneymustache.com/off-topic/r-i-p-boarder42/150/

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #1009 on: December 15, 2018, 10:57:33 AM »
I'm also presuming that the first mortgage payoff person is trolling us. But for anyone else reading in the future to which it might be helpful: IMO fixed 30 year refinances are vastly superior to callable HELOCs for long term for stock market vs debt arbitrage.

And an on-topic question- unless something very expected happens in the next two weeks, 2018 has been a bust for me for buying property. I continue to doggedly check the numbers on all likely candidates I come across but nothing worked out this year. Simultaneously, while rates have dipped slightly the last month or so, overall they are still up ~1% over EOY 2017.

I just ran a quote at my favorite online lender, which gave me 5.255% APR in my target market. Against the total average stock market return of 10%, this still looks like a pretty good spread. But looking towards the future and presuming we will continue to see a regression to the mean, the choice becomes less clear. You know, I started with the previous then decided I was looking at this the wrong way. We say here all the time, 10% 10% 10% but really, what I'm interested in here as someone comparing 30yr fixed mortgage debt to the stock market, is rolling 30 year returns. Why should I look at average returns instead of rolling returns when I want an apples to apples comparison?

Taking a look at a chart of the rolling 30 year annual S&P returns here:


This chart makes me feel like chicken little for being uncomfortable with my potential 5.25% mortgage rate. There has never been a time in modern American history where the rolling 30 year average annual returns is less than a smidge under 8%.

And here is the chart of mortgage rates from the St Louis fed:


The data only goes back to the 70s but is still helpful. Note that the average rate is 8.08%.

What do you all think? What is the rate range where you would switch from long term minimum payments to lump sum payoff and why?

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1010 on: December 15, 2018, 12:13:10 PM »
Well, life happened and I disappeared for a while.  But now I'm back and with a mortgage bigger than ever! (Unfortunately)

We took an opportunity to move from our LCOL area to an area that we absolutely love... However, housing here is absolutely mind-blowingly stupid and I don't see it getting any better anytime soon.

Long story short... We moved and sold our house for 250k.  Relocated and bought a modest home that will fit us well for a long time, but at a price of around 650k.  We commuted a round trip time of 7-8 hours between the two of us for a while before we bought our house.  Now are combined round trip commute is about 2.5 hours.  Not the best commute but a hell of a lot better than before.  Other than the high costs, we absolutely love the home, location, and all the activities to do around here.  Our base incomes increased by about 20% so that should help to offset the housing costs a little.

Now for the fun stuff.... We now have a huge mortgage at a much higher interest rate of 4.75%.  I had to take a long hard look at our plan of attack when it comes to paying down versus investing but I came to the same conclusion as last time.  Max out retirement accounts and then hit the taxable brokerage accounts hard.  The pre-tax savings of retirement accounts is too good to pass up and I still feel the higher returns and flexibility of taxable investments works better for us than a guaranteed 4.75% return.

Savings will probably suffer as we get settled in, buy furniture, and get back to "normal", but we are on our way.

The good news is our income potential here is MUCH higher.  The transition took us from a 60% savings rate to an estimated 30% savings rate so we will see if that pays off in the next 5 years.

Glad to be back.  Time to stache.

A fun little update.... Moving to a better job market is definitely starting to pay off.

I just received an offer from another company for 20% higher base pay.  On top of that, the offer had RSU and Cash bonuses written into it for a total compensation increase of 40-50% depending on the cash bonus.

This means our total comp has had an estimated conservative increase of 45% between the two of us since moving from our LCOL area just over a year ago.  The best part is we have a pretty clear path to gain another 20-25% of base pay over the next 3 years which could put us back on a very quick path to FI regardless of our high mortgage.

It's been a rough ride but we are starting to see the light.

« Last Edit: December 15, 2018, 12:28:32 PM by FIreDrill »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1011 on: December 15, 2018, 12:19:47 PM »
Wow!

DreamFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1012 on: December 15, 2018, 01:21:33 PM »

But I live in a high COLA where $125k won't even buy you a garage.

You can get a decent house with an attached two car garage in a nice neighborhood in my area for $125,000.  Jump that up to about $160,000, and you have a lot of nice options.  A dreamhouse log house that I like on 9 acres of land nicely secluded by trees is $200,000.  It's too far of a drive for work and is not a practical choice for me, so the dream is cheap. lol  We get stuck with higher property taxes, though.

When I got my home loans around 16 and 25 years ago, not a cent of it was deductible because my standard deduction alone exceeded what I could have deducted otherwise at that time, despite the high mortgage rates at the time.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1013 on: December 17, 2018, 10:47:04 AM »
What do you all think? What is the rate range where you would switch from long term minimum payments to lump sum payoff and why?

First off, as most likely understand, there is no correct optimal answer to this question except in hindsight. The best we can do is study the past, and make the optimal choice based on those assumptions. And of course not everyone uses the same historical lens, which leads toward unique "right" answers for everyone. Now that that's out of the way....

The answer for me depends on investment timeframe.

If I am young, earning the big bucks, and early in my investment life (far from FI), I want to maximize expected returns. I'd probably tell my younger self to keep debt at up to around 10% to max out tax-deferred investments in equities, and maybe up to 5% for taxable accounts. The 10% would be my risk-taking attempt to maximize expected returns with the tax-deferred boost, while the 5% is lower than expected returns but understands the risk that if the economy tanks and the market tanks, I would still have to pay down that debt and might not have strong job prospects. For mortgage payments I might go slightly higher than 5% (maybe 7%), since it is a long-term debt instrument.

As I get closer to FI, the goal becomes less of maximizing returns to maximizing financial independence, and hence my risk tolerance decreases. I think it still makes sense to feed the fire with tax-deferred investments up to probably 8% or so (though by this time you really shouldn't have any debt anywhere near this high with the large taxable cash cushion), and for taxable I'd probably drop to 4% (my safe withdrawal rate). As for the mortgage, it would depend on the time remaining; the longer the remaining duration, the better chance of me holding onto a higher percentage rather than paying it off.

(The numbers might go up or down somewhat based on my feelings for current market and economy conditions.)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1014 on: December 23, 2018, 01:50:49 PM »
In a perfect world, I would be posting this elsewhere on this forum, but the mods have spoken, so here I am, sharing these golden eggs with the enlightened. At least it's good confirmation. Feel free to share it far and wide, if you find a place that seems appropriate and not inflammatory. After all, the people celebrating their payoffs don't want to hear from the Debbie Downers like us, lol.

I think this Motley Fool article is so useful, I'm copying the entire text here and the link.

https://www.yahoo.com/finance/news/why-shouldn-apos-t-pay-124500544.html


Why You Shouldn't Pay Off Your Mortgage Early, Even If You Can
 
Sending in a monthly mortgage payment can be a hassle and a headache. It's probably your largest monthly payment, and it likely takes a good chunk out of your budget.
 
If you're tired of the bank being a co-owner on your home and want to stop sending in those payments every month, you may be tempted to try to pay off your mortgage early by sending in extra payments. Unfortunately, while it seems like a smart financial move, doing so can actually be a bad idea. Here's why.

1. There's a big opportunity cost to paying off your mortgage early.

Every dollar you put toward paying off your mortgage early is a dollar you can't use for anything else, such as saving up an emergency fund.

If you have no emergency fund because you put your extra money toward an early mortgage payoff, a single financial disaster could force you to take out costly loans. Or, if your mortgage hasn't been paid off in full yet,  an emergency could lead to foreclosure on your house if it means can't pay the mortgage later. While you could tap into the equity in your home using a home equity loan or line of credit to cover emergencies, getting these loans can be costly, time-consuming and you aren't guaranteed to get it.

Another opportunity cost is losing the chance to invest in the stock market. If you put all your extra cash toward a mortgage payoff, you're losing the chance to earn higher returns and benefit from compound growth by investing in the stock market. It's reasonable to expect around a 7% to 8% return if you invest in the broader market. Meanwhile, your mortgage rate is probably below 4.5% and may be much lower, so at most, you're likely getting a 4.5% return on any money you prepay to your mortgage.

You're better off doing something with your money that will most likely earn you close to double the return you'd get from paying off your home loan ahead of schedule. There's no pressure saying you have to beat your mortgage payment schedule.

2. You'll miss out on tax breaks.

If you itemize your taxes by taking specific deductions instead of claiming the standard deduction, you can deduct interest paid on your mortgage.  When you deduct mortgage interest, this reduces your taxable income for the year, meaning you may pay a less percent of your income in taxes if you fall into a lower tax bracket.

 If you took out your mortgage before December 15, 2017, you're eligible to deduct the cost of mortgage interest you pay on up to $1 million in mortgage debt. If you took out your loan after, you can deduct mortgage interest on up to $750,000 of indebtedness.

You give up that tax break each year  after your mortgage is paid off. Plus, if you're using money to pay your mortgage that you otherwise could've invested in a 401(k) or IRA, you're also giving up a tax break each year you could've gotten for retirement savings. And you don't have to itemize to claim these tax breaks for retirement investments, which means you can claim them even if you take the standard deduction.

If you spend $5,500 prepaying your mortgage instead of putting it into an IRA, you could miss out on a $1,210 tax break just from this alone if you're in the 22% tax bracket since you wouldn't have to pay the 22% tax on the $5,500 in income you deducted.

3. Inflation offsets savings in interest

Despite the fact you can earn better returns by investing than by paying off your mortgage early, some people still prefer to prepay their mortgage. This may be because of an aversion to debt, or a belief it's better to get the guaranteed return that comes from mortgage prepayment, since there's no guarantee invested money will grow.

The problem is, you need to factor in inflation when deciding if this strategy makes sense. Due to inflation, your mortgage effectively becomes cheaper to pay over time since the value of your money erodes but your mortgage payment stays the same (assuming you have a fixed-rate loan). If you have a monthly payment of $1,500 today, in 25 years, the $1,500 you'll pay toward your mortgage would be the equivalent of around $942 of today's dollars -- assuming inflation of 2% annually.

Since your mortgage payment is continually getting cheaper over time, it seldom makes sense to prepay it. Don't forget that all the interest savings you net from paying off the mortgage early are also reduced by inflation, making this even less of a good deal over time. If you save around $80,000 in interest by paying off a $300,000 4.5% mortgage in 21.5 years instead of 30 years, you've actually saved less than $50,000 when accounting for the fact you don't benefit from the interest savings for more than two decades.

Consider investing instead of paying off your mortgage early

If you want to make the smartest choice for your money, putting it into the market and building a diversified portfolio is the way to go. Over time, you'll likely earn better returns on your money, you will benefit from years of tax breaks, and the costs of your monthly mortgage payment will fall thanks to inflation.


AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #1015 on: December 23, 2018, 07:33:02 PM »
With the standard deduction being so high, the tax breaks on mortgage interest is probably irrelevant to most people here.

"putting it into the market and building a diversified portfolio is the way to go."

So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.


I think the Motley Fool author has Captain Hindsight syndrome.  Though they do admit the stock market will "likely" have better returns....  Compared to your guaranteed return on your mortgage.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1016 on: December 24, 2018, 12:10:02 AM »
With the standard deduction being so high, the tax breaks on mortgage interest is probably irrelevant to most people here.

"putting it into the market and building a diversified portfolio is the way to go."

So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.


I think the Motley Fool author has Captain Hindsight syndrome.  Though they do admit the stock market will "likely" have better returns....  Compared to your guaranteed return on your mortgage.
Thanks for sharing your insights, @AlexMar.

Not quite sure how you concluded that the author's recommendation of a diversified portfolio means having all your money in the stock market. Diversified means, well, diversified.

And yes, yes, you have "met" someone who wishes she had a pre-December 15, 2017 mortgage. [Insert big sigh here.]

This article was deliberately posted on the "Don't..." thread. If you have another opinion, there's a more appropriate place for it. If we can't go there to discuss this concept, then sorry, you can't naysay it here. FWIW, no one is forcing anyone to do anything. Rather, we are open to learning all the angles so as to make the most informed decision possible. Because the goal is to reach FIRE as expediently as possible.

If you come, learn, and chose to do something different, that is your decision, but at least you will be fully informed, which is the Mustachian way. But you don't to get to stay here and attempt to dissuade others, you have to go to the other side. Kinda sucks, but that's what the mods asked us to do. We're abiding by their request and we will be mighty obliged if the folks with other opinions will kindly do the same.


nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1017 on: December 24, 2018, 10:02:49 AM »
Quote
So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.

Among the financially affluent, I think these people are more common than you realize. My parents like to joke that they are 40 years into their 30 year mortgage, nad they Ďonlyí have another 12 to go.  Refinancing a home to pull out equity is a rather common strategy - unfortunately itís gotten a bad rap lately when countless spends-pants consumers used the equity in their homes unintellegently, like for exotic vacations or installing a pool instead of increasing their wealth.  Ultimately thatís what refinancing is - transferring equity from one asset class into another.  In this case itís pulling it from a rather illiquid asset with an historically low rate of return into something else.  If that something else allows for something like increased contributions into oneís 401(k) itís likely a smart move.  If itís to buy a luxury SUV, thatís not so intelligent use of money.

Finally, a key reason why you donít hear a lot of people say ďgosh, i wish I had never paid down my houseĒ  or hear people talking about using tons of equity to throw it all into the market iis because these people never let it get to that point.  Theyíve realized they can carry a mortgage for decades, and allow inflation to eat away at their payments while bulking up the rest of their financial buckets. Itís been an intentional, gradual process where each month they chose saving and investing more over reducing manageable low-interest debt.  Some - like my parents - carry their mortgages deep into retirement, and by that point their Principle and Interest payments pale in comparison to Taxes and Insurance (which never go away).

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1018 on: December 24, 2018, 11:40:52 AM »
Quote
So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.

Among the financially affluent, I think these people are more common than you realize. My parents like to joke that they are 40 years into their 30 year mortgage, nad they Ďonlyí have another 12 to go.  Refinancing a home to pull out equity is a rather common strategy - unfortunately itís gotten a bad rap lately when countless spends-pants consumers used the equity in their homes unintellegently, like for exotic vacations or installing a pool instead of increasing their wealth.  Ultimately thatís what refinancing is - transferring equity from one asset class into another.  In this case itís pulling it from a rather illiquid asset with an historically low rate of return into something else.  If that something else allows for something like increased contributions into oneís 401(k) itís likely a smart move.  If itís to buy a luxury SUV, thatís not so intelligent use of money.

Finally, a key reason why you donít hear a lot of people say ďgosh, i wish I had never paid down my houseĒ  or hear people talking about using tons of equity to throw it all into the market iis because these people never let it get to that point.  Theyíve realized they can carry a mortgage for decades, and allow inflation to eat away at their payments while bulking up the rest of their financial buckets. Itís been an intentional, gradual process where each month they chose saving and investing more over reducing manageable low-interest debt.  Some - like my parents - carry their mortgages deep into retirement, and by that point their Principle and Interest payments pale in comparison to Taxes and Insurance (which never go away).
OMG - You've triggered a memory, nereo. I can hear (and see in my mind) exactly where we were standing in my parent's house when my dad was griping about how much their utility bills were. Even then, my smart-ass self told him he was lucky to be facing such a "big" problem. My taxes for a month were more than he paid in a year, and after 30+ years, they had no mortgage, so the utilities loomed large in comparison. It was a pretty funny conversation.

Which reminds me of another vignette, years later, with my mom. They had a new (paid-for) house in a Senior Community, a late model paid-cash-for Camry, no debt and a government pension, with incredible healthcare, plus SS for both. She was worrying about money, so I went through the finance dance with her and reviewed their numbers. I said, "You do realize that you have children who work full-time who don't earn this much?" She looked me straight in the eye and said, "Yes, but we can't go out and earn more." OMG, mom, you don't need to! In fact, after I backed out my HCOLA mortgage payment, they were netting more that I was. Scarcity mindset is real, especially for seniors.

Awesome that your parents set such a good example @nereo!

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1019 on: December 24, 2018, 12:33:12 PM »
So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.

With the recent market dip, we are seriously discussing a cashout refi to put more into the stock market and to reset to a 30 year fixed rate mortgage. Tentative trigger is 40% drop. Consider it "rebalancing asset classes" if you like.

Any good tips on lenders to shop? Have top Preferred Rewards status with BoA, which saves a bit on their closing costs.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1020 on: December 24, 2018, 01:10:14 PM »

I think the Motley Fool author has Captain Hindsight syndrome.  Though they do admit the stock market will "likely" have better returns....  Compared to your guaranteed return on your mortgage.

Imagine an investment where you don't see the returns for 10-20 years.   Oh, and the rate of return is only a point or so above the current inflation rate.  In you were trying to sell people on such an investment they would say you were barking mad.   

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1021 on: December 25, 2018, 04:32:07 PM »
In a perfect world, I would be posting this elsewhere on this forum, but the mods have spoken, so here I am, sharing these golden eggs with the enlightened. At least it's good confirmation. Feel free to share it far and wide, if you find a place that seems appropriate and not inflammatory. After all, the people celebrating their payoffs don't want to hear from the Debbie Downers like us, lol.

I'll be the Debbie Downer here, at least as far as #3 goes (others have touched on the few Mustachians qualifying for the mortgage deduction these days).

(Though I sense I might offend sensibilities here, this isn't a post telling people to pay off their mortgage. I just want everyone to have the right information to make the properly informed decision.)


3. Inflation offsets savings in interest

Despite the fact you can earn better returns by investing than by paying off your mortgage early, some people still prefer to prepay their mortgage. This may be because of an aversion to debt, or a belief it's better to get the guaranteed return that comes from mortgage prepayment, since there's no guarantee invested money will grow.

The problem is, you need to factor in inflation when deciding if this strategy makes sense. Due to inflation, your mortgage effectively becomes cheaper to pay over time since the value of your money erodes but your mortgage payment stays the same (assuming you have a fixed-rate loan). If you have a monthly payment of $1,500 today, in 25 years, the $1,500 you'll pay toward your mortgage would be the equivalent of around $942 of today's dollars -- assuming inflation of 2% annually.

Since your mortgage payment is continually getting cheaper over time, it seldom makes sense to prepay it. Don't forget that all the interest savings you net from paying off the mortgage early are also reduced by inflation, making this even less of a good deal over time. If you save around $80,000 in interest by paying off a $300,000 4.5% mortgage in 21.5 years instead of 30 years, you've actually saved less than $50,000 when accounting for the fact you don't benefit from the interest savings for more than two decades.


Inflation with regards to mortgages is a huge red herring for Mustachians. (Inflation may pay a role if you're living paycheck to paycheck, where the reduced inflation-adjusted mortgage payment may result in transitioning from high-cost debt to investment savings or to allow for more tax-deferred savings.) If you're already maxing all tax-advantaged accounts, inflation is irrelevant*.

A mortgage is a debt instrument. And it happens to be amortized, though it could have been structured as a percentage of the debt that covers interest and some of the principle (or in any other matter). This has nothing to do with inflation. In fact, a debt instrument could be structured to increase with some pre-calculated inflation rate (say, 2%), and still the amount you pay would be the same (whatever the interest rate is). In fact, from a long-term investment strategy, an inflation-adjusted amortization schedule would be the ideal approach since you can invest more money early in the accumulation phase (note that the time horizon here is relevant, not the inflation rate).

Generally speaking, inflation is irrelevant when comparing your investment and debt alternatives. If you have doubts, use a spreadsheet to compare paying off a mortgage (at say, 5%) with investing in a fixed income instrument at the same interest rate (feel free to use any inflation rate). The outcome will be identical.

I know I'm going to get blow-back on this, but I think this is one of the huge myths a lot of people cling to to not pay off their mortgage. If there is something I'm not properly considering, I'd love to be corrected otherwise.

*The obvious exception would be if you're considering investing in TIPS.

p.s. Merry Season of Family Gathering.

YttriumNitrate

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Re: DONT Payoff your Mortgage Club
« Reply #1022 on: December 25, 2018, 04:49:26 PM »
With interest rates continuing to rise, sometime in 2019 we could see risk-free FDIC insured savings accounts offering interest rates that are equivalent to the mortgage rates that many of us are paying. I'm looking forward to see how that changes the tone of the "should I pay off my mortgage" debate. I'm guessing the pay-off your mortgage camp will focus more on the emotional aspects of paying off debt.

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Re: DONT Payoff your Mortgage Club
« Reply #1023 on: December 25, 2018, 05:01:13 PM »
I think the case for not paying off your mortgage is about 20% stronger now than it was a couple of months ago.

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Re: DONT Payoff your Mortgage Club
« Reply #1024 on: December 25, 2018, 05:08:14 PM »
Hahaha!

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Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1025 on: December 25, 2018, 05:18:56 PM »
Hahaha!

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Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.

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Re: DONT Payoff your Mortgage Club
« Reply #1026 on: December 25, 2018, 07:47:58 PM »
Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
Inflation is completely relevant to whether one should pay off one's mortgage early, assuming a fixed rate mortgage.  The higher the inflation the less one should pay early.   Much better to pay off a fixed rate mortgage with highly inflated dollars.










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Re: DONT Payoff your Mortgage Club
« Reply #1027 on: December 25, 2018, 09:19:38 PM »
Hahaha!

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Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
See point 3 on post #1014 above.

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Re: DONT Payoff your Mortgage Club
« Reply #1028 on: December 26, 2018, 11:54:24 AM »
Hahaha!

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Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
See point 3 on post #1014 above.

To expand on that point...you assumed only 2% inflation.  The historical average is something like 3.5%.    So if inflation is something like average, your effective mortgage payment will be cut in half in just twenty years.   If inflation was say, 4.5%, then that $1,500 payment will be the equivalent of just $620.   

To put it another way, you are spending fully valued dollars today to save puny inflation-ravaged dollars in the future.   FWIW, from 1970 to 1999, inflation averaged 5.5%.   

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1029 on: December 26, 2018, 12:47:03 PM »
I understand how inflation affects buying power, but regardless of inflation, you are still and always being charged your interest rate on the remaining value of the mortgage. So you can factor in inflation, but you have to then compare this inflation-adjusted rate to all other inflation-adjusted options for where to put that money. For example, if you are looking at buying bonds (I know not everyone here believes they are a good investment), and they are paying 3%, does that make them a bad investment because they are probably not keeping up with inflation? The right answer would be: compared to what other investment?

Another way to look at this: Let's assume the government controls prices and has regulated 0% inflation, guaranteed for the next 30 years (you even have a crystal ball that confirms this is the case). How would that affect your investment strategy (to include paying off debt)?

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Re: DONT Payoff your Mortgage Club
« Reply #1030 on: December 26, 2018, 01:13:48 PM »
Another way to look at this: Let's assume the government controls prices and has regulated 0% inflation, guaranteed for the next 30 years (you even have a crystal ball that confirms this is the case). How would that affect your investment strategy (to include paying off debt)?
Can I have a unicorn in this magical scenario?

If not, could I also know what the returns will be on equities (and specific stocks preferably) during the same time frame?  I'm guessing no - because that's always 'unknowable', as are future inflation rates and future bond rates and unemployment rates and all the other various financial conditions. Which is kind of the point.  We can't know what the exact conditions will be over thirty year time periods, so we do the next best thing, we look at what has happened in the past, and we evaluate whether that's reasonable for the future. In which case I go with what is most likely, while doing what is practical to guard against what may be most detrimental.

Rufus.T.Firefly

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Re: DONT Payoff your Mortgage Club
« Reply #1031 on: December 27, 2018, 07:02:51 AM »
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.

Let's apply this to two scenarios. One in which there is 0% inflation for 30 years and one in which there is 4% inflation for 30 years and compare the differences in pre-paying a mortgage. You can run these numbers for yourself using a mortgage pre-payment calculator.

(I'm using 200K mortgage, 4% interest, 30 year loan, $1,000/month additional mortgage payment)

Scenario 1: inflation is 0% (making the real interest rate 4%) - By paying off the mortgage early, you will save $98,732

Scenario 2: inflation is 4% (making the real interest rate 0%) - By paying off the mortgage early, you will save $0

And if inflation is ever higher than your nominal interest rate, the bank is in fact paying YOU to hold the loan.

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Re: DONT Payoff your Mortgage Club
« Reply #1032 on: December 27, 2018, 08:07:25 AM »
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.


This is also why one must treat claims that "paying off your mortgage gives you a guaranteed X% return [with 'X' being the mortgage rate]" with a hefty dose of salt.  What you are getting is a nominal return, and the real return will be quite a bit less (and possibly negative).

The same logic is applied to market returns; annualized returns over the last 30 years has been 10%, but 'real' returns have averaged 7.2%.  We used real returns because we want to compare apples to apples (we want to equate spending power in 1987 to spending power in 2018). 
It makes no sense to use inflation adjusted numbers for market returns but not use inflation adjusted numbers for your mortgage payments.
« Last Edit: December 27, 2018, 02:25:18 PM by nereo »

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Re: DONT Payoff your Mortgage Club
« Reply #1033 on: December 27, 2018, 11:41:01 AM »
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).

And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1034 on: December 27, 2018, 03:55:50 PM »
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.

Let's apply this to two scenarios. One in which there is 0% inflation for 30 years and one in which there is 4% inflation for 30 years and compare the differences in pre-paying a mortgage. You can run these numbers for yourself using a mortgage pre-payment calculator.

(I'm using 200K mortgage, 4% interest, 30 year loan, $1,000/month additional mortgage payment)

Scenario 1: inflation is 0% (making the real interest rate 4%) - By paying off the mortgage early, you will save $98,732

Scenario 2: inflation is 4% (making the real interest rate 0%) - By paying off the mortgage early, you will save $0

And if inflation is ever higher than your nominal interest rate, the bank is in fact paying YOU to hold the loan.

Actually, you save the exact same amount of money in both scenarios. The purchasing power of that money is just going to decrease faster in Scenario 2.

Let's look at scenario 2 from the bank's perspective. They are getting 4% interest, and they expect 4% inflation. Yes, their purchasing power isn't going to increase at the end of the loan's term, so why would they make such a loan? Well, the answer is that they are making the optimal decision given the investment choices they have. What are they going to do, hold onto the cash? Are they going to burn it on a flashy new bank? (And of course they are getting leverage on their loans, so their profits tend to be higher than the return.)

Let's look at your "Scenario 3", where the bank is lending you money at 3%, and you know inflation is going to be 4%. Meanwhile, your best investment option is going to return 2%. Would you keep the loan since the bank is "in fact paying you to hold the loan"?

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1035 on: December 27, 2018, 04:01:58 PM »
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).

And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.

From what I've read, stock market real returns have little to no correlation with inflation.

https://pensionpartners.com/inflation-deflation-and-stock-market-returns/

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1036 on: December 27, 2018, 04:14:08 PM »
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.


This is also why one must treat claims that "paying off your mortgage gives you a guaranteed X% return [with 'X' being the mortgage rate]" with a hefty dose of salt.  What you are getting is a nominal return, and the real return will be quite a bit less (and possibly negative).

The same logic is applied to market returns; annualized returns over the last 30 years has been 10%, but 'real' returns have averaged 7.2%.  We used real returns because we want to compare apples to apples (we want to equate spending power in 1987 to spending power in 2018). 
It makes no sense to use inflation adjusted numbers for market returns but not use inflation adjusted numbers for your mortgage payments.

I disagree with your first paragraph. The return is guaranteed; it is the purchasing power that is not guaranteed.

Your second paragraph is spot on. You need to compare investments (which include debt payments) using the same inflation criteria (either adjusted or not adjusted). So if people say "hold your mortgage because inflation", by that logic they should also say "dump stocks because inflation". Because you want that dollar today, right? What if inflation was at double digits and forecasted stock returns were single digits; would you sell all your stock, because theoretically you're paying those companies to hold your money, right? (Or would gold start coming into the conversation?)

Yes, I know these are theoreticals, but the important thing is that investments are relative, and inflation shouldn't really be considered when comparing two different investment strategies since all investments are subject to inflation (except TIPS (and some say gold)).

Rufus.T.Firefly

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Re: DONT Payoff your Mortgage Club
« Reply #1037 on: December 27, 2018, 05:32:50 PM »
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.

Let's apply this to two scenarios. One in which there is 0% inflation for 30 years and one in which there is 4% inflation for 30 years and compare the differences in pre-paying a mortgage. You can run these numbers for yourself using a mortgage pre-payment calculator.

(I'm using 200K mortgage, 4% interest, 30 year loan, $1,000/month additional mortgage payment)

Scenario 1: inflation is 0% (making the real interest rate 4%) - By paying off the mortgage early, you will save $98,732

Scenario 2: inflation is 4% (making the real interest rate 0%) - By paying off the mortgage early, you will save $0

And if inflation is ever higher than your nominal interest rate, the bank is in fact paying YOU to hold the loan.
Actually, you save the exact same amount of money in both scenarios. The purchasing power of that money is just going to decrease faster in Scenario 2.

In nominal terms, you save the same amount of money. But in real terms, factoring in inflation, the amount saved is different. This is prior to considering any opportunity cost of investing the money.

I believe your examples have been too nebulous to understand because you were trying to evaluate both how inflation relates to mortgage pre-payment and how it relates to investments. Investments in stocks are not the same as fixed interest loan or bonds.

In the long-term, stocks act as excellent hedges against inflation because the revenue, expenses, and net profit of corporations will rise with the inflation and so will their subsequent dividends and valuations.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1038 on: December 27, 2018, 07:24:56 PM »

Your second paragraph is spot on. You need to compare investments (which include debt payments) using the same inflation criteria (either adjusted or not adjusted). So if people say "hold your mortgage because inflation", by that logic they should also say "dump stocks because inflation". Because you want that dollar today, right? What if inflation was at double digits and forecasted stock returns were single digits; would you sell all your stock, because theoretically you're paying those companies to hold your money, right? (Or would gold start coming into the conversation?)


I think you might be conflating two different arguments.  One involves inflation, one doesn't.  Over any long period of time (like say, the length of a typical mortgage), stocks have returned about 7% after inflation.  If you got a mortgage in the last few years, the mortgage rate is likely around 4%.   If the future is anything like the past, you can expect your return of paying down the mortgage after inflation to be around 0.5-1%.  Something like that.  Since ~7% is greater than about 1% the decision is pretty easy.   

Strictly speaking paying down the mortgage is not a return.   It is a future savings.   Nothing wrong with a future savings!  But many people don't realize they are paying a dollar now to save 75 cents or like even less in the future, and therefore tend to overestimate the benefits of paying down the mortgage. 

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Re: DONT Payoff your Mortgage Club
« Reply #1039 on: December 27, 2018, 09:31:14 PM »
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).

And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.
This hit the nail on the head. If you own or produce real goods, then by definition the value of your remaining mortgage will become relatively smaller because of inflation. If you own nothing and produce nothing, then it won't matter either way.

and inflation shouldn't really be considered when comparing two different investment strategies since all investments are subject to inflation (except TIPS (and some say gold)).
Honestly it doesn't really matter. Use real returns for both, or nominal returns for both, just don't mix them together.

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Re: DONT Payoff your Mortgage Club
« Reply #1040 on: December 27, 2018, 09:35:07 PM »
What is the rate range where you would switch from long term minimum payments to lump sum payoff and why?
I would pay off the mortgage as a lump sum if 1) its rate was greater than 1/PE10 + expected inflation, and 2) I had enough money (edit: in taxable accounts) to pay it off as a lump sum.

I would also pay it off as a lump sum if 1) its rate was higher than that of my bond allocation, and 2) my bond allocation was big enough to pay it off as a lump sum.
« Last Edit: December 27, 2018, 09:48:51 PM by Radagast »

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1041 on: December 28, 2018, 12:31:36 PM »
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1042 on: December 28, 2018, 02:32:27 PM »
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1043 on: December 28, 2018, 03:19:59 PM »
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1044 on: December 28, 2018, 03:33:14 PM »
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't.  Where's the logic in that?

AnswerIs42

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Re: DONT Payoff your Mortgage Club
« Reply #1045 on: December 28, 2018, 05:52:13 PM »
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't.  Where's the logic in that?
Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.

In theory, mortgage B would be better if you're investing the difference because your money would be invested for longer.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1046 on: December 28, 2018, 06:53:13 PM »
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't.  Where's the logic in that?
Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.

In theory, mortgage B would be better if you're investing the difference because your money would be invested for longer.
Yeah I don't get this at all.... Why would you ever want a mortgage that is adjustable and increases as inflation occurs over time.  Mortgage B make no sense.

If you are trying to demonstrate how inflation actually decreases a fixed rate mortgage over time then a good example would be below.  This assumes 2.6% inflation over a 30 year term.

YearPI Inflation Adjusted
20003000
20012922
20022846.028
20032772.031272
20042699.958459
20052629.759539
20062561.385791
20072494.78976
20082429.925227
20092366.747171
20102305.211744
20112245.276239
20122186.899057
20132130.039681
20142074.65865
20152020.717525
20161968.178869
20171917.006218
20181867.164057
20191818.617791
20201771.333729
20211725.279052
20221680.421796
20231636.73083
20241594.175828
20251552.727257
20261512.356348
20271473.035083
20281434.736171
20291397.43303


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nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1047 on: December 28, 2018, 07:50:13 PM »
Iíve never seen a mortgage structured this way.

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Re: DONT Payoff your Mortgage Club
« Reply #1048 on: December 29, 2018, 11:11:14 AM »
A: 12/28/2018 30 Year Treasury Bond Yield: 3.045%
B: 12/28/2018 30 Year Treasury Inflation Protected Bond Yield: 1.212%

I would love to see an explanation of why the A yield should be the same as the B yield.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1049 on: December 29, 2018, 06:41:29 PM »
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't.  Where's the logic in that?
Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.

In theory, mortgage B would be better if you're investing the difference because your money would be invested for longer.

Exactly. I and I hope most others on this board would love to see a mortgage amortized to increase with inflation (as long as the interest rate is the same).

Let's see if the google sheets attachment works, otherwise I'll summarize in another post. In addition to the monthly figure and statistics, I've also included a theoretical investment using leftover money ($500 per month total) to show that B is far superior to A.

The point of the whole exercise here is that an inflation-adjusted mortgage would be a good thing, assuming you are paying the same interest rate. But such a thing is not available, so we have to take the best option we have. That being said, when we are comparing the investment options for our money, unless stocks can be shown to be an inflation hedge (and the jury is out as mentioned in an earlier post), then all the talk about mortgages being an inflation hedge is irrelevant. What is relevant is expected returns, which for mortgages are essentially guaranteed but for stocks, well, we are aware of the risks and rewards.

p.s. A mortgage is an inflation hedge if you're comparing your living arrangements to renting.