Author Topic: DONT Payoff your Mortgage Club  (Read 159418 times)

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1100 on: January 15, 2019, 06:08:29 AM »

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

starbuck

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Re: DONT Payoff your Mortgage Club
« Reply #1101 on: January 15, 2019, 06:44:58 AM »
Let's see, Formerly known as something (FKaS) is a Federal Employee. 

FKaS decided to only put a bit over 20% down on her current residence in 2017 even though FKaS could have paid for the residence in cash.  FKaS is "essential" and continues to go to work even though FKaS is not getting a paycheck until whenever. 

FKaS has 7.3 years of current expenses (not cutting anything) in a taxable account or 3.5 years at a 50% reduction in the taxable account.  If FKaS had paid cash for a house she would have 5.5 years of current expenses - Mortgage or 2.75 years of expenses at a 50% reduction.

FKaS is not regretting choosing to have a mortgage even though FKaS is getting paid with an IOU.

Happily, this is the exact situation we are in too as a one-income household. Mr. Starbuck is also working during the shutdown but we invested the proceeds from our first house sale instead of paying cash for house #2 and have ample funds to pull from if needed. In fact, we are about to close on house #3 in a few weeks and will have another wonderful 30 year mortgage to our name.

protostache

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Re: DONT Payoff your Mortgage Club
« Reply #1102 on: January 15, 2019, 07:23:03 AM »

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

The only even slightly callable mortgage in the Us is a HELOC, and that’s not truly callable. The bank can reduce your credit line to the amount outstanding (and reduce it again every time you make a payment) if the value of your house falls below their equity requirement but as long as you keep making payments they can’t accelerate the outstanding loan.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1103 on: January 15, 2019, 07:33:11 AM »

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

Yes, in both situations (margin calls and foreclosure) you owe your collateral.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1104 on: January 15, 2019, 08:02:41 AM »

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

Yes, in both situations (margin calls and foreclosure) you owe your collateral.

This is not the same thing.
Here is an example to illustrate.  Let's say you take out a $200k, 30y note @ 4%.  Your monthly payments (PI) will be ~$950/month.

Your bank cannot decide that you must pay the entirety of the loan for any reason. The most you are obligated to pay is the $950/mo +TA.

What you seem to be discussing is what happens if you are delinquent on your loan, which is not the same thing.  Even here, up and until the property goes into foreclosure you can return to good standing by paying the owed payments plus applicable fees.  Again, this is not callable. Your 'net assets' have nothing to do with it, and the bank cannot decide that you suddenly have to pay the full value of the note even if you lose your job or if you raid your 401(k) or whatever.

If the property does go into foreclosure you are entitled to whatever equity remains from the sale after subtracting the remainder of what's owed plus selling costs.  So following this example, let's suppose that 18 years into your mortgage you would have $100k remaining, but you default on multiple payments.  The bank sells the property at 'fair market value' for $300k (because: appreciation).  After fees and penalties, etc. the bank would still owe you over $100k.  Since the bank is only interested in recouping their money, they will list it low enough for a quick sale and will not pay money to fix the place up, but there are laws against them dumping properties far below market value.

Alternatively, you can decide at any point to sell your home to a 3rd party, and the bank cannot prevent you from doing this or 'call' your mortgage due before it is sold.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #1105 on: January 15, 2019, 08:09:37 AM »
"Evil Leveraging" still wins in your example...  Yes debt incurs risk but trying to kill all the debt asap is actually riskier.  The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing.  One of these is a good decision, one of them is not.

I'm not arguing with you on that point. I'm arguing with your bold caps italicized comment up thread. Come to think of it, Market Timer was invested significantly in non callable debt (in addition to callable debt). His saving grace was that he was able to command significant income to pull himself out of the hole he was in.

So you admit that (all else being equal) carrying a mortgage is safer than paying extra cash into the house at warp speed...  Because thats what this thread is primarily about.  Its not about leveraging callable assets, its not about leveraging yourself "into richness", its not even about buying houses...  Its about the most efficient place to put your little green soldiers and what actual, real world risk those places present.

1. There is more risk in paying down your mortgage early than investing.**
2. There is very little reason to pay down a low-rate, fixed interest, long-term, non-callable, US-Based mortgage in real life-  Despite what others on this forum may espouse with " KILL ALL THE DEBT™ " mentality this actually puts one in a riskier position.
3. The bigger your mortgage, the lower your rate, and the higher your savings-  The better off you are NOT paying early.  Yet these are the same people paying off in 5 years so they can feel warm and squishy inside while not maxing out their 401ks...


**Caveat 1:  It may be slightly less risky to lump-sum pay off the mortgage as you no longer have that monthly expense.  You still lose out mathematically, but the risk becomes negligible as you cannot be foreclosed on (except for taxes...).
**Caveat 2:  It may be valid to pay off the mortgage immediately preceding FIRE to reduce sequence of return risk.  It doesn't completely eliminate it, but for those who plan on lean-FIRE then it is a valid consideration.  It is also a consideration to move to a lower cost of living area and pay cash for housing.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1106 on: January 15, 2019, 08:24:51 AM »

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

Yes, in both situations (margin calls and foreclosure) you owe your collateral.

This is not the same thing.
Here is an example to illustrate.  Let's say you take out a $200k, 30y note @ 4%.  Your monthly payments (PI) will be ~$950/month.

Your bank cannot decide that you must pay the entirety of the loan for any reason. The most you are obligated to pay is the $950/mo +TA.

What you seem to be discussing is what happens if you are delinquent on your loan, which is not the same thing.  Even here, up and until the property goes into foreclosure you can return to good standing by paying the owed payments plus applicable fees.  Again, this is not callable. Your 'net assets' have nothing to do with it, and the bank cannot decide that you suddenly have to pay the full value of the note even if you lose your job or if you raid your 401(k) or whatever.

If the property does go into foreclosure you are entitled to whatever equity remains from the sale after subtracting the remainder of what's owed plus selling costs.  So following this example, let's suppose that 18 years into your mortgage you would have $100k remaining, but you default on multiple payments.  The bank sells the property at 'fair market value' for $300k (because: appreciation).  After fees and penalties, etc. the bank would still owe you over $100k.  Since the bank is only interested in recouping their money, they will list it low enough for a quick sale and will not pay money to fix the place up, but there are laws against them dumping properties far below market value.

Alternatively, you can decide at any point to sell your home to a 3rd party, and the bank cannot prevent you from doing this or 'call' your mortgage due before it is sold.

I'm not saying there aren't differences. I'm saying there are similarities. Going back to talltexan's comment:

Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I understand and agree with talltexan's sentiments completely, though others only felt the need to point out the differences. His point is that early in your investment career (such as MarketTimer's), you should be taking some risk to build up market exposure (though MT's was borderline excessive), and you need to steel yourself to potential consequences to those risks. It doesn't matter whether his loan was callable (and there has been some disagreement whether margin calls classify as callable loans).

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1107 on: January 15, 2019, 08:49:52 AM »
"Evil Leveraging" still wins in your example...  Yes debt incurs risk but trying to kill all the debt asap is actually riskier.  The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing.  One of these is a good decision, one of them is not.

I'm not arguing with you on that point. I'm arguing with your bold caps italicized comment up thread. Come to think of it, Market Timer was invested significantly in non callable debt (in addition to callable debt). His saving grace was that he was able to command significant income to pull himself out of the hole he was in.

So you admit that (all else being equal) carrying a mortgage is safer than paying extra cash into the house at warp speed...  Because thats what this thread is primarily about.  Its not about leveraging callable assets, its not about leveraging yourself "into richness", its not even about buying houses...  Its about the most efficient place to put your little green soldiers and what actual, real world risk those places present.

1. There is more risk in paying down your mortgage early than investing.**
2. There is very little reason to pay down a low-rate, fixed interest, long-term, non-callable, US-Based mortgage in real life-  Despite what others on this forum may espouse with " KILL ALL THE DEBT™ " mentality this actually puts one in a riskier position.
3. The bigger your mortgage, the lower your rate, and the higher your savings-  The better off you are NOT paying early.  Yet these are the same people paying off in 5 years so they can feel warm and squishy inside while not maxing out their 401ks...


**Caveat 1:  It may be slightly less risky to lump-sum pay off the mortgage as you no longer have that monthly expense.  You still lose out mathematically, but the risk becomes negligible as you cannot be foreclosed on (except for taxes...).
**Caveat 2:  It may be valid to pay off the mortgage immediately preceding FIRE to reduce sequence of return risk.  It doesn't completely eliminate it, but for those who plan on lean-FIRE then it is a valid consideration.  It is also a consideration to move to a lower cost of living area and pay cash for housing.

Yes, I agree 99% with what you say. It has been the path I have used to become fairly close to FI (as defined by 25x bare-bones expenses). The only 1% I don't agree with is that the size of the mortgage and the savings rate shouldn't play that much of a role (outside of ensuring you have sufficient liquidity to cover the mortgage should the shit hit the fan with your income stream). Obviously interest rate on the mortgage is a big factor, and I would recommend using a sliding scale based on accumulated savings and mortgage interest rate to determine whether it might be financially prudent to pay off the mortgage (for example, if someone has no savings, I'd probably recommend investing in taxable over paying off a mortgage up to at least 8% interest rate (if not 10%); as someone gets close to FI, I'd recommend paying off the mortgage at a lower interest rate (perhaps as low as 4%) to improve the odds of securing FI (of course considering market valuations (hat tip to MT))).

I have much more in agreement than disagreement with most on this thread, but we should humbly acknowledge that most of us in some respect have been extremely lucky with stock returns over the last decade. Others might not realize the risk inherent in using leverage to invest, and I fear it may burn them (as it did to me in 2000, which turned me off from the stock market for almost a decade).

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1108 on: January 15, 2019, 08:51:48 AM »
I agree with TallTexan'scomments as well: It's not even a close comparison. Buying stocks on margin is not remotely comparable to holding a fixed-rate mortgage.  With a margin call you must either liquidate your holdings or provide more capital.  I see no similarities when holding a mortgage - you cannot be asked to pay more due to market fluctuations, changes in income, assets, or anything else.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1109 on: January 15, 2019, 09:06:01 AM »

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

Yes, in both situations (margin calls and foreclosure) you owe your collateral.
But not for no fucking reason at all - a crucial distinction. Which is why big 'stache, including EF, and a buffer, is exponentially better strategy than prepayment. Oops - i see nereo has this covered.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #1110 on: January 15, 2019, 09:19:13 AM »
Yes, I agree 99% with what you say. It has been the path I have used to become fairly close to FI (as defined by 25x bare-bones expenses). The only 1% I don't agree with is that the size of the mortgage and the savings rate shouldn't play that much of a role (outside of ensuring you have sufficient liquidity to cover the mortgage should the shit hit the fan with your income stream). Obviously interest rate on the mortgage is a big factor, and I would recommend using a sliding scale based on accumulated savings and mortgage interest rate to determine whether it might be financially prudent to pay off the mortgage (for example, if someone has no savings, I'd probably recommend investing in taxable over paying off a mortgage up to at least 8% interest rate (if not 10%); as someone gets close to FI, I'd recommend paying off the mortgage at a lower interest rate (perhaps as low as 4%) to improve the odds of securing FI (of course considering market valuations (hat tip to MT))).

I have much more in agreement than disagreement with most on this thread, but we should humbly acknowledge that most of us in some respect have been extremely lucky with stock returns over the last decade. Others might not realize the risk inherent in using leverage to invest, and I fear it may burn them (as it did to me in 2000, which turned me off from the stock market for almost a decade).

Understood.  The only reason I point out that big mortgages make a bigger difference is because of the compounding nature of the equation.

If you have two mortgages, one for 100k and one for 500k (assuming both persons have a income "equal" to their mortgage, and are not over-consuming), both at 3.5% interest, and both at 30 years fixed-  The bigger mortgage will save $3,687,696 vs $641,101 for the smaller mortgage.  The compounding effect starts off with bigger dollars, sooner, and makes a bigger difference for the larger mortgages.

Personally, I think we need to stop getting into such expensive housing, BUT, considering those decisions are already made, its about helping people most effectively place their dollars.  The difference can be years on a FIRE date.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1111 on: January 15, 2019, 09:28:25 AM »
I agree with TallTexan'scomments as well: It's not even a close comparison. Buying stocks on margin is not remotely comparable to holding a fixed-rate mortgage.  With a margin call you must either liquidate your holdings or provide more capital.  I see no similarities when holding a mortgage - you cannot be asked to pay more due to market fluctuations, changes in income, assets, or anything else.

Yes, it is about taking risks with money you don't have (in the form of leverage) to purchase equity. Now the risks aren't equal by any stretch, but they remain risks. Note that I've had a mortgage for many years, but have never invested using margin, which should be a clear indicator of my opinion for the disparity in the risks.

As far as the structural similarities, I feel like having to give up your home due to foreclosure as a liquidation of holdings to make the lender whole, and that the 20% down payment is similar to (though not the same as) margin maintenance (to ensure the lender doesn't lose their shirt).

Anyway, I feel this topic has been beat to death without any budging of opinions on either side, which is fine. In my mind we agree on everything except whether two investment strategies that use leverage have similar (though not identical and not equal) risks. If I understand correctly, your position is that the risks are so dissimilar as to be not even comparable, whereas I disagree with that assessment and consider the awareness of leverage very important for investors (even if it is low-risk).

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1112 on: January 15, 2019, 09:34:38 AM »
Yes, I agree 99% with what you say. It has been the path I have used to become fairly close to FI (as defined by 25x bare-bones expenses). The only 1% I don't agree with is that the size of the mortgage and the savings rate shouldn't play that much of a role (outside of ensuring you have sufficient liquidity to cover the mortgage should the shit hit the fan with your income stream). Obviously interest rate on the mortgage is a big factor, and I would recommend using a sliding scale based on accumulated savings and mortgage interest rate to determine whether it might be financially prudent to pay off the mortgage (for example, if someone has no savings, I'd probably recommend investing in taxable over paying off a mortgage up to at least 8% interest rate (if not 10%); as someone gets close to FI, I'd recommend paying off the mortgage at a lower interest rate (perhaps as low as 4%) to improve the odds of securing FI (of course considering market valuations (hat tip to MT))).

I have much more in agreement than disagreement with most on this thread, but we should humbly acknowledge that most of us in some respect have been extremely lucky with stock returns over the last decade. Others might not realize the risk inherent in using leverage to invest, and I fear it may burn them (as it did to me in 2000, which turned me off from the stock market for almost a decade).

Understood.  The only reason I point out that big mortgages make a bigger difference is because of the compounding nature of the equation.

If you have two mortgages, one for 100k and one for 500k (assuming both persons have a income "equal" to their mortgage, and are not over-consuming), both at 3.5% interest, and both at 30 years fixed-  The bigger mortgage will save $3,687,696 vs $641,101 for the smaller mortgage.  The compounding effect starts off with bigger dollars, sooner, and makes a bigger difference for the larger mortgages.

Personally, I think we need to stop getting into such expensive housing, BUT, considering those decisions are already made, its about helping people most effectively place their dollars.  The difference can be years on a FIRE date.

I see where you're coming from, and yes, you're right that savings rate makes a key contribution (I was looking at it more from investment horizon perspective, but they are clearly related). As to the size of the mortgage, I think it is important relative to savings rate (but otherwise unimportant).

And yes, housing is ridiculously expensive, but it is what people seem to be willing to spend money on (for a variety of reasons). To be honest, my house is probably face-punch worthy, but my wife enjoys it so I'm willing to work a few more years.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1113 on: January 15, 2019, 09:39:33 AM »
If I understand correctly, your position is that the risks are so dissimilar as to be not even comparable, whereas I disagree with that assessment and consider the awareness of leverage very important for investors (even if it is low-risk).

Yes, this is my position: Buying equities on margin is so dissimilar from a fixed-rate mortgage that comparisons between the two are largely meaningless. It seems that we are already in broad agreement but are unlikely to move any closer, so I'm fine leaving this where it is.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1114 on: January 15, 2019, 02:26:34 PM »
I didn't intend for my comments to provoke such discussion, but it seems as though arriving at a distinction between "consuming too much house for your income" and "taking on too much debt for your income" is valuable.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1115 on: January 15, 2019, 02:47:13 PM »
I think the discussion has all been in good faith, and hopefully others see it that way too.

jojoguy

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Re: DONT Payoff your Mortgage Club
« Reply #1116 on: January 15, 2019, 04:16:02 PM »
Well, I`ve definitely joined this club! Thanks @TexasRunner !

AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #1117 on: January 16, 2019, 05:55:57 AM »
And yes, housing is ridiculously expensive, but it is what people seem to be willing to spend money on (for a variety of reasons). To be honest, my house is probably face-punch worthy, but my wife enjoys it so I'm willing to work a few more years.

Sounds like me. Lol.  I would be totally fine in a smaller and (much) cheaper house.  Wife seems to like this one, but it's as far from mustachian as you can probably get!

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #1118 on: January 16, 2019, 08:00:44 AM »
Well, I`ve definitely joined this club! Thanks @TexasRunner !

👍

@jojoguy Glad to have helped you.  Now along the long and fruitful road to FIRE, once you have had years of compounding on your nearly-maxed out 401k, we can discuss payoff before FIRE...  Which would have been about 4 to 6 years later for you (by my math) had you gone the payoff route.

We do get into the weeds here, but to me it is always in good faith.  I'm just happy that those in this thread are ready and willing to look at the mathematical hard cost BEFORE making a life altering decision based on feelings. 



@Boofinator , I agree with you (in essence) that your point is that debt (any and all) increases risk.  I think you are completely correct.  If I were to choose the nomad life, living out of a VW beetle and travelling the county, I would incur much less risk than having a mortgage.  That being said, viewing the totality of the risk in each situation is the important part of the puzzle.  Someone with 18 months worth of emergency fund in CD's paying off a low rate mortgage is (IMO) extremely low risk.  However, someone who is paying off their mortgage ASAP and only has six months emergency fund-  AND that fund is 100% stocks, they are in a much riskier position.  (Not to mention, paying off the mortgage early without paying it off completely didn't help their risk level at all....  while assets would help reduce risk).  I would never advise someone with a 100k income to buy a 900k house and mortgage the shit out of it just to 'invest on leverage' because that is a financially AWFUL decision.  But, when there isn't a bigger underlying problem, I would tell someone with a nice ER fund, a 300k a year job, and a 900k mortgage at 3% to pay that sucker off as slow as possible because that is what makes sense in their specific situation. 

That was the whole problem with the "Pay Off The Mortgage Club"...  They never rarely ask for specifics to see if paying off the mortgage actually makes sense.  And they rarely determine if the house/mortgage was a good financial choice anyway.  To me, thats the underlying problem.  This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE.  Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.

Anyways, /offsoapbox.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1119 on: January 16, 2019, 09:03:47 AM »
That was the whole problem with the "Pay Off The Mortgage Club"...  They never rarely ask for specifics to see if paying off the mortgage actually makes sense.  And they rarely determine if the house/mortgage was a good financial choice anyway.  To me, thats the underlying problem.  This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE.  Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.

I agree except for the comment that paying off the mortgage is a shitty choice. It is highly likely in many cases to be a suboptimal choice given the constraints, but a shitty choice would have been using the money to buy (fill in inappropriate stereotypical consumer-sukka purchase here).

We have to keep in mind that different people have different tolerances for risk, and different knowledge backgrounds. But if their hearts on in the right place, let's accept their choice of investments as legitimate (and certainly a better option than a savings account). Besides, nobody knows what the future may hold, and there is a finite possibility that paying off the mortgage will turn out to be the optimal choice.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1120 on: January 16, 2019, 09:04:41 AM »

That was the whole problem with the "Pay Off The Mortgage Club"...  They never rarely ask for specifics to see if paying off the mortgage actually makes sense.  And they rarely determine if the house/mortgage was a good financial choice anyway.  To me, thats the underlying problem.  This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE.  Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.

This comment resonates with me.
Before one ever gets to the "pay off vs Don't pay off" the mortgage question, there's the even more important question "should I own this house" that all too often gets ignored. A home that is too big, too expensive, too inefficient or in the wrong place will have a much larger impact on a person's ability to FIRE (as well as their carbon footprint) than whether they carry a mortgage or kill it quickly.
Perspective.

Malkynn

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Re: DONT Payoff your Mortgage Club
« Reply #1121 on: January 19, 2019, 07:53:17 AM »

That was the whole problem with the "Pay Off The Mortgage Club"...  They never rarely ask for specifics to see if paying off the mortgage actually makes sense.  And they rarely determine if the house/mortgage was a good financial choice anyway.  To me, thats the underlying problem.  This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE.  Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.

This comment resonates with me.
Before one ever gets to the "pay off vs Don't pay off" the mortgage question, there's the even more important question "should I own this house" that all too often gets ignored. A home that is too big, too expensive, too inefficient or in the wrong place will have a much larger impact on a person's ability to FIRE (as well as their carbon footprint) than whether they carry a mortgage or kill it quickly.
Perspective.

I've also noted that a lot of people that I know who are in the "don't pay off your mortgage" club tend to also be people who have mortgages that aren't cumbersome, even though they're the ones who could pay it off the fastest.

The most ardent "pay off the mortgage" people in my life have very high monthly mortgage payments that make them uncomfortable and they feel more secure doing something to reduce their time to freedom from that uncomfortable cash-flow strain, even though building liquidity would be so much better to offset their cash-flow risk.

Obviously, there are many people who don't fit these two categories, but in my personal social circle, the correlation is very clear.

YttriumNitrate

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Re: DONT Payoff your Mortgage Club
« Reply #1122 on: January 19, 2019, 08:25:06 AM »
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1123 on: January 19, 2019, 08:50:59 AM »
Yeah, when I logged into Ally yesterday I noticed they had raised their savings account up to 2.20%. I'm starting to wonder if it will ever exceed my mortgage rate (3.125%). Seems plausible.

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #1124 on: January 19, 2019, 08:53:16 AM »
And on that day all the DPOYMC members will be like to all the haters.

« Last Edit: January 19, 2019, 09:35:08 AM by tralfamadorian »

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1125 on: January 19, 2019, 09:21:07 AM »
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1126 on: January 19, 2019, 09:32:03 AM »
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)
Knock it off, @Boofinator. You don't get to argue the other side, even sarcastically, on this thread. If the DPYMC folk aren't allowed to inject reason into the POYM thread, you can't spew that crap here. Even if you're only joking, which must be the case.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1127 on: January 19, 2019, 09:58:35 AM »
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap?
Like this, right?
https://i.imgur.com/vjC7JeI.mp4

If you keep trying to time the market eventually you'll be right. But with all your money tied up in your house equity I don't see how you would really take advantage anyway. Available cashflow? Whoop de doo you can put in an extra thousand or so per month but the market will recover before that amounts to anything significant.

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #1128 on: January 19, 2019, 10:12:49 AM »
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)

Hate on, Boof! The regression to the mean of interest rates is a pretty awesome thing that some hand waving around portfolio allocation isn't going to derail. BTW- and thanks for being my personal spell checker! What's the point of re-reading my messages when someone else will do the work for me ;)

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1129 on: January 19, 2019, 04:01:12 PM »
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)

Hate on, Boof! The regression to the mean of interest rates is a pretty awesome thing that some hand waving around portfolio allocation isn't going to derail. BTW- and thanks for being my personal spell checker! What's the point of re-reading my messages when someone else will do the work for me ;)

It's a little dig at B42's grammar (or lack thereof). It pains me to ever use "payoff" as a verb (which I must do when referencing this club).

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1130 on: January 19, 2019, 04:36:11 PM »
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)
Knock it off, @Boofinator. You don't get to argue the other side, even sarcastically, on this thread. If the DPYMC folk aren't allowed to inject reason into the POYM thread, you can't spew that crap here. Even if you're only joking, which must be the case.

I think if it was just reason then the DPYMC would not have been banned from posting on the POYM thread. Instead, it's reason suffused with smugness. A significant number of the posts here are ripping fellow forum members choosing a different path.

If bond yields rise above mortgage rates (plus applicable taxes), then it simply makes sense for those paying their mortgage to transfer their extra payments to bonds (in most cases, though there are some exceptions). It does not affect the strategy of members of this club in the slightest. Hence the smugness for even bringing it up here.

EDIT: Changed my wording to reflect reality per RWD's accurate comment below.
« Last Edit: January 20, 2019, 09:31:59 AM by Boofinator »

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1131 on: January 19, 2019, 06:53:12 PM »
I'd wager a vast majority of the posts here are ripping fellow forum members choosing a different path.
How much would you like to wager and what is your definition of "vast majority"?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1132 on: January 19, 2019, 08:15:01 PM »
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1133 on: January 19, 2019, 08:27:48 PM »
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
I don't think boof has a point...  I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.

On a good note... We bought our house in summer of 2018 when rates were higher but we just locked in a refinance rate of 4.375 down from 4.75.  No lender fees on the refi and enough lender credits that it will be a 0 cost refi other than us funding escrow.  Hoping the refi goes smoothly!



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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1134 on: January 19, 2019, 09:01:29 PM »
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
I don't think boof has a point...  I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.

On a good note... We bought our house in summer of 2018 when rates were higher but we just locked in a refinance rate of 4.375 down from 4.75.  No lender fees on the refi and enough lender credits that it will be a 0 cost refi other than us funding escrow.  Hoping the refi goes smoothly!
I noticed rates have been dropping. I think the flip house is at 4.75% too. We're not going to re-fi, but the downward drift of rates makes me hopeful that we can sell our house for more than the $1.1M the smaller house next door went for.

There used to be a thing called a "streamline re-fi", which I used successfully a couple of times in the olden days when the rates were higher. Basically, if you re-fi within a year of acquisition, you can lower your rate with minimal paperwork, fees and hassle. Sounds like what you're working on. I'd encourage anyone who bought in the same time frame to look into it. You literally have nothing to lose.

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #1135 on: January 19, 2019, 09:40:47 PM »
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1136 on: January 19, 2019, 10:08:33 PM »
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.
It's a Sixties-era tract home, 3+2, about 1800sf, and yes, they take BART into The City. Our house next door is 4+2.5 and about 2000sf. We're doing okay at sticking to our reno budget despite massive scope creep, and we're hoping to sell for the same price they paid. If the market dictates a higher price than that, we will be thrilled.

I have siblings in Folsom and Auburn, you don' a gotta remin' me how much more affordable things are in your neck of the woods. My sister's house is on five acres with a pond and a pool, my brother's is a little bit McMansion-y (biggest house, smallest lot) and on a golf course. The square footage of all three houses is roughly even. Our house (same city as the flip house) cost more than both of theirs combined. No pool, no acreage, no golf course.

I would like to preen a just little bit. My brother bought a foreclosure that was in pretty good shape, my sister bought a foreclosure that was completely vandalized by the previous owners, and we got ours on a short sale. But for a single glaring exception, who shall go further unremarked upon, we're a pretty frugal lot.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1137 on: January 20, 2019, 08:09:31 AM »
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.

Lived in Santa Cruz for years (the tech crowd has a saying: Work in San Jose/Mountainview/Cupertino, live in Santa Cruz).  Consequentially we have some of the most expensive home prices for a small town.  Looked at a 800 sqft 2 bedroom, 1 bath listed for $675k - it sold for almost $800k shortly after being listed. Absolutely nothign special about it, other than it was in Santa Cruz. Over 60% of our spending went to housing costs while living there, and we had a roomate in our 2 bedroom in the hills.
To prevent the town from expanding rapidly (and swamping the utility infrastructure) the town has curtailed new construction for decades.  Prop 13 has kept property taxes obscenely low for families that have lived there since the 1970s, but has locked them into their current home.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1138 on: January 20, 2019, 09:20:46 AM »
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap?
Like this, right?
https://i.imgur.com/vjC7JeI.mp4

If you keep trying to time the market eventually you'll be right. But with all your money tied up in your house equity I don't see how you would really take advantage anyway. Available cashflow? Whoop de doo you can put in an extra thousand or so per month but the market will recover before that amounts to anything significant.

You are correct, I believe market timing tied to valuations is a healthy activity. (Note that by market timing, I'm not speaking in the vein of Jesse Livermore (sell everything and short using leverage), but more of the techniques called out by Bogle or Buffett for the allocation of new money.) I wish I had the time right now to do a bit more research for the forum on the current level of expectations based on historical returns given current valuations (to show whether the whoop de doo really amounts to anything significant given my mortgage interest rate), but unfortunately I have garage shelves to build at the moment.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1139 on: January 20, 2019, 09:23:44 AM »
I'd wager a vast majority of the posts here are ripping fellow forum members choosing a different path.
How much would you like to wager and what is your definition of "vast majority"?

Poor choice of words on my part, apologies.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1140 on: January 20, 2019, 09:27:24 AM »
I don't think boof has a point...  I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.

Do you understand that the 4% rule that most of us rely on is based on "what if" scenarios? Like, what if the worst happens, will we make it through our retirement?

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1141 on: January 20, 2019, 10:54:30 AM »


I don't think boof has a point...  I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.

Do you understand that the 4% rule that most of us rely on is based on "what if" scenarios? Like, what if the worst happens, will we make it through our retirement?

Lol....

Yes, I understand the 4% rule....  Although I'm planning on using a 5% rule that will reset each year in order to take advantage of bull runs and also protect myself from sequence of returns risks during bear markets.

I was more talking about the crazy mortgage structures brought up earlier that arnt offered and will most likely never be offered.  Essentially what if scenarios that have never happened before.  Preparing for those is just a waste of time in my opinion and is mostly brought on by fear more than anything else.  Like prepping for the end of the world.

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nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1142 on: January 20, 2019, 11:25:40 AM »
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1143 on: January 20, 2019, 01:45:21 PM »
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.
Yep.....

It's essentially emotional based investing.

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englishteacheralex

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Re: DONT Payoff your Mortgage Club
« Reply #1144 on: January 20, 2019, 04:19:37 PM »
Well, it took us three years but we finally joined this club. We went from putting an additional $800/month on the principal to putting $200/month extra on the principal, and next month we will be down to zero extra. We'll be putting the $200/month into my Roth IRA VTSX admiral shares instead. The $600 got sucked into the additional daycare bill when we added our second child to the mix. But none of it is going to lifestyle inflation.

In case anybody is curious--it's a 30 year, fixed rate 3.75% mortgage. We're at $296k so far. The original mortgage was for $327k. Y'all talked us into seeing the mortgage in a different way.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1145 on: January 20, 2019, 04:54:30 PM »


Well, it took us three years but we finally joined this club. We went from putting an additional $800/month on the principal to putting $200/month extra on the principal, and next month we will be down to zero extra. We'll be putting the $200/month into my Roth IRA VTSX admiral shares instead. The $600 got sucked into the additional daycare bill when we added our second child to the mix. But none of it is going to lifestyle inflation.

In case anybody is curious--it's a 30 year, fixed rate 3.75% mortgage. We're at $296k so far. The original mortgage was for $327k. Y'all talked us into seeing the mortgage in a different way.

Welcome!

That is a KILLER rate!

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Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1146 on: January 20, 2019, 10:58:49 PM »
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.

I've told this story before (maybe in this thread, I can't remember) but it is well worth repeating when the subject of risk comes up.  A dear friend is an MD.  I wouldn't say she's mustaschian, but she's frugal and hates debt.  When she got done with med school, she stayed in her student apartment and crushed her student loans.   She bought nice cars, but not fancy cars and mostly saved and invested.  I will say that I've observed that most doctors are pretty bad with money, because they seem to think they will always have a gusher of money in the future, so they don't think much about investing and saving, except in investing in things that they think will be home runs.  A broad brush, but I think fairly accurate, so she definitely was an outlier among her peers as far as savings and investing.  She told me most of her peers still are paying on their student loans, for example. 

She meets a great guy who is a civil servant who makes OK money, but will never be a huge earner.  They fall in love, get married, have a kid,  and buy their dream house together.  And by dream house, I mean dream house.  It is the coolest house that anyone I've personally known has owned.  It isn't particularly big or fancy, but every element of the house just works.  If you walked into it, you'd think this house is totally cool.   Great school district, close to work and the grandparents.  It is absolutely a forever house.  It was very expensive, but they bought at the bottom of the market and put down a lot of money (mostly hers).

Her plan is they aggressively kill the mortgage (just like she did with her student loans) before the kid gets to college.   Then they'll have income to put the kid through college.  And then cut back hours and continue to save and retire on schedule but very comfortably in their dream house.

As it turns out, they are not in love anymore, can't work it out, and don't want to be married.  However, the house has appreciated a lot and they live in a community property state, so separating means she would have to cut him an enormous check for his share in the equity in the house.   So that means selling the dream house, and in turn that would mean moving farther away from work and the grandparents.  So what they decided to do is both stay in the house as divorced parents.  Neither of them want to do this, but they can't figure out how to make it work financially otherwise so they put up with a far less an ideal living arrangement.   She feels like there is a financial Sword of Damocles hanging over her head.  Her retirement plan, while not strictly mustashician, is still better than 95% of the populace, is dead.

If she hadn't been aggressively paying down the mortgage she could simply cut the ex-husband a check and be done.   It would be a setback, but everyone would be better off.  But because the money is tied up in the house, everyone is worse off.  Most likely, neither one of them will wind up living in their forever house, and both will have to move farther from work, the good school district, and the grandparents. 

Everyone who advocates paying down the mortgage says something along the lines of "It makes me feel better."  And that's worth something, no question.  But no one gets married thinking they might get divorced.  No one thinks they will be the one who is laid off.  No thinks they or a loved one will have an extended illness and can't work and will need expensive medical care.  If the money is tied up in the house, it can be really hard, or maybe impossible to deal with those issues.  Those are real risks, and they happen to real people.  People who advocate paying down the mortgage without including those risks are making a mistake.  A bird in the hand is worth two in the bush.  And paying down the mortgage is more like one in the bush.   

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1147 on: January 21, 2019, 06:17:04 AM »
Liked the story Telecaster, and as someone who has parents, inlaws and siblings who are doctors I could tell dozens of stories about the bone-headed things doctors do with their money (but save that for another thread).

I know there's a psychological component to people who want their mortgage gone (the "it just makes me feel better" argument).  And I'm not so passionate about this that I'd argue against anyone taking this route if they have the means and have more-or-less followed the investment order (or have at least gotten through 0-5).  BUT (big 'BUT') - don't do it at the expense of all other savings.  Don't ignore your retirement accounts and emergency fund. Don't let your home make up the majority of your net worth.  Cash is king, and investments will get you out of a very bad situation (divorce, unemployment, lawsuits) in  a way that a home that's way ahead of schedule in being paid off (but still not totally paid off) cannot.

AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #1148 on: January 21, 2019, 09:44:27 AM »
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.

I've told this story before (maybe in this thread, I can't remember) but it is well worth repeating when the subject of risk comes up.  A dear friend is an MD.  I wouldn't say she's mustaschian, but she's frugal and hates debt.  When she got done with med school, she stayed in her student apartment and crushed her student loans.   She bought nice cars, but not fancy cars and mostly saved and invested.  I will say that I've observed that most doctors are pretty bad with money, because they seem to think they will always have a gusher of money in the future, so they don't think much about investing and saving, except in investing in things that they think will be home runs.  A broad brush, but I think fairly accurate, so she definitely was an outlier among her peers as far as savings and investing.  She told me most of her peers still are paying on their student loans, for example. 

She meets a great guy who is a civil servant who makes OK money, but will never be a huge earner.  They fall in love, get married, have a kid,  and buy their dream house together.  And by dream house, I mean dream house.  It is the coolest house that anyone I've personally known has owned.  It isn't particularly big or fancy, but every element of the house just works.  If you walked into it, you'd think this house is totally cool.   Great school district, close to work and the grandparents.  It is absolutely a forever house.  It was very expensive, but they bought at the bottom of the market and put down a lot of money (mostly hers).

Her plan is they aggressively kill the mortgage (just like she did with her student loans) before the kid gets to college.   Then they'll have income to put the kid through college.  And then cut back hours and continue to save and retire on schedule but very comfortably in their dream house.

As it turns out, they are not in love anymore, can't work it out, and don't want to be married.  However, the house has appreciated a lot and they live in a community property state, so separating means she would have to cut him an enormous check for his share in the equity in the house.   So that means selling the dream house, and in turn that would mean moving farther away from work and the grandparents.  So what they decided to do is both stay in the house as divorced parents.  Neither of them want to do this, but they can't figure out how to make it work financially otherwise so they put up with a far less an ideal living arrangement.   She feels like there is a financial Sword of Damocles hanging over her head.  Her retirement plan, while not strictly mustashician, is still better than 95% of the populace, is dead.

If she hadn't been aggressively paying down the mortgage she could simply cut the ex-husband a check and be done.   It would be a setback, but everyone would be better off.  But because the money is tied up in the house, everyone is worse off.  Most likely, neither one of them will wind up living in their forever house, and both will have to move farther from work, the good school district, and the grandparents. 

Everyone who advocates paying down the mortgage says something along the lines of "It makes me feel better."  And that's worth something, no question.  But no one gets married thinking they might get divorced.  No one thinks they will be the one who is laid off.  No thinks they or a loved one will have an extended illness and can't work and will need expensive medical care.  If the money is tied up in the house, it can be really hard, or maybe impossible to deal with those issues.  Those are real risks, and they happen to real people.  People who advocate paying down the mortgage without including those risks are making a mistake.  A bird in the hand is worth two in the bush.  And paying down the mortgage is more like one in the bush.

This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State.  How marriage laws in your State work is important to understand.  And if you have a much larger income, REALLY understanding all of that.  This story has almost nothing to do with whether it's a good idea to pay off the house or not.  If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex.  The money isn't "tied up in the house" in any way.

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Re: DONT Payoff your Mortgage Club
« Reply #1149 on: January 21, 2019, 10:11:58 AM »
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.

I've told this story before (maybe in this thread, I can't remember) but it is well worth repeating when the subject of risk comes up.  A dear friend is an MD.  I wouldn't say she's mustaschian, but she's frugal and hates debt.  When she got done with med school, she stayed in her student apartment and crushed her student loans.   She bought nice cars, but not fancy cars and mostly saved and invested.  I will say that I've observed that most doctors are pretty bad with money, because they seem to think they will always have a gusher of money in the future, so they don't think much about investing and saving, except in investing in things that they think will be home runs.  A broad brush, but I think fairly accurate, so she definitely was an outlier among her peers as far as savings and investing.  She told me most of her peers still are paying on their student loans, for example. 

She meets a great guy who is a civil servant who makes OK money, but will never be a huge earner.  They fall in love, get married, have a kid,  and buy their dream house together.  And by dream house, I mean dream house.  It is the coolest house that anyone I've personally known has owned.  It isn't particularly big or fancy, but every element of the house just works.  If you walked into it, you'd think this house is totally cool.   Great school district, close to work and the grandparents.  It is absolutely a forever house.  It was very expensive, but they bought at the bottom of the market and put down a lot of money (mostly hers).

Her plan is they aggressively kill the mortgage (just like she did with her student loans) before the kid gets to college.   Then they'll have income to put the kid through college.  And then cut back hours and continue to save and retire on schedule but very comfortably in their dream house.

As it turns out, they are not in love anymore, can't work it out, and don't want to be married.  However, the house has appreciated a lot and they live in a community property state, so separating means she would have to cut him an enormous check for his share in the equity in the house.   So that means selling the dream house, and in turn that would mean moving farther away from work and the grandparents.  So what they decided to do is both stay in the house as divorced parents.  Neither of them want to do this, but they can't figure out how to make it work financially otherwise so they put up with a far less an ideal living arrangement.   She feels like there is a financial Sword of Damocles hanging over her head.  Her retirement plan, while not strictly mustashician, is still better than 95% of the populace, is dead.

If she hadn't been aggressively paying down the mortgage she could simply cut the ex-husband a check and be done.   It would be a setback, but everyone would be better off.  But because the money is tied up in the house, everyone is worse off.  Most likely, neither one of them will wind up living in their forever house, and both will have to move farther from work, the good school district, and the grandparents. 

Everyone who advocates paying down the mortgage says something along the lines of "It makes me feel better."  And that's worth something, no question.  But no one gets married thinking they might get divorced.  No one thinks they will be the one who is laid off.  No thinks they or a loved one will have an extended illness and can't work and will need expensive medical care.  If the money is tied up in the house, it can be really hard, or maybe impossible to deal with those issues.  Those are real risks, and they happen to real people.  People who advocate paying down the mortgage without including those risks are making a mistake.  A bird in the hand is worth two in the bush.  And paying down the mortgage is more like one in the bush.

This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State.  How marriage laws in your State work is important to understand.  And if you have a much larger income, REALLY understanding all of that.  This story has almost nothing to do with whether it's a good idea to pay off the house or not.  If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex.  The money isn't "tied up in the house" in any way.

That's exactly what I was thinking as well. Could they not get a HELOC? Can't imagine a shittier situation than living with your ex-spouse, though I imagine it works for some people.