Author Topic: DONT Payoff your Mortgage Club  (Read 159048 times)

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1150 on: January 21, 2019, 11:36:51 AM »

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.

When you have a jointly-held asset you cannot just borrow against that asset to pay off the other partner.  For starters, you need the consent of both parties.  Think through the available scenarios for a minute: each party is entitled to 50% of the equity in the home, but since neither side has cash to bring to the table it has to come from the home.  After several years of aggressively paying off a mortgage there may be half left, and the home probably will have increased in value by, say, 25% (half of which the second partner is entitled to).  So Partner A would need to take out a HELOC worth close to half the current value of their home with Partner B's permission.  But here's the problem: that will leave Partner A with both the mortgage and the HELOC to pay off simultaneously, which could more than double the monthly payments. 

 The bank will review a HELOC of this size and may very likely deny it, stating that the single income of Partner A is no longer sufficient to meet the required payments in part because s/he no longer has his/her partner's income, and/or that the amount requested for the HELOC and the remaining principle on the mortgage now exceeds the original mortgage.

This is why such situations often lead to a forced sale even when at least one party wishes to keep the home.  If most of your NW is tied to your home and you are required to make a large payout (whether to a spouse or in a lawsuit or major emergency) you often cannot leverage your home to that extent.  Had the couple in @Telecaster's story put ~50% into investments, the equity in the home would have been lower and one partner could likely have bought out the other with cash on hand.

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Re: DONT Payoff your Mortgage Club
« Reply #1151 on: January 21, 2019, 01:21:25 PM »

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.

As nereo points out, sometimes it isn't that easy.   And in what scenario is it fair that he walks away with the cash and she's stuck with the HELOC?   Shouldn't he be responsible for his half of the HELOC interest?  What if he doesn't want a bunch of debt?  How do you work that out with bank if he's not the owner anymore?   And what do the HELCO payments do to their lifestyles?   To be clear, I'm certain there a million other things going on in their divorce that I don't know about, so I can't really discuss the ins and outs of her thinking in detail.   But I'm absolutely certain she does not want to exit the marriage with the burden of a large amount of fresh debt.   I don't see how that is prudent in general, and she's debt averse anyway.   

You are right in the sense that most people don't really think about the consequences of a marriage not working out.   Most people assume they be in love forever and they will continue on with their lives just as they did when the got married.   But the reality doesn't work out that way for many people.  Similarly, most people don't really think about the possibility of their company being bought out and their job made redundant.   Or getting injured and not being to do your job, or any number of other things that happen as we go through life.  At those junctures, you will need access to your savings.  That's why you don't want your money tied up in your house.    I've made this point on numerous occasions in the myriad of times we've had these discussions.   And the response is always the same:  "Just get a HELOC."  Go into debt, in other words.   I suppose if that's what you have to do, then that's what you do.  But at these junctures in life, taking on fresh debt is almost always the worst option.   Debt has to be paid back with interest.   If I was faced with a large, unanticipated bill like a divorce or job loss,  I would much rather get through the situation by paying cash over borrowing.   

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1152 on: January 21, 2019, 02:41:26 PM »
For those following along, here's some numbers on how this might play out:

Scenario:  Dual-income couple purchases 'forever home' for $500,000 with a $400k / 30y mortgage @ 4% fixed.  Each partner contributed 10% of the downpayment ($50k each)  Wishing to rid themselves of the mortgage as quickly as possible they over-pay an extra $2,000/mo - saving nothing else.  Under that plan they would pay off the year in 10 years 6 months.
BUT - their marriage falls apart after 7 years.  The home appreciates at 3%/year

The math:
Mortgage = $1909.
Accelerated payments = $2,000
Taxes (at 1.5%) = $650
Total monthly payment: $4,535

At the 7 year mark they've paid off $250k (63%) of the original $400k mortgage.
The house is now worth $615k (due to appreciation)

Splitting the asset
Total home equity = $465k ($615k home value - $150k remaining on the mortgage)
Partner A does not want to sell the home, so s/he owes Partner B $232.5k
The lender offers a HELOC of 4.5% APR with a 15y Amortization.  HELOC payment = $1,780/mo
Partner A would have monthly payments of $3,689 without bonus mortgage payments.  It will now take Partner A an additional 8years, 5 months to pay off the mortgage. 
Unfortunately, without Partner B's income s/he cannot afford the $4,315 monthly payments (Minimum Mortgage + HELOC + Taxes).

However...
The bank sees this and restricts the HELOC to $100k (the maximum amount they consider Partner A able to pay based on assets and salary)
Newly divorced couple winds up with unorthodox living arrangement.
« Last Edit: January 21, 2019, 05:36:09 PM by nereo »

skip207

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Re: DONT Payoff your Mortgage Club
« Reply #1153 on: January 21, 2019, 02:55:11 PM »
So WWYD question for the don't pay off members...

Mortgage 190k.  2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.

Currently paying 1.5k pcm of which 500 is an overpayment.

Income c.5k pcm.  Other bills 1.1k.  Total monthly out 2.6k.  So stache about 2.5k pcm currently.

So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…


WWYD!! 

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1154 on: January 21, 2019, 03:00:00 PM »
Alright, I've been thinking about this for a while and I think there may be a way for carrying a large mortgage with massive amounts of cash or investments on hand to actually hedge against a down housing market and specifically another 2007 to 2011 downturn of 50%. 

Is this strategy ethical? Probably not... But going through another home purchase it occurred to me that maybe you could perform what I am going to call "foreclosure arbitrage" if you have a non-recourse mortgage and a high amount of cash or investments on hand.  The example I am thinking about it below.

High-income couple with an equal income split.  Let's say 125k a piece or 250k total yearly income.

Cash on hand = 600k

Home purchase price = 600k with 5% down (30k) plus 10k closing costs at 4.375% interest with a 30 yr term.

Home is purchased and the loan is secured by Partner A only.

4 years later the market has dropped by 50%.  The home is now worth 300k and the outstanding mortgage is 530K

Partner A purchases another similar home for 300k with cash or Partner B purchases a similar home with a mix of cash/financing.

After the second home is secured you move in and let the first property go through a short sale or foreclosure.

IF this works you are essentially trading the good credit of Partner A for a little over 200k and it must be in a non-recourse mortgage or non-recourse state.

Honestly, I don't think I would even consider this even if it were possible but it occurred to me that it might be an option.  Of course, there are many other personal factors that would play into this and I think it would really depend on your ethical view about it and if you are will to take a 7-year credit score hit for 200-250k payout.  Your investments would also have to fare well by the time you executed the purchase of the 2nd home.

Ohhhh the random things that go through my head....
« Last Edit: January 21, 2019, 07:13:49 PM by FIreDrill »

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1155 on: January 21, 2019, 03:03:51 PM »
I see you are in the UK, but my response is for a mortgage in the US (laws and tax implications vary from country to country)

I would not overpay a mortgage at 2.79%.  I'd take the $500 over payment and invest it based on the investment order outlined by MDM.
With ~$60k in annual income the reduction in taxes alone would make funding tax-advantaged accounts far more valuable than the reduction in mortgage interest paid.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1156 on: January 21, 2019, 03:11:21 PM »
So WWYD question for the don't pay off members...

Mortgage 190k.  2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.

Currently paying 1.5k pcm of which 500 is an overpayment.

Income c.5k pcm.  Other bills 1.1k.  Total monthly out 2.6k.  So stache about 2.5k pcm currently.

So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…


WWYD!!

There is noooo wayy I would accelerate payoff on a loan that is secured at 2.79%.  I would keep it as a pet, give it a good name, and try to make it last as long as possible.

Dang that's an insane rate.  It's fixed for the entire term and not adjustable right?

skip207

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Re: DONT Payoff your Mortgage Club
« Reply #1157 on: January 21, 2019, 03:37:59 PM »
So WWYD question for the don't pay off members...

Mortgage 190k.  2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.

Currently paying 1.5k pcm of which 500 is an overpayment.

Income c.5k pcm.  Other bills 1.1k.  Total monthly out 2.6k.  So stache about 2.5k pcm currently.

So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…


WWYD!!

There is noooo wayy I would accelerate payoff on a loan that is secured at 2.79%.  I would keep it as a pet, give it a good name, and try to make it last as long as possible.

Dang that's an insane rate.  It's fixed for the entire term and not adjustable right?

Its a fixed rate until end 2020.  Then we will have to re-apply for another 5 year fix.  The product I am on at the moment (5 year fix) is currently being offered at 1.97% so we are actually on quite a high rate.   

skip207

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Re: DONT Payoff your Mortgage Club
« Reply #1158 on: January 21, 2019, 03:56:27 PM »
I see you are in the UK, but my response is for a mortgage in the US (laws and tax implications vary from country to country)

I would not overpay a mortgage at 2.79%.  I'd take the $500 over payment and invest it based on the investment order outlined by MDM.
With ~$60k in annual income the reduction in taxes alone would make funding tax-advantaged accounts far more valuable than the reduction in mortgage interest paid.

Yeah does not really apply here and if it did our tax is around 3k PA on the 60k.  (they even give us free healthcare.. yet still we complain!)

Pension and tax free investments are utilised though, FWIW.   

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1159 on: January 21, 2019, 03:57:14 PM »
So WWYD question for the don't pay off members...

Mortgage 190k.  2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.

Currently paying 1.5k pcm of which 500 is an overpayment.

Income c.5k pcm.  Other bills 1.1k.  Total monthly out 2.6k.  So stache about 2.5k pcm currently.

So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…


WWYD!!

There is noooo wayy I would accelerate payoff on a loan that is secured at 2.79%.  I would keep it as a pet, give it a good name, and try to make it last as long as possible.

Dang that's an insane rate.  It's fixed for the entire term and not adjustable right?

Its a fixed rate until end 2020.  Then we will have to re-apply for another 5 year fix.  The product I am on at the moment (5 year fix) is currently being offered at 1.97% so we are actually on quite a high rate.   

That changes things a bit and I would really need to know more of your financial position to make a good recommendation.  Such as how much you have in investments and do you have any sort of emergency fund, even if the emergency fund is invested.

I would still hold on to the rate, especially if you think it will adjust downward.  Instead of paying extra on the mortgage shove that money into an account that is easily accessible and follows your desired asset allocation if you were to invest it.

My personal goal is to eventually have a very substantial "emergency fund" that is just in an accessible brokerage account.  Maybe at 80/20 stock bond mix and just take from that if anything comes up.  Really, my planned emergency fund is just going to be investments that are in a normal brokerage account, are accessible without any penalty, and have a little more bond exposure than my "retirement" portfolio.

K-ice

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Re: DONT Payoff your Mortgage Club
« Reply #1160 on: January 24, 2019, 10:21:53 PM »
OK  So I have admitted before that my partner is in the DO pay off your mortgage club and I have learn't that the DON'T club is better.

I have been able to slow them down a bit, invested in my own retirement funds over the past 2.5 years, but alas, the mortgage is paid off.  (I don't think I have ever said "alas", but that is the best word.)

Our mortgage is actually on a rental property that is self sufficient. Also, it is set up as a HELOC, so it's easy to take money in and out. I have really liked keeping a HELOC on this rental property and using it as a checking account for it. I have kept track of exactly how many extra payments we made.  We matched each other dollar for dollar. 

It is a relief to have the debt gone, but we BOTH need to catch up on our retirement. 

My goal is to take out $20,000 at the start of this year and every year. Split it between the two of us to invest in our retirement funds.  That is the amount of "debt" my partner is comfortable with. The rental property should be able to pay that back over the year. Rinse and repeat every year until the "extra payments" are paid off by the property itself. This way the rental property will continue to have some mortgage interest we can write off. 

Over the year we will have more savings that we can now focus towards retirement as well.

Any comments?   
Is this a really dumb idea? 
Is this a great idea to keep debt in perpetuity?
Is it a good compromise considering my partner was set on paying off the mortgage?






Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1161 on: January 24, 2019, 10:59:58 PM »
OK  So I have admitted before that my partner is in the DO pay off your mortgage club and I have learn't that the DON'T club is better.

I have been able to slow them down a bit, invested in my own retirement funds over the past 2.5 years, but alas, the mortgage is paid off.  (I don't think I have ever said "alas", but that is the best word.)

Our mortgage is actually on a rental property that is self sufficient. Also, it is set up as a HELOC, so it's easy to take money in and out. I have really liked keeping a HELOC on this rental property and using it as a checking account for it. I have kept track of exactly how many extra payments we made.  We matched each other dollar for dollar. 

It is a relief to have the debt gone, but we BOTH need to catch up on our retirement. 

My goal is to take out $20,000 at the start of this year and every year. Split it between the two of us to invest in our retirement funds.  That is the amount of "debt" my partner is comfortable with. The rental property should be able to pay that back over the year. Rinse and repeat every year until the "extra payments" are paid off by the property itself. This way the rental property will continue to have some mortgage interest we can write off. 

Over the year we will have more savings that we can now focus towards retirement as well.

Any comments?   
Is this a really dumb idea? 
Is this a great idea to keep debt in perpetuity?
Is it a good compromise considering my partner was set on paying off the mortgage?
Not so sure about the bolded part. Contact your tax professional, as I am not one, because I think there are restrictions that could limit the effectiveness of your intended strategy.

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #1162 on: January 25, 2019, 06:35:39 AM »
OK  So I have admitted before that my partner is in the DO pay off your mortgage club and I have learn't that the DON'T club is better.

I have been able to slow them down a bit, invested in my own retirement funds over the past 2.5 years, but alas, the mortgage is paid off.  (I don't think I have ever said "alas", but that is the best word.)

Our mortgage is actually on a rental property that is self sufficient. Also, it is set up as a HELOC, so it's easy to take money in and out. I have really liked keeping a HELOC on this rental property and using it as a checking account for it. I have kept track of exactly how many extra payments we made.  We matched each other dollar for dollar. 

It is a relief to have the debt gone, but we BOTH need to catch up on our retirement. 

My goal is to take out $20,000 at the start of this year and every year. Split it between the two of us to invest in our retirement funds.  That is the amount of "debt" my partner is comfortable with. The rental property should be able to pay that back over the year. Rinse and repeat every year until the "extra payments" are paid off by the property itself. This way the rental property will continue to have some mortgage interest we can write off. 

Over the year we will have more savings that we can now focus towards retirement as well.

Any comments?   
Is this a really dumb idea? 
Is this a great idea to keep debt in perpetuity?
Is it a good compromise considering my partner was set on paying off the mortgage?
Not so sure about the bolded part. Contact your tax professional, as I am not one, because I think there are restrictions that could limit the effectiveness of your intended strategy.

+1

Part of the most recent tax law is that debt taken against a property cannot have the interest deducted unless it is used for real estate.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1163 on: January 25, 2019, 06:48:27 AM »
In addition to tax considerations, you may want to pursue refinancing your home (i.e. cash-out refinancing) and compare that to your rates under a HELOC. While the former requires a bit more legwork you can often get more favorable terms.

I'm also confused what you mean by taking out $20k every year and then having the rental property pay that back (in full?) each year, then repeating.  If you indeed intend to take out $20k in a HELOC every January and then pay it back by December you won't gain much of an advantage.  Instead you could simply use all of the revenue generated by the rental to fund your retirement account. Or am I misunderstanding your strategy?

ETA:  What I would personally do in your situation is to refinance your own home (assuming you own) to whatever amount your partner is comfortable with and then use that money to immediately fund your retirement accounts for 2019.  This will likely get you the lowest rate while also providing a large tax break and (potentially) qualify you for the mortgage interest deduction. A full case study (or at least a lot more information) would be necessary to determine how benefitial this might be for you (for instance, your income, tax bracket, credit history, home ownership & equity and access to 401(k)/403(b) etc are all relevant here).
« Last Edit: January 25, 2019, 09:05:28 AM by nereo »

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Re: DONT Payoff your Mortgage Club
« Reply #1164 on: January 25, 2019, 08:34:43 AM »
In addition to tax considerations, you may want to pursue refinancing your home (i.e. cash-out refinancing) and compare that to your rates under a HELOC. While the former requires a bit more legwork you can often get more favorable terms.

I'm also confused what you mean by taking out $20k every year and then having the rental property pay that back (in full?) each year, then repeating.  If you indeed intend to take out $20k in a HELOC every January and then pay it back by December you won't gain much of an advantage.  Instead you could simply use all of the revenue generated by the rental to fund your retirement account. Or am I misunderstanding your strategy?


I don't get it either.  Why give yourself a 4% to 6% HELOC interest headwind on your investing?  Why not just invest the rent checks?   You only get a fraction of the interest back (at best) as a mortgage interest deduction.   You do get to count the payments as expenses so you don't pay taxes on them.  Does the math really work out in your favor?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1165 on: January 25, 2019, 11:26:01 AM »
It's effectively investing the rent checks at the start of the year, then paying back over the course of the year. Not crazy, but a discussion could be had about whether half of your expected annual return was > the interest rate on the HELOC.

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #1166 on: January 25, 2019, 12:08:42 PM »
It's effectively investing the rent checks at the start of the year, then paying back over the course of the year. Not crazy, but a discussion could be had about whether half of your expected annual return was > the interest rate on the HELOC.

Indeed. Let alone that the extremely short investment period maximizes stock market volatility risk as opposed to the low risk of the 30 year investment time frame that we all adhere to.

Basically giving yourself this:



Instead of this:



@K-ice Sorry to piss in your cheerios but these mini HELOC loans are not really giving you all a financial advantage. Could you discuss doing a small (10-20% equity) fixed rate mortgage with your SO instead?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1167 on: January 25, 2019, 01:10:41 PM »
There is one argument for doing fewer investments during the year, and that's combining your investment with rebalancing, i.e. suppose your stocks ran ahead of your bonds last year, you can buy some bonds as part of your annual purchase to bring yourself back to your desired allocation with fewer transactions.

This is usually just relevant for taxable accounts when the transaction fees are nonzero.

K-ice

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Re: DONT Payoff your Mortgage Club
« Reply #1168 on: January 29, 2019, 08:38:02 PM »
There is one argument for doing fewer investments during the year, and that's combining your investment with rebalancing,

Yes I would use the payment to re-balance. But it would be large enough it would probably be split into bonds & equities to re-balance.  I do have a $10 fee per transaction so I have never done monthly installments.  More like twice a year after it builds in my pathetic savings account.

It's effectively investing the rent checks at the start of the year, then paying back over the course of the year. Not crazy, but a discussion could be had about whether half of your expected annual return was > the interest rate on the HELOC.

YES investing at the start rather than the end of the year was part of the plan. My interest rate is currently 4.45%. Hard to predict what the markets will do but I am not trying to time it or anything.

Once invested, I plan to keep it invested for a long time.

One of the reasons for me wanting to do this is a part of me resents that my savings were used to pay off the mortgage on a rental property. It is able to support itself, but was not able to pay itself off this fast on its own.   

Thanks for the discussion, it may not be  worth the hassle, especially if I cannot get a tax deduction.





Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1169 on: February 13, 2019, 09:19:04 AM »
Every time I see that other thread pop up in my feed, I look for something to read on this one so my head doesn't explode. There hasn't been anything new posted here lately, so I'm giving this thread a bump. I don't want it sink to the bottom of the vast, unsearchable* MMM Forum ocean.

In related news, I see mortgage rates are drifting down slightly, but I doubt we'll see sub-4's again. If I had one, I'd hang on to it for dear life.

*Yes, I know there are workarounds, but a newb might not.

sherr

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Re: DONT Payoff your Mortgage Club
« Reply #1170 on: February 13, 2019, 12:06:27 PM »
Not to brag, but I'm still locked in to 2.5% for another 3 years. Sadly we might be moving soon so that Deal Of A Lifetime may be coming to an end.

Interest rates are still Historically Great though, so I'm not overly worried about it.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1171 on: February 13, 2019, 12:15:18 PM »
I've lost my way lately. Bought some ground beef for dinner with a debit card the other night. $4.62 that could have stayed in the market another month.

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #1172 on: February 13, 2019, 01:23:31 PM »
It's tough to have as much traffic here as the other thread unless it's spurred by someone coming in to troll. Checking to say that mortgage minimum was paid for another month isn't very exciting.

However, I did have a developer make a cold offer on one of my rental properties. My first thought was "Oh no, not my 3.75% mortgage!" :)

K-ice

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Re: DONT Payoff your Mortgage Club
« Reply #1173 on: February 13, 2019, 04:04:43 PM »
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?


onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #1174 on: February 13, 2019, 06:22:51 PM »
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?
Investments > Mortgage is great.  I reached that around January of last year.   My  next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).

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Re: DONT Payoff your Mortgage Club
« Reply #1175 on: February 14, 2019, 04:04:30 AM »
Those are my two goals.

Investments > Mortgage. Close, so close, needed the bull a little longer.

Investments (without pensions) > Mortgage.

And, a bonus one:

Property < 25% of assets.

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Re: DONT Payoff your Mortgage Club
« Reply #1176 on: February 14, 2019, 04:05:07 AM »
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.

thats all.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1177 on: February 14, 2019, 06:11:37 AM »
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.

thats all.

UnleashHell

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Re: DONT Payoff your Mortgage Club
« Reply #1178 on: February 14, 2019, 08:04:29 AM »
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.

thats all.


woohoo. I'm a winner baby!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1179 on: February 14, 2019, 08:09:11 AM »
My rate reset at the end of 2018, so I'm now paying 5% interest instead of 3%. It's actually a little weird to have my mortgage be my highest-interest debt.

My wife and I expect to move soon, so I'm not really treating it like any kind of emergency. It's about $9,000/year of interest.

frugalecon

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Re: DONT Payoff your Mortgage Club
« Reply #1180 on: February 14, 2019, 08:18:19 AM »
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?
Investments > Mortgage is great.  I reached that around January of last year.   My  next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).

The Taxable Investments > Mortgage (actually debt) milestone is what people are tracking in the "Defeat the Net Debt" thread.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1181 on: February 14, 2019, 09:52:52 AM »
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?
Investments > Mortgage is great.  I reached that around January of last year.   My  next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).

The Taxable Investments > Mortgage (actually debt) milestone is what people are tracking in the "Defeat the Net Debt" thread.
Ha, I thought of your thread and was going to mention it here, because I think it's a great idea. Here's the link if you haven't seen it:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/msg2293424/#new

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #1182 on: February 14, 2019, 11:23:55 AM »
Investments > Mortgage is great.  I reached that around January of last year.   My  next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).

The Taxable Investments > Mortgage (actually debt) milestone is what people are tracking in the "Defeat the Net Debt" thread.
Ha, I thought of your thread and was going to mention it here, because I think it's a great idea. Here's the link if you haven't seen it:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/msg2293424/#new
I find the "Defeat the Net Debt" thread boring with the various progress posts. I would love to regularly see post that celebrate investment milestones - even better if they include a comparison between result of investing and what mortgage balance would have been if the investments had been extra mortgage payments instead. Titles like "I saved $xxK by not paying off my mortgage" could show up in "Share Your Badassity" regularly.

Potential Milestones:
Total Investments > Mortgage balance ($ saved is what mortgage balance would have been had investments been applied to mortgage instead)
Total Invested would have paid off Mortgage ($ saved is liquid net worth)
Taxable Investments > Mortgage balance
Taxable Invested would have paid off Mortgage

Real estate investors could include investment properties in their investment balances, then celebrate again every time they can take another property out of the investment total.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1183 on: February 14, 2019, 04:00:39 PM »
So far it looks like we've roughly broken even by investing instead of paying down our mortgage (since early/mid 2016).

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1184 on: February 14, 2019, 07:02:42 PM »
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.

thats all.


woohoo. I'm a winner baby!

Everyone who doesn't pay off their mortgage is a winner!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1185 on: February 15, 2019, 07:51:20 AM »
Payday today. Looking forward to using that money for investing rather than paying extra on my very reasonable mortgage.

letsdoit

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Re: DONT Payoff your Mortgage Club
« Reply #1186 on: February 15, 2019, 09:57:07 AM »
when mine was 6.25% i used to pay it down.
now mine effectively is 2%  and i , of course, dont pay it down

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1187 on: February 15, 2019, 10:56:41 AM »
Payday!

1,050 to 401k
269 to HSA
605 to Taxable brokerage

:)

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FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1188 on: February 17, 2019, 04:14:32 PM »
Looks like we played the tax withholding game pretty well this year considering we had several job changes and a house purchase.  I am estimating we will get 1500 to 3000 back.  We will know for sure in the next month or so.

Anyways, we should be throwing an extra 10k or so towards investments in the coming months.  This will be above regular 401k/HSA contributions.

Our portfolio could be pushing 400k soon which is crazy to think about... Excited to cross that threshold and start looking towards 500k :D



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Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #1189 on: February 21, 2019, 05:19:39 AM »
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?

Dividends on one's taxable account "could" pay the mortgage.  (Could because they are reinvested instead of course).

Malkynn

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Re: DONT Payoff your Mortgage Club
« Reply #1190 on: February 28, 2019, 04:28:07 AM »
Not only are we not paying off our mortgage, we are buying a second place and not paying that off either! Lol

We currently own a small townhouse, which we will be renting out and buying an even smaller apartment to move into.

The townhouse is nearly fully mortgaged, but once it has a chunk of equity, we will likely refinance again to max the tax deduction from the interest.

That said, due to years of student debt repayment, it will be several years before we are able to max out our tax-advantaged account space because we've got a few hundred thousand in space to catch up on, so contemplating taxable vs mortgage pay off just isn't relevant any time soon.

Once we're at a point to contemplate taxable, we'll be at Lean-FIRE already and will drop down to coast-Fat-FIRE, so it may never be relevant.

Annually, our new mortgage is only 3.5% of our gross income, so it's pretty insignificant either way.
« Last Edit: February 28, 2019, 05:24:31 AM by Malkynn »

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1191 on: February 28, 2019, 07:40:23 PM »
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1192 on: February 28, 2019, 07:51:34 PM »
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

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Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1193 on: February 28, 2019, 08:08:47 PM »
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

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Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.

Purchased with 5% down at the peak of the market in the Seattle area in 2018.  Sales at the time of purchase comped the house at 640-670k.  We purchased the home for 640k. 

Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further.  Throwing the 50k at it would bring the principal balance down to 560k.  The 50k would cover approx 43k of paydown and 7k in closing.

Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts.  Gross yearly income is around 200k.  No plans to leave anytime soon.

It's a shitty situation for sure... But hey... It's what we got lol.

« Last Edit: February 28, 2019, 08:12:17 PM by FIreDrill »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1194 on: March 01, 2019, 12:29:02 AM »
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

Sent from my moto g(6) using Tapatalk
Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.

Purchased with 5% down at the peak of the market in the Seattle area in 2018.  Sales at the time of purchase comped the house at 640-670k.  We purchased the home for 640k. 

Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further.  Throwing the 50k at it would bring the principal balance down to 560k.  The 50k would cover approx 43k of paydown and 7k in closing.

Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts.  Gross yearly income is around 200k.  No plans to leave anytime soon.

It's a shitty situation for sure... But hey... It's what we got lol.
I want to look at these numbers again when I'm not suffering through yet another bout of insomnia, but my first thought is if you've considered challenging the appraised value. What comp properties did they use? Oh, and how much is your PMI?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1195 on: March 01, 2019, 07:17:09 AM »
Pay $50,000 in order to save $6,600/year in interest?

It's basically a VTSAX return with zero risk. I say go for it.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #1196 on: March 01, 2019, 08:15:09 AM »
Pay $50,000 in order to save $6,600/year in interest?

It's basically a VTSAX return with zero risk. I say go for it.

Assuming the math is right and you can't get a better appraisal, I agree.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1197 on: March 01, 2019, 10:45:04 AM »
Pay $50,000 in order to save $6,600/year in interest?

It's basically a VTSAX return with zero risk. I say go for it.

Assuming the math is right and you can't get a better appraisal, I agree.
I'm pretty confident that the math is correct.  We may try for a better appraisal but I am not confident it would change much with the recent home sales.

For the 50k we would essentially get a guaranteed return of 13.2% over the next 30 years.  The 50k of investments should be replenishd in 12 to 18 months with our current savings rate.  This does not include maxing out our 401k, Iras, and HSA.

To me this is a no brainer but I wanted to run it by some others in this forum.

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RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1198 on: March 04, 2019, 07:12:49 AM »
Another month of minimum payments. About three years left on the car (1.69%) and twelve years left on the house (3.125%). Taxable brokerage account is at 116% of the mortgage balance.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1199 on: March 04, 2019, 07:42:10 AM »
Another month of minimum payments. About three years left on the car (1.69%) and twelve years left on the house (3.125%). Taxable brokerage account is at 116% of the mortgage balance.
Doesn't that feel amazing? People talk about how good it will feel when they "kill" their mortgage. If only they could somehow know how much better it feels to be in your position. The most shockingly unexpected thing it gave me was a pure, unbridled sense of power. And oh, the possibilities...endless!

3.125%? Wow!