DONT Payoff your Mortgage Club

[Tyson]

Yeah I get it Salon.  Makes sense if that is your goal/feature you are trying to highlight. 

I also agree the HELOC is not an equivalent substitute for the liquid investments; if you've lost your job (or lending has dried up in a financial crisis, or your house won't appraise because the town factory shut down...thus you lost your job) you might not qualify for a HELOC.


Based on all the information I've gleaned via UK housing rental/slumlord shows on Netflix, I feel that your housing laws are in serious need of revision.  haha.

The bolded part is exactly right.  HELOCs tend to dry up at the exact moment when you need them the most.  If you put all your $$ toward the mortgage and you lose your job, you're screwed.  On the other hand, if you've saved/invested it, then you are much less likely to lose your home in the even of job/income loss. 

The fact that you actually get higher returns from something like indexing is just gravy, IMO. 

But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year.  I'll tell you what - all those "early payments" did NOT MATTER to the bank.  They only cared about whether I could keep paying.  When I couldn't they were very prepared to take possession of the property.  Luckily I found work at the very last minute but it was pretty damn close. 

Best to stay liquid, IME. 

[SwordGuy]

But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year.  I'll tell you what - all those "early payments" did NOT MATTER to the bank.  They only cared about whether I could keep paying.  When I couldn't they were very prepared to take possession of the property.  Luckily I found work at the very last minute but it was pretty damn close. 

Best to stay liquid, IME.

All those extra payments just meant it was easier for the bank to get it's money back out of the deal.   If they were short on cash your house would go to the top of the foreclosure list as it could be more quickly sold for way less than it was worth.

I agree with you completely!

[Dicey]

But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year.  I'll tell you what - all those "early payments" did NOT MATTER to the bank.  They only cared about whether I could keep paying.  When I couldn't they were very prepared to take possession of the property.  Luckily I found work at the very last minute but it was pretty damn close. 

Best to stay liquid, IME.

All those extra payments just meant it was easier for the bank to get it's money back out of the deal.   If they were short on cash your house would go to the top of the foreclosure list as it could be more quickly sold for way less than it was worth.

I agree with you completely!

Whew, @tyort1, I am so glad you didn't lose your house! Some people join this club because they get the math, others, like me, learned because a smart person gently but persistently pounded it into their hard heads. Still others lived through an experience that was scary as hell. I'm glad your story doesn't have a sad ending. I'm even more glad that you were willing to share your real life experience and hard earned wisdom. Thank you.

[nereo]

But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year.  I'll tell you what - all those "early payments" did NOT MATTER to the bank.  They only cared about whether I could keep paying.  When I couldn't they were very prepared to take possession of the property.  Luckily I found work at the very last minute but it was pretty damn close. 

Best to stay liquid, IME.

All those extra payments just meant it was easier for the bank to get it's money back out of the deal.   If they were short on cash your house would go to the top of the foreclosure list as it could be more quickly sold for way less than it was worth.

I agree with you completely!

Whew, @tyort1, I am so glad you didn't lose your house! Some people join this club because they get the math, others, like me, learned because a smart person gently but persistently pounded it into their hard heads. Still others lived through an experience that was scary as hell. I'm glad your story doesn't have a sad ending. I'm even more glad that you were willing to share your real life experience and hard earned wisdom. Thank you.

The above wasn't directed specifically at me, but I'd say that I'm in this club for all three reasons.  At this point I 'get the math' - but only after some very patient people, including both my parents and people on this forum, took a great deal of time to help explain the multi-faceted reasons why it was in my own best self interests not to overpay a mortgage.  I also lived through the mortgage crisis in one of the hardest hit areas in the country.  We wound up ok because we had some significant financial buffers and because - thank god - neither of us lost our income during that time.  But at one point we counted 40 foreclosures in our immediate neighborhood, and personally knew dozens of people who couldn't make their mortgage payments because they had lost one or both of their incomes, and they didn't have additional investments to draw from.  Many had been over-paying their mortgage because they "just want it gone" and because they had bought into the RE line that their home "was the best investment they could make". 

Home prices dropped 40% in our immediate area but it was largely irrelevant - there were so many foreclosures that the market was saturated, but due to the credit crisis few banks were willing to extend a loan to anyone.  This resulted in so few buyers that people trying to sell their home for a six-figure loss still couldn't make the sale. A couple who lived behind us had been making mortgage payments for about four years, overpaying a bit each month "to save on interest".  Over a series of increasingly depressing conversations we learned that despite putting down a healthy downpayment and (over)paying the mortgage some 50 consecutive months they were in a precarious spot, as they had lost half their income but their home was suddenly five-figures underwater.  They needed to move to get a new job but couldn't sell and lacked the capital to start renting elsewhere.  They had bought near the top of the market but thought they were doing everything right.  Ultimately his parents helped bail them out, and their home was sold after being on the market for about 18 months.  It finally sold for a loss of about $185k IIRC six years after they had purchased it.  This was in a HCOL area and the home was nothing fancy - your typical modest 'starter home'.  Sadly they probably could have weathered that storm if they had ~$75k in other investments to draw from during that whole poo-storm. But they didn't and once they got behind a few months on teh rent they were stuck in a debt spiral they couldn't get out of.

[Kronsey]

This was/is one of my favorite topics. I have appreciated those who have continued to pound into our heads the math reasons why it doesn't make any sense to prepay 99.9% of the time. This thread helped me change my mind on my own mortgage strategy and for that I am forever grateful.

Now I'm asking for some advice (and a little bit of a case study) as I go down the refi road. I think I know the right answers, but I want to pound it into my own head one more time :) Here are the specifics of my situation:

Current mortgage balance - $152,500 (everything will be round numbers for simplicity). Current mortgage rate = 4.375% on a 30 year fixed rate note. Taxes and insurance escrowed at $219/month. Currently paying PMI of $45/month. I believe the house was appraised at $169,000 at time of purchase. So total payment is $778 (PI) + $219 (TI) + $45 (PMI)  = $1,042/mo.

I've received refi quotes of 3.375% (roughly 3.475% APR) for 15 years & 3.625% (roughly 3.75% APR) for 30 years.

All in closing costs would be $1,900 - $2,000 which includes a few small credits/discounts from the bank. A house in our cul de sac that is 100% identical to ours (same floor plan and even interior finishes) sold for $189,000 a month or so ago, so I feel safe assuming our appraisal will come back around $185,000 or slightly higher. If that is the case, I plan on eliminating our PMI and refinancing at $148,000. So my total out of pocket will be the $4,500 (difference between $152,500 and $148,000) + $2,000 in closing costs = $6,500.

My all in monthly payment (PITI) on the 30 year note would come to $893/month roughly.

My all in monthly payment (PITI) on the 15 year note would come to $1,248/month roughly.

I would agree with the theme of this thread that I should take the $355/month difference between the two and invest it in the stock market, but I actually plan on retiring in around 15 years and the substantial reduction in cash outflow by not having a mortgage payment would be a huge relief. Also - if I take the $355 and invest in a taxable account (all pre-tax space is already maxed out), I am nervous of the potential income consequences as I heavily rely on showing limited income on my tax return for health insurance purposes. HI is such a ticking time bomb that I don't want to place all my bets on the ACA though.

Basically I understand that investing the $355/month provides much more flexibility and potential for the market to eclipse 3.75%, but knowing the mortgage would be retired in 15 years feels more"safe" for some reason.

Also - I don't itemize my deductions and probably never will, so any potential tax benefit doesn't apply to my situation.

I'm leaning toward the 30 year refi, but emotionally I want to go with the 15 year refi.

Now help me make the best decision :)

[DadJokes]

If you did the 30 year refi and invested that extra money at an annualized market rate of 9%, would the amount in that account be more than your mortgage balance after 15 years? I think that's the simplest way to answer it.

[Kronsey]

If you did the 30 year refi and invested that extra money at an annualized market rate of 9%, would the amount in that account be more than your mortgage balance after 15 years? I think that's the simplest way to answer it.

Yeah - of course if the market consistently returned 9%, I would have way more money and be able to easily payoff the remaining mortgage after 15 years. I already conceded that I THINK the market will outpace 3.75%, my PRIMARY concern is those investments kicking off enough income that would derail some of my income tax planning for HI purposes. That really is the only thing holding me back. Fear of increased income from that growing taxable account that screws up my APTC.

I do recognize trying to plan for something as fluid and jacked up as our healthcare system is foolish and a waste of time, but I have to make some sort of decision which amounts to a guess on whether I think the potential investment gains could impact my ability to get heavily discounted health insurance. I'm self employed with a chronic disease. I have to plan for a future which could change at any time (the HI marketplace) and that produces worry/fear/anxiety. 

Hope that better explains why I have a dilemma and why it isn't just as simple as trusting the market will outpace the mortgage interest rate.

[kenmoremmm]

If the goal is paying off the mortgage in 8 years, an S&P 500 investment is hardly safe.  That's trying to time the market over a relatively short period of time.  If the goal is to invest in the S&P until both the market is up and you have enough to pay off the house, without a set time period, then it's probably good advice (and the advice I give, as well).

i would like people here to pull me from the dark side of POYMC.

outstanding 30 year loan amount of $304k. 25 years left. 3.325%. PI = $1525/mo.

we sold a rental property and have $185k in cash (in addition to other reserve funds) that is earmarked for investments.

we were going to purchase some additional rentals in higher cap areas, and calc'd that we'd get about 6% ROI after all expenses. some deals fell through, so here we are.

i looked into recasting our mortgage using the $185k as a one time payment. this would reduce PI to $575/mo, or a net increase in cash flow of $950/mo. this is a 6.1% rate of return, if i'm doing math right (12*950/185000).

we would mostly likely, but not certainly POM within a few years if some cards fall right at work. 401k and roths are maxed out. i like the idea of increased cash flow, even if long term return on stocks is possible to be higher. my market-timing-gut says that we're not seeing 7% returns for averaged over the next 5 years (all hail thorstache), so i the mortgage is killed off in 5 years, it seems like a win.

agree or disagree?

[Telecaster]

i would like people here to pull me from the dark side of POYMC.

outstanding 30 year loan amount of $304k. 25 years left. 3.325%. PI = $1525/mo.

we sold a rental property and have $185k in cash (in addition to other reserve funds) that is earmarked for investments.

we were going to purchase some additional rentals in higher cap areas, and calc'd that we'd get about 6% ROI after all expenses. some deals fell through, so here we are.

i looked into recasting our mortgage using the $185k as a one time payment. this would reduce PI to $575/mo, or a net increase in cash flow of $950/mo. this is a 6.1% rate of return, if i'm doing math right (12*950/185000).

we would mostly likely, but not certainly POM within a few years if some cards fall right at work. 401k and roths are maxed out. i like the idea of increased cash flow, even if long term return on stocks is possible to be higher. my market-timing-gut says that we're not seeing 7% returns for averaged over the next 5 years (all hail thorstache), so i the mortgage is killed off in 5 years, it seems like a win.

agree or disagree?

If you don't recast your mortgage, you have something vastly more valuable than cash flow, namely cash.    You can invest it in the market or however you like and if the rental market turns around you'll have accessible resources such that you can re-enter it if an attractive deal comes up later. 

Also, the proper comparison timeline is 25 years (the amount remaining on your mortgage).   Beating 3.325% over that time frame is as close to a sure thing as you will get in life.   

[Kronsey]

...the proper comparison timeline is 25 years (the amount remaining on your mortgage).   Beating 3.325% over that time frame is as close to a sure thing as you will get in life.

And as has been mentioned before, if you can't outpace 3.325% over the next 25 years from investing, you will have way bigger problems than a paid off mortgage (our economy would have been in the toilet for 2.5 decades).

I am still firmly in the camp of invest with an eye towards complete mortgage elimination once you have the funds. You lose all flexibility with a refi and cutting your mortgage balance in half

What if you lose you job and can't afford the $575/mo?

And if you answer "well I'm a talented bloke who could easily scratch together $525/mo" then I would respond that you'd probably be able to scratch together  $1,525/month.

[EngagedToFIRE]

...the proper comparison timeline is 25 years (the amount remaining on your mortgage).   Beating 3.325% over that time frame is as close to a sure thing as you will get in life.

And as has been mentioned before, if you can't outpace 3.325% over the next 25 years from investing, you will have way bigger problems than a paid off mortgage (our economy would have been in the toilet for 2.5 decades).

I am still firmly in the camp of invest with an eye towards complete mortgage elimination once you have the funds. You lose all flexibility with a refi and cutting your mortgage balance in half

What if you lose you job and can't afford the $575/mo?

And if you answer "well I'm a talented bloke who could easily scratch together $525/mo" then I would respond that you'd probably be able to scratch together  $1,525/month.

I'm also in the "invest with an eye towards complete mortgage elimination once you have the funds" club.  However, the difference between $525/mo and $1525/mo is drastic.  $525/mo you can live comfortably with almost any full time job.  $1525 is a struggle if not nearly impossible.  Just ask anyone who makes $15/hr what an extra $1,000/mo mortgage would mean!

My personal advice, based on your last few comments, would be to take the 30 year and invest the leftover (and as much as you can).  This will then allow you to pay it off early on your own terms if you change your mind.  The interest difference is minimal enough to make the 30 year more enticing, especially with the extra cash flow.  You can still pay it off in 15 years if you wanted.  I think you are more of a pay off club person, with caveats.  And that's really ok.  Give yourself options by going with the 30 year, as you may find yourself much more "do not pay off" down the line.

[RWD]

What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

[Tyson]

What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

Is it the $185k you're thinking of putting into the house?  If so, then the math is easy, from a "safety from liquidity" standpoint.  You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k.  That's 10 years of payments you can make even with zero income. 

If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575.  It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.

[EngagedToFIRE]

What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

Is it the $185k you're thinking of putting into the house?  If so, then the math is easy, from a "safety from liquidity" standpoint.  You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k.  That's 10 years of payments you can make even with zero income. 

If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575.  It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.

$575 can be paid with any minimum wage job.  That's hardly risky.  And if someone is disabled and unable to work, $575 is well within average disability benefits as well.  There is simply no reason why $575 would be risky.  That's the type of monthly bill people dream of.  It nearly eliminates the risk.  You can do anything, work anywhere, and get by just fine.

[Dicey]

What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

Is it the $185k you're thinking of putting into the house?  If so, then the math is easy, from a "safety from liquidity" standpoint.  You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k.  That's 10 years of payments you can make even with zero income. 

If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575.  It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.

$575 can be paid with any minimum wage job.  That's hardly risky.  And if someone is disabled and unable to work, $575 is well within average disability benefits as well.  There is simply no reason why $575 would be risky.  That's the type of monthly bill people dream of.  It nearly eliminates the risk.  You can do anything, work anywhere, and get by just fine.

The principle works, no matter how much the mortgage is, that's why. RWD's example did not include any gains on the $185k. It would be reasonable for almost any investment to double in ten years time, so in actuality, the money would last far longer.

As for EngagedToFIRE's sunny optimism, let's say the reason you can't work is because you are diagnosed with cancer. Let's say you have decent insurance, 80/20 perhaps, and a smallish deductible, let's call it $5k. And you're even lucky enough to qualify for disability benefits. Not having to worry about how you're going to pay for your treatment, keep the roof over your head, including taxes, insurance, food, gas, etc. is priceless. Far-fetched you say? Dunno, it happens every day. People get injured on the job. People have to quit their jobs to take care of ailing family members every day. It's not so far fetched as you might think. Oh, and those numbers I used? Mine, when it happened to me. Fortunately, I made a full recovery and managed to stay out of debt. Many are not so lucky.

[Dicey]

I admit, I get a little skeevy when the thread that celebrates doing the less optimal thing crops up in my feed too often. Similarly, I don't (should that be "DONT"?) love it when this thread goes fallow for too long. I realize that doing something simple like making your regular old mortgage payment and socking the rest away in investments may not seem crow-worthy, but it's good to hear from folks who are making the wise decision to stay the course.

I'm making this post to drag our little thread back up to the surface, where it so rightly belongs. Mortgage rates have been  dropping steadily of late. Is anyone thinking about doing a re-fi to lower their rate or to take cash out? Just curious. Maybe you're on a low information diet. Maybe you don't know rates are dropping. In which case, you're welcome.

That's all I've got for now. Hope y'all are enjoying your summer.

[FIreDrill]

I admit, I get a little skeevy when the thread that celebrates doing the less optimal thing crops up in my feed too often. Similarly, I don't (should that be "DONT"?) love it when this thread goes fallow for too long. I realize that doing something simple like making your regular old mortgage payment and socking the rest away in investments may not seem crow-worthy, but it's good to hear from folks who are making the wise decision to stay the course.

I'm making this post to drag our little thread back up to the surface, where it so rightly belongs. Mortgage rates have been  dropping steadily of late. Is anyone thinking about doing a re-fi to lower their rate or to take cash out? Just curious. Maybe you're on a low information diet. Maybe you don't know rates are dropping. In which case, you're welcome.

That's all I've got for now. Hope y'all are enjoying your summer.

Rates have a little further to go for us to refinance again.  The no brainer refinpoint for us is 3.25 with no points and estimated 3k closing costs.  With the expected fed rate cut, it may be possible which would have us doing a second refi this year.  Break even on the numbers above would be 12mo.  We are continuing to invest money and watch rates, if the right opportunity comes up to refi to 3.25 and drop some money to remove PMI we may do it.  All depends on how the numbers play out though.  It's great having a decent stache to have these different options :)

Sent from my moto g(6) using Tapatalk

[nereo]

I'm making this post to drag our little thread back up to the surface, where it so rightly belongs. Mortgage rates have been  dropping steadily of late. Is anyone thinking about doing a re-fi to lower their rate or to take cash out? Just curious. Maybe you're on a low information diet. Maybe you don't know rates are dropping. In which case, you're welcome.

We're itching to buy a home, but we have to wait until some job prospects play out.  Might not be for a year until we cna pull the trigger.  It is frustrating to see rates so low and worry that you might not be able to take advantage of them. 
meanwhile, we paid our mortgage minimum once again on our home (now rented) in Canada.  2.49%

[Kierun]

Off and on I've considered looking at a VAIRRL but also wavering on whether or not we'll stay in our current place beyond 1-2 years.  If not, then probably end up selling the place, making the refi a loser. 

[Dicey]

Off and on I've considered looking at a VAIRRL but also wavering on whether or not we'll stay in our current place beyond 1-2 years.  If not, then probably end up selling the place, making the refi a loser.

That's an important consideration. Wise move.

[EngagedToFIRE]

What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

Is it the $185k you're thinking of putting into the house?  If so, then the math is easy, from a "safety from liquidity" standpoint.  You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k.  That's 10 years of payments you can make even with zero income. 

If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575.  It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.

$575 can be paid with any minimum wage job.  That's hardly risky.  And if someone is disabled and unable to work, $575 is well within average disability benefits as well.  There is simply no reason why $575 would be risky.  That's the type of monthly bill people dream of.  It nearly eliminates the risk.  You can do anything, work anywhere, and get by just fine.

The principle works, no matter how much the mortgage is, that's why. RWD's example did not include any gains on the $185k. It would be reasonable for almost any investment to double in ten years time, so in actuality, the money would last far longer.

As for EngagedToFIRE's sunny optimism, let's say the reason you can't work is because you are diagnosed with cancer. Let's say you have decent insurance, 80/20 perhaps, and a smallish deductible, let's call it $5k. And you're even lucky enough to qualify for disability benefits. Not having to worry about how you're going to pay for your treatment, keep the roof over your head, including taxes, insurance, food, gas, etc. is priceless. Far-fetched you say? Dunno, it happens every day. People get injured on the job. People have to quit their jobs to take care of ailing family members every day. It's not so far fetched as you might think. Oh, and those numbers I used? Mine, when it happened to me. Fortunately, I made a full recovery and managed to stay out of debt. Many are not so lucky.

There are many practical benefits of outrageous optimism. 

[FIreDrill]

It's been way too long since I've updated my little investment tracker here so I thought it would be best to fill in the last couple weeks of data.

726 to 401k
269 to HSA
605 to ESPP
462 to Taxable Brokerage

Investment Tracking
1/1/19     - $327,708
1/18/19   - $354,622
2/1/19    - $361,270
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719
4/26/19   - $411,264
5/10/19   - $408,897
5/24/19   - $401,664
6/7/19     - $412,268
6/21/19   - $427,153

YTD Change              = 99,645
Trailing 12mo change = 83,146

Our goal is to get our trailing 12mo change to 100,000 consistently.  Then we will focus harder on 100k in contributions per year which should be achievable in 2020 with a full year of higher incomes and bonuses.

[Fomerly known as something]

I mentioned this over in a Race to thread.  While the main reason I DPYMC is the opportunity cost of not having that money in the market, I also do it for the deduction. 

As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.  Also as a single person, I think it is way more common to still itemize as the standard Deduction is only $12,000 where $10,000 of that can be State and Local Taxes.     

So yes, I keep a mortgage for the tax destructibility.  This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.

[EngagedToFIRE]

I mentioned this over in a Race to thread.  While the main reason I DPYMC is the opportunity cost of not having that money in the market, I also do it for the deduction. 

As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.  Also as a single person, I think it is way more common to still itemize as the standard Deduction is only $12,000 where $10,000 of that can be State and Local Taxes.     

So yes, I keep a mortgage for the tax destructibility.  This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.

How were you doing a Roth with that income?

[sherr]

As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.

This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.

How were you doing a Roth with that income?

I don't think there are any income limits for contributing to a Roth 401k, only a Roth IRA.

[Fomerly known as something]

Yes, no income limits on a Roth 401k. 

I do the Roth now because of other aspects in my financial life which make it make sense.

[dandarc]

About to fix this major problem we have - a paid off house. Bank says so long as we take occupancy within 60 days of closing, they can do an owner-occupied loan, so we're looking to close in early August. Currently living a long way away from this house and renting it out but we're moving back in October. Question:

30 year at 4%

15 year at 3.125%

I'm thinking the 30 year because 4% is still very cheap and 15 extra years of compounding is a big deal. I recall that the breakeven is something like 7-8 years in the house. Does that seem right to y'all?

[Dicey]

About to fix this major problem we have - a paid off house. Bank says so long as we take occupancy within 60 days of closing, they can do an owner-occupied loan, so we're looking to close in early August. Currently living a long way away from this house and renting it out but we're moving back in October. Question:

30 year at 4%

15 year at 3.125%

I'm thinking the 30 year because 4% is still very cheap and 15 extra years of compounding is a big deal. I recall that the breakeven is something like 7-8 years in the house. Does that seem right to y'all?

Rates have been dropping, so shop around for a better rate than 4%. And absolutely take the 30. Still works in your favor if you keep investing, which you will, of course. Congratulations!

[FIreDrill]

Definitely shop around. I'm seeing 0 point refi's in my area at 3.5.

Also, right now I would consider doing a 6 to 10 month dollar cost average into the market with a large sum like that.  Just to mitigate some initial risk.  Just my opinion though.

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[dandarc]

Definitely shop around. I'm seeing 0 point refi's in my area at 3.5.

Also, right now I would consider doing a 6 to 10 month dollar cost average into the market with a large sum like that.  Just to mitigate some initial risk.  Just my opinion though.

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Lowest I'm seeing on bankrate for a 30 year is 3.75% - it is probably a smaller loan than most are thinking. Maybe $125K loan - will depend on the appraisal. Still a mid-6 figure difference in 30 years, with conservative assumptions.

[robartsd]

I'm 3 years into a 30 year fixed 3.75% mortgage. Purchased with 95% LTV and $56 PMI. I can request PMI removal based on appreciation, paying $300 for a BPO that must show 75% LTV. Based on lowest algorithmic estimate I've found (bottom of a tight Zestimate range) I'm currently at 73% LTV. If BPO comes back short of what I need, I would have up to 120 days to reduce the balance to cancel PMI based on the valuation. I estimate that within that period we could reduce the balance by about 4%. I'm trying to decide when to pull the trigger and request the BPO. One reason to wait is that Habitat for Humanity may bring Rock the Block to our neighborhood in September - we've applied to have some front yard landscaping improvements which could improve curb appeal.

[SwordGuy]

I'm 3 years into a 30 year fixed 3.75% mortgage. Purchased with 95% LTV and $56 PMI. I can request PMI removal based on appreciation, paying $300 for a BPO that must show 75% LTV. Based on lowest algorithmic estimate I've found (bottom of a tight Zestimate range) I'm currently at 73% LTV. If BPO comes back short of what I need, I would have up to 120 days to reduce the balance to cancel PMI based on the valuation. I estimate that within that period we could reduce the balance by about 4%. I'm trying to decide when to pull the trigger and request the BPO. One reason to wait is that Habitat for Humanity may bring Rock the Block to our neighborhood in September - we've applied to have some front yard landscaping improvements which could improve curb appeal.

Curb appeal helps sell a properly valued house faster than one without it, but it doesn't typically add much (if any) to the value of the house.   That's my take on it.   


If you can easily handle any likely appraisal shortfall then the sooner the better.  Paying for your own insurance isn't fun but at least you get some value out of it.  PMI is just you paying for someone else's insurance and that sucks.

[robartsd]

Curb appeal helps sell a properly valued house faster than one without it, but it doesn't typically add much (if any) to the value of the house.   That's my take on it.   


If you can easily handle any likely appraisal shortfall then the sooner the better.  Paying for your own insurance isn't fun but at least you get some value out of it.  PMI is just you paying for someone else's insurance and that sucks.

If Curb appeal is unlikely to factor in to a BPO, then I agree, sooner is better. I'm confident that we could pay down the principal enough to get PMI removed if the valuation comes back 3% below our target (5% below Zestimate). While I don't want to pay PMI any longer than needed, the $2k I've paid thus far provided the opportunity to get into the market years earlier than I otherwise would have; so overall it has been worthwhile.

[TomTX]

Taking recommendations for lenders - seriously looking at a cashout refi to reset to 30 years.

Unfortunately, Texas makes it an expensive PITA. Best I can find so far is 3.75% with $4.2k in closing costs. Ugh.

[EngagedToFIRE]

As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.

This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.

How were you doing a Roth with that income?

I don't think there are any income limits for contributing to a Roth 401k, only a Roth IRA.

Gotcha.  Learn something new everyday.

[Fomerly known as something]

Another month, another scheduled mortgage payment.  More importantly, I added up the dividends in my taxable account for the first six months of the year, they now "pay" my mortgage and my insurance.    Also 3% of my property taxes, goal is to see if they pay the entire PITI at RE.

[moonpalace]

I'm firmly in this club. But just before I really truly saw the light, I refinanced to a 15-year mortgage. It's got an unreal interest rate (2.75% fixed) so I don't regret the decision too much. I have about 12.5 years left on it. Balance is $243k.

Any thoughts about whether I should consider refinancing into a 30-year? What are the primary considerations in making that decision?

[SwordGuy]

I'm firmly in this club. But just before I really truly saw the light, I refinanced to a 15-year mortgage. It's got an unreal interest rate (2.75% fixed) so I don't regret the decision too much. I have about 12.5 years left on it. Balance is $243k.

Any thoughts about whether I should consider refinancing into a 30-year? What are the primary considerations in making that decision?

Got that same 2.75% fixed, 15yr rate about the same time.   Just sent a payment in today, we're down to 2 years.    I'm paying about $140 a month extra just so I can see the balance go down $1000 a month.   Helps me stay motivated not to pay it off faster because I can see progress each month. :)


1) Will you actually invest the difference between the payments?  Because if you won't, the answer is "No, don't do it."

2) Will your investments provide a higher average return, such as the 10% average returns from the US stock market?   Or less volatile returns like a 4% or higher fixed return?   Or will they produce more income than you would save in interest payments?   

3) Will you need the lower payments to do other things that you value much more than having the house paid off in 12.5 years?

4) Will having those lower house payments for another 30 years impact your FIRE plans in a bad way?

[Telecaster]

I'm firmly in this club. But just before I really truly saw the light, I refinanced to a 15-year mortgage. It's got an unreal interest rate (2.75% fixed) so I don't regret the decision too much. I have about 12.5 years left on it. Balance is $243k.

Any thoughts about whether I should consider refinancing into a 30-year? What are the primary considerations in making that decision?

Look at the dollar amount of interest you pay each month.    That's the number you want to reduce.   In theory, you want to push the principal payment as far into the future as you can.   

[moonpalace]

Got that same 2.75% fixed, 15yr rate about the same time.   Just sent a payment in today, we're down to 2 years.    I'm paying about $140 a month extra just so I can see the balance go down $1000 a month.   Helps me stay motivated not to pay it off faster because I can see progress each month. :)


1) Will you actually invest the difference between the payments?  Because if you won't, the answer is "No, don't do it."

2) Will your investments provide a higher average return, such as the 10% average returns from the US stock market?   Or less volatile returns like a 4% or higher fixed return?   Or will they produce more income than you would save in interest payments?   

3) Will you need the lower payments to do other things that you value much more than having the house paid off in 12.5 years?

4) Will having those lower house payments for another 30 years impact your FIRE plans in a bad way?

Thanks, @SwordGuy and @Telecaster ! All good thoughts.

I currently pay only $568 in interest each month, and it looks like that would really balloon if I went to a 30-year right now.

I don't have any particular need for the lower payments, other than wanting to do more investing. But at this point we're doing $60,000/year in pre-tax investing, plus mortgage and student-loan paydown, so it's maybe not imperative to invest more.

On the timing, the 12.5 years remaining is actually very convenient as that almost matches the point when I'll be able to retire from government with full lifetime health benefits.

So I'm thinking that unless rates go down it's not worth refinancing.

thanks again!


MP

[SwordGuy]

Got that same 2.75% fixed, 15yr rate about the same time.   Just sent a payment in today, we're down to 2 years.    I'm paying about $140 a month extra just so I can see the balance go down $1000 a month.   Helps me stay motivated not to pay it off faster because I can see progress each month. :)


1) Will you actually invest the difference between the payments?  Because if you won't, the answer is "No, don't do it."

2) Will your investments provide a higher average return, such as the 10% average returns from the US stock market?   Or less volatile returns like a 4% or higher fixed return?   Or will they produce more income than you would save in interest payments?   

3) Will you need the lower payments to do other things that you value much more than having the house paid off in 12.5 years?

4) Will having those lower house payments for another 30 years impact your FIRE plans in a bad way?

Thanks, @SwordGuy and @Telecaster ! All good thoughts.

I currently pay only $568 in interest each month, and it looks like that would really balloon if I went to a 30-year right now.

I don't have any particular need for the lower payments, other than wanting to do more investing. But at this point we're doing $60,000/year in pre-tax investing, plus mortgage and student-loan paydown, so it's maybe not imperative to invest more.

On the timing, the 12.5 years remaining is actually very convenient as that almost matches the point when I'll be able to retire from government with full lifetime health benefits.

So I'm thinking that unless rates go down it's not worth refinancing.

thanks again!


MP

I agree.

[Say What?]

Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!

[talltexan]

Keep the 2.75%!

If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.

[Dicey]

Keep the 2.75%!

If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.

This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.

[moonpalace]

Keep the 2.75%!

If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.

This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.

Thanks, @Dicey and @talltexan ! I think this is right. Currently it seems that I would be going up quite a bit on the rate.

So far, just shy of three years into DPOYM (and MMM) I've gone from $300k mortgage and about $50k invested to $243k mortgage and $250k invested. And those two numbers are diverging by about $6.5k per month. With every passing month the mortgage becomes less and less of a worry. Definitely feels like the right path!

[Tyson]

Keep the 2.75%!

If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.

This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.

Thanks, @Dicey and @talltexan ! I think this is right. Currently it seems that I would be going up quite a bit on the rate.

So far, just shy of three years into DPOYM (and MMM) I've gone from $300k mortgage and about $50k invested to $243k mortgage and $250k invested. And those two numbers are diverging by about $6.5k per month. With every passing month the mortgage becomes less and less of a worry. Definitely feels like the right path!

There's something incredibly powerful when your investments grow past the balance of your mortgage.  Looking at your investment balance and realizing "Hey, I could pay off my ENTIRE mortgage right now, if I wanted to".  It's really cool. 

[SwordGuy]

There's something incredibly powerful when your investments grow past the balance of your mortgage.  Looking at your investment balance and realizing "Hey, I could pay off my ENTIRE mortgage right now, if I wanted to".  It's really cool.

It's even cooler when you realize you can do that AND still be FIRED. :)

[Tyson]

There's something incredibly powerful when your investments grow past the balance of your mortgage.  Looking at your investment balance and realizing "Hey, I could pay off my ENTIRE mortgage right now, if I wanted to".  It's really cool.

It's even cooler when you realize you can do that AND still be FIRED. :)

At that point you officially have 1st world problems like "Oh man, what do I do with ALL MY MONEY?"  Haha.

[Brother Esau]

Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!

Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....

[Dicey]

Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!

Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....

If I were to attempt this, I would advise myself to select just one person to prosthelytize to. I'd spend the rest of my time teaching pigs to sing.