Author Topic: DONT Payoff your Mortgage Club  (Read 37887 times)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #200 on: April 03, 2017, 12:39:11 PM »
Ayup.
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evensjw

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Re: DONT Payoff your Mortgage Club
« Reply #201 on: April 04, 2017, 07:16:57 PM »
So, I think I may have ended up doing this slightly wrong ;-)

After reading this thread and finally being convinced that it was OK to not being paying extra towards my mortgage (which before I was always told as a gospel truth), I decided I would stop making the $300 additional payment towards principal each month.

Like a naughty boy, I was not maxing out my 401k.  Once I adjusted my contributions to equal an additional $300/month, it really didn't make much difference to my take home pay, since the contributions are pre-tax.  And I'm now pretty much at the point of maxing out, once contributions from bonus paychecks and such are accounted for.

Sooooo, I think I'll just keep paying the extra $300 on the mortgage anyway... At least until I clear some of this excess cash that seems to have built up in my checking accounts.

rpr

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Re: DONT Payoff your Mortgage Club
« Reply #202 on: April 04, 2017, 07:33:23 PM »
For most people, maxing the 401k before prepaying a low interest rate mortgage is likely to have better financial outcomes. I would also think that investing the $300 every month would result in a larger stash over the long term when compared to mortgage prepayment.

tomorrowsomewherenew

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Re: DONT Payoff your Mortgage Club
« Reply #203 on: April 05, 2017, 06:32:20 AM »
I think I need to join this club. Mathematically, I know paying off the mortgage is the wrong decision, but I feel the urge to do it anyway. So far, I have held off and haven't paid even $1 more than the minimum payment. We are 10 months into a 30 year VA @3.375.

The thing that I think we do need to consider is Obamacare subsidies. In retirement, if I need an additional $13k a year in income, that could cause me to lose or greatly reduce my subsidies. Has anyone come up with a spreadsheet for this? We're about 10-11 years out right now, so I figure if we need to knock out the mortgage or maybe refinance into a new 30 yr we can do that later.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #204 on: April 05, 2017, 06:44:07 AM »
I think I need to join this club. Mathematically, I know paying off the mortgage is the wrong decision, but I feel the urge to do it anyway. So far, I have held off and haven't paid even $1 more than the minimum payment. We are 10 months into a 30 year VA @3.375.

The thing that I think we do need to consider is Obamacare subsidies. In retirement, if I need an additional $13k a year in income, that could cause me to lose or greatly reduce my subsidies. Has anyone come up with a spreadsheet for this? We're about 10-11 years out right now, so I figure if we need to knock out the mortgage or maybe refinance into a new 30 yr we can do that later.

you just said it you're 10-11 years out right now.  Who knows what the healthcare landscape will look like then.  Just invest and evaluate closer to FIRE.  It may make sense with subsidies to have a paid off house but again its math.  If you slow pay it down now you cant get that money back and are stuck with where you are.  plus your mortgage will reduce with inflation.  so 13k today is really 9.4k in 11 years.
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FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #205 on: April 06, 2017, 12:01:56 PM »
Just threw another 1600 into my taxable investment account!

I may be receiving some unexpected money this month as well.  That would be another 5-7k that I can throw into my taxable account. 

Turning out to be a good start to the month!

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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #206 on: April 08, 2017, 01:25:28 PM »
So, I think I may have ended up doing this slightly wrong ;-)

After reading this thread and finally being convinced that it was OK to not being paying extra towards my mortgage (which before I was always told as a gospel truth), I decided I would stop making the $300 additional payment towards principal each month.

Like a naughty boy, I was not maxing out my 401k.  Once I adjusted my contributions to equal an additional $300/month, it really didn't make much difference to my take home pay, since the contributions are pre-tax.  And I'm now pretty much at the point of maxing out, once contributions from bonus paychecks and such are accounted for.

Sooooo, I think I'll just keep paying the extra $300 on the mortgage anyway... At least until I clear some of this excess cash that seems to have built up in my checking accounts.
There are many other options than just your 401k. HSA? Roth? Backdoor Roth? Don't forget if you're going to RE you'll want a nice, fat taxable investment account to live on. This is an awesome first step, but there's still a lot of low-hanging fruit to be picked. You cab do this!
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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #207 on: April 08, 2017, 01:31:57 PM »
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!

Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics threads on this subject.

ETA: The Department of Redundancy Department called and made me fix that.
« Last Edit: April 09, 2017, 12:24:23 AM by Dicey »
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FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #208 on: April 08, 2017, 01:41:44 PM »
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!

Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
Yes it's awesome seeing it click for people.  Although, it's also very frustrating when people that don't get it continually argue with "math" that is plain wrong or takes very incorrect assumptions..... :/

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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #209 on: April 09, 2017, 06:39:21 AM »
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!

Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
Yes it's awesome seeing it click for people.  Although, it's also very frustrating when people that don't get it continually argue with "math" that is plain wrong or takes very incorrect assumptions..... :/

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Thanks. One of them was frozens idea I just turned it into a thread. Also it's a never ending losing battle for some on the math side.  My new thread to determine what the FiRE demographic is around here shows many ~90% of respondents plan to use some version of the 4% rule meaning they should not be paying down mortgages.
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FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #210 on: April 09, 2017, 11:38:13 AM »
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!

Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
Yes it's awesome seeing it click for people.  Although, it's also very frustrating when people that don't get it continually argue with "math" that is plain wrong or takes very incorrect assumptions..... :/

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Thanks. One of them was frozens idea I just turned it into a thread. Also it's a never ending losing battle for some on the math side.  My new thread to determine what the FiRE demographic is around here shows many ~90% of respondents plan to use some version of the 4% rule meaning they should not be paying down mortgages.
I chuckled when I found your hidden motive behind that thread. Lol

It's a very valid point though.  How can you be so confident in using something for one part of FIRE but not for your mortgage when the numbers are identical?

We just have to get one convert at a time!

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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #211 on: April 09, 2017, 02:47:16 PM »
I gotta say this was my position long before MMM opened up shop. It's damn nice to hear other voices in the choir these days. The harmony is lovely!
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josh4trunks

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Re: DONT Payoff your Mortgage Club
« Reply #212 on: April 14, 2017, 05:48:36 PM »
I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.
Though, I could see a scenario though where someone wants to maximize FASFA benefits and draw-down taxable assets to lower debt on their primary home.



But I did want to bring up another thing I was running some numbers on. If you can lower your interest rate by choosing a shorter payback period, you do come out ahead.
I ran a scenario with the following assumptions...
  • $400K mortgage (this is just a multiplier and doesn't change which scenario wins)
  • 15 year @ 4.5% or 30 year @ 5%
  • I used "amortization-calc.com" to get the yearly amount spent on principal/interest
  • All funds saved by the lower payment of the 30 year mortgage are invested and increase at 7% per year, and are taxed at 15%
  • Mortgage interest is deducted at 31%

My question was, which mortgage would be ahead if at any year you decided to liquidate everything, debt and investments.
For the first 6 years the 15 year mortgage is ahead slightly, probably because the 30 year is paying mostly interest and investments haven't started to compound. But, by the 7th year the 30 year mortgage passes, and ends up $36.8K ahead at the end of 15 years. At this point I believe the 15 year mortgage pass the 30 year mortgage because with no mortgage payment all of that money could be invested.

Obviously the assumptions could be tweaked for different situations and I am happy to rerun the numbers with different assumptions. This is something to think about if you could commit to a shorter mortgage if they gave you better rates. I do not know what a realistic difference is in interest rates, but I suspect if you can save a large amount (like 1%), because it acts on the total mortgage amount, it equates to a much large ROI on the monthly mortgage savings being invested.

Sorry if this has been covered but I haven't had a chance to read through the whole thread yet.
EDIT
I made this spreadsheet a few months ago and wasn't reading the result backwards. My writeup has been corrected.
« Last Edit: April 14, 2017, 06:02:44 PM by josh4trunks »

sovereign

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Re: DONT Payoff your Mortgage Club
« Reply #213 on: April 15, 2017, 07:45:54 AM »
I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.
I agree as well with the idea of mortgage arbitrage.

However, in looking at the current outlook of investment options, getting a guaranteed return of 4.31% (my mortgage rate) seems like the best choice.  Stocks seem very overbought and currently declining.  Bonds are going to have an uphill battle against the Fed raising interest rates.  So instead of putting money in my IRAs (401K maxed), I'm choosing to make extra principal payments.  If something changes (stocks crash or corporate tax rates are reduced), I can always switch back to investing in the stock market via IRAs.

trashmanz

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Re: DONT Payoff your Mortgage Club
« Reply #214 on: April 15, 2017, 07:51:06 AM »
I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.
I agree as well with the idea of mortgage arbitrage.

However, in looking at the current outlook of investment options, getting a guaranteed return of 4.31% (my mortgage rate) seems like the best choice.  Stocks seem very overbought and currently declining.  Bonds are going to have an uphill battle against the Fed raising interest rates.  So instead of putting money in my IRAs (401K maxed), I'm choosing to make extra principal payments.  If something changes (stocks crash or corporate tax rates are reduced), I can always switch back to investing in the stock market via IRAs.

Essentially then you are a market timer.  Best of luck with that.

FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #215 on: April 15, 2017, 07:52:50 AM »
I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.
I agree as well with the idea of mortgage arbitrage.

However, in looking at the current outlook of investment options, getting a guaranteed return of 4.31% (my mortgage rate) seems like the best choice.  Stocks seem very overbought and currently declining.  Bonds are going to have an uphill battle against the Fed raising interest rates.  So instead of putting money in my IRAs (401K maxed), I'm choosing to make extra principal payments.  If something changes (stocks crash or corporate tax rates are reduced), I can always switch back to investing in the stock market via IRAs.
Good luck trying to time the market....

You should at least be taking advantage of your pre-tax IRA.

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nottoolatetostart

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Re: DONT Payoff your Mortgage Club
« Reply #216 on: April 16, 2017, 05:05:16 AM »
I know I have posted this elsewhere but I was in the camp of paying off our mortgage in the next 18 months or so (one fat, big wire at once for the unpaid principle balance, no to few extra principle payments before then).

You all, esp Boarder, convinced me that it does not have to be all or nothing. We just opted to convert our 15 yr to a 30 yr with much, much lower payments and we can cover those payments with a 4% rule now making us essentially FI with this refinance that occured this week!!!!!!

We just refinanced pretty close to existing balance (paid a bit more down to get to a desirable mortgage payment balancing FI today and cash on hand). Our appraisal came in higher than expected and we could have gotten cash back to refinance a higher amount - we didn't want the higher payments. Otherwise, we would have kept our 15 yr mortgage.  I was able to get 4% before rates went up. It's done now and settlement went through. Once I get this puppy on an auto debit program (hopefully tomorrow), I never want to think about my mortgage again.

Having a lower mortgage P&I payment of $899 (we pay our tax and insurance ourselves twice a year) feels almost like it is paid off and manageable even in bad circumstances. Plus, since this is a fixed rate, this payment will soon be even cheaper as time goes on. And we keep our cash.

So my advice to people that are so focused on having a paid off house is to find a mortgage payment that is stomachable (is that a word?), that will "feel" like it is paid off, and maybe refinance to that amount so you get best of both worlds. Through your property taxes, you are leasing the land anyways....so the payment never really goes away.

Thanks everyone.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #217 on: April 16, 2017, 06:12:06 AM »
...Having a lower mortgage P&I payment of $899 (we pay our tax and insurance ourselves twice a year) feels almost like it is paid off and manageable even in bad circumstances. Plus, since this is a fixed rate, this payment will soon be even cheaper as time goes on. And we keep our cash.

So my advice to people that are so focused on having a paid off house is to find a mortgage payment that is stomachable (is that a word?), that will "feel" like it is paid off, and maybe refinance to that amount so you get best of both worlds. Through your property taxes, you are leasing the land anyways....so the payment never really goes away.

Thanks everyone.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #218 on: April 16, 2017, 12:49:28 PM »
I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.
I agree as well with the idea of mortgage arbitrage.

However, in looking at the current outlook of investment options, getting a guaranteed return of 4.31% (my mortgage rate) seems like the best choice.  Stocks seem very overbought and currently declining.  Bonds are going to have an uphill battle against the Fed raising interest rates.  So instead of putting money in my IRAs (401K maxed), I'm choosing to make extra principal payments.  If something changes (stocks crash or corporate tax rates are reduced), I can always switch back to investing in the stock market via IRAs.

This is a horrible decision. This debate that shouldn't be a debate only exists with taxable dollars. You can't magically go back to 2015 and fund an IRA once the window has passed those tax savings are gone.

Also as mentioned above you're market timing based on your rationale​. A terrible thing to do. Worse even than paying down your mortgage.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #219 on: April 17, 2017, 07:18:38 AM »
I know I have posted this elsewhere but I was in the camp of paying off our mortgage in the next 18 months or so (one fat, big wire at once for the unpaid principle balance, no to few extra principle payments before then).

You all, esp Boarder, convinced me that it does not have to be all or nothing. We just opted to convert our 15 yr to a 30 yr with much, much lower payments and we can cover those payments with a 4% rule now making us essentially FI with this refinance that occured this week!!!!!!

We just refinanced pretty close to existing balance (paid a bit more down to get to a desirable mortgage payment balancing FI today and cash on hand). Our appraisal came in higher than expected and we could have gotten cash back to refinance a higher amount - we didn't want the higher payments. Otherwise, we would have kept our 15 yr mortgage.  I was able to get 4% before rates went up. It's done now and settlement went through. Once I get this puppy on an auto debit program (hopefully tomorrow), I never want to think about my mortgage again.

Having a lower mortgage P&I payment of $899 (we pay our tax and insurance ourselves twice a year) feels almost like it is paid off and manageable even in bad circumstances. Plus, since this is a fixed rate, this payment will soon be even cheaper as time goes on. And we keep our cash.

So my advice to people that are so focused on having a paid off house is to find a mortgage payment that is stomachable (is that a word?), that will "feel" like it is paid off, and maybe refinance to that amount so you get best of both worlds. Through your property taxes, you are leasing the land anyways....so the payment never really goes away.

Thanks everyone.

This is awesome glad my over persistence has helped you see the light AND made you FI all by just moving around some debt essentially. So awesome and fantastic news
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FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #220 on: April 21, 2017, 04:08:09 PM »
Just deposited some unexpected income into our checking.  First thing I did was set up a transfer for that exact amount to our taxable brokerage account adding a little over 5,500 to VTSAX.

I have a lofty stretch goal of having 50k in our taxable brokerage account by years end.  We started the year at 0 and are over 10k now.  50k is doable but it's a lot on top of our normal pre-tax contributions, which come out to around 62k per year.

Focusing on investing has really encouraged me to cut back even more and get every cent I can out of our budget by eliminating purchases that just aren't worth it to us.

Karinajane8

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Re: DONT Payoff your Mortgage Club
« Reply #221 on: April 26, 2017, 09:25:09 PM »
I am currently trying to decide between a few options.  I'd love input/help with the math.
My husband and I are beginning construction on our home (he is a builder/log home kit sales).  We will still own the "model home" we've been living in and using as an office meaning there are 2 mortgages in our future.  (We are not paying extra on the 30 year fixed at 3.5% with 25 years to go!)
Options:
(1) Should we take out a HELOC on the property (best I can find locally is prime (4% right now)) to fund construction costs over our savings then refinance at completion?
(2)(a) Should we take out a mortgage right now (15, 20, 30?) to hopefully lock in a lower rate than we could get in 12-18 months (and avoid a second closing)?
(2)(b) If we go this route, do we aim high? 

(Numbers just in case: Construction estimate is 300k, we've already paid about 50k, have 100k earmarked to spend from savings, and will aim to keep final project well under estimate.  We're adding another kiddo and my salary will be halved starting this fall when I go part-time so keeping costs/payments low is a priority)
Thanks in advance and please let me know if this should be posted elsewhere.
« Last Edit: April 27, 2017, 05:26:22 AM by Karinajane8 »

dreadmoose

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Re: DONT Payoff your Mortgage Club
« Reply #222 on: April 27, 2017, 12:36:25 AM »
I'm in to this goal. I plan on paying minimum on my mortgage (403K at 2.19% for 30 years).

Ideally I'd go back 2 years and not agree to buy the condo but hindsight and all that. Now I'm toying with heloc and such for investing in the next few years (or at the 5 year mark as that's when the rate changes).

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albireo13

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Re: DONT Payoff your Mortgage Club
« Reply #223 on: April 27, 2017, 05:02:54 AM »
We have $340K mortgage, 30yr fixed at 3.624% ... one year in.
We have about $120K in equity.

Not too worried about paying it off.   We will likely sell and downsize again after retiring.
Right now it makes more sense to invest instead of paying the mortg. down.

Since mortgage interest is tax deductible, the effective rate is lower than the face value rate.

We are in 28% marginal tax rate so, my effective rate is actually (1- 0.28)*3.625 = 2.61% !
I can easily beat that by far,  with investments.





boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #224 on: April 27, 2017, 05:51:07 AM »
We have $340K mortgage, 30yr fixed at 3.624% ... one year in.
We have about $120K in equity.

Not too worried about paying it off.   We will likely sell and downsize again after retiring.
Right now it makes more sense to invest instead of paying the mortg. down.

Since mortgage interest is tax deductible, the effective rate is lower than the face value rate.

We are in 28% marginal tax rate so, my effective rate is actually (1- 0.28)*3.625 = 2.61% !
I can easily beat that by far,  with investments.

dont forget your state taxes if you have any.  we're 25% marginal plus 6% state making us 2.2% WHY WOULD YOU EVER PAY THAT OFF!!
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bb11

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Re: DONT Payoff your Mortgage Club
« Reply #225 on: May 10, 2017, 12:29:04 PM »
Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #226 on: May 10, 2017, 12:37:25 PM »
Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?

No most debts under 5.5% should not be paid off currently see below. and if you havent maxed tax advantaged space dont pay off debts under 7.5%

Current 10-year Treasury note yield is ~2.5%.  See           
   http://quotes.wsj.com/bond/BX/TMUBMUSD10Y         
           
WHAT           
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund mega backdoor Roth if applicable           
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account with any extra.           
           
WHY           
0. Give yourself at least enough buffer to avoid worries about bouncing checks           
1. Company match rates are likely the highest percent return you can get on your money           
2. When the guaranteed return is this high, take it.*
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.           
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between.
   See Credits can make Traditional better than Roth for lower incomes and other posts in that thread about some exceptions to the rule.
   See Traditional versus Roth - Bogleheads for even more details and exceptions.
   The 'Calculations' tab in the Case Study Spreadsheet can show marginal rates for savings or withdrawals.
5. See #4 for choice of traditional or Roth for 401k           
6. Applicability depends on the rules for the specific 401k           
7. Again, take the risk-free return if high enough           
8. Because earnings, even if taxed, are beneficial           
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Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #227 on: May 10, 2017, 01:41:15 PM »
Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?

It is just about the gap in the difference between investment returns and mortgage rates.   Whether you itemize on your tax return or not may also impact the size of your gap where it matters.

ARS had a good thread.  If I recall, within 2%, it is up to you what you choose, more than 2% gap (mortgage lower) and you definitely want to stay invested versus paying off mortgage, unless you have other non-monetary reasons in play.

Jenny1974

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Re: DONT Payoff your Mortgage Club
« Reply #228 on: May 10, 2017, 01:57:11 PM »
About 14 1/2 year of a 15 year note at 2.75% to go . . with no intention of paying it off early!

bb11

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Re: DONT Payoff your Mortgage Club
« Reply #229 on: May 10, 2017, 03:48:08 PM »
Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?

It is just about the gap in the difference between investment returns and mortgage rates.   Whether you itemize on your tax return or not may also impact the size of your gap where it matters.

ARS had a good thread.  If I recall, within 2%, it is up to you what you choose, more than 2% gap (mortgage lower) and you definitely want to stay invested versus paying off mortgage, unless you have other non-monetary reasons in play.
Thanks for the responses. So what I am seeing is any time debt is available under 5%, you ought to take it and invest while just making minimum payments? Because for the last year I put all expenses on a credit card at 0% promo APR while paying the minimums and investing what I would have paid the CC company, and then at the end of the 12 month promo period I did a 0% balance transfer fee to another card. I am currently at a $5500 balance with 14 months left at 0%, and I already have another card picked out with a 0% balance transfer fee that I could put the balance on for another 15 months. Eventually I will have a $15k or so balance that I'll need to pay off in full in the fall of 2019, but in the meantime I'll have gotten 3 years of investing returns without paying a dime of interest.

Why are so few people doing this? Is it just because it's a small amount of money compared to the mortgage? At 10% returns I'm already making $550 a year in free income using this method, and it's very simple to do. Car loans are another obvious candidate, as you can often get 0% interest. The same could be said for undergraduate student loans. Most of them are 3% interest or so (if federal) and the interest is subsidized until after you graduate (meaning you can go 4-5 years at 0% interest. If you don't need the money to actually pay tuition, why not loan up to the hilt and invest it at all? Just curious why it's typically only mortgage loans where people recommend investing instead of paying more on low interest rates.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #230 on: May 10, 2017, 04:45:28 PM »
Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?

It is just about the gap in the difference between investment returns and mortgage rates.   Whether you itemize on your tax return or not may also impact the size of your gap where it matters.

ARS had a good thread.  If I recall, within 2%, it is up to you what you choose, more than 2% gap (mortgage lower) and you definitely want to stay invested versus paying off mortgage, unless you have other non-monetary reasons in play.
Thanks for the responses. So what I am seeing is any time debt is available under 5%, you ought to take it and invest while just making minimum payments? Because for the last year I put all expenses on a credit card at 0% promo APR while paying the minimums and investing what I would have paid the CC company, and then at the end of the 12 month promo period I did a 0% balance transfer fee to another card. I am currently at a $5500 balance with 14 months left at 0%, and I already have another card picked out with a 0% balance transfer fee that I could put the balance on for another 15 months. Eventually I will have a $15k or so balance that I'll need to pay off in full in the fall of 2019, but in the meantime I'll have gotten 3 years of investing returns without paying a dime of interest.

Why are so few people doing this? Is it just because it's a small amount of money compared to the mortgage? At 10% returns I'm already making $550 a year in free income using this method, and it's very simple to do. Car loans are another obvious candidate, as you can often get 0% interest. The same could be said for undergraduate student loans. Most of them are 3% interest or so (if federal) and the interest is subsidized until after you graduate (meaning you can go 4-5 years at 0% interest. If you don't need the money to actually pay tuition, why not loan up to the hilt and invest it at all? Just curious why it's typically only mortgage loans where people recommend investing instead of paying more on low interest rates.

Why aren't more people doing this?

1) Most people live paycheck to paycheck, investing is a foreign language.

2) You are betting that in 3 years you'll be able to sell the stock for a profit.   In 3 years you might be able to do that.  Or the market might be down 50% and now you've got a whopping big credit card bill at 20% or more.  Won't take long to wipe out any profits at that interest rate. 

3) The more you do this, the harder it is to get a great deal on the next 0% card.  Or to get one at all, because your % of available credit in use gets higher and higher.

4) Do you really get 0% interest and 0% transfer fee with your new card offers?  All the ones I ever see want 3% or more up front as a fee, then 0% for many months afterwards.   

bb11

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Re: DONT Payoff your Mortgage Club
« Reply #231 on: May 10, 2017, 06:01:22 PM »
Quote
1) Most people live paycheck to paycheck, investing is a foreign language.

Well yes of course. I'm referring to people on MMM. I understand why most of society is not doing this. The median net worth in the US is ~$100k. People aren't investing. But I only really hear taking advantage of cheap credit in reference to mortgages on MMM, even though it shouldn't matter what loan you use.

Quote
2) You are betting that in 3 years you'll be able to sell the stock for a profit.   In 3 years you might be able to do that.  Or the market might be down 50% and now you've got a whopping big credit card bill at 20% or more.  Won't take long to wipe out any profits at that interest rate. 

It's true the markets could be down at that point. Of course that's true for any investment. I won't have a whopping credit card bill either way though. For two months or so before the final bill is due you just save your cash instead of immediately investing it. The cash flow from work will cover the bill, I'm not going to sell any investments or anything.

Quote
3) The more you do this, the harder it is to get a great deal on the next 0% card.  Or to get one at all, because your % of available credit in use gets higher and higher.

This isn't true. I'm talking about opening 2 extra cards over 3-4 years. Credit churners (a group which I am a part of) open many more cards then this in a shorter time span.

Quote
4) Do you really get 0% interest and 0% transfer fee with your new card offers?  All the ones I ever see want 3% or more up front as a fee, then 0% for many months afterwards. 

Yes. Here's an example. Open this Citi card: https://tinyurl.com/lg9y673
That gives you 21 months of purchases at 0%. Then open this Barclays card with a 0% balance transfer offer and 0% promo APR for 15 months: https://tinyurl.com/h8qvrbr
Transfer your balance on that, then when 15 months are up transfer your balance to the Chase Slate 0% balance transfer card and 0% promo APR for 15 months: https://creditcards.chase.com/slate-credit-card/

Boom. You've just paid for all of your expenses (besides probably rent) with someone else's money for 51 months (4.3 years) without paying a dime of interest, meanwhile all of your cash is invested. If you run say $7k of non-rent expenses per year like me then the average balance on your card over that time was about $15k, meaning over 4 years at 10% compounding you made about $7k in extra income with this method. In the last 3 months before the final balance is due you just save your cashflows to pay off the card.

What am I missing? Why not take advantage of a 0% loan, when this whole thread is advocating investing money rather than paying a 4% loan down?

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #232 on: May 10, 2017, 06:23:13 PM »
Well, then I guess the reason more people aren't doing it is because, like me, they didn't realize they could!

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #233 on: May 11, 2017, 05:59:58 AM »
Quote
1) Most people live paycheck to paycheck, investing is a foreign language.

Well yes of course. I'm referring to people on MMM. I understand why most of society is not doing this. The median net worth in the US is ~$100k. People aren't investing. But I only really hear taking advantage of cheap credit in reference to mortgages on MMM, even though it shouldn't matter what loan you use.

Quote
2) You are betting that in 3 years you'll be able to sell the stock for a profit.   In 3 years you might be able to do that.  Or the market might be down 50% and now you've got a whopping big credit card bill at 20% or more.  Won't take long to wipe out any profits at that interest rate. 

It's true the markets could be down at that point. Of course that's true for any investment. I won't have a whopping credit card bill either way though. For two months or so before the final bill is due you just save your cash instead of immediately investing it. The cash flow from work will cover the bill, I'm not going to sell any investments or anything.

Quote
3) The more you do this, the harder it is to get a great deal on the next 0% card.  Or to get one at all, because your % of available credit in use gets higher and higher.

This isn't true. I'm talking about opening 2 extra cards over 3-4 years. Credit churners (a group which I am a part of) open many more cards then this in a shorter time span.

Quote
4) Do you really get 0% interest and 0% transfer fee with your new card offers?  All the ones I ever see want 3% or more up front as a fee, then 0% for many months afterwards. 

Yes. Here's an example. Open this Citi card: https://tinyurl.com/lg9y673
That gives you 21 months of purchases at 0%. Then open this Barclays card with a 0% balance transfer offer and 0% promo APR for 15 months: https://tinyurl.com/h8qvrbr
Transfer your balance on that, then when 15 months are up transfer your balance to the Chase Slate 0% balance transfer card and 0% promo APR for 15 months: https://creditcards.chase.com/slate-credit-card/

Boom. You've just paid for all of your expenses (besides probably rent) with someone else's money for 51 months (4.3 years) without paying a dime of interest, meanwhile all of your cash is invested. If you run say $7k of non-rent expenses per year like me then the average balance on your card over that time was about $15k, meaning over 4 years at 10% compounding you made about $7k in extra income with this method. In the last 3 months before the final balance is due you just save your cashflows to pay off the card.

What am I missing? Why not take advantage of a 0% loan, when this whole thread is advocating investing money rather than paying a 4% loan down?

so the game youre playing used to be popular when fixed interest rates were in the high single digits to low double digits b/c guaranteed return.  And i dont remember who one of the main players in that was but he pokes his head in from time to time.  He doesnt play this game anymore.  using it to invest is treading on a very slippery slope b/c as SwordGuy stated you cant be sure those cards will always be there.  if you want to start another thread on this topic go ahead but dont derail this thread - its purely for not paying down your mortgage. 

https://www.fatwallet.com/forums/finance/813161

Here is secondcor521's thread from back in the day on how he took your idea to extremes.  but he was using fixed interest return whch doesnt exist like it does now.  i'm all for a thread on discussing this and looking at the risks.  i see them as quite steep.
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bb11

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Re: DONT Payoff your Mortgage Club
« Reply #234 on: May 11, 2017, 10:27:47 AM »
Quote
1) Most people live paycheck to paycheck, investing is a foreign language.

Well yes of course. I'm referring to people on MMM. I understand why most of society is not doing this. The median net worth in the US is ~$100k. People aren't investing. But I only really hear taking advantage of cheap credit in reference to mortgages on MMM, even though it shouldn't matter what loan you use.

Quote
2) You are betting that in 3 years you'll be able to sell the stock for a profit.   In 3 years you might be able to do that.  Or the market might be down 50% and now you've got a whopping big credit card bill at 20% or more.  Won't take long to wipe out any profits at that interest rate. 

It's true the markets could be down at that point. Of course that's true for any investment. I won't have a whopping credit card bill either way though. For two months or so before the final bill is due you just save your cash instead of immediately investing it. The cash flow from work will cover the bill, I'm not going to sell any investments or anything.

Quote
3) The more you do this, the harder it is to get a great deal on the next 0% card.  Or to get one at all, because your % of available credit in use gets higher and higher.

This isn't true. I'm talking about opening 2 extra cards over 3-4 years. Credit churners (a group which I am a part of) open many more cards then this in a shorter time span.

Quote
4) Do you really get 0% interest and 0% transfer fee with your new card offers?  All the ones I ever see want 3% or more up front as a fee, then 0% for many months afterwards. 

Yes. Here's an example. Open this Citi card: https://tinyurl.com/lg9y673
That gives you 21 months of purchases at 0%. Then open this Barclays card with a 0% balance transfer offer and 0% promo APR for 15 months: https://tinyurl.com/h8qvrbr
Transfer your balance on that, then when 15 months are up transfer your balance to the Chase Slate 0% balance transfer card and 0% promo APR for 15 months: https://creditcards.chase.com/slate-credit-card/

Boom. You've just paid for all of your expenses (besides probably rent) with someone else's money for 51 months (4.3 years) without paying a dime of interest, meanwhile all of your cash is invested. If you run say $7k of non-rent expenses per year like me then the average balance on your card over that time was about $15k, meaning over 4 years at 10% compounding you made about $7k in extra income with this method. In the last 3 months before the final balance is due you just save your cashflows to pay off the card.

What am I missing? Why not take advantage of a 0% loan, when this whole thread is advocating investing money rather than paying a 4% loan down?

so the game youre playing used to be popular when fixed interest rates were in the high single digits to low double digits b/c guaranteed return.  And i dont remember who one of the main players in that was but he pokes his head in from time to time.  He doesnt play this game anymore.  using it to invest is treading on a very slippery slope b/c as SwordGuy stated you cant be sure those cards will always be there.  if you want to start another thread on this topic go ahead but dont derail this thread - its purely for not paying down your mortgage. 

https://www.fatwallet.com/forums/finance/813161

Here is secondcor521's thread from back in the day on how he took your idea to extremes.  but he was using fixed interest return whch doesnt exist like it does now.  i'm all for a thread on discussing this and looking at the risks.  i see them as quite steep.

Okay, I started a new thread. Here's the link for those interested:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/using-cheap-credit-(lt4-interest)-to-invest/

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #235 on: May 12, 2017, 07:20:15 AM »

Quote
3) The more you do this, the harder it is to get a great deal on the next 0% card.  Or to get one at all, because your % of available credit in use gets higher and higher.

This isn't true. I'm talking about opening 2 extra cards over 3-4 years. Credit churners (a group which I am a part of) open many more cards then this in a shorter time span.


I've read best practices of credit churning, and they advocate setting aside a healthy slug of cash for rapid payoff of a card when something goes wrong. That cash will fall behind when compared to simply investing.

I've considered this approach, and even tried it for a year, with my goal to put enough spending on the 0% card to offset the payment of principal toward my mortgage...figuring out the optimal amount to carry as balance depends on your income/savings rate and your other debts. One of the things I learned during this year was that I'm a little less than perfect when it comes to the personal-record-keeping that credit churning requires. I expect I'll be carrying $10,000-ish long term, but I don't think I have the risk-tolerance to go much greater than that.

sisto

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Re: DONT Payoff your Mortgage Club
« Reply #236 on: May 23, 2017, 04:58:36 PM »
Please forgive me if someone has already asked this here the thread got pretty long. I'm wondering if anyone has created the calculations to determine if you should refi to a 30 year mortgage from a 15 year in order to shave time off of FIRE date? I have 13 years left on my 15 year and currently owe $187K. 3.25% rate. I plan to FIRE is about 4 years. I'm wondering if there is a way to calculate if it would be a good idea to refi for a longer term. Too many variables for my time brain to figure out a formula.
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josh4trunks

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Re: DONT Payoff your Mortgage Club
« Reply #237 on: May 23, 2017, 05:52:27 PM »
Please forgive me if someone has already asked this here the thread got pretty long. I'm wondering if anyone has created the calculations to determine if you should refi to a 30 year mortgage from a 15 year in order to shave time off of FIRE date? I have 13 years left on my 15 year and currently owe $187K. 3.25% rate. I plan to FIRE is about 4 years. I'm wondering if there is a way to calculate if it would be a good idea to refi for a longer term. Too many variables for my time brain to figure out a formula.

I made a spreadsheet to compare 15-year vs 30-year. I would share it but would need to spend more time making the spreadsheet straight forward to use.

Inputs are...
  • 30-year rate
  • 15-year rate
  • fed+state tax rate > for mortgage interest deduction savings
  • rate of return on investments
  • I assume 15% tax rate on dividends and appreciation

I currently pull in the yearly principal and interest payments from amortization-calc.com, but ideally I could build this in. It then shows what scenario would be ahead every year.
Generally, the 15 year is ahead at first and the 30 year passes it at some point. With a 4% 30-year, 3% 15-year, and 6.8% ROI, the 30-year passes the 15-year between year 10-11.

I believe in reality you don't get a whole point difference between terms, and 6.8% ROI would increase with inflation factored in, so 30-year would actually win out several years sooner.

sisto

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Re: DONT Payoff your Mortgage Club
« Reply #238 on: May 23, 2017, 09:10:04 PM »
Please forgive me if someone has already asked this here the thread got pretty long. I'm wondering if anyone has created the calculations to determine if you should refi to a 30 year mortgage from a 15 year in order to shave time off of FIRE date? I have 13 years left on my 15 year and currently owe $187K. 3.25% rate. I plan to FIRE is about 4 years. I'm wondering if there is a way to calculate if it would be a good idea to refi for a longer term. Too many variables for my time brain to figure out a formula.

I made a spreadsheet to compare 15-year vs 30-year. I would share it but would need to spend more time making the spreadsheet straight forward to use.

Inputs are...
  • 30-year rate
  • 15-year rate
  • fed+state tax rate > for mortgage interest deduction savings
  • rate of return on investments
  • I assume 15% tax rate on dividends and appreciation

I currently pull in the yearly principal and interest payments from amortization-calc.com, but ideally I could build this in. It then shows what scenario would be ahead every year.
Generally, the 15 year is ahead at first and the 30 year passes it at some point. With a 4% 30-year, 3% 15-year, and 6.8% ROI, the 30-year passes the 15-year between year 10-11.

I believe in reality you don't get a whole point difference between terms, and 6.8% ROI would increase with inflation factored in, so 30-year would actually win out several years sooner.
Thanks for this! Yes, I agree I think in the long run it's better I just find it hard to quantify. I agree the difference in interest should be less than 1%, but this is at least something to start with.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #239 on: May 24, 2017, 04:13:35 AM »
http://michaelbluejay.com/house/15vs30.html

I didn't make one bc here is the online one. It's typically a 7 year break even.  Then the 30 wins. That being said it also needs to be weighed against your current loan.

I'd likely just be comparing your current loan to the 30. I doubt refinancing a 15 year mortgage 2 years in is worth it if only going to a 15 year.
« Last Edit: May 24, 2017, 04:15:59 AM by boarder42 »
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josh4trunks

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Re: DONT Payoff your Mortgage Club
« Reply #240 on: May 24, 2017, 01:07:31 PM »
http://michaelbluejay.com/house/15vs30.html

I didn't make one bc here is the online one. It's typically a 7 year break even.  Then the 30 wins. That being said it also needs to be weighed against your current loan.

I'd likely just be comparing your current loan to the 30. I doubt refinancing a 15 year mortgage 2 years in is worth it if only going to a 15 year.

Awesome, that site is great. Verify's the spreadsheet I was using but is much easier to use/understand.

I'm thinking this could be taken away from the results, at least for the 3-4% mortgage interest range we are currently in.
* For the first few years a lower interest rate beats lower payments, because that interest acts upon the entire mortgage balance
* But as years pass, a lower payment allows more money to be compounding in an investment account instead of locked up as equity

Personally, for my next home, I am going to consider an ARM for the low interest and payment. I'm thinking I can always pay it down very quickly using taxable accounts if they raise the interest rate on me significantly.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #241 on: May 24, 2017, 01:18:36 PM »
http://michaelbluejay.com/house/15vs30.html

I didn't make one bc here is the online one. It's typically a 7 year break even.  Then the 30 wins. That being said it also needs to be weighed against your current loan.

I'd likely just be comparing your current loan to the 30. I doubt refinancing a 15 year mortgage 2 years in is worth it if only going to a 15 year.

Awesome, that site is great. Verify's the spreadsheet I was using but is much easier to use/understand.

I'm thinking this could be taken away from the results, at least for the 3-4% mortgage interest range we are currently in.
* For the first few years a lower interest rate beats lower payments, because that interest acts upon the entire mortgage balance
* But as years pass, a lower payment allows more money to be compounding in an investment account instead of locked up as equity

Personally, for my next home, I am going to consider an ARM for the low interest and payment. I'm thinking I can always pay it down very quickly using taxable accounts if they raise the interest rate on me significantly.

depending on where rates are compared to their norm i think this could be a good strategy.  if we're at an all time low again which i dont think we will be i'd rather lock that in to not tie up money in my house or have a higher rate,  this is all relative to the amount of time you plan to occupy the property though for us is 20+ years so our 3.25% rate will likely beat the 2.5% ARM over the life of the mortgage.  if it doesnt i really didnt miss out on that much.
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Gardo

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Re: DONT Payoff your Mortgage Club
« Reply #242 on: May 26, 2017, 07:42:39 AM »
I have a 5 Fixed/1 ARM so it just makes sense to pay down the mortgage fast to a manageable level before the 1 ARM kicks in annually.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #243 on: May 26, 2017, 08:08:20 AM »
I have a 5 Fixed/1 ARM so it just makes sense to pay down the mortgage fast to a manageable level before the 1 ARM kicks in annually.

actually makes no sense.  you should invest the difference. then see what if any the rate adjusts to. and evaluate annually or REFI at the end of the 5 year fixed period.
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FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #244 on: May 26, 2017, 11:32:26 AM »
Been a while since I updated my Investment/Mortgage numbers. 


                       Investment Balance                Mortgage Balance

01/31/16 =              129,707                               204,466
02/29/16 =              137,003                               204,102
03/31/16 =              151,122                               203,738
04/30/16 =              158,218                               203,374
05/31/16 =              176,190                               203,010
06/30/16 =              183,020                               202,846
07/31/16 =              195,013                               202,482
08/31/16 =              190,813                               202,118
09/30/16 =              192,290                               201,754
10/31/16 =              190,672                               201,390
11/30/16 =              198,065                               201,026
12/31/16 =              203,004                               200,650
01/31/17 =              212,600                               203,200 <----- Refinanced out of a 5/1 ARM to a fix 30@4.125 and dropped PMI due to value increase
02/28/17 =              225,035                               202,913
03/31/17 =              240,341                               202,626
04/30/17 =              258,657                               202,338
05/31/17 =              267,273                               202,048

End of Year Goal =   300,000


Investments have been increasing at a good pace for us this year.  Aiming to break 300k invested by the end of the year!
« Last Edit: May 31, 2017, 02:15:50 PM by FrozenBits »

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #245 on: May 27, 2017, 04:43:03 PM »
Nice work frozen.  This market has been nuts.
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tyort1

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Re: DONT Payoff your Mortgage Club
« Reply #246 on: May 27, 2017, 05:39:11 PM »
Investments have been increasing at a good pace for us this year.  Aiming to break 300k invested by the end of the year!

Love that in December the value of your investments blew past the cost of your mortgage!
Frugalite in training.

FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #247 on: May 27, 2017, 06:38:24 PM »
Nice work frozen.  This market has been nuts.
Yeah this market is ridiculous.  Eventually it will go down, but until then I'll enjoy the ride!

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FrozenBits

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Re: DONT Payoff your Mortgage Club
« Reply #248 on: May 27, 2017, 06:43:07 PM »


Investments have been increasing at a good pace for us this year.  Aiming to break 300k invested by the end of the year!

Love that in December the value of your investments blew past the cost of your mortgage!

It was a very good day when I realized that happened.  I don't think I realized it until January or February through lol.

It is possible my mortgage could creep up past my investments again, especially when we move, but I'm hoping the days of a larger mortgage balance than investments are behind me for good :)

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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #249 on: May 27, 2017, 07:37:03 PM »
Nice job, FB!
I did it! I have a journal!
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