DONT Payoff your Mortgage Club

[kenmoremmm]

I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.

i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.

[Dicey]

I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.

i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.

@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.

The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.

I sincerely hope you can see the difference. Make your decision knowing your personal circumstances, with full knowledge of what it's going to cost you. It's not about ethics at all, it's about m-o-n-e-y. @dreadmoose clearly understands that.

[kenmoremmm]

The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.

because on this very thread, there are many people getting praise for refinancing into a new 30 year long, reducing their monthly payments, but extending the life of the loan considerably in some cases.

[dreadmoose]

I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.

i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.

@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.

The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.

I sincerely hope you can see the difference. Make your decision knowing your personal circumstances, with full knowledge of what it's going to cost you. It's not about ethics at all, it's about m-o-n-e-y. @dreadmoose clearly understands that.

I believe any type of misinformation provided to say that COVID has caused us financial distress would be unethical as it currently has not. I would not apply for benefits that require me to say that.

This is not the Government mandated mortgage deferral system but something put out by MCAP over a month ago saying they were simply waiving the $90 fee for mortgage payment skips that have always been available on my mortgage.

There was nothing required to qualify and neither the Gov't (taxpayers) or the bank are losing any money off this transaction.

[nereo]

Would the bank charge you fees on a technicality or on your mistake?  Do they view your business in anything other than a business transaction?

[Dicey]

The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.

because on this very thread, there are many people getting praise for refinancing into a new 30 year long, reducing their monthly payments, but extending the life of the loan considerably in some cases.

Gee, you make it sound like that's a bad thing ;-) Please remember which thread you're commenting on. It's quite generally agreed in this club that following the Investment Order is the most expedient way to FIRE, not killing the mortgage at the expense of everything else. Drawing out the cheap, fixed-rate, tax-deductible mortgage and investing every penny of the difference is totally different than avoiding regularly scheduled mortgage payments that you could otherwise afford to make.

The only way those two things are related is if the mortgage holder invests the full amount of the skipped mortgage payment(s) into something that's likely to out earn the interest paid on the mortgage. Skipping payments entirely comes at a price. As long as people fully understand that, they're free to do whatever they want. Hell they can do whatever they they want anyway. It's just that one way is faster to FIRE than the other.

[DadJokes]

It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.

It almost doesn't feel worth it.

[TomTX]

It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.

It almost doesn't feel worth it.

Um, why are you doing escrow? You should still be able to get out of it.

[DadJokes]

It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.

It almost doesn't feel worth it.

Um, why are you doing escrow? You should still be able to get out of it.

Not with my current servicer or the company I'm using to refinance - I asked.

[talltexan]

After 11 years escrow-free, I finally found a loan-servicer that basically bribed me to set up an escrow account, and it coincided with moving the property tax office to a location much farther away from my work. It's been really freeing so far. I don't miss setting aside those monthly amounts writing the big check. It just feels like two more things I don't have to do.

And escrow refunded me two months worth of payments, so they're trying hard to keep the balance down to a responsible amount.

[achvfi]

It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.

It almost doesn't feel worth it.

Um, why are you doing escrow? You should still be able to get out of it.

Not with my current servicer or the company I'm using to refinance - I asked.

Its a requirement to have escrow with my lender as well.

Hopefully your escrow payment will be right sized by next year when new loan servicer recalculates it.

[TomTX]

After 11 years escrow-free, I finally found a loan-servicer that basically bribed me to set up an escrow account, and it coincided with moving the property tax office to a location much farther away from my work. It's been really freeing so far. I don't miss setting aside those monthly amounts writing the big check. It just feels like two more things I don't have to do.

Every year we use the property tax payment for some easy CC signup bonuses, clearing at least $500 a year. Sure, there's a fee to the county tax office - but it's swallowed by the bonus.

[robartsd]

Hopefully your escrow payment will be right sized by next year when new loan servicer recalculates it.

I'd write to the servicer pointing out that the costs the escrow account is expected to pay have decreased and asking the to do a new escrow analysis to adjust the payment. I can't find anything indicating that they have to perform a new analysis upon request rather than wait until the next scheduled annual analysis, but it couldn't hurt to ask.

After 11 years escrow-free, I finally found a loan-servicer that basically bribed me to set up an escrow account, and it coincided with moving the property tax office to a location much farther away from my work. It's been really freeing so far. I don't miss setting aside those monthly amounts writing the big check. It just feels like two more things I don't have to do.

Every year we use the property tax payment for some easy CC signup bonuses, clearing at least $500 a year. Sure, there's a fee to the county tax office - but it's swallowed by the bonus.

And sometimes you can time your payments for tax purposes by making a payment due in the spring before the end of December (SALT deduction cap has reduced the usefulness of this strategy).

[talltexan]

Six payments made.

Three hundred fifty-four payments to go.

[nereo]

Six payments made.

Three hundred fifty-four payments to go.

Nine payments on our current mortgage (3.7%).  Thanking my lucky stars we didn't dump more money in given where rates and the economy are right now.

[Dicey]

Six payments made.

Three hundred fifty-four payments to go.

Nine payments on our current mortgage (3.7%).  Thanking my lucky stars we didn't dump more money in given where rates and the economy are right now.

You guys are rock stars!

[talltexan]

Eh, my rate is 3 7/8.

I think I'm more in "local guy who plays guitar for free at restaurant" territory than rock star territory, @Dicey .

[nereo]

Eh, my rate is 3 7/8.

I think I'm more in "local guy who plays guitar for free at restaurant" territory than rock star territory, @Dicey .

...still, if i”m in the area I’ll be at the bar listening with a beer in hand.

[mtnman125]

Thoughts on buying points from the DPOYM club?

We're in final stages of home build, so spoke with broker today.

They are offering a 1% credit, either to use towards closing costs or to buy points.

Rate quote today was 3.375 or 3.125 (using credit for point).  Breakeven calculator shows ~49 months.

Given that rates are so low, should I consider that? 

Otherwise, the credit towards closing will just be more i can put in taxable.  No plans to make any extra payments.

[nereo]

Points are paying money upfront for a lower rate. Typically you need to stay in the house for several years to recoup the upfront cost, and even longer if you assume that those funds could have provided more than a 0% real return (Easy enough if you still have tax advantage space).

Ask yourself - how many years do I need to keep the mortgage to break even, and many years would it take if you earned, say, 5% per year in opportunity cost?  Is that likely to happen?

[freya]

I got a 3.25% refinance, 30 year fixed, from Chase.  It's not the 2.875% that another poster reported, but then I've got a coop apartment which is usually a bit higher rate.  When I got the loan terms, I saw that 0.6% points had been tacked on to the original closing cost estimate.  I complained about this and they took off the points - and let me keep that rate!  On its website, Chase is quoting 3.25% with closer to 1% points. 

I wasn't aware you could bargain with a big bank, but if your credit & assets look good to the bank it seems that you can.  Worth a try.  Don't let them make you pay points.

[Dicey]

Congratulations, @freya!

[Plina]

I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.

i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.

@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.

The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.

I sincerely hope you can see the difference. Make your decision knowing your personal circumstances, with full knowledge of what it's going to cost you. It's not about ethics at all, it's about m-o-n-e-y. @dreadmoose clearly understands that.

I believe any type of misinformation provided to say that COVID has caused us financial distress would be unethical as it currently has not. I would not apply for benefits that require me to say that.

This is not the Government mandated mortgage deferral system but something put out by MCAP over a month ago saying they were simply waiving the $90 fee for mortgage payment skips that have always been available on my mortgage.

There was nothing required to qualify and neither the Gov't (taxpayers) or the bank are losing any money off this transaction.

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

[Dicey]

[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

[talltexan]

Plina's rate sounds like it's from a country outside US, but I must admit I'm starting to see rates that make me think it's time to explore what a refi could do. Gearing up for payment #7 out of 360.

[Dicey]

Plina's rate sounds like it's from a country outside US, but I must admit I'm starting to see rates that make me think it's time to explore what a refi could do. Gearing up for payment #7 out of 360.

I'm a fan of re-fis when rates are falling, but don't you already have a pretty good rate?

[talltexan]

We're sitting at 3 7/8 on the house we bought last fall (this is a 30-year term). We recently learned someone filed a fraudulent tax return for us, so I'm suddenly a little gun-shy about taking on another project where there will be documents flying around all over the place.

But lowering that to 3.0 will save us $200/month in interest, which is worth considering.

[nereo]

We're sitting at 3 7/8 on the house we bought last fall (this is a 30-year term). We recently learned someone filed a fraudulent tax return for us, so I'm suddenly a little gun-shy about taking on another project where there will be documents flying around all over the place.

But lowering that to 3.0 will save us $200/month in interest, which is worth considering.

How did you find out about the fraudulent tax return?  We use Credit Karma to monitor credit inquiries, but I don't know/think it would catch a tax return (maybe?)

Would love to refi to ~3.0% but the fact that I keep changing jobs with periods of being unemployed is making that decision harder, even though spouse makes more than enough to cover the mortgage alone, plus our savings.

[talltexan]

Lol, it won't sound very mustachian, but our accountant advised us when he attempted to file on our behalf. We had to fill out the form 14039 and send in a paper return. Would have been nice to get that refund sooner, but we have enough margin that we can survive the delay.

I see paying an accountant to do our taxes as a purchase of marital harmony.

[Plina]

[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.

[Dicey]

[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.

Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.

[Plina]

[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.

Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.

Sorry, the text was not clear. The iPad changes words as it is set on swedish. It does not extend the length of the mortgage. The end date is the same. It is a 40-year term so when it is in the end I am close to 80 years. Considering that I don’t plan to live in this apartment that long I am not that worried about interestrates in years 2058-2059. I might have made a different decision if I saw this as a forever apartment. Also there is no way to predict interestrates a couple of years in to the future. I look at them once a year and decide if I want to keep a variable rate that can change every three months or if I want to lock them for a time period. I have had the interestrate locked one year during the last five years.

[Dicey]

[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.

Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.

Sorry, the text was not clear. The iPad changes words as it is set on swedish. It does not extend the length of the mortgage. The end date is the same. It is a 40-year term so when it is in the end I am close to 80 years. Considering that I don’t plan to live in this apartment that long I am not that worried about interest rates in years 2058-2059. I might have made a different decision if I saw this as a forever apartment. Also there is no way to predict interes trates a couple of years in to the future. I look at them once a year and decide if I want to keep a variable rate that can change every three months or if I want to lock them for a time period. I have had the interest rate locked one year during the last five years.

Wow, our loans are a lot simpler than yours are. Something to be grateful for. Thanks for the clarification. Typically, the bigger your stache is, the less this kind of minutiae (tiny details) actually matters. The real killer is when people who are just starting out become determined to pay off the mortgage at all costs, and at the expense of all other savings. That doesn't sound like your situation at all.

[rmorris50]

At the suggestion of a couple of members, reposting this from another thread.

My recent experience has made me do a 180 on my view on this topic. For the past decade we had a 15 year mortgage outside NYC (Westchester) with property taxes over 3% of assessed value. So our mortgage was high at $4500 (all-in). But my spouse and I had good jobs, and I was looking to pay the mortgage off early and retire early. Then last Nov I was laid off and everything changed. I instantly wished we had a 30 year mortgage and I hadn't prepaid so much. My package would have let us swing the house for about 1.5 years, but we saw this as the perfect opportunity to get out of NY and move to Charlotte for my new job. We are building a new house, and I plan to get a 30 year with a rate hopefully under 3%. House is about same value but all-in mortgage will be a much more manageable $2500. I'll never prepay or do a 15 year again, and who knows we may never move again with rates so low! Our investments are enough to let us carry this mortgage into retirement too.

[talltexan]

@rmorris50 , welcome to the DNPYM club, and welcome to Charlotte.

During "Business as Usual" times, I was embarrassed to call what we have here traffic, I think you will be surprised at how wonderful it is here. May I ask what part of the city you're building? Our family chose Huntersville (just north of the city) for access to kids' activities and schools.

[rmorris50]

@rmorris50 , welcome to the DNPYM club, and welcome to Charlotte.

During "Business as Usual" times, I was embarrassed to call what we have here traffic, I think you will be surprised at how wonderful it is here. May I ask what part of the city you're building? Our family chose Huntersville (just north of the city) for access to kids' activities and schools.

Thanks, I'm loving it so far, even though I haven't been able to explore as much as I want. Actually, my spouse and I are building in Smallwood, very close (west) of Uptown. We wanted to below close to all that Uptown has to offer, as well at the baseball and football stadium, and we don't have kids. So for us this area made sense. Lot's of revitalization going on in the areas around Uptown, it's exciting to see. I did check out Harrisburg and Hundersville, it just felt kinda far from Uptown.

[talltexan]

Indeed I drove through there a lot when I was looking for a back-roads route along Rozelle's Ferry road, you're going to like it there, with very easy access to the downtown amenities

[Plina]

[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.

Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.

Sorry, the text was not clear. The iPad changes words as it is set on swedish. It does not extend the length of the mortgage. The end date is the same. It is a 40-year term so when it is in the end I am close to 80 years. Considering that I don’t plan to live in this apartment that long I am not that worried about interest rates in years 2058-2059. I might have made a different decision if I saw this as a forever apartment. Also there is no way to predict interes trates a couple of years in to the future. I look at them once a year and decide if I want to keep a variable rate that can change every three months or if I want to lock them for a time period. I have had the interest rate locked one year during the last five years.

Wow, our loans are a lot simpler than yours are. Something to be grateful for. Thanks for the clarification. Typically, the bigger your stache is, the less this kind of minutiae (tiny details) actually matters. The real killer is when people who are just starting out become determined to pay off the mortgage at all costs, and at the expense of all other savings. That doesn't sound like your situation at all.

They don't seem to be simpler to me. :) I could probably pay of my mortgage in ten years but I really don't want to put all my savings in an apartment. Especially because I know that I don't want to stay in forever. I have realized during the years that I value more the flexibility to have cash or investments that can be turned to cash. You can also add the fact that I am not dependent of my work if I don't have everything tied to an apartment.

[robartsd]

They don't seem to be simpler to me. :) I could probably pay of my mortgage in ten years but I really don't want to put all my savings in an apartment. Especially because I know that I don't want to stay in forever. I have realized during the years that I value more the flexibility to have cash or investments that can be turned to cash. You can also add the fact that I am not dependent of my work if I don't have everything tied to an apartment.

I take it that if you have locked your rate and sell during your lock period, you pay a penalty based on the difference in interest rates. Does this mean you pay extra to sell during your lock period if rates have lowered since your lock (but not if they are the same or higher)?

While some of our mortgages do have a penalty for paying off the balance in the first few years, the penalty is not dependent on the rates at the time you pay off the loan. Overall, the decision to lock rates or not does not sound all that different from deciding if it is a good idea to refinance to one of our adjustable rate loans (which typically have rates locked for the first few years then adjusted annually thereafter).

[Plina]

They don't seem to be simpler to me. :) I could probably pay of my mortgage in ten years but I really don't want to put all my savings in an apartment. Especially because I know that I don't want to stay in forever. I have realized during the years that I value more the flexibility to have cash or investments that can be turned to cash. You can also add the fact that I am not dependent of my work if I don't have everything tied to an apartment.

I take it that if you have locked your rate and sell during your lock period, you pay a penalty based on the difference in interest rates. Does this mean you pay extra to sell during your lock period if rates have lowered since your lock (but not if they are the same or higher)?

While some of our mortgages do have a penalty for paying off the balance in the first few years, the penalty is not dependent on the rates at the time you pay off the loan. Overall, the decision to lock rates or not does not sound all that different from deciding if it is a good idea to refinance to one of our adjustable rate loans (which typically have rates locked for the first few years then adjusted annually thereafter).

You pay to cover the loss the bank makes as you don’t pay interest the whole period. It seems to be some complicated calculation based on financial regulations that I don’t really understand. It seems to be based on the time left on the locked rate and the rate that the bank can borrow money for +1%.

Your refinacing process seems to be a real paper battle. If I don’t change mortgage provider I get a paper home every year that asks If I want to lock the rate or not. If I want to lock the rate I can send in the paper or do it in one minut through their website and it is done. If I don’t want to lock it, I don’t need to do anything.

[robartsd]

Your refinacing process seems to be a real paper battle. If I don’t change mortgage provider I get a paper home every year that asks If I want to lock the rate or not. If I want to lock the rate I can send in the paper or do it in one minut through their website and it is done. If I don’t want to lock it, I don’t need to do anything.

Agree that refinancing is a paper battle. Also often comes with up-front costs (sometimes these costs are rolled into the loan balance; sometimes they are absorbed by the lenders in exchange for a higher interest rate, usually coupled with early payoff penalties).

[habanero]

Filed an application to my bank today to cancel the regular payments on my mortgage, effectively making it an interest-only mortgage so guess that makes me a member of this club with some extra frosting on top. I have made the regular payments so far but with the current very low interest rates (mine is, as per the standard here, a floating rate mortgage) currently at around 1.3%. and interest payments are tax dedeuctable giving an effective interest rate of just above 1%. With inflation around 2% the real rate is negative and I'm happy to let inflation eat it up at a slow and steady pace.

My loan-to-value ratio is low and my debt to income - ratio low as well so I'd rather shovel the extra cash in a more productive direction for the foreseeable future.

[talltexan]

That sounds amazing, @habaneroNorway !

[habanero]

That sounds amazing, @habaneroNorway !

Plan was to keep the regular payments, maybe also throw a small little extra at it monthly just for the feeling of it, but after the slaying of interest rates due to Covid-19 it got to the point where it frankly doesn't even make sense to make the regular payments. You can now even get higher deposit rates in a our-version-of-FDIC-bank higher than mortgage rates so you could actually arb it by maxing out the mortgage and sticking the money in a government-guaranteed bank account.

[habanero]

Got the paperwork from the bank today and signed it and returned it so guess it's all sorted out then. Was quite shocked they actually did this by paper but guess there is some legal stuff requiring them to do it by snail mail and not on-line secure signing. Well, whatever.

This will reduce my monthly mortage bill from around 1300 dollars / month (some of it tax deductible) to a whopping 285 dollars (same amount tax deductible as before). So after tax I pay all of 220 dollars on my mortgage while inflation chews away at the principal. Sweet.

[talltexan]

@habaneroNorway you are the LeBron James of the DNPYM club!

[habanero]

The mortgage system here is very different from the US - adjustable-rate mortgages are the standard and you have to actively opt for a fixed rate and very few people do and if you do its generally fixed for a maximum of 10 years (mostly due to the interest rate market, there isn't much trading beyond 10 years). The rules are that if a bank announces a change in the interest rate it's effective 6 weeks from giving notice. One of the plus points of floating rate mortgages is you can prepay or increase pretty much any way you like with no fees as there the rate is never out of sync with the prevailing market. The downside is that it fluctuates and you dont have any protection if rates start increasing. They haven't done so in any meaningful way for ages so staying floating has worked out fine. Normally you need a pretty low loan-to-value-ratio to apply for an interest-only mortgage, but this regulation is temporarily suspended to help people who are out of work due to Covid-19-regulations. I have applied under the regular rules as my mortgage is not that high anyway so I would have been granted it in any case.

I could increase my mortgage but to quote the great philosopher Warren Buffet "why risk something I don't want for something I don't need" or how he put it. I've never been a fan of leveraged investing and have no intention of starting doing it now. If you nitpick you can say not repaying the mortgage is sort of the same as leveraged investing, but it isn't really as it will never put you in a situation where your bank/broker forces you to liquidate. I view it as a stupid low cost of housing at current rate levels, the debt is easily manegable and inflation will erode the real debt burden given time.

While the refinancing option is a sweet feature of US mortgages as it can be viewed as a one-way bet (refinance if rates drop a lot, do nothing if they increase) it comes as a price. If you had a 30y mortgage in the US with no refinancing option the rate would be approximately 0.50% lower than with refinancing option.

[talltexan]

I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.

[habanero]

I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.

See your point, but for me the notional is at a size where it is easily managable and part of the extra interest cost in case of a rate hike will be offset by higher deposit rates on my cash position anyway. And you have the vaguer point that low rates generally mean the ecoonomy is doing worse so there is an element of a natural hedge in there, but I'd be the first to admit that's pushing a point quite far.

Currently I can get FDIC-insured deposit rates higher than my mortgage rate so that point alone makes it pointless to pay down the balance, but that's not a normal situation and it might not last for very long.

And as we all know, if SHTF in your personal life liquidity is a lot more useful than a bit lower mortgage balance.

[K-ice]

I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.

Or being able to refinance for a longer period of time. I am in Canada and most people lock in their mortgage rate for 5 years while they pay it off over 25 years.  I too was concerned about a rate jump at renewal time. But worst case, your 20y mortgage becomes a 25y mortgage again. You could keep your mortgage forever....