Author Topic: DONT Payoff your Mortgage Club  (Read 661021 times)

Holocene

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Re: DONT Payoff your Mortgage Club
« Reply #3200 on: April 08, 2022, 07:29:05 PM »
Speaking of feelings, I'd like to dive back into our shared purpose:

my wife has a taxable investment account (it's really her money, from a deceased relative) with Edward Jones. I've succeeded in prying some cash lose from investments in the forms of dividends/capital gains. So now the chance is here to live out our values...transferring that money away from the rabid wolves of EJ and into productive investments.

First phone call has unlocked $3,500...more to come!

I also inherited an Edward Jones account several years ago.  It was an IRA though.  I got it moved out of there ASAP.  I just went through Fidelity and requested a transfer online and they handled it.  No phone calls needed.  I think I just had to upload a statement or something like that.  Make sure you transfer the stocks/investments to the new brokerage first before selling anything.  The fees to sell things at EJ are ridiculously high, like everything else there.  Good luck!

srad

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Re: DONT Payoff your Mortgage Club
« Reply #3201 on: April 11, 2022, 10:39:57 AM »
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.











talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3202 on: April 11, 2022, 11:59:44 AM »
agreed that less cash flow can put you in a position of strength, but I've known people who faced one or more of those dilemmas, but had value trapped within their house that was difficult to extract.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3203 on: April 11, 2022, 12:49:28 PM »
[...] most of these people's finances were in fine order at the time of purchase until one of the above happened.
But obviously not in fine enough order to have paid off the house.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3204 on: April 11, 2022, 01:06:38 PM »
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

Can't say I agree here. Like talltexan I've known too many people who were royally screwed in divorce because their one main asset was their home, which then had to be split - typically leaving one person deeply indebted to the other for the equity owed. In those cases they most definitely didn't feel "very good" about the situation.

And no, your finances are not "in fine order" if you can't weather some very real but very common 'very bad things'.

Which brings us around to... my financial rule of "don't have the majority of your net worth in your home".  If you've got enough in savings where you are FI, and you just want to pay off your mortgage, and doing so won't put the majority of your wealth into your home - sure, go ahead if you like, at this point you've pretty much 'won the game' and it'll be fine whichever way you go.  But having your home equity be the lions-share of your wealth..?  Then you've made yourself far more vulnerable to all the things you've described - divorce, illness, job loss, etc.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #3205 on: April 11, 2022, 01:39:42 PM »
Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

I'm going to push back on this one.  Remember, we're talking about a cohort of savers, people who save either by paying down the mortgage or by investing.  The reasons you mention are the same reasons I recommend not paying down the mortgage.  Unexpected stuff happened.  Specifically, paying down the mortgage provides no protection from foreclosure until the mortgage is completely retired.   If you are unable to make payments as agreed, the bank will foreclose and it doesn't matter how many extra payments you've made.  So there is no benefit at all to paying down the mortgage until far in the future. 

On the flip side, in the event of an unexpected financial situation having liquid assets might be enough to keep making mortgage payments for years in some cases.  At this point in the discussion someone usually says something to the effect of that you should of course have substantial liquid assets before putting extra into the mortgage.   But that just highlights the risky nature of paying down the mortgage in the first place.    Don't even think about it unless you have lots of money stashed away already.    It is a high risk, low reward proposition.   

srad

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Re: DONT Payoff your Mortgage Club
« Reply #3206 on: April 11, 2022, 03:08:11 PM »
I wasn't taking a side there.  I was just pointing out that life doesn't always work out.  So be careful with debt and leverage. 

FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though).  Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.  As we approach fire (I'm close so very close), we are looking to make our lives as easy as possible its not about maximizing money its about maximizing time and ease of life.

Tyson

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Re: DONT Payoff your Mortgage Club
« Reply #3207 on: April 11, 2022, 03:10:44 PM »
Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

I'm going to push back on this one.  Remember, we're talking about a cohort of savers, people who save either by paying down the mortgage or by investing.  The reasons you mention are the same reasons I recommend not paying down the mortgage.  Unexpected stuff happened.  Specifically, paying down the mortgage provides no protection from foreclosure until the mortgage is completely retired.   If you are unable to make payments as agreed, the bank will foreclose and it doesn't matter how many extra payments you've made. So there is no benefit at all to paying down the mortgage until far in the future. 

On the flip side, in the event of an unexpected financial situation having liquid assets might be enough to keep making mortgage payments for years in some cases.  At this point in the discussion someone usually says something to the effect of that you should of course have substantial liquid assets before putting extra into the mortgage.   But that just highlights the risky nature of paying down the mortgage in the first place.    Don't even think about it unless you have lots of money stashed away already.    It is a high risk, low reward proposition.

I highlighted the part above, because this is EXACTLY what happened to me about 5 years ago.  I'd been paying extra toward my mortgage every month, in an effort to pay it off as soon as possible.  Wife had been out of work for a while and I lost my job.  Couldn't find work for about 8 months after that.  And guess what, all that $$ I'd paid to the mortgage had done NOTHING to protect me.  In fact it made me much more vulnerable than if I had saved/invested all those extra payments. 

Having a big pile of cash is way more safe in the case of job loss than having made extra payments toward a mortgage.  I learned my lesson the hard way.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3208 on: April 11, 2022, 03:17:00 PM »
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

See: https://en.m.wikipedia.org/wiki/Tax_sale

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3209 on: April 11, 2022, 03:38:13 PM »
I wasn't taking a side there.  I was just pointing out that life doesn't always work out.  So be careful with debt and leverage. 

FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though).  Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.  As we approach fire (I'm close so very close), we are looking to make our lives as easy as possible its not about maximizing money its about maximizing time and ease of life.
Others would argue for lots of leverage, most all of the time. I'm not totally in that camp. If you have enough to FIRE and have adequately provided for future taxes, utilities and upkeep, I'm okay with paying off the mortgage at or after FIRE to reduce spending. The people I hope to reach are people like my past self, who thought "Kill the mortgage, then save for retirement" was a sound financial strategy. This was long before blogs and places like the MMM forum existed.

IMO, there is nothing sadder than an old person with a paid-off house who can't afford upkeep or groceries. It happens way too often. Our rentals are in a very large, fairly affluent Senior Community. It's a sad tale, but very true. Many older Seniors are forced to take reverse mortgages, which are incredibly expensive.

srad

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Re: DONT Payoff your Mortgage Club
« Reply #3210 on: April 11, 2022, 03:39:49 PM »
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

See: https://en.m.wikipedia.org/wiki/Tax_sale

Come on man, If you can't pay your taxes you are in a very rough financial place. 

Which by the way is an added benefit to having a mortgage.  The mortgage company will pay your taxes and insurance for you if you don't'.  We've got loans where borrower haven't made a mortgage payment in over a decade and we just keep paying their taxes and insurance for them.  Quick tip, you want to live for free for a decade or more?  Buy a place in NY, NJ or HI and never make a payment.


 

bacchi

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Re: DONT Payoff your Mortgage Club
« Reply #3211 on: April 11, 2022, 03:42:02 PM »
FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though).  Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.

Are we really having this conversation here?

Where do you think we, a cohort of savers (thank you, telecaster!), put that money that would've gone to pay off a mortgage? Hint: it doesn't have wheels and fit in a garage.

srad

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Re: DONT Payoff your Mortgage Club
« Reply #3212 on: April 11, 2022, 03:47:39 PM »
FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though).  Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.

Are we really having this conversation here?

Where do you think we, a cohort of savers (thank you, telecaster!), put that money that would've gone to pay off a mortgage? Hint: it doesn't have wheels and fit in a garage.

Wait This isn't the I paid off mortgage forum? 


nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3213 on: April 11, 2022, 05:13:30 PM »
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

See: https://en.m.wikipedia.org/wiki/Tax_sale

Come on man, If you can't pay your taxes you are in a very rough financial place. 


Come on man, if paying off your mortgage is the difference between solvency and bankruptcy you are already in a very rough financial place.

The only thing which goes away when you pre-pay your mortgage is the PI portion of your mortgage.  You are still on the hook for taxes and insurance and maintenance.  The PI may start out being the slightly larger portion of your mortgage payment, but that rapidly shrinks as the years go by.  If you are following even the spendy-pants guidelines the PI should be less than a quarter of your budget.  Several years in and the PI’s the minority fraction.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3214 on: April 12, 2022, 07:18:39 AM »
Principal increases while interest decreases.

ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3215 on: April 12, 2022, 07:31:22 AM »
I know this question was asked earlier in the thread, but what are you investing in with your low-interest-rate mortgage money? Stated another way, what investments do you own that you wouldn't have owned if you didn't have your mortgage, and what is the spread between their expected returns and your mortgage rate?

Me:
Mortgage rate - 3.25%
Navient bonds backed by student loans yielding 7.5% on my original investment
OHI yielding 9.35%, plus revenue from covered calls
VTIP as an inflation play, yielding 4.5%
LYSDY, a growth play on rare earth elements, up 44% since I bought a few shares
SPY, roughly flat since I bought it, expected return about 5%/year plus revenue from covered calls

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3216 on: April 12, 2022, 07:32:27 AM »
Principal increases while interest decreases.

Yup. And taxes and insurance [typically] keep going up, irrespective of your principal balance.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3217 on: April 12, 2022, 07:49:46 AM »
I know this question was asked earlier in the thread, but what are you investing in with your low-interest-rate mortgage money? Stated another way, what investments do you own that you wouldn't have owned if you didn't have your mortgage, and what is the spread between their expected returns and your mortgage rate?

Me:
More in spouse’s 457(b) in a target date fund. Nets us 22% tax deferred off the bat, plus whatever gains (loses) incurred over time.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3218 on: April 12, 2022, 09:05:41 AM »
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.

Thanks to this thread for reinforcing the strategy.
I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!

On another recent thread, someone called us "haters" which is very um, impolite, IMO. In a way, they might have a point, because we don't love seeing people choose sub-optimal financial options. Cheers to everyone who has embraced their long, lean mortgages.

who's calling us "haters"?
It took a while for the thread to pop up again. Maybe the best approach is not to activate a thread that's not getting much play. Apparently the mods don't find this comment objectionable.

We paid off our primary mortgage in 2020 and it's been so liberating.  I don't answer to anybody (other than the county tax man) and it's awesome going to bed at night knowing the bank doesn't own our home.

We just bought a couple hundred acres on a mountain and paid cash, and again, it's awesome knowing the bank doesn't own any of that shit. 

Well done, don't listen to the haters.  The bank owns their real estate no matter what random math rationale they might come up with.
ETA: I prefer to think of us as kind people who are willing to share our hard-earned knowledge, teachers, if you will, certainly not haters. The math is absolutely not random.
« Last Edit: April 12, 2022, 06:51:33 PM by Dicey »

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #3219 on: April 12, 2022, 12:23:17 PM »
I know this question was asked earlier in the thread, but what are you investing in with your low-interest-rate mortgage money? Stated another way, what investments do you own that you wouldn't have owned if you didn't have your mortgage, and what is the spread between their expected returns and your mortgage rate?

I just invest as I would any other money.   I don't see any reason to divide up the pot. 

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3220 on: April 12, 2022, 12:46:26 PM »
It may well be the case that I'm slightly more conservative with my investments as part of the DPYM trade.

ColoAndy

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Re: DONT Payoff your Mortgage Club
« Reply #3221 on: April 28, 2022, 12:47:03 PM »
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.

Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)

Totally makes sense to recast in your situation.

Wanted to follow up on this. Went through with the recast. Painless and no fees through Chase. Required payment drops by a little over $100! I'll definitely be investing the difference
Question for you (or anybody) about recasting. 
Did you make a large one time lump sum and then recast?  Or did you make a series of smaller extra payments over the years and then recast?  I have googled "recast the mortgage" a few times and everything I read says that one must make a large one time lump sum in order to then recast.  Thanks for any light you can shed on this.

FragglesRock666

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Re: DONT Payoff your Mortgage Club
« Reply #3222 on: April 28, 2022, 08:19:57 PM »
So, I still haven't made any extra mortgage payments, and instead have been putting my "surplus" money each week into a taxable brokerage account.  My first one ever, opened this last December.  And I feel like a super rich person saying that I have a taxable brokerage account. LOL
My fiancé and I are looking at some mountain properties, and even with mortgage rates now at an "astronomical" 5%, we're still planning on leaving as much as is feasible in a mortgage vs taking money out of his investments to pay it down.  We will do so enough only to A) avoid PMI and B) make sure our monthly cash flow is OK, but otherwise, we'll leverage the debt to continue to invest. 
I admit, it's a little scary for me, as I am very debt-adverse having been in a bad spot in my last marriage and immediately after my divorce due to excessive debt, but this forum helps me stay strong, knowing that we are actually safer with money "in the bank" vs paying extra on the mortgage.
I see there was another discussion here recently about it, and honestly, given that I don't have enough to actually have the mortgage paid off, I feel more secure with money in the bank and in investments I can pull from to make payments than being "cash poor" but with less on the mortgage, that I still have to pay every month.  I can pull from savings to make payments if I lose my job, but if the savings are already in the house, I am SOL. 

couponvan

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Re: DONT Payoff your Mortgage Club
« Reply #3223 on: April 28, 2022, 10:01:53 PM »
Someone posted I bonds are at 7% today, which is a 4.5% guaranteed return vs my 2.5% fixed 30 year. I haven’t purchased any, but it is kind of tempting.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3224 on: April 29, 2022, 06:06:02 AM »
Series I bonds are appealing right now.

However, we will see that rate go down, and you're not able to withdraw money penalty free until it's been in those bonds for a year or more. With 10-year treasuries yielding 2.9%, what reason do you have to suspect that long-term inflation will continue in excess of 3%?

ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3225 on: April 29, 2022, 08:09:49 AM »
Series I bonds are appealing right now.

However, we will see that rate go down, and you're not able to withdraw money penalty free until it's been in those bonds for a year or more. With 10-year treasuries yielding 2.9%, what reason do you have to suspect that long-term inflation will continue in excess of 3%?

That's the thing. There's no way to look at the yield curve and conclude anything else than that the market expects a profound collapse in inflation, and expects the Fed to only return us to neutral 2.25%-2.5% rates. If that happens, the Ibonds everyone are so excited about today will turn into low-yielding treasuries that you can't get your money out of for five years!

Real incomes are collapsing compared to 2021, and we just posted a month of negative GDP growth. Good read, albeit with a conclusion not supported by the body: https://www.marketwatch.com/story/theres-a-big-hole-in-the-feds-theory-of-inflationincomes-are-falling-at-a-record-10-9-rate-11651165705?mod=home-page

Holocene

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Re: DONT Payoff your Mortgage Club
« Reply #3226 on: April 29, 2022, 10:52:53 PM »
That's the thing. There's no way to look at the yield curve and conclude anything else than that the market expects a profound collapse in inflation, and expects the Fed to only return us to neutral 2.25%-2.5% rates. If that happens, the Ibonds everyone are so excited about today will turn into low-yielding treasuries that you can't get your money out of for five years!
You can get your money out of I bonds before 5 years.  It's only the first year you can't cash out.  For 1-5 years there is a 3 month penalty.  So if inflation rates drop, I figure worst case I make $854 in the next 15 months off of $10k, an annualized rate of 6.8%, though today was the last day to do that.  It seems unlikely to me that the inflation rate will drop to 0 in the next 6 months.  No other rates are anywhere close, so it seems like a no brainer to me.  I'm in for $30k in the last 6 months.  And I'll likely keep them as part of my bond allocation since I'm seeing how useful they can be in times of high inflation.  I don't love locking in 0% real in the long term, but at least they're not losing money like all my bond funds.  If the fixed rates go up and I don't have new money to invest (semi FIREing next week) and inflation is down again, I'll probably break some current I bonds and buy in at the higher fixed rate.  In any case I'll re-evaluate once inflation settles down.

Someone posted I bonds are at 7% today, which is a 4.5% guaranteed return vs my 2.5% fixed 30 year. I haven’t purchased any, but it is kind of tempting.
Starting May 1, it'll be up to 9.62%.  If only we could lock that in for 30 years along with the low mortgage rates, we'd be set!

I'm definitely glad for my 3% small cash-out refinance that I got paid for last fall now that rates are over 5%.  Let my mortgage payments get inflated away.  I do feel bad for people looking for housing right now, including my brother.  House prices are still way up and now mortgage rates are getting up there too.  Rents have sky-rocketed as well.  I'm glad to be a Mustachian these days...

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3227 on: May 03, 2022, 06:46:41 AM »
thirty years of inflation at 9%+ would actually be really bad. You'd be well positioned with the Series I and the mortgage, but aren't the 1970s years when we saw most retirement failures in modeling?

bryan995

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Re: DONT Payoff your Mortgage Club
« Reply #3228 on: May 03, 2022, 11:07:24 PM »
Stay strong everyone - don't you dare ruin a good thing !

Came across this - seemed quite relevant to the DPYMC crew. 

https://vm.tiktok.com/TTPdbuptoF/
« Last Edit: May 03, 2022, 11:09:08 PM by bryan995 »

NorthernIkigai

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Re: DONT Payoff your Mortgage Club
« Reply #3229 on: May 04, 2022, 04:57:01 AM »
I do feel bad for people looking for housing right now, including my brother.  House prices are still way up and now mortgage rates are getting up there too.  Rents have sky-rocketed as well.  I'm glad to be a Mustachian these days...

We've been looking for our forever home for a while now, as we want to find it and move there before the four walls of our <800 sq ft apartment eventually figuratively suffocate the four of us. But I'm personally welcoming rising mortgage rates (although I acknowledge that the squeeze from this and higher inflation will be bad for many people), as I'm counting on it sooner or later leading to a drop or at least a stagnation in the housing market.

They way I'm thinking is that I'd be more than happy to spend a bit more on my mortgage (we were still offered a 0.45% variable rate a couple of months ago) if it scares the craziest lenders/borrowers from the market, making our equity + savings + new mortgage stretch further than it would right now. Maybe it won't? Oh well, then we might have to start saving less than the approx. 50% of our income we are saving now, boohoo.

Mustachanism works, whether it's rainy or sunny in the economy in general.

NorthernIkigai

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Re: DONT Payoff your Mortgage Club
« Reply #3230 on: May 04, 2022, 07:06:32 AM »
Replying to myself here after a brief email exchange with the (current and likely also future) mortgage bank: The lowest they can go at the moment is 0.5%. Although they hinted that that's only the official rate. Oh no, a rise of more than 11% compared to a few months ago -- mortgage rates are skyrocketing!!

shureShote

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Re: DONT Payoff your Mortgage Club
« Reply #3231 on: May 04, 2022, 07:55:00 AM »

Starting May 1, it'll be up to 9.62%.  If only we could lock that in for 30 years along with the low mortgage rates, we'd be set!


I recall longing for longer terms on some 4% CDs years ago. As nice as it is to be able to lock in cheap loan rates, it would be interesting to play the wheel and be able to lock in long term interest bearing instruments when the time seemed right. I guess that dream is not fully different from an annuity, but I want the 9.62%!

Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #3232 on: May 04, 2022, 08:11:27 AM »
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3233 on: May 04, 2022, 08:20:02 AM »
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.

Holocene

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Re: DONT Payoff your Mortgage Club
« Reply #3234 on: May 04, 2022, 05:27:13 PM »
thirty years of inflation at 9%+ would actually be really bad. You'd be well positioned with the Series I and the mortgage, but aren't the 1970s years when we saw most retirement failures in modeling?
Very good point.  I really meant that I'd like to lock in just the 9.6% rate for 30 years, not the inflation that goes with it!  I definitely do NOT want I bonds to continue to pay such high rates.  I agree that 30 years of 9% inflation would be very bad.  But for now, I bonds are the best game in town for something safe.  While they're still only paying 0% real, better than my savings account paying -9% real.

@NorthernIkigai - Definitely sounds worth it to drop your savings rate a bit to get some more space.  <800 square feet for 4 people sounds like it might be a tad tight!  Hope you're able to find something that works for you!

NorthernIkigai

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Re: DONT Payoff your Mortgage Club
« Reply #3235 on: May 05, 2022, 04:29:28 AM »
thirty years of inflation at 9%+ would actually be really bad. You'd be well positioned with the Series I and the mortgage, but aren't the 1970s years when we saw most retirement failures in modeling?
Very good point.  I really meant that I'd like to lock in just the 9.6% rate for 30 years, not the inflation that goes with it!  I definitely do NOT want I bonds to continue to pay such high rates.  I agree that 30 years of 9% inflation would be very bad.  But for now, I bonds are the best game in town for something safe.  While they're still only paying 0% real, better than my savings account paying -9% real.

@NorthernIkigai - Definitely sounds worth it to drop your savings rate a bit to get some more space.  <800 square feet for 4 people sounds like it might be a tad tight!  Hope you're able to find something that works for you!

Thanks @Holocene! We're actually OK right now, I'm always amazed that many North Americans (even Mustachians!) seem to need so much space. But the kids are growing and it would be very nice to have at least another half bath and not just the one bathroom.

With prices for decent apartments in the size (still max 1k sq ft or so) and area we're considering starting from about 550 or 600k€, we're just patiently keeping an eye on the market and hoping for a rate rise and its effect on the market...

Scramblin Rover

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Re: DONT Payoff your Mortgage Club
« Reply #3236 on: May 12, 2022, 09:39:08 PM »
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?

ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3237 on: May 12, 2022, 09:45:44 PM »
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3238 on: May 12, 2022, 11:28:28 PM »
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Yup.

sadiesortsitout

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Re: DONT Payoff your Mortgage Club
« Reply #3239 on: May 13, 2022, 08:35:26 AM »

Thanks @Holocene! We're actually OK right now, I'm always amazed that many North Americans (even Mustachians!) seem to need so much space. But the kids are growing and it would be very nice to have at least another half bath and not just the one bathroom.

With prices for decent apartments in the size (still max 1k sq ft or so) and area we're considering starting from about 550 or 600k€, we're just patiently keeping an eye on the market and hoping for a rate rise and its effect on the market...

This is a funny thing about Americans! I bought an 808 square foot house in the US for myself and my son, and people kept saying, "But it's so small! Don't you need at least a three-bedroom?"

Meanwhile, my neighbor in the identical house next door raised three boys in hers in the 60s.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3240 on: May 13, 2022, 08:47:39 AM »
I happened to see an article in the Post about a family with two parents, six children (some are often away for studies), and a live-in grandparent in a 6,100 square foot house. The husband said he'd lived in "larger", but there was much more usable space in this one. He's got nothing on that family of five!

habanero

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Re: DONT Payoff your Mortgage Club
« Reply #3241 on: May 13, 2022, 09:06:47 AM »

That's the thing. There's no way to look at the yield curve and conclude anything else than that the market expects a profound collapse in inflation, and expects the Fed to only return us to neutral 2.25%-2.5% rates. If that happens, the Ibonds everyone are so excited about today will turn into low-yielding treasuries that you can't get your money out of for five years!

In the US (and EUR and other large markets) forward inflation is traded directly. In the US, 5y inflation in 5y (so inflation in years 5-10 from now) is trading around 2.40% and hasn't really moved that much the last months relative to the massive spike in current inflation.

A chart with history here

https://fred.stlouisfed.org/series/T5YIFR

Does of course not mean that the market is correct for what it will be, but it's what the market is saying at the moment.

Scramblin Rover

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Re: DONT Payoff your Mortgage Club
« Reply #3242 on: May 13, 2022, 07:24:06 PM »
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Yup.
Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd  - I wouldn't have guessed that extra payments could work that way.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3243 on: May 14, 2022, 04:29:10 AM »
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Yup.
Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd  - I wouldn't have guessed that extra payments could work that way.

Mortgages are a money-making business. Left to ambiguity your lender will do what is most profitable to them. They also have zero problems putting their clients into foreclosure after multiple missed payments, regardless of how many previous early or oversized payments you may have made.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3244 on: May 14, 2022, 09:33:09 AM »
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Yup.
Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd  - I wouldn't have guessed that extra payments could work that way.

Mortgages are a money-making business. Left to ambiguity your lender will do what is most profitable to them. They also have zero problems putting their clients into foreclosure after multiple missed payments, regardless of how many previous early or oversized payments you may have made.
Yup.

GUNDERSON

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Re: DONT Payoff your Mortgage Club
« Reply #3245 on: May 14, 2022, 01:29:00 PM »
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?


dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #3246 on: May 14, 2022, 01:56:31 PM »
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?
Not really - not high enough yet (see investment order post - 3% above 10 year t-note yield is recommended line for this decision). 30 years at 5-6% still works, just not quite as well as 30 years at 3-4%. If / when rates come down far enough again you can refinance then as well.

If you've already got a mortgage in place, should likely be looking more at home-equity loans than refinancing the whole deal if cash-out is the goal.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #3247 on: May 16, 2022, 03:30:01 PM »
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?

Not measurably.   Although not paying off the mortgage becomes less and less of a slam dunk as as interest rates increase, for sure.   A primary consideration for me is that your house is just a bad place to store money.   


ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3248 on: May 16, 2022, 08:32:40 PM »
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?

Good question. It's all relative to the other opportunities around you - i.e. the spread between your mortgage interest rate and fixed income investments. When I took out my mortgage at 3.25% I was happy because I could have taken the money I would have otherwise spent to pay cash for my house and put it into a preferred stock fund or BBB-rated bond yielding 4%.* With today's mortgage rates at about 5% and fixed income markets still anticipating low inflation on the 5-10 year scale, that sort of arbitrage trade would be underwater. I.e. The mortgage interest rate is now higher than a reasonably-risky fixed income investment yield. Blame the Fed for ending QE and allowing mortgages to reach a free market value!

Those of us who took out loans in the 3-4% range are very happy about that decision because (a) wage inflation is running higher than our mortgage rates, and (b) the yield on low-risk investments is now exceeding our interest rate. None of that matters of course if we had that cash tied up in stocks or bonds at the beginning of this year though! Maybe timing is everything.

*just a nitpick, this comparison is not 100% fair because I'd have to adjust my mortgage return downward to account for closing costs. This interest rate to interest rate comparison only makes sense when the CC's are a sunk cost, but you'd need to do another type of analysis if it was before you take out the mortgage and paying cash is an option.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3249 on: June 01, 2022, 08:05:28 AM »
@Dicey , I was catching up on another forum and noticed you disclosing having paid cash for a property recently. Is everything going okay? You still love us here, right?

I haven't checked rates recently, but I know they're higher now, so that may be affecting the cost/benefit of playing through on carrying a mortgage for many of us here.