Author Topic: DONT Payoff your Mortgage Club  (Read 880225 times)

Weisass

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Re: DONT Payoff your Mortgage Club
« Reply #3300 on: September 06, 2022, 12:11:23 PM »
I'm grateful for my low rate. From what I hear, those sub-4 rates (And I've been 3.0 or lower for much of the last ten years) are now a thing of the past. Ten year treasury yield is 3.2% currently.

Yeah, at 2.7% I can’t justify paying down my mortgage aggressively, even with windfalls and rising incomes. At this point it would be deliberately increasing our risk and decreasing our return, which is just a strange scenario.

Yup. 2.25 is something I will NEVER pay off early.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3301 on: September 06, 2022, 02:15:55 PM »
I just logged into my online bank, and they have CD's at many term-lengths that are >3%. Unless you have a serious marginal tax rate, taking extra money and buying one of those seems like it sets you up for a rock-solid spread.

Wolfpack Mustachian

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Re: DONT Payoff your Mortgage Club
« Reply #3302 on: September 06, 2022, 07:53:23 PM »
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.

I can understand why people might feel trapped by a mortgage.  And that's a strong motivator to pay it off early.  I used to be one of those people.  But I found myself in a situation where I'd paid extra to my mortgage instead of building up my savings/investments and then suffered a 9 month job loss and holy crap that was awful. 

I almost lost my house because I wasn't able to make payments, because I'd sent in all my extra cash as 'early payments' to drive down the mortgage. 

Nowadays I just pay the minimum of $1900 every month and shove all my spare cash into savings/investing and I have a nice cushion, pretty soon I'll have enough saved/invested that I could pay off my mortgage in full, if I wanted to (which I don't).

I wish everyone could internalize this. Once I finally wrapped my mind around the fact that it wasn't really safer either, I truly joined this club. It's so logical that I don't see why I never saw it. If you make enough money to pay extra, you're not safer paying it off with extra payments despite how it feels. If you pay it down from 30 years to having "5" years left and you lose your job and can't pay and lose your house, you truly threw that money away. I know I'm preaching to the choir....just wish this realization had hit me sooner.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3303 on: September 06, 2022, 08:04:48 PM »
Yup, that's why some of us are still here, singing this song. It is so very counterintuitive. It was a very hard lesson for me to learn. Like a reformed smoker (please don't say religious zealot), I just want to share the good news!

In other news...keep this under your mustachian hats, but there is starting to be some discussion of this topic in places where typically only celebration is allowed. I'm keeping out of it (mostly), but it thrills me to see people possibly beginning to see the light.

Disclaimer: I don't care one way or the other. I just want people to UNDERSTAND the concept of DPOYM and the Investment Order for whatever part of the world they live in before they decide what is best for them.
« Last Edit: September 06, 2022, 11:27:53 PM by Dicey »

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3304 on: September 07, 2022, 08:08:27 AM »
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3305 on: September 07, 2022, 08:47:15 AM »
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.
Hmmm, do you mean it's less attractive for a new mortgage than one initiated a year ago? Because maintaining a mortgage at a sub 4 rate is even more attractive than it was a year ago,  considering inflation.

How does "intellectual honesty" relate to simply understanding of the math?

ATtiny85

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Re: DONT Payoff your Mortgage Club
« Reply #3306 on: September 07, 2022, 09:01:33 AM »
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.
Hmmm, do you mean it's less attractive for a new mortgage than one initiated a year ago? Because maintaining a mortgage at a sub 4 rate is even more attractive than it was a year ago,  considering inflation.

How does "intellectual honesty" relate to simply understanding of the math?

I guess maybe in my situation. Corporate relo last year. Rolled the equity of the last house into a large down payment on the new house around the first of December. It seems possible that the monthly larger investment into equities I have been able to make since then will come out ahead of what the lump sum would have.  While it is pretty darn unlikely to do so on a long term basis, the break even point is still in the future right now. Since it is a hypothetical, no reason to run the numbers. Can’t change my actions then and have no intention of going back now. Hopefully within a year I will shake my head at what might have been as the market goes well above the all time highs. It will be smiles all around regardless.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3307 on: September 07, 2022, 09:59:33 AM »
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #3308 on: September 07, 2022, 10:11:08 AM »
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.
I mean a little less sure, but 5% or 6% is still low enough to work (our investment order post would not advise paying down at current treasury bond yields). If the value of our home goes up to where I can free up $100K or more and get <6% for 20+ years, I'm gonna try and make that move and buy more index funds. Should be easier in May once I have the coveted 2 continuous years of self-employment officially on the books.

There's actually 1 house that is under contract that was listed for $100K more than I would have thought it was worth just down the block from us and the place across the street from them was just listed at about the same price. Rare for there to be this many relevant comps right on our block where all the houses are fairly similar (1400-1800 sf, all are 3-4 br with 2 baths and built in the early 50's on smallish in-town lots). So I'm thinking ours might appraise high enough within a month or two to hit my "give enough of a damn to apply for a mortgage" level of available equity.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3309 on: September 07, 2022, 10:18:21 AM »
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.
Thanks for that, although I think I'd say the mortgages are lapping inflation, because the lapper is the one in the position of strength, no?

The math still works, especially in light of the insane inflation we're experiencing right now. Hopefully, both will stabilize sooner rather than later.

A long time ago, when I was getting the DPOYM lesson pounded into my head (long before MMM was born), I remember being thrilled to buy a new place and get a 7% mortgage, and I had stellar credit. Mortgages are still historically cheap.

The math still works, it just isn't quite as blindingly obvious.

Kudos to all who scored cheap mortgages while they lasted. And long may they last for each of you.

jsap819

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Re: DONT Payoff your Mortgage Club
« Reply #3310 on: September 08, 2022, 04:41:24 PM »
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.
Thanks for that, although I think I'd say the mortgages are lapping inflation, because the lapper is the one in the position of strength, no?

The math still works, especially in light of the insane inflation we're experiencing right now. Hopefully, both will stabilize sooner rather than later.

A long time ago, when I was getting the DPOYM lesson pounded into my head (long before MMM was born), I remember being thrilled to buy a new place and get a 7% mortgage, and I had stellar credit. Mortgages are still historically cheap.

The math still works, it just isn't quite as blindingly obvious.

Kudos to all who scored cheap mortgages while they lasted. And long may they last for each of you.

I wish I can take my 30 year 2.375% mortgage to my grave (too bad I can't). Before I refinanced to this rate in 2021, I was plowing thousands of dollars to the principal every time I can. I'm glad I found the ways of DPOYM because instead of paying down, I focused all available excess money to taxable and it has now grown to the point that I can pay it off in full if I wanted to, but I won't. If I would have put all the money I invested the past 3 years towards the mortgage balance , I'd still have 30% of it left to pay. The timing of my decision was very lucky that the returns from 2019-2021 was beyond exceptional.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3311 on: September 09, 2022, 08:47:24 AM »
You say the total return of 2019-2021 was "lucky".

I think that deserves more analysis:
  • How did the 3-year return compare to other 3-year periods?
  • How bizarre was it that markets responded so strongly to the utterly unprecedented set of events during the 2020 calendar year?

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3312 on: September 09, 2022, 09:16:28 AM »
You say the total return of 2019-2021 was "lucky".

I think that deserves more analysis:
  • How did the 3-year return compare to other 3-year periods?
  • How bizarre was it that markets responded so strongly to the utterly unprecedented set of events during the 2020 calendar year?

2019-2021 was 18.2% (inflation adjusted). One in ten 3-year periods returns at least 20.9% (inflation adjusted). So it's roughly a one-in-eight chance to get that sort of return? Not super lucky, in my opinion (should happen several times over a lifetime).

Can't help you on speculating the second bullet point.

ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3313 on: September 09, 2022, 10:00:23 AM »
The math still works, especially in light of the insane inflation we're experiencing right now. Hopefully, both will stabilize sooner rather than later.

A long time ago, when I was getting the DPOYM lesson pounded into my head (long before MMM was born), I remember being thrilled to buy a new place and get a 7% mortgage, and I had stellar credit. Mortgages are still historically cheap.

The math still works, it just isn't quite as blindingly obvious.

See, I have this theory that monetary policy is stimulative any time you can borrow for less than the rate of inflation. E.g. Toyota is still offering 1.9% financing for new cars that will likely cost 6-8% more to buy if you wait 12 months PLUS a much higher financing rate (and you also miss out on the utility of a new car until then). Thus it makes sense to pull forward next year's planned purchase of a new car and lock in the lower price today. Even if you park it in a storage unit for a year, the depreciation won't cost as much as the price and rate hikes!

Similarly, even though mortgage rates are suddenly 6%, it might still be justifiable to buy a house today because the inflation rate is more like 8% and all the labor and commodities that go into building a house are getting more expensive by the day. When you can borrow at a cheaper rate than inflation to lock in lower prices than will be available in the future, you are incentivized to pull ahead your purchases. This logic applies to corporate investments too: Borrow now at 5-6% to lock in next year's supply of inventory or commodities and avoid the next round of 8% or worse price hikes.

This dynamic, of course, leads to higher demand, shortages, and higher inflation expectations, which means the rationale for spending money keeps making sense month after month until the music stops. 

With mortgages you have the option to pay them off or refinance when the rate of inflation drops back below your interest rate - i.e. after the next recession. That option value makes RE seem like a win-win to a lot of people.

Shuchong

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Re: DONT Payoff your Mortgage Club
« Reply #3314 on: September 09, 2022, 01:09:53 PM »
With mortgages you have the option to pay them off or refinance when the rate of inflation drops back below your interest rate - i.e. after the next recession. That option value makes RE seem like a win-win to a lot of people.

Yeah, this is a big thing for me.  I just bought a house, with a 30 year mortgage at a 5.375% rate.  I'm not paying extra on it even though that's my natural inclination, and one of the reasons is that the option to refinance somewhere in that 30 years is worth something to me.  I wish I had a mathematical way to value that option, but alas, I'm neither math-y enough nor clairvoyant enough to come up with a formula. 

dragoncar

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Re: DONT Payoff your Mortgage Club
« Reply #3315 on: September 09, 2022, 05:27:17 PM »
You say the total return of 2019-2021 was "lucky".

I think that deserves more analysis:
  • How did the 3-year return compare to other 3-year periods?
  • How bizarre was it that markets responded so strongly to the utterly unprecedented set of events during the 2020 calendar year?

Investors need encouragement.
If a kid gets a good return, tell him it was a lucky guess.
That way he develops a good, lucky feeling.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3316 on: September 09, 2022, 07:28:36 PM »
With mortgages you have the option to pay them off or refinance when the rate of inflation drops back below your interest rate - i.e. after the next recession. That option value makes RE seem like a win-win to a lot of people.

Yeah, this is a big thing for me.  I just bought a house, with a 30 year mortgage at a 5.375% rate.  I'm not paying extra on it even though that's my natural inclination, and one of the reasons is that the option to refinance somewhere in that 30 years is worth something to me.  I wish I had a mathematical way to value that option, but alas, I'm neither math-y enough nor clairvoyant enough to come up with a formula.
In that case, one option might be to set up autopay and forget about it. If you have an impound account, check once or twice a year to be assured that your insurances and taxes are being paid properly and to adjust your payment amount as the economy pushes those T& I numbers inexorably upward. Then go out and have fun living your best life!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3317 on: September 09, 2022, 08:01:46 PM »
Indeed, I think the average tenure in a house is somewhere between 7-9 years. But you may have special reasons that make you different than average. So you're valuing that option based on the horizon of living in the property, not the term of the mortgage. Would that forecasting rates over 7-9 years were easy!

I performed a version of this calculation when I signed up for a 5/1 ARM at 3.0% back in 2013 (was offered a 30-year fixed at 4.125). As it turned out, we were selling the house in early 2020, so that was only perhaps seventeen months into the rate reset period.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #3318 on: September 09, 2022, 11:41:38 PM »
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.

Sure, and if you look back through these many pages, you will time and again find the caveat of "at today's low rates."  Which of course meant the low rates of the past few years.  That assumption was built into DPOYM and repeated many times.

But many of the advantages still apply, for example avoiding the high risk of putting your money in an illiquid asset.  And you can make a convincing argument that over any reasonably long period of time, the return on equities has to be higher than the cost of capital.  If not, we'd all we living in stone huts. 

We all know the folly of trying to time the market, but that doesn't mean we can't be aware of cycles.  That's why so many of us were screaming on the highest mountain tops that a sub-4% mortgage was--literally--the deal of a lifetime.     Those rates were nonsensically low, and it made sense to take advantage of them as much as you responsibly could.   

rpr

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Re: DONT Payoff your Mortgage Club
« Reply #3319 on: September 20, 2022, 12:13:39 PM »
My house was sold and the mortgage paid off.  It was a 30 year 2.5% fixed rate. A sad day. :(

achvfi

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Re: DONT Payoff your Mortgage Club
« Reply #3320 on: September 20, 2022, 12:54:59 PM »
Sad day indeed! I hope you made good chunk on the equity while the market is hot.

What are your next housing plans?

rpr

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Re: DONT Payoff your Mortgage Club
« Reply #3321 on: September 20, 2022, 01:17:13 PM »
Sad day indeed! I hope you made good chunk on the equity while the market is hot.

What are your next housing plans?

It was indeed a good time to sell. Bought the house in early 2011 as the market was still dropping. House price appreciation was 5.5% annualized over this entire period (2011-2022). Though most of the gains came in the past two years (2020-2022) at 20% annualized.

The very first loan to purchase was a 30 year @ 4.875% in Dec 2010. Gradually and continuously did no cost refis all the way to 2.5% in late 2020.

Moved a few months ago cross country to a VHCOL area. Renting for now.  Rents, house prices, and mortgage rates are all high, of course. May have to do an ARM or something if we decide to buy.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3322 on: September 20, 2022, 02:04:13 PM »
Paula Pant had a nice discussion on her podcast late August about why she rents where she lives (while owning more than half a dozen rental properties to generate income). Depending on your plans in this VHCOL area, you may find being a long-term renter has some benefit.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #3323 on: September 20, 2022, 02:18:08 PM »
Plus that's the ultimate DPOYM play. Relatively little capital tied up in your house when renting vs. owning.

rpr

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Re: DONT Payoff your Mortgage Club
« Reply #3324 on: September 20, 2022, 02:26:59 PM »
Paula Pant had a nice discussion on her podcast late August about why she rents where she lives (while owning more than half a dozen rental properties to generate income). Depending on your plans in this VHCOL area, you may find being a long-term renter has some benefit.

Thanks, @talltexan. Would you happen to have the link to that specific podcast? She has a bunch and I am looking at the synopsis and not sure which one has the discussion you refer to. I was able to find it. It was very useful.

Good and fulfilling jobs for both of us at the moment. Nice city life with many things to do. Walk or take public transit most places. We do plan to live here for a while.  And we may even retire here. But who knows, things may change as we're still in the honeymoon period. 
« Last Edit: September 21, 2022, 07:28:53 AM by rpr »

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3325 on: September 21, 2022, 08:40:01 AM »
So glad. I've really come to appreciate Paula's output during the past year!

achvfi

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Re: DONT Payoff your Mortgage Club
« Reply #3326 on: September 21, 2022, 08:53:40 AM »
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.

rpr

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Re: DONT Payoff your Mortgage Club
« Reply #3327 on: September 21, 2022, 11:19:03 AM »
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.

In the city I am, average monthly rate for rent is $4000 while the median house/condo price is $710K. This is the data for June 2022. We are comparing average vs median but this is a price to rent ratio of around 15.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3328 on: September 21, 2022, 12:24:28 PM »
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.

Where was this unicorn of which you speak?

achvfi

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Re: DONT Payoff your Mortgage Club
« Reply #3329 on: September 21, 2022, 12:40:34 PM »
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.

Where was this unicorn of which you speak?
This one was in Saratoga. It had nice yard front and back and you can see some red woods near by. Beautiful home for a family.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3330 on: September 21, 2022, 01:55:41 PM »
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.

Where was this unicorn of which you speak?
This one was in Saratoga. It had nice yard front and back and you can see some red woods near by. Beautiful home for a family.
Hmmm, what I remember of Saratoga is that it was considered the "most affordable" pocket of the Silicon Valley. But hey, who doesn't love a little Real Estate Porn?
I realize there are more places to shop for rentals than Zillow, but the to-do list needs to get to-done today, so I pushed the Easy Button.

Cheapest SFH in Saratoga - $3995 1232sf 3+1.5: https://www.zillow.com/homedetails/12931-Quito-Rd-Saratoga-CA-95070/19654331_zpid/? (Curiously, it's had two price drops since 9/9/22 - Huge lot, plenty of parking. Possible scam meter alert.)

Most expensive SFH - $15,000 5700sf 7+4: https://www.zillow.com/homedetails/Saratoga-CA-95070/19657952_zpid/

Closest to the pin SFH -  $4750 1616sf 4+3: https://www.zillow.com/homedetails/12122-Covina-Ct-Saratoga-CA-95070/19652902_zpid/(Check out the kitchen!)

Just for fun - $3250 450sf 1+1: https://www.zillow.com/homedetails/Saratoga-CA-95070/2061493328_zpid/

Occasionally, DH and I will play a Real Estate game: We choose a city and a budget and then search for the house we'd buy That Day. Free, frugal RE fun!

clarkfan1979

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Re: DONT Payoff your Mortgage Club
« Reply #3331 on: September 21, 2022, 02:29:45 PM »
I'm kind of late to the party (5 years), but I finally decided to chime in. I have recently become more passionate about "not paying off my mortgage" because my current rates are crazy low and I have Dave Ramsey whispers in society telling me that I need to get rid of all debt asap.

I have 28.3 years left on a 30 year mortgage at 2.875% with an original balance of 227K. House is worth 375K to 400K. I have 3 rental properties with mortgages at 3.5%, 4.5% and 4.875%. The total equity (after transaction costs) across the 3 rentals is around 1 million. The Dave Ramsey crowd says, "sell the rentals and pay off the mortgage on your primary, so you can feel free. Wouldn't that feel awesome."

Actually, I don't think it would feel like anything to me. My P & I is $950/month. This last August, I raised the rent by $1,000/month across the 3 rentals and I'm still not at market value. I will probably raise it another $500-$1,000/month next August as well. The P & I on my primary is only $950/month. It's already taken care of. I don't feel the weight of anything when I have my rentals paying for it. Not selling the rentals.

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Re: DONT Payoff your Mortgage Club
« Reply #3332 on: September 21, 2022, 02:46:20 PM »
I'm kind of late to the party (5 years), but I finally decided to chime in. I have recently become more passionate about "not paying off my mortgage" because my current rates are crazy low and I have Dave Ramsey whispers in society telling me that I need to get rid of all debt asap.

I have 28.3 years left on a 30 year mortgage at 2.875% with an original balance of 227K. House is worth 375K to 400K. I have 3 rental properties with mortgages at 3.5%, 4.5% and 4.875%. The total equity (after transaction costs) across the 3 rentals is around 1 million. The Dave Ramsey crowd says, "sell the rentals and pay off the mortgage on your primary, so you can feel free. Wouldn't that feel awesome."

Actually, I don't think it would feel like anything to me. My P & I is $950/month. This last August, I raised the rent by $1,000/month across the 3 rentals and I'm still not at market value. I will probably raise it another $500-$1,000/month next August as well. The P & I on my primary is only $950/month. It's already taken care of. I don't feel the weight of anything when I have my rentals paying for it. Not selling the rentals.

"The debt-free feeling!" is one area I've never been to reconcile with the DR crowd.  At various times I've held debt (but always responsibly - ie low rates and amounts within reason of income), and I've paid it off to be debt free (like when we sold our last home, or when we paid off very low SL).  Having no debt has never felt better to me than holding debt.  Further, I strongly believe that one shouldn't allow their feelings to rule their financial decisions. So the whole "do it for how it feels" strikes me as the wrong thing to follow.

Ironically, what does make me "feel better" is having a very large number in my investment account. I still don't allow that to dictate my financial decisions, but to me that's a much better security blanket than no monthly mortgage PI payments.

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #3333 on: September 21, 2022, 02:56:51 PM »
The great thing about mortgage debt is that it tends to feel lighter as time goes on. The debt on our last home felt heavy at first, and practically non-existent at the end. We chose to move and also take out a larger mortgage this year, and it feels pretty shitty to me right now, but history tells me that it'll become more comfortable and eventually a non-issue as inflation erodes it's financial impact.

OTOH, I agree in theory (since I haven't tried it yet) with a poster above suggesting that renting and investing the home equity that you used to have might be the best of both worlds to me personally. So I think we're also all about the feels here, but with just a slightly different emphasis.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3334 on: September 21, 2022, 07:42:50 PM »
I'm kind of late to the party (5 years), but I finally decided to chime in. I have recently become more passionate about "not paying off my mortgage" because my current rates are crazy low and I have Dave Ramsey whispers in society telling me that I need to get rid of all debt asap.

I have 28.3 years left on a 30 year mortgage at 2.875% with an original balance of 227K. House is worth 375K to 400K. I have 3 rental properties with mortgages at 3.5%, 4.5% and 4.875%. The total equity (after transaction costs) across the 3 rentals is around 1 million. The Dave Ramsey crowd says, "sell the rentals and pay off the mortgage on your primary, so you can feel free. Wouldn't that feel awesome."

Actually, I don't think it would feel like anything to me. My P & I is $950/month. This last August, I raised the rent by $1,000/month across the 3 rentals and I'm still not at market value. I will probably raise it another $500-$1,000/month next August as well. The P & I on my primary is only $950/month. It's already taken care of. I don't feel the weight of anything when I have my rentals paying for it. Not selling the rentals.

"The debt-free feeling!" is one area I've never been to reconcile with the DR crowd.  At various times I've held debt (but always responsibly - ie low rates and amounts within reason of income), and I've paid it off to be debt free (like when we sold our last home, or when we paid off very low SL).  Having no debt has never felt better to me than holding debt.  Further, I strongly believe that one shouldn't allow their feelings to rule their financial decisions. So the whole "do it for how it feels" strikes me as the wrong thing to follow.

Ironically, what does make me "feel better" is having a very large number in my investment account. I still don't allow that to dictate my financial decisions, but to me that's a much better security blanket than no monthly mortgage PI payments.
The "Debt-free feeling" is ephemeral. Having more money in your stache than you ever imagined was possible is a whole order of magnitude more amazing. For an average wage earner, you can't save enough "after" accelerating the mortgage payoff to get there early enough to call it FIRE. <---I know that's convoluted, but it's crazy how it grows, lol!

And to @clarkfan1979, same same. Three rentals, three mortgages. We refi'd two of them last year. I'll be in my 90's if we ever actually pay them off.

Fru-Gal

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Re: DONT Payoff your Mortgage Club
« Reply #3335 on: September 21, 2022, 09:11:46 PM »
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.

But anyway I just have to say this thread really made it possible for me to fire this year. And yes my P&I is $950 a month as well at 2.75% interest for 30 years.

I’ve done all the different permutations you can do with a mortgage (and 2nd) in the quarter century plus that I’ve lived in this house and I think this is the best one in the end lol. In FIRE cash flow is king.

(Granted if I hadn’t cashed out a bunch of times then we would almost have paid off the house by now for what is now a very small amount of money. But the equity we have now is enormous.)
« Last Edit: September 21, 2022, 09:15:06 PM by Fru-Gal »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3336 on: September 21, 2022, 11:41:24 PM »
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.

But anyway I just have to say this thread really made it possible for me to fire this year. And yes my P&I is $950 a month as well at 2.75% interest for 30 years.

I’ve done all the different permutations you can do with a mortgage (and 2nd) in the quarter century plus that I’ve lived in this house and I think this is the best one in the end lol. In FIRE cash flow is king.

(Granted if I hadn’t cashed out a bunch of times then we would almost have paid off the house by now for what is now a very small amount of money. But the equity we have now is enormous.)
Woo-hoo! Go, Fru-Gal, go!

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Re: DONT Payoff your Mortgage Club
« Reply #3337 on: September 22, 2022, 03:50:55 AM »
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Oh boy - the intersection of debt-free and religion… there’s a sticky subject. There’s a whole torrent of religious judgement (and judgement by religious people…not the same thing) on both sides of the debt ledger. Edicts about money-changers, prohibitions on certain days and lofty ideals about “honoring” your debt. Making certain financial actions sinful, while making debt payoff some sort of redemption.

Many years ago I got dog-piled (to the point of harassment and threats) on the DR forums for not toeing the line about paying off some zero-interest subsidized student loans, particularly since I had far better uses for that money (e.g. funding my IRA). It grew frustrated with posters who wouldn’t acknowledge that I literally wound up with my money by lowering my tax burden, but the real hate came from some posters who flat-out called what I was doing reprehensible.  Their argument seemed to be that I had sinned by taking out loans for college I could clearly afford, and then I was compounding that sin by not suffering deeply to pay off that debt.  One vivid poster even told me that “the debt was on my soul, not just on my monthly statement”.  Others professed moral outrage that I should fund my IRA while still holding debt, thereby making “hard working tax-payers” give me money for exploiting such a “loophole” (I was cheating the system!… somehow… by following some clearly laid-out rules I guess…).


davisgang90

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Re: DONT Payoff your Mortgage Club
« Reply #3338 on: September 22, 2022, 06:21:32 AM »
Don't mind me. Just here to brag on my 2.25% 30 year I refied in Spring of 2021. No plan to pay a dime before its time!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3339 on: September 22, 2022, 07:31:51 AM »
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Seriously, though, if you have a thing you're passionate about--like religion--why wouldn't you be willing to make choices in other parts of your life to fit in with that? You should be willing to leave some $$ on the table to better align with religious practice.

If anything, I'd argue that your next door neighbor having a lower mortgage balance is either neutral or good from your perspective.


Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3340 on: September 22, 2022, 07:52:00 AM »
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Seriously, though, if you have a thing you're passionate about--like religion--why wouldn't you be willing to make choices in other parts of your life to fit in with that? You should be willing to leave some $$ on the table to better align with religious practice.

If anything, I'd argue that your next door neighbor having a lower mortgage balance is either neutral or good from your perspective.
What? Tithing isn't enough? /s

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3341 on: September 22, 2022, 08:55:51 AM »
I'll own that I am practicing, but I do not tithe. But I also don't feel called to handle my approach to debt in a way that aligns with my Protestant ethic.

I did serve in a finance role for my (United Methodist) church about ten years ago, and the annual budget from 170 households was $850,000. If you take the per-HH average of $5,000, that would have been close to tithing if we were average. But it was in a very tony community in SW Ohio, so I suspect the average income per HH was considerably higher.

DadJokes

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Re: DONT Payoff your Mortgage Club
« Reply #3342 on: September 22, 2022, 09:29:14 AM »
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Oh boy - the intersection of debt-free and religion… there’s a sticky subject. There’s a whole torrent of religious judgement (and judgement by religious people…not the same thing) on both sides of the debt ledger. Edicts about money-changers, prohibitions on certain days and lofty ideals about “honoring” your debt. Making certain financial actions sinful, while making debt payoff some sort of redemption.

Many years ago I got dog-piled (to the point of harassment and threats) on the DR forums for not toeing the line about paying off some zero-interest subsidized student loans, particularly since I had far better uses for that money (e.g. funding my IRA). It grew frustrated with posters who wouldn’t acknowledge that I literally wound up with my money by lowering my tax burden, but the real hate came from some posters who flat-out called what I was doing reprehensible.  Their argument seemed to be that I had sinned by taking out loans for college I could clearly afford, and then I was compounding that sin by not suffering deeply to pay off that debt.  One vivid poster even told me that “the debt was on my soul, not just on my monthly statement”.  Others professed moral outrage that I should fund my IRA while still holding debt, thereby making “hard working tax-payers” give me money for exploiting such a “loophole” (I was cheating the system!… somehow… by following some clearly laid-out rules I guess…).

Even Dave Ramsey doesn't take things that far. He'll say that the Bible never speaks well of debt, but he'll also say that it is never called a sin.

ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3343 on: September 22, 2022, 10:29:52 AM »
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Seriously, though, if you have a thing you're passionate about--like religion--why wouldn't you be willing to make choices in other parts of your life to fit in with that? You should be willing to leave some $$ on the table to better align with religious practice.

If anything, I'd argue that your next door neighbor having a lower mortgage balance is either neutral or good from your perspective.
What? Tithing isn't enough? /s
People have a limited ability to tithe/donate when they are servicing debt. For example, if I net $5k/month and pay a $2k mortgage P&I, I have $3k for everything else plus my religious organization. When I pay off my mortgage, however, suddenly I have $5k available for everything else plus my religious organization. I'm more likely to pay a bigger amount to my religious group when I don't have debt payments.

Someone who is an accumulating landlord or an entrepreneur, who is taking on debt today to build equity in something tomorrow, offers religious organizations less immediate disposable income than the wage earner whose giving is based on a growing income and shrinking debts. People don't tithe out of the gains in their home equity, business value, or investment real estate equity. Additionally the use of leverage usually requires a person to save up a financial cushion to handle unexpected contingencies, and that's also money the religious organization can't access.

Therefore those religious leaders whose message is about working hard (for wages) and paying off debt will cultivate a following with a greater ability to pay. Those religious leaders whose message is about using leverage in your favor, saving up an emergency fund or business contingency fund, and never paying off your mortgage will end up with a following whose ability to make large donations is somewhat impaired by the need to service debt. Even if the use of debt is more profitable in the long run, for the time being it cuts off the religious organization from your sources of liquidity.

As the anti-debt religious messages attract more money than their competitors, their perspective becomes amplified in comparison to their competitors.


dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #3344 on: September 22, 2022, 10:40:46 AM »
In the medium term maybe. In the short term, there is even less available to be potentially donated for the pay off the mortgage crowd. In the long term, the harm to your wealth is massive so limiting potential donations 10, 20, 30 years down the road.

ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3345 on: September 22, 2022, 12:03:54 PM »
I added a poll.

How high would your mortgage rate have to be to persuade you to make early payments toward principal?

https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3346 on: September 22, 2022, 12:46:11 PM »
I added a poll.

How high would your mortgage rate have to be to persuade you to make early payments toward principal?

https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/

Not to quibble with the poll choices (but quibbling anyway...)
It depends immensely on yields of my alternatives.  For example, there's no way I'd pay off mortgage debt at even 9% with iBonds paying 9.62% right now. 


ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3347 on: September 22, 2022, 08:07:41 PM »
I added a poll.

How high would your mortgage rate have to be to persuade you to make early payments toward principal?

https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/

Not to quibble with the poll choices (but quibbling anyway...)
It depends immensely on yields of my alternatives.  For example, there's no way I'd pay off mortgage debt at even 9% with iBonds paying 9.62% right now.

They won't be yielding that for much longer, but you make a good point about how a decision to pay down a mortgage and earn that yield for the duration of the loan competes with shorter-duration alternatives that may yield even more. As the yield curve continues inverting, this is going to become an even tougher call. That's even before we start talking about adding risk from corporate bonds, junk bonds, or preferreds.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3348 on: September 23, 2022, 06:57:58 AM »
Rates matter, but it also matters how large the overall debt load is. 

dragoncar

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Re: DONT Payoff your Mortgage Club
« Reply #3349 on: September 23, 2022, 10:27:11 PM »
I tithe regularly to my religion