Author Topic: DONT Payoff your Mortgage Club  (Read 25371 times)

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #350 on: August 04, 2017, 03:19:42 PM »
If it were me, I'd pay off the house.  Its on a short enough time line that the market is more volatile.  Plus, how awesome would it be to never have another mortgage payment?

there is a thread for you to go spread this blasphemy in and you're welcome to go do that there.
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tyort1

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Re: DONT Payoff your Mortgage Club
« Reply #351 on: August 04, 2017, 03:28:15 PM »
You've clearly forgotten my frequent contributions to this thread where I generally support not paying off the mortgage.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #352 on: August 04, 2017, 03:41:07 PM »
You've clearly forgotten my frequent contributions to this thread where I generally support not paying off the mortgage.

if you think he only has 15 payments left you're read his entire post incorrectly
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tyort1

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Re: DONT Payoff your Mortgage Club
« Reply #353 on: August 04, 2017, 03:59:37 PM »
You've clearly forgotten my frequent contributions to this thread where I generally support not paying off the mortgage.

if you think he only has 15 payments left you're read his entire post incorrectly

Oh, right you are.  Then yeah if it's more than a couple years out, screw paying it off.
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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #354 on: August 05, 2017, 09:18:37 AM »
If it were me, I'd pay off the house.  Its on a short enough time line that the market is more volatile.  Plus, how awesome would it be to never have another mortgage payment?
This isn't about paying off the house. It's about what to do when the rate lock expires on an ARM. Far more interesting topic, IMO.

ETA: Whoops, I see b42 has already addressed this. Sorry to pile on.
I'm going to leave this comment, so I can share more details later.
« Last Edit: August 05, 2017, 09:21:15 AM by Dicey »
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talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #355 on: August 07, 2017, 02:33:16 PM »
Indeed we've had very nice investment gains on money that could have been thrown at our mortgage.

And as long as we can keep the rate on the mortgage below 4% (reminder: it's at 3% now), the math favors paying it down slowly.

Will it take one year or five years to close the door on our access to rates that low?

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #356 on: August 08, 2017, 06:09:02 AM »
Indeed we've had very nice investment gains on money that could have been thrown at our mortgage.

And as long as we can keep the rate on the mortgage below 4% (reminder: it's at 3% now), the math favors paying it down slowly.

Will it take one year or five years to close the door on our access to rates that low?

it doesnt have to be below 4% to favor paying it down slowly.  anything under 6% is still better though it gets grayer.  and you really should look at the real cost of the interest rate if you take the mortgage interest tax deduction b/c that would allow for a rate up around 6% to still get you around 4% assuming you're in the 25% bracket and have ~6% state income tax.  but your name is texan so you likely dont have the state tax.  but this would still allow for a much higher rate even at just 25% savings due to tax deductions
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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #357 on: August 09, 2017, 12:06:52 AM »
Hmmm, today I heard an ad on the radio for a 15 year fixed mortgage at 2.99% APR and APY with no points. Mighty tempting. I wonder if this rate is actually obtainable by mere mortals or if it's just a tease? Our house has no mortgage and is worth about 1.3M. Problem is, we don't really need the money, as our 'stache is pretty fat, but still...
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Izzozi

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Re: DONT Payoff your Mortgage Club
« Reply #358 on: August 12, 2017, 12:07:18 PM »
Alright, I wanted to join the club so I'm taking out a 30 year fixed 381K loan @ 3.875%. Jealous of some of the rates being thrown around here!

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #359 on: August 12, 2017, 07:07:29 PM »
Ooh, more details, please!
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Izzozi

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Re: DONT Payoff your Mortgage Club
« Reply #360 on: August 13, 2017, 12:39:05 AM »
HCOL buying first house in mid-late 20's. 20% down. Decided to keep additional funds invested rather than sell and take out a much smaller loan. Between delaying capital gains and (hopefully) better long term stock performance, not paying off makes more sense to me!

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #361 on: August 13, 2017, 02:10:31 AM »
Ooh, I think I misunderstood. Your post was right after mine, so I assumed the circumstances were similar. For clarity, I was referring to taking out a loan on an existing home that's mortgage free, i.e. borrowing cheap money against our primary home in order to make other investments. I suspect that when loan rates return to historical norms, we'll sorely wish we had.

Now I think I see you're talking about an initial purchase, not about taking out a mortgage on an existing home that has no mortgage. Did I get it right this time? Hope so.

Kudos to you for taking out a long, cheap, affordable mortgage. It may seem hard to believe, but as long as you also keep adding steadily to your investment accounts, your future self is going to be pleased as hell about how smart past you was to do it this way. Also bonus points for you for amassing 20% down for your first house without cashing in all of your investments, and in a HCOLA to boot. Not easy, I know.
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ewkid

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Re: DONT Payoff your Mortgage Club
« Reply #362 on: August 13, 2017, 03:24:07 PM »
I'm curious as to what the feeling of people in this thread is towards refinancing to increase monthly cash flow.  I've got about 8 years left on my 15 year mortgage.  If I refi to a new 15 year mortgage I estimate that I could reduce my payment by $800-$900 a month.

I would be kidding myself if I said that I would invest all of that savings as I know some portion would get spent.  I think I could safely say that I would put $500 a month into an index fund.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #363 on: August 13, 2017, 04:01:17 PM »
I'm curious as to what the feeling of people in this thread is towards refinancing to increase monthly cash flow.  I've got about 8 years left on my 15 year mortgage.  If I refi to a new 15 year mortgage I estimate that I could reduce my payment by $800-$900 a month.

I would be kidding myself if I said that I would invest all of that savings as I know some portion would get spent.  I think I could safely say that I would put $500 a month into an index fund.
Need more info to do the math.  Your "refinance" option is the easiest to compute - I went with 7% expected return for 15 years on $6000 per year, and I get $150K or so.  At the end of 15 years, you have a paid-off house and $150K.

The "don't refinance" option has more variables - you have a paid-off house at the end of 8 years, and then more to invest.  How much is the P&I on the refinance?  Will your additional spending be proportional, or is the $400 / month extra spending from lower house-payment fixed?  Because in 8 years, you're freeing up more money, so what you expect you will do with that impacts this.

Example:
Your current P&I is $2200 / month.  In 8 years, your spending goes up by $400 as it would today, leaving you $1800 to invest.  So at the end of the 15 years you've got $186K plus your paid off house.  In this case, you should do the refinance.  $186K>$150K

Example 2:
Your current P&I is $2200 / month.  In 8 years, your spending goes up by a little less than half of that amount - $1,000, leaving $1200 to invest.  At the end of 15 years, you've got $124K plus your paid off house.  In this case, you should not do the refinance.  $124K<$150K

At very low market return assumptions, then not doing the refinance is the play, but you break-even with the "I'll spend about half of the amount I free up" earlier than you'd think - I'm getting that at about 3% assumed market returns.  But it is quite a ways up on the return amount - market returns of 11-12% before refinance is clearly the play if it is more like "I"ll spend another $400 / month or so out of the freed up mortgage".

So if you know you will look at the increased cash-flow as an opportunity to increase spending as well as investing, then the answer is not nearly as clear cut as invest the difference only analysis.  Which is something to think about - I think many more people do this than would readily admit, even in this community which is all about decoupling spending decisions from current income / cash-flow.
« Last Edit: August 13, 2017, 04:03:07 PM by dandarc »
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #364 on: August 13, 2017, 06:57:31 PM »
Why 15. If you plan to stay there at least 7 more years a 30 will come out ahead. But if the interest rates are comparable a refi will make a lot of financial sense. And if the mortgage is that old the rates now are better. 
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talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #365 on: August 15, 2017, 11:51:09 AM »
Get them to quote you a rate on a 5/1 ARM. Your payments could be amortized to 15 years or to 30, but there should be a lower rate in either case.

gmdv

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Re: DONT Payoff your Mortgage Club
« Reply #366 on: August 17, 2017, 05:59:05 AM »
I'm in.  Have 9.5 years left on a 2.75% 15 years fixed. I prepaid  a bit in the first year, then thought what in the world am I doing with rate this low.

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #367 on: August 20, 2017, 02:17:57 PM »
Why 15. If you plan to stay there at least 7 more years a 30 will come out ahead. But if the interest rates are comparable a refi will make a lot of financial sense. And if the mortgage is that old the rates now are better.

Boarder has a good idea about the 30years, if you are looking at this.

IMO,  it would be better to refinance to 30 years, but take out a larger amount (back up to 80% financed) so that your monthly payment is the same, then invest the freed up cash in something you can get your hands on if future cashflow becomes a problem (e..g, sell $5k at a time to top off your mortgage payments).  Not sure if you can get an equally low mortgage rate for refinancing to release cash, though.

Do not just lower your payments because of lifestyle creep.  Unless you have a real shortfall each month, that is.