Author Topic: DONT Payoff your Mortgage Club  (Read 981603 times)

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3750 on: March 04, 2024, 11:36:57 AM »
I mean yeah... right now our two mortgages combine to $787k... though by June hopefully there will be one mortgage and it'll be quickly dropping below $500k.

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Re: DONT Payoff your Mortgage Club
« Reply #3751 on: March 04, 2024, 11:49:33 AM »
Or, sell your highly appreciated (still mortgaged) home and buy another one for cash, which is what we did. Don't worry, we still have mortgages on our rentals ;-)

This is what we're planning. We'd like to keep a mortgage when we relocate but 1) no income; and 2) rates are too high.

The current mortgage is actually more than when I bought the place (nominally). We took out 2 HELOCs, built an ADU, and upgraded the main house wiring. It kept money in the market and we're repaying it with inflationary and capital gain dollars.

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Re: DONT Payoff your Mortgage Club
« Reply #3752 on: March 05, 2024, 11:46:46 PM »
Sometimes doing nothing gets pretty boring. This past few days has been unexpectedly...not boring. All civilized conversation on this topic is good conversation, right?

I've been singing the DPOYM song for a long time, and nothing makes me happier than reading something like the quote below. As this was posted in eta's journal, it is quoted with her permission.

The monthly budget is such a deeply embedded psychological game, I think, SunnyDays. It's probably why it's so tempting to pay down the mortgage, even though that makes no sense mathematically in our case. Two years ago, when we bought, we could have recast the mortgage after we sold the condo. It would have brought down our monthly payment by at least $600. But with a mortgage rate of 2.99%, that plan didn't make much sense. We experienced the pain of having too much of our money tied up in the house with the condo--we used to put $800/month extra on our mortgage every month, and we had a 20 year mortgage. So then, when we wanted to buy the townhouse, it was harder to come up with the down payment.

So we have a tighter monthly budget but we also have a huge pile of money in accessible investments. Come to think of it, we really made all the right moves. We didn't put the extra money into the mortgage, where it would be less efficient and also inaccessible, but we also didn't spend it, which is why the more conservative money folk a la Dave Ramsey encourage paying down the mortgage as a money goal--the concern is that if you don't pay down the mortgage, you'll just waste the money. Having the pile of money gives us a lot more flexibility in terms of big life adjustments. If I had to stop working, for example, we could pay the monthly mortgage payment out of our savings for years...whereas, if we had recast the mortgage, the bank would still want the (lower) monthly payment, but we wouldn't have the money to pay it. Good job, us!

But yes, we do have the psychological burden of a tighter monthly budget. This actually is probably not a bad thing. It makes me less likely to buy unnecessary stuff.
Thanks, @englishteacheralex!

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Re: DONT Payoff your Mortgage Club
« Reply #3753 on: March 06, 2024, 05:57:48 PM »
Sometimes doing nothing gets pretty boring. This past few days has been unexpectedly...not boring. All civilized conversation on this topic is good conversation, right?

I've been singing the DPOYM song for a long time, and nothing makes me happier than reading something like the quote below. As this was posted in eta's journal, it is quoted with her permission.

The monthly budget is such a deeply embedded psychological game, I think, SunnyDays. It's probably why it's so tempting to pay down the mortgage, even though that makes no sense mathematically in our case. Two years ago, when we bought, we could have recast the mortgage after we sold the condo. It would have brought down our monthly payment by at least $600. But with a mortgage rate of 2.99%, that plan didn't make much sense. We experienced the pain of having too much of our money tied up in the house with the condo--we used to put $800/month extra on our mortgage every month, and we had a 20 year mortgage. So then, when we wanted to buy the townhouse, it was harder to come up with the down payment.

So we have a tighter monthly budget but we also have a huge pile of money in accessible investments. Come to think of it, we really made all the right moves. We didn't put the extra money into the mortgage, where it would be less efficient and also inaccessible, but we also didn't spend it, which is why the more conservative money folk a la Dave Ramsey encourage paying down the mortgage as a money goal--the concern is that if you don't pay down the mortgage, you'll just waste the money. Having the pile of money gives us a lot more flexibility in terms of big life adjustments. If I had to stop working, for example, we could pay the monthly mortgage payment out of our savings for years...whereas, if we had recast the mortgage, the bank would still want the (lower) monthly payment, but we wouldn't have the money to pay it. Good job, us!

But yes, we do have the psychological burden of a tighter monthly budget. This actually is probably not a bad thing. It makes me less likely to buy unnecessary stuff.
Thanks, @englishteacheralex!

It makes me think about how until my expensive CA condo, I tried not to get caught in the trap of looking at my house payment as a monthly payment.  But in part because I started renting, I had thought about how much I was willing to spend on housing each month now and into the future.  When I decided to buy my Financial Advisor noted, it’s basically the same range as what you talked about for rent when you moved out to CA, amazing how that worked out right? 

With CA being a no recourse state and me itemizing because I’m single and only have a $13,xxx standard deduction it makes even more sense to have a big fat mortgage and keep my brokerage account Fat as well.  (I could pay things off tomorrow).

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Re: DONT Payoff your Mortgage Club
« Reply #3754 on: March 07, 2024, 08:15:44 AM »
I have about $142k left on our mortgage that started at 15 years at 2.5%. We have about 11 years left.

I'm firmly a member of this group vs. the pay off your mortgage now group. However I feel like having a mortgage payment will be a major factor in *not* deciding to FIRE if/when that time comes. I know I won't like the payment hanging over my head without a paycheck!

Realistically the chances that we are comfortable and ready to FIRE before 11 years is probably slim but I'd love to be able to if things work out. Kind of kicking myself for refinancing to a 15 year and not doing a 30 year...could be investing a lot more each month. On the bright side we will have a paid off house before either of us reach 50.

halfling

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Re: DONT Payoff your Mortgage Club
« Reply #3755 on: March 13, 2024, 09:37:10 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.

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Re: DONT Payoff your Mortgage Club
« Reply #3756 on: March 13, 2024, 09:57:36 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

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Re: DONT Payoff your Mortgage Club
« Reply #3757 on: March 13, 2024, 10:21:00 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

Thanks Dicey - on some level I knew this, but had not thought of it so explicitly. With PMI you are paying to insure someone else’s risk.

halfling

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Re: DONT Payoff your Mortgage Club
« Reply #3758 on: March 13, 2024, 11:46:56 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

I think it will fall off automatically, but I just asked the lender for specifics in case they will want to see a new appraisal, so thanks for the warning. It is $30/mo for the PMI, and I understand it's there to protect the lender; most of the added cost comes from just borrowing more money at a high rate. I'll have to see if I can stash enough cash before closing to be really comfortable putting more down. I'm sure I'm more scared than I ought to be of suddenly going broke! Thanks

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3759 on: March 13, 2024, 12:37:38 PM »
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3760 on: March 13, 2024, 01:05:21 PM »
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.

1% of the (original) loan amount... per month?

That would be shocking! My PMI is $61 on a $567k mortgage (@5.95%). Which calculates out to 0.0108%. or 0.1291% annually.

On the flip side, maybe you just meant... payment? $61 on a $4000 payment is 1.53%.

halfling

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Re: DONT Payoff your Mortgage Club
« Reply #3761 on: March 13, 2024, 01:22:46 PM »
The PMI they quoted me scaled up, the less % you put down, naturally. $30 was with 15% down. It was $60 with 10% down. I'm sure much more with only 3% down.

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Re: DONT Payoff your Mortgage Club
« Reply #3762 on: March 13, 2024, 02:54:57 PM »
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

I vote for this.  We put down 20% to avoid PMI and I'm glad we did.  Sometimes I do wish I had a bigger mortgage because the rate is so great, but @halfling isn't really in great rate territory.  We are also floating $45K at 0% on a half dozen credit cards right now and liking it, just make sure you have a sound exit strategy for when those promo rates expire.

halfling

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Re: DONT Payoff your Mortgage Club
« Reply #3763 on: March 13, 2024, 03:35:36 PM »
I believe this interest rate, with ballpark around $20k in interest expenses per year for the first several years, is going to mean I'll want to itemize my taxes for the first time. So at least there's that.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3764 on: March 13, 2024, 06:20:33 PM »
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.

1% of the (original) loan amount... per month?

That would be shocking! My PMI is $61 on a $567k mortgage (@5.95%). Which calculates out to 0.0108%. or 0.1291% annually.

On the flip side, maybe you just meant... payment? $61 on a $4000 payment is 1.53%.
To clarify, it was a hair over 1% of the monthly payment. Pissed me off every damn month. I literally couldn't get rid of it until I sold the place, four years later. At least I made a good return on it. IIRC, I was thrilled to get a 7% mortgage when I originally bought it.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #3765 on: April 03, 2024, 10:28:06 AM »
So, looks like we're going to be moving to a place where buy vs. rent lands on "buy" within the next 3-12 months. Not so much the price-to-rent as simple availability / selection of rentals that would work for us vs. just so much more to choose from for purchase in that place.

Anyone broker recommendations specifically to try and get an 80-20 situation on the new house? I'd like to finance 100%, then pay the 20, which is hopefully a HELOC that we'll keep open down to zero once our current house sells and we get that check for $80-100K. I was looking at it and even though coming up with a down-payment at 5 or 10% won't be an issue regardless, and we're likely to clear 30 to 50% of the new house purchase price from sale of the old house, I'd still like to maintain as much liquidity throughout this process as I reasonably can, and I definitely want a month or two overlap to complete the move as that is so much more convenient for us.
« Last Edit: April 03, 2024, 10:29:54 AM by dandarc »

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Re: DONT Payoff your Mortgage Club
« Reply #3766 on: April 12, 2024, 02:57:22 PM »
Update: approved for a "non-contingent" loan with 5% down on up to $350K of house (plenty for where we are looking) from one of the big mortgage firms. "Non-contingent" means we do not have to sell Florida house first to make the deal happen. Which means we can move and get Florida house sold at our own pace.

Now to buy a house, move, sell old house, eventually refinance. And of course not pay off our mortgage early.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3767 on: May 19, 2024, 05:38:48 PM »
Update: approved for a "non-contingent" loan with 5% down on up to $350K of house (plenty for where we are looking) from one of the big mortgage firms. "Non-contingent" means we do not have to sell Florida house first to make the deal happen. Which means we can move and get Florida house sold at our own pace.

Now to buy a house, move, sell old house, eventually refinance. And of course not pay off our mortgage early.
Just popping in to check on your progress, @dandarc. Where are you in the process now?

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Re: DONT Payoff your Mortgage Club
« Reply #3768 on: May 19, 2024, 05:46:20 PM »
Update: approved for a "non-contingent" loan with 5% down on up to $350K of house (plenty for where we are looking) from one of the big mortgage firms. "Non-contingent" means we do not have to sell Florida house first to make the deal happen. Which means we can move and get Florida house sold at our own pace.

Now to buy a house, move, sell old house, eventually refinance. And of course not pay off our mortgage early.
Just popping in to check on your progress, @dandarc. Where are you in the process now?
Close on 6/14, will be moved by 6/30 and then the agent we just hired will hit the ground hard to get our place in Florida sold. Wound up spending $263K (likely only about $5K more than our house in Florida will sell for). Still borrowing 95% - will help with the immediate cash flow until the dust settles. Getting 400 additional square feet and a pretty nice 1.5 car garage (that probably needs a new roof) and an amazing front porch. Losing carport and screen porch. And wound up with another old house - 1925 on the new one, but has been reasonably well maintained and the whole house renovated pretty much to what you'd expect in 2024. Oh - and a proper attic too. All in, you could argue we're getting 50-100% more house for this $5K + moving and transaction costs. Sort of hedging bets a bit - almost 2% up front to get "only" a 7.25% rate for 30 years.
« Last Edit: May 19, 2024, 05:49:22 PM by dandarc »

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Re: DONT Payoff your Mortgage Club
« Reply #3769 on: May 19, 2024, 06:06:49 PM »
Just a quick update.  After deciding to keep my 2.85% mortgage and just shove any extra money into investments, the strategy has paid off.

This month my investments are bigger than my mortgage.  Crazy.  It happened way faster than I thought it would.

Woot!

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Re: DONT Payoff your Mortgage Club
« Reply #3770 on: May 20, 2024, 02:34:21 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...

An update from the land of adjustable rate mortgages: A few months after I wrote this, we actually found a lovely and affordable 970 sqf apartment with everything we need. Well, we bought it, but it's not finished yet. It will be finished next summer, so we should sell our current apartment next spring some time with the caveat that we'll move out on an agreed date. We're still very happy in the current one, but that's because we know we'll be moving into a brand new one soon. If we would still be looking, we'd probably feel pretty stuck here right now.

So now we have 2 mortgages! The old one which has a current rate of 3.x% (which will go up soon again), and the new one for the new apartment (which we've only taken out partially so far) at 4.x%. Oh well, the 0.x% rates were great for the many years they lasted.

Although the cash flow looks bad at the moment, certainly with the second mortgage growing every few months, we're not worried. We'll also probably get quite a bit less for the old apartment than we had originally budgeted, since the whole market has stagnated due to the rising interest rates. But we're paying a bit less than we had originally budgeted (550--650k€) for the new apartment. And we have plenty of savings.

So we should have been selling our current (still) flat about now... We'll be doing the final inspection of the new flat this week, and can move in in about 6 weeks or so.

But now the housing market, which I described last summer as having stagnated, has simply come to a full stop. To make matters worse, the big renovation which we knew was coming at some point to the current house will start in about 6 months' time, making renting the old place out less likely and less profitable, as the flat will be unusable for a few months but we don't yet know exactly when. Maybe we'll find someone who needs to move out of their home due to a similar short-term renovation, maybe not.

Trying to sell now, when the market is a at 20+ year low in general and the upcoming renovation is scaring buyers away from this place in particular, is a fool's game. Instead, we'll be hanging on for a while waiting for the renovation to the done and the market to improve, paying more in total housing costs than what our whole monthly budget was before this moving project started. Some of it (almost half) is of course simply higher actual housing costs because we are moving to a newer, bigger place, and some are not actual costs (the principal paid on the old mortgage -- the plan was to pay this in a lump sum when we sold the place, but hey, now the lump sum will eventually be smaller).

Still, it's a crazy cash flow that will flow out for the next 12 or maybe even 18 months. I don't like it, but the market is not giving us a lot of choice and as Mustachians, we can afford if without having to worry at all.

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Re: DONT Payoff your Mortgage Club
« Reply #3771 on: May 20, 2024, 07:00:57 AM »
But now the housing market, which I described last summer as having stagnated, has simply come to a full stop.
For my curiosity, which part of the world are you in? It's been surprising to me that COVID and interest rates are basically the same stimulus applied nationally, but some markets got hot much sooner than others, and no slowing much sooner than others too -  even markets with similar cost and other characteristics.

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Re: DONT Payoff your Mortgage Club
« Reply #3772 on: May 20, 2024, 07:15:43 AM »
But now the housing market, which I described last summer as having stagnated, has simply come to a full stop.
For my curiosity, which part of the world are you in? It's been surprising to me that COVID and interest rates are basically the same stimulus applied nationally, but some markets got hot much sooner than others, and no slowing much sooner than others too -  even markets with similar cost and other characteristics.

We're in the Nordics. The housing market didn't so much overheat here as just stayed on the stove too long, we haven't had a downturn since the early 90s. I started following the construction sector for work about 4--5 years ago, and their message was basically "weird, home come we're still really busy" even through Covid and all.

Then once inflation and interest rates jumped up, people got scared and now are just wary of making any big spending decisions, especially since unemployment has gone up a little bit. And once the mood has changed, it's hard to get back to "normal", even though interest rates are coming down a little bit now. Most people have variable rate mortgages, so changing rates make a big difference for their bottom line. Banks don't even offer the kind of mortgages with a rate locked in for the entirety of the loan as they do in the US.

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Re: DONT Payoff your Mortgage Club
« Reply #3773 on: May 20, 2024, 08:28:42 AM »
Just a quick update.  After deciding to keep my 2.85% mortgage and just shove any extra money into investments, the strategy has paid off.

This month my investments are bigger than my mortgage.  Crazy.  It happened way faster than I thought it would.

Woot!
It seeems counterintuitive,  but that's exactly how it works. Congratulations!

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Re: DONT Payoff your Mortgage Club
« Reply #3774 on: May 23, 2024, 11:19:51 AM »
Update: approved for a "non-contingent" loan with 5% down on up to $350K of house (plenty for where we are looking) from one of the big mortgage firms. "Non-contingent" means we do not have to sell Florida house first to make the deal happen. Which means we can move and get Florida house sold at our own pace.

Now to buy a house, move, sell old house, eventually refinance. And of course not pay off our mortgage early.
Just popping in to check on your progress, @dandarc. Where are you in the process now?
Close on 6/14, will be moved by 6/30 and then the agent we just hired will hit the ground hard to get our place in Florida sold. Wound up spending $263K (likely only about $5K more than our house in Florida will sell for). Still borrowing 95% - will help with the immediate cash flow until the dust settles. Getting 400 additional square feet and a pretty nice 1.5 car garage (that probably needs a new roof) and an amazing front porch. Losing carport and screen porch. And wound up with another old house - 1925 on the new one, but has been reasonably well maintained and the whole house renovated pretty much to what you'd expect in 2024. Oh - and a proper attic too. All in, you could argue we're getting 50-100% more house for this $5K + moving and transaction costs. Sort of hedging bets a bit - almost 2% up front to get "only" a 7.25% rate for 30 years.
Update to the Update: Closing Disclosure came in today accompanied by what I'd characterize as a demand for acknowledgement. Couple problems: #1 was "uh, I already paid that first year of insurance". #2 was "why do you want to escrow 3 times the actual amount we'll owe for property taxes!?"

One issue was I emailed, then texted but the text seemed to be forwarded to the wrong person and he kinda doubled-down on the demand for acknowledgement. But then my loan officer called and end of the day, escrow is being waived for no cost, which had that been presented as an option today would have been my first choice. So yay!

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Re: DONT Payoff your Mortgage Club
« Reply #3775 on: May 25, 2024, 06:40:10 AM »
Spent last night in an argument on sub Reddit DirtyDave on what housing is in relation to wealth, which while critical of Dave Ramsey they also like a lot of what he does. 

I think the difference between us and the other club is how we see our homes.  I live in my house, I’m willing to pay x amount of my monthly budget for said housing.  My housing is a liability, yeah at some point I could sell it and use the money but generally it’s still spending and a liability.  What that housing cost is (mortgage vs rent vs taxes) really doesn’t matter.  On the other hand, my wealth comes from my investments, those are growing with additional contributions and compounding, where as my housing costs are mostly consistent, which means over the years they are shrinking in proportion to my wealth.  If I don’t have a mortgage at this point, that money isn’t going to go into investments automatically, my investments are fine at their current level, I don’t need to add more to them monthly.  My goals are going to be met on the timeline I have set.  Once my Mortgage is paid off in 2052, that money is likely to be “not that much” monthly and will maybe pay for me to get cable once again or something.

CanadianTeacher

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Re: DONT Payoff your Mortgage Club
« Reply #3776 on: June 09, 2024, 05:50:29 PM »
Hi everyone,

I'm thinking about joining this club with my first mortgage. The goal is to use money outside of my Tax-Free Savings Account (TFSA in Canada) as a downpayment. The TFSA is currently at $155,000 and invested mostly in equities except for $20,000 that makes up 2/3 of my emergency fund. Mortgage rate I've got reapproval for is 4.75%; figure in the long term I can easily beat that with equities.

If I go this route, it'll give me about $600 in breathing room. This will grow to about $1000 a month in the next three years as I have some scheduled salary increases coming (as per my collective agreement).

I know that for lots $600-$1000 in buffer would be plenty, but it's quite the adjustment from my past 7 years of extreme savings. I know in the long term, it's best I maximize my mortgage if I have the discipline to stay invested, but I feel like it might create a lot of financial stress if I have reduced cashflow.... but not maximizing my net worth would also create financial stress.

How do you all manage this stress?

Edited to add: Keep in mind that in Canada, we only secure mortgage rates for fixed terms, not the duration of our amortization. The 4.74% I quoted is for a 5 year term; in 5 years, I'd renew and get a lower rate if interest rates are lower or a higher rate if interest rates are higher. I'm hopeful the interest rates will go lower over the coming years and may sign up for a 2 year term with a higher interest rate so that I renew into a lower interest rate environment sooner.
« Last Edit: June 09, 2024, 05:52:40 PM by CanadianTeacher »

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #3777 on: June 09, 2024, 08:25:11 PM »
The one iron clad rule of living a happy life is don't have financial stress.  So whatever you do, don't stress yourself out financially.




trc4897

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Re: DONT Payoff your Mortgage Club
« Reply #3778 on: June 10, 2024, 07:12:06 AM »
I have around 8 years and 70k left on my 3.5% interest rate mortgage. My brokerage account recently hit this amount. Part of me wanted to sell the index funds and finish off the mortgage, but then i remembered this thread, and decided to read through it again. You all convinced me that of course I should keep the mortgage! Hard to beat this interest rate, and cleaning out my brokerage account would make me a little sad haha (not to mention the tax implications as well)

jsap819

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Re: DONT Payoff your Mortgage Club
« Reply #3779 on: June 10, 2024, 05:15:03 PM »
I have around 8 years and 70k left on my 3.5% interest rate mortgage. My brokerage account recently hit this amount. Part of me wanted to sell the index funds and finish off the mortgage, but then i remembered this thread, and decided to read through it again. You all convinced me that of course I should keep the mortgage! Hard to beat this interest rate, and cleaning out my brokerage account would make me a little sad haha (not to mention the tax implications as well)

Just remember, you're just moving money from one asset class (brokerage account) to another (mortgage balance). Your net worth still remains the same. You've also just moved money from a liquid asset to an illiquid one, which in an emergency situation is not at all ideal. You could still lose your house if you can't pay property taxes during a job loss.

Unless your mortgage balance represents such a small percentage of your net worth that it won't make a difference if you pay it off or not, then that's when I would consider just paying it all off.

I started our taxable brokerage account with the goal of paying off our large mortgage ($623k) in one lump sum nearly 10 years ago. Instead, we kept refinancing when rates kept getting lower and lower while our incomes and investments kept growing. Today, the mortgage balance is a little over $500k while our taxable brokerage is now approaching $900k. If I had put all the extra money I invested into the mortgage instead these past several years, there would still be a balance left over and a lot of opportunity cost lost with that decision.

So keep up the good work and keep going!

trc4897

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Re: DONT Payoff your Mortgage Club
« Reply #3780 on: June 11, 2024, 07:40:11 AM »
I have around 8 years and 70k left on my 3.5% interest rate mortgage. My brokerage account recently hit this amount. Part of me wanted to sell the index funds and finish off the mortgage, but then i remembered this thread, and decided to read through it again. You all convinced me that of course I should keep the mortgage! Hard to beat this interest rate, and cleaning out my brokerage account would make me a little sad haha (not to mention the tax implications as well)

Just remember, you're just moving money from one asset class (brokerage account) to another (mortgage balance). Your net worth still remains the same. You've also just moved money from a liquid asset to an illiquid one, which in an emergency situation is not at all ideal. You could still lose your house if you can't pay property taxes during a job loss.

Unless your mortgage balance represents such a small percentage of your net worth that it won't make a difference if you pay it off or not, then that's when I would consider just paying it all off.

I started our taxable brokerage account with the goal of paying off our large mortgage ($623k) in one lump sum nearly 10 years ago. Instead, we kept refinancing when rates kept getting lower and lower while our incomes and investments kept growing. Today, the mortgage balance is a little over $500k while our taxable brokerage is now approaching $900k. If I had put all the extra money I invested into the mortgage instead these past several years, there would still be a balance left over and a lot of opportunity cost lost with that decision.

So keep up the good work and keep going!

Wow yeah you definitely came out on top! Thanks for the validation that I'm doing the right thing

lcmac32

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Re: DONT Payoff your Mortgage Club
« Reply #3781 on: June 18, 2024, 10:37:08 AM »
I have always been firmly in the DPYMC (early) for years.  The math was really easy.  I am now slightly in the payoff early club, b/c of a job change (2x pay increase) which came with a new mortgage at the egregious rate of 6.75%.  The math is still better for the market the last year and a half, but I do have some concerns of not tacking the mtg at least a bit as I don't want to leave DW with limited options of having to sell the house should something untimely happen to me.  I am doing a modified approach where I will commit a relatively small amount of add. principle and increase it year over year.  I will be primarily focused on rebuilding EF/Cash reserve to something that will cover 1-2 years of expenses.  I know a little conservative, but just feels right.

Having said that, if rates retreat back to the 3% or sub three percent rate, I will gladly upgrade back to full membership in this thread.

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3782 on: June 18, 2024, 11:50:16 AM »
You don't get work-provided life insurance? FIRE hopefuls with mortgages are one of the best fits for term life insurance imo

lcmac32

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Re: DONT Payoff your Mortgage Club
« Reply #3783 on: June 18, 2024, 04:49:20 PM »
You don't get work-provided life insurance? FIRE hopefuls with mortgages are one of the best fits for term life insurance imo

Great question and I agree that is part of the solution!  I actually don't have work provided life insurance (self-employed).  I have a $250k policy and that would cover more than have of the remaining mtg balance.  I am trying to strike that perfectish balance.  I won't be too aggressive in paying to mtg off.  It would be really close to paying off with a brokerage account and the life insurance money.  I just want some instant return and see that mtg balance go down.  In two-three years time, the goal is that the investments plus life ins. more than cover it, and DW could fire right then if my time on this planet ends sooner than expected. 

Villanelle

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Re: DONT Payoff your Mortgage Club
« Reply #3784 on: June 20, 2024, 08:03:44 AM »
I have always been firmly in the DPYMC (early) for years.  The math was really easy.  I am now slightly in the payoff early club, b/c of a job change (2x pay increase) which came with a new mortgage at the egregious rate of 6.75%.  The math is still better for the market the last year and a half, but I do have some concerns of not tacking the mtg at least a bit as I don't want to leave DW with limited options of having to sell the house should something untimely happen to me.  I am doing a modified approach where I will commit a relatively small amount of add. principle and increase it year over year.  I will be primarily focused on rebuilding EF/Cash reserve to something that will cover 1-2 years of expenses.  I know a little conservative, but just feels right.

Having said that, if rates retreat back to the 3% or sub three percent rate, I will gladly upgrade back to full membership in this thread.

Is she less likely to have to sell the house if there's a lower mortgage balance, but also less money in the bank?  I would think that NOT paying off the mortgage would give her the most options.  She has cash, in that case.  She can either use that to continue paying on the mortgage (and property taxes, insurance, etc.), or for living expenses.  Maybe she will WANT to sell the house, but either way, cash can be used for a mtg or anything else.  Home equity is much more difficult to use to buy groceries or pay property taxes.  (And she may not even be able to keep/get a HELOC if your income goes away.)

As a spouse whose husband is the primary breadwinner and who makes very little herself, I'd much rather have cash (equities, etc.) than a paid-off house or a lower mtg balance. 

Tyson

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Re: DONT Payoff your Mortgage Club
« Reply #3785 on: June 20, 2024, 09:59:23 AM »
There's a very good chance a surviving spouse will sell the house because it's now too big for them and they want to downsize.  Also, there often is too many painful memories of their shared life with the deceased spouse. 

sonofsven

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Re: DONT Payoff your Mortgage Club
« Reply #3786 on: June 20, 2024, 09:59:53 AM »
I have always been firmly in the DPYMC (early) for years.  The math was really easy.  I am now slightly in the payoff early club, b/c of a job change (2x pay increase) which came with a new mortgage at the egregious rate of 6.75%.  The math is still better for the market the last year and a half, but I do have some concerns of not tacking the mtg at least a bit as I don't want to leave DW with limited options of having to sell the house should something untimely happen to me.  I am doing a modified approach where I will commit a relatively small amount of add. principle and increase it year over year.  I will be primarily focused on rebuilding EF/Cash reserve to something that will cover 1-2 years of expenses.  I know a little conservative, but just feels right.

Having said that, if rates retreat back to the 3% or sub three percent rate, I will gladly upgrade back to full membership in this thread.

Is she less likely to have to sell the house if there's a lower mortgage balance, but also less money in the bank?  I would think that NOT paying off the mortgage would give her the most options.  She has cash, in that case.  She can either use that to continue paying on the mortgage (and property taxes, insurance, etc.), or for living expenses.  Maybe she will WANT to sell the house, but either way, cash can be used for a mtg or anything else.  Home equity is much more difficult to use to buy groceries or pay property taxes.  (And she may not even be able to keep/get a HELOC if your income goes away.)

As a spouse whose husband is the primary breadwinner and who makes very little herself, I'd much rather have cash (equities, etc.) than a paid-off house or a lower mtg balance.
I agree with Villanelle, cash is always welcome. I also have a smallish term policy that will pay my partner enough to POTM, if she desires, when I die. Think of it as shorting yourself.
Or just take the insurance money and keep that sweet 2.75% fixed for another 27 years.

Villanelle

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Re: DONT Payoff your Mortgage Club
« Reply #3787 on: June 20, 2024, 11:10:30 AM »
We are in the process of selling our rental property (former residence; we currently rent our home).  We have a loan with family at 4.25%.  I'm considering keeping that, no matter what.  (They are fine with us doing so, even if it is no longer tied to a piece of property, with a formal lien, as it has been.)  If we buy something to live in, it's a no-brainer--keep $100k+ at 4.25% instead of financing it at 7% (or whatever the going rate is).  But if we decide to rent, we could keep that loan, allowing us to invest an additional $100k+.  Trying to decide if it's worth it to do what would essentially borrowing at 4.25% in order to invest that money.  I can probably do about that well with just a HYSA, so it's tempting! 

lcmac32

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Re: DONT Payoff your Mortgage Club
« Reply #3788 on: June 20, 2024, 05:38:21 PM »
There's a very good chance a surviving spouse will sell the house because it's now too big for them and they want to downsize.  Also, there often is too many painful memories of their shared life with the deceased spouse.

Fair point, but I doubt she will sell the house.  It is a large part of her identity.  She could carry the mtg on her own, but it would be tight.  I have said before math wise it is almost if not always better to not pay the mtg early.  I am allocating about 5% of the after savings budget to the early payoff.  Don't know why exactly, but probably more an emotional decision.

lcmac32

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Re: DONT Payoff your Mortgage Club
« Reply #3789 on: June 20, 2024, 05:39:44 PM »
I have always been firmly in the DPYMC (early) for years.  The math was really easy.  I am now slightly in the payoff early club, b/c of a job change (2x pay increase) which came with a new mortgage at the egregious rate of 6.75%.  The math is still better for the market the last year and a half, but I do have some concerns of not tacking the mtg at least a bit as I don't want to leave DW with limited options of having to sell the house should something untimely happen to me.  I am doing a modified approach where I will commit a relatively small amount of add. principle and increase it year over year.  I will be primarily focused on rebuilding EF/Cash reserve to something that will cover 1-2 years of expenses.  I know a little conservative, but just feels right.

Having said that, if rates retreat back to the 3% or sub three percent rate, I will gladly upgrade back to full membership in this thread.

Is she less likely to have to sell the house if there's a lower mortgage balance, but also less money in the bank?  I would think that NOT paying off the mortgage would give her the most options.  She has cash, in that case.  She can either use that to continue paying on the mortgage (and property taxes, insurance, etc.), or for living expenses.  Maybe she will WANT to sell the house, but either way, cash can be used for a mtg or anything else.  Home equity is much more difficult to use to buy groceries or pay property taxes.  (And she may not even be able to keep/get a HELOC if your income goes away.)

As a spouse whose husband is the primary breadwinner and who makes very little herself, I'd much rather have cash (equities, etc.) than a paid-off house or a lower mtg balance.

Agreed, but my wife doesn't see it that way.  She loathes debt, for which I am grateful.  The cash reserve is not quite where I want it yet, but will be soon.

Dee_the_third

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Re: DONT Payoff your Mortgage Club
« Reply #3790 on: July 14, 2024, 12:56:40 PM »
Not to conflate the issues of mortgage payoff and your (hopefully unlikely) untimely death, but this is what term life insurance is for. If you’re healthy and young-ish, a 1 million 30 year policy (which is what we’ve got) is quite cheap.

lcmac32

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Re: DONT Payoff your Mortgage Club
« Reply #3791 on: July 16, 2024, 09:09:09 AM »
Not to conflate the issues of mortgage payoff and your (hopefully unlikely) untimely death, but this is what term life insurance is for. If you’re healthy and young-ish, a 1 million 30 year policy (which is what we’ve got) is quite cheap.

I addressed it before.  I do have term life, but not as much as I would like to have.  I am not young enough to get a cheap policy.  I will likely take the physical to add to the policy.

Spruit

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Re: DONT Payoff your Mortgage Club
« Reply #3792 on: August 28, 2024, 08:28:54 PM »
Hi there! I am doing a financial check up for the complete household, trying to see where to best put our money to work. My guess is not in bricks, but I'd like to bring good arguments to the table and have them supported by numbers. Hope you can help me out with the math. Complicating factors: not US based, so different tax system.
Here goes:
House bought in 2019 for 369k
30 year fixed Annuity mortgage, so payments must include principal. Total gross monthly payment is 1515. Current gross rate 2.75% after bringing it down to lowest risk tier (had some luck with soaring house prices in the region). Interest rate fixed 30 years.
Net rate is lower, because mortgage interest is deductible from income tax (which is 37% in our bracket). This means there is a net interest rate due to tax deduction. How do I calculate this, assuming we'll stay in the same tax bracket?


On a guesstimate level to me it looks like we're better off putting this money towards isolating the house (7-12% savings) or investing it in index funds. Even with 36% taxes on any gains on assets above 53k. But I miss the math to back this up.
« Last Edit: August 28, 2024, 08:42:47 PM by Spruit »

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3793 on: August 29, 2024, 04:47:21 AM »
The net interest rate is just the gross interest rate times (1-tax rate), or in your case about 1.73%.

What do you mean by 'isolating the house'?

MommyCake

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Re: DONT Payoff your Mortgage Club
« Reply #3794 on: August 29, 2024, 05:55:56 AM »
insulating?

aloevera1

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Re: DONT Payoff your Mortgage Club
« Reply #3795 on: August 29, 2024, 08:11:19 AM »
Hi there! I am doing a financial check up for the complete household, trying to see where to best put our money to work. My guess is not in bricks, but I'd like to bring good arguments to the table and have them supported by numbers. Hope you can help me out with the math. Complicating factors: not US based, so different tax system.
Here goes:
House bought in 2019 for 369k
30 year fixed Annuity mortgage, so payments must include principal. Total gross monthly payment is 1515. Current gross rate 2.75% after bringing it down to lowest risk tier (had some luck with soaring house prices in the region). Interest rate fixed 30 years.
Net rate is lower, because mortgage interest is deductible from income tax (which is 37% in our bracket). This means there is a net interest rate due to tax deduction. How do I calculate this, assuming we'll stay in the same tax bracket?


On a guesstimate level to me it looks like we're better off putting this money towards isolating the house (7-12% savings) or investing it in index funds. Even with 36% taxes on any gains on assets above 53k. But I miss the math to back this up.

Interest on your mortgage sounds like a dream to me. What is the inflation rate in your country?

Personally, I would not try to pay it off just because it gives you cheaper money to invest in the meantime and works as inflation hedge.

Treedream

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Re: DONT Payoff your Mortgage Club
« Reply #3796 on: August 29, 2024, 09:12:54 AM »
Hi, I am from the Netherlands.

You can do a tax return for the tax reduction on the interest payment and take that off the interest paid and calculate it that way.

Also, there are more ways than to pay tax on assets above 57K (and 114K if you are a couple, not 53K): Pensioenbeleggen. You can put a limited amount in each year, but it is worth calculating what your 'jaarruimte' is. You do restrict access to this money, so first consider all the variables.

There is also Groenbeleggen, which has tax benefits, but that seems to be hard to get into.

Spruit

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Re: DONT Payoff your Mortgage Club
« Reply #3797 on: August 29, 2024, 11:52:21 AM »
The net interest rate is just the gross interest rate times (1-tax rate), or in your case about 1.73%.

What do you mean by 'isolating the house'?

Thanks for the calculation! I meant insulating indeed, sorry I somethings mix up words in English and Dutch if they are very similar (isolatie is the Dutch word).

Spruit

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Re: DONT Payoff your Mortgage Club
« Reply #3798 on: August 29, 2024, 11:58:07 AM »
Hi, I am from the Netherlands.

You can do a tax return for the tax reduction on the interest payment and take that off the interest paid and calculate it that way.

Also, there are more ways than to pay tax on assets above 57K (and 114K if you are a couple, not 53K): Pensioenbeleggen. You can put a limited amount in each year, but it is worth calculating what your 'jaarruimte' is. You do restrict access to this money, so first consider all the variables.

There is also Groenbeleggen, which has tax benefits, but that seems to be hard to get into.

Thanks for correcting me on the tax-free assets, should have seen that one but it was rather late when I typed 53K.
I find it hard to get what you exactly mean with the bolded part. Do you mean that if I get 280 euros back, and the interest in the monthly payment is 1300 euro for example, to divide 280÷1300×100%? Difficult as the principal and interest part of the payment differ per month in an Annuity.mortgage.

Not much jaarruimte unfortunately last time I checked, but I might recalculate to see if that has changed. We both have ABP in pillar 1 pensions.

Spruit

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Re: DONT Payoff your Mortgage Club
« Reply #3799 on: August 29, 2024, 12:00:21 PM »
Hi there! I am doing a financial check up for the complete household, trying to see where to best put our money to work. My guess is not in bricks, but I'd like to bring good arguments to the table and have them supported by numbers. Hope you can help me out with the math. Complicating factors: not US based, so different tax system.
Here goes:
House bought in 2019 for 369k
30 year fixed Annuity mortgage, so payments must include principal. Total gross monthly payment is 1515. Current gross rate 2.75% after bringing it down to lowest risk tier (had some luck with soaring house prices in the region). Interest rate fixed 30 years.
Net rate is lower, because mortgage interest is deductible from income tax (which is 37% in our bracket). This means there is a net interest rate due to tax deduction. How do I calculate this, assuming we'll stay in the same tax bracket?


On a guesstimate level to me it looks like we're better off putting this money towards isolating the house (7-12% savings) or investing it in index funds. Even with 36% taxes on any gains on assets above 53k. But I miss the math to back this up.

Interest on your mortgage sounds like a dream to me. What is the inflation rate in your country?

Personally, I would not try to pay it off just because it gives you cheaper money to invest in the meantime and works as inflation hedge.

Hadn't considered inflation, but good point. Inflation is typically around 2 to 3%. So we are 'beating' inflation so to speak.