Author Topic: DONT Payoff your Mortgage Club  (Read 41236 times)

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #450 on: November 16, 2017, 01:01:33 PM »
Will it go up 20% before the next time it goes down 20%?

rpr

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Re: DONT Payoff your Mortgage Club
« Reply #451 on: November 21, 2017, 03:23:42 PM »
It's been about five years since I last refinanced into a 30 year FRM at 3.5%. Since then, instead of prepaying, we've been investing the money into a Vanguard stock fund. Compared to prepaying the mortgage, we are ahead by more about 10K. Granted that comparing a fixed rate instrument to a risky variable instrument is not the correct one to be doing.   This has been in an upward trending market and the results  could have been worse had the market gone into a tailspin. Nonetheless, it's nice to see that taxable account balance grow. 


SachaFiscal

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Re: DONT Payoff your Mortgage Club
« Reply #452 on: November 21, 2017, 05:54:52 PM »
I’m one of those people who really hates debt. However at a 3.5% interest I just can’t justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #453 on: November 22, 2017, 12:02:42 AM »
I’m one of those people who really hates debt. However at a 3.5% interest I just can’t justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
OMG! That is brilliant, SachaFiscal. That needs to be our new mantra!! Can we use this forever, pretty please?
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SachaFiscal

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Re: DONT Payoff your Mortgage Club
« Reply #454 on: November 22, 2017, 01:29:22 AM »
I’m one of those people who really hates debt. However at a 3.5% interest I just can’t justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
OMG! That is brilliant, SachaFiscal. That needs to be our new mantra!! Can we use this forever, pretty please?
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Pizzabrewer

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Re: DONT Payoff your Mortgage Club
« Reply #455 on: November 26, 2017, 06:54:08 AM »
We have 14 years left on a 15-year, $100k, 2.75% mortgage. Before I found this site early this year we had planned to knock it out in 10 years. The first month I paid an extra $300.

Now we realize how valuable it is to hang on to the cheap money as long as possible.
« Last Edit: November 26, 2017, 06:55:58 AM by Pizzabrewer »

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #456 on: November 26, 2017, 07:22:19 AM »
congrats welcome !!
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Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #457 on: November 26, 2017, 08:20:59 AM »
 I am about 2 years away from purchasing a home. I go back and forth with thinking about a 15 or a 30 year mortgage. I think the difference for me will be how low the monthly payment is. If it was $500 or less, I could see paying it for 30 years. If it was more than that, I think I would have to get a 15 year loan so I didn't drive myself crazy with payments for 30 years. Really I could afford with my current budget, a payment of $1000 per month. So if I need to do that for 15 years and then be free. I could. But I couldn't stomach that amount for 30 years!! The key for me is, what monthly payment will I be able to tolerate forever without paying extra or early. I'll probably need a LARGE down payment to get to the right numbers, which maybe defeats the purpose that people on this thread suggest in terms of leveraging? Lots to think about.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #458 on: November 26, 2017, 09:44:08 AM »
I am about 2 years away from purchasing a home. I go back and forth with thinking about a 15 or a 30 year mortgage. I think the difference for me will be how low the monthly payment is. If it was $500 or less, I could see paying it for 30 years. If it was more than that, I think I would have to get a 15 year loan so I didn't drive myself crazy with payments for 30 years. Really I could afford with my current budget, a payment of $1000 per month. So if I need to do that for 15 years and then be free. I could. But I couldn't stomach that amount for 30 years!! The key for me is, what monthly payment will I be able to tolerate forever without paying extra or early. I'll probably need a LARGE down payment to get to the right numbers, which maybe defeats the purpose that people on this thread suggest in terms of leveraging? Lots to think about.

this is an extremely backwards way to think about it - all finances in life should NOT be approached from a "what is my monthly payment" 

you should approach this from the side of

1. is it better than renting - if its not you should rent - there are many calculators to help you determine this - outside of large HCOL cities its usually more economical to buy.

2. Buy the correct sized house thats affordable - dont approach this from a how much per month will i pay - approach this from is this house suitable for my needs and is it priced correctly - you're buying the full purchase price of the house not the damn monthly payment - sorry i hate the monthly payment logic its a terrible way to view any financial purchase.

3. once you've found the right house put down 20% b/c that will get you the lowest rate and no PMI

4. if you plan to live in the house more than 7 years 30 year mortgages make sense if its less than 7 15 year mortgages usually come out ahead. https://michaelbluejay.com/house/15vs30.html  compare your rates in this calculator then determine if it makes sense based on how long you plan to remain in the house.

5. make the smallest payment youre allowed to pay no more and you'll come out miles ahead.

you need to be approaching this purchase from a much different mindset - cashflow is an issue but dumping a bunch of little green soldiers into it to make cash flow work is a terrible waste of money and a sign you're over purchasing a house.
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Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #459 on: November 26, 2017, 12:05:05 PM »
Maybe I was misunderstood? My choice is either to buy a small house and pay straight up cash for the whole thing, or to finance some of it if the monthly payment doesn't drive me crazy. Why would I choose a monthly payment unless I could handle it?

For example- a $200,000 house. I could either pay $200,000 cash. Or I could pay $40,000 down and leverage the rest, which would be a monthly payment of about $700. I like the idea of using the leverage, but I don't want a $700 payment for 30 years...I would rather just pay a higher down payment to get my payments under $500. If I could keep my monthly payment at $500 and do a 15 year mortgage, I would do that.  I dont think its a bad thing. It's kind of splitting the difference between the "pay off your mortgage" camp, and the "don't pay off your mortgage" camp by paying it off to a point where the monthly payments don't frustrate or anger me lol.

Also on the "coming out miles ahead" thing....it would not really make any difference to my FI goals since I fully plan to be FI in 9 years. Once I reach my "number" (750,000) then I don't need any more. Having more money shouldn't make me any happier after that point. And I plan to have a small, easy to handle monthly house payment that my investments can support.

« Last Edit: November 26, 2017, 12:16:38 PM by Apple_Tango »
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sherr

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Re: DONT Payoff your Mortgage Club
« Reply #460 on: November 26, 2017, 01:07:17 PM »
Maybe I was misunderstood? My choice is either to buy a small house and pay straight up cash for the whole thing, or to finance some of it if the monthly payment doesn't drive me crazy. Why would I choose a monthly payment unless I could handle it?

For example- a $200,000 house. I could either pay $200,000 cash. Or I could pay $40,000 down and leverage the rest, which would be a monthly payment of about $700. I like the idea of using the leverage, but I don't want a $700 payment for 30 years...I would rather just pay a higher down payment to get my payments under $500. If I could keep my monthly payment at $500 and do a 15 year mortgage, I would do that.  I dont think its a bad thing. It's kind of splitting the difference between the "pay off your mortgage" camp, and the "don't pay off your mortgage" camp by paying it off to a point where the monthly payments don't frustrate or anger me lol.

Also on the "coming out miles ahead" thing....it would not really make any difference to my FI goals since I fully plan to be FI in 9 years. Once I reach my "number" (750,000) then I don't need any more. Having more money shouldn't make me any happier after that point. And I plan to have a small, easy to handle monthly house payment that my investments can support.

I think the point is that you're missing the "benefit" side of the cost-benefit analysis.

So you could pay $200k cash for your house. Or you could put $40k down, have a $700 payment (or $8.4k / year) for 30 years, and invest the remaining $160k. Which (using the 4% rule) would add $6.4k / year to your wealth, forever.

Of course just naively comparing those numbers ($8.4k vs $6.4k) and forgetting about inflation and any other consideration, the pay-with-cash plan does come out ahead. Which must mean that you are assuming a larger-than-4% rate for your mortgage for some reason. Or you are including costs you would have anyway in your monthly payment number, like insurance (which you can theoretically dump or reduce if you own outright) and property tax (which you can't).

I think the point of this thread is that if you assume that reaching FI is good then reaching it faster must be better, and not paying off the mortgage or delaying paying it off will cause most people to reach FI faster, hence "coming out miles ahead".

Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #461 on: November 26, 2017, 01:31:40 PM »
My heart says just pay for it in cash. "PAY IN CASH. DEBT BAD." it is screaming at me. But this thread has convinced my brain to leverage part of it (actually quite a large part!). But not to the point that I'm paying more than $500 per month lol. It doesn't have to be all or nothing.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #462 on: November 26, 2017, 02:19:25 PM »
Your head is wrong it should be all or nothing. Start with the math.  The poster above is completely misunderstanding the 4% rule for starters.  And for the sake of this the 4% rule has nothing to do with the calculation. 

You could likely fire 1-2 years earlier than you 9 year projection by keeping the mortgage. For the sake of arguement let's just run the math on 160k invested over 30 years vs investing your payment on a 200k mortgage at 4% for 30 years. Percent return we'll use 10% which is less than most all 30 year periods of the us stock market. We don't exclude inflation in this calc because the mortgage is fixed and doesn't increase with inflation so our investments get full gains.

160k invested over 30 = 2.77MM

9168 invested annually for 30 = 1.67 MM

Holy cow 1MM yes it's that big a deal

Now let's just look at 9 years in what the difference is.

Mortgage 160k = 377k  and you have a mortgage with 130k remaining on your mortgage.

Investing 9168 for 9 = 136k

So 100k over 9 years. Just to like math more than hating debt.
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Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #463 on: November 26, 2017, 03:01:26 PM »
I see the math. But I don't need an extra 1.67 million, or 2.77 million. I'm already going to have at least that much in my 401k/IRA accounts in addition to my 750,000 FIRE number. Why would I need double that already insane amount??!!? That's more than I will ever use, touch, etc. It won't make me any happier. If money could make me happier than I would be planning to work at my job for 45 years instead of 9. The only benefit I see is that I could give it away and make the world a better place. But that's not really my motivator, as I could easily work until FI, and then keep working for 45 years and give 100% of the rest away with the same results. But I won't do that either lol...call me selfish. As for giving up $100,000 over the 9 years towards FI, that one DOES sting a little. But at the same time, working either 8 years or 9 years to FI is not going to be too much of a difference. I'm ok with my choice.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #464 on: November 26, 2017, 03:11:44 PM »
I see the math. But I don't need an extra 1.67 million, or 2.77 million. I'm already going to have at least that much in my 401k/IRA accounts in addition to my 750,000 FIRE number. Why would I need double that already insane amount??!!? That's more than I will ever use, touch, etc. It won't make me any happier. If money could make me happier than I would be planning to work at my job for 45 years instead of 9. The only benefit I see is that I could give it away and make the world a better place. But that's not really my motivator, as I could easily work until FI, and then keep working for 45 years and give 100% of the rest away with the same results. But I won't do that either lol...call me selfish. As for giving up $100,000 over the 9 years towards FI, that one DOES sting a little. But at the same time, working either 8 years or 9 years to FI is not going to be too much of a difference. I'm ok with my choice.

So you posted here to gain what information then? Confirmation you're making a bad choice and to ignore all data presented? 
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paulkots

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Re: DONT Payoff your Mortgage Club
« Reply #465 on: November 26, 2017, 03:16:28 PM »
Read some of the pro and against paying off the house.

The math states don't make extra payments but the human side knows my past. The IRA account may not be the fastest growing but it has the largest sum in it because I can't put my hands on it.

If I pay extra on the house, I will make the ends meet by cutting somewhere else(not investments). If I don't pay extra, my past shows that money will find a place to go that is not an investment.

Still deciding on which route to take. 31 year old car guy(damn you car hobby), $159k mortgage(house worth $265k) 3.25% for 15 years.
« Last Edit: November 26, 2017, 03:18:07 PM by paulkots »

Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #466 on: November 26, 2017, 03:19:04 PM »

So you posted here to gain what information then? Confirmation you're making a bad choice and to ignore all data presented?

Honestly I posted to follow the conversation! And to tell everyone that this thread has made me willing to finance part of a mortgage. Contrary to your assessment of me, I am willing to learn. But people seem to be adverse to the technique of saying "Posting to Follow" So instead I posted with my thought process.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #467 on: November 26, 2017, 03:20:18 PM »
Read some of the pro and against paying off the house.

The math states don't make extra payments but the human side knows my past. The IRA account may not be the fastest growing but it has the largest sum in it because I can't put my hands on it.

If I pay extra on the house, I will make the ends meet by cutting somewhere else(not investments). If I don't pay extra, my past shows that money will find a place to go that is not an investment.

Still deciding on which route to take. 31 year old car guy(damn you car hobby), $159k mortgage(house worth $265k) 3.25% for 15 years.

I mean that's just a poor way to do this if you can mentally shove it into a mortgage you can setup auto payments to vanguard index funds. Setup the auto pay and then once it's in think of it as locked bc short term capital gains suck.
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #468 on: November 26, 2017, 03:22:30 PM »

So you posted here to gain what information then? Confirmation you're making a bad choice and to ignore all data presented?

Honestly I posted to follow the conversation! And to tell everyone that this thread has made me willing to finance part of a mortgage. Contrary to your assessment of me, I am willing to learn. But people seem to be adverse to the technique of saying "Posting to Follow" So instead I posted with my thought process.

So for starters are you maxing all tax advantaged accounts. 18k to 401k 5500 to Roth x2 for two people and maxing your hsa if available?
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Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #469 on: November 26, 2017, 03:29:26 PM »

So for starters are you maxing all tax advantaged accounts. 18k to 401k 5500 to Roth x2 for two people and maxing your hsa if available?

Roger that! I'm a SINK. The tax advantaged accounts are all maxed and should be worth somewhere between $3-4 mil once I'm 65-70 ish. I am not eligible for an HSA but if I become eligible, that's the next one to be maxed. The predicted $750,000 9 years from now to live off in ER will be coming from a taxable account I have set up through vanguard. The house fund is in addition to all that in a 1.3% APR savings account since it's set aside for short term spending. In addition to that, I seem to have around $2000 per month extra income that i'm able to very comfortably live off without dipping into savings.
« Last Edit: November 26, 2017, 03:36:07 PM by Apple_Tango »
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #470 on: November 26, 2017, 03:34:01 PM »

So for starters are you maxing all tax advantaged accounts. 18k to 401k 5500 to Roth x2 for two people and maxing your hsa if available?

Roger that! I'm a SINK. The tax advantaged accounts are all maxed and should be worth around somewhere between $3-4 mil once I'm 65-70 ish. I am not eligible for an HSA but if I become eligible, that's the next one to be maxed. The predicted $750,000 9 years from now to live off in ER will be coming from a taxable account I have set up through vanguard. The house fund is in addition to all that in a 1.3% APR savings account since it's set aside for short term spending. In addition to that, I seem to have around $2000 per month extra income that i'm able to very comfortably live off without dipping into savings.

You don't need a separate taxable bucket for starters. You can access all those funds early. 1.3% is losing money to inflation. This is worse than mortgage debt.
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Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #471 on: November 26, 2017, 03:38:39 PM »

You don't need a separate taxable bucket for starters. You can access all those funds early. 1.3% is losing money to inflation. This is worse than mortgage debt.

So...I'm already maxing all my tax advantaged accounts. You don't want me to put money into a taxable account. You don't want me to buy properties for cash. And you don't want me to put money into my bank account for short term use (this is where my down payment will be coming from in 1-2 years. There's no way I'm putting this into the market). Where do you expect me to put my money? Gold? Bullets? I can't quite follow your logic.
« Last Edit: November 26, 2017, 03:40:38 PM by Apple_Tango »
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #472 on: November 26, 2017, 03:53:24 PM »
No im saying you can retire much earlier than you're likely predicting. It sounds like you should do a full case study. First you scoff at 1MM extra dollars because who needs that you only need 750k  then you claim you'll have 3-4MM in your tax advantaged accounts by 65. None of this is adding up really for me which tells me you're not sure of your full plan or you haven't laid it out completely. Which a case study would help.
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Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #473 on: November 26, 2017, 04:26:33 PM »
Ah yes I know I will reach FI sooner than 9 years. But as far as RE, I think 9 years isn't too long to work. That's why I wasn't jumping for joy at your finding that I could cut my working career to 7-8 years via mortgage leveraging. In reality I could do it probably in about 7 even without mortgage leveraging. Working the extra 2 years is a backup..a planned case of the "one more year syndrome" if you will. Plus those 2 years will give me either a paid off house, OR a super low payment that wont cause me any stress (I know you're against this ...we probably don't have to hash it out again. I've already stated my reasons for posting). I guess a good way of summarizing may be that your plan for me to get the extra few million is by lots of mortgage leveraging. My way is to work for 2 extra years and only leverage a little mortgage. I just don't see the need to do both.

My IRA and 401k money will be there in case I need it in my old age. I don't want my future kids and family mad at me because I "never worked" and now they have to take care of me financially. It's like my backup plan money if all systems fail. If for some strange or horrible reason I can't find a way to make a few extra bucks once I reach FIRE when the occasion calls for it. Or if I underestimated my true burn rate rate and I actually tear through my 'stache too quickly. Or the small but non zero chance that the 4% withdrawal rate fails.

And yes I "scoffed" at the extra money. Why would I need any money on top of my $750,000 which will probably last me forever, plus my 3-4 million which I probably won't even need to touch? I'm not saying it's bad to want money...but adding more on top isn't going to bring me any more happiness.
« Last Edit: November 26, 2017, 04:36:23 PM by Apple_Tango »
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boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #474 on: November 26, 2017, 04:35:41 PM »
So you're extremely over saving. You should really laydown a case study and start reading and learning around here. If 4% of 750k is all you need you can retire when the sum of your accounts hit that if you want to go crazy conservative never failed in the history at 3% it won't take too much longer based on the numbers you've laid down.

If your only thing is I don't care about money im going to have too much then there isn't much that can be learned. 

You keep making incredible increasingly contradictory statements that show you haven't done the math. And do not have a true understanding of how money works in fire and in life. It would greatly benefit you to lay out the numbers in a case study and let some of the math gurus around here show you what and how your plan will likely work out for you.

On that note to keep this thread on topic.

You should put down 20% and invest the rest and take the mortgage to a 30 year term. Anything less is incredibly inefficient and hurts just about all points you've made as to why you wouldn't want debt.
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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #475 on: November 26, 2017, 09:48:09 PM »
Alas, Apple_Tango, by the time you realize your $750k isn't going to stretch far enough, you may not be in a position to easily earn more money. It would be great if you took the advice to start a case study, just so you can be sure you are following the most optimal path to FIRE. What have you got to lose?
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talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #476 on: November 27, 2017, 07:03:32 AM »
Your goal is to have a 'stache of $750,000 in nine years?

Do you have a pile of $345,000 cash sitting in front of you right now? If you do, then invest it 100% into VTSAX today, and you wait. Because--on average--buying into VTSAX today will be the best price you'll ever be offered. On average, you won't need to save any more to reach this goal, although buying on a dip might help you reach it sooner.

If you have less than that, then you'll need to save additional money into investments over the next nine years. Based on a 9% rate of return, calculate how much money you'll need to save out of your current monthly expenses.

Now, you probably need to live somewhere: you can make a rent VS. buy decision using the information on this website, but you'll want to do this preserving whatever numbers you calculate above. Housing in most areas will return less than the stock market.

Manchester

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Re: DONT Payoff your Mortgage Club
« Reply #477 on: November 30, 2017, 05:41:33 AM »
Hi All, thought I'd post on here to see what you guys think of my plan.  I'm in the process of remortgaging (will have made a final decision by the end of next week) so any feedback soon would be helpful.

I'm 24, I've been with my S/O for 7/8 years.  We spent 1 year renting and then bought a house together (02/02/16) for £207k.  We put roughly 10% down on a 30 year mortgage at 3.04%.  I fixed it for 2 years, knowing that my equity in the house would rise and I'd be able to negotiate a better deal at this point.

Unfortunately I'm not incredibly 'handy' and the house needs a few things doing (new bathroom, new kitchen).  We've got by for 2 years, but we're getting to the point where it's moving from a necessity to upgrade the house rather than a wish and anything we can do ourselves has been done. 

We owe £179k on the mortgage with 28 years remaining.  The bank currently values our house at £240k.  We used a free consultation with a mortgage advisor who informed us the cheapest rate we'd get was with our current mortgage provider (1.7%).  My plan is as follows:

Go back up to a 30 year mortgage. Fix the term for 2 years.  Take £15k out of the property and use it to sort out the house with some extra to go towards bulking up our investments (my estimate is the work on the house will cost roughly £8k with £2k wiggle room, £5k + any money left over on house work can go into P2P lending or set up a vanguard account).

This would result in us paying £100 per month less than we currently do.  If we stayed on our current term (28 years) it would cost us an extra £45 per month (surely this money is better going into so form of investment 1.7% is dirt cheap?!).  I live in a MCOL area, house prices are strong and expected to rise even through a brexit disaster.  There are planned expansions of public transport (trams) to within walking distance of the house which will create a commuter link which should boost prices.  Historically house prices have doubled every 9 years in my area although the financial crisis in 08 as well as brexit will make that less predictable.



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Re: DONT Payoff your Mortgage Club
« Reply #478 on: November 30, 2017, 06:05:01 AM »
Inwoildnt be concerned with housing prices but I'd take it to a full 30 year and invest the difference 1.7% is an insane rate. Keep that and invest the rest in what ever your asset allocation plan says.
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Re: DONT Payoff your Mortgage Club
« Reply #479 on: November 30, 2017, 07:19:18 AM »
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?

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Re: DONT Payoff your Mortgage Club
« Reply #480 on: November 30, 2017, 07:28:15 AM »
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?

Yeah my understanding of how mortgages work in England and Canada is they get insanely good rates but for short term locks 2-5 years.
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Re: DONT Payoff your Mortgage Club
« Reply #481 on: November 30, 2017, 08:00:23 AM »
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?

So we have two major types of mortgages (there are more, but not something a simpleton like me could access):

Standard Variable Rate - this tracks the base rate (currently 0.5% here).  The banks will usually add between 3% and 4%.  My current lenders variable rate is around 3.7%.  If the base rate goes up to 1% theirs will go to 4.2% etc.

Fixed Rate mortgage - this is what most people do.  You 'lock in' a rate for a fixed period of time.  Because you're tied into paying interest to that lender, you usually receive a better rate.  If the interest rate drops (it won't in the next 5 years) you lose as a borrower, if it increases (it will) you win as you're locked in.  You pay higher interest the longer you lock in (normally). 

After your fixed rate finishes, you're free to either pay your SV rate, pay off the mortgage in full, ReFi with a different lender. Refi with your current lender.

Manchester

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Re: DONT Payoff your Mortgage Club
« Reply #482 on: November 30, 2017, 08:04:19 AM »
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?

Yeah my understanding of how mortgages work in England and Canada is they get insanely good rates but for short term locks 2-5 years.

Exactly, it's the same with pretty much everything here, from Mortgages to household bills to gym memberships. 

You're enticed to deal with a company based on an amazing limited time offer.  After that offer expires, you go onto a 'standard' rate (which is always insanely high).  Historically 99% of people are too lazy to check/refinance which is why companies like 'Compare the market, GoCompare, Money Supermarket' are booming now.

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Re: DONT Payoff your Mortgage Club
« Reply #483 on: November 30, 2017, 09:10:36 AM »
I think it's sad when people wait to fix up properties until right before they sell. Do the work well, enjoy it, then market it as "newer"or "upgraded" when you sell. Win-win.

I'm generally in favor, albeit with a few significant caveats:

- NO to P2P lending. It's just not worth the headspace, IMO.

- Borrow less and cash flow the rest of the cost of improvements. Maybe 8k? Your rate locks are so short that borrowing to invest is a much riskier move. Should rates rise, you don't want to be on the hook for a bigger mortgage. If your investments are down when the interest rates rise, you'll feel a double hit. Even when the (theoretical) down market recovers, you will have subjected yourself to unnecessary risk, stress and cost.

Congratulations on getting off to such a fast start! I like the way you think.

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Manchester

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Re: DONT Payoff your Mortgage Club
« Reply #484 on: November 30, 2017, 09:56:13 AM »
I think it's sad when people wait to fix up properties until right before they sell. Do the work well, enjoy it, then market it as "newer"or "upgraded" when you sell. Win-win.

I'm generally in favor, albeit with a few significant caveats:

- NO to P2P lending. It's just not worth the headspace, IMO.

- Borrow less and cash flow the rest of the cost of improvements. Maybe 8k? Your rate locks are so short that borrowing to invest is a much riskier move. Should rates rise, you don't want to be on the hook for a bigger mortgage. If your investments are down when the interest rates rise, you'll feel a double hit. Even when the (theoretical) down market recovers, you will have subjected yourself to unnecessary risk, stress and cost.

Congratulations on getting off to such a fast start! I like the way you think.

Thanks so much for your feedback. 

I'll look more seriously into IFs as opposed to P2P lending.  The reason I'd naturally lean towards the latter is because I find the platforms more user friendly and my brother, who invests in ratesetter, has had a reasonably good return (7%) across the two years he's had his account.  Realistically Vanguard is the obvious choice, but I can't help but find their platform unhelpful.

In regards to how much I'm borrowing the sweet spot I'm aiming for is just over 20% loan to value.  That's when the banks offer you a more reduced rate (less risk to the them).  I could borrow less cash, but I don't necessarily think it's the best way to go - I could even put that money in a fixed 2 year bond @ 4% - I know when I come to refinance in two years time it would be worth more than if I left it in the mortgage?

I don't know if I'm getting carried away at the rate I've been offered though.  I feel like it's a licence to print money.



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Re: DONT Payoff your Mortgage Club
« Reply #485 on: December 01, 2017, 08:04:13 AM »
In the UK, I don't know how to recommend investing when I cannot accurately assess currency risk. The economy seems pretty strong there, now, but I'm worried that a poor handling of the departure from the EU could turn into a serious devaluing of your currency.


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Re: DONT Payoff your Mortgage Club
« Reply #486 on: December 01, 2017, 08:24:29 AM »
In the UK, I don't know how to recommend investing when I cannot accurately assess currency risk. The economy seems pretty strong there, now, but I'm worried that a poor handling of the departure from the EU could turn into a serious devaluing of your currency.

a devaluation of currency would mean that being invested is better on both accounts as it would lead to inflation and the markets would adjust in price due to the weaker pound.
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Re: DONT Payoff your Mortgage Club
« Reply #487 on: December 01, 2017, 08:45:47 AM »
Made another minimum payment today. Our investments are now approximately 2.5x our mortgage balance.

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Re: DONT Payoff your Mortgage Club
« Reply #488 on: December 01, 2017, 08:50:06 AM »
Hi Manchester. I’m also a UK person. Being quite cautious I was a mortgage over payer so I don’t particularly belong on this thread! However there is a lot of good advice here and there are other threads that are worth looking at that discuss mortgage overpaying versus investing.

The US do have the security of 30 year fixes and I believe they can claim back tax against their mortgage payments. Someone on here can correct me if I’ve got this wrong. Therefore the case for not overpaying in the US is a lot stronger than it is for us. My worry was always coming out of a fixed period and finding interest rates were now 8%+. My parents stories of a 12% mortgage rate got to me here.

With the marvellous wisdom of hindsight my mortgage was never higher than about 4.5% and the markets have performed well over the last few years. So I would have been better investing.

So it really is about your attitude to risk and how easy it will be for you to sleep at night with whatever choice you make. How much do you expect interest rates to rise in the next few years? How do you think markets will perform over the next few years. How will Brexit turn out? What’s your job security like as far as you can tell? All questions I don’t expect you to be able to answer. Although if you do know the answers please tell me!

What rate can you get a 5 year fix at? Although it won’t be as low as 1.7% if it’s 3% or something and you have 5 years where you know it can’t go up that would give you more freedom to invest.

Good luck. Well done for getting on the housing ladder so young and putting proper thought into how to proceed. Although there is an optimum choice here (hindsight will inform you what it was) at the end of the day investing or paying off a mortgage are great things to do. You’re not using the money to buy a £40,000 monster truck on credit so either way you’re winning.

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Re: DONT Payoff your Mortgage Club
« Reply #489 on: December 01, 2017, 09:29:35 AM »
Made another minimum payment today. Investment total should pass amount due on mortgage sometime in 2019.

Still sort of wish I hadn't refi-ed from 30-year to 15, but the 15-year rate is pretty amazing, so not much harm done.

Onward!

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Re: DONT Payoff your Mortgage Club
« Reply #490 on: December 01, 2017, 10:02:36 AM »
awesome - we too made a minimum payment today.  Our house has gained a lot of equity in the 2 years since we owned it ... it would be nice for rates to drop for a cash out REFI to a new 30 year.  but doesnt make sense at the moment due to our 3.25% fixed rate. 
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Manchester

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Re: DONT Payoff your Mortgage Club
« Reply #491 on: December 04, 2017, 03:26:20 AM »
Hi Manchester. I’m also a UK person. Being quite cautious I was a mortgage over payer so I don’t particularly belong on this thread! However there is a lot of good advice here and there are other threads that are worth looking at that discuss mortgage overpaying versus investing.

The US do have the security of 30 year fixes and I believe they can claim back tax against their mortgage payments. Someone on here can correct me if I’ve got this wrong. Therefore the case for not overpaying in the US is a lot stronger than it is for us. My worry was always coming out of a fixed period and finding interest rates were now 8%+. My parents stories of a 12% mortgage rate got to me here.

With the marvellous wisdom of hindsight my mortgage was never higher than about 4.5% and the markets have performed well over the last few years. So I would have been better investing.

So it really is about your attitude to risk and how easy it will be for you to sleep at night with whatever choice you make. How much do you expect interest rates to rise in the next few years? How do you think markets will perform over the next few years. How will Brexit turn out? What’s your job security like as far as you can tell? All questions I don’t expect you to be able to answer. Although if you do know the answers please tell me!

What rate can you get a 5 year fix at? Although it won’t be as low as 1.7% if it’s 3% or something and you have 5 years where you know it can’t go up that would give you more freedom to invest.

Good luck. Well done for getting on the housing ladder so young and putting proper thought into how to proceed. Although there is an optimum choice here (hindsight will inform you what it was) at the end of the day investing or paying off a mortgage are great things to do. You’re not using the money to buy a £40,000 monster truck on credit so either way you’re winning.

Thanks for your feedback.  It's good hearing things from a different point of view.

In terms of the questions you've asked, I'll try and give it a go. :P

How much do you expect interest rates to rise in the next few years?

If our economy continues plugging along, we'll most likely see another rise of 0.5% per year.  If Brexit goes terribly wrong, I reckon they will be kept low to encourage spending. 

How do you think markets will perform over the next few years.

It's nearly impossible to predict this.  I think they've shot up a bit excesively over the past year, I think there will be a correction soon.  Even if they plummet it wouldn't upset me much.  Just a signal to chuck more money into it.

How will Brexit turn out?

Right now it looks like we're going to get shafted!!  We'll probably end up with a Norway type deal (we pay an annual fee to access free market).

What’s your job security like as far as you can tell?

I'd say it's pretty safe.  I work for myself (so no chance of getting fired) and I have over 300 customers who pay me a licencing fee to use the companies software.  It would take a change in legislation to put all 300 of my customers out of business. But we've started diversifying and around 10% of our turnover comes from other industries now.

Overall I think that I can afford a certain level of risk now because if it goes wrong I'll have a long time to sort it out.  I'm not necessarily rushing to retire, I want to rush towards being financially independent and not having to work.  I think this makes me a lot more chilled out about money - I can manage stress quite well.

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Re: DONT Payoff your Mortgage Club
« Reply #492 on: December 04, 2017, 08:29:54 AM »
I'm one of the rare animals with an adjustable rate mortgage. When I signed the papers (in 2013), LIBOR was our index for the rate in the adjustable period, which begains in January 2019.

I have been curious about whether they will try to change to a different index because of the Brexit decision (still no word from my loan servicer on this matter, and I don't wish to remind them about me).

channtheman

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Re: DONT Payoff your Mortgage Club
« Reply #493 on: December 07, 2017, 08:51:22 PM »
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread. 

In my post over there, I've outlined how my DW is very conservative and nervous about investments.  Well, after going over our estimated taxes owed for the year and reworking our budget for after our refinance goes through, I told DW that I think I should double my 401k contributions from 6% (this was to get the match which is essentially 3%) to 12%.  She simply said "sounds great!" and we moved on!  Win!

I've brought stuff like this up before and she has not been open to the idea.  After she agreed, it probably helped that I could show her how our budget and mortgage payoff date is relatively unaffected. 

Edit:  So, basically, I will have an extra ~$314 going into investments/month (with a total amount of ~$628 per month) as opposed to $314 to investments and $200 going to the mortgage every month. 
« Last Edit: December 07, 2017, 09:11:23 PM by channtheman »

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Re: DONT Payoff your Mortgage Club
« Reply #494 on: December 07, 2017, 10:38:27 PM »
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread. 

In my post over there, I've outlined how my DW is very conservative and nervous about investments.  Well, after going over our estimated taxes owed for the year and reworking our budget for after our refinance goes through, I told DW that I think I should double my 401k contributions from 6% (this was to get the match which is essentially 3%) to 12%.  She simply said "sounds great!" and we moved on!  Win!

I've brought stuff like this up before and she has not been open to the idea.  After she agreed, it probably helped that I could show her how our budget and mortgage payoff date is relatively unaffected. 

Edit:  So, basically, I will have an extra ~$314 going into investments/month (with a total amount of ~$628 per month) as opposed to $314 to investments and $200 going to the mortgage every month.
Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.

FWIW, I'm not completely against paying off mortgages entirely. I just want people to know what they're giving up if they prepay the mortgage at the expense of other savings. Learn the optimal sequence and play your cards in the smartest order.
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channtheman

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Re: DONT Payoff your Mortgage Club
« Reply #495 on: December 07, 2017, 11:37:57 PM »
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread. 

In my post over there, I've outlined how my DW is very conservative and nervous about investments.  Well, after going over our estimated taxes owed for the year and reworking our budget for after our refinance goes through, I told DW that I think I should double my 401k contributions from 6% (this was to get the match which is essentially 3%) to 12%.  She simply said "sounds great!" and we moved on!  Win!

I've brought stuff like this up before and she has not been open to the idea.  After she agreed, it probably helped that I could show her how our budget and mortgage payoff date is relatively unaffected. 

Edit:  So, basically, I will have an extra ~$314 going into investments/month (with a total amount of ~$628 per month) as opposed to $314 to investments and $200 going to the mortgage every month.
Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.

FWIW, I'm not completely against paying off mortgages entirely. I just want people to know what they're giving up if they prepay the mortgage at the expense of other savings. Learn the optimal sequence and play your cards in the smartest order.

Thanks Dicey!  I was very pleased my wife was so open to the idea this time.  I'm not sure what changed her mind, but I feel like we've made a huge leap that we will be thankful for down the road. 

I think we will always have a delicate balance between paying down the mortgage and investing for retirement.  I used to be very risk averse and nervous about investing too, but as I've read more and more have become much more comfortable.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #496 on: December 08, 2017, 06:00:15 PM »
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread. 

In my post over there, I've outlined how my DW is very conservative and nervous about investments.  Well, after going over our estimated taxes owed for the year and reworking our budget for after our refinance goes through, I told DW that I think I should double my 401k contributions from 6% (this was to get the match which is essentially 3%) to 12%.  She simply said "sounds great!" and we moved on!  Win!

I've brought stuff like this up before and she has not been open to the idea.  After she agreed, it probably helped that I could show her how our budget and mortgage payoff date is relatively unaffected. 

Edit:  So, basically, I will have an extra ~$314 going into investments/month (with a total amount of ~$628 per month) as opposed to $314 to investments and $200 going to the mortgage every month.
Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.

FWIW, I'm not completely against paying off mortgages entirely. I just want people to know what they're giving up if they prepay the mortgage at the expense of other savings. Learn the optimal sequence and play your cards in the smartest order.

Thanks Dicey!  I was very pleased my wife was so open to the idea this time.  I'm not sure what changed her mind, but I feel like we've made a huge leap that we will be thankful for down the road. 

I think we will always have a delicate balance between paying down the mortgage and investing for retirement.  I used to be very risk averse and nervous about investing too, but as I've read more and more have become much more comfortable.
Hooray! Honestly, that's why I'm still here. If I can help anyone get to FIRE more easily than I did, it makes me happy.
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