Author Topic: DONT Payoff your Mortgage Club  (Read 159066 times)

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #500 on: January 14, 2018, 06:29:57 PM »
DH just brought up again that we should consider putting a large payment down on the mortgage...   I will have to run the numbers...   We've made an amazing amount in the markets this year, however, so it may be time to remove some of our profits..

This would be a bad idea. It's market timing

B42, what is the market timing boundary? I have 185k$ mortgage now but 30k$ HELOC available. I could use it to buy index funds (VTI + VXUS) or wait to buy for cash over the next 3 years...

My actual leverage (debt/assets) is 17% now and this move would get me to 17.5%. My FI would increase from 78% to 80% wich is good but trivial...

HELOC @ 3%, expected returns @ 5-6%

A HELOC is different than a mortgage the rates aren't fixed and they are callable debt. Risk is much different. Paydown time typically isn't 30years either. So it's not a question of market timing but a question what risk are you willing to take on with whatever HELOC terms you have.

Market timing is changing your IPS or whatever your investing plan is based on market conditions.

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Re: DONT Payoff your Mortgage Club
« Reply #501 on: January 15, 2018, 02:37:32 PM »
DH just brought up again that we should consider putting a large payment down on the mortgage...   I will have to run the numbers...   We've made an amazing amount in the markets this year, however, so it may be time to remove some of our profits..

This would be a bad idea. It's market timing

B42, what is the market timing boundary? I have 185k$ mortgage now but 30k$ HELOC available. I could use it to buy index funds (VTI + VXUS) or wait to buy for cash over the next 3 years...

My actual leverage (debt/assets) is 17% now and this move would get me to 17.5%. My FI would increase from 78% to 80% wich is good but trivial...

HELOC @ 3%, expected returns @ 5-6%

Why not go with CAD bank stocks instead? dividends are above your rate of HELOC so no matter what you should be fine?

I have enough exposure to Canadian stock market now (30%) and I usualy look for a total return when investing.

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Re: DONT Payoff your Mortgage Club
« Reply #502 on: February 05, 2018, 12:04:16 PM »
We made another minimum payment this month. Our non-retirement, liquid assets now exceed our mortgage balance. In other words, we could knock out our mortgage at any time. But I took a quick peek at the mortgage payoff club thread and the handwavy non-math made me nauseous. I think we'll stay in this thread.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #503 on: February 05, 2018, 12:07:02 PM »
We made another minimum payment this month. Our non-retirement, liquid assets now exceed our mortgage balance. In other words, we could knock out our mortgage at any time. But I took a quick peek at the mortgage payoff club thread and the handwavy non-math made me nauseous. I think we'll stay in this thread.

congrats what an amazing milestone.  i'm not sure we will hit that number before we FIRE.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #504 on: February 05, 2018, 12:45:44 PM »
I have contributed to both this thread AND the "pay off your mortgage" thread. I think each one of us has an internal compass that tells us where we truly belong.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #505 on: February 05, 2018, 01:30:14 PM »
this thread will be short lived if rates keep going the way they are - if we get back to normal rate territory over 6% with mortgage interest deduction not playing a roll for many people anymore - there really wont be a strong - clear black and white case as there is for those of us who have fixed rates in the 4's or lower.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #506 on: February 05, 2018, 03:33:23 PM »
this thread will be short lived if rates keep going the way they are - if we get back to normal rate territory over 6% with mortgage interest deduction not playing a roll for many people anymore - there really wont be a strong - clear black and white case as there is for those of us who have fixed rates in the 4's or lower.

Which is exactly why it is such a big deal now....

Another standard mortgage payment tonight!  Yay!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #507 on: February 07, 2018, 07:23:52 AM »
this thread will be short lived if rates keep going the way they are - if we get back to normal rate territory over 6% with mortgage interest deduction not playing a roll for many people anymore - there really wont be a strong - clear black and white case as there is for those of us who have fixed rates in the 4's or lower.

But the path to these higher rates involved the remarkable stock appreciation we've seen over the past few years. Many of us are better off because of the leverage we took on (in my case) in 2013. The thread has done its job.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #508 on: February 07, 2018, 07:36:37 AM »
this thread will be short lived if rates keep going the way they are - if we get back to normal rate territory over 6% with mortgage interest deduction not playing a roll for many people anymore - there really wont be a strong - clear black and white case as there is for those of us who have fixed rates in the 4's or lower.

But the path to these higher rates involved the remarkable stock appreciation we've seen over the past few years. Many of us are better off because of the leverage we took on (in my case) in 2013. The thread has done its job.

Oh I agree that's why I started it. And lots of newcomers will have fixed 30 year low rate mortgages still locked from this time in years to come. So it should continue to help and add value to people's fire timelines

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #509 on: February 07, 2018, 08:55:46 AM »
I have contributed to both this thread AND the "pay off your mortgage" thread. I think each one of us has an internal compass that tells us where we truly belong.
So have I...

I don't believe paying off a mortgage is "wrong" in all cases. It has nothing to do with my internal compass. It has to do with understanding the math, which requires learning. So does the skill to use a compass. I believe what you're referring to is more like a gut instinct, which is completely different. When people rely on platitudes, feelings, and gut instincts to make decisions that will effect their financial well-being for life, it is sub-optimal. The point of this blog and forum is to learn and share with each other how to live life optimally. I know that you understand this, TT. But a shocking number of people simply do not.

wannabe-stache

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Re: DONT Payoff your Mortgage Club
« Reply #510 on: February 07, 2018, 10:49:29 AM »
I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.
I have no issues with pre-paying or even paying off a mortgage under the right circumstances.  Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.

glad to see this acknowledged.  that's what we essentially did.  had the mortgage for 4 years then eliminated it last week.  particularly given the tax law changes it didn't make any sense.

ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...

tyort1

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Re: DONT Payoff your Mortgage Club
« Reply #511 on: February 07, 2018, 11:13:57 AM »
Just an update from me - thanks to this thread I've been putting all my money into VTSAX & VBTLX and even with the recent dips in the market, we're still WAY UP!  We owe $346k on the mortgage but we have $367k in investments.  More in cash than we owe on the house!

If I'd paid extra to the mortgage instead of invest it, the mortgage would still be higher than our cash investments.  Wow.  So thanks everyone!

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #512 on: February 07, 2018, 12:52:51 PM »
I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.
I have no issues with pre-paying or even paying off a mortgage under the right circumstances.  Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.

glad to see this acknowledged.  that's what we essentially did.  had the mortgage for 4 years then eliminated it last week.  particularly given the tax law changes it didn't make any sense.

ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...
Under your circumstances, I probably would not have suggested this route. You will never get a loan on an investment property as cheaply as when you are owner occupied. In fact, I'd recommend before you decide to move (i.e. right this minute) you mortgage it to the hilt for the best rate possible. Not sure what tax law change that effects rental property you're referring to (???), but your position is absolutely worth re-evaluating. Obviously, you don't breathe a word about a possible move to the lender. As long as their payments come in on time and uninterrupted they do not care. Besides, you haven't made a final decision yet, have you?

There is a huge difference between killing all debt and using a mortgage to create wealth! I'd rather be wealthy, wouldn't you?

wannabe-stache

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Re: DONT Payoff your Mortgage Club
« Reply #513 on: February 07, 2018, 01:56:25 PM »
I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.
I have no issues with pre-paying or even paying off a mortgage under the right circumstances.  Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.

glad to see this acknowledged.  that's what we essentially did.  had the mortgage for 4 years then eliminated it last week.  particularly given the tax law changes it didn't make any sense.

ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...
Under your circumstances, I probably would not have suggested this route. You will never get a loan on an investment property as cheaply as when you are owner occupied. In fact, I'd recommend before you decide to move (i.e. right this minute) you mortgage it to the hilt for the best rate possible. Not sure what tax law change that effects rental property you're referring to (???), but your position is absolutely worth re-evaluating. Obviously, you don't breathe a word about a possible move to the lender. As long as their payments come in on time and uninterrupted they do not care. Besides, you haven't made a final decision yet, have you?

There is a huge difference between killing all debt and using a mortgage to create wealth! I'd rather be wealthy, wouldn't you?

i think i was unclear.  if/when we move to a new home, we will obviously get a mortgage on that new home.

the new tax law doubles the standard deduction so in my case, we will avail ourselves of that option.

you talk to people as if you are teaching them a lesson, even when you know very little about their investment philosophy or personal situation.

you should avoid that, at least in my case.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #514 on: February 07, 2018, 03:49:02 PM »
I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.
I have no issues with pre-paying or even paying off a mortgage under the right circumstances.  Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.

glad to see this acknowledged*.  that's what we essentially did.  had the mortgage for 4 years then eliminated it last week.  particularly given the tax law changes it didn't make any sense.

ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...
Under your circumstances, I probably would not have suggested this route. You will never get a loan on an investment property as cheaply as when you are owner occupied. In fact, I'd recommend before you decide to move (i.e. right this minute) you mortgage it to the hilt for the best rate possible. Not sure what tax law change that effects rental property you're referring to (???), but your position is absolutely worth re-evaluating. Obviously, you don't breathe a word about a possible move to the lender. As long as their payments come in on time and uninterrupted they do not care. Besides, you haven't made a final decision yet, have you?

There is a huge difference between killing all debt and using a mortgage to create wealth! I'd rather be wealthy, wouldn't you?

i think i was unclear.  if/when we move to a new home, we will obviously get a mortgage on that new home.

the new tax law doubles the standard deduction so in my case, we will avail ourselves of that option.

you talk to people as if you are teaching them a lesson, even when you know very little about their investment philosophy or personal situation.

you should avoid that, at least in my case.
Teaching is the whole point of this thread and others like it. Full stop. If anyone had taught me this shit, I could have retired so.much.earlier. Oh, wait! Someone finally did teach me, but it came much later in the game. Teaching the lesson(s), so one can one then make their own fully informed decision, does not require  knowledge of every facet of every single snowflake student's life! Someone can teach you how to code, for example, without knowing jack-all about you.

*To be crystal clear, I did not acknowledge your specific strategy, although your comment seems to imply that I did. Once you provided specifics, I gave you an answer more germane to your situation. You can't have it both ways. And you don't have to take my advice.

wannabe-stache

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Re: DONT Payoff your Mortgage Club
« Reply #515 on: February 07, 2018, 06:18:36 PM »

[/quote]
Teaching is the whole point of this thread and others like it. Full stop. If anyone had taught me this shit, I could have retired so.much.earlier. Oh, wait! Someone finally did teach me, but it came much later in the game. Teaching the lesson(s), so one can one then make their own fully informed decision, does not require  knowledge of every facet of every single snowflake student's life! Someone can teach you how to code, for example, without knowing jack-all about you.

*To be crystal clear, I did not acknowledge your specific strategy, although your comment seems to imply that I did. Once you provided specifics, I gave you an answer more germane to your situation. You can't have it both ways. And you don't have to take my advice.
[/quote]

if this thread is about teaching, i am in the wrong place. apologies.

methinks you hit the bottle too early tonight. or you have really, really bad grammar. or both.

i am sorry to hear that you didn't learn these lessons until later in life. as a 38 yr old with enough to retire and a paid off mortgage i do consider myself at the crossroads of lucky and hard working.

also sorry to hear that you think that you are addressing "snowflakes".  my time is too valuable to engage in those activities. i would think you would feel the same based on your tone.

please respond if u like. i am done here.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #516 on: February 08, 2018, 05:13:50 AM »
I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.
I have no issues with pre-paying or even paying off a mortgage under the right circumstances.  Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.

glad to see this acknowledged.  that's what we essentially did.  had the mortgage for 4 years then eliminated it last week.  particularly given the tax law changes it didn't make any sense.

ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...
Under your circumstances, I probably would not have suggested this route. You will never get a loan on an investment property as cheaply as when you are owner occupied. In fact, I'd recommend before you decide to move (i.e. right this minute) you mortgage it to the hilt for the best rate possible. Not sure what tax law change that effects rental property you're referring to (???), but your position is absolutely worth re-evaluating. Obviously, you don't breathe a word about a possible move to the lender. As long as their payments come in on time and uninterrupted they do not care. Besides, you haven't made a final decision yet, have you?

There is a huge difference between killing all debt and using a mortgage to create wealth! I'd rather be wealthy, wouldn't you?

i think i was unclear.  if/when we move to a new home, we will obviously get a mortgage on that new home.

the new tax law doubles the standard deduction so in my case, we will avail ourselves of that option.

you talk to people as if you are teaching them a lesson, even when you know very little about their investment philosophy or personal situation.

you should avoid that, at least in my case.

there is next to nothing you could say that would make paying off a house in 4 years make sense esp when you plan to use it as a rental property now- i'd be willing to bet its probably a poor rental in the grand scheme and would only be cash flow positive due to the fact there is no mortgage.  The fact that you keep quoting the standard deduction as being a good reason to now pay off mortgages is a poor way to look at it and many people incorrectly calculate the value of the mortgage interest deduction - not that you were really taking advantage of it anyways while you seriously over paid a low cost fixed rate mortgage.  which you had in 2016 when you could have refi'd to the lowest rates in history of 3.25% or lower for a 30 year loan.  Its your choice to not learn and understand - but from your comments here it is clear you do NOT acutally understand the math - so you could learn or you could continue with the feelings that had you pay off the first mortgage to what will be a guaranteed longer time to FIRE as you missed one of the largest bull market runs in history paying down debt. - and this isnt hindsight is 20/20 - based on historical returns you're more likely to have more money way more often by investing and hitting a window where paydown wins is like finding a needle in a haystack. 

Based on your incliniation to not understand i'd strongly be thinking about whether or not you can actually hold equities in a down market in FIRE b/c when presented with the math and data about a mortgage you chose emotion over even learning math - think about your stache being cut in half in FIRE b/c of a down market and what you may emotionally choose to do then - directly in the face of the math telling you not to sell.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #517 on: February 14, 2018, 12:51:08 PM »
Happy Wednesday just remember....

« Last Edit: February 14, 2018, 12:53:06 PM by boarder42 »

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Re: DONT Payoff your Mortgage Club
« Reply #518 on: February 14, 2018, 07:28:10 PM »
Made another mortgage payment on our 15 year fixed rate, 2.75% mortgage.

Only 13 years, 7 months to go.

Maybe by then, I can refinance at the same low rate and invest it again!


boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #519 on: February 14, 2018, 07:34:57 PM »
Made another mortgage payment on our 15 year fixed rate, 2.75% mortgage.

Only 13 years, 7 months to go.

Maybe by then, I can refinance at the same low rate and invest it again!

I doubt we see these rates again.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #520 on: February 15, 2018, 08:56:15 AM »
While I cannot predict interest rates, I'd like to point out that all of the inflation news lately is great news for people in this discussion: inflation of 2.1% when you have a 3% mortgage rate is basically eating up 70% of your interest for you.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #521 on: February 16, 2018, 05:57:25 AM »
While I cannot predict interest rates, I'd like to point out that all of the inflation news lately is great news for people in this discussion: inflation of 2.1% when you have a 3% mortgage rate is basically eating up 70% of your interest for you.

yep - and the yields on 10 year treasury notes are rapidly approaching my mortgage rate of 3.25%

Pizzabrewer

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Re: DONT Payoff your Mortgage Club
« Reply #522 on: February 16, 2018, 11:00:57 AM »
Made another mortgage payment on our 15 year fixed rate, 2.75% mortgage.

Only 13 years, 7 months to go.


What, are we twins?  I have a 15-year, 2.75% mortgage with 13 years, 10 months to go.  Paying the minimum each month.


Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #523 on: February 16, 2018, 01:22:23 PM »
Made another mortgage payment on our 15 year fixed rate, 2.75% mortgage.

Only 13 years, 7 months to go.


What, are we twins?  I have a 15-year, 2.75% mortgage with 13 years, 10 months to go.  Paying the minimum each month.
Nah, you're just a couple of really smart cookies er- mustachians! When rates rise, people may start saying how "lucky" you two are, to which I preemptively call Bullshit!

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Re: DONT Payoff your Mortgage Club
« Reply #524 on: February 16, 2018, 03:03:24 PM »
PTF - Making minimum payments on my 2.625% 15 year fixed mortgage with $216K left to go.

I am also in the Payoff your Mortgage Club where I paid off a 2nd small foreclosure home with 4.75% 30 year interest rates that we originally bought for $55K.  Paying it off made sense because we were required to have more expensive homeowner's insurance while we had a loan, as a vacation home and with certain characteristics, I saved $750/year on insurance by upping the deductible and reducing the total coverage required.  The $750 on a $44K loan represented costs of 1.7% per year.  When the loan was at $22K, it represented a 3.5% cost and made payoff much more attractive. Of course that was during the same time the stock market was going super well and we would have been better off investing, but hindsight really is 20/20.

I plan to retire to the paid off small home in four years. We will sell our bigger house with whatever mortgage remains at that point. Too bad I don't have the ability to assign my mortgage to someone else.  It's a good one.

meatgrinder

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Re: DONT Payoff your Mortgage Club
« Reply #525 on: April 09, 2018, 08:49:30 AM »
I've been heavily in the don't payoff your mortgage club, however, I'm starting to stray.  I've utilized ARMs with both homes I've owned and its turned out great since I would just refinance at the end of the adjustable period into a lower rate but with the rate increase now it looks like its time to pay the piper. I currently have a 5/1 ARM at 2.25% that resets this June to Libor + 2.25% = 4.95%. 

Refinancing to a flat 30 year would be 4% and 7/1 ARM would be 3.5%.  Any thoughts on paying this off with the bump in rates?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #526 on: April 09, 2018, 09:28:25 AM »
I've been heavily in the don't payoff your mortgage club, however, I'm starting to stray.  I've utilized ARMs with both homes I've owned and its turned out great since I would just refinance at the end of the adjustable period into a lower rate but with the rate increase now it looks like its time to pay the piper. I currently have a 5/1 ARM at 2.25% that resets this June to Libor + 2.25% = 4.95%. 

Refinancing to a flat 30 year would be 4% and 7/1 ARM would be 3.5%.  Any thoughts on paying this off with the bump in rates?
What is your mortgage balance and what do your other investment balances look like? How long do you plan to stay in the home in question? Those new rates do not suck, based on historical averages.

meatgrinder

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Re: DONT Payoff your Mortgage Club
« Reply #527 on: April 09, 2018, 10:04:02 AM »
Mortgage balance is $345K, and have around $2M investment balance.  Plan on staying another 4-5 years but that is up for grabs.  If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
« Last Edit: April 09, 2018, 11:31:39 AM by meatgrinder »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #528 on: April 10, 2018, 03:17:17 AM »
Mortgage balance is $345K, and have around $2M investment balance.  Plan on staying another 4-5 years but that is up for grabs.  If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?

If you sell you're going to get the money back anyway, so I'm not sure I'd pay it off, though you easily could. I'd be inclined to look at the 7/1 arm or similar. Have you spoken to your current lender about doing some kind of reset, or streamline re-fi? Also, does your current loan not have a max annual rate cap? How often does it adjust now?

Sorry, I'm still asking lots of questions, but this is a great "problem" to have. I love riddles like this!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #529 on: April 10, 2018, 12:06:10 PM »
I personally follow the heuristic of getting the lowest interest rate, as I don't think of paying principal as really paying anything, more like just storing your money somewhere. That would mean 7/1 ARM instead of 30-year fixed. Have you priced a 5/1 arm?

That rate of 3.5% is still pretty strong.


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Re: DONT Payoff your Mortgage Club
« Reply #530 on: April 10, 2018, 12:11:29 PM »
Mortgage balance is $345K, and have around $2M investment balance.  Plan on staying another 4-5 years but that is up for grabs.  If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?

What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.

Pizzabrewer

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Re: DONT Payoff your Mortgage Club
« Reply #531 on: April 10, 2018, 02:04:21 PM »
I haven't posted here lately because, well, I'm just dutifully paying the minimum at the end of each month on our 2.75% 15-year mortgage.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #532 on: April 10, 2018, 02:41:28 PM »
Mortgage balance is $345K, and have around $2M investment balance.  Plan on staying another 4-5 years but that is up for grabs.  If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?

What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.

Its good because (If you are following a mustachian philosophy) capital gains on a house are "Bonus Monies".  You (generally) shouldn't get in to real estate for the appreciation aspects, but rather- you should get in for the (1) rate of return (if its a rental) or (2) a place to live that isn't too costly (your own house).  Appreciation above and beyond inflation is a bonus, not an expectation.

Dicey, does the 500k capital gains threshold apply to ALL the gains once the threshold hits or only to the gains above 500k?

Also, considering 4% and change is still REALLY low, and the % only applies to gains over 500k (assuming), I highly doubt it will change the pay-down / dont-pay-down equation.

My money is on the math saying don't pay down the principal, since starting at 4.95% is still really low.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #533 on: April 10, 2018, 02:52:31 PM »
For those lingerers on this thread, it is also important to note that the "Best Case Scenario" that has the opportunity to make you a literal shit-ton of money is a 30-year fixed, low rate, first mortgage.  Anything beyond that and it may be worth paying down the mortgage in lieu of holding on to it.  The whole point of the thread is that one needs to do the math and make an educated decision instead of just saying "Debt is bad, I must kill it!"

The biggest example of potential pay-it-down-ASAP mortgages are the Adjustable Rate Mortgages or any with a high interest rate, specifically like those found in the UK or Canada, or the (fewer) ARM's available in the US.  And even then it should be after tax-deferred and tax-advantaged accounts are maximized.
The biggest example of potential NEVER-pay-it-down mortgages are the aforementioned holy grail of mortgages, long-term low-rate fixed mortgages with (basically) no risk and high margins over the market (long term).

Just thought I should reiterate that...

Snowman99

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Re: DONT Payoff your Mortgage Club
« Reply #534 on: April 11, 2018, 12:27:49 AM »
For those lingerers on this thread, it is also important to note that the "Best Case Scenario" that has the opportunity to make you a literal shit-ton of money is a 30-year fixed, low rate, first mortgage.  Anything beyond that and it may be worth paying down the mortgage in lieu of holding on to it.  The whole point of the thread is that one needs to do the math and make an educated decision instead of just saying "Debt is bad, I must kill it!"

The biggest example of potential pay-it-down-ASAP mortgages are the Adjustable Rate Mortgages or any with a high interest rate, specifically like those found in the UK or Canada, or the (fewer) ARM's available in the US.  And even then it should be after tax-deferred and tax-advantaged accounts are maximized.
The biggest example of potential NEVER-pay-it-down mortgages are the aforementioned holy grail of mortgages, long-term low-rate fixed mortgages with (basically) no risk and high margins over the market (long term).

Just thought I should reiterate that...

So are you saying I shouldn't prepay my 30 year fixed at 3.25% :)?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #535 on: April 11, 2018, 01:09:11 AM »
Mortgage balance is $345K, and have around $2M investment balance.  Plan on staying another 4-5 years but that is up for grabs.  If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?

What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
From IRS.gov:

Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.

https://www.irs.gov/taxtopics/tc701

Basenji

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Re: DONT Payoff your Mortgage Club
« Reply #536 on: April 11, 2018, 06:13:41 AM »
we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?

What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
From IRS.gov:

Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.

https://www.irs.gov/taxtopics/tc701

Merci. That was my question. Has this rule changed in the past? Has it changed depending on administrations? Or is it one of those long-time rules that one may expect to be around for a while?

couponvan

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Re: DONT Payoff your Mortgage Club
« Reply #537 on: April 11, 2018, 06:49:44 AM »
we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?

What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
From IRS.gov:

Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.

https://www.irs.gov/taxtopics/tc701

Merci. That was my question. Has this rule changed in the past? Has it changed depending on administrations? Or is it one of those long-time rules that one may expect to be around for a while?

That's a "new" rule (1997 Tax Relief Act I believe) and all tax rules are subject to change.....

Wile E. Coyote

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Re: DONT Payoff your Mortgage Club
« Reply #538 on: April 11, 2018, 07:01:12 AM »
we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?

What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
From IRS.gov:

Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.

https://www.irs.gov/taxtopics/tc701

Merci. That was my question. Has this rule changed in the past? Has it changed depending on administrations? Or is it one of those long-time rules that one may expect to be around for a while?

That's a "new" rule (1997 Tax Relief Act I believe) and all tax rules are subject to change.....
.

Both the House and the Senate proposed changes to this rule as part of the 2017 tax reform process, including increasing the number of years you had to reside in the home, and phasing out the benefit for high income taxpayers.   The final version did not change the rule, but it shows that there was some desire to change this rule, and that could resurface in the future.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #539 on: April 11, 2018, 08:39:26 AM »
we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.
Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?

What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
From IRS.gov:

Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.

https://www.irs.gov/taxtopics/tc701

Merci. That was my question. Has this rule changed in the past? Has it changed depending on administrations? Or is it one of those long-time rules that one may expect to be around for a while?

That's a "new" rule (1997 Tax Relief Act I believe) and all tax rules are subject to change.....
.

Both the House and the Senate proposed changes to this rule as part of the 2017 tax reform process, including increasing the number of years you had to reside in the home, and phasing out the benefit for high income taxpayers.   The final version did not change the rule, but it shows that there was some desire to change this rule, and that could resurface in the future.
As long as the Cheeto is in charge, who knows what will happen?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #540 on: April 11, 2018, 11:48:49 AM »
checking in. My 1040 reported $5,500 of dividends from taxable investment accounts, in addition to positive capital gains.

I paid $4,800 in mortgage interest on my primary residence; this figure may increase in 2019 when my ARM starts adjusting. Hopefully the dividend income goes up, too.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #541 on: April 11, 2018, 11:51:18 AM »
checking in. My 1040 reported $5,500 of dividends from taxable investment accounts, in addition to positive capital gains.

I paid $4,800 in mortgage interest on my primary residence; this figure may increase in 2019 when my ARM starts adjusting. Hopefully the dividend income goes up, too.
Nice!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #542 on: April 13, 2018, 09:15:10 AM »
I should be open with the fact that my mortgage balance is $182,000 (total of all debt is about $220,000), while the sum of value of those taxable investment accounts is in excess of $300,000. Crank it up!

Basenji

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Re: DONT Payoff your Mortgage Club
« Reply #543 on: April 13, 2018, 09:34:41 AM »
Have spent way too much time trying to find an old thread here on mortgages from maybe three years ago where it was posited that once you get into 5 years or less on a 30-year, low-interest mortgage, it might hit a crossover point where it would make sense to pay it off. I believe the idea was (a) assuming you plan to pay off the mortgage once and done (and not remortgage like a boss), (b) assuming you have the funds and won't take too bad a tax hit, and (c) that the risk of hitting a recession/downturn within 5 years (rather than over 30) could make finishing it off a reasonable strategy. Anyone else remember this?

Or, for example, should a person with a $500k, 30-year fixed, 2.85% mortgage always just let it ride to the bitter end? Again assuming there's no strong AA impetus to remortgage/reset.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #544 on: April 13, 2018, 10:03:13 AM »
Have spent way too much time trying to find an old thread here on mortgages from maybe three years ago where it was posited that once you get into 5 years or less on a 30-year, low-interest mortgage, it might hit a crossover point where it would make sense to pay it off. I believe the idea was (a) assuming you plan to pay off the mortgage once and done (and not remortgage like a boss), (b) assuming you have the funds and won't take too bad a tax hit, and (c) that the risk of hitting a recession/downturn within 5 years (rather than over 30) could make finishing it off a reasonable strategy. Anyone else remember this?

Or, for example, should a person with a $500k, 30-year fixed, 2.85% mortgage always just let it ride to the bitter end? Again assuming there's no strong AA impetus to remortgage/reset.

as you get closer to the end of a loan if a REFI is not available the likelihood of the market variablity being worse is higher but this seems like a martket timing play to me vs. just making a plan and sticking to it.

Basenji

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Re: DONT Payoff your Mortgage Club
« Reply #545 on: April 13, 2018, 10:23:20 AM »
Gotcha, makes sense. We'll see how we feel in 20 years ; )

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #546 on: April 13, 2018, 11:47:12 AM »
Gotcha, makes sense. We'll see how we feel in 20 years ; )

yeah no one knows what the tax structure would look like then and thats really where i see something like this possibly changing that could make sense for a paydown lump sum - but as i've always said i'm not against paying down a mortgage if it makes mathematical sense but rarely can you make that case in the current US mortgage climate.

dacalo

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Re: DONT Payoff your Mortgage Club
« Reply #547 on: April 13, 2018, 05:50:01 PM »
Just bought our home for $850k last September with $623k remaining now at 3.875%. It already appreciated $100k, the housing market in the bay area is nuts.

We are going to take our sweet time, that's a lot of debt to pay off lol.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #548 on: April 30, 2018, 12:26:37 PM »
nice welcome -

Going to go on a little rant b/c I'm tired of people giving crappy reasons for why they are paying off their house and why it made sense if they have it paid off.

1. I may have made more investing the last few years but it was just as likely to go down.
2. I have more money to invest now that my house is paid off.
3. I want to avoid a risky situation so i want to take the safer play in paying off my house.
4. It's really just a personal choice i dont need to be optimal.
5. Stock market returns are not guaranteed.
6. Its so much more flexible when you dont have debt.

1. NO no its not just as likely to go down as up or this whole FIRE thing woudnt F*cking work!
2. yeah you do but you dont live in a vacuum of today and missed out on all that other earning while you were paying it down.
3. If you can do it lump sum you lower your risk of unlikely events that you will likely miss (sequence of return and deflation) If you're paying it off with extra over time you're increasing your risk during the paydown period vs investing it does not decrease risk except for total stock market failure (extremely unlikely)
4. you can F*cking say that about anything we face punch people for around here.  Driving a hummer to work is just a personal choice thats suboptimal -but its not as suboptimal as paying down a low fixed rate US mortgage.
5. While they arent guaranteed. If you truly believe this statement and it drives you to pay down a low fixed rate US mortgage than you can NEVER quit working and rely on stocks to support you.  they are completely conflating opinions.
6. how is having 200k - 1MM plus tied up in a fixed hard to sell asset more flexible than having that much money invested in a liquidable equity allocation - the answer - its not
« Last Edit: April 30, 2018, 12:28:18 PM by boarder42 »

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #549 on: April 30, 2018, 02:14:19 PM »
...

Your logical reasoning is just absurd. 
Stop judging me.
Well that might be fine for you but I want o <insert stupid thing here>
etc. etc....

/sarcasm off


On a similar note, is there a formula post somewhere that I can quote on how to calculate the loos-on-return?  Numbers speak to the MMM type much more than words seem to sometimes.