I always like to look a things from all reasonable sides. I've recently decided to pay off my mortgage (don't yell at me). Please forgive me if I've missed this info in earlier posts. At what interest rate would the scale tip the other way for you? Would the likely volatility in the market over the next few years sway you or are you focused mostly on historic long term returns? I was firmly in the invest camp, but my desire to walk away earlier put me in the pay off the mortgage earlier camp.
My situation - I want to the option to not work at all in a couple of years (this might not actually happen). My monthly mortgage payment is just under $1k. I would like to max out Roth conversion ladders in "retirement." My mortgage balance is about $183k. I have access to a $56k HELOC. If I put the full HELOC towards the mortgage and pay it back ASAP, I should be able to pay off the mortgage completely in less than 36 months. The interest rate on the HELOC will be less than the interest rate on the mortgage for the first 12 months. After that the HELOC interest rate will be slightly higher than the rate on the mortgage. Due to the new tax law I will be taking the standard deduction for the foreseeable future. To pay the mortgage I would need $300k in the portfolio to kick off the $12k per year for the mortgage using a 4% SWR. I thought it was a bit of a toss up but the Roth conversion ladder space was my tiebreaker.
Is anyone in this thread on the fence or was investment always a foregone conclusion for you?
I personally have done a 180. Back when I was a young lad, aggressively paid on the mortgage, because that is what you are supposed to do, right? Then my contract position ended very unexpectedly, and I still had the mortgage and not much cash. Non-fun times followed. The more I investigated the pros and cons, I concluded there are almost no pros, and lots of cons. I certainly understand the appeal of no mortgage, but the appeal is mostly an illusion.
RE: The HELOC. You talked about this in the other thread, and I believe you said part of reason for doing this was that you thought it would keep you more motivated. If that's the case, then fair enough. However, since it sounds like you are still thinking about, I'll chime in with my two cents.
Using the HELOC to payoff the mortgage early is also an illusion, and the people who promote it almost always have something they are selling, even if it is only adviews on Youtube. There are two parts that trip people up (not saying this applies to you personally, but in general): Many people think that mortgage interest is front loaded. It is not. You pay more interest in the beginning because you owe more money. And the other part that trips people up up is that they think HELOC interest and mortgage interest are calculated differently. They are calculated exactly the same way. The only difference is how the
payment is calculated.
Bottom line is that you are just moving the interest from the mortgage to the HELOC, and the amount of interest you owe is calculated the same way. The HELOC Gurus claim that you save money overall because interest on the mortgage is "front loaded." But it isn't. The lump sum payment from the HELOC on the mortage, and then paying the HELOC, works out pretty close to, if not actually identical to simply paying extra on the mortgage.
I believe you have lower HELOC interest for the first year, so you might actually get some savings there, but it is only for one year, and you also have fees you have to subtract too, so I suspect you aren't saving very much, if anything, when the smoke clears. Also keep in mind that you are trading long term, low fixed interest debt for variable interest debt. No one expects to get divorced, get sick, or lose their job, but what if that happens? The your the interest on your HELOC very well could go up. Is that safer than simply paying down the mortgage?
To pay the mortgage I would need $300k in the portfolio to kick off the $12k per year for the mortgage using a 4% SWR.
Not quite correct. Remember, the SWR is inflation adjusted (average inflation is 3.5% per year), but your mortgage is fixed. I'm not sure how to easily do the SWR calculation properly for a fixed expense like a mortgage, but in 30 years inflation will cut that $12k a year payment to something more like $5K in today's dollars. As RWD indicates, even with very conservative rates of return you should easily be able to make your mortgage payment indefinitely just by setting aside the mortgage balance, and very likely wind up with a giant pile of money at the end.
Which is another reason not to pay off your mortgage. You are using fully valued dollars today to save puny, inflation ravaged dollars in the future.