Author Topic: DONT Payoff your Mortgage Club  (Read 115544 times)

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #800 on: September 04, 2018, 05:34:12 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

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Of course we are!   We all know that prices will drop -- someday.    And we all wish we knew beforehand when that will be.


Me?  I've been certain it's any day now since 2012...    Lost a lot of potential gains from 2012 to 2013 while I sat on the sidelines.


onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #801 on: September 04, 2018, 07:26:30 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

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Well, seven years is a long time.  Is part of your skepticism that you are getting closer to retirement?  Because that's actually rational.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #802 on: September 04, 2018, 08:36:46 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

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i mean you just said it the market could gain another 30% before a 30% dip no one knows.  and the market goes up more than down so its more likely to continue up.  it could even remain flat or earnings could continue to grow - all of this would start to realign PE ratios.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #803 on: September 04, 2018, 09:13:07 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

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Well, seven years is a long time.  Is part of your skepticism that you are getting closer to retirement?  Because that's actually rational.
We have probably been investing heavily for 5 of those 7 years.  Still have a ways to go to reach FI but our stache has gotten to the point where market fluctuations have more of an impact than contributions due to currently a low savings rate.

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FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #804 on: September 04, 2018, 09:14:47 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

Sent from my moto g(6) using Tapatalk

i mean you just said it the market could gain another 30% before a 30% dip no one knows.  and the market goes up more than down so its more likely to continue up.  it could even remain flat or earnings could continue to grow - all of this would start to realign PE ratios.
Yep, I keep on telling myself this but it's getting hard dumping money into what appears to be an overvalued investment choice.

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K-ice

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Re: DONT Payoff your Mortgage Club
« Reply #805 on: September 05, 2018, 07:56:49 PM »
I’ve read some of this thread but not all yet.

Do you remember when you were that kid in class who didn’t want to ask a stupid question?

Well here goes. This Club only makes sense if you want to invest in the stock market & have the potential of growth larger than 6-7% right?

So would you tell “a friend” who is only comfortable with CDs (GICs) at about 2.5% and maybe a conservative mix like VCNS to “invest” or pay off their 3.5% mortgage?

Thanks.

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #806 on: September 05, 2018, 11:10:13 PM »
I’ve read some of this thread but not all yet.

Do you remember when you were that kid in class who didn’t want to ask a stupid question?

Well here goes. This Club only makes sense if you want to invest in the stock market & have the potential of growth larger than 6-7% right?

So would you tell “a friend” who is only comfortable with CDs (GICs) at about 2.5% and maybe a conservative mix like VCNS to “invest” or pay off their 3.5% mortgage?

Thanks.

Most people would say to pay off the mortgage if you can't get at least 1% better returns (or more, if you get an itemized tax deduction).   The exact cut off has different opinions.

BUT -- maybe that person expects that there is a 50% chance to be out of a job in 5 years and would like some accessible cash just in case?   What is the reason they are so conservative?  Would paying off a mortgage help or hinder whatever is driving their conservative goal / need for security?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #807 on: September 06, 2018, 08:58:45 AM »
Since mortgages are in "nominal" dollars, you need to consider your investment returns nominally as well (inflation is irrelevant). SP500 returned 10.2% average over the last 80-ish years, so that's your benchmark. You may think you have an investment strategy that improves on that, or you may wish to invest with less risk since you have this massive mortgage you're trying to service: check out https://evergreensmallbusiness.com/100-stocks-allocation-suffers-two-big-flaws/ for a discussion of risk versus return.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #808 on: September 06, 2018, 09:32:32 AM »
I’ve read some of this thread but not all yet.

Do you remember when you were that kid in class who didn’t want to ask a stupid question?

Well here goes. This Club only makes sense if you want to invest in the stock market & have the potential of growth larger than 6-7% right?

So would you tell “a friend” who is only comfortable with CDs (GICs) at about 2.5% and maybe a conservative mix like VCNS to “invest” or pay off their 3.5% mortgage?

Thanks.

Most people would say to pay off the mortgage if you can't get at least 1% better returns (or more, if you get an itemized tax deduction).   The exact cut off has different opinions.

BUT -- maybe that person expects that there is a 50% chance to be out of a job in 5 years and would like some accessible cash just in case?   What is the reason they are so conservative?  Would paying off a mortgage help or hinder whatever is driving their conservative goal / need for security?

@K-ice To help visualize this point, the payoff is exponentially good or bad depending on your personal situation and anything in the middle is much more 'meh'.



Basically, anything within 1.5% either way is 'meh' on returns.  Probably not worth the slightly increased risk of paying off -or- inversely keeping the mortgage if you can eliminate in one fell swoop.  In other words, if you expect to have 8%-9% returns on your investments (remember we have to exclude inflation) and your mortgage is 200k at 7.5%- it doesn't make financial sense to make one decision over another.  At that point, if you can completely wipe out your mortgage and have a full emergency fund, it likely makes sense to do so.  If you cannot wipe out the mortgage in one fell swoop, paying extra is more risky than investing (where you can access the cash in an emergency).

However, if you have a 3% mortgage and expect 8% to 9% returns on investment, the factor of exponents comes in to play and all the sudden it makes absolutely no sense to pay off early.  The % variation between the mortgage and investments is so high that you are throwing away money. 

The exact same thing works in reverse.  If you have any loans at all that are more than 1% or 2% above your expected returns (IE high interest debt from credit cards) it absolutely makes no sense to invest.  You are much better off paying off debt.  That works for the mortgage too.  If I had a variable ARM that was looking at going to 9% or so, I would be much more concerned about paying off the mortgage than investing.  That is why there is caution given anytime one of our overseas friends wants to follow one path or another is because ARMs vary by their own nature and one must consider the highest possible average rate for the life of the loan.  In general ARMs don't get towards that 5% variation in rate vs. return because the ARM goes up cutting the differential.

That being said...  There is no reason your 'friend' needs to go above 10% or so of assets in CD's and bonds would be even better, unless your friend is going to retire within a year or two.  End-of-income advice varies greatly in this club and largely depends on the exact rate of the mortgage (see exponential affect above) and safety factors in FIRE.  If you are FIRE'ing with a 3.5% safe withdraw rate, you will get some loss from paying off a 3% mortgage but the withdraw rate is so low that it is hardly likely to cause a failure.  If you are FIRE'ing at 4% and not including a payoff in you after payoff numbers, you are in for a nasty surprise the month after you paid the thing off in full because your withdraw rate will have just gone up drastically.

Long story short, just be willing to do the math to see what path makes more sense.  I am in the 'middle ground' of a 5% mortgage but it still makes WAY more sense to ride out the mortgage than try to agressively pay it off because I'm sitting at a 4% return vs. mortgage rate variation.  If you must have bonds, that 2.5% is so close to the 3.5% mortgage that it is likely 'meh' either way.  Just don't lose assets that might protect you in an emergency....

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #809 on: September 09, 2018, 10:34:42 PM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?


I don't.  The only rational way to view stock investing is to look at the long term potential returns. Next year or five years from now isn't long term. 

Dr.Jeckyl

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Re: DONT Payoff your Mortgage Club
« Reply #810 on: September 11, 2018, 09:34:26 AM »
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

I have a 349k Left on my mortgage and i will be taking that the full 29 years left.  Who's with me!!

3.25% fixed for 30 years

Sometimes I think I'm the only one and that I should be working on paying it down sooner. But to pay more on my house would mean investing less in my retirement accounts and they sure beat 3.5% fixed for the next 28 years.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #811 on: September 11, 2018, 09:50:09 AM »
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

I have a 349k Left on my mortgage and i will be taking that the full 29 years left.  Who's with me!!

3.25% fixed for 30 years

Sometimes I think I'm the only one and that I should be working on paying it down sooner. But to pay more on my house would mean investing less in my retirement accounts and they sure beat 3.5% fixed for the next 28 years.

welcome - there are many around here who have seen the light.

honeyfill

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Re: DONT Payoff your Mortgage Club
« Reply #812 on: September 11, 2018, 10:38:06 AM »
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

I have a 349k Left on my mortgage and i will be taking that the full 29 years left.  Who's with me!!

3.25% fixed for 30 years





Sometimes I think I'm the only one and that I should be working on paying it down sooner. But to pay more on my house would mean investing less in my retirement accounts and they sure beat 3.5% fixed for the next 28 years.




Already retired here.  Mortgage is 28 yrs and 269K at 3.5%.  Mrs HF is 59.  It makes no sense to pay off mortgage in next 6 years because the income needed would put us over the ACA cliff. We will reevaluate in 2024 but I have  a feeling that Govt bonds will be paying more than 3.5% by then.   

redbirdfan

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Re: DONT Payoff your Mortgage Club
« Reply #813 on: September 12, 2018, 02:54:07 PM »
Just finished reading "The Value of Debt in Building Wealth" by Thomas J. Anderson (from the library, of course) and some blog posts on not paying off debt.  It seems clear that the best way to optimize net worth and flexibility is to not pay down low interest fixed-rate debt aggressively.  It's a bit more dangerous to do so when the debt is merely paid down and not paid off.  I get it.  I really think I do.  I just know that I'll always have the knee jerk reaction to want to be out of debt.  I may have to come back to this thread from time to time for moral support.     

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #814 on: September 12, 2018, 04:05:49 PM »
I may have to come back to this thread from time to time for moral support.     
We're here for you! I stopped worrying about our low interest debt a long time ago; probably roughly when we had a year's worth of payments saved up outside of retirement accounts.

terrifictim

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Re: DONT Payoff your Mortgage Club
« Reply #815 on: September 12, 2018, 05:07:24 PM »
Just saying thanks to @boarder42 for helping me see the light. At the time of joining the club (Oct 17) I had $7k in taxable. Since then I've gone up to $30k in taxable while dropping my mortgage $4k. And my FIRE date keeps on getting closer!


After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

Stats:
Purchased (2BR,1.5BA,1100SF) townhouse 05/2015
Purchase price: 289K.
Current market price: 360K
PITI: $1070/month
Initial Mortgage: $231,200 @ 3.75%
Remaining Mortgage: $202,450

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #816 on: September 12, 2018, 08:36:47 PM »
Congratulations. Welcome. Doesn't that cash buffer feel great!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #817 on: September 13, 2018, 06:57:29 AM »
Just finished reading "The Value of Debt in Building Wealth" by Thomas J. Anderson (from the library, of course) and some blog posts on not paying off debt.  It seems clear that the best way to optimize net worth and flexibility is to not pay down low interest fixed-rate debt aggressively.  It's a bit more dangerous to do so when the debt is merely paid down and not paid off.  I get it.  I really think I do.  I just know that I'll always have the knee jerk reaction to want to be out of debt.  I may have to come back to this thread from time to time for moral support.     

It depends on how the cash flow for the debt compares to your income. And it depends on whether the debt is callable. And it depends on your investment strategy being effective enough over time to lap the debt. Debt is risky, but risks are something you can manage with these other things. Glad to have you in the DNPOYM club!

TempusFugit

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Re: DONT Payoff your Mortgage Club
« Reply #818 on: September 13, 2018, 04:57:56 PM »
Did anyone happen across this article today?

https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j

I'm a little confused by some of the examples the author used.  I'm not sure I agree with some of his statements.  I'm sure this crowd can either confirm or refute what he says.   I generally agree on the fact that paying off a low interest mortgage early is sub-optimal, but I think this guy is just wrong on some big particulars.

Specifically, I don't think this is correct:

"For example, assume you have a 30-year mortgage with a monthly payment of $2,000. Your first payment includes about $360 in principal and $1,640 in interest, while the last payment includes about $60 in interest and $1,940 in principal. If you made a double payment of $4,000 (to "save" on interest), all you're saving is $60, and that's 30 years from now. Put another way, it's a return of less than 0.1% per year."

This he bases on an earlier statement (which is not exactly clear):

"Mortgage interest is calculated differently from interest on other items (like credit cards). Essentially, the majority of your first monthly payment is interest, while the last payment is mostly principal. Each regular monthly payment you make applies to the next payment due, and any extra payment applies to the last payment due."

I think that the $1,940 in principal paid early will have a return of (your rate)* ($1940) * (the number of years remaining on your) mortgage (ignoring any inflation or tax related stuff).  That's damn sure more that $60. 




dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #819 on: September 13, 2018, 05:16:31 PM »
TempusFugit -

Point 1 in the article is just really bad math.

Point 2 would be correct, except for the horrendously bad math in point 1 leads to things like "even a money market account at 1% will do better", which obviously isn't true.

Point 3 is correct - fixed payment gets cheaper every year due to inflation.

Point 4 is sort of correct - the selling price shouldn't reflect whether there is a mortgage or not, so the very basic profit relative to the purchase price should be the same. Of course, person with a mortgage has paid interest whereas the person without has not, so we've got incomplete reasoning.

Has the right conclusion - you come out ahead by keeping a low, fixed rate mortgage for as long as possible and investing the rest.

But mostly wrong reasoning to get there and some of the specific stuff that you could take as a recommendation is way off base - money market beats paying down mortgage is the most obvious.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #820 on: September 13, 2018, 05:22:47 PM »
If you have an amortization schedule, you can see how much interest and how much principal is being paid at different times based on the current equity level (how much principal is left to pay down).  So let's say you have 169K to pay down still... My thinking is if you put down, say, an extra 2K in principal on a payment, meaning that there would be 167K left, then you would just then locate the 167K principal amount on the amortization table, and then see how much interest you avoided by putting down the extra money.  Add up all the interest payments between the 169K level and the 167K level.  That's what I would do anyway.  Not sure if it's right or not.
If you do it this way, add up the principal and the interest between 167K and 169K. Take the example in the article as stated - a $2,000 payment at the beginning is $360 of principal and $1640 of interest. You pay an extra $2,000, and rather than having made the last payment and nothing else happening, you jump in the amortization schedule as you've said - about 5-6 months forward ($2,000 / 360). so that's $10K - $12K of payments on the loan you don't have to make.

Ignoring the time-value of money of course.

The conclusion of the article is right - this thread illustrates over and over again how you come out ahead keeping a low fixed rate mortgage compared to paying it down early - but the math used in the article is about as wrong as it could possibly be.
« Last Edit: September 13, 2018, 05:24:47 PM by dandarc »

TempusFugit

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Re: DONT Payoff your Mortgage Club
« Reply #821 on: September 13, 2018, 05:25:27 PM »
I don't think it is bad math so much as he is incorrect about how interest is applied.  Paying $1940 of principal early means you aren't paying 4% or whatever on that $1940 for 29 years.  That's >$2K not $60. 

v8rx7guy

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Re: DONT Payoff your Mortgage Club
« Reply #822 on: September 13, 2018, 05:26:58 PM »
Did anyone happen across this article today?

https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j

I'm a little confused by some of the examples the author used.  I'm not sure I agree with some of his statements.  I'm sure this crowd can either confirm or refute what he says.   I generally agree on the fact that paying off a low interest mortgage early is sub-optimal, but I think this guy is just wrong on some big particulars.

Specifically, I don't think this is correct:

"For example, assume you have a 30-year mortgage with a monthly payment of $2,000. Your first payment includes about $360 in principal and $1,640 in interest, while the last payment includes about $60 in interest and $1,940 in principal. If you made a double payment of $4,000 (to "save" on interest), all you're saving is $60, and that's 30 years from now. Put another way, it's a return of less than 0.1% per year."

This he bases on an earlier statement (which is not exactly clear):

"Mortgage interest is calculated differently from interest on other items (like credit cards). Essentially, the majority of your first monthly payment is interest, while the last payment is mostly principal. Each regular monthly payment you make applies to the next payment due, and any extra payment applies to the last payment due."

I think that the $1,940 in principal paid early will have a return of (your rate)* ($1940) * (the number of years remaining on your) mortgage (ignoring any inflation or tax related stuff).  That's damn sure more that $60.

I read it today and about pulled my hair out.  Very poorly written.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #823 on: September 13, 2018, 05:35:10 PM »
I don't think it is bad math so much as he is incorrect about how interest is applied.  Paying $1940 of principal early means you aren't paying 4% or whatever on that $1940 for 29 years.  That's >$2K not $60.
It is actually quite a bit more than that - more like $10K saved from that one principal payment (compound interest is amazing that way).

ETA: which sounds like a lot, but still pales in comparison to what you're likely to make investing that money in something like VTSAX over the 30 years or so.

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #824 on: September 13, 2018, 07:35:12 PM »
I don't think it is bad math so much as he is incorrect about how interest is applied.  Paying $1940 of principal early means you aren't paying 4% or whatever on that $1940 for 29 years.  That's >$2K not $60.

And that payment is sort of applied to the end,  (because of the equal payments applied until paid in full); but it eliminates the last SEVERAL payments, not just the $60 interest on the final one.  Could shorten your payments by a year or more, depending on how much you pre pay.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #825 on: September 13, 2018, 11:10:59 PM »
Good premise for an article, alas, incredibly poorly researched. This guy may be able to think, but he can't math. Ugh.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #826 on: September 14, 2018, 07:36:55 AM »
If you'd like to think these thoughts but cannot do the math, wolfram alpha makes it so easy. They even show year by year how much principal/interest you're paying. http://www.wolframalpha.com/examples/everyday-life/personal-finance/mortgages-and-loans/

Of course, your mortgage statements also show this. In my case (year 5 of a 30-year, 3.0% mortgage), doubling the payment would triple the amount that goes toward principal.

YevKassem

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Re: DONT Payoff your Mortgage Club
« Reply #827 on: September 24, 2018, 07:24:08 AM »
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #828 on: September 24, 2018, 08:34:41 AM »
If you want something fairly safe, but still have ten years on the mortgage, why not consider the Larry Portfolio? The chances of a draw-down are modest, but the upside is much greater. Set aside 70% in those CD's you're talking about, and put 30% in something like $IJS

https://portfoliocharts.com/portfolio/larry-portfolio/

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #829 on: September 24, 2018, 09:21:02 AM »
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

you'll probably find the thread where people are paying down their mortgages more helpful.  that money should be going into VTSAX or whatever your AA is and make you piles more than changing your AA b/c of your amazingly low mortgage ... Pay it off as slowly as possible and dont skew your AA b/c of it.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #830 on: September 24, 2018, 09:21:46 AM »
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

I don't understand how no mortgage payment means more security. If I had $170k invested and a mortgage payment I would feel much more secure than $0 and no mortgage payment.

The fact that you can get CD rates better than your mortgage just shows how absurd it would be to pay any amount extra on it. As for how to invest your spare dollars you should follow your investment policy statement. If CDs are part of your desired asset allocation then go for it.

meatgrinder

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Re: DONT Payoff your Mortgage Club
« Reply #831 on: September 24, 2018, 10:54:11 AM »
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years.  Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #832 on: September 24, 2018, 10:57:54 AM »
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years.  Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?

yeah somewhere aroun 6-7% depending on what the 10 year yield is

onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #833 on: September 24, 2018, 11:04:55 AM »
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years.  Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?

yeah somewhere aroun 6-7% depending on what the 10 year yield is

OMG boarder42 told me to pay down my HELOC early!

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #834 on: September 24, 2018, 11:10:57 AM »
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years.  Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?

yeah somewhere aroun 6-7% depending on what the 10 year yield is

OMG boarder42 told me to pay down my HELOC early!

if i did i'm sure it depended upon many variables - one of which is HELOCs and mortgages are not the same. - its a math problem i'm not dont pay off your mortgage ever no matter what i'm do the thing that will end you with statistically the best results. 

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #835 on: September 24, 2018, 11:54:52 AM »
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

I don't understand how no mortgage payment means more security. If I had $170k invested and a mortgage payment I would feel much more secure than $0 and no mortgage payment.

The fact that you can get CD rates better than your mortgage just shows how absurd it would be to pay any amount extra on it. As for how to invest your spare dollars you should follow your investment policy statement. If CDs are part of your desired asset allocation then go for it.
No one is saying only pay off a morgage.  Obviously one should not only invest in one thing, whether stocks, debt payment or rental real estate in a single area unless they want to take that risk level.  If you already have 2M in stocks, are 60 yrs old and carry a 200k morgage, would your advice change?

Again, this is not saying carrying debt when you are accumulating to invest more is not awsome for wealth building, just to stimulate thinking.

I agree. That's why I suggest creating a general investment policy statement to follow instead of always evaluating how to invest with every new dollar.

If I had $2 million in stocks at 60 years old with a $200k fixed rate mortgage at 2.5% (or 4% or whatever reasonable number) I would still make the minimum payment. There would have to be some large incentive not to (maybe a tax cliff or something).

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #836 on: September 25, 2018, 12:37:40 AM »
If I had $2 million in stocks at 60 years old with a $200k fixed rate mortgage at 2.5% (or 4% or whatever reasonable number) I would still make the minimum payment. There would have to be some large incentive not to (maybe a tax cliff or something).
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talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #837 on: September 25, 2018, 06:57:05 AM »
If you have $2,000,000 liquid, do whatever you want. I won't pretend that my humble thoughts about mortgages or accumulation will teach you anything!

If I had significantly more than that--say $5 million--I wouldn't even own. Would just rent. Want to change that wall? Just move to a place where it's already changed!

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #838 on: September 25, 2018, 02:15:44 PM »
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

If you can answer this -- then you will be close to your answer...

Why would paying it off provide you with "..security of having no mortgage payment" versus owning a CD?

The percentage differences in your question are small enough that the numerical answer is not as important as figuring out why a paid off home is more secure to your situation than a CD.

Simplefunlife

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Re: DONT Payoff your Mortgage Club
« Reply #839 on: October 02, 2018, 12:29:32 PM »
I'd like to join the club!

I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k.  I've only paid the required payment ever since I refinanced at the end of 2014. 

When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero.  I get the math when it comes to mortgage rates so I'm not going to pay it off early.  However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.

letsdoit

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Re: DONT Payoff your Mortgage Club
« Reply #840 on: October 02, 2018, 12:32:59 PM »
I'd like to join the club!

I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k.  I've only paid the required payment ever since I refinanced at the end of 2014. 

When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero.  I get the math when it comes to mortgage rates so I'm not going to pay it off early.  However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.

you could make a graph of P or equity

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #841 on: October 02, 2018, 12:58:32 PM »
I'd like to join the club!

I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k.  I've only paid the required payment ever since I refinanced at the end of 2014. 

When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero.  I get the math when it comes to mortgage rates so I'm not going to pay it off early.  However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.

There's a thread where a few people are working on exceeding their debt in their taxable brokerage accounts. Though obviously you should be using tax advantaged space (IRAs, 401k, 403b, etc.) as much as possible first.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/

I track our net worth, but mostly I get excited about keeping our expenses low (also tracked).

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #842 on: October 02, 2018, 12:59:57 PM »
However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.

Everyone is motivated by different things, but what helps me is monitoring my retirement/investment balances frequently when markets are smoking, and infrequently when they're lagging.  :)

And I think it's a great idea to plot your investments (and expected future investment balances) versus your mortgage balance to see where they cross!

Simplefunlife

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Re: DONT Payoff your Mortgage Club
« Reply #843 on: October 02, 2018, 01:42:28 PM »

There's a thread where a few people are working on exceeding their debt in their taxable brokerage accounts. Though obviously you should be using tax advantaged space (IRAs, 401k, 403b, etc.) as much as possible first.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/

I track our net worth, but mostly I get excited about keeping our expenses low (also tracked).

Thanks I may start tracking that and joining that thread.  So far I've just been maxing out 401K, HSA, IRA, Dependent care spending account, and 10% after tax 401k (max allowed) for mega backdoor roth.  Starting in the next few months I should have some extra money after expenses to throw into a taxable brokerage account.  Unless someone knows of some other tax advantaged space : )

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #844 on: October 02, 2018, 02:44:19 PM »
I track the dividend income from my investments versus the interest on my mortgage.

K-ice

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Re: DONT Payoff your Mortgage Club
« Reply #845 on: October 04, 2018, 09:29:33 AM »
I track the dividend income from my investments versus the interest on my mortgage.

This sounds like a good idea. 

I'm not the best member of this club but in one investment account the amount it makes on its own will exceed the regular payment I put in this past year. That is exciting.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #846 on: October 04, 2018, 10:07:07 AM »
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.

I cannot explain what an amazingly powerful feeling it is, but if you try it, you're statistically likely to have the same result. It's amazing how many of life's problems disappear, and how many doors are opened, when you have a huge pile of investments to optimize your time on this planet.

It is important to note that I was single, never a high wage earner, always lived in a HCOLA, and was never able to save the majority of my salary or anywhere near that. Keeping a mortgage and investing steadily got me over the finish line. This shit works, it really, really works! I know I'm mostly preaching to the choir here, but you never know what open-minded souls are reading this thread, willing to learn a concept that is often misunderstood, if it's considered at all.

When I first heard of the idea of NOT prepaying a mortgage, I was an unwilling pupil, and skeptical to the hilt. I am so grateful to the two people in my life who kept teaching until I was willing to learn. My life is amazing now, due to their persistence and willingness to keep at it until I finally got it. Hanging around here and continuing to post on this topic is my way of paying it forward.

Obligatory disclaimer: The above refers to affordable, long term, fixed rate, (mostly) tax deductible mortgages, primarily in the US. If you live somewhere else, I cannot speak to your situation. Please do your own due dilligence.


Lews Therin

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Re: DONT Payoff your Mortgage Club
« Reply #847 on: October 04, 2018, 10:12:08 AM »
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.

Feels like that person slightly oversaved if their gains are higher than the total they need to retire...

K-ice

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Re: DONT Payoff your Mortgage Club
« Reply #848 on: October 04, 2018, 11:07:55 AM »
I track the dividend income from my investments versus the interest on my mortgage.

Done! 2018 to date

Interest 2181 < Dividends 2620.

Cool, I'm on the right track.  Both are very small but it is nice to see I<D.


PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #849 on: October 04, 2018, 11:32:54 AM »
I guess I'll join this club.

Every few months, I start thinking about what ifs regarding our financial life, and of course a big one of those is "what if I didn't have the mortgage expense anymore", but I always snap back to reality and realize that having a mortgage was and is one of the keys to our current financial success plus living how we want to live right now.

Does anyone here try to determine what an optimal mortgage balance is for them, and then try to maintain that in some way, either by refinancing every few years or using interest only loans, etc.?

I'm in a little different situation than many on this board, our financials would look more Boglehead-ish. We originally had a mortgage of 698k at 5%, we then refinanced in 2015 with cashout to increase the balance to 840k at 3.5% (used proceeds to pay off student loans that we couldn't deduct and that had rates of just over 4%, and then also invested about 50k in an aftertax account). We are now down to a balance of 762k (we prepay a small amount extra each month just to round up the payment, the extra probably represented less than 5% of what we save each month), and while we are maybe 1/3 to 1/2 of the way to hitting our FIRE number, I am trying to internally gauge what the ideal balance would be for me.

I've kinda always ballparked that comfortable number around 500k, which would mean doing nothing for the next 7 years (we have a 10/1, so that will be a decision point) as we'll still be above 500k. But I do toy with the idea of getting our payment down a little by refinancing again on this smaller amount while resetting the 30y clock, or even going the interest-only route. We _probably_ won't move for another 12 years (youngest is in kindergarten), although I do constantly feeling the siren call of upgrading to a nicer place in the neighborhood.