Author Topic: DONT Payoff your Mortgage Club  (Read 110900 times)

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #900 on: October 16, 2018, 11:13:18 AM »
@RWD -- can you elaborate, 6.3% returns are "bad"  ?  Is that annual return or return over all 94 months?  Why "Bad"?

It's bad for nominal annual returns over 30 years as 90% of the time they have been higher. For a 94 month period 2.442% annual returns would be bad (again, worst 10 percentile). I used "bad" because it was short and fit nicely in the table...
Ah, thanks.   I see where my misunderstanding occurred.  I always use the nominal rates NET of inflation, so I can compare everything in today's dollars... and 6.3% over 94 months NET OF INFLATION is not bad at all.  :-)

I think you or another person already pointed out the impact of inflation, and how to adjust the final numbers to take it into account.. ..a mortgage is paid off in FUTURE dollars, at a $ amount decided today, but the dollars themselves are worth less and less due to inflation over time... which is why a mortgage has another advantage to keeping it for a long time.

I used nominal for these calculations because I didn't want to guess at what inflation would be and it simplifies the calculations. But it should be fine either way. Calculate using nominal returns and the actual mortgage interest rate or using real returns and mortgage interest minus inflation.

The SP500 has beaten 6.3% nominal returns about 65% of the time for a 94 month period. The period I was calculating for though was the 30 year mark, which is what gives the 90% success rate. If the house was sold at the 94 month mark then 6.3% returns would not be good enough to come out ahead. You would need 7.5%+ nominal returns to come out ahead after 94 months. This has happened about 55% of the time in the past.

Yes, the longer you can keep a mortgage the less expensive it gets due to inflation.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #901 on: October 17, 2018, 07:24:09 AM »
This is so good, I just had to share it here. Thanks, @Telecaster, this is brilliant! B42 would heartily approve.

My thought of saving the money in investments until I have enough to pay it off in is that I would have more liquid available in case of job loss or other emergency. Just paying extra on the mortgage every month does get me the guaranteed return, but obviously is not at all liquid.

I'm thinking about putting half toward the mortgage for the guaranteed return and the other half in taxable.

Anybody have thoughts on this? Invest then pay off in lump sum vs. extra principal payments with guaranteed 4.65% returns?

A couple thoughts. First--and this seems subtle, but it really isn't--is that you don't get a guaranteed "return" by paying down the mortgage. What you are really getting is a future savings. If you were getting an actual return, then you could become richer than Bill Gates by paying off your 23% credit card every month. As a matter of shorthand, everyone says "return" and I often do too, but it is important to understand the difference.

Second, you are making the calculation wrong. You have to compare apples to apples. Nominal stock market returns are about 10%. If you are going to adjust for inflation down to 7%, then you also need to adjust your mortgage cost down to about 1.5%. Is a 1.5% "return" even worth your time? As you correctly point out, in case of a job loss or other calamity (hate to use the word divorce, but divorces happen), the money is locked up in your house where it is expensive and difficult to access. And again, you are locking up your money indefinitely for 1.5.%. But even with the very conservative stock market returns you are using, you are still coming out a million bucks ahead. That's real money.   Even if it is only half a million bucks ahead, that's still real money. 

Imagine if it wasn't a mortgage, it was some other investment. We'll call it private shares in the Deadward Bones Company. Here's the FAQ:

Q:  How long does it take for my shares to become fully vested in Deadward Bones?

A:  30 years. But if you pay extra, you get a bonus return of 4.5%. 

Q:  Bonus return? Sounds great! What is the standard return during that time?

A:  Nothing. 

Q:  But once I'm vested, it pays dividends, right?

A:  No. You get nothing, other than you don't have continue making payments. 

Q:  You mean, once I'm fully vested those shares generate no return? 

A:  Correct.   

Q:  What if I want or need part of the money I've invested?   

A:  Too bad. You can't get your money back unless you sell the entire investment and there are very high costs and commissions that go along with that. However, you might be able to borrow against it. But no guarantees on that one.   

Q:  What if I can't make the payments before I'm fully vested? Like say in the event of disability or job loss? 

A:  We seize your assets, including most or even all of the extra payments you've made. You are guaranteed of getting nothing, and you might even owe us. That only thing that is is guaranteed is that this happens you will pay us enormous fees. 

Q:  Really? You'd kick a guy when he's down like that?

A:  Damn straight. 

Q:  This sounds like the stupidest fucking investment I've ever heard of! What kind of lunatic would even consider something so obviously nutso?

A:  You'd be surprised.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #902 on: October 17, 2018, 08:46:16 AM »
The logic about maintaining a mortgage balance is fundamentally correct, but I disliked the Bill-Gates argument.

Financial life is about perceiving a basket of different investments and allocating cash flow toward them. Some of these do involve settling debt from a short position...you can earn that guaranteed 23% return on the $580 balance on that credit card, but it's simply not available for that 581st dollar. (this group is where the mortgage belongs)

Some of these involve taking the long position, bearing no risk and getting a lower return: you can put whatever money you wish--up to what you have--into that savings account and earn a risk free rate of 2%. Or you can lend some of it to your cousin, who promises you 10% interest for the next month, but you also know your cousin is unreliable.

Or, you can invest it in the stock market into any of a number of investments.

You're not going to become the next Warren Buffet by lending money to unreliable cousins chasing double-digit percentage returns.

PizzaSteve

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Re: DONT Payoff your Mortgage Club
« Reply #903 on: October 17, 2018, 11:19:49 AM »
This is so good, I just had to share it here. Thanks, @Telecaster, this is brilliant! B42 would heartily approve.

My thought of saving the money in investments until I have enough to pay it off in is that I would have more liquid available in case of job loss or other emergency. Just paying extra on the mortgage every month does get me the guaranteed return, but obviously is not at all liquid.

I'm thinking about putting half toward the mortgage for the guaranteed return and the other half in taxable.

Anybody have thoughts on this? Invest then pay off in lump sum vs. extra principal payments with guaranteed 4.65% returns?

A couple thoughts. First--and this seems subtle, but it really isn't--is that you don't get a guaranteed "return" by paying down the mortgage. What you are really getting is a future savings. If you were getting an actual return, then you could become richer than Bill Gates by paying off your 23% credit card every month. As a matter of shorthand, everyone says "return" and I often do too, but it is important to understand the difference.

Second, you are making the calculation wrong. You have to compare apples to apples. Nominal stock market returns are about 10%. If you are going to adjust for inflation down to 7%, then you also need to adjust your mortgage cost down to about 1.5%. Is a 1.5% "return" even worth your time? As you correctly point out, in case of a job loss or other calamity (hate to use the word divorce, but divorces happen), the money is locked up in your house where it is expensive and difficult to access. And again, you are locking up your money indefinitely for 1.5.%. But even with the very conservative stock market returns you are using, you are still coming out a million bucks ahead. That's real money.   Even if it is only half a million bucks ahead, that's still real money. 

Imagine if it wasn't a mortgage, it was some other investment. We'll call it private shares in the Deadward Bones Company. Here's the FAQ:

Q:  How long does it take for my shares to become fully vested in Deadward Bones?

A:  30 years. But if you pay extra, you get a bonus return of 4.5%. 

Q:  Bonus return? Sounds great! What is the standard return during that time?

A:  Nothing. 

Q:  But once I'm vested, it pays dividends, right?

A:  No. You get nothing, other than you don't have continue making payments. 

Q:  You mean, once I'm fully vested those shares generate no return? 

A:  Correct.   

Q:  What if I want or need part of the money I've invested?   

A:  Too bad. You can't get your money back unless you sell the entire investment and there are very high costs and commissions that go along with that. However, you might be able to borrow against it. But no guarantees on that one.   

Q:  What if I can't make the payments before I'm fully vested? Like say in the event of disability or job loss? 

A:  We seize your assets, including most or even all of the extra payments you've made. You are guaranteed of getting nothing, and you might even owe us. That only thing that is is guaranteed is that this happens you will pay us enormous fees. 

Q:  Really? You'd kick a guy when he's down like that?

A:  Damn straight. 

Q:  This sounds like the stupidest fucking investment I've ever heard of! What kind of lunatic would even consider something so obviously nutso?

A:  You'd be surprised.
Yes, it ticks all the B42 boxes.

1) Weird logical false strawman attacking using the term guaranteed return aimed at the impact of paying down debt (of course you take a 23% interest savings over investing in stocks, some people even take CD returns over stocks, with good reasons).
2) Exaggerated future market returns built into benefits (10% year on year)
3) Implication that market returns are guaranteed better in long run (without apparent awareness of the irony after attacking the guaranted thing on prepayment)
4) Use of swear words (f bombs, which Dicey seems to think add something to the dialog)
5) Insulting others who are here to discuss the topic by calling a reasoned decision to pay down a mortgage 'stupid' and any person who does that a 'lunatic' even in the face of the many, many reasoned posts explaining why, due to local market, emotional or sequence of returns wise, it can be good to do.   Also, for those not accumulating and over the target, it is just the right thing to do according to all the experts, unless you advise increasing consumption instead, which is counter to all MMM values.

I agree it is worthy of that banned poster.  Only needs a puppet account to post agreement with himself,....well close.
« Last Edit: October 17, 2018, 11:21:57 AM by PizzaSteve »

v8rx7guy

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Re: DONT Payoff your Mortgage Club
« Reply #904 on: October 17, 2018, 12:43:41 PM »
A home does pay dividends, in a sense, though.  It provides you a place to live - something you'd have to pay for otherwise.  Don't get me wrong, I agree that a home is not an investment and that it make more sense to invest rather than pay down your mortgage if the rate is low.  But to completely ignore the value of being able to live in the house during those 30 years is short sighted.  Maybe a better example for the imaginary conversation above would be investing in a Organic Farm that provides food throughout the year while your are reaching full vesting.  Sure it's not a monetary dividend, but it does provide something of value during the years that you'd have to pay for otherwise.  I might be wrong, but it seems strange to completely ignore the functional value of buying a house...

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #905 on: October 17, 2018, 02:54:53 PM »
A home does pay dividends, in a sense, though.  It provides you a place to live - something you'd have to pay for otherwise.  Don't get me wrong, I agree that a home is not an investment and that it make more sense to invest rather than pay down your mortgage if the rate is low.  But to completely ignore the value of being able to live in the house during those 30 years is short sighted.  Maybe a better example for the imaginary conversation above would be investing in a Organic Farm that provides food throughout the year while your are reaching full vesting.  Sure it's not a monetary dividend, but it does provide something of value during the years that you'd have to pay for otherwise.  I might be wrong, but it seems strange to completely ignore the functional value of buying a house...

Not quite, because you still have a place to live regardless if you pay down the mortgage or not, and therefore you capture the imputed value of rent no matter what.   Now, if you are deciding whether to rent or buy, then you definitely need to consider the cost of rent.  But in this case, we're assuming that we already bought and we deciding to pay down the mortgage or not.

Regardless, my point is that if you didn't call a mortgage a "mortgage" but called it "cattle futures" or some other thing with all the same characteristics of a mortgage*, people would universally view it as a poor investment.   And it is a poor investment.  The upside is small, barely above inflation, yet requires a long time horizon and the investment is illquid, expensive to access, and no guarantees you even can access it.  Why would you choose an investment like that?  There are a host of much more attractive options.  The answer is people have emotional attachments to their house (nothing wrong with that, I have an emotional attachment to mine), and that blinds them from thinking about the financial aspects. 


*Standard disclaimers apply:  A long-term mortgage at today's low interest rates. 

v8rx7guy

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Re: DONT Payoff your Mortgage Club
« Reply #906 on: October 17, 2018, 05:24:48 PM »
A home does pay dividends, in a sense, though.  It provides you a place to live - something you'd have to pay for otherwise.  Don't get me wrong, I agree that a home is not an investment and that it make more sense to invest rather than pay down your mortgage if the rate is low.  But to completely ignore the value of being able to live in the house during those 30 years is short sighted.  Maybe a better example for the imaginary conversation above would be investing in a Organic Farm that provides food throughout the year while your are reaching full vesting.  Sure it's not a monetary dividend, but it does provide something of value during the years that you'd have to pay for otherwise.  I might be wrong, but it seems strange to completely ignore the functional value of buying a house...

Not quite, because you still have a place to live regardless if you pay down the mortgage or not, and therefore you capture the imputed value of rent no matter what.   Now, if you are deciding whether to rent or buy, then you definitely need to consider the cost of rent.  But in this case, we're assuming that we already bought and we deciding to pay down the mortgage or not.

Regardless, my point is that if you didn't call a mortgage a "mortgage" but called it "cattle futures" or some other thing with all the same characteristics of a mortgage*, people would universally view it as a poor investment.   And it is a poor investment.  The upside is small, barely above inflation, yet requires a long time horizon and the investment is illquid, expensive to access, and no guarantees you even can access it.  Why would you choose an investment like that?  There are a host of much more attractive options.  The answer is people have emotional attachments to their house (nothing wrong with that, I have an emotional attachment to mine), and that blinds them from thinking about the financial aspects. 


*Standard disclaimers apply:  A long-term mortgage at today's low interest rates.

This is where I have the problem with your story:

"Q:  But once I'm vested, it pays dividends, right?

A:  No. You get nothing, other than you don't have continue making payments.

Q:  You mean, once I'm fully vested those shares generate no return?

A:  Correct.   "

Being "fully vested" in your example (paid off house) does begin to pay "dividends" (a place to live with no mortgage).  You're making paying off your home early sound worse than it actually is (agreed, it is less than ideal though) by putting no value on the home when it is mortgage-free (saying there are no dividends / return).

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #907 on: October 17, 2018, 06:44:41 PM »
4) Use of swear words (f bombs, which Dicey seems to think add something to the dialog)
There is so much meat on this bone. It's going to be tough to choose where to begin. Let's try #4, shall we?

MMM on Twitter:
"I love how the anti-swearing crowd feels it is their public duty to email me daily and suggest I edit out all profanity. VERY HELPFUL"

MMM on, well, his very own blog:
"Iím really sorry to have to say this, but this blog is a hobby and not a corporation. So in order to stay motivated to write, I have to write in the way that I enjoy writing. And I just happen to find this shit funny. If itís any consolation, I donít actually think I am even remotely badass in real life, so you can imagine a mild-mannered computer engineer doing the typing, rather than a Smug Asshat, whatever that looks like. And as a consolation to me, plenty of people seem to be reading all this smug asshatty profanity, so Iíd say itís a sign I should continue writing this way."

And then there's this classic:
http://www.mrmoneymustache.com/2012/06/21/i-just-gave-up-4000-per-month-to-keep-my-freedom-of-speech/

Yeah, I think @Telecaster is coloring well within the MMM lines here, and yes, I loved their post, profanity and all, which is why I quoted it, PizzaSteve. Please feel free to write whatever you want on your own blog.


YoungGranny

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Re: DONT Payoff your Mortgage Club
« Reply #908 on: October 18, 2018, 08:12:28 AM »
It's been about a year since I've firmly joined the DPYMC folks and before then I must admit I was paying it down. However I just got an email for redemption! My lender is willing to recast my loan back to the original maturity date with a lower monthly payment. +1 for being able to course correct and pay $150 less on my mortgage each month =D

onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #909 on: October 18, 2018, 08:25:23 AM »
It's been about a year since I've firmly joined the DPYMC folks and before then I must admit I was paying it down. However I just got an email for redemption! My lender is willing to recast my loan back to the original maturity date with a lower monthly payment. +1 for being able to course correct and pay $150 less on my mortgage each month =D

That's interesting (and great for you!).  Do you think they're just trying to shore up their long-term financials?  Take advantage of this interest rate environment?

YoungGranny

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Re: DONT Payoff your Mortgage Club
« Reply #910 on: October 18, 2018, 08:38:59 AM »
Not really sure why they're doing it. It's great for me to lock in at my 3.25% interest rate - it seems like it'd be better for them if I did a refinance at a new, higher interest rate.

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #911 on: October 18, 2018, 10:00:15 AM »
Not really sure why they're doing it. It's great for me to lock in at my 3.25% interest rate - it seems like it'd be better for them if I did a refinance at a new, higher interest rate.

This is somewhat baffling because today's rates are up around 5% (for 30 year fixed refi at any rate), so I don't see why the re-cast is in the lender's interest in this case.  They must really want to keep you as a customer for some reason!  Was there any fee associated with the re-cast offer?  Do you mind sharing which lender you're using?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #912 on: October 18, 2018, 10:39:55 AM »
It's been about a year since I've firmly joined the DPYMC folks and before then I must admit I was paying it down. However I just got an email for redemption! My lender is willing to recast my loan back to the original maturity date with a lower monthly payment. +1 for being able to course correct and pay $150 less on my mortgage each month =D
OMG, do it before they change their minds!

YoungGranny

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Re: DONT Payoff your Mortgage Club
« Reply #913 on: October 19, 2018, 10:45:20 AM »
Not really sure why they're doing it. It's great for me to lock in at my 3.25% interest rate - it seems like it'd be better for them if I did a refinance at a new, higher interest rate.

This is somewhat baffling because today's rates are up around 5% (for 30 year fixed refi at any rate), so I don't see why the re-cast is in the lender's interest in this case.  They must really want to keep you as a customer for some reason!  Was there any fee associated with the re-cast offer?  Do you mind sharing which lender you're using?

My loan was sold to Chase about a year ago so they're the ones offering the recast. Perhaps it's because I'm a relatively safe client? Credit score over 800, loan balance is equal to roughly half of my households annual salary. That's the only reason I can think they want to do it but I'm totally spit-balling here because it still doesn't make sense to me. It will be free for me to get the recast since my account is in "good standing" and will apply for Dec 1 payment!

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #914 on: October 19, 2018, 11:02:36 AM »
My loan was sold to Chase about a year ago so they're the ones offering the recast. Perhaps it's because I'm a relatively safe client? Credit score over 800, loan balance is equal to roughly half of my households annual salary. That's the only reason I can think they want to do it but I'm totally spit-balling here because it still doesn't make sense to me. It will be free for me to get the recast since my account is in "good standing" and will apply for Dec 1 payment!

Free recast -- that's fantastic!  So strange that they're just offering it to you out of the blue, but (assuming the fine print checks out) that sounds like an awesome opportunity for you come full circle in your mortgage paydown => stop paydown => invest instead journey.  Congrats.  :)

Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #915 on: October 19, 2018, 12:26:21 PM »
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #916 on: October 19, 2018, 12:30:55 PM »

...

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #917 on: October 19, 2018, 12:33:22 PM »
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.

@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #918 on: October 19, 2018, 12:36:16 PM »

v8rx7guy

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Re: DONT Payoff your Mortgage Club
« Reply #919 on: October 19, 2018, 12:43:52 PM »
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.

@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

You two do realize that having an significant e-fund is also not mathematically optimal?  Right?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #920 on: October 19, 2018, 01:03:00 PM »
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.

@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

You two do realize that having an significant e-fund is also not mathematically optimal?  Right?
Right! But that depends on where you put your EF money. Agreed that under the mattress and passbook savings are terrible options. Losing your home because you have no EF is worse.

You do realize that having no EF, prepaying a cheap-ass, fixed rate mortgage, and not getting your employer's full match is worse still. Right?

Can you believe there are people who do this and still believe they're being mustachian? And they're not getting facepunched??

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #921 on: October 19, 2018, 01:16:58 PM »
The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

I'm not here to argue in favor of paydown -- it's clearly the wrong thread for that.  :)  I'm just offering my congratulations to those who are making headway in their non-paydown strategy.  I think it's super cool that Youngranny found a strategy that works for her, and the unexpected recast opportunity is some pretty sweet icing on the cake.

And I definitely agree that understanding the trade-offs is really important.  In a sense we're paying off our mortgage from an ivory tower; already (barebones) FI, maxing out pre-tax accounts, relatively small mortgage compared to income/nest egg, taxable account balance exceeds mortgage balance, etc.  I wouldn't necessarily recommend our strategy for someone in different circumstances.

One minor quibble: it's possible (very unlikely over longer timelines, if history turns out to be a decent guide) that a paydown strategy will be optimal.  But that won't be known until some time in the future, since it depends on future market returns, inflation, tax laws, etc.  Having said that, I sure as heck hope SP500 returns beat the snot out of my 4.25% mortgage going forward, since the market is where the vast majority of our net worth is stashed!

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #922 on: October 19, 2018, 01:23:49 PM »
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.

@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

You two do realize that having an significant e-fund is also not mathematically optimal?  Right?
Right! But that depends on where you put your EF money. Agreed that under the mattress and passbook savings are terrible options. Losing your home because you have no EF is worse.

You do realize that having no EF, prepaying a cheap-ass, fixed rate mortgage, and not getting your employer's full match is worse still. Right?

Can you believe there are people who do this and still believe they're being mustachian? And they're not getting facepunched??

My 6-Month rolling timeline of CD's at 2.4% is accesible in an emergency...  My 30k+ in equity is not accessible at all.  Having a 6 month to 1 year E-fund is not perfectly optimal but is insurance.  However, paying early into a mortgage doesn't net any of those benefits.

Also, people with 2 to 3 year EM Funds need facepunching too, unless they are already FIRE and do not include the cash in there 4% rule calcs.  But even still, early paydown on a low fixed-rate mortgage is worse...  thats how bad it is.

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #923 on: October 19, 2018, 01:25:07 PM »
@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

That's a good point!  We've had the same lender for many years, and the recast policy/fee hasn't changed in those years.  Obviously not a guarantee that it will continue in the future, but since we've reached barebones FI, and our taxable account exceeds our mortgage balance, we're feeling pretty relaxed about the whole thing.  If they unexpectedly offered us a free recast I'd jump on it just to save the $100 -- lowering the P&I from $1,700 to $500 would just be a fun side effect  :D

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #924 on: October 19, 2018, 01:28:39 PM »
You two do realize that having an significant e-fund is also not mathematically optimal?  Right?

Hey, don't drag me into this -- most of our EF is in our Roth IRAs invested in index funds!

rpr

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Tax deferral benefits Re: DONT Payoff your Mortgage Club
« Reply #925 on: October 19, 2018, 09:11:19 PM »
For a US married couple above 50 with both working, the amount of tax deferred space next year will be $64 K (assuming a 401K and IRA for each). If said couple were in a 30% bracket (including federal + state), the savings are $19.2K. That is a pretty hefty chunk of change. For a couple below 50, the tax savings are  ~$15K.

Basically, for every $1K that you prepay the mortgage instead of maxing your tax deferred space, you are forfeiting an immediate tax savings of $300. Once this tax deferred space is lost it is likely to be gone forever.
 
In ER assuming lower income, setup a Roth Ladder and slowly convert the money in lower (no) tax brackets to harvest the savings.

It is so totally worth it to be in the DPYMC (especially if you are in the US and not maxing your tax deferred space). 

rpr

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Re: DONT Payoff your Mortgage Club
« Reply #926 on: October 19, 2018, 09:18:20 PM »


Haha! I would suggest this for post of the day but it would probably be too incendiary.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #927 on: October 19, 2018, 11:20:10 PM »
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!

Luckily, that is not the "Best Post..." thread, so you are certainly welcome to post it there, @rpr. It's certainly worthy of wider distribution and always, always, always, further discussion.

PizzaSteve

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Re: DONT Payoff your Mortgage Club
« Reply #928 on: October 20, 2018, 11:20:23 AM »
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!

Luckily, that is not the "Best Post..." thread, so you are certainly welcome to post it there, @rpr. It's certainly worthy of wider distribution and always, always, always, further discussion.
This is a complete misscharacterization of the debate, with maximum spin.  No one objected to the illustration that keeping a morgage to leverage investments could deliver a better long term return.

We objected to

1) Calling someone stupid or idiots if they chose not to pursue that strategy
2) Implying that these better returns are guaranteed due to 'math', rather than the historically the case based on back testing.
3) Endlessly trolling any post stating a different opinion.  Repeating points 2 and 3, over and over again.  Because anyone who didnt agree with holding fixed rate debt for long leverage needed to be yelled at, cussing at, etc., even in threads where peolee were not seeking this 'advice,' like a case study.
« Last Edit: October 21, 2018, 06:07:52 PM by PizzaSteve »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #929 on: October 21, 2018, 08:43:11 AM »
I was not responding to you, but I do find it mildly interesting that you are so sure that "no one objected to"...anything.  How can you possibly know that? Talk about "maximum spin". Also not clear who "we" is.

You are forgetting that Boarder42 started this thread, perhaps?

You and I are never going to see eye to eye, so let's just agree not to agree, m'kay? I'm sure we can both live happy, productive lives with no further interaction.

.

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #930 on: October 21, 2018, 12:25:18 PM »
I had a stray thought about mortgage payoff.  One that I do not recall being addressed.

Because I live in the land of 5 year terms, we essentially need to shop for a mortgage every 5 years.

When I was in the USA I was a bit shocked at first, at the upfront costs to get into a mortgage, and "buying points" costs for mortgages.   Here, the costs are all back end loaded, so it can be nearly free upfront, but with a huge penalty if you end your mortgage before 5 years are up.

Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?   I have owned / lived in 4 different locations, plus a rental location, since I first became a home owner 23 years ago. 


  If new mortgage origination costs are incurred by selling every 7 years, or 3x over a 30 year investment horizon.... how much of an impact/ drag does it put into the equation.

For someone with a "pay off" mentality:
I would assume that loan origination costs are needed at the start, then are quite small for the first move after 7 years, (e.g., 1/2) because half the mortgage is gone.   The next 2 moves would then have zero loan origination costs because there is no loan.

For the person keeping the mortgage to invest, they would have added loan origination costs after 7 years, 17 years, 27 years, for each move.

How big of an impact to the "keep mortgage" math is it to someone moving every 7 to 10 years?

For most, I agree that maximizing one's mortgage and investments typically pays off.  -- this is my genuine question, not an attempt to negate the theme of this thread.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #931 on: October 21, 2018, 12:48:31 PM »
I had a stray thought about mortgage payoff.  One that I do not recall being addressed.

Because I live in the land of 5 year terms, we essentially need to shop for a mortgage every 5 years.

When I was in the USA I was a bit shocked at first, at the upfront costs to get into a mortgage, and "buying points" costs for mortgages.   Here, the costs are all back end loaded, so it can be nearly free upfront, but with a huge penalty if you end your mortgage before 5 years are up.

Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?   I have owned / lived in 4 different locations, plus a rental location, since I first became a home owner 23 years ago. 


  If new mortgage origination costs are incurred by selling every 7 years, or 3x over a 30 year investment horizon.... how much of an impact/ drag does it put into the equation.

For someone with a "pay off" mentality:
I would assume that loan origination costs are needed at the start, then are quite small for the first move after 7 years, (e.g., 1/2) because half the mortgage is gone.   The next 2 moves would then have zero loan origination costs because there is no loan.

For the person keeping the mortgage to invest, they would have added loan origination costs after 7 years, 17 years, 27 years, for each move.

How big of an impact to the "keep mortgage" math is it to someone moving every 7 to 10 years?

For most, I agree that maximizing one's mortgage and investments typically pays off.  -- this is my genuine question, not an attempt to negate the theme of this thread.

You should evaluate on a case by case basis and not as a general rule. For each new mortgage you should estimate how long you plan to keep the property and weigh that against the expected investment returns for the same period.

As for origination costs if you are renewing your mortgage on a regular basis then you should roll that into your interest calculation. If you have the choice of buying a house outright or financing then you should include the origination costs as part of your interest rate as well. But after you already have a mortgage those costs are sunk and you should compare investing to the ongoing interest rate.

Even for the "pay off" crowd there are still plenty of costs associated with buying/selling property once they get to the point of being able to buy a house without financing. It cost us roughly 6.7% of the selling price to sell our last house. When we bought our current house we paid $500 in mortgage origination fees and $1600 in title and other fees. So not getting a mortgage would have saved us a whopping 0.2% of the purchase price. So I think mortgage origination fees are pretty inconsequential.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #932 on: October 21, 2018, 01:56:37 PM »
Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?   


I think it's the wrong question motivated by the right idea. :)


If someone is moving very often, they should be asking themselves if they should be buying a house AT ALL.   It's not the mortage fees that get you (if you're decent at shopping around), it's the real estate commissions.



Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #933 on: October 21, 2018, 07:31:43 PM »
RWD -- Thanks,  I am not up to date on the US origination fees (amount for a given size of mortgage)... It makes a lot of sense that they might represent up to 0.5%, but at the end of the day, evaluate the decision based on the rolled up mortgage rate, versus the invest decision.

This is the kind of "math" question that pops into my head at night...   I love to mentally test financial frameworks that I believe in to see how risk or other "drags' would affect them.   Usually the impact is minor, but I have been very surprised.

SwordGuy -- to true!   That is why I indicated 7 to 10 years, and not 4 ot 7 years.  :-)   


I think that the math pays out to keep your mortgage.   

The primary reason to pay it down / off, is not actually because the math is better, long term, but because of cash flow impacts.    As long as income is rolling in, it is easy to be comfortable with the mortgage.

I find in FIRE that YES, I could draw more capital out of investments to pay down the mortgage rate... but... my nature is that I MUCH prefer to not touch my investments monthly, and to keep the cash flow outlays small.  A large mortgage (mine is currently over $2k per month) does not mesh well with low cash flow / ability to be agile with investment withdrawals.

    It is easier for me  to make a large, once a year decision of how much to draw, and when, than it is to draw from investments when they dip....  So, I am uncomfortable with the large mortgage, but so far I have chosen to keep it because of MATH.




Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #934 on: October 21, 2018, 08:11:12 PM »


Let me fix that:

Mustachians: "We have the choice between a low fixed-rate mortgage and equities that are currently very expensive from a historical viewpoint. We know that if we pay off the mortgage instead of investing, we are no longer looking at 30-year timelines but much shorter ones where fixed-rate investments can blow equities out of the water. We also have various other reasons why choosing the fixed return can help eliminate left-tail risk under certain circumstances. What do we do?"

Boarder42: "You are all fucking idiots for not accepting my naive worldview that there is absolutely no risk related to investing in equities. You deserve a facepunch and stripping of all Mustachian honors because it's obvious that historical returns predict future performance."

The Moderator, while throwing B42 out the window: "If you continue to be an asshole after numerous reasonable comments to the contrary, good riddance. And payoff is not a verb, assclown!"

[MOD NOTE: Please don't misquote us, especially with insults.  We would be violating our own rules if we communicated with users in that fashion.]
« Last Edit: October 22, 2018, 06:42:14 AM by FrugalToque »

Radagast

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Re: DONT Payoff your Mortgage Club
« Reply #935 on: October 21, 2018, 08:37:53 PM »
I had a stray thought about mortgage payoff.  One that I do not recall being addressed.

Because I live in the land of 5 year terms, we essentially need to shop for a mortgage every 5 years.

When I was in the USA I was a bit shocked at first, at the upfront costs to get into a mortgage, and "buying points" costs for mortgages.   Here, the costs are all back end loaded, so it can be nearly free upfront, but with a huge penalty if you end your mortgage before 5 years are up.

Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?   I have owned / lived in 4 different locations, plus a rental location, since I first became a home owner 23 years ago. 


  If new mortgage origination costs are incurred by selling every 7 years, or 3x over a 30 year investment horizon.... how much of an impact/ drag does it put into the equation.

For someone with a "pay off" mentality:
I would assume that loan origination costs are needed at the start, then are quite small for the first move after 7 years, (e.g., 1/2) because half the mortgage is gone.   The next 2 moves would then have zero loan origination costs because there is no loan.

For the person keeping the mortgage to invest, they would have added loan origination costs after 7 years, 17 years, 27 years, for each move.

How big of an impact to the "keep mortgage" math is it to someone moving every 7 to 10 years?

For most, I agree that maximizing one's mortgage and investments typically pays off.  -- this is my genuine question, not an attempt to negate the theme of this thread.
The first step would be to make your best guesses at the information required to fill out https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html and see if buying made sense. Owning a house can introduce anchoring bias into your decisions, making them take a turn for the worse. Also they really do take time and work to sell.

After that, I agree that the US posters on the forum often make too much fuss about a 30 year mortgage. The average American moves about once every 9 years, and interest rates are usually better at the shorter end. Lots of people, who have already decided that buying is better than renting, should strongly consider a 5/1, 5/5, 7/1, or 10/1 adjustable rate mortgage unless they think this is truly their forever house, which is where they will reside for decades come hell or high water. I regret such a long mortgage on my house, shoulda used one of the ARM's I listed. I'd likely end with thousands more, unless things break just right.

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #936 on: October 21, 2018, 11:01:54 PM »
That 30 year mortgage is pretty cool, however, if you intend to carry a mortgage into FIRE -- no more requalifying with a now-low income!

Bateaux

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Re: DONT Payoff your Mortgage Club
« Reply #937 on: October 21, 2018, 11:56:52 PM »
I'm going to accept the math of not paying off producing a bigger stash in the end.  B42 beat that into me last year.   But, I still think I'm going to pay the SOB off before FIRE.  The stash is 10 times what is owed on the mortgage.  I just don't want the hassle of owing money.  Especially since I've pretty much decided to wait for 2020 anyhow. 

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #938 on: October 22, 2018, 07:26:54 AM »
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.

If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #939 on: October 22, 2018, 08:54:49 AM »
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.

If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.

Agreed. If one can get an after-tax risk-free return greater than the mortgage rate, one should absolutely never pay down the mortgage. But that's not the current case. The current choice involves risky equities versus low-interest bonds versus mortgage "bonds" with a duration equal to the amortization payoff schedule (and of course numerous other investment possibilities). The winner in this picture will only be clear after the fact.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #940 on: October 22, 2018, 10:22:25 AM »
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.

If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.

Agreed. If one can get an after-tax risk-free return greater than the mortgage rate, one should absolutely never pay down the mortgage. But that's not the current case. The current choice involves risky equities versus low-interest bonds versus mortgage "bonds" with a duration equal to the amortization payoff schedule (and of course numerous other investment possibilities). The winner in this picture will only be clear after the fact.

Equities are not risky across 30 year timespans.  That is a fact.

If you believe they are, then you cannot FIRE until you have a stash of <years expecting to live> x <annual spending> saved, which is WAY higher than the 4% rule.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #941 on: October 22, 2018, 10:42:08 AM »
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.

If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.

Agreed. If one can get an after-tax risk-free return greater than the mortgage rate, one should absolutely never pay down the mortgage. But that's not the current case. The current choice involves risky equities versus low-interest bonds versus mortgage "bonds" with a duration equal to the amortization payoff schedule (and of course numerous other investment possibilities). The winner in this picture will only be clear after the fact.

Equities are not risky across 30 year timespans.  That is a fact.

If you believe they are, then you cannot FIRE until you have a stash of <years expecting to live> x <annual spending> saved, which is WAY higher than the 4% rule.

And mortgages do not have a 30-year duration if one is paying it off early. That is also a fact. Therefore, one needs to look at the appropriate timespan when performing a true comparison.

OurTown

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Re: DONT Payoff your Mortgage Club
« Reply #942 on: October 22, 2018, 01:36:10 PM »
I'm going to accept the math of not paying off producing a bigger stash in the end.  B42 beat that into me last year.   But, I still think I'm going to pay the SOB off before FIRE.  The stash is 10 times what is owed on the mortgage.  I just don't want the hassle of owing money.  Especially since I've pretty much decided to wait for 2020 anyhow.

I won't "get there" for a few years, so it's still kind of academic at this point.  But let's say I arrive at my number, for purposes of argument $1M.  Then let's say I save up an additional amount that is equivalent to the outstanding mortgage balance at that time, say $75k for example.  Let's further assume I have about five years left to go on the mortgage at that point and I'm booking along at 3 1/8 percent.  The arbitrage is, of course, make the mortgage payments as they come along and invest the 75k.  Here's the deal:  at a short time horizon (five years or less) it's not necessarily a sure thing that my investment will beat the interest rates.  It's more likely than not, but it's not a sure thing.  At that point it might be simpler to just pay the sucker off and go on with life.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #943 on: October 22, 2018, 01:52:00 PM »
I'm going to accept the math of not paying off producing a bigger stash in the end.  B42 beat that into me last year.   But, I still think I'm going to pay the SOB off before FIRE.  The stash is 10 times what is owed on the mortgage.  I just don't want the hassle of owing money.  Especially since I've pretty much decided to wait for 2020 anyhow.

I won't "get there" for a few years, so it's still kind of academic at this point.  But let's say I arrive at my number, for purposes of argument $1M.  Then let's say I save up an additional amount that is equivalent to the outstanding mortgage balance at that time, say $75k for example.  Let's further assume I have about five years left to go on the mortgage at that point and I'm booking along at 3 1/8 percent.  The arbitrage is, of course, make the mortgage payments as they come along and invest the 75k.  Here's the deal:  at a short time horizon (five years or less) it's not necessarily a sure thing that my investment will beat the interest rates.  It's more likely than not, but it's not a sure thing.  At that point it might be simpler to just pay the sucker off and go on with life.

The SP500 has historically returned 4.65% or better 70% of the time over 5 year periods. Nothing is a sure thing in investing. We have had plenty of periods in US history where inflation has exceeded 3.125%. In those time periods the return on investment of paying down this mortgage would be negative in real terms.

I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #944 on: October 22, 2018, 03:49:58 PM »
I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.

Yup.  This isn't the problem.  The problem is people not maxing out their tax-differed accounts or saving aggressively and instead paying down an extremely safe, low rate debt.

If someone is FIRE and wants to blast the mortgage, especially with significantly less time remaining, more power to them.  But doing so early in your FIRE savings timeline will hurt you by years- even more so if you don't max out your buckets....

Radagast

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Re: DONT Payoff your Mortgage Club
« Reply #945 on: October 22, 2018, 08:06:56 PM »
I'm going to accept the math of not paying off producing a bigger stash in the end.  B42 beat that into me last year.   But, I still think I'm going to pay the SOB off before FIRE.  The stash is 10 times what is owed on the mortgage.  I just don't want the hassle of owing money.  Especially since I've pretty much decided to wait for 2020 anyhow.

I won't "get there" for a few years, so it's still kind of academic at this point.  But let's say I arrive at my number, for purposes of argument $1M.  Then let's say I save up an additional amount that is equivalent to the outstanding mortgage balance at that time, say $75k for example.  Let's further assume I have about five years left to go on the mortgage at that point and I'm booking along at 3 1/8 percent.  The arbitrage is, of course, make the mortgage payments as they come along and invest the 75k.  Here's the deal:  at a short time horizon (five years or less) it's not necessarily a sure thing that my investment will beat the interest rates.  It's more likely than not, but it's not a sure thing.  At that point it might be simpler to just pay the sucker off and go on with life.

The SP500 has historically returned 4.65% or better 70% of the time over 5 year periods. Nothing is a sure thing in investing. We have had plenty of periods in US history where inflation has exceeded 3.125%. In those time periods the return on investment of paying down this mortgage would be negative in real terms.

I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #946 on: October 23, 2018, 08:13:00 AM »
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.

I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company.  But I am curious what makes that a significant burden.

In our case we would have our home insurance payments auto-deducted from our checking account once or twice a year, just like our car insurance.  And we would write a property tax check twice a year.  Comparing that to 12 auto-deducted mortgage payments, plus the annual ritual of escrow analysis and writing a lump sum check or changing the monthly payment amounts going forward?  I don't see a clear advantage to either approach.

I actually look forward to getting rid of tax/insurance escrow.  When tax/insurance is handled in escrow through the mortgage company, I don't even really think about the amounts -- they just get lost in the monthly payment.  If we handled it ourselves, I would probably scrutinize the insurance portion more carefully and perhaps be motivated to shop for a better deal.  Not only that, but it's annoying that the mortgage company gets to hold thousands of our dollars in escrow for months with a pathetic interest rate.  At our current property tax / savings account rates, we're giving up about $120/year.  As rates (and taxes!) keep ticking up, that number keeps climbing.

RWD

  • Magnum Stache
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Re: DONT Payoff your Mortgage Club
« Reply #947 on: October 23, 2018, 08:17:04 AM »
I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
Having the taxes and insurance all rolled into one monthly payment is certainly convenient. I once owned a small amount of land outright (was a gift) and paying taxes on it was a nightmare. The county kept mailing paperwork to the wrong address and since it was so infrequent I would forget that I should be expecting said paperwork. I got hit with lots of late penalties on that. I'm pretty sure I paid more than 10% of the value of the property in late fees alone...

letsdoit

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Re: DONT Payoff your Mortgage Club
« Reply #948 on: October 23, 2018, 11:20:13 AM »
many ppl make mistake of buying too much house.  but it's an easy trap to fall into , espec in HCOL
does anyone have any threasds or info about ascertaining how much house is too much?