Author Topic: Mortgage Payoff Club!!  (Read 233237 times)

cdub

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Mortgage Payoff Club!!
« on: March 26, 2013, 10:53:47 PM »
I started a quest to pay off my mortgage! I even created a blog to document my journey.

http://mortgage-payoff-club.com/

Who's with me?

Paying off our mortgages would certainly be badass. (I hope you enjoy the blog too)

Join the Mortgage Payoff Club:
http://mortgagepayoff.club/

cdub

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Re: Mortgage Payoff Club!!
« Reply #1 on: March 28, 2013, 10:06:52 AM »
I just added a new page to the blog where people can commit to pay off their mortgage early:

http://mortgage-payoff-club.com/2013/03/28/join-the-mortgage-payoff-club/

I hope you enjoy the site!
Join the Mortgage Payoff Club:
http://mortgagepayoff.club/

Emerald

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Re: Mortgage Payoff Club!!
« Reply #2 on: March 28, 2013, 12:39:26 PM »
Thanks, I'll check it out.

makincaid

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Re: Mortgage Payoff Club!!
« Reply #3 on: March 29, 2013, 05:38:56 AM »
I wish I could join, but I paid off my mortgage two years ago : )

Mr Mark

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Re: Mortgage Payoff Club!!
« Reply #4 on: March 29, 2013, 09:35:30 PM »
Sorry, but unless you have a monstrously large stash, I think this is a poor investment decision. Borrow at 3.5% fixed for 30years. Put the overpayments into the sp500, et al.
Mr. Mark

tomsang

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Re: Mortgage Payoff Club!!
« Reply #5 on: March 29, 2013, 10:35:31 PM »
I believe you are hurting your financial balance sheet. If you said let's refinance and increase our mortgage to the highest level possible because the silly government is giving away free money at 3.5% for 30 years or 2.75% for 15 years I might be excited. If you can't beat 3.5% over 30 years then your safe withdrawal rate would probably be 1% and more tied to your lifespan vs. investment returns.

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Re: Mortgage Payoff Club!!
« Reply #6 on: March 29, 2013, 11:49:36 PM »
mr mark & tomsang, the average return on my overall IRA investment portfolio is around 5%. So after taxes & other misc. fees deducted... the return be close to the 3.5% home loan. So either way it's pretty close. Unless you manage to ideally have a higher investment return rate of 10% then I could see holding on to the loan.

The only minor benefit I can think of to still hold a mortgage is the write off for mortgage interest paid.

tomsang

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Re: Mortgage Payoff Club!!
« Reply #7 on: March 30, 2013, 08:31:23 AM »
mr mark & tomsang, the average return on my overall IRA investment portfolio is around 5%. So after taxes & other misc. fees deducted... the return be close to the 3.5% home loan. So either way it's pretty close. Unless you manage to ideally have a higher investment return rate of 10% then I could see holding on to the loan.

The only minor benefit I can think of to still hold a mortgage is the write off for mortgage interest paid.


So you are saying that during one of the worst recessions of all time that you earned 5% on your investment. That is 1.5% better than your return on paying down a 3.5% mortgage. If you do the math you will see that 1.5% additional yield would make a huge difference to your net worth and financial stability over the next 30 years. A 30 or 15 year fixed mortgage is an unbelievable hedge against inflation and is a gift from the government. Look at those from Australia. They are paying 6% for their 10 year fixed. My point is don't get hung up on the Dave Ramsey and other mantras that debt is bad. If you are Mustachian than debt can be safer and more lucrative than assets when the government is pumping up the economy with free money. By the way my portfolio over the past 10 years has averaged 8.2% in plain vanilla Trowe Price funds. So you may want to analyze why you are getting 5%.

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Re: Mortgage Payoff Club!!
« Reply #8 on: March 31, 2013, 12:05:55 AM »
Tomsang, I verified the exact Vanguard Target Retirement 2045 Fund VTIVX 5 year return  is 4.99%.

So you recommend instead of paying off extra money on principle of the home, to invest it instead?

By the way Troweprice expense ratio is 3x the amount Vanguard charges and their 2045 fund performed .10% better. Pretty sure I'm the winner here =0)
« Last Edit: March 31, 2013, 12:09:27 AM by Dianas Report »

tomsang

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Re: Mortgage Payoff Club!!
« Reply #9 on: March 31, 2013, 08:17:31 AM »
Tomsang, I verified the exact Vanguard Target Retirement 2045 Fund VTIVX 5 year return  is 4.99%.

So you recommend instead of paying off extra money on principle of the home, to invest it instead?

By the way Troweprice expense ratio is 3x the amount Vanguard charges and their 2045 fund performed .10% better. Pretty sure I'm the winner here =0)


Thank you for proving my point.  In the worst recession ever, paying off your mortgage cost you 1.5%. I also think you should be looking at long term investments not short term, which would show investments earning 8%+as my post indicated.  So you would be losing 4.5% yield which would be a huge blow to your net worth.

I did find it interesting looking at the 10 year returns of the various funds. It looks like the vast majority of the equity investments outperformed a 3.5% mortgage return. If you get a a 15 year mortgage you are looking at needing to beat a 2.75% return.

Again if you can't beat the mortgage rates right now, then most people are significantly in trouble as the Safe Withdrawal Rates would be around 1% and more closely tied to life expectancy.  From reading your other posts you are concerned about inflation. A 30 year mortgage at 3.5% is probably the best hedge for inflation that you can find.

Here is a link to the Vanguard performance by fund.
https://personal.vanguard.com/us/FundsByName

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Re: Mortgage Payoff Club!!
« Reply #10 on: April 01, 2013, 12:07:35 AM »
tomsang, I could see what your saying does seem like valid advice.

Let's say you max out your IRA's & TSP for the year. You have a little over, so you would invest the rest? even though you pay the capital gains tax and not put that into your principle? It just doesn't seem right, since paying off my mortgage early saves me over $200,000 in interest.

According to Washington Post, Capital Gains Tax will increase from 15% to possibly 25%. Not pleasant news to us investors.



tomsang

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Re: Mortgage Payoff Club!!
« Reply #11 on: April 01, 2013, 04:30:26 PM »
It just doesn't seem right, since paying off my mortgage early saves me over $200,000 in interest.
According to Washington Post, Capital Gains Tax will increase from 15% to possibly 25%. Not pleasant news to us investors.[/color]

Paying off your mortgage may "Save You $200,000 in mortgage interest", but the bigger issue is how much does it costs you in "Portfolio Gain".

If you have a $600,000 mortgage and pay it off over 30 years at 3.5% mortgage rate, then you will pay approximately $370,000 in interest over the 30 years.  If you choose to make an additional $1,500 per month mortgage payment, then you will cut the 30 year mortgage down to 188 month mortgage and you will pay approximately $178,000 in interest.

So by making an additional $1,500 payment per month, you "save" $192,000 in interest.  Close to your $200,000 savings that you mentioned.

So how does $1,500 per month going to your mortgage cost your portfolio over time?

That depends on what return you have over a 188 month/close to 15.5 year time frame.

Starting with 0, your portfolio would grow to the following at the following yields:

11% = $746,000     
10% = $677,000
 9% = $615,000
 8% = $560,000
 7% = $510,000
 6% = $466,000
 5% = $427,000
 4% = $391,000
3.5% = $367,000

In 188 months your mortgage would be 0 if you made extra payments of $1,500  per month or it would be $367,000 if you paid $0 extra. 

188 payments of $1,500 = $282,000 of capital

So the taxes would be calculated based on the return - $282,000.  IE 11% = $746,000-$282,000 = $464,000 gain.  25% of the gain = 25% of $464,000 = $116,000 of taxes if you cashed them all in at once.  You would probably manage taxes better.  $746,000 - $116,000 = $630,000.  Subtract off the mortgage that you still have of $367,000 and you have a benefit of $263,000.

After your tax rate of 25%, the results would be as follows:

11% = $263,000
10% = $211,000
 9% = $165,000
 8% = $124,000
 7% = $86,000
 6% = $53,000
 5% = $24,000
 4% = $-3,250
3.5% = -21,250

This is calculated at a very high capital gain rate of 25%, and not managing any taxes.  Just cashing out in 188 months, and many other assumptions that don't make sense.  The biggest one is all the current tax benefits that you get by itemizing your taxes and claiming your home mortgage deduction. 

Using the current 15% tax rate would result in:

11% = $309,000
10% = $251,000
 9% =$198,000
 8%  = $151,000
 7% = $109,000
 6% = $71,000
 5% = $38,000
 4% = $7,650
3.5% = $12,750 

Again with managing your realization of the gains you should be able to bring down taxes even further and again this does not take into the benefits of having the home mortgage deduction on your tax return while you are still paying high tax rates while you are working.

So over a period of 30 years, if you can get anything above 4% you are better off keeping your 3.5% mortgage as long as possible.

I am confident that I can get above 4%, if I can't then I would probably be earning a 0% return after inflation.  If we have that then our Safe Withdrawal Rate would be close to 1% which would cause significant issues to everyone.  A 30 year fixed rate mortgage is a great hedge against inflation.  The Government is giving those who take it free money to jumpstart the economy.  Those who pay it down faster than required are foregoing the government's gift to homeowners.     

Tyler

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Re: Mortgage Payoff Club!!
« Reply #12 on: April 01, 2013, 05:29:51 PM »
C'mon guys.  Let's apply some perspective here. 

It doesn't matter if keeping a mortgage and investing the balance can make you more money over the long haul.  Paying off a mortgage, if that's what someone wants to do, is an awesome accomplishment and deserves praise rather than criticism. 

Save the face punches for people who really need them!  I'm borderline on dishing out a few for being so focused on maximizing returns that we neglect to value and recognize tremendous savings accomplishments. 
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cdub

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Re: Mortgage Payoff Club!!
« Reply #13 on: April 01, 2013, 10:44:35 PM »
Being free from payments is the goal. As far as "The only minor benefit I can think of to still hold a mortgage is the write off for mortgage interest paid." - doesn't make sense to pay $10 to the bank to get $3 back from the government.

I'll just be able to stop paying that $10 to the bank and keep my money.
Join the Mortgage Payoff Club:
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Re: Mortgage Payoff Club!!
« Reply #14 on: April 02, 2013, 12:30:51 AM »
tomsang, I enjoy looking through all the calculations. Thank you. You helped me to see that I can certainly win bigger in the long term by investing the difference. "the bigger issue is how much does it costs you in "Portfolio Gain".

Tyler, for me it does matter "if keeping a mortgage and investing the balance can make you more money over the long haul." LOL Save the face punches for people who really need them! I don't think anyone was doing that here =>

Cdub, true, we must all do what is right in our individual cases. I can totally relate to what your saying... it would feel better to rest my head down at night knowing I don't have a Humongous mortgage waiting to be paid off.

LizzyBee

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Re: Mortgage Payoff Club!!
« Reply #15 on: April 12, 2013, 08:55:01 PM »
Cdub, congrats on the goal. I am struggling with the choice between investing and paying down the mortgage. I know, as people have stated, that it makes more sense to invest, but there's something really mentally freeing about getting rid of debt.

jrhampt

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Re: Mortgage Payoff Club!!
« Reply #16 on: April 13, 2013, 07:01:51 AM »
C'mon guys.  Let's apply some perspective here. 

It doesn't matter if keeping a mortgage and investing the balance can make you more money over the long haul.  Paying off a mortgage, if that's what someone wants to do, is an awesome accomplishment and deserves praise rather than criticism. 

Save the face punches for people who really need them!  I'm borderline on dishing out a few for being so focused on maximizing returns that we neglect to value and recognize tremendous savings accomplishments.

Agreed.  It's a win-win situation, basically.  You can argue between better and best, but it's all good.

Mazzinator

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Re: Mortgage Payoff Club!!
« Reply #17 on: April 15, 2013, 02:13:45 PM »
Quote
In 188 months your mortgage would be 0 if you made extra payments of $1,500  per month or it would be $367,000 if you paid $0 extra. 

And after 188 months you would be "saving" about $2000-$3000/month by not having a mortgage payment..plus the extra $1500/month extra you were paying.. Shouldn't that count for something???
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tomsang

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Re: Mortgage Payoff Club!!
« Reply #18 on: April 15, 2013, 10:44:26 PM »
Quote
In 188 months your mortgage would be 0 if you made extra payments of $1,500  per month or it would be $367,000 if you paid $0 extra. 

And after 188 months you would be "saving" about $2000-$3000/month by not having a mortgage payment..plus the extra $1500/month extra you were paying.. Shouldn't that count for something???

No, because the math already takes this into account. If your portfolio was averaging greater than 3.5%, then your portfolio would be so big that you could liquidate a part of it, pay off the mortgage and have a sizable chunk left over. In an early chart I show the net benefit at various investment returns. At 8% you would be ahead by $151,000. If you can earn more than 3.5% then you are better off keeping the mortgage. If you can't earn 3.5%, then your safe withdrawal rate would be 1% or less based on age as you most likely will not be exceeding inflation.

I understand the psychological effect of paying down the mortgage, but mathematically it is a worse answer if you can hit 4% or more in your portfolio.

The government is giving away free money to jump start the economy. This is a once in the lifetime event. Those who pay it down faster are giving back the free money. If the choices are pay down the mortgage or blow your money, then obviously pay down the mortgage. If you are disciplined then invest in Vanguard and statistically you will be ahead.

tomsang

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Re: Mortgage Payoff Club!!
« Reply #19 on: April 15, 2013, 10:58:38 PM »
Being free from payments is the goal. As far as "The only minor benefit I can think of to still hold a mortgage is the write off for mortgage interest paid." - doesn't make sense to pay $10 to the bank to get $3 back from the government.

I'll just be able to stop paying that $10 to the bank and keep my money.

For me, the goal is to become financially independent. How I manage my balance sheet gets me closer or farther away.  With interest rates at all time lows, giving up 7-10% to save 3.5% doesn't make much sense. Again if it helps you from blowing money, then it makes sense to paydown the mortgage. If you can set up a Vanguard account, transfer money into it on a monthly basis, and invest it achieving 3.5% or better you will be in a financially better off position. This will help you achieve financial independence quicker.

expatartist

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Re: Mortgage Payoff Club!!
« Reply #20 on: April 15, 2013, 11:08:27 PM »
Very interesting thread! Something we'll consider in a few years when looking at mortgages -- but the world will be a different time/place then, and we won't be in the US.

We've never had a mortgage, just own a small holiday home that we rent out, paid for it in cash ($10,000) and renovations in cash too. It's a work in progress...

chatsc

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Re: Mortgage Payoff Club!!
« Reply #21 on: April 16, 2013, 06:05:41 AM »
I like the idea of paying off my mortgage.  I live in Canada, so we cannot claim the interest.  I realize that some people feel that investing is a better plan, but I think the mental aspect of it all is under rated.  I love the idea of owing my properties, free and clear.  Can you imagine....

I am not in a position to start adding significant extra money to my mortgage yet, but in a couple of years, when all the kiddies are in school full days, then it will be on....

tomsang

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Re: Mortgage Payoff Club!!
« Reply #22 on: April 16, 2013, 08:03:28 AM »
I like the idea of paying off my mortgage.  I live in Canada, so we cannot claim the interest.  I realize that some people feel that investing is a better plan, but I think the mental aspect of it all is under rated.  I love the idea of owing my properties, free and clear.  Can you imagine....

I am not in a position to start adding significant extra money to my mortgage yet, but in a couple of years, when all the kiddies are in school full days, then it will be on....

In the US you never own your property. You always have to pay real estate taxes. If you don't pay your real estate taxes the government takes away your property. Also in the US, the government is trying to pump up the economy so they are keeping interest rates artificially low. I know this is not the case in Australia. The math done above does not take into account any benefits of deducting your mortgage interest for tax purposes, so the answer would be the same in Canada or anywhere else that has low interest rates. In fact the math above used artificially high capital gains rates, so it would be a worst case scenario. It would be hard to have capital gains rates this high unless your post retirement income was $150,000++. As I stated upfront, investing or paying off debt is good. I just see a lot of people focusing on debt, when they potentially would be better off investing at these artificially low mortgage rates. A long term mortgage is a great hedge. If you think the future will have inflation, then a long term mortgage is a huge asset. If you think that we are entering a stage of deflation then it is not an asset and owning a home outright would also be a bad answer. You should rent in a deflationary environment. It is in the US government's best interest to create an inflationary environment. How much is the question?

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Re: Mortgage Payoff Club!!
« Reply #23 on: April 16, 2013, 08:06:57 AM »
We just refinanced (last week) to 30yr @ 3.5%. Funny enough, our "extra" money at the end of each month (minus 401k/IRA/529 contributions) is about $1500, like the examples above.

We've agonized over the numbers and the potential psychological feeling of paying off the mortgage.  Fact is, coming out of this terrible recession is an even bigger long-term buying opportunity for the stock market, even before considering the fact that the stock market historically outperforms that 3.5% rate.   We've been making monthly deposits to our Vanguard brokerage account for the past 2 years, no regrets.
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Mazzinator

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Re: Mortgage Payoff Club!!
« Reply #24 on: April 17, 2013, 02:05:20 PM »
Quote
Quote from: MrMurphy on April 15, 2013, 02:13:45 pm
Quote
In 188 months your mortgage would be 0 if you made extra payments of $1,500  per month or it would be $367,000 if you paid $0 extra.

And after 188 months you would be "saving" about $2000-$3000/month by not having a mortgage payment..plus the extra $1500/month extra you were paying.. Shouldn't that count for something???

No, because the math already takes this into account. If your portfolio was averaging greater than 3.5%, then your portfolio would be so big that you could liquidate a part of it, pay off the mortgage and have a sizable chunk left over. In an early chart I show the net benefit at various investment returns. At 8% you would be ahead by $151,000. If you can earn more than 3.5% then you are better off keeping the mortgage. If you can't earn 3.5%, then your safe withdrawal rate would be 1% or less based on age as you most likely will not be exceeding inflation.

I understand the psychological effect of paying down the mortgage, but mathematically it is a worse answer if you can hit 4% or more in your portfolio.

The government is giving away free money to jump start the economy. This is a once in the lifetime event. Those who pay it down faster are giving back the free money. If the choices are pay down the mortgage or blow your money, then obviously pay down the mortgage. If you are disciplined then invest in Vanguard and statistically you will be ahead.

Oh, Ok, i get it, because 188months is 15.5 yrs.. So, if you then invested the $3,500 for 14.5yrs after paying it off (total 30yrs) you'd still be ahead of investing $1500 for 30yr.. because that is the argument/misconception is that after it's paid off you'll have $xx extra to invest/catch up.

Is there a time frame, say if you could payit off in 2 yrs or 5yrs vs 15.5.. Would that make a diff?? Or does the interest rate make a diff?

I'm not trying to be an ass, i'm just trying to learn. I don't have a mortgage but big student loans.

Or you can see my situation here:
http://www.mrmoneymustache.com/forum/ask-a-mustachian/should-we-change-sl-repayment-plans/

I'd love any advice!!
"This is the life I chose or rather the life that chose me." - Jay-Z

Accidental Miser

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Re: Mortgage Payoff Club!!
« Reply #25 on: April 17, 2013, 03:21:04 PM »
Anyone asking themselves whether or not to pay off their $367000 mortgage may be asking themselves the wrong question. 

The first question they should probably ask is "WHY ON EARTH DO I HAVE A $367000 DOLLAR MORTGAGE?"  The follow-up should be "Where can I buy a less expensive house that still meets my needs?"

OK, now that I've gotten that out of my system, I'll simply say that people who want to pay off their mortgages early do so more for psychological reasons than fiscal reasons.

In my case, one of my "Must Do" items before Early Retirement is to have my (small, reasonably priced) home paid for.  That way, if the bear comes and takes all my porridge, I can still live comfortably working whatever job I can find and I don't have to worry about living in my car or moving.

peterpatch

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Re: Mortgage Payoff Club!!
« Reply #26 on: April 17, 2013, 04:07:57 PM »
With such a low interest rate I would be very careful about this gauntlet. Mortgages in the US are fixed , tax deductible (from what I understand) and low interest right now. Also in some states you can walk away from the debt and they can only take your home as collateral. Someone also mentioned the inflation hedge which is also important if and when there is a lot of inflation you still only owe the fixed interest rate. Inflation transfers wealth to high debt-to-equity people from low debt-equity people.

If this were high interest credit card, student loan or bank debt I would be all for it due to the higher interest rates and risk involved in trying to invest at higher rates to offset the interest. But in this case I would take a look at some very safe investments to see if you can't find something that would provide higher yield then the mortgage interest.

 


marty998

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Re: Mortgage Payoff Club!!
« Reply #27 on: April 17, 2013, 05:46:43 PM »
With such a low interest rate I would be very careful about this gauntlet. Mortgages in the US are fixed , tax deductible (from what I understand) and low interest right now. Also in some states you can walk away from the debt and they can only take your home as collateral. Someone also mentioned the inflation hedge which is also important if and when there is a lot of inflation you still only owe the fixed interest rate. Inflation transfers wealth to high debt-to-equity people from low debt-equity people.


And there you have it...the causes of the financial mess we are currently in.

1) fixed interest rates*** which don't allow banks to reprice risk when market circumstances change, forcing them to take out trillions of swaps and derivatives to adjust the earnings on their loan books when their variable rate liability interest rates reset. (Note swaps and derivatives are not bad per se, it's the counterparty risk and interconnected nature of the system that is the problem)
2) tax deduction causes a distortion of the market which favours over-leveraging
3) low interest rates also favour over-leveraging
4) the option for borrowers in default to walk away from their obligations.

But I digress.

We have comparatively higher interest rates here, and I for one am comfortable with paying down my mortgage as fast as possible. I own an asset that is going up in value, that will be CGT free on sale, and I get a tax free guaranteed "return" of 5.39% before tax by paying it off.

***The problem I highlighted in (1) is actually far more complicated, and includes such bullshit accounting treatments involving booking revenue up front on 30 yr loans, not adequately pricing for default, securitisation and transfer of risk without appropriate price etc etc etc...oh I could go on forever.

marty998

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Re: Mortgage Payoff Club!!
« Reply #28 on: April 17, 2013, 05:56:58 PM »
Anyone asking themselves whether or not to pay off their $367000 mortgage may be asking themselves the wrong question. 

The first question they should probably ask is "WHY ON EARTH DO I HAVE A $367000 DOLLAR MORTGAGE?"  The follow-up should be "Where can I buy a less expensive house that still meets my needs?"


I actually find that statement quite funny. Mine is not that large, but many residents of the harbour city can only dream of getting their mortgage down to that level :) Horse has bolted here, nobody wants a falling property market just so mortgages become smaller on new purchases.

I think the real problem is many people don't understand that the 30 yr mortgage doesn't have to be 30 yrs. paying 1 or 2 hundred a month more than the min can knock 10 yrs off easy. Simple maths.

Regarding the above arguments on investing instead of paying the mortgage...Yes you could invest the difference and make more but thats the beauty of choice. We're all entitled to make our own.

cdub

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Re: Mortgage Payoff Club!!
« Reply #29 on: July 09, 2013, 09:21:15 AM »
New blog post: Just paid for a certified Honda Odyssey in cash for $17k. It is the "limited" edition - limited as it has jack squat. ie - no nav or fancy automatic doors... so we'll GASP have to use our hands. (you mean I actually have to POINT the remote!!?!?)

But it's our first cash car payment EVER which I'm really excited about.

http://mortgage-payoff-club.com/2013/07/08/just-purchased-a-2010-honda-odyssey-in-cash/
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Re: Mortgage Payoff Club!!
« Reply #30 on: July 09, 2013, 10:31:52 AM »
I like the idea of paying off my mortgage.  I live in Canada, so we cannot claim the interest.  I realize that some people feel that investing is a better plan, but I think the mental aspect of it all is under rated.  I love the idea of owing my properties, free and clear.  Can you imagine....

The other thing about Canada, is there's no 30 year loans like in the US. After 5 years, your term is up and your interest rate will reset, and it could be to a much higher rate.

Personally I am maxing out my registered accounts (TFSA & RRSP) and then throwing whatever is left into the mortgage.

No Name Guy

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Re: Mortgage Payoff Club!!
« Reply #31 on: July 09, 2013, 11:59:01 AM »
Unspoken by Tomsang, but what needs to be understood by all, as one consideration of the strategy they (Tomsang) advocates:

The borrow / keep the mortgage and invest carries a risk that simply paying off debt doesn't have - eg counterparty risk. 

http://en.wikipedia.org/wiki/Counterparty_risk#Counterparty_risk

In other words, you HAVE to earn a higher rate of return to just make the risk adjusted returns worth it.  An example of this is holding high yield (HY) debt (e.g. Junk Bonds") versus so called "risk free" US Government Treasuries.  "My 10% HY  beats your paltry 2%".  Well, not really, or its not so simple as simply comparing rates.  You HAVE to earn 10% (or what ever the current HY rate is) to compensate you for the higher counterparty risk - there's a reason junk bonds HAVE to pay so much versus the Treasury, they tend to default a lot more frequently.

Earning 5% (or 8% or 11%) with counterparty risks (e.g. the bond may default, the company may go bankrupt and wipe out equity, the dividend may be cut, Apple's next product can be a turd which kills the stock price, etc) versus 3.5% guaranteed with getting out of debt....well, one has to decide if the extra 1.5% (or what ever the exact number is) is worth that risk of losing part or all of ones investments.  After all, practically every mans asset (bond, equity) is another's liability which they MIGHT default on (hard assets such as real estate or physical commodities that are possessed are notable exceptions, but, obviously, carry their own risks).

The mortgage you're paying to the bank is your liability....but the bank holds it as an asset on their ledger.  See how it works?  The money in your checking or savings account is YOUR asset, but the bank records that as a liability on their books (since they have to hand you cash on demand).

Don't think there are counterparty risks?  Ask those GM bondholders, or Enron shareholders about it, to name 2 obvious examples.  Ask those long term RIMM shareholders about what happens when a former tech leader loses it edge and becomes an also ran.  Ask the depositors in Cypress who were "bailed in" and had their savings (assets to them, liabilities to the banks) confiscated.

I'm not saying either way is right or wrong, but one must understand the risks of various strategies and earn corresponding returns to make the risks worthwhile.  And one simply can't compare rate of return of Strategy A versus Strategy B without also discussing the inherent risks else it's an apples to oranges comparison. 

Risk tolerance is such a personal thing, so understand YOUR risk tolerance.  Understand the risks of your strategy on getting to FI / ER / IW and tailor those risks to your personal tolerance level.

cdub

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Re: Mortgage Payoff Club!!
« Reply #32 on: July 09, 2013, 12:33:04 PM »
Personally - even though my mortgage is at 3.99 which is pretty good - completely freeing up the need for the $1,300 or so mortgage payment is the goal for peace of mind.

I'm freelance - there's no guarantee I'll always be making what I'm making now. Reducing as many mandatory monthly expenses as quickly as possible is the best possible way for a stress free future.

Because all of the math examples above seem to rely on the fact that your income is steady - mine is not. Or at least it has the potential to not be.
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tomsang

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Re: Mortgage Payoff Club!!
« Reply #33 on: July 09, 2013, 05:08:32 PM »
If your income is not steady than you are much safer investing vs paying off your mortgage. If you lose your job you can't just call the bank up and tell them that you lost your job, but no worries as I prepaid for 3 years. They will take your house. Yet if you lose your job and have 3 years of payments saved up you can draw them down to pay down your mortgage. Investments are liquid, 401k is protected by bankruptcy, and if a natural disaster destroys your house you most likely will get debt relief by FEMA or the bank va. a paid off house. If you can't beat a 4% rate of return then your SWR is lower than 4% and most likely close to 1%. Paying off the mortgage is much more risky even though it has an emotional level of comfort. Either way, as long as you understand how this is impacting your FI and the risk that you are taking on it is all good. Unfortunately many people feel that debt is bad at all cost and are willing to pass up the free money the government is throwing at you to jump start the economy.

cdub

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Re: Mortgage Payoff Club!!
« Reply #34 on: July 09, 2013, 08:31:51 PM »
If your income is not steady than you are much safer investing vs paying off your mortgage.

I have almost 6 months of living expenses saved up - so this aspect doesn't worry me. I just hate the idea of having debt.... and a mortgage free life will make it very easy to retire early.
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ToeInTheWater

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Re: Mortgage Payoff Club!!
« Reply #35 on: July 10, 2013, 04:54:24 AM »
getting my mortgage paid off will be a huge step towards our FI, so we're doing it fast.  our 15 yr (july-11 refi) will be paid off by appr Dec 14.  i'll be 54 at that point, we have a pretty decent stache, so will then seriously consider RE. 

and yes, i get the math behind paying down vs investing.  this may be more of an elimination of risk vs potential for rewards decision being decided in favor of risk elimination.

probably won't do it that young (as i said in my "intro" post, i love my job), but not having the mtg will give us the freedom to do so if we choose.

long story, short, we're in with cdub.

b

Coup

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Re: Mortgage Payoff Club!!
« Reply #36 on: July 21, 2013, 03:01:23 PM »
There is more to it than simple math. Owning your own home free and clear removes a level of stress from your life that opens up more opportunities in your head. Once we were mortgage free it gave us the courage to start our own business, which was slow to start but slowly grew to be fully supporting us both full-time earning a nice income.

I just don't think that we would have been in the same mental headspace where we could have started our biz and made as good of decisions if we had a mortgage to deal with.


« Last Edit: December 13, 2014, 03:28:41 PM by Coup »
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cdub

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Re: Mortgage Payoff Club!!
« Reply #37 on: August 19, 2013, 11:00:54 PM »
After doing my most recent extra payment of $539.41 I realize that I've almost shaved a year on my 30 year loan already! Woot woot!

http://mortgage-payoff-club.com/2013/08/19/539-41-extra-paid-to-the-mortgage-this-month/
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Oltmanh

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Re: Mortgage Payoff Club!!
« Reply #38 on: August 24, 2013, 08:34:57 PM »
I am working to pay off our mortgage this year.  Owe $36k now... Just want to have zero debt.   I appreciate all the math arguments but I want fewer monthly bills.   And I have an MBA Finance so I can say I understand the math ;).  I think there is an argument for simplicity here as well.

Xavier

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Re: Mortgage Payoff Club!!
« Reply #39 on: August 25, 2013, 06:07:04 PM »
I'm with you on this brother!
http://www.mrmoneymustache.com/forum/throw-down-the-gauntlet/my-first-challenge-pay-off-my-mortgage-by-june-30-2014/

Let's keep each other motivated on this.

I checked out your other blog on this as well.  Good stuff.

Katnina

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Re: Mortgage Payoff Club!!
« Reply #40 on: August 27, 2013, 01:35:24 PM »
Paid mine off 2 yrs ago & the peace of mind was sooooooooo worth it.  Sure, I could have made a higher return being in stocks, but sometimes peace of mind is Roth more than a higher rate of return.  Good luck!
Livin' la vida fabulosa....for less!

cdub

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Re: Mortgage Payoff Club!!
« Reply #41 on: August 31, 2013, 09:22:58 PM »
Paid mine off 2 yrs ago & the peace of mind was sooooooooo worth it.  Sure, I could have made a higher return being in stocks, but sometimes peace of mind is Roth more than a higher rate of return.  Good luck!

Awesome! Yes I hope to pay it off within 10 years or less. Way less once my wife goes back to work - but at my current pay schedule it'll be 10 years. Probably around 5 when she does.
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Katnina

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Re: Mortgage Payoff Club!!
« Reply #42 on: September 01, 2013, 11:46:09 AM »
excellent!  Very exciting ;).
Livin' la vida fabulosa....for less!

HumanCalculator

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Re: Mortgage Payoff Club!!
« Reply #43 on: September 01, 2013, 12:44:29 PM »
After long debates with my partner in life, we settled on doubling our current weekly mortgage payments. We agreed that we prefer having the peace of mind of owning our house outright. Payment is now 17% interest, 83% capital instead of 35% interests, 65% capital.

Done in 7.5, or 6 if we drop an additional 17k$ per year. But I figure this will only happens if both our RRSP and TFSA are fully invested in.

When I bought the house a year ago, I figured I would have to pay mortgage payments for the next 25 years. No way I decided, I want to be done by 35.
Time is free, but itís priceless. You canít own it, but you can use it. You canít keep it, but you can spend it. Once youíve lost it, you can never get it back. ~HM

FrugalZony

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Re: Mortgage Payoff Club!!
« Reply #44 on: September 26, 2013, 01:49:43 PM »
Just realised I will be done next month!
Pretty much five years after buying the house!
Whew!! What a relief!
After a time, you may find that having is not so pleasing a thing, after all, as wanting. It is not logical, but it is often true.
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medinaj2160

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Re: Mortgage Payoff Club!!
« Reply #45 on: September 27, 2013, 08:48:57 PM »
Peace of mind is priceless...

I will be paying my home as fast as I can.. hopefully 27-25 years early :)

The knitter

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Re: Mortgage Payoff Club!!
« Reply #46 on: October 05, 2013, 07:05:44 AM »
Interesting thread.

The DH and I are about to buy our first home (a two-family at $215,000). We locked in a 4 percent interest rate and are hoping to close in a couple weeks.

Everything is going to change financially for us once we move, so we are working up hypothetical numbers and evaluating our goals.

We go back and forth about paying down the mortgage early, or saving up a big down payment for house number two, or investing the extra money into index funds, or a combination of all three.

I'll be sending this thread to him to help feed our discussion on the topic. I'm leaning towards keeping our regular mortgage payments and freeing up the extra money to do something smarter with it. But I can't deny the lure of having my own home paid off entirely.







cdub

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Re: Mortgage Payoff Club!!
« Reply #47 on: October 26, 2013, 10:44:42 AM »
New blog post! Extra $1,010.94 paid!

http://mortgage-payoff-club.com/
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Pollyanna

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Re: Mortgage Payoff Club!!
« Reply #48 on: October 28, 2013, 07:48:55 AM »
cdub, I'm with you, working on $0 balance by YE 2014.  However, I have to confess I am mid-50's and really should not even have a mortgage by now!  We refinanced in 2003 to a 15 year, and I have been paying extra for a while now, and we should be to zero balance by October 2014 barring anything unforeseen that creates an obstacle that can't be managed any other way.  Our goal is to have no payment going into retirement. 

Hatawa

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Re: Mortgage Payoff Club!!
« Reply #49 on: October 31, 2013, 05:25:55 AM »
I'm in too. In my country the interest rates are extremely high so no investment can beat it. Mine is a 20 year mortgage but I hope to have it paid off in 6-7 years. Still seems really long :(