Any "don't pay off your mortgage" people change their minds?

[rmorris50]

Maybe it helps to think in terms of a balance sheet.

Assets - Liabilities = Equity
You can increase assets and/or decrease liabilities to increase Equity. While different approaches can mathematically get you to the same equity, the make-up of your balance sheet does matter it terms of how you can increase equity going forward and your financial risk profile. This is because assets produce value and liabilities produces expenses, which impacts cash flows and capital available to you. Both the balance sheet and cash flow statements matter in how your finances (a business) function. There is a reason businesses look at both. In personal financial planning both should be looked at too.

If I pay for 100k house in cash:
Asset = 100k house
liabilities = 0
Equity = 100k

If I buy a 100K house with 100k mortgage (given to me because I have 100k cash)
Asset = house 100K and cash 100K
Liabilities = 100k mortgage
Equity = 100k

Now how can you go about increasing equity? let's ignore other sources of income. In option 1 all I have is house appreciation, or mortgage the house and go to option 2 (assuming you can still get a mortgage). In option 2 I can also hope for house appreciation, and I can also go invest my 100k in another asset, hopefully earning more than my mortgage rate. Option 2 is has more risk though, due to the higher leverage (debt owed), but it provides more options to increase equity.

So while mathematically equivalent, I don't view these two options as functionally equivalent.

Like I said there are a lot of other factors to consider, but to reply to the bolded part: yes, that is the core argument of this entire discussion! If you choose to pay off your mortgage you are essentially locking in a return equivalent to your mortgage rate.  If you thought you could get a better return elsewhere then you wouldn't pay off your mortgage.

When you say you've essentially locked in a fixed return equal to your mortgage rate, this really means you've increased your expected equity growth (NW growth) by 4% by reducing the liability side (expense) of your balance sheet. The confusion comes in because many people talk about returns to mean what assets are earning. So while paying off the mortgage essentially locks in a 4% growth on your NW from what you were expecting when you had the mortgage, you're still paying off a liability to do this. It also get's confusing because the liability is backed by the house on the asset side. So we still like to think of paying our mortgage as investing in real estate since otherwise you can lose or have to sell the house. However, what the house is returning is actually its appreciation/depreciation. I know this is probably wonky, but sometimes such debates like these result from not really clarify such details. And in the end we are all probably saying the same thing.

[SwordGuy]

Maybe it helps to think in terms of a balance sheet.

Assets - Liabilities = Equity
You can increase assets and/or decrease liabilities to increase Equity. While different approaches can mathematically get you to the same equity, the make-up of your balance sheet does matter it terms of how you can increase equity going forward and your financial risk profile. This is because assets produce value and liabilities produces expenses, which impacts cash flows and capital available to you. Both the balance sheet and cash flow statements matter in how your finances (a business) function. There is a reason businesses look at both. In personal financial planning both should be looked at too.

If I pay for 100k house in cash:
Asset = 100k house
liabilities = 0
Equity = 100k

If I buy a 100K house with 100k mortgage (given to me because I have 100k cash)
Asset = house 100K and cash 100K
Liabilities = 100k mortgage
Equity = 100k

Now how can you go about increasing equity? let's ignore other sources of income. In option 1 all I have is house appreciation, or mortgage the house and go to option 2 (assuming you can still get a mortgage). In option 2 I can also hope for house appreciation, and I can also go invest my 100k in another asset, hopefully earning more than my mortgage rate. Option 2 is has more risk though, due to the higher leverage (debt owed), but it provides more options to increase equity.

So while mathematically equivalent, I don't view these two options as functionally equivalent.

You've forgotten the single most common situation in this case, that of a partially paid off house and very few liquid assets because all extra money is being poured into the mortgage.

You see, the RISK factors are totally different when you have a house that is fully paid for vs one that is mortgaged.   Until the house is paid for, extra money paid on the mortgage INCREASES your risk of losing your equity.    That's because in a seriously bad economic situation, your house equity won't be available, your income won't pay the mortgage, and you won't have the amount of liquid assets you need to continue paying the mortgage.

If a bank has a shortage of labor to process the foreclosures (likely if it's seriously bad times), which house would they foreclose on first?

a)    House worth $100,000 (in normal markets), mortgage balance $80,000.
b)   house worth $100,000 (in normal markets), mortgage balance $50,000.

Because it's seriously bad economic times, the normal house prices may have just taken a big dive.   Let's say 30%.   

If they foreclose on house A, they will take a 10% loss plus 6% to the realtor, plus taxes and insurance costs.

If they foreclose on house B, they won't lose any money.  They'll get their money out.   Having paid extra on the mortgage actually made the home buyer LESS safe and made the bank MORE safe.

Now, if the home buyer has sufficient liquid reserves to handle the mortgage payments until good times return, it's all a moot point.   And they'll have more reserves if they save and invest in liquid assets instead of paying down their mortgage faster.

[TomTX]

You've forgotten the single most common situation in this case, that of a partially paid off house and very few liquid assets because all extra money is being poured into the mortgage.

You see, the RISK factors are totally different when you have a house that is fully paid for vs one that is mortgaged.   Until the house is paid for, extra money paid on the mortgage INCREASES your risk of losing your equity.    That's because in a seriously bad economic situation, your house equity won't be available, your income won't pay the mortgage, and you won't have the amount of liquid assets you need to continue paying the mortgage.

Heck, even after the house is paid off - being short on liquid assets can really hurt you. Having a property seized for nonpayment of taxes (and sold at auction for a fraction of the value) - is a real thing. Happens all the time.

In my situation, the payment to the bank is about equal to my property tax + insurance. If the mortgage were paid off, I'd still need a pretty big chunk every year to keep the house.

[big_owl]

You've forgotten the single most common situation in this case, that of a partially paid off house and very few liquid assets because all extra money is being poured into the mortgage.

You see, the RISK factors are totally different when you have a house that is fully paid for vs one that is mortgaged.   Until the house is paid for, extra money paid on the mortgage INCREASES your risk of losing your equity.    That's because in a seriously bad economic situation, your house equity won't be available, your income won't pay the mortgage, and you won't have the amount of liquid assets you need to continue paying the mortgage.

Heck, even after the house is paid off - being short on liquid assets can really hurt you. Having a property seized for nonpayment of taxes (and sold at auction for a fraction of the value) - is a real thing. Happens all the time.

In my situation, the payment to the bank is about equal to my property tax + insurance. If the mortgage were paid off, I'd still need a pretty big chunk every year to keep the house.

Since this is a FIRE forum.... If you have a paid off mortgage and you're retired but a market swoon causes you to not be able to afford your property takes....you failed at FIRE.

[rmorris50]

Or another consideration is being able to get a HELOC or mortgage when times turn sour. Getting liquidity is hard when the economy goes south and is easy to get when times are good and may not need it.

Also, I think our government has shown it will bail out the banks so they don't foreclose peoples houses.

[Buffaloski Boris]

Like I said there are a lot of other factors to consider, but to reply to the bolded part: yes, that is the core argument of this entire discussion! If you choose to pay off your mortgage you are essentially locking in a return equivalent to your mortgage rate.  If you thought you could get a better return elsewhere then you wouldn't pay off your mortgage.

Mmm.  But I think you’re missing one important detail: the impact of taxes. For some/ most of us, mortgage interest is no longer deductible as a practical matter. So in fact paying off a mortgage has a higher effective return. For example, let’s say I have a mortgage at 4% where I pay 10000 per year in interest. If I pay that mortgage off I no longer have to earn the interest in question. I saved 10000 after tax. But in our alternate universe where I keep the mortgage and work to pay that interest I actually have to earn significantly more than $10,000 to pay that interest. Let’s assume a marginal tax rate of say 20%. State of 5% and employee share of SS of say 8%. You would have to earn a little over $13k to pay off that interest.  That’s why I’m fond of pointing out that a dollar saved is better than a dollar earned. Am I missing something?

[rmorris50]

Like I said there are a lot of other factors to consider, but to reply to the bolded part: yes, that is the core argument of this entire discussion! If you choose to pay off your mortgage you are essentially locking in a return equivalent to your mortgage rate.  If you thought you could get a better return elsewhere then you wouldn't pay off your mortgage.

Mmm.  But I think you’re missing one important detail: the impact of taxes. For some/ most of us, mortgage interest is no longer deductible as a practical matter. So in fact paying off a mortgage has a higher effective return. For example, let’s say I have a mortgage at 4% where I pay 10000 per year in interest. If I pay that mortgage off I no longer have to earn the interest in question. I saved 10000 after tax. But in our alternate universe where I keep the mortgage and work to pay that interest I actually have to earn significantly more than $10,000 to pay that interest. Let’s assume a marginal tax rate of say 20%. State of 5% and employee share of SS of say 8%. You would have to earn a little over $13k to pay off that interest.  That’s why I’m fond of pointing out that a dollar saved is better than a dollar earned. Am I missing something?

Yeah, taxes are tricky because they are calculated base on your entire AGI for the year, not just specific to the house. Standard deductions were increased, so it's not clear if this is a true tax hit or a wash. Also, what if I have a Roth and I'm taking money out of my Roth every in retirement to pay the mortgage? But yes, there is now the potential additional friction of having to earn more to pay taxes on the interest you pay to the bank, good point.

[Telecaster]

You keep making the error of saying a having a higher mortgage rate would be better because it would equate to higher "savings", but they are separate things.  Having a 7% mortgage is worse than a 4% for obvious reasons, but paying a 7% mortgage does indeed save you more money than paying off a 4% mortgage.  You aren't technically earning a return, but it's the exact same thing mathematically. 

Right, it saves you more.  That's why it is wrong to say it is a return.  It isn't a return, it is a future savings.   Different things.  And mathematically they might be the same, but in the real world they aren't.   Inflation and taxes are two big reasons why.  Ignoring those two issues for long term financial planning (and a mortgage is definitely long term) is a blunder.  And you don't have to think very hard to come up with lots of other real world reasons too. 

Don't get me wrong.  You can call it a kazoo for all I care, but I see zero value in deliberately using the wrong term to describe something. 

[Telecaster]

Like I said there are a lot of other factors to consider, but to reply to the bolded part: yes, that is the core argument of this entire discussion! If you choose to pay off your mortgage you are essentially locking in a return equivalent to your mortgage rate.  If you thought you could get a better return elsewhere then you wouldn't pay off your mortgage.

Mmm.  But I think you’re missing one important detail: the impact of taxes. For some/ most of us, mortgage interest is no longer deductible as a practical matter. So in fact paying off a mortgage has a higher effective return. For example, let’s say I have a mortgage at 4% where I pay 10000 per year in interest. If I pay that mortgage off I no longer have to earn the interest in question. I saved 10000 after tax. But in our alternate universe where I keep the mortgage and work to pay that interest I actually have to earn significantly more than $10,000 to pay that interest. Let’s assume a marginal tax rate of say 20%. State of 5% and employee share of SS of say 8%. You would have to earn a little over $13k to pay off that interest.  That’s why I’m fond of pointing out that a dollar saved is better than a dollar earned. Am I missing something?

I'd say that's spot on.  Another one is ACA subsidies.  That extra $13K you need to make the mortgage might change the amount of your subsidy. 

On the flip side is opportunity cost.   You don't actually get the savings until the mortgage is paid off.   Are there any opportunities that might come along between now and then?  Since mortgages are long term, the answer is likely yes.

On the flip-flip side, paying down the mortgage is kind of a forced savings plan.   For some people, that might be a good thing.

On the flip-flip-flip side, inflation.  A dollar you pay extra today will save you roughly the equivalent of $0.50 20 years from now.  Why would you pay a dollar today to save $0.50 later?

On the flip-flip-flip-flip side risk/reward.   You don't get savings of paying down the mortgage until the future.  But in the meantime, there could a global pandemic that causes you so lose your  job, a global economic crisis, divorce, serious illness, etc. which might cause you to lose control of the house.   In that case, your future savings is drastically reduced.  Those events are all real things that happen to real people.  Are you compensated for taking that additional risk?

I could go on and on.  Whatever floats your boat, I just don't see any personal benefit in claiming that two different things are the same. 

[Buffaloski Boris]

Like I said there are a lot of other factors to consider, but to reply to the bolded part: yes, that is the core argument of this entire discussion! If you choose to pay off your mortgage you are essentially locking in a return equivalent to your mortgage rate.  If you thought you could get a better return elsewhere then you wouldn't pay off your mortgage.

Mmm.  But I think you’re missing one important detail: the impact of taxes. For some/ most of us, mortgage interest is no longer deductible as a practical matter. So in fact paying off a mortgage has a higher effective return. For example, let’s say I have a mortgage at 4% where I pay 10000 per year in interest. If I pay that mortgage off I no longer have to earn the interest in question. I saved 10000 after tax. But in our alternate universe where I keep the mortgage and work to pay that interest I actually have to earn significantly more than $10,000 to pay that interest. Let’s assume a marginal tax rate of say 20%. State of 5% and employee share of SS of say 8%. You would have to earn a little over $13k to pay off that interest.  That’s why I’m fond of pointing out that a dollar saved is better than a dollar earned. Am I missing something?

I'd say that's spot on.  Another one is ACA subsidies.  That extra $13K you need to make the mortgage might change the amount of your subsidy. 

On the flip side is opportunity cost.   You don't actually get the savings until the mortgage is paid off.   Are there any opportunities that might come along between now and then?  Since mortgages are long term, the answer is likely yes.

On the flip-flip side, paying down the mortgage is kind of a forced savings plan.   For some people, that might be a good thing.

On the flip-flip-flip side, inflation.  A dollar you pay extra today will save you roughly the equivalent of $0.50 20 years from now.  Why would you pay a dollar today to save $0.50 later?

On the flip-flip-flip-flip side risk/reward.   You don't get savings of paying down the mortgage until the future.  But in the meantime, there could a global pandemic that causes you so lose your  job, a global economic crisis, divorce, serious illness, etc. which might cause you to lose control of the house.   In that case, your future savings is drastically reduced.  Those events are all real things that happen to real people.  Are you compensated for taking that additional risk?

I could go on and on.  Whatever floats your boat, I just don't see any personal benefit in claiming that two different things are the same.

Well let’s do yet another flip and a well executed swan-dive and look again at that savings. Let’s say your mortgage is 4%. Assuming that the taxes are as I indicated above, I calculate the equivalent savings as (1+.20+.06+.08) X 4%. That’s 5.36% at very low risk. Can you find an equivalent? I can’t think of one. You might get that in equities, but at significant risk.

[Telecaster]

Like I said there are a lot of other factors to consider, but to reply to the bolded part: yes, that is the core argument of this entire discussion! If you choose to pay off your mortgage you are essentially locking in a return equivalent to your mortgage rate.  If you thought you could get a better return elsewhere then you wouldn't pay off your mortgage.

Mmm.  But I think you’re missing one important detail: the impact of taxes. For some/ most of us, mortgage interest is no longer deductible as a practical matter. So in fact paying off a mortgage has a higher effective return. For example, let’s say I have a mortgage at 4% where I pay 10000 per year in interest. If I pay that mortgage off I no longer have to earn the interest in question. I saved 10000 after tax. But in our alternate universe where I keep the mortgage and work to pay that interest I actually have to earn significantly more than $10,000 to pay that interest. Let’s assume a marginal tax rate of say 20%. State of 5% and employee share of SS of say 8%. You would have to earn a little over $13k to pay off that interest.  That’s why I’m fond of pointing out that a dollar saved is better than a dollar earned. Am I missing something?

I'd say that's spot on.  Another one is ACA subsidies.  That extra $13K you need to make the mortgage might change the amount of your subsidy. 

On the flip side is opportunity cost.   You don't actually get the savings until the mortgage is paid off.   Are there any opportunities that might come along between now and then?  Since mortgages are long term, the answer is likely yes.

On the flip-flip side, paying down the mortgage is kind of a forced savings plan.   For some people, that might be a good thing.

On the flip-flip-flip side, inflation.  A dollar you pay extra today will save you roughly the equivalent of $0.50 20 years from now.  Why would you pay a dollar today to save $0.50 later?

On the flip-flip-flip-flip side risk/reward.   You don't get savings of paying down the mortgage until the future.  But in the meantime, there could a global pandemic that causes you so lose your  job, a global economic crisis, divorce, serious illness, etc. which might cause you to lose control of the house.   In that case, your future savings is drastically reduced.  Those events are all real things that happen to real people.  Are you compensated for taking that additional risk?

I could go on and on.  Whatever floats your boat, I just don't see any personal benefit in claiming that two different things are the same.

Well let’s do yet another flip and a well executed swan-dive and look again at that savings. Let’s say your mortgage is 4%. Assuming that the taxes are as I indicated above, I calculate the equivalent savings as (1+.20+.06+.08) X 4%. That’s 5.36% at very low risk. Can you find an equivalent? I can’t think of one. You might get that in equities, but at significant risk.

Indeed.  That's why I said your previous post was spot on.  Claiming equivalence while neglecting major issues like taxes is absurd.  You have to look at the real world.  Some people feel compelled to claim savings and investing are the same thing.  Yet as you point out, from a financial standpoint they are very different.  So what's the harm in saying different things are different?

[projekt]

I guess the question I have (sorry if it was brought up before in this thread) is would you take out a mortgage on an already paid-off house to have access to the money for better investment?

[EscapeVelocity2020]

Indeed.  That's why I said your previous post was spot on.  Claiming equivalence while neglecting major issues like taxes is absurd.  You have to look at the real world.  Some people feel compelled to claim savings and investing are the same thing.  Yet as you point out, from a financial standpoint they are very different.  So what's the harm in saying different things are different?

Frugalnacho also did not actually address the time value of money issue either.  Saying it was 'baked in to interest rates' ignored that the time value of money is based on inflation.  Many Americans got ahead in the 80's by taking out 30 year mortgages, enjoying inflation based raises, then keeping mortgages until they were laughably insignificant monthly payments over time.  And, of course, in the real world, you can refinance your mortgage or cash out equity in your home - both of which made a home loan a 'good' liability over time, as opposed to revolving debt. 

What is a better conversation Frugalnacho should consider is if a mortgage now is, even at a low rate, a good thing to hold.  No one is worried about being stuck with a 28.9% mortgage.

[nereo]

“Laughably insignificant monthly payments” from people who took our a mortgage in the 80s accurately describes my parent’s mortgage.   They like to joke that they are 41 years into a 30 year mortgage and they have just 9 years to go until it’s paid off.

Took out the loan at 9% (!) and set up a sinking fund to cover the home.  Bonds were soon paying 12%+ so they loaded up on those for a while (why pay off a mortgage when bonds pay more than your interest rate?). Three cash ReFi’s - each time lowering the rate and padding the sinking fund while allowing them to max out their tax-advantaged accounts. 

Today they still have that sinking fund - and The mortgage (now around 3.5%) - and the yield on their investments in the sinking fund more than covers their monthly mortgage payments.  Also enlightening is the taxes and insurance are roughly 3x what their original mortgage payment was.  To everyone who thinks having a paid off home means you will never lose your house... consider what happens if you can’t pay your taxes and insurance - and what those will look like relative to your mortgage in 20 or 30 years.

[Playing with Fire UK]

I guess the question I have (sorry if it was brought up before in this thread) is would you take out a mortgage on an already paid-off house to have access to the money for better investment?

Yep, I did this. 100% right for me.

[Dicey]

“Laughably insignificant monthly payments” from people who took our a mortgage in the 80s accurately describes my parent’s mortgage.   They like to joke that they are 41 years into a 30 year mortgage and they have just 9 years to go until it’s paid off.

Took out the loan at 9% (!) and set up a sinking fund to cover the home.  Bonds were soon paying 12%+ so they loaded up on those for a while (why pay off a mortgage when bonds pay more than your interest rate?). Three cash ReFi’s - each time lowering the rate and padding the sinking fund while allowing them to max out their tax-advantaged accounts. 

Today they still have that sinking fund - and The mortgage (now around 3.5%) - and the yield on their investments in the sinking fund more than covers their monthly mortgage payments.  Also enlightening is the taxes and insurance are roughly 3x what their original mortgage payment was.  To everyone who thinks having a paid off home means you will never lose your house... consider what happens if you can’t pay your taxes and insurance - and what those will look like relative to your mortgage in 20 or 30 years.

My parents had a similar story. I distinctly remember my dad griping about the utility bills being more than the mortgage ever was. The tricky thing about this whole counterintuitive DPOYM thing is that it not only gets you to the goal of FI faster and with fewer earned dollars, it also tends to leave you with a much bigger stache. Security in old age is exponentially more valuable and long lasting than the "Whew, we threw all our money at the mortgage until we killed it" euphoria. By the time people realize that, it's typically far too late to change course. There is one very expensive way, and that's a Reverse Mortgage. No wonder there are so damn many of them.

[simonsez]

I guess the question I have (sorry if it was brought up before in this thread) is would you take out a mortgage on an already paid-off house to have access to the money for better investment?

I'd say 'depends' normally for this type of question but I'm pretty lazy and if I had to lay money I would say I would not.  I'll refinance during the mortgage as appropriate while still holding the liability but once it's fully paid off I should be well into retirement (assuming I'm not dead).  The financial game of life should be well won by then.  Even if the terms were favorable in spite of the non-zero risk, why do the hassle to win even more?  Who knows though, I'm open to considering anything especially when it's many years in the future.

[nereo]

I guess the question I have (sorry if it was brought up before in this thread) is would you take out a mortgage on an already paid-off house to have access to the money for better investment?

I'd say 'depends' normally for this type of question but I'm pretty lazy and if I had to lay money I would say I would not.  I'll refinance during the mortgage as appropriate while still holding the liability but once it's fully paid off I should be well into retirement (assuming I'm not dead).  The financial game of life should be well won by then.  Even if the terms were favorable in spite of the non-zero risk, why do the hassle to win even more? Who knows though, I'm open to considering anything especially when it's many years in the future.

Legacy?  Added safety to whatever WR you've decided upon?  More diversity in your holdings?  The chance to donate more to your community?
I can think of a bunch of different reasons (and not all will apply in all situations)

Another thing to consider - my parents (see above) were annoyed to discover that they couldn't get approved for another ReFi post retirement, even though they had easily 3x the investments to cover the cost of the mortgage.  Banks (and their algorithms) get gun-shy over very low income levels, regarldess of assets.  Housing prices have increased so much in their area over the last 3 decades that - despite having "won the game" they are holding far more of their net worth in their home than they would prefer.

[frugalnacho]

Indeed.  That's why I said your previous post was spot on.  Claiming equivalence while neglecting major issues like taxes is absurd.  You have to look at the real world.  Some people feel compelled to claim savings and investing are the same thing.  Yet as you point out, from a financial standpoint they are very different.  So what's the harm in saying different things are different?

Frugalnacho also did not actually address the time value of money issue either.  Saying it was 'baked in to interest rates' ignored that the time value of money is based on inflation.  Many Americans got ahead in the 80's by taking out 30 year mortgages, enjoying inflation based raises, then keeping mortgages until they were laughably insignificant monthly payments over time.  And, of course, in the real world, you can refinance your mortgage or cash out equity in your home - both of which made a home loan a 'good' liability over time, as opposed to revolving debt. 

What is a better conversation Frugalnacho should consider is if a mortgage now is, even at a low rate, a good thing to hold.  No one is worried about being stuck with a 28.9% mortgage.

Go back to the thought experiment of having a $100k mortgage/loan, a mortgage counterpart savings account with an APY equal to the mortgage APR, and the full balance of the mortgage in cash.  You put the cash into the savings account, and pay the mortgage off from the savings account each month.  As I previously showed, at every point in time between now and the end of the loan term you will be exactly even, the savings account balance will be exactly equal to the mortgage account balance.  You could pay it off now, in 30 years, or any point in between, because the mortgage and savings account will be a nice tidy self contained set of accounts that balance out to exactly $0 at all points in time.  For the sake of argument let's assume you have no other assets, you live completely free with no additional expenses, and have no additional income.  Then 20 years into the mortgage you get a $20k windfall.

Scenario A: Frugalnacho immediately paid his mortgage off and has remained at $0 networth for 20 years.  He takes his $20k, opens a vanguard account, and invests it in the best options available in the year 2040.

Scenario B: Escapevelocity2020 held onto his mortgage, and remained at $0 networth for 20 years.  His mortgage balance and savings account are in perfect balance, and his mortgage payments are now comparatively lower than they were in the year 2020 because of the time value of money.  He takes his $20k, opens a vanguard account, and invests it in the best options available in the year 2040.

What difference is there between scenario A and B, and how did the time value of money help at all? We both had a networth of $0, which jumped to $20k when we got the windfall.  We both have $20k invested in the same funds at the same time. 

By prepaying the mortgage in scenario A I locked in a "return" for the entire term of the loan, but simultaneously locked in my mortgage APR for the entire term as well.  Any tax implications, opportunity costs, potential for refinancing, anticipated inflation, etc are additional considerations.

The inflation erodes away the debt, but also erodes away the cash you have.  In the scenario you described of people getting mortgages, then allowing the time value of money to work to their benefit, they likely didn't have the money to pay the mortgage so you are only seeing inflation erode the debt and not their non-existent cash.  If they did have the cash to cover the mortgage (or even a portion of it) then what did they do with their money in that inflationary environment that netted them a better return than paying off the mortgage? That's really the question here.  Because I contend that money paid towards your mortgage nets you a "return" that is mathematically equivalent to investing the same amount of money and getting a real return (with a few caveats, namely by locking in that "return" you are also locking in your debt APR for the remainder of the term).  I understand it is not technically a return, and will be plugged into your accounting spreadsheet in a different column than a real return, but mathematically it's equivalent and if someone wants to conceptualize that they are getting a "return" by paying down debt then I have no problem with that terminology.   I also have no problem if someone wants to be pedantic and correct that terminology to something that is technically more accurate, but I don't feel like that is what was going on.  For example when Telecaster stated this:

After 2008 i considered mortgage acceleration as a diversification strategy, not as a sole source of investing.  I feel more comfortable having some of my investment in a fixed return.

Except it is not a fixed return.  It is a future savings. 

See if there anything wrong with this logic:  I paid of my credit cards this month.  I got a 28.9% return.  I'll continue to get a 28.9% return for the next ten years and retire wealthy.  If credit card interest goes up to 33.5% I can retire even sooner because I am getting a better return.   

Obviously, that's wrong.  Paying down debt doesn't give you a return.  There is no return.  You just spend less money in the future. 

Don't get me wrong!  There is absolutely nothing wrong with a future savings.  This might sound like nitpicking but it is not.  Return on investment and future savings are completely different concepts that need to be thought about separately.

The flaw in that logic is that the debt and the rate of the debt is already a forgone conclusion.  Stating "I'll continue to get a 29.8% return for the next ten years and retire wealthy" is inaccurate and misleading.  It implies there is no real "return", because if there was a real "return" then it would propel you to wealth over the next 10 years. Except that is exactly what does happen.  If you have a debt at 28.9%, then paying that off will propel you towards retiring wealthy, and in fact at the exact same rate as it would if you opted to put that money into an investment with a real return of 28.9%.  Those 2 options are mathematically equivalent and will have the same effect on your FIRE date. 

“Laughably insignificant monthly payments” from people who took our a mortgage in the 80s accurately describes my parent’s mortgage.   They like to joke that they are 41 years into a 30 year mortgage and they have just 9 years to go until it’s paid off.

Took out the loan at 9% (!) and set up a sinking fund to cover the home.  Bonds were soon paying 12%+ so they loaded up on those for a while (why pay off a mortgage when bonds pay more than your interest rate?). Three cash ReFi’s - each time lowering the rate and padding the sinking fund while allowing them to max out their tax-advantaged accounts. 

Today they still have that sinking fund - and The mortgage (now around 3.5%) - and the yield on their investments in the sinking fund more than covers their monthly mortgage payments.  Also enlightening is the taxes and insurance are roughly 3x what their original mortgage payment was.  To everyone who thinks having a paid off home means you will never lose your house... consider what happens if you can’t pay your taxes and insurance - and what those will look like relative to your mortgage in 20 or 30 years.

Right, so this is basically my thought experiment but instead of the mortgage and savings account being x%, it is mortgage at X% APR, and savings account at X+3% APY.  I feel like this fully supports my point.  It would be insane to lock in a "return" of 9% by paying the mortgage when you could get 12% elsewhere.  Refinancing to lower your mortgage APR would similarly affect the math advantageously in your favor.

[frugalnacho]

What is a better conversation Frugalnacho should consider is if a mortgage now is, even at a low rate, a good thing to hold.  No one is worried about being stuck with a 28.9% mortgage.

Yes I believe they are.  I am in a bit of a unique situation, so a lot of the conventional advice about whether to pay my mortgage didn't apply (couldn't refinance, couldn't take a second mortgage or heloc, etc).  You can read about my specific situation here if you are curious: https://forum.mrmoneymustache.com/welcome-to-the-forum/i'm-going-to-pay-off-my-mortgage-78664/

Another weird thing about my mortgage is the tax implications.  Most people get a deduction for mortgage interest, but even when I owned 2 houses I was barely able to itemize deductions.  The difference between the standard deduction and my itemized deduction resulted in almost nothing, like less than $20.  Holding the equivalent amount of cash for both my mortgages in a savings account or an investment account would have actually resulted in me paying more taxes vs paying the mortgage.  Paying the mortgage netted me a tax free "return" on that "investment". 

Like I said I'm not advocating for anyone to pay off their mortgage, or for anyone to not pay off their mortgage.  There are a lot of factors that go into it, and even excluding the psychology of having that debt on your shoulders, the mathematics work out differently for everyone.  Everyone is in a different tax bracket, has a different tax burden, has a different amount of liquid funds, has a different credit score, risk tolerance, expectations for future mortgage rates, expectations for investment returns, expectations for future employment and income, etc.  I couldn't possibly cover all the factors, nor do I think it's even possible to make a blanket statement that's applicable to everyone.  It's a situation that has to be evaluated on a case by case basis.   

[Buffaloski Boris]

I think @frugalnacho is correct. Whether  to POYM is more nuanced and idiosyncratic than it looks at first blush. And the correct answer is probably more along a spectrum with “definitely POYM” on one end and “definitely DON’T POYM” on the other. It’d be helpful if there was a questionnaire with say 5-10 questions that would focus things and maybe score responses. Maybe it exists and I’m not aware of it?

For example:

1. Can you effectively deduct your mortgage interest?
2. What are your views on debt?
3. What interest rate are you paying?
4. How many years are left on the mortgage?
5. Are you still working and able to do a refi?
6. What’s your marginal federal and state tax rate?

[nereo]

I think @frugalnacho is correct. Whether  to POYM is more nuanced and idiosyncratic than it looks at first blush. And the correct answer is probably more along a spectrum with “definitely POYM” on one end and “definitely DON’T POYM” on the other. It’d be helpful if there was a questionnaire with say 5-10 questions that would focus things and maybe score responses. Maybe it exists and I’m not aware of it?

For example:

1. Can you effectively deduct your mortgage interest?
2. What are your views on debt?
3. What interest rate are you paying?
4. How many years are left on the mortgage?
5. Are you still working and able to do a refi?
6. What’s your marginal federal and state tax rate?

the biggest one (IMO) is "do you have available tax-advantaged space you currently are not using?" (#6 gets at this but only obliquely)
It's hard to beat out the advantages of lowering your tax burden, especially if the alternative is paying down a low-interest rate.

[EscapeVelocity2020]

One slightly surprising savings that I just uncovered with having recently paid off my mortgage, I can raise my deductibles to whatever I want.  I'm getting a revised home insurance quote (and no, I'm not crazy like MMM and going without home insurance).  I expect the savings to be maybe a couple hundred dollars, maybe 10% savings.  Similar to most insurance, I really just want catastrophic coverage, I expect to pay out of pocket for most minor things.

[nereo]

One slightly surprising savings that I just uncovered with having recently paid off my mortgage, I can raise my deductibles to whatever I want.  I'm getting a revised home insurance quote (and no, I'm not crazy like MMM and going without home insurance).  I expect the savings to be maybe a couple hundred dollars, maybe 10% savings.  Similar to most insurance, I really just want catastrophic coverage, I expect to pay out of pocket for most minor things.

Interesting!  I had never considered that my home-owners insurance capped the size of my deductible, but it makes sense.
If I may ask, what is your deductible now to save you 'a couple hundred dollars'?  If I could I'd probably increase our deductible to $10k, but IIRC the highest we were allowed to go was $2k.

[Dicey]

One slightly surprising savings that I just uncovered with having recently paid off my mortgage, I can raise my deductibles to whatever I want.  I'm getting a revised home insurance quote (and no, I'm not crazy like MMM and going without home insurance).  I expect the savings to be maybe a couple hundred dollars, maybe 10% savings.  Similar to most insurance, I really just want catastrophic coverage, I expect to pay out of pocket for most minor things.

But should you? The answer for most homeowners is not yes. I'd recommend price shopping for better rates before I'd go the route you're suggesting. And who makes claims for minor things? In my part of the world, you do that and risk cancellation.

My house is paid for, too. No way will we go this route. Insurance is cheap, cheap, cheap compared to the cost of replacement.

[nereo]

One slightly surprising savings that I just uncovered with having recently paid off my mortgage, I can raise my deductibles to whatever I want.  I'm getting a revised home insurance quote (and no, I'm not crazy like MMM and going without home insurance).  I expect the savings to be maybe a couple hundred dollars, maybe 10% savings.  Similar to most insurance, I really just want catastrophic coverage, I expect to pay out of pocket for most minor things.

But should you? The answer for most homeowners is not yes. I'd recommend price shopping for better rates before I'd go the route you're suggesting. And who makes claims for minor things? In my part of the world, you do that and risk cancellation.

My house is paid for, too. No way will we go this route. Insurance is cheap, cheap, cheap compared to the cost of replacement.

What would you consider an acceptable deductible for an advanced mustachian with a paid-off house, @Dicey?  I mentioned $10k as my theoretical ideal... currently ours is $2k, but in reality I'm not going to file a claim unless it's a few thousand more than that (no sense lodging a $2300 repair claim and risk rising rates to get $300 - maybe - back.  Most repairs  seem to be either a couple thousand or tens-of-thousands to repair.   
I'm really most interested in insuring against loses that are in the tens-of-thousands... like a burst pipe that floods my whole house or a tornado/tree that destroys my roof and a bunch of stuff within.

But... I'm told I can't have a deductible over $2k on a house I'm still making payments on, assets be damned. 

[Dicey]

One slightly surprising savings that I just uncovered with having recently paid off my mortgage, I can raise my deductibles to whatever I want.  I'm getting a revised home insurance quote (and no, I'm not crazy like MMM and going without home insurance).  I expect the savings to be maybe a couple hundred dollars, maybe 10% savings.  Similar to most insurance, I really just want catastrophic coverage, I expect to pay out of pocket for most minor things.

But should you? The answer for most homeowners is not yes. I'd recommend price shopping for better rates before I'd go the route you're suggesting. And who makes claims for minor things? In my part of the world, you do that and risk cancellation.

My house is paid for, too. No way will we go this route. Insurance is cheap, cheap, cheap compared to the cost of replacement.

What would you consider an acceptable deductible for an advanced mustachian with a paid-off house, @Dicey?  I mentioned $10k as my theoretical ideal... currently ours is $2k, but in reality I'm not going to file a claim unless it's a few thousand more than that (no sense lodging a $2300 repair claim and risk rising rates to get $300 - maybe - back.  Most repairs  seem to be either a couple thousand or tens-of-thousands to repair.   
I'm really most interested in insuring against loses that are in the tens-of-thousands... like a burst pipe that floods my whole house or a tornado/tree that destroys my roof and a bunch of stuff within.

But... I'm told I can't have a deductible over $2k on a house I'm still making payments on, assets be damned.

Tricky question. EV used "whatever I want" and "deductibles"[plural], so I'm a bit unclear what they propose to chop, but it sounded both dramatic and risky.

As to the amount I'd use for our own house, we have a shitloat of cash, so my answer might be different than most. (It's not looking like we're going to be doing any flip projects in the near future, but we're holding on to cash just in case, so we're atypical.)

As to your deductible minimum, I have a related issue on our rentals. I was always told that insurance companies will write a policy that includes the value of the land, thus forcing homeowners to overinsure. As we've accrued rentals, they've inserted a new twist. Oh, sure the house you just purchased only cost Y for land and Z for the structure, but we insist that you insure for Y+Z+25%* because that's what we think it will cost to rebuild. WTF?

*I've blocked out the exact percentage. It could have been more, or slightly less. I was super pissed, but whaddya gonna do? - Don't say go elsewhere, because the overall price she came up with was comparatively reasonable, but it's still messed up.

Only somewhat related sidebar: We got a notice of non renewal from said insurance company. Too much fire danger (lower case, lol) they said. They happen to be located in our city. DH called them and pointed out that we're closer to a fire station and a massive water source than they are, and that we were unaffected by the PG&E power shutdowns, whereas their office was shut down more than once. They grudgingly agreed to renew our policy, but told us the price would go up. When we got the new bill, our very reasonable policy had gone up by less than 20 bucks. Yawn.

[johndoe]

...the taxes and insurance are roughly 3x what their original mortgage payment was.  To everyone who thinks having a paid off home means you will never lose your house... consider what happens if you can’t pay your taxes and insurance - and what those will look like relative to your mortgage in 20 or 30 years.

My parents had a similar story. I distinctly remember my dad griping about the utility bills being more than the mortgage ever was.

Not sure I totally follow.  IMO the mental "woohoo I'm done with payments" is definitely diminished by taxes/insurance (and  to lesser extent utilities- lesser extent because I paid that outside of escrow all along anyway).  So I agree it's never REALLY your house.  But how is paying off or maintaining mortgage more advantageous for those rising prices?  You're paying the same either way, and you should have more cash flow sans mortgage.

Totally agree with the "spectrum" point and that one size doesn't fit all.  I also wonder if people adjust their investments accordingly- "I've got $x in a paid off home so I'll be more aggressive with equities and not have as many bonds" vs "I own no real estate so I'll lower stocks in favor of more stable bonds".

[Jack0Life]

I've always been a very conservative investor which was why I've always been keen on paying off my house.
Six years ago when I found MMM and started doing Index funds, I still like to pay off my mortgage even though I knew I was getting more from Index funds than mortgage rates.
Fast forward to now, the rates are so low, you're crazy if you want to pay off your mortgage.
I have a 15 yr mortgage on my current house and I've been trying to refinance it to 30 yr.
House valued at $365K and I owe less than $210K. I have $155K of equity doing nothing for me. I wish I had that equity during the crisis and I would have dumped it in more Index funds.
Being furloughed right now and I hate the thought of dumping so much into principle of the house. My wife doesn't make enough to refinance on her own so my only option if I want to refinance  is to get a co-signer.

[big_owl]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank. 

[nereo]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

We're refinancing ourselves right now.  We spent a lot of time and savings doing a whole-house reno and now I really don't like how much of our NW is tied to our home (~30% at my last calculation).  The mortgage should take care of that problem - basically just anther form of portfolio re-balancing. As an added bonus we'll use that money to max out some additional tax-advantaged head-space.  It's really been bothering me not to max those out each year since it's a 'fund-it-or-lose-it' proposition.l

As you said, with mortgage rates at sub 3% it makes the decision that much easier.

[waltworks]

Yep, just refinanced to get as big of a mortgage as possible. Free money. And like you, Nereo, I'm always uncomfortable having so much money tied up in a house.

Of course, thanks to Covid real estate insanity around here, our equity/NW in real estate has probably actually increased in the last 6 months despite my best efforts. The bank won't loan us much with our minimal income, though. Frugal weirdo problems...

-W

[Dicey]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

I read the dripping sarcasm in this post. It also makes fun of someone else, which is inappropriate. May I politely remind you @big_owl, that this thread was created specifically to explore and extol the advantages of American fixed rate mortgages? There is another thread celebrating mortgage payoff, wherein no discussion of other points of view is allowed, hence the creation of this thread. If your sarcasm is deliberate, please understand that you are in the wrong church and you are facing the wrong way. You are entitled to your feelings, but you seem to be seeking validation in the wrong place, and at the expense of others. Please stop.

[nereo]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

I read the dripping sarcasm in this post. It also makes fun of someone else, which is inappropriate. May I politely remind you @big_owl, that this thread was created specifically to explore and extol the advantages of American fixed rate mortgages? There is another thread celebrating mortgage payoff, wherein no discussion of other points of view is allowed, hence the creation of this thread. If your sarcasm is deliberate, please understand that you are in the wrong church and you are facing the wrong way. You are entitled to your feelings, but you seem to be seeking validation in the wrong place, and at the expense of others. Please stop.

I realize big_owl's post may have been made sarcastically, but mine was not.
For those who care about numbers, here's a quick breakdown for us:

For every $100k the bank gives to me we have a monthly payment of just $414 ($4,968).  That's crazy-low.

Since we have moderate incomes but a ton of tax-advantages space (an HSA, limited FSA, 403(b) and 401(k)) we have $56k in tax-advantaged space each year, but can only ‘fill’ about $22k of that (leaving $34k unused). By spreading the ReFi across two years we’re able to max out 2020 and 2021.

The tax savings alone will give us an additional $12,240 in our pockets, and given the tax structure and our FI plans the tax-free growth will likely be far, far more (like an additional $30k over the next few decades).  Conveniently the $100k + $12,240 in tax savings will effectively cancel out the increased mortgage payment at 4% (technically 4.4%), and crucially those payments are fixed, so within 5 years it will  be sub 4% if we continue with moderate (e.g. 2.0% inflation).  By the last decade of the amortitization payments will be just 2.x% of my original outlay.

For those less inspired by math - I don't take any comfort looking at my property and calculating how much of my NW is tied to it.  My home just sits there, slowly falling apart, regardless of how much I owe. In our circumstances and in our current loan environment it makes much more sense to shift that into income-producing assets.  If you don't have tax-advantaged space or if you have considerably more in liquid investments your calculations might look substantially different.

[big_owl]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

I read the dripping sarcasm in this post. It also makes fun of someone else, which is inappropriate. May I politely remind you @big_owl, that this thread was created specifically to explore and extol the advantages of American fixed rate mortgages? There is another thread celebrating mortgage payoff, wherein no discussion of other points of view is allowed, hence the creation of this thread. If your sarcasm is deliberate, please understand that you are in the wrong church and you are facing the wrong way. You are entitled to your feelings, but you seem to be seeking validation in the wrong place, and at the expense of others. Please stop.

Uh no, this thread was started with the question of whether any "don't pay off your mortgage" people were reconsidering that strategy.  You could start by reading the title of the thread.  You certainly have the market cornered on condescending look-down-my-nose posts.   

[bacchi]

Yeah, the DPOYMC thread is in "Throw Down the Gauntlet."

Mortgage rates at <=3%? That's easy money. Well, unless you're Financial Sumo and think a 0.5% WR is the new SWR.

[big_owl]

Yeah, the DPOYMC thread is in "Throw Down the Gauntlet."

Mortgage rates at <=3%? That's easy money. Well, unless you're Financial Sumo and think a 0.5% WR is the new SWR.

Don't even think about RE without at least $8M along with your paid off house.

[Fomerly known as something]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

Yeah as I’ve mentioned before when I paid off mine because I kept hearing how good it feels, I felt well meh.  OTOH, I truly love seeing the dividends from my brokerage account being greater each quarter is greater than 3 months of Mortgage payments, soon those dividends will cover taxes and interest as well.

[SimpleCycle]

I wouldn't say I've ever had a strong ideological stance on paying off your mortgage, but to me it made sense to stay leveraged and invest rather than pay down.  However, we did jump at the chance to get a much better rate by paying down to conforming rather than jumbo (I realize a jumbo mortgage is facepunch worthy in its own right).  Mathematically the return is higher than just the 3.625% we get by paying down the mortgage, since paying it down also lowers the rate on the rest of the outstanding balance.

[big_owl]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

Yeah as I’ve mentioned before when I paid off mine because I kept hearing how good it feels, I felt well meh.  OTOH, I truly love seeing the dividends from my brokerage account being greater each quarter is greater than 3 months of Mortgage payments, soon those dividends will cover taxes and interest as well.

It wasn't really that awesome of a feeling when we paid ours off since we knew it was coming, but it's felt better over time as it sinks in that I don't have any debt payments in my life.  I will only ever pay cash for anything I buy from now on.   It is also really nice to be able to make huge transfers into vanguard every other week now. 

[Fomerly known as something]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

Yeah as I’ve mentioned before when I paid off mine because I kept hearing how good it feels, I felt well meh.  OTOH, I truly love seeing the dividends from my brokerage account being greater each quarter is greater than 3 months of Mortgage payments, soon those dividends will cover taxes and interest as well.

It wasn't really that awesome of a feeling when we paid ours off since we knew it was coming, but it's felt better over time as it sinks in that I don't have any debt payments in my life.  I will only ever pay cash for anything I buy from now on.   It is also really nice to be able to make huge transfers into vanguard every other week now.

See when I moved to a different house, I was happy to take out a modest mortgage again and invest the difference.  My brokerage account is now 2.5x the mortgage I took out on my current place.  I don’t see ever not using a mortgage if rates are below 4% which as a single person are still tax deductible for me and therefore my interest rate is lower.  I also contribute more to my Vanguard account each month still than my mortgage payment.

[Dicey]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

I read the dripping sarcasm in this post. It also makes fun of someone else, which is inappropriate. May I politely remind you @big_owl, that this thread was created specifically to explore and extol the advantages of American fixed rate mortgages? There is another thread celebrating mortgage payoff, wherein no discussion of other points of view is allowed, hence the creation of this thread. If your sarcasm is deliberate, please understand that you are in the wrong church and you are facing the wrong way. You are entitled to your feelings, but you seem to be seeking validation in the wrong place, and at the expense of others. Please stop.

Uh no, this thread was started with the question of whether any "don't pay off your mortgage" people were reconsidering that strategy.  You could start by reading the title of the thread.  You certainly have the market cornered on condescending look-down-my-nose posts.

@big_owl, @big_owl, @big_owl, you're 100% right! I absolutely did think I was on the DPOYM thread! 100% my mistake. Consider this a sincere and complete apology.

Whether you were being sarcastic to nereo is for others to decide. While they're at it, they can decide on your last comment, or not. What this forum has, above virtually all others, is we try to be nice here. I felt you were being unnecessarily sarcastic and rushed in to defend someone I highly respect.

I'd consider removing my comment, but you've already quoted it, so it that ship has sailed. I've made my apology to you here and I'll stand by it.

[waltworks]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

Yeah as I’ve mentioned before when I paid off mine because I kept hearing how good it feels, I felt well meh.  OTOH, I truly love seeing the dividends from my brokerage account being greater each quarter is greater than 3 months of Mortgage payments, soon those dividends will cover taxes and interest as well.

It wasn't really that awesome of a feeling when we paid ours off since we knew it was coming, but it's felt better over time as it sinks in that I don't have any debt payments in my life.  I will only ever pay cash for anything I buy from now on.   It is also really nice to be able to make huge transfers into vanguard every other week now.

It would be a great feeling to have no mortgage and be dumping big chunks into the market!

You know what's even more awesome? Having a mortgage and being FI years earlier because you consistently took out big mortgages and invested that money instead of paying them off.

-W

[big_owl]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

Yeah as I’ve mentioned before when I paid off mine because I kept hearing how good it feels, I felt well meh.  OTOH, I truly love seeing the dividends from my brokerage account being greater each quarter is greater than 3 months of Mortgage payments, soon those dividends will cover taxes and interest as well.

It wasn't really that awesome of a feeling when we paid ours off since we knew it was coming, but it's felt better over time as it sinks in that I don't have any debt payments in my life.  I will only ever pay cash for anything I buy from now on.   It is also really nice to be able to make huge transfers into vanguard every other week now.

It would be a great feeling to have no mortgage and be dumping big chunks into the market!

You know what's even more awesome? Having a mortgage and being FI years earlier because you consistently took out big mortgages and invested that money instead of paying them off.

-W

I'll raise that with what's even more awesome, being FI AND having no mortgage :) 

[Fomerly known as something]

Yeah I'm really regretting paying off our house last month. I hate walking around my property looking at everything knowing that I own it all.  I'm actually going to take out another mortgage just because interest rates are so low you'd be crazy not to be in debt to the bank.

Yeah as I’ve mentioned before when I paid off mine because I kept hearing how good it feels, I felt well meh.  OTOH, I truly love seeing the dividends from my brokerage account being greater each quarter is greater than 3 months of Mortgage payments, soon those dividends will cover taxes and interest as well.

It wasn't really that awesome of a feeling when we paid ours off since we knew it was coming, but it's felt better over time as it sinks in that I don't have any debt payments in my life.  I will only ever pay cash for anything I buy from now on.   It is also really nice to be able to make huge transfers into vanguard every other week now.

It would be a great feeling to have no mortgage and be dumping big chunks into the market!

You know what's even more awesome? Having a mortgage and being FI years earlier because you consistently took out big mortgages and invested that money instead of paying them off.

-W

I'll raise that with what's even more awesome, being FI AND having no mortgage :)

Honestly if you are FI weather you have a mortgage or not doesn’t matter because being FI with a mortgage it means my ‘Stacey is big enough to pay the mortgage.

[rmorris50]

Besides mortgage rates being so low, the vast majority of my wealth is in tax advantages accounts. To pay for a house in cash would mean massive tax hits.

The question is interesting on older mortgages now. If you have a mortgage over say 4 percent and for some reason find it hard to refinance, is it better to pay down faster might be a question worth considering. I think having liquidity is very important so may not be many people in this kind of situation, having a high mortgage rate and can’t refinance and extra cash flow


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[BTDretire]

I have continuously recommended people keep there low interest mortgages and invest the money. It makes financial sense.
That said, I paid $80k cash for my house 26 years ago have been happy and comfortable with that decision. If had got a mortgage at that time rates were in the 9% range, so not a good time. Did I think about getting a mortgage when rates were near and below 3%, yes I did. However, I'm retired now with 35 to 40 times yearly spending, so it all worked out.
 Getting a mortgage is both a financial and a psychological decision, hard to fault anyone's decision.

[TomTX]

It wasn't really that awesome of a feeling when we paid ours off since we knew it was coming, but it's felt better over time as it sinks in that I don't have any debt payments in my life.  I will only ever pay cash for anything I buy from now on.   It is also really nice to be able to make huge transfers into vanguard every other week now.

I guess I just don't get the distinction of "no debt payments". My house has significant property tax + insurance cost whether or not I have a mortgage. If I don't pay that, I'd probably lose the house even faster than nonpayment of a mortgage.

The mortgage payment is less than property tax + insurance.

[rmorris50]

https://apple.news/Aum8qrmxtTpy6ioc_okJdZw

WSJ article about refinance rates.

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[waltworks]

I'll raise that with what's even more awesome, being FI AND having no mortgage :)

Not if it took you extra years to get there because you paid 10% to save 4%.

-W