Author Topic: Do you regret paying off your mortgage early?  (Read 98559 times)

rionorte

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Do you regret paying off your mortgage early?
« on: January 21, 2015, 09:02:38 AM »
Mustachian coworkers and I are discussing paying off our mortgages early.  One question is - "Have you ever met someone who regretted paying off their mortgage early?"

So how about it do you regret paying off your mortgage and not making use of "cheap money"?

viper155

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Re: Do you regret paying off your mortgage early?
« Reply #1 on: January 21, 2015, 09:17:45 AM »
I doubt you will find many people saying it sucks not having a mortgage to pay every month....I know many people here say they won't pay off their mortgage ahead of time because they can use the low interest money to invest with. To each his own but what that does not factor in is the fact that while you earn interest you are paying compound interest and incurring a ton of risk. I would love to know how many here have paid off their mortgage, didn't like it, then borrowed again to invest with. I would guess zero but I could be wrong.

Jon_Snow

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Re: Do you regret paying off your mortgage early?
« Reply #2 on: January 21, 2015, 09:30:36 AM »
No way...our current housing costs are just a touch above $300 monthly. A unit such as ours RENTS for $1300 monthly. Plus we are sitting on 340k of equity on a place we bought for in 2002 for 140k...

Nothing but win, and a big reason I'm ER'ed...

The emotional reasons for paying off the mortgage off are much greater than any financial gain you might reap by choosing not to pay it off. JUST PAY IT OFF.

CrisAdams

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Re: Do you regret paying off your mortgage early?
« Reply #3 on: January 21, 2015, 09:41:23 AM »
I have not met anyone that regretted paying off their house.  Housing takes a big chunk of the monthly budget, generally represents 20% to 30% so if the house if paid off, the monthly expenses become more manageable plus you have the equity of the home for emergencies.

brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #4 on: January 21, 2015, 09:42:53 AM »
To each his own but what that does not factor in is the fact that while you earn interest you are paying compound interest and incurring a ton of risk.

What does this even mean?  The interest you pay on your mortgage compounds while the earnings on your investments somehow don't?

The "ton of risk" you are incurring when you assume that your investments will outperform your 30-year low-interest-rate mortgage is much lower than the "ton of risk" you are incurring when you assume that you can retire on a stash equal to 25x your expenses.  If investing in lieu of prepaying a sub-4%, 30-year mortgage really involves a "ton of risk," then anyone relying on the 4% rule is in a shitload of trouble.

My mortgage is still outstanding but I regret having started down the road of aggressively prepaying principal before reversing course and keeping every last penny of cheap borrowed money outstanding for as long as possible.  I still have ~25 years of amortization left, but if I had substantially less years to maturity I would happily refinance back into a 30 year and pull out the maximum amount of equity.

Jack

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Re: Do you regret paying off your mortgage early?
« Reply #5 on: January 21, 2015, 09:50:27 AM »
Nobody's going to say "I wish I hadn't paid off my mortgage early," but I bet you could find somebody who had done so who would say "I wish I had invested more" without consciously acknowledging the cause-and-effect relationship.

EscapeVelocity2020

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Re: Do you regret paying off your mortgage early?
« Reply #6 on: January 21, 2015, 09:51:14 AM »
I went on a ski trip with my friends 4 years ago and one guy was pretty excited that he'd paid off his mortgage.  This was 2010 and there wasn't much confidence in the stock market.  I told him that I had the money to pay off my mortgage, but I was keeping it invested and I felt like I had a secure job.  We discussed it at length, that he now had hundreds of thousands tied up in his house and he had no plans to take it out.

Fast forward to now, I have been able to refinance twice and unexpectedly improve my cash flow, my investments have been fantastic, and I've been able to make use of the interest deduction to further offset the interest rate (2.875% 15yr).  I also see a mortgage payment as a budgeting tool - the prinicpal payment is like putting money in the bank (where the only 'real' way to withdraw is to downsize) and it keeps my budget tight.  If I ER this year, I will most likely pay off the balance out of all of the extra proceeds in the stock market, but it takes a lot of foresight and planning to capture all of these benefits.

My friend ended up moving about 2 years ago, and has a mortgage on his new house, although he moved to a lower COL area with a more secure job.  I think our conversation, and the outcome over the years, was pretty convincing.

But to each their own, I have seen this seemingly straightforward discussion come up over and over with very little progress.  Maybe someone needs to create a mortgage payoff simulator using historical returns and mortgage interest rates, (with an option to refinance at any time for the cost of, say, a quarter percent of the going rate, during the life of the loan), with a shadow line of slowly investing that same P&I payment monthly, and show that the probability of coming out ahead financially over, say 30 years, or even 15 years, is 100%....  anyone, Bueller?
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retired?

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Re: Do you regret paying off your mortgage early?
« Reply #7 on: January 21, 2015, 10:02:36 AM »
I doubt you will find many people saying it sucks not having a mortgage to pay every month....I know many people here say they won't pay off their mortgage ahead of time because they can use the low interest money to invest with. To each his own but what that does not factor in is the fact that while you earn interest you are paying compound interest and incurring a ton of risk. I would love to know how many here have paid off their mortgage, didn't like it, then borrowed again to invest with. I would guess zero but I could be wrong.

I have thought about it recently.  Mine is not completely paid off, but I've paid it down aggressively.  The house is worth about 425-450.  That's a lot tied up in something that may or may not appreciate, and over the long run appreciates slowly (in Texas).  Time horizon is a big factor.  I envision being in the home at least another 8 years when kids are both above 18.  At that point, I'd downsize to something half the size.

Another way to put the question that makes it easier for me to answer is:  If we moved to another city, would I put the full current equity into the new house (assuming save value)?  The answer is "no".  I am fine with less equity in the house, but the actual act of refinancing out some equity on the current house makes me pause.

I also would have paid down the mortgage on our rental prop (higher rate), but I had been viewing it as a self-contained entity (pay for the costs out of the rent).

skunkfunk

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Re: Do you regret paying off your mortgage early?
« Reply #8 on: January 21, 2015, 10:26:00 AM »
Don't skimp on your tax-advantaged accounts! If IRA and 401K are filled up, paying off the house makes GREAT sense. Diversity!

bacchi

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Re: Do you regret paying off your mortgage early?
« Reply #9 on: January 21, 2015, 10:53:55 AM »
While I haven't paid off a mortgage and borrowed again, I did take out a $40k HELOC for improvements (some necessary, some not) and rolled that into a mortgage. I could've paid cash but instead I invested the $40,000. Given the 4% rule and my <4% mortgage, it made and still makes complete sense. I'll do the same for the upcoming garage apartment remodel.


ltt

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Re: Do you regret paying off your mortgage early?
« Reply #10 on: January 21, 2015, 11:10:57 AM »
Absolutely, no way!  We paid off our mortgage in 2008, just before everything went haywire.  Have not missed writing a check to the bank every month.   Our bare-bones housing costs (basically insurance, electric, taxes & water) run around $550 per month.  It's just nice to know that we're not paying over $1,000 for a mortgage also.  Some of the mortgage figures on this board scare me.

iowajes

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Re: Do you regret paying off your mortgage early?
« Reply #11 on: January 21, 2015, 11:36:21 AM »
If you DID regret it, you can always take out another mortgage... so it's not like it is an action that can't be undone.

Knaak

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Re: Do you regret paying off your mortgage early?
« Reply #12 on: January 21, 2015, 11:40:00 AM »
I built my house for cash in 2005/06.  Interest rates were ~6% at the time.

In 2009 my business tanked and I was very fortunate to not have a mortgage.  That would have been a huge burden and dramatically increased an already-stressful time.

In 2011 I set up a HELOC on my house, which has been at 3.74% ever since.  It cost me $0 to set up and gave me access to 80% of my equity, which I've used to fund construction projects.  I only pay interest on the amount I withdraw, so I like it more than a mortgage.  I take out more and more as I build a house, then as soon as I finish and sell the house, I can immediately put the money back into the HELOC and stop paying interest until I start my next project.

If I planned to stay in my house for several years, or if I was using the money for regular stock/bond investments, I would take out a mortgage simply to lock in a low rate.  However, since I don't plan on being here for more than 1-2 more years, I'm sticking with the HELOC.  Easy access to my equity when I need it, but no mortgage payments when I don't have a project in progress.

Tyler

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Re: Do you regret paying off your mortgage early?
« Reply #13 on: January 21, 2015, 11:44:27 AM »
IMHO, the type of person who not only values paying off a mortgage early but also has the income to make it happen and the perseverance to follow through is very unlikely to come across a situation where they regret their decision.  They're wired pretty well financially, and will be just fine. 

Both paying on a mortgage (investing the rest) and paying off a mortgage can work well in the right situations.  There's no single path to financial success.  The key is to make good decisions regardless of the path you choose.  Like not buying such a stupid-expensive house to begin with.  ;)
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Bob W

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Re: Do you regret paying off your mortgage early?
« Reply #14 on: January 21, 2015, 11:50:13 AM »
I regretted it so much in 01(?) when the market had tanked that I took out a mortgage an dumped it into the market.   

Now I regret doing that as much of the proceeds were spent on divorce attorneys.  My wife got the house and miniscule payment and was still able to be foreclosed on.   

I regretted it so much that when I refied my current home we took out as much equity as  we could.

I regretted it so much that I will never pay off a home mortgage when rates are so low.   

I've never understood why people pay cash for clown homes like MMM did.   Funny how he presented his annual spending for 2013 and totally left off the 400K he spent on a clown home.  Oh well,  to each his own.   If you are buying a home for like 30K that is a different story. 
Better living through math.

Davids

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Re: Do you regret paying off your mortgage early?
« Reply #15 on: January 21, 2015, 12:19:22 PM »
I bought my house in 2010, 30 year mortgage 4.25% interest rate. I have been aggressively paying down my mortgage and expect to have it paid off by end of 2018. I have no regrets for my decision.

EscapeVelocity2020

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Re: Do you regret paying off your mortgage early?
« Reply #16 on: January 21, 2015, 12:25:41 PM »
I bought my house in 2010, 30 year mortgage 4.25% interest rate. I have been aggressively paying down my mortgage and expect to have it paid off by end of 2018. I have no regrets for my decision.
Trying to be helpful - why not look into lowering the rate by a percent or so with a refinance (maybe to 10 or 15-year duration)?  You can even do it for free if you pay a little higher interest rate.  And you can still pay it off early with no penalty, so it's about the best deal you'll ever get from a bank :)
« Last Edit: January 21, 2015, 12:31:16 PM by EscapeVelocity2020 »
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skunkfunk

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Re: Do you regret paying off your mortgage early?
« Reply #17 on: January 21, 2015, 12:39:41 PM »
I regretted it so much in 01(?) when the market had tanked that I took out a mortgage an dumped it into the market.   

Now I regret doing that as much of the proceeds were spent on divorce attorneys.  My wife got the house and miniscule payment and was still able to be foreclosed on.   

I regretted it so much that when I refied my current home we took out as much equity as  we could.

I regretted it so much that I will never pay off a home mortgage when rates are so low.   

I've never understood why people pay cash for clown homes like MMM did.   Funny how he presented his annual spending for 2013 and totally left off the 400K he spent on a clown home.  Oh well,  to each his own.   If you are buying a home for like 30K that is a different story.

Would you argue that hedging against poor equity performance, business performance, or whatever else you are invested in is a bad idea? Real estate doesn't typically appreciate very well, yeah, but as a part of your portfolio it can make good sense since you have to live somewhere.

Assume that whatever house I'm referring to is whatever you consider "responsible" for a given person (e.g. no 3000 square foot 4 bedroom house with all the "best" finishes for a family of 3.)

Indio

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Re: Do you regret paying off your mortgage early?
« Reply #18 on: January 21, 2015, 12:48:59 PM »
I'm regretting having tied up so much capital in paying off my mortgage. I have about 70% equity due to pay down and housing going up. I'd like some of the cash now to use as a downpayment on a new house in an area with a better school system. I will rent out the current house, which will continue to help with the pay down.

partgypsy

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Re: Do you regret paying off your mortgage early?
« Reply #19 on: January 21, 2015, 01:11:00 PM »
The two people I know (parents in law, and a friend) who paid off house early do not seem to regret it. But they also didn't have huge expensive houses and (from I can tell) have alot of money in stocks or mutual funds. Basically, getting a modest (for their means) house and paying off early was part of their overall strategic financial plan. 
I think people who have big mortgages on big houses can sometimes get into fuzzy thinking what is an asset, and what is a place to live. I'd rather have a modest, paid off home than a large un-paid for home that I consider an asset. This may not be possible if you live in a high cost of living, but is possible where I live.
Full disclosure, I don't have a paid off house. We did refinance from a 30 to a 15 year to get it paid off sooner.
« Last Edit: January 21, 2015, 01:13:07 PM by partgypsy »

Alectejas

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Re: Do you regret paying off your mortgage early?
« Reply #20 on: January 21, 2015, 01:21:17 PM »
The two people I know (parents in law, and a friend) who paid off house early do not seem to regret it. But they also didn't have huge expensive houses and (from I can tell) have alot of money in stocks or mutual funds. Basically, getting a modest (for their means) house and paying off early was part of their overall strategic financial plan. 
I think people who have big mortgages on big houses can sometimes get into fuzzy thinking what is an asset, and what is a place to live. I'd rather have a modest, paid off home than a large un-paid for home that I consider an asset. This may not be possible if you live in a high cost of living, but is possible where I live.
Full disclosure, I don't have a paid off house. We did refinance from a 30 to a 15 year to get it paid off sooner.

I agree with partgypsy
It depends how much house you have ...
Paying off the mortgage on a McMansion with an pool, tennis courts and 10 acres of lawn is like paying cash for a high end luxury car, penny wise and pound foolish.  If, however, you have chosen a small house in a good location (for you), then paying off the (small) mortgage is fine. 

retired?

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Re: Do you regret paying off your mortgage early?
« Reply #21 on: January 21, 2015, 01:23:20 PM »


In 2011 I set up a HELOC on my house, which has been at 3.74% ever since.  It cost me $0 to set up and gave me access to 80% of my equity, which I've used to fund construction projects.  I only pay interest on the amount I withdraw, so I like it more than a mortgage.  I take out more and more as I build a house, then as soon as I finish and sell the house, I can immediately put the money back into the HELOC and stop paying interest until I start my next project.



Cost zero to set up?  Not even an updated appraisal?  The only time I did a HELOC was as a 2nd on an expensive to home to have the main mortgage at 417k, so I didn't really have extra expenses.  But, setting up separately, I would expect some.

Also, my understanding is that heloc's are floating rate.  While rates have stayed low, you might find yourself with increasing rates and a low stock market (i.e. when you don't want to sell to pay off higher rate heloc).  Am I missing something?

morning owl

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Re: Do you regret paying off your mortgage early?
« Reply #22 on: January 21, 2015, 01:24:47 PM »
We paid off our house early last year, so we've had a full year living mortgage free. Our house expenses went from around $4500 a month to just over $1000 a month. We don't regret it at all, even though mathematically it would have been better to invest that prepayment money (since, as it turned out, the years we were doing massive prepayments saw a huge bull run in the markets.)

The reason we don't regret it is that it locked us both in to high paying jobs that a) we hated and b) are unstable. Since our mortgage payoff I've started doing more of what I want to do on a freelance basis and have said no to any job I don't want to do that would be too stressful. DH is still working but could do the same. In the meantime we are power-saving into our accounts at a rate of $10-12k per month. Sure we could've earned more if we'd invested the prepayments, but we owed a lot of money on the house and it seemed more prudent to pay off the debts while the incomes were there as we could not have predicted the market turnout. Despite the bull market, in our situation we made the right choice because our high incomes could not have lasted the 15 years of our mortgage and we would have been forced to deplete the savings if DH lost his job.

decembeir

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Re: Do you regret paying off your mortgage early?
« Reply #23 on: January 21, 2015, 01:31:17 PM »
Nobody's going to say "I wish I hadn't paid off my mortgage early," but I bet you could find somebody who had done so who would say "I wish I had invested more" without consciously acknowledging the cause-and-effect relationship.

I wish I hadn't paid of my mortgage early. My husband and I didn't know as much about investing in 2012, but we knew we should be stashing money somehow. Had we taken more time to read and learn about index funds, etc. we would be quite a bit ahead of where we are now on our way to FIRE. There is no point of re-getting a mortgage now because we have moved across the country and the house will imminently have new owners.

sunshine

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Re: Do you regret paying off your mortgage early?
« Reply #24 on: January 21, 2015, 01:37:55 PM »
We paid off our first two homes early and paid cash for our current home. We have never had a moment's regret. It may not make mathematical sense put for us it gives peace knowing we own everything free and clear.  Renting our home would be $1300 to $1500 a month. We are quite happy just setting aside the money for taxes and insurance.  We are actually starting to look at downsizing. I expect as with our last purchase cash in hand will be a  great way to snag another bargain.  We bought this home from a financially strapped seller.
« Last Edit: January 21, 2015, 01:44:57 PM by sunshine »

LiveLean

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Re: Do you regret paying off your mortgage early?
« Reply #25 on: January 21, 2015, 02:07:54 PM »
No.

Bought house in 1999. Used booming stock market proceeds to fund 30 percent down payment.

Stock market continues to soar. Considered paying off mortgage January 2000. Stayed in market instead. Oops.

Had big chunk in cash in early 2008. Thought of going heavier into stocks. Paid off mortgage instead. Good call.

Summer 2014. Getting the run around from lenders as I tried to get mortgage for second home/rental property/future retirement home. Finally realized it would be much easier to get mortgage -- and much easier from a tax and accounting standpoint - to just take out mortgage on primary residence (which had not had a mortgage since 2008) and thus pay cash for second home.

So I'm back to having a mortgage on primary residence, though with all interest tax deductible. Rental income from future retirement home more than covers it. And we'll sell this beast of a primary residence in a few years and take the 60 percent-plus equity out with it.
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Knaak

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Re: Do you regret paying off your mortgage early?
« Reply #26 on: January 21, 2015, 02:10:07 PM »
In 2011 I set up a HELOC on my house, which has been at 3.74% ever since.  It cost me $0 to set up and gave me access to 80% of my equity, which I've used to fund construction projects.  I only pay interest on the amount I withdraw, so I like it more than a mortgage.  I take out more and more as I build a house, then as soon as I finish and sell the house, I can immediately put the money back into the HELOC and stop paying interest until I start my next project.

Cost zero to set up?  Not even an updated appraisal?  The only time I did a HELOC was as a 2nd on an expensive to home to have the main mortgage at 417k, so I didn't really have extra expenses.  But, setting up separately, I would expect some.

Zero to set up.  Not a single penny.  My bank had a calculation where they determined the value and then loaned up to 80% of that.  If I wanted to contest the amount, then I would have needed to pay for an appraisal.  But, the amount they approved for my HELOC was already more than I needed and it seemed to be a fair assessment, so I didn't worry about it.  The only 'gotcha' they had was if I closed the LOC within 3 years of opening it, there would have been a $350 fee.  I didn't need to keep any sort of minimum balance and I already passed the 3-year mark, so no fees for me other than the interest rate.  I just looked at my bank's website and they still have the same rate, but they do have a couple other fees now.  Glad I got it when I did.

Also, my understanding is that heloc's are floating rate.  While rates have stayed low, you might find yourself with increasing rates and a low stock market (i.e. when you don't want to sell to pay off higher rate heloc).  Am I missing something?

Yes, HELOCs have variable rates.  You missed the part where I said I'm using the credit line for construction projects, not investing in the stock market.

retired?

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Re: Do you regret paying off your mortgage early?
« Reply #27 on: January 21, 2015, 02:22:28 PM »
In 2011 I set up a HELOC on my house, which has been at 3.74% ever since.  It cost me $0 to set up and gave me access to 80% of my equity, which I've used to fund construction projects.  I only pay interest on the amount I withdraw, so I like it more than a mortgage.  I take out more and more as I build a house, then as soon as I finish and sell the house, I can immediately put the money back into the HELOC and stop paying interest until I start my next project.

Cost zero to set up?  Not even an updated appraisal?  The only time I did a HELOC was as a 2nd on an expensive to home to have the main mortgage at 417k, so I didn't really have extra expenses.  But, setting up separately, I would expect some.

Zero to set up.  Not a single penny.  My bank had a calculation where they determined the value and then loaned up to 80% of that.  If I wanted to contest the amount, then I would have needed to pay for an appraisal.  But, the amount they approved for my HELOC was already more than I needed and it seemed to be a fair assessment, so I didn't worry about it.  The only 'gotcha' they had was if I closed the LOC within 3 years of opening it, there would have been a $350 fee.  I didn't need to keep any sort of minimum balance and I already passed the 3-year mark, so no fees for me other than the interest rate.  I just looked at my bank's website and they still have the same rate, but they do have a couple other fees now.  Glad I got it when I did.

Also, my understanding is that heloc's are floating rate.  While rates have stayed low, you might find yourself with increasing rates and a low stock market (i.e. when you don't want to sell to pay off higher rate heloc).  Am I missing something?

Yes, HELOCs have variable rates.  You missed the part where I said I'm using the credit line for construction projects, not investing in the stock market.

Interesting.  Very good point.  Nice.  Did you have to ask for that?  i.e. bank, give me your unofficial no-cost appraisal and if that is enough then I am happy to forego the official appraisal.  I'd be fine with a somewhat lowball assessment if I didn't need to pay for an appraisal.

Is it a nation-wide bank?

MandalayVA

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Re: Do you regret paying off your mortgage early?
« Reply #28 on: January 21, 2015, 02:34:00 PM »
We paid off our mortgage in November.  We have a condo, but it's in a very desirable neighborhood and unless something horrible happens we'll be able to sell it at a profit.  It freed up a lot of money which we're piling into index funds.
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dragoncar

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Re: Do you regret paying off your mortgage early?
« Reply #29 on: January 21, 2015, 02:52:42 PM »
I once paid off a low-rate auto loan.  Now I wish I hadn't.

Knaak

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Re: Do you regret paying off your mortgage early?
« Reply #30 on: January 21, 2015, 03:25:39 PM »
Interesting.  Very good point.  Nice.  Did you have to ask for that?  i.e. bank, give me your unofficial no-cost appraisal and if that is enough then I am happy to forego the official appraisal.  I'd be fine with a somewhat lowball assessment if I didn't need to pay for an appraisal.

Is it a nation-wide bank?

I submitted an application on their website and they said how much I was approved for about a week later.  That's when they said I could get an appraisal if I didn't agree with the amount.  I was happy with it, so it was quick and easy to finish up the paperwork at that point.  Not sure if it helped, but I had been banking with them for about 12 years at the time I got the credit line.  It's a regional bank (Utah/Idaho/Wyoming).

Lmoot

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Re: Do you regret paying off your mortgage early?
« Reply #31 on: January 21, 2015, 03:53:52 PM »
To each his own but what that does not factor in is the fact that while you earn interest you are paying compound interest and incurring a ton of risk.

What does this even mean?  The interest you pay on your mortgage compounds while the earnings on your investments somehow don't?

The "ton of risk" you are incurring when you assume that your investments will outperform your 30-year low-interest-rate mortgage is much lower than the "ton of risk" you are incurring when you assume that you can retire on a stash equal to 25x your expenses.  If investing in lieu of prepaying a sub-4%, 30-year mortgage really involves a "ton of risk," then anyone relying on the 4% rule is in a shitload of trouble.

My mortgage is still outstanding but I regret having started down the road of aggressively prepaying principal before reversing course and keeping every last penny of cheap borrowed money outstanding for as long as possible.  I still have ~25 years of amortization left, but if I had substantially less years to maturity I would happily refinance back into a 30 year and pull out the maximum amount of equity.

The "ton of risk" you are incurring is the assuming that in 30 years nothing in your life ever will change that could compromise your ability to pay off your house.

Lmoot

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Re: Do you regret paying off your mortgage early?
« Reply #32 on: January 21, 2015, 04:05:20 PM »
We paid off our house early last year, so we've had a full year living mortgage free. Our house expenses went from around $4500 a month to just over $1000 a month. We don't regret it at all, even though mathematically it would have been better to invest that prepayment money (since, as it turned out, the years we were doing massive prepayments saw a huge bull run in the markets.)

The reason we don't regret it is that it locked us both in to high paying jobs that a) we hated and b) are unstable. Since our mortgage payoff I've started doing more of what I want to do on a freelance basis and have said no to any job I don't want to do that would be too stressful. DH is still working but could do the same. In the meantime we are power-saving into our accounts at a rate of $10-12k per month. Sure we could've earned more if we'd invested the prepayments, but we owed a lot of money on the house and it seemed more prudent to pay off the debts while the incomes were there as we could not have predicted the market turnout. Despite the bull market, in our situation we made the right choice because our high incomes could not have lasted the 15 years of our mortgage and we would have been forced to deplete the savings if DH lost his job.

This pretty much explains why I'm trying to pay mine off by 2017. Yeah it's all fine and dandy that some people think folks who want to pay of their mortgage are simpletons, however you are not going to be in our shoes for 30 years to earn the income required to maintain a mortgage. What if I decide I don't want to work at the same level for the same income anymore? 30 years is a longazz time. Sure I can scale back on investing...but I'm still stuck with a mortgage I don't want/ can't afford to pay anymore. When you pay off your mortgage you have more choices, plain and simple, and one of those choices can be investing if that's what you're into.

Now I will admit when the mortgages are huge, and you're planning to continue earning a large income, it might behoove you to look into the benefits of not paying off the mortgage. However, like someone mentioned, most people looking to pay off their mortgage early most likely took out a modest mortgage and can pay it off in several years, and are looking for a lifestyle change (not everything is about squeezing out every possible cent). I wouldn't even earn enough in the interest I pay to get the deduction. And it would take longer for me to recoup the cost of refinancing than they it would for me to just pay the damn thing off.
« Last Edit: January 21, 2015, 04:10:28 PM by Lmoot »

rionorte

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Re: Do you regret paying off your mortgage early?
« Reply #33 on: January 21, 2015, 04:14:57 PM »
I want to pay my mortgage off so I have options to work and invest how I want.  Right now it seems like I am slave to the "trickle trap".
  • a lot to the bank in interest
  • a little to my principal
  • a lot to various taxes
  • a little to my 401k
  • a little to my rainy day fund
  • a little to my hobbies
.... and it seems like the prevailing wisdom (pushed by the bankers of course) is that in 30 years you will be ready to retire ... but what if I don't want to wait or live that long?

lostamonkey

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Re: Do you regret paying off your mortgage early?
« Reply #34 on: January 21, 2015, 04:15:17 PM »
Investing instead of paying a mortgage is like borrowing to invest. You will come out ahead in the long run but you are taking some extra risk. If the stock market crashes, and you lose your job at the same time, you could have an issue and be forced to "sell low" to pay off your mortgage.

Rural

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Re: Do you regret paying off your mortgage early?
« Reply #35 on: January 21, 2015, 05:48:37 PM »
No regrets here, but then our loan was for 39k at 7.5% with a balloon due at the end anyway, so....


But not having that payment leaves us with property taxes under $1k annually for our housing expenses (no insurance available yet). We'll need another $500 on building supplies to finish enough to insure, and I have fond hopes of paying for insurance later this year.


Meanwhile, the reduction in expenses has bought freedom. My husband is leaving a job that's making him miserable, and we'd still be fine for years if I left mine or was laid off.

scottish

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Re: Do you regret paying off your mortgage early?
« Reply #36 on: January 21, 2015, 05:57:04 PM »
Nope, don't regret that at all.   We don't like debt.

Spork

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Re: Do you regret paying off your mortgage early?
« Reply #37 on: January 21, 2015, 06:13:27 PM »
I don't regret it at all.  If I did, I'd just re-mortgage.

A paid off house was always part of the FIRE plan.  Yes, there are other paths that also work.  This one, for me, seemed more predictable.
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Daisy

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Re: Do you regret paying off your mortgage early?
« Reply #38 on: January 21, 2015, 06:26:22 PM »
I used to be in the don't-pay-off-your-mortgage camp. I thought it was better to invest in the market. However, after a few market selloffs in my time and reading some ER blogs, I came to the realization that there is some peace of mind that you "buy" when you pay off your mortgage.

Another benefit is that when you are mortgage-free you can get whatever insurance coverage you want (or don't want) instead of having to get the coverages required by your mortgage lender. For example, I sold my too-big house and purchased a smaller-but-still-too-big condo last year mortgage-free. Now my building has necessary coverage for the exterior. I have chosen to not get insurance coverage for the interior stuff (yet, still debating).

Also, when I had a mortgage, every year the mortgage bank would nickel and dime me on my insurance coverage telling me "you need to increase your coverage by $2000 per year or we will force our own insurance on you". Considering I am in a hurricane zone and had three types of insurance coverage, the letters were coming in constantly on this topic and just keeping up with it all was annoying and time consuming. Now, mortgage-free, I can get whatever I want.

However, I am not in the camp of paying off your mortgage by sending extra money every year to whittle down the mortgage. I think a better idea (and a way to have your cake and eat it too) is to invest that money in the markets while you still have a mortgage, and then once you have enough to pay off the mortgage with one big check you can sell your stocks and write that one big check. This gives you the benefit of gaining from stock market gains and also the flexibility to have cash on hand for other emergencies if you decide you'd rather have that money than pay off the mortgage. I think the worst case scenario is to double up on mortgage payments, then lose your job, and then still have mortgage payments plus all of your funds locked up in the house.

I "paid off" my mortgage by getting a HELOC on my old-big-house, buying the new condo cash with that until the house sold, then selling the house and paying off the HELOC. Kind of followed what MMM did recently.

EDIT: Forgot to add the ACA subsidy benefit of paying off your mortgage before FIRE. By having no mortgage, your yearly income needs are less and you are more likely to qualify for an ACA subsidy. With a mortgage, you have to generate more income for your yearly expenses and then may blow yourself out of the ACA subsidy income "sweet spot".
« Last Edit: January 21, 2015, 06:27:57 PM by Daisy »

brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #39 on: January 21, 2015, 06:40:19 PM »
The "ton of risk" you are incurring is the assuming that in 30 years nothing in your life ever will change that could compromise your ability to pay off your house.

This pretty much explains why I'm trying to pay mine off by 2017. Yeah it's all fine and dandy that some people think folks who want to pay of their mortgage are simpletons, however you are not going to be in our shoes for 30 years to earn the income required to maintain a mortgage. What if I decide I don't want to work at the same level for the same income anymore? 30 years is a longazz time. Sure I can scale back on investing...but I'm still stuck with a mortgage I don't want/ can't afford to pay anymore. When you pay off your mortgage you have more choices, plain and simple,

This does not make sense.  Let's examine what happens when you invest instead of paying off your mortgage.

Until the mortgage is entirely paid off, the person who directs excess funds towards investments instead of towards mortgage prepayments is in a better position if life throws an unexpected event like job loss their way.  Under either scenario, your monthly mortgage payments are still due and owing until the mortgage is completely paid off, and if you don't make those monthly payments the bank will come knocking on your door to take your house away.  But the investor has an extra pile of investments that can be liquidated to satisfy the mortgage payments until he/she lands back on his/her feet.  What does the prepayor have?  Extra home equity, which does not help him/her.

Once the mortgage can be entirely paid off, the person who invests in lieu of doing so has a pile of investments that will be drawn down to make the ongoing mortgage payments for the remaining life of the mortgage.  There is no need to continue with your high-income employment for the remainder of those "longazz" 30 years to service your mortgage, because you have accumulated a pile of assets that will do it for you.

aj_yooper

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Re: Do you regret paying off your mortgage early?
« Reply #40 on: January 21, 2015, 06:52:44 PM »
We paid it off earlier as the interest rate was in the 6s; we paid it off with a big check.  No regrets and we feel more relaxed.  We do have a Heloc which comes in handy.  We bought two flip homes that way.
« Last Edit: January 21, 2015, 06:55:53 PM by aj_yooper »
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stlbrah

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Re: Do you regret paying off your mortgage early?
« Reply #41 on: January 21, 2015, 07:31:08 PM »
as a 27 year old I am just not comfortable making extra payments on mortgage. I have no idea where I'll end up wanting to live in 5 or 10 years so its not practical. I bought my condo at 21 with the minimum fha required downpayment since paying rent rent makes me cringe, like many others on this site.
« Last Edit: January 21, 2015, 07:32:45 PM by stlbrah »

EscapeVelocity2020

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Re: Do you regret paying off your mortgage early?
« Reply #42 on: January 21, 2015, 08:09:30 PM »
I also made extra payments on my first mortgage ($500/mo).  It's not going to kill you by any means, and if you manage to get to having no mortgage, then you have made it to a substantial 'square one' in starting the FI journey.  All I'm going to say about it is that there are really impressive ways to get there sooner, given the current situation of 'unnaturally' low mortgage rates.
Transitioning to FIRE'd albeit somewhat cautiously...

Knapptyme

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Re: Do you regret paying off your mortgage early?
« Reply #43 on: January 21, 2015, 08:20:29 PM »
Summer 2014. Getting the run around from lenders as I tried to get mortgage for second home/rental property/future retirement home. Finally realized it would be much easier to get mortgage -- and much easier from a tax and accounting standpoint - to just take out mortgage on primary residence (which had not had a mortgage since 2008) and thus pay cash for second home.

This, this is true. With the mortgage paid off, it allowed for easy financing of a rental property with cash and all the bonuses to a tax deduction that comes with paying interest. We did this, too. The rate on a primary residence is at least a whole percent less than on a rental property. With the right lending institution, there were no closing costs, no origination fees, and the presumed money that was locked-up in equity was fairly quickly liquid. With the super low rate now, I do not plan on paying it off aggressively. Early, probably, but not aggressively so.

likeavision

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Re: Do you regret paying off your mortgage early?
« Reply #44 on: January 21, 2015, 10:28:34 PM »
The "ton of risk" you are incurring is the assuming that in 30 years nothing in your life ever will change that could compromise your ability to pay off your house.

This pretty much explains why I'm trying to pay mine off by 2017. Yeah it's all fine and dandy that some people think folks who want to pay of their mortgage are simpletons, however you are not going to be in our shoes for 30 years to earn the income required to maintain a mortgage. What if I decide I don't want to work at the same level for the same income anymore? 30 years is a longazz time. Sure I can scale back on investing...but I'm still stuck with a mortgage I don't want/ can't afford to pay anymore. When you pay off your mortgage you have more choices, plain and simple,

This does not make sense.  Let's examine what happens when you invest instead of paying off your mortgage.

Until the mortgage is entirely paid off, the person who directs excess funds towards investments instead of towards mortgage prepayments is in a better position if life throws an unexpected event like job loss their way.  Under either scenario, your monthly mortgage payments are still due and owing until the mortgage is completely paid off, and if you don't make those monthly payments the bank will come knocking on your door to take your house away.  But the investor has an extra pile of investments that can be liquidated to satisfy the mortgage payments until he/she lands back on his/her feet.  What does the prepayor have?  Extra home equity, which does not help him/her.

Once the mortgage can be entirely paid off, the person who invests in lieu of doing so has a pile of investments that will be drawn down to make the ongoing mortgage payments for the remaining life of the mortgage.  There is no need to continue with your high-income employment for the remainder of those "longazz" 30 years to service your mortgage, because you have accumulated a pile of assets that will do it for you.

I agree though I generally don't have major regrets in life.  My husband and I spent years making extra principal payments on our mortgage (we paid down about almost half of the balance in six years).  Then he developed health problems, lost his job in the middle of the Great Recession, we incurred a lot of medical expenses, etc.  We were fortunate in that we had plenty of savings that we could tap into to make the minimum mortgage payments over those years before he died.  If we hadn't, we would have been really screwed because we weren't able to refinance and pull money back out of the property (I became self-employed a few years after we got the mortgage and we needed both incomes to originally qualify for it).  Now I want to move and pay cash to buy a new home but in order to do so I first have to sell my current home.  That gives me fewer options than if we'd just invested the money instead of making those extra principal payments because that money is now tied up in the property.  If I were to do it over, I'd just make minimum payments and invest the extra somewhere else until I was FI and could pay it all off.  In my experience, paying off half early was really just half-a$$ed.

Lmoot

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Re: Do you regret paying off your mortgage early?
« Reply #45 on: January 22, 2015, 01:17:25 AM »
The "ton of risk" you are incurring is the assuming that in 30 years nothing in your life ever will change that could compromise your ability to pay off your house.

This pretty much explains why I'm trying to pay mine off by 2017. Yeah it's all fine and dandy that some people think folks who want to pay of their mortgage are simpletons, however you are not going to be in our shoes for 30 years to earn the income required to maintain a mortgage. What if I decide I don't want to work at the same level for the same income anymore? 30 years is a longazz time. Sure I can scale back on investing...but I'm still stuck with a mortgage I don't want/ can't afford to pay anymore. When you pay off your mortgage you have more choices, plain and simple,

This does not make sense.  Let's examine what happens when you invest instead of paying off your mortgage.

Until the mortgage is entirely paid off, the person who directs excess funds towards investments instead of towards mortgage prepayments is in a better position if life throws an unexpected event like job loss their way.  Under either scenario, your monthly mortgage payments are still due and owing until the mortgage is completely paid off, and if you don't make those monthly payments the bank will come knocking on your door to take your house away.  But the investor has an extra pile of investments that can be liquidated to satisfy the mortgage payments until he/she lands back on his/her feet.  What does the prepayor have?  Extra home equity, which does not help him/her.

Once the mortgage can be entirely paid off, the person who invests in lieu of doing so has a pile of investments that will be drawn down to make the ongoing mortgage payments for the remaining life of the mortgage.  There is no need to continue with your high-income employment for the remainder of those "longazz" 30 years to service your mortgage, because you have accumulated a pile of assets that will do it for you.

The risk is the market doesn't cooperate for you to draw from...it can go either way, which is why people who don't like risk feel it is less risky to pay the mortgage off with already earned, bonafide cash.  Ask any person about to retire before the crash if they wish they paid off their house. They can't make up the time. 30 years is a long time for anything and a lot can happen. Anyone that purports to knowing what will happen in 30 years time is kidding themselves.

Slowly prepaying IMO is not the ideal way to payback a mortgage so I was not alluding to that; I actually do not prefer that method. I used to be hardcore and was not going to pay off my mortgage until I amassed the savings to do so all at once (specifically because of the reasons you pointed out). However, there is little risk for me to do so within a 2-3 year time-frame because I'm young and healthy, have an efund for job loss, rental income, other streams of income, and the ability to pay it off fairly quickly as it is not a large mortgage.

The other reason people decide to pay off their mortgage, truthfully, is because it takes less discipline than paying into stocks; and that is because of its lack of liquidity, so that can be a plus. With stocks, having easy access to the money is both a blessing and a curse. I'm much more likely to sell shares (and I have) than I am to take out a HELOC; It's something I can do in 3 minutes, online by myself.


morning owl

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Re: Do you regret paying off your mortgage early?
« Reply #46 on: January 22, 2015, 07:34:38 AM »
The "ton of risk" you are incurring is the assuming that in 30 years nothing in your life ever will change that could compromise your ability to pay off your house.

This pretty much explains why I'm trying to pay mine off by 2017. Yeah it's all fine and dandy that some people think folks who want to pay of their mortgage are simpletons, however you are not going to be in our shoes for 30 years to earn the income required to maintain a mortgage. What if I decide I don't want to work at the same level for the same income anymore? 30 years is a longazz time. Sure I can scale back on investing...but I'm still stuck with a mortgage I don't want/ can't afford to pay anymore. When you pay off your mortgage you have more choices, plain and simple,

This does not make sense.  Let's examine what happens when you invest instead of paying off your mortgage.

Until the mortgage is entirely paid off, the person who directs excess funds towards investments instead of towards mortgage prepayments is in a better position if life throws an unexpected event like job loss their way.  Under either scenario, your monthly mortgage payments are still due and owing until the mortgage is completely paid off, and if you don't make those monthly payments the bank will come knocking on your door to take your house away.  But the investor has an extra pile of investments that can be liquidated to satisfy the mortgage payments until he/she lands back on his/her feet.  What does the prepayor have?  Extra home equity, which does not help him/her.

Once the mortgage can be entirely paid off, the person who invests in lieu of doing so has a pile of investments that will be drawn down to make the ongoing mortgage payments for the remaining life of the mortgage.  There is no need to continue with your high-income employment for the remainder of those "longazz" 30 years to service your mortgage, because you have accumulated a pile of assets that will do it for you.

I see your point 100%. In our case, we would be a perfect example of the math you're suggesting. We bought our house just before the market crash, which in Canada didn't result (yet) in a housing market crash. Just stock market. So at that time we didn't trust the stock markets and had a massive mortgage (around 450k). We thought that we might lose our jobs, saw our savings collapse, and decided that we didn't want to be underwater in our house, in case the housing market crashed as well. So over the course of the next 5 years we funnelled most of our extra cash into the house.

If we had gone the other route, and poured 75k - 100k per year into the market when it was at its lowest, and as it climbed into the bull market we currently know and love, then that money would now probably be worth ~$1M. With the route we took, we are instead sitting on a mortgage free $1M home instead, with far less in savings. And if I had known with absolute certainty what the market was going to do, then I would have made the mathematically correct choice, and would happily pay the mortgage minimum payments knowing that eventually I'd be sitting on $1M in liquid funds.

However.... I didn't know that. And wasn't willing to take the risk. The outcome is that we have much lower living expenses, and more choices. So even without the theoretical cash in the bank, I'm happy we made that choice. If we were to make the same decision again now, at what could be the height of the market for all we know, then hands down, I would make the same choice again. Especially now, because the bull run can't go in forever.

ETA: as others have stated, the decision isn't irreversable. We have a HELOC so if / when the market crashes again, we can easily use leverage at that point, if we wanted to (though I doubt that we would.)
« Last Edit: January 22, 2015, 07:46:02 AM by morning owl »

TropicNebraska

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Re: Do you regret paying off your mortgage early?
« Reply #47 on: January 22, 2015, 07:44:55 AM »
I have a 3.25% 30 year so paying it off early is forfeiting a free mortgage. So I'm building dividend/interest income investments that can pay my monthly mortgage payment. Once, the mortgage is paid off, the dividends keep rolling in.
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lizzzi

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Re: Do you regret paying off your mortgage early?
« Reply #48 on: January 22, 2015, 08:06:30 AM »
I don't believe in house payments any more than I believe in car payments. I paid cash for a (very) modest house in a good location, and make sure that whatever would have gone to a mortgage payment goes into my Vanguard index funds. I like to own myself and my house. I don't like the feeling that the bank owns me and my house.

brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #49 on: January 22, 2015, 08:24:19 AM »
The risk is the market doesn't cooperate for you to draw from...it can go either way, which is why people who don't like risk feel it is less risky to pay the mortgage off with already earned, bonafide cash.  Ask any person about to retire before the crash if they wish they paid off their house. They can't make up the time. 30 years is a long time for anything and a lot can happen. Anyone that purports to knowing what will happen in 30 years time is kidding themselves.

Ok, so now we're right back where we started, and like I said before, I wouldn't call it a "ton of risk."  If it is, than relying on the 4% rule and retiring on a stash equal to 25x your expenses is a "mega-ton of risk."  It's fine if someone wants to prepay their mortgage because they are exceptionally risk-averse, or for emotional reasons, but don't overstate the risks of investing instead of prepaying a low-rate, 30-year mortgage.

Cfiresim.com tells me that historically, with a 4% mortgage rate, you would have been better off investing instead of prepaying the mortgage 95.65% of the time (using a 75/25 stock/bond allocation and cfiresim's default settings for all the other variables).*  (Obviously, even lower mortgage rates have correspondingly higher success rates.)  That's an even higher success rate than the one that led to the 4% "safe withdrawal rate" rule of thumb.

And don't ignore the risks inherent in prepaying your mortgage, either.  As demonstrated above, prepaying your mortgage actually leaves you with less options in the face of unexpected life events like job loss.  Plus (and, from my perspective, most importantly), because cheap, fixed-rate debt provides an excellent hedge against inflation, by prepaying your mortgage you are giving up an important inflation-protection tool and materially increasing your risk of being eaten alive by inflation.

* To replicate these results, enter a lump sum equal to the mortgage balance as your starting portfolio amount, your annual mortgage principal + interest payments as your yearly spending, and set the spending plan to "not inflation adjusted" (since your fixed mortgage payments do not change with inflation, which is the beauty of US mortgage loans).