Author Topic: Do you regret paying off your mortgage early?  (Read 98073 times)

brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #450 on: December 01, 2017, 11:38:17 AM »
So...now to service that mortgage you need 25x of 1000/month additional...or another $300,000.

Pdx, the point is that it's grossly over-conservative to accumulate a portfolio equal to 25x the annual scheduled mortgage loan payments in order to service the mortgage loan, because the already-conservative 4% rule was derived on the basis of annual portfolio withdrawals that increase with inflation (while mortgage loan payments do not increase with inflation).  If you backtest two alternative scenarios--(i) retire with no mortgage loan, possessing a stash equal to 25x your expenses, with annual expenses equal to 4% of your initial stash amount that increase annually with inflation, and (ii) retire with a (low-rate) mortgage loan obtained on the day you retire, possessing the same stash as the first scenario plus an additional amount exactly equal to the principal balance of the mortgage loan, with annual expenses equal to the first scenario plus the required mortgage loan payments, you will see that leveraged-investing-via-mortgage actually increases your historical success rate (in addition to leaving you with a higher average terminal portfolio value).

boarder42

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Re: Do you regret paying off your mortgage early?
« Reply #451 on: December 01, 2017, 11:55:07 AM »
pdx this has been discussed many times.  You need the balance of your mortgage saved not 25x your payment.  Why.

1. inflation
2. your payment will not go on forever

if you were to use an application like cFIREsim and model a 1MM FIRE with 40k withdrawn and a paid off 200k house and then model 1.2MM fire with 40k withdrawal plus a non inflation adjusted 200k mortgage payment annually(30 year 4%) ... you will see an increase in success rate over the life of your retirement time frame.  The other tihng you will see is in the bad years your money fails sooner - this should be considered less relevant IMO due to the fact that if your money is going to fail you'll know early and you'll still fail with or without a mortgage it just maybe 10 years later.  While keeping the mortgage actually prevents failure in some backtests resulting in a larger success rate.

You could play with that number to see what would replicate the timing failure for your unique case but it will not be 25x expences it wont really be close to that at all.
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KTG

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Re: Do you regret paying off your mortgage early?
« Reply #452 on: December 01, 2017, 01:05:35 PM »
Before I found MM, I was obsessed with the idea of paying off my mortgage as fast as I could. I live in Florida, in a great area, and can't imagine ever leaving. So it seemed reasonable to save myself from any interest on my loan (I bought at the bottom of the V in Feb 2012), regardless how low my interest rate is (.03875). After all, the interest is never coming back, and I hate debt (typically pay off my cc balance each month).

MM woke me up to a lot of factors I hadn't considered, namely the market, and the event some disaster or downturn in the area happens. You can't see into the future anywhere except an amortization schedule though. I pay a little extra per month, and play with the schedule to see how varying extra payments will effect my payoff date. I graduated during the Dotcom bust, so I know how hard it was to start my career, and while I didn't own let alone lose a home in the Great Recession, I watched many others that did. The Market went down, and so did home values. Double whammy. Lose your job too oh man. However, the only thing that really didn't go down, was the value of cash. I had a good amount saved up just sitting in CDs and a savings account, and was able to buy my dream home + with money that a lot of others didn't have. Cash was king.

So while I would love to pay my home off, I wont do it until I have a lot of cash to (1) get by in a economic downturn, and (2) take advantage of the fire sales, on everything.

I agree with the opinion that throwing all of your money into your home is no different than throwing all your money into a single stock. You need to treat your home like it is an asset in your portfolio. But if you have money to spare, and have money to ride through tough times, then by all means, pay the freaking house off.
« Last Edit: December 01, 2017, 01:14:04 PM by KTG »

Slee_stack

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Re: Do you regret paying off your mortgage early?
« Reply #453 on: December 01, 2017, 01:44:11 PM »
Good popcorn thread.

I recall a quote - 'If someone is trying to sell you Peace of Mind, Keep a firm hand on your wallet'.


We all spend money on things that bring us happiness.

If paying off a mortgage early for emotional satisfaction is worth $XX dollars to you, you're good.

Most of us just want everyone to calculate that XX for themselves before making the decision.

XX may be far higher than some folks realize.

boarder42

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Re: Do you regret paying off your mortgage early?
« Reply #454 on: December 01, 2017, 02:17:16 PM »
to put some numbers to your example

300k invested 250k mortgage paid off - success rate 91.67%

now 550k invested and a mortgage payment at a rate you can get today 4% - 1194/month - 14328/year non inflation adjusted - 96.3%

inputs 2017 start 2056 finish
90/10 AA
300k stash - 12k withdrawal
.08% ER
Mortgage 2017 start 2046 finish.

5% is nothing to frown at - you do fail sooner in the years that fail in the mortgage case but its not too relevant if the money last 10 years vs 20 years to an early retiree - they will still need to make the adjustments.  and piles of back tested market research says you'll know in the first 5-8 years if you're likely to last historically.
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K-ice

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Re: Do you regret paying off your mortgage early?
« Reply #455 on: December 01, 2017, 03:09:32 PM »

so if the average person is actually investing the difference they are infact in a better place than the others who may be paying down their mortgage specifically b/c they dont have a lot of other savings b/c they arent mustachian.

I think this is the key point for my SO and me and many others. We were not actually investing the difference. We were saving it and the best thing for us to do was put extra payments towards the mortgage.

I appreciate the math is better investing but that does take more research & risk than just putting down extra mortgage payments.

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Re: Do you regret paying off your mortgage early?
« Reply #456 on: December 01, 2017, 03:29:03 PM »
I'd also like to thank Boarder42 for the constant push to do the math.

There are a ton of people out there that think they are happy with the intangible amount the would have made extra if they didn't push all extra savings into their mortgage but have no idea how much that number actually is. I completely agree that there is a peace of mind value to having no mortgage, but what I don't get is not trying to assign a value to that through the same math that we all use for our SWR.

I also can't quite understand the thought that when things go bad I'd rather have my house paid off than enough invested to cover the payments in case I lose my job. If you run the math in excel or one of the online calculators you would almost assuredly be ahead by investing the difference. This even works if you can only match the interest rate + appreciation of the house which is minuscule nowadays (2.19% for 5 years - 30 year amortization for me). I would forever rather have my liquid investments when the markets crash (housing and / or stock markets). I also can't even touch the justifications made that when the market was in down years it seemed a better idea to put your money into your mortgage...

To me there is a major separation between those that have calculated their value and know they are making an emotional decision for X amount of missed opportunity vs those that haven't and are saying they don't care. I may make non-optimal decisions based on emotions, but I'd certainly never argue against seeing the math to decide if that emotion is actually worth it.

Luckily that leaves me open to not live in a shed with 20 roommates, the calculated value proposition there is outweighed by my emotional decision to not end up in jail from assault charges after 1 week.
Just starting on my FIRE journey, hopefully posting here creates accountability and eventually lowers my very anti-mustachian life habits.

boarder42

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Re: Do you regret paying off your mortgage early?
« Reply #457 on: December 01, 2017, 04:46:20 PM »

so if the average person is actually investing the difference they are infact in a better place than the others who may be paying down their mortgage specifically b/c they dont have a lot of other savings b/c they arent mustachian.

I think this is the key point for my SO and me and many others. We were not actually investing the difference. We were saving it and the best thing for us to do was put extra payments towards the mortgage.

I appreciate the math is better investing but that does take more research & risk than just putting down extra mortgage payments.

So this is a snipit of a bigger post I made discussing a situation someone else presented.

That being said paying down a mortgage over time has been time and time again been proven to be a riskier proposal mathematically than investing. And the research to invest properly is rather minor. Just Google what would Warren Buffett do and move on.
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slythr

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Re: Do you regret paying off your mortgage early?
« Reply #458 on: December 01, 2017, 05:12:32 PM »
It's not about the math.  In fact the debate has never really been about the math.

It's about the disconnect

The disconnect between a certain outcome and an uncertain outcome.
A fixed home loan has a certain outcome
The "markets" have an uncertain outcome
Comparing those two equally is disingenuous and causes a disconnect, which can only be equalized by factoring risk and probability.

Many here focus on the probability, but not much on the risk. And even the probability can be debated as market returns fluctuate and probability of future returns greatly depends on where in the market cycle you start.

Everyone here gets the math.  That's not the point.  The point is there are many other factors other than the simple math or probability that must be accounted for. And when they are accounted for, the solution isn't as simple or cut and dry as some make it.

In a prior post I discussed the tax implications &I discussed the income and subsidy implications.
Others have pointed out in this thread the issues that arise with insurance claims payments and control issues
And others point out that debt reduction provides a CERTAINTY that leverage does not.
PDX is correct. His issue is once the loan is paid off and he FIRES, he is done.  It is certain, and it is guaranteed.  No issues, no effort, no worry.  No dependence on average market returns that are not certain.

That doesn't mean that the market may prove to be a better option over time, that may even be probable.
But probable and certain are two very different words.

The loan is certain.  Fixed returns are certain and are a valid option.  But uncertain returns over a period of time is unacceptable to a large percentage of people. Me included.

Boarder42 mentioned one of my favorite things earlier in this thread.  "Most things regress to the mean"

Ah yes.  Reversion to the mean. I agree completely.

Lets take a look at that.

What is the mean rate of return for the equity market?
Well the average return of the S&P is about 10% over the past 90 years, and the real rate of return is about 7%.  The remaining 3% is inflation.
And about 40% of that average return is from dividends.

What is the return in this current bull market, since the March 09 lows? (the beginning of this market)?
17.6%

If we all believe in reversion to the mean, then there may be some serious headwinds there.  This Keepthemortgage advice had traction in mid-2009.  It has significantly less traction now.

Couple that with this comment from none other than Vanguard (CNBC) earlier this year:

"Enjoy the stock indexes riding at record highs for now, but get ready for much stingier markets in the years to come.That's the message consistently conveyed these days by investment counselors and finance scholars, who argue that with today's starting equity valuations and low interest rates, the coming decade should produce dramatically lower returns than the historical average."

Some may consider that market timing.  I consider it probability and statistics with the inclusion of risk.
I think when something outperforms it's mean for 8.5 years by a factor of more than 2, then reversion to that mean suggests under-performance to get that number back in line. In fact, statistically mean reversion is a near certainty.

So if some on here are going to argue using market averages and probabilities of historical returns, then lets do that. Lets include mean reversion and historical probability performance after a 8.5 year 17.5% annualized bull run.

If average returns are 2-3% less (Per Vanguard estimations) over the next decade, then that really eats into the 3-4% benefit you have (7% returns - 3-4% loan).  You are then taking risk for virtually no reward.  Then the juice then isn't worth the squeeze even mathematically. And that doesn't factor in sequence of returns, which is becoming a favorite term on here.  The wrong sequence (and probable one) and the not pay off method falls behind pretty fast.

Plus, if the market falters, interest rates will likely fall as they tend to do when markets fall.  Making the other reason for the investtherest argument...low fixed rate that you can't ever get again cause rates are going up so act now...not true.

Oddly, when you start to do the math, factor in probability and risk, the entire argument of invest relies completely on the continuation of average market gains at a point in time when the market is at an all time high on a record bull run funded entirely on corporate buybacks and CB stimulus which is now drying up.  Yeah sure, it could go up more, but do you really want to bet the house on it?  Apparently some of you do.

Therefore In addition to all the non math reasons why the leverage theory may not be the best approach, the future market performance may provide the biggest reason.

My opinion is anyone who is investing vs paying off any debt (mortgage or otherwise) with any additional funds at this point in time will regret the decision 10 years from now.  Not because they made the wrong choice or because the investment didn't perform as expected, but because hindsight will show it was so obvious at the time. But I could be wrong too.

Tyson said it.  "Everyone has a plan until they get punched in the face"
« Last Edit: December 01, 2017, 05:24:46 PM by slythr »

boarder42

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Re: Do you regret paying off your mortgage early?
« Reply #459 on: December 01, 2017, 08:20:21 PM »
Exactly. You could be wrong and history would tell us you're likely wrong.

The entire premise of fire for over 90% of this forum is based on the 4% swr.  You cannot buy into this and turn around and call market returns wildly unknown and unpredictable enough that paying down a low fixed rate mortgage would come out ahead. If that is your true opinion I'd ask what swr you plan to use that is wildly conservative to account for all of this risk and uncertainty you're touting.

You can keep making story book long posts but as pointed out above it doesn't add validity to what it contains.

And on the math front that statement is flat out wrong. Many people do not think about it properly or do the math correctly. I used to be one of those people until the mega invest vs payoff debate of a couple years ago. Many people will make posts that say they don't understand and don't care to do it. Others will see it run the numbers get wide eyes and say holy shit these guys and gals are right im throwing money away.
« Last Edit: December 01, 2017, 08:24:55 PM by boarder42 »
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boarder42

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Re: Do you regret paying off your mortgage early?
« Reply #460 on: December 01, 2017, 08:26:49 PM »
Also if you plan to time the market today which no one should attempt imo. The smarter play would be bonds to be reallocated during the crash. If it ever happens.
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slythr

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Re: Do you regret paying off your mortgage early?
« Reply #461 on: December 01, 2017, 09:06:53 PM »
Exactly. You could be wrong and history would tell us you're likely wrong.

The entire premise of fire for over 90% of this forum is based on the 4% swr.  You cannot buy into this and turn around and call market returns wildly unknown and unpredictable enough that paying down a low fixed rate mortgage would come out ahead. If that is your true opinion I'd ask what swr you plan to use that is wildly conservative to account for all of this risk and uncertainty you're touting.

You can keep making story book long posts but as pointed out above it doesn't add validity to what it contains.

And on the math front that statement is flat out wrong. Many people do not think about it properly or do the math correctly. I used to be one of those people until the mega invest vs payoff debate of a couple years ago. Many people will make posts that say they don't understand and don't care to do it. Others will see it run the numbers get wide eyes and say holy shit these guys and gals are right im throwing money away.



Mean reversion tells us I am likely correct.  So does history. You are convinced I am wrong. I am concerned I am wrong.  But more concerned I am correct. Many people would be well advised for concern as well.

You keep bringing up the same 4% SWR argument. Over and over in post after post.

First...No...I don't buy into it.  I understand it fully.  I get it likely better than you assume.  But it does not apply to me.
Secondly.  Market returns ARE wildly unknown and unpredictable. Have you seen the 10 yr history of the VIX?
And yes... I do think that paying off a low fixed rate mortgage will come out ahead.  I thought I made that clear by stating that exact phrase in the previous post. 

I don't have a SWR plan of any percent.  SWR is simply a form of cashflow.  I have investments in multiple businesses I own and control that provide ample cashflow with varying degrees of involvement. Not a novel concept but rare among the crowd here. It is not a wildly conservative plan, nor are my businesses.  But I control them, specifically to eliminate the risk and uncertainty we now both have mentioned.

I do not and will not rely on market gains for any income.  Alternatively, one could receive income from RE, which is actually what the purveyor of this website used to and the forum administrator ARS currently rely on.  If I found myself with free cash somehow, I would put it in income producing real estate.  It would not go into equity markets because I have a simple rule about all investments.  Only invest in what you understand and control.  So that is what I do.  Since you asked.

And I kinda like my "storybook" long posts full of facts and rebuttals based on realistic assumptions.
You can keep putting forth your opinion which requires adoption of the 4% SWR as the best and primary way to FIRE coupled with the assumption that past performance is indeed indicative of future performance, all while dismissing emotion or other tax considerations.
And I'll stick with Vanguard and many other professionals belief that future returns will be significantly less than past returns and keep reminding the fence sitters of that stubborn reversion to the mean theory.
« Last Edit: December 01, 2017, 09:11:35 PM by slythr »

boarder42

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Re: Do you regret paying off your mortgage early?
« Reply #462 on: December 01, 2017, 09:35:23 PM »
Because the 4% rule or some variation is what most everyone here does regardless of what you are personally choosing to do.  Your choice doesn't negate what a bulk of this forum plans to do. And your facts have been laughable thus far as someone claiming to be from the banking industry. With the epic post above that intentionally attempted to snow those who don't understand mortgage lending.  But fortunately was quickly mitigated.  Posts such as that add no real value.

And on the experts note most all still project returns higher than that of a mortgage interest rate over the next 10 years. So facts are hard to come by when you try to defend a mortgage paydown.

https://www.google.com/amp/s/www.cnbc.com/amp/2017/11/20/jack-bogles-5-bold-investment-predictions-for-2018-and-beyond.html

His 4% in this post is a real return estimate. Since a mortgage is not indexed to inflation then it's actually 2-3% higher by comparison. So the expert over at vanguard still thinks stocks will outperform the mortgage one could obtain today.
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arebelspy

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Re: Do you regret paying off your mortgage early?
« Reply #463 on: December 02, 2017, 03:19:52 AM »
It's not about the math.  In fact the debate has never really been about the math.

It's about the disconnect

The disconnect between a certain outcome and an uncertain outcome.

(Emphasis added.)

I disagree. Many people misunderstand the math.

Then, once they figure it out, they change course.

There was a debate about the math yesterday, in fact, in this thread with pdxmonkey.

For some who understand all the math, sure. Maybe it's about certainty.

But I think it is often, much more often than you think, about misunderstanding the (most likely) opportunity cost.
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BFGirl

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Re: Do you regret paying off your mortgage early?
« Reply #464 on: December 02, 2017, 05:31:56 AM »
Are you implying that boarder42 is wrong or are you just trying vainly to be funny?

I don't think boarder42 is wrong, nor do I think you or anyone else in the "Don't pay off your mortgage club" is wrong. I think y'all are making the correct decision for you, in your circumstances, with your emotional tolerance. I'm trying to point out to b42 that he's acting foolish if he thinks he'll change anyone's mind by posting the exact same spiel "in any and every thread about a mortgage pay down until this community starts treating it like an Escalade", both in the "mortgage payoff club" and *especially* this particular necro'd thread, and then getting defensive about it when people politely and not-so-politely ask him to knock it off.

Sometimes people do "wrong" things, and then they post about them on the internet. Continuously telling them they're wrong just sucks all the oxygen out of the room. That's not discussion, that's browbeating.

you should go look at some comments in threads where people have changed their minds b/c they had no clue.

its a disservice to this community for such a thread to exist IMO b/c it allows for people who do not truly understand what they are doing to receive support for a decision that is detrimental to many.

Boarder42...

If you are going to esposue understanding then maybe you should do some yourself
I have lurked here for a long time, and I have seen countless threads regarding HOME LOAN payoffs, and the resuting debate between paying and arbitrating, and you always pop in.  With your one sided opinion. And you pick on those who disagree with you and you are positive you are correct in your opinion.

But you aint.  So let me introduce myself.

There are valid reasons for paying a loan off.  And there are equal valid reasons for keeping a loan.  They are both valid options depending on the borrower.


Rule #1.  If you are going to discuss and debate a subject, understand the correct terminology.  As in Mortgage. 

As a borrower...
You don't get a mortgage
You don't have a mortgage
And you don't pay off a mortgage.

The BANK has the mortgage, not the borrower.  The BANK gets the mortgage.  The borrower gets.....a home loan in exchange
The borrower doesn't pay off a mortgage.  They pay off a loan. A mortgage is a lien in exchange for money in the form of a loan described on a note signed on a recorded deed.

You don't go to a restaurant and get money.  You GIVE money and GET food.

Same with mortgages.  You GIVE them.  Banks get them.  I get them.  Because I am the bank.  You aren't.
Learn that first.  Then debate.

#2.

You have been hit over the head with several valid arguments for why anyone would pay off a home loan early, but it goes in one ear and out the other.  There are several reasons.

Here is the primary reason.  Control.

When you agree to a mortgage, that deed of trust I mentioned above has page after page of RESTRICTIONS on what the lender will allow you to do with your home.  I am looking at one now, and there are 11 pages detailing "Uniform Covenants" and they detail items such as maintenance, occupancy, preservation and protection of lenders interest.

So by leveraging or arbitrating your property you give up control of what you can and can't do with or on your property.
Some people are ok with that.  Some are not.  These covenants cover alot of areas and some are very limiting.  Minimum insurance requirements, usage, renting, # of occupants, minimum conditions, etc.

Me...I am not interested in giving up control over anything unless necessary.  Control trumps money in about all situation in my life.  I control my employment.  I control my income.  I control my home and housing too.

For the same reason people prefer to own vs rent.  Control.  Many of those same people prefer to not have a legally vested third party with rights to that property. 

There are other reasons too.  You state in this and other threads that the math works in favor of leverage, but that is not entirely true.  It "Can" work.  It also can't sometimes, like the lost decade from 2000 - 2010.   Historically it may have worked out in certain timeframes due to various simulators, but we don't live in history, and simulators don't pay home loan payments.  And comparing a fixed home loan, which is a bond, with equity markets, skews the risk and is not a viable comparison. You have to account for risk, which you rarely do.  And your reasoning that if you don't trust the 4% SWR we are all screwed, or the argument of how one can you assume a 4% SWR but not apply that in the calculation is an invalid argument. 

Of course there is freedom, and flexibility.  You discount these as reasons, but they still exist

Also..paying off a loan requires less income to maintain a lifestyle.  Less income is generally less taxes paid.  Less income also allows for more tax deductions and more tax credits due to phaseouts.  Less income allows for a higher ACA subsidy. There are 3 more reasons

As well, simply inflating an asset so it can be use to pay off a debt at a later date has it's own inherent risks.  When the market rises, it sounds great as the gains are magnified.  But when the market drops, the losses are magnified as well. You then conflate present market value (which is known and fixed with future market value with an unknown and non-guaranteed return)  You can't do that man.

The proper comparison is bond to bonds.  Home loans to 10yr Treas returns.  You don't compare a home loan to a Vanguard equity index fund without accounting for risk.  For many people, the risk isn't worth it.  For many institutions, the risk isn't worth it.  For most Banks and governments and countries, the risk isn't worth it at all.

See, Mr Keep the Mortgage, the real players play in the Bond market.  That is where banks and governments and state pensions invest. 

Have you ever stopped and asked a simple question?
WHY is the bank loaning you the money in the first place? Why does (or did) this fixed 3.25% $400K home loan even exist.
Why can people borrow up to $424K at under 4% fixed for 30 years for a home today?
Ask it.  I'll wait.

Why are home loan interest rates so low?  Why would most all of these Billion or Trillion dollar banks loan Mr KTM money on a house.  Mr. KTM already laid out his infallible reasoning that the "market" is the better risk over time, and is virtually risk free.  95 or 96% of the time the market wins you say over and over again.  So why are they betting on you as a borrower and all the risk you entail with not making payments on time X millions of home loan borrowers just like you vs just putting that money in a vanguard index fund and then spending the other 29 days of the month at the beach?

HMM????

They have teams...shit they have buildings full of PHD economists, mathematicians and statisticians.  MBA's.  Actuaries.  The smartest mofo's there are.  They have their own trading floors and their own trading desks too.  And I am quite confident they have access to cfire sim and this blog as well.  They could buy index funds all day long...hell...they have their own index funds actually.  Bank of America owns Merril Lynch.  Why didn't your loan officer just take your home loan check and drop it downstairs at their Merril Lynch office and put it in VSTAX.  That would be alot easier.

So WHY, with all this brainpower, all these resources, and all this knowledge do they choose to loan you the $500K instead of index it?  After all, unlike us little people with emotions, these are business whose sole purpose is to profit at maximum efficiency.  Every dollar must be deployed at maximum benefit.  Of all the places to invest that $500K, why did they choose to loan it to you as a home loan? And to all the other Millions of people who get loans each year?

You figure out the answer to that, and you will start to understand why many smart people on this blog already figured it out and paid their loans off early, and why you continuing to insult and beat up on people who do makes you look foolish.

You are my new hero

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Re: Do you regret paying off your mortgage early?
« Reply #465 on: December 02, 2017, 05:36:02 AM »
You should read the posts following that post BF Girl because it's incorrect. If we're just going to grasp at anything to defend a point around here without properly explaining it further proves the need to continue to discuss this because those statements bend reality to an extreme.
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Dicey

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Re: Do you regret paying off your mortgage early?
« Reply #466 on: December 02, 2017, 05:36:20 AM »
You are my new hero
Beware of false idols.

And ARS, thanks for your brilliant clarity. There's your true hero, BFGirl.
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Re: Do you regret paying off your mortgage early?
« Reply #467 on: December 02, 2017, 06:07:31 AM »
So how about it do you regret paying off your mortgage and not making use of "cheap money"?
Nope. No way. One of the best decisions I've made. Every calculations I've seen to justify not paying of your mortgage wither does not take risk into account or they use a definition of risk I cannot agree with. I've been around the block enough times to see people being "clever" with borrowed money and it blowing up in their face. No thanks.




 

Lmoot

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Re: Do you regret paying off your mortgage early?
« Reply #468 on: December 02, 2017, 06:14:37 AM »
 Perhaps on the forum most people are more successful relying on the market and the 4% rule to retire early. But the fact of the matter is there are also many people who invest in things like businesses and real estate, and will be depending on that more so than market investing. There's no one wrong or right way. Just because one way is more popular, and may be more effective for a sector of people, doesn't mean it's the rule for everyone. And there are more of us out there than you would think, who have alternative retirement income plans.

First of all, I don't earn enough to be able to save enough in indexes to make as big of a difference, as quickly as I would like. Therefore I am turning to other prospects that may yes be a little riskier, but like slythr mentioned, I'll have more control over it, and potential to earn more. And can temper the risks to my current situation.

 I completely agree with the idea of invest in what you know or are passionate about to learn the ins and outs. Clearly several of you here, and yes much of the forum, is passionate about indexes. It is not something that interests me, and so outside of investing in retirement vehicles, I will invest in things that I know and that I am interested in, which for me is real estate. When you earn a lot of money, then yes I'm sure it is quite exciting to see how that runs in the market, but when you don't earn a lot of money it is much less exciting. Seeing the potential in things versus the probability in things, sometimes is more worth it to pursue. Investing in real estate not only adds value to my assets, but it produces passive income, which is what would allow me to quit or reduce working. And the value of the property isn't tied necessarily to how much I've already invested into it. The value grows whether I have a mortgage or not.

 I am not arguing about what is being presented. I actually really do agree with thatů If those are your goals. But just because a large amount of the forum has those goals, there are still a double digit, going by your calculation, percentage group of us out there that don't share those  goals. And could possibly do better outside of indexes. I personally am a very tactile person. I get motivated by being able to do things and work hands-on with them. The idea of working longer hours at a job I don't even really like, in order to passively shovel money into indexes, and that's my life, is very dull and boring to me. However the ability to grow my passion and abilities and networth in RE is much more motivating to me, and I am more likely to put more work and capital into it, than I would in something very vanilla and uninteresting to me like indexes.  And I will repeat, the thrill of seeing your money grow when you can put $50,000 a year into it, would be incredibly exciting, I agree. I'd be shouting from the rooftops as well. The excitement of a spcific ride is almost always more exciting to those closer to the front of the line. The reality is I don't have that much disposable income, and I don't really feel like working for 10+years, without getting anything tangible or stimulating from my investments, in the meantime.

Note: I typed talked all of this on a phone screen, so I'm sure there are many errors. Deal with it, sorry LOL
« Last Edit: December 02, 2017, 06:22:24 AM by Lmoot »

Dicey

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Re: Do you regret paying off your mortgage early?
« Reply #469 on: December 02, 2017, 06:22:46 AM »
So how about it do you regret paying off your mortgage and not making use of "cheap money"?
Nope. No way. One of the best decisions I've made. Every calculations I've seen to justify not paying of your mortgage wither does not take risk into account or they use a definition of risk I cannot agree with. I've been around the block enough times to see people being "clever" with borrowed money and it blowing up in their face. No thanks.
If you think that putting the maximum into all available investment vehicles (401k, IRS,  Roth, HSA, taxable investments, etc.) before prepaying your cheap-ass, fixed interest mortgage on an affordable house is "clever" in a bad way, you have surely landed on the wrong block. Roll the dice and keep moving, because there ain't nothing for you to learn here.

MOD NOTE: Everyone is welcome here.

Dicey says: That was a reference to the classic board game, Monopoly. I specifically chose that reference so as not to appear to be telling someone to "leave". Sorry it appeared otherwise.
« Last Edit: December 03, 2017, 09:25:07 AM by Dicey »
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CoffeeRoyal

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Re: Do you regret paying off your mortgage early?
« Reply #470 on: December 02, 2017, 06:41:30 AM »
So how about it do you regret paying off your mortgage and not making use of "cheap money"?
Nope. No way. One of the best decisions I've made. Every calculations I've seen to justify not paying of your mortgage wither does not take risk into account or they use a definition of risk I cannot agree with. I've been around the block enough times to see people being "clever" with borrowed money and it blowing up in their face. No thanks.
If you think that putting the maximum into all available investment vehicles (401k, IRS,  Roth, HSA, taxable investments, etc.) before prepaying your cheap-ass, fixed interest mortgage on an affordable house is "clever" in a bad way, you have surely landed on the wrong block. Roll the dice and keep moving, because there ain't nothing for you to learn here.
I never said I did not or would not load up on pre-tax investments before paying of my mortgage. You deliberate partial misrepresentation on what I said is... interesting. Oh, never mind, I forget: when you do not have the facts attack the messenger. I now understand your response.

Dicey

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Re: Do you regret paying off your mortgage early?
« Reply #471 on: December 02, 2017, 07:09:37 AM »
So how about it do you regret paying off your mortgage and not making use of "cheap money"?
Nope. No way. One of the best decisions I've made. Every calculations I've seen to justify not paying of your mortgage wither does not take risk into account or they use a definition of risk I cannot agree with. I've been around the block enough times to see people being "clever" with borrowed money and it blowing up in their face. No thanks.
If you think that putting the maximum into all available investment vehicles (401k, IRS,  Roth, HSA, taxable investments, etc.) before prepaying your cheap-ass, fixed interest mortgage on an affordable house is "clever" in a bad way, you have surely landed on the wrong block. Roll the dice and keep moving, because there ain't nothing for you to learn here.
I never said I did not or would not load up on pre-tax investments before paying of my mortgage. You deliberate partial misrepresentation on what I said is... interesting. Oh, never mind, I forget: when you do not have the facts attack the messenger. I now understand your response.
You said nothing either way, so you're completly right, I did not have all your personal data points. Do not attack me for your own lack of clarity. You accused fellow mustachians of doing something "clever" i.e. stupid, with  borrowed money.
That was a mistake on your part. I stand by my clarification.
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slythr

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Re: Do you regret paying off your mortgage early?
« Reply #472 on: December 02, 2017, 10:47:55 AM »
You should read the posts following that post BF Girl because it's incorrect. If we're just going to grasp at anything to defend a point around here without properly explaining it further proves the need to continue to discuss this because those statements bend reality to an extreme.

I responded to ARS's claim.  I am not incorrect.  I'll be happy to discuss FRB in another thread where we can go into the details, including commercial and non-bank lending. You start one, and I'll help you out.
I am also not a hero
But I will call you out on your assumptions. Because they are ambitious at best, and flat wrong most likely.
I have pointed out several facts.
I have given several valid reasons.  One of which is your assumptions are likely high or wrong
You asked me what my plan was.  I then told you my plan.  Your response was my plan doesn't matter.

Well then what the F**K are you asking me for stallion. You would probably be well served to continue asking questions...maybe you would learn something new.

You are actually starting to bore me.  You repeat the same two lines in every argument.

1.  Future returns will match past returns
2.  Since most everyone will use the 4%SWR market fluctuations should be dismissed.

Every investment prospectus says #1 is not true.  And I am telling you not everyone is in the #2 camp.

So PLEASE...if you are going to respond, do so with something original and factual


slythr

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Re: Do you regret paying off your mortgage early?
« Reply #473 on: December 02, 2017, 10:57:07 AM »
So how about it do you regret paying off your mortgage and not making use of "cheap money"?
Nope. No way. One of the best decisions I've made. Every calculations I've seen to justify not paying of your mortgage wither does not take risk into account or they use a definition of risk I cannot agree with. I've been around the block enough times to see people being "clever" with borrowed money and it blowing up in their face. No thanks.


If you think that putting the maximum into all available investment vehicles (401k, IRS,  Roth, HSA, taxable investments, etc.) before prepaying your cheap-ass, fixed interest mortgage on an affordable house is "clever" in a bad way, you have surely landed on the wrong block. Roll the dice and keep moving, because there ain't nothing for you to learn here.
I never said I did not or would not load up on pre-tax investments before paying of my mortgage. You deliberate partial misrepresentation on what I said is... interesting. Oh, never mind, I forget: when you do not have the facts attack the messenger. I now understand your response.
You said nothing either way, so you're completly right, I did not have all your personal data points. Do not attack me for your own lack of clarity. You accused fellow mustachians of doing something "clever" i.e. stupid, with  borrowed money.
That was a mistake on your part. I stand by my clarification.

Let me make sure I understand this

Coffee responded to a post asking whether we regret paying off a mortgage
Coffee responds that no they do not.  And explains RISK (one of a few who get it) as a primary reason.
But it is somehow Coffee's fault for not clarifying your assumptions which were completely wrong and not even necessary?

This is an impressive way of responding.

But I will respond you your assumptions.
Not counting qualified plans, yes, I think paying off a "cheap ass fixed interest mortgage" can be better than investing in a taxable equity account. I don;t think it is particularly clever.  But it is pragmatic.

How about you.  Do you think there is EVER a time to pay off a mortgage instead of investing in a taxable equity investment?

slythr

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Re: Do you regret paying off your mortgage early?
« Reply #474 on: December 02, 2017, 11:12:32 AM »
It's not about the math.  In fact the debate has never really been about the math.

It's about the disconnect

The disconnect between a certain outcome and an uncertain outcome.

(Emphasis added.)

I disagree. Many people misunderstand the math.

Then, once they figure it out, they change course.

There was a debate about the math yesterday, in fact, in this thread with pdxmonkey.

For some who understand all the math, sure. Maybe it's about certainty.

But I think it is often, much more often than you think, about misunderstanding the (most likely) opportunity cost.


I appreciate that response.  I think PDX was partially about basic simple math, but I still don't think math is the issue.  If it was, the answer would be clear and not really up for much debate.
But PDX noted that risk, and sequence of returns, and a host of other SITUATIONAL factors were at play.

That is why I don;t think is is as much about the basic math as it is about the situation factors for each individual that make for their correct course.

Age, ability to  invest in qualified plans, size of loan, size of home, size of stash, tax situation, future expectations, market risk tolerance, etc.  A host of factors that do not have to do with math.  The math is quite simple, In fact it is basic amortization.  It's all the other stuff that is complex.

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Re: Do you regret paying off your mortgage early?
« Reply #475 on: December 02, 2017, 11:12:58 AM »
Quote
If you think that putting the maximum into all available investment vehicles (401k, IRS,  Roth, HSA, taxable investments, etc.)

Since when is there a maximum on taxable investments?

arebelspy

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Re: Do you regret paying off your mortgage early?
« Reply #476 on: December 02, 2017, 11:15:19 AM »
MOD NOTE: The personal attack need to stop, or the thread will be locked.

This applies to multiple people, on both sides of the argument. Present an argument, do not attack a person.

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« Last Edit: December 02, 2017, 11:17:03 AM by arebelspy »
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Dicey

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Re: Do you regret paying off your mortgage early?
« Reply #477 on: December 02, 2017, 12:04:42 PM »
Quote
If you think that putting the maximum into all available investment vehicles (401k, IRS,  Roth, HSA, taxable investments, etc.)

Since when is there a maximum on taxable investments?
Touche. However, there is a time and a place where mortgage payoff makes sense. I am not against mortgages or paying them off. Just learn the best sequence before you decide what to do. Simple.
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Telecaster

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Re: Do you regret paying off your mortgage early?
« Reply #478 on: December 02, 2017, 04:40:01 PM »

So if some on here are going to argue using market averages and probabilities of historical returns, then lets do that. Lets include mean reversion and historical probability performance after a 8.5 year 17.5% annualized bull run.

If average returns are 2-3% less (Per Vanguard estimations) over the next decade, then that really eats into the 3-4% benefit you have (7% returns - 3-4% loan).  You are then taking risk for virtually no reward.  Then the juice then isn't worth the squeeze even mathematically. And that doesn't factor in sequence of returns, which is becoming a favorite term on here.  The wrong sequence (and probable one) and the not pay off method falls behind pretty fast.

Plus, if the market falters, interest rates will likely fall as they tend to do when markets fall.  Making the other reason for the investtherest argument...low fixed rate that you can't ever get again cause rates are going up so act now...not true.

Oddly, when you start to do the math, factor in probability and risk, the entire argument of invest relies completely on the continuation of average market gains at a point in time when the market is at an all time high on a record bull run funded entirely on corporate buybacks and CB stimulus which is now drying up.  Yeah sure, it could go up more, but do you really want to bet the house on it?  Apparently some of you do.

Therefore In addition to all the non math reasons why the leverage theory may not be the best approach, the future market performance may provide the biggest reason.

My opinion is anyone who is investing vs paying off any debt (mortgage or otherwise) with any additional funds at this point in time will regret the decision 10 years from now.  Not because they made the wrong choice or because the investment didn't perform as expected, but because hindsight will show it was so obvious at the time. But I could be wrong too.

Tyson said it.  "Everyone has a plan until they get punched in the face"

You conclusions about market returns over the next ten years seem reasonable.  But I have a quibble.  You must compare similar time periods.   A typical home mortgage is 30 years.  That's the investment horizon.   It turns out the the median return over every 30-year rolling period is about 11%/year.  The worst case was about 8%/year.   Over the last 30 years, we had Black Friday, several wars, the Savings & Loan Crisis, the Long Term Capital Management crisis, the Russian currency crisis (remember that one?), the president was impeached, the Asian Contagion, 9/11, housing bubble, a couple oil shocks, and the worst recession in 50 years.  Average return during that time period?  About 10%/year.

Could the future be worse than the past?  Of course!  But if that event the decision to pay off the mortgage or not will be the least of our worries. 

There is one other mean-reverting trend that is important to think about:  Inflation.   Since the end of WWII, the long term inflation rate has been about 3.75%, which coincidentally is the same as my mortgage rate.   It is lower than that now, but what if reverts to the mean?  That's possible, right?  If we have average inflation over the next 30 years, then the borrower gets use of the money for very close to, if not actually, free.  That's a helluva deal.

One other inflation related thing to think about:   Over time periods we are talking about, say 20-30 years, even modest rates of inflation will chop the value of a dollar in half.   So by paying down the mortgage, you are spending full value dollars today to save tiny, inflation ravaged dollars in the future.  That's not an attractive thought to me.



Virtus

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Re: Do you regret paying off your mortgage early?
« Reply #479 on: December 02, 2017, 08:43:42 PM »

So if some on here are going to argue using market averages and probabilities of historical returns, then lets do that. Lets include mean reversion and historical probability performance after a 8.5 year 17.5% annualized bull run.

If average returns are 2-3% less (Per Vanguard estimations) over the next decade, then that really eats into the 3-4% benefit you have (7% returns - 3-4% loan).  You are then taking risk for virtually no reward.  Then the juice then isn't worth the squeeze even mathematically. And that doesn't factor in sequence of returns, which is becoming a favorite term on here.  The wrong sequence (and probable one) and the not pay off method falls behind pretty fast.

Plus, if the market falters, interest rates will likely fall as they tend to do when markets fall.  Making the other reason for the investtherest argument...low fixed rate that you can't ever get again cause rates are going up so act now...not true.

Oddly, when you start to do the math, factor in probability and risk, the entire argument of invest relies completely on the continuation of average market gains at a point in time when the market is at an all time high on a record bull run funded entirely on corporate buybacks and CB stimulus which is now drying up.  Yeah sure, it could go up more, but do you really want to bet the house on it?  Apparently some of you do.

Therefore In addition to all the non math reasons why the leverage theory may not be the best approach, the future market performance may provide the biggest reason.

My opinion is anyone who is investing vs paying off any debt (mortgage or otherwise) with any additional funds at this point in time will regret the decision 10 years from now.  Not because they made the wrong choice or because the investment didn't perform as expected, but because hindsight will show it was so obvious at the time. But I could be wrong too.

Tyson said it.  "Everyone has a plan until they get punched in the face"

You conclusions about market returns over the next ten years seem reasonable.  But I have a quibble.  You must compare similar time periods.   A typical home mortgage is 30 years.  That's the investment horizon.   It turns out the the median return over every 30-year rolling period is about 11%/year.  The worst case was about 8%/year.   Over the last 30 years, we had Black Friday, several wars, the Savings & Loan Crisis, the Long Term Capital Management crisis, the Russian currency crisis (remember that one?), the president was impeached, the Asian Contagion, 9/11, housing bubble, a couple oil shocks, and the worst recession in 50 years.  Average return during that time period?  About 10%/year.

Could the future be worse than the past?  Of course!  But if that event the decision to pay off the mortgage or not will be the least of our worries. 

There is one other mean-reverting trend that is important to think about:  Inflation.   Since the end of WWII, the long term inflation rate has been about 3.75%, which coincidentally is the same as my mortgage rate.   It is lower than that now, but what if reverts to the mean?  That's possible, right?  If we have average inflation over the next 30 years, then the borrower gets use of the money for very close to, if not actually, free.  That's a helluva deal.

One other inflation related thing to think about:   Over time periods we are talking about, say 20-30 years, even modest rates of inflation will chop the value of a dollar in half.   So by paying down the mortgage, you are spending full value dollars today to save tiny, inflation ravaged dollars in the future.  That's not an attractive thought to me.

Your investment time horizon actually may be much shorter than 30 years. For example you may have a shorter term on your mortgage or if you are an average american you will sell the house in about 6 years. You have also forgotten to include knowing the exact value of paying extra on a mortgage in six months vs the uncertainty of what a mutual fund will be worth in six months.

Do not make the logical fallacy of saying that if a 4% withdraw rate would not work a more conservative plan would fail. I have seen this same logical fallacy many times on these forums which is basically "my plan is xxxx, if the future is worse than that no plan would have worked out anyway". I will give you that going with a more conservative plan does have diminishing returns although it is a fools errand to draw a line and say that anywhwere past a specific point is "overly conservative or will never happen".


You forgot to consider deflation. What is the probability of deflation occurring? Index funds do poorly during deflation and the remaining portion of a mortgage would actually increase.

slythr

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Re: Do you regret paying off your mortgage early?
« Reply #480 on: December 02, 2017, 11:34:43 PM »


You conclusions about market returns over the next ten years seem reasonable.  But I have a quibble.  You must compare similar time periods.   A typical home mortgage is 30 years.  That's the investment horizon.   It turns out the the median return over every 30-year rolling period is about 11%/year.  The worst case was about 8%/year.   Over the last 30 years, we had Black Friday, several wars, the Savings & Loan Crisis, the Long Term Capital Management crisis, the Russian currency crisis (remember that one?), the president was impeached, the Asian Contagion, 9/11, housing bubble, a couple oil shocks, and the worst recession in 50 years.  Average return during that time period?  About 10%/year.

Could the future be worse than the past?  Of course!  But if that event the decision to pay off the mortgage or not will be the least of our worries. 

There is one other mean-reverting trend that is important to think about:  Inflation.   Since the end of WWII, the long term inflation rate has been about 3.75%, which coincidentally is the same as my mortgage rate.   It is lower than that now, but what if reverts to the mean?  That's possible, right?  If we have average inflation over the next 30 years, then the borrower gets use of the money for very close to, if not actually, free.  That's a helluva deal.

One other inflation related thing to think about:   Over time periods we are talking about, say 20-30 years, even modest rates of inflation will chop the value of a dollar in half.   So by paying down the mortgage, you are spending full value dollars today to save tiny, inflation ravaged dollars in the future.  That's not an attractive thought to me.

I wouldn't use a 30 year time-frame for an investment just because a mortgage is generally a 30 year term because that is not the average mortgage duration in the US.
The average home is only owned for about 7 years
The average home loan is held even shorter.. just under 5 years.
That is because people move often and refinance even more often.  A very small percent of 30 yr fixed mortgages are held to full term.

This is why mortgage rates most closely track the 10YR Treasury Note.  (They actually are generally traded as agency MBS portfolios, but few people can actually track those investments).  So the common benchmark is the 10yr and not the 30yr.

And while your 10% return is correct 3% of that is due to inflation.  Real returns are closer to 7% historically. And things can go down...for along time...even 20 years.

As is famously quoted "After accounting for dividends, inflation, taxes and fees, $10,000 invested at the end of 1961 would have shrunk to $6,600 by 1981." That would have been a bad time to keep the mortgage.

I do agree that inflation could revert to the mean in the near future.  That is a very real possibility and at some point it is probable. If inflation does revert to the mean and increases, then historically stocks will underperform.  So a keep the mortgage would NOT want inflation to rise. If inflation goes up to the mean (about 2% higher than now), rates go up.  The higher rates go, the less incentive people will have to take the risk of equities when they can get a similar return risk free with fixed investments.

However many signs point to the opposite in the near term.  Inflation isn't rising. QE/twist and the resulting low rates were implemented to combat low inflation and the threat of deflation and to stimulate the equity markets.  It did help the markets.  It didn't really help inflation.
Worldwide several other countries (Japan/Germany are the big ones) have deflation issues.  Their bond yields are near 0 and have been negative in the past several years.  I think deflation is a very real concern. Our issues have been held off for now due to CB intervention, but they are very real since that intervention is slowing.  So a keep the mortgage would NOT want inflation to fall to low where the threat of deflation is a concern either.

But regardless of inflation or deflation, it doesn't just affect a liability or debt.  It affects all dollars. Regardless of whether you use a fully valued dollar today to invest or pay down a debt, the future inflation ravaged dollars will all be worth less.  Whether that is in the form of a debt, or in the form of an asset, the effect is the same. 
« Last Edit: December 03, 2017, 12:02:07 AM by slythr »

effigy98

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Re: Do you regret paying off your mortgage early?
« Reply #481 on: December 03, 2017, 12:40:02 AM »
to put some numbers to your example
300k invested 250k mortgage paid off - success rate 91.67%
now 550k invested and a mortgage payment at a rate you can get today 4% - 1194/month - 14328/year non inflation adjusted - 96.3%

These calculations are too simplified and do not take in other factors. For example:
- Extra health care costs because of stress and limits your ability to feel like you can take jobs that suck less while working towards FI
- Subsidies. My family members who live on 35k or less a year have got 200k+ in subsidies over the years from health care, free college, free school lunches, free club memberships, free dental and hospital visits and additional tax breaks, etc. The list is large here. Being able to lower your income to lean fire is a massive advantage because the government in the US loves to shower you with money.

Telecaster

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Re: Do you regret paying off your mortgage early?
« Reply #482 on: December 03, 2017, 01:18:31 AM »

Your investment time horizon actually may be much shorter than 30 years. For example you may have a shorter term on your mortgage or if you are an average american you will sell the house in about 6 years. You have also forgotten to include knowing the exact value of paying extra on a mortgage in six months vs the uncertainty of what a mutual fund will be worth in six months.

Do not make the logical fallacy of saying that if a 4% withdraw rate would not work a more conservative plan would fail. I have seen this same logical fallacy many times on these forums which is basically "my plan is xxxx, if the future is worse than that no plan would have worked out anyway". I will give you that going with a more conservative plan does have diminishing returns although it is a fools errand to draw a line and say that anywhwere past a specific point is "overly conservative or will never happen".

You forgot to consider deflation. What is the probability of deflation occurring? Index funds do poorly during deflation and the remaining portion of a mortgage would actually increase.

A couple things: 

1)  You still have to use a 30 year horizon.  Everyone cites the advantage of paying off a mortgage early as living in a house with no mortgage.  Therefore, you must actually live in a house with a paid off mortgage to get the advantage.   Because of the way mortgages are amortized, the advantage of paying the mortgage early comes in the years after you paid it off but before the end of the term.  So, if you pay it off in year 15, you have lower expenses from year 15 to 30.    After year 30 your expenses are the same.  If you pay it off in year six, and sell in year six, then your mortgage payment remained the same amount the whole time and you simply get your money back at the time of sale.  That's not an attractive proposition for most people.  You must compare apples to apples.

2) I didn't say a different plan would fail.  I said "you would have worse problems."  If we have something worse than a 1929-style depression with 30% unemployment...I'm pretty sure the few percent different returns that we are talking about here aren't going to matter if something worse than that happens.    It will be something really bad, and something none of us having this discussion can foresee. 

You're also making the mistake of assuming paying down the mortgage early is conservative.  Paying off the mortgage early is enormously risky. It means putting a substantial portion of your net worth a single, illiquid asset, that history says will appreciate only modestly at best.  And as a topper, if you stop making payments (like if you say, lose your job), you loose the all the advantage of making early payments.  From a risk management standpoint, that is totally, utterly, crazeballs. If you were regularly investing in cattle futures and you missed a regular contribution for three or four months and therefore lost your whole investment people would think you had totally lost your fucking mind for going there in the first place.   And you are taking all that risk for a ROI in the low single digits?  That is flat nutso. 

At this point, people usually say "Oh, well of course you should have substantial liquid assets before locking up your money where you can't get to it without high costs and lots of hassle."  Exactly my point!  Even the proponents agree it is too risky to go there unless you can afford not to go there.  Which is a great argument why you shouldn't go there in the first place.  If you do want to go there, knock yourself out.  But the conservative argument is don't go there.  I'm risk adverse, so massively risky investments with almost no ROI like pre-paying the mortgage gives me hives.   Way to rich for my blood.  I like safe, not crazeballs. A "safe"strategy that requires hedging isn't safe. Again, if you want to do insanely risky shit with almost not ROI, knock yourself out. The risk/reward is way, way, way, way, to unbalanced for me to even go there. My risk tolerance doesn't allow me to take insane gambles like this. 

3) I most certainly didn't forget deflation.   There have been several instances of deflation since WWII, and those time periods are included in the average number that I cited.    I'm merely pointing out that if stock returns can be assumed to revert to the mean (entirely reasonable in my view), it is also entirely reasonable to assume inflation will revert to the mean as well.  Pay off the mortgage proponents as a rule disregard inflation entirely in their calculations.  Why do you think that is? 

Next, our fractional reserve banking system guarantees inflation over any reasonable time period, and that doesn't include how much money the Federal Reserve also creates out of thin air.  Those factors are why there is constant inflation built into the system.  While central banks create money out of thin air, that amount is completely dwarfed by the amount created by private banks.

Given that, are you hoping deflation will work to your advantage?  Really?  Dayam dude.  I'd like some of what you are smokin'.  Talk about risky bets.

 

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Re: Do you regret paying off your mortgage early?
« Reply #483 on: December 03, 2017, 05:07:57 AM »


When mortgage rates fell, I looked into refinancing, but due to the small amount - by then under 40k - the low rates always came with closing costs. When I crunched the numbers, I came out ahead by just paying it off rather than refinancing to a lower rate.


Don't regret paying our 9.75% mortgage off early.  The above is exactly where we were - every time rates fell, I looked into refinancing, but the fees on a small mortgage ate up any advantage.  I crunched the numbers, too, and came to the same conclusion - paying it down fast was the better move.  Then it was too small to refi.

We never benefited from the mortgage interest deduction due to low income/expenses, so that perk was out, too.

I had that same problem on our first house. Eventually I figured out that if you tell a banker you want a HELOC, you can get that with zero fees at many banks. Maybe 1% higher interest than a refi, but much lower than our original loan.
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Re: Do you regret paying off your mortgage early?
« Reply #484 on: December 03, 2017, 07:03:55 AM »
If inflation does revert to the mean and increases, then historically stocks will underperform.  So a keep the mortgage would NOT want inflation to rise.

This is exactly backwards.  Inflation drives up nominal stock prices without increasing nominal mortgage loan expense, so leveraged-stock-investing-via-mortgage functions as an excellent hedge against inflation (the same is true of any leveraged-investing strategy that uses productive assets and fixed-rate debt, but the unique nature of U.S. 30-year mortgage loans makes them a superb tool for this purpose).

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Re: Do you regret paying off your mortgage early?
« Reply #485 on: December 03, 2017, 07:16:40 AM »
If inflation does revert to the mean and increases, then historically stocks will underperform.  So a keep the mortgage would NOT want inflation to rise.

This is exactly backwards.  Inflation drives up nominal stock prices without increasing nominal mortgage loan expense, so leveraged-stock-investing-via-mortgage functions as an excellent hedge against inflation (the same is true of any leveraged-investing strategy that uses productive assets and fixed-rate debt, but the unique nature of U.S. 30-year mortgage loans makes them a superb tool for this purpose).

Right.

And to explain simply WHY this is the case, it goes like this: inflation = goods cost more = companies are making more money = their stock price rises to reflect the extra money they are making. Meanwhile, your mortgage payment (the P&I) part is fixed, making it an excellent inflation hedge.
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Re: Do you regret paying off your mortgage early?
« Reply #486 on: December 03, 2017, 07:22:33 AM »
to put some numbers to your example
300k invested 250k mortgage paid off - success rate 91.67%
now 550k invested and a mortgage payment at a rate you can get today 4% - 1194/month - 14328/year non inflation adjusted - 96.3%

These calculations are too simplified and do not take in other factors. For example:
- Extra health care costs because of stress and limits your ability to feel like you can take jobs that suck less while working towards FI
- Subsidies. My family members who live on 35k or less a year have got 200k+ in subsidies over the years from health care, free college, free school lunches, free club memberships, free dental and hospital visits and additional tax breaks, etc. The list is large here. Being able to lower your income to lean fire is a massive advantage because the government in the US loves to shower you with money.

Point two has been disputed multiple times in this thread. These benefits are far over stated but in the event the math works out this is a perfect reason to pay down a mortgage. Im not all about keep your mortgage regardless of anything. There are just extremely few cases in which you can do the math in which it makes sense.

On point one more liquidable capital will allow for more freedom sooner than throwing money into a fixed cost asset.
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Re: Do you regret paying off your mortgage early?
« Reply #487 on: December 03, 2017, 08:07:20 AM »
 I think I know a way how we can prevent every one of these types of threads from turning into a payoff verse non payoff....standoff. boarder42 has made it perfectly clear they will not stand down on what they deem a personal mission and service to the community, and will continue to haunt mortgage payoff topics to the end of eternity. So I say we just learn to live with the ghost.

Don't argue with them. All they want to do is let their presence be known, and to get their message out. Fine, so be it. They get to have their message out, those that come across it and want to take heed can, and those that want to stick with the topic of the thread can do so without pages upon pages of what we have here. I for one, as someone who plans on paying off their mortgage early in the future, really am interested in the original question of this topic.

And yes, I realize I too have also engaged. But I have seen the light, and understand the need of evangelicals to spread their word so they can rest their conscience. It's not how I would choose to spend my time, but I am choosing the path of least resistance; standing still until the objects stop flying across the kitchen...then continue my way to the fridge.

« Last Edit: December 03, 2017, 08:13:45 AM by Lmoot »

boarder42

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Re: Do you regret paying off your mortgage early?
« Reply #488 on: December 03, 2017, 08:17:52 AM »
So your thought is that no one should ever give a counter point if it is off topic to the thread's intended purpose or question. So if some one asks do you regret buying a boat house cleaner. Eating out. Etc.  We should not discuss the alternative side of that.  This would lead to a quite boring learning environment if thoughts and ideas can't be challenged and debated.

I have no desire to just let my presence be known. I have a desire to help people truly understand the decision they are making and it's extremely counterintuitive to common mindsets by most people. Spending less fundamentally makes sense. Controlling your energy and environmental impact make sense and are quite easy for the herd to understand. The mortgage thought is abstract. And for many hard to grasp or come to terms with putting some emotion aside for what will likely lead to a much better faster FIRE time line.
« Last Edit: December 03, 2017, 08:21:49 AM by boarder42 »
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nereo

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Re: Do you regret paying off your mortgage early?
« Reply #489 on: December 03, 2017, 08:44:58 AM »
I think I know a way how we can prevent every one of these types of threads from turning into a payoff verse non payoff....standoff. boarder42 has made it perfectly clear they will not stand down on what they deem a personal mission and service to the community, and will continue to haunt mortgage payoff topics to the end of eternity. So I say we just learn to live with the ghost.

Don't argue with them. All they want to do is let their presence be known, and to get their message out. Fine, so be it. They get to have their message out, those that come across it and want to take heed can, and those that want to stick with the topic of the thread can do so without pages upon pages of what we have here. I for one, as someone who plans on paying off their mortgage early in the future, really am interested in the original question of this topic.

And yes, I realize I too have also engaged. But I have seen the light, and understand the need of evangelicals to spread their word so they can rest their conscience. It's not how I would choose to spend my time, but I am choosing the path of least resistance; standing still until the objects stop flying across the kitchen...then continue my way to the fridge.
While your analysis that committed members of both camps may never agree is probably correct, you are clearly disparaging those that believe in not accelerating their mortgage payments.  So basically you're calling for a truce while lobbing a molotov cocktail at one group. That's not helpful.
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Re: Do you regret paying off your mortgage early?
« Reply #490 on: December 03, 2017, 08:52:36 AM »

No I don't regret paying off my mortgage at all.  In fact it was one of the better decisions we have made.  And no, I'm not going into the murky depths of hell trying to convince anyone why we did it!  But the timing worked out perfectly for us.

Just answering the question.  :-)


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Re: Do you regret paying off your mortgage early?
« Reply #491 on: December 03, 2017, 09:40:17 AM »
^thank you for sharing

Lmoot

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Re: Do you regret paying off your mortgage early?
« Reply #492 on: December 03, 2017, 09:43:26 AM »
I think I know a way how we can prevent every one of these types of threads from turning into a payoff verse non payoff....standoff. boarder42 has made it perfectly clear they will not stand down on what they deem a personal mission and service to the community, and will continue to haunt mortgage payoff topics to the end of eternity. So I say we just learn to live with the ghost.

Don't argue with them. All they want to do is let their presence be known, and to get their message out. Fine, so be it. They get to have their message out, those that come across it and want to take heed can, and those that want to stick with the topic of the thread can do so without pages upon pages of what we have here. I for one, as someone who plans on paying off their mortgage early in the future, really am interested in the original question of this topic.

And yes, I realize I too have also engaged. But I have seen the light, and understand the need of evangelicals to spread their word so they can rest their conscience. It's not how I would choose to spend my time, but I am choosing the path of least resistance; standing still until the objects stop flying across the kitchen...then continue my way to the fridge.
While your analysis that committed members of both camps may never agree is probably correct, you are clearly disparaging those that believe in not accelerating their mortgage payments.  So basically you're calling for a truce while lobbing a molotov cocktail at one group. That's not helpful.

No, I am disparaging the idea that a few posters can disrupt the topic of several threads (with the same tired dialogue....talk about boring).  When the last several pages of a topic, really have very little to do with the topic or question presented in the original post, it kind of ruins the purpose of having an original topic or question. And that's just a shame.

And the problem I have is not with whether or not someone decides to prepay or invest. My issue is with certain members and their (self admitted goal to have the loudest voice and to bulldoze over what they deem to be incorrect opinions or views). It's not merely disagreeing. It's openly antagonizing people who didn't come into this particular thread looking for a debate.
« Last Edit: December 03, 2017, 09:47:34 AM by Lmoot »

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Re: Do you regret paying off your mortgage early?
« Reply #493 on: December 03, 2017, 09:46:21 AM »
It's not tired dialogue new members are constantly coming to the site and if you go to the celebration thread you will see people who have left it due to this discussion. So while it may be tired to you the same could be said for the opposite side of this discussion.
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Lmoot

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Re: Do you regret paying off your mortgage early?
« Reply #494 on: December 03, 2017, 09:51:48 AM »
It's not tired dialogue new members are constantly coming to the site and if you go to the celebration thread you will see people who have left it due to this discussion. So while it may be tired to you the same could be said for the opposite side of this discussion.

Then post a link to your many other discussions of the same topic. The links alone would fill up half a page. And it would be more efficient. That's your thing isn't it? You get to save the world. People get the message. And those that clicked on a topic because they wanted to read about that particular topic can get what they want without having to sift through a bunch of clusterfu**ery.

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Re: Do you regret paying off your mortgage early?
« Reply #495 on: December 03, 2017, 09:53:38 AM »
If inflation does revert to the mean and increases, then historically stocks will underperform.  So a keep the mortgage would NOT want inflation to rise.

This is exactly backwards.  Inflation drives up nominal stock prices without increasing nominal mortgage loan expense, so leveraged-stock-investing-via-mortgage functions as an excellent hedge against inflation (the same is true of any leveraged-investing strategy that uses productive assets and fixed-rate debt, but the unique nature of U.S. 30-year mortgage loans makes them a superb tool for this purpose).

Right.

And to explain simply WHY this is the case, it goes like this: inflation = goods cost more = companies are making more money = their stock price rises to reflect the extra money they are making. Meanwhile, your mortgage payment (the P&I) part is fixed, making it an excellent inflation hedge.

Not initially
Here is how it really goes.  Inflation = goods cost more = company input costs are now more = companies have higher expenses so they keep prices the same and make less profit, but eventually must raise their prices which cause less sales = stock price drops. When prices go up, consumers have less spending power, so they consume less until equilibrium...which takes many years

From Investopedia
"if inflation continues to increase, the minimum return on stock investment will also be higher which will push market valuation lower. Share prices will fall until the estimated earnings yield increase to a point enough to offset the expected inflation. The expectation of rising inflation, albeit benign, can adversely affect the stock market in the short-term"

Additionally the PE ratio of all companies is the price which includes a discount to it's fair value to account for it's percieved RISK.  Inflation reduces the return so to compensate, the price must drop.

From CBS
"Since World War II, stock returns have done relatively poor when unexpected inflation occurs. This is because unexpected inflation causes investors to demand a higher risk premium for stocks. .... The link between unexpected inflation and stock returns changes depending on whether the economy is contracting or expanding. The risk premium for investing in stocks responds much more negatively to unexpected inflation during contractions than expansions."

So inflation is generally considered not good for equities.  Equities like low rate environments, like we have had for the past 8.5 years. That is one of the primary drivers of the recent run up.  If you think we are in an economic expansion, then inflations impact will be felt, but less.
If however you think we may be in or near the contraction portion of the economic cycle (We are), the inflation effects will be more pronounced.
« Last Edit: December 04, 2017, 11:31:33 AM by slythr »

nereo

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Re: Do you regret paying off your mortgage early?
« Reply #496 on: December 03, 2017, 10:34:29 AM »
If inflation does revert to the mean and increases, then historically stocks will underperform.  So a keep the mortgage would NOT want inflation to rise.

This is exactly backwards.  Inflation drives up nominal stock prices without increasing nominal mortgage loan expense, so leveraged-stock-investing-via-mortgage functions as an excellent hedge against inflation (the same is true of any leveraged-investing strategy that uses productive assets and fixed-rate debt, but the unique nature of U.S. 30-year mortgage loans makes them a superb tool for this purpose).

Right.

And to explain simply WHY this is the case, it goes like this: inflation = goods cost more = companies are making more money = their stock price rises to reflect the extra money they are making. Meanwhile, your mortgage payment (the P&I) part is fixed, making it an excellent inflation hedge.

Not initially
Here is how it really goes.  Inflation = goods cost more = company input costs are now more = companies have higher expenses so they keep prices the same and make less profit, but eventually must raise their prices which cause less sales = stock price drops. When prices go up, consumers have less spending power, so they consume less until equilibrium...which takes many years

From Investopedia
"if inflation continues to increase, the minimum return on stock investment will also be higher which will push market valuation lower. Share prices will fall until the estimated earnings yield increase to a point enough to offset the expected inflation. The expectation of rising inflation, albeit benign, can adversely affect the stock market in the short-term"

Additionally the PE ratio of all companies is the price which includes a discount to it's fair value to account for it's percieved RISK.  Inflation reduces the return so to compensate, the price must drop.

From CBS
"Since World War II, stock returns have done relatively poor when unexpected inflation occurs. This is because unexpected inflation causes investors to demand a higher risk premium for stocks. .... The link between unexpected inflation and stock returns changes depending on whether the economy is contracting or expanding. The risk premium for investing in stocks responds much more negatively to unexpected inflation during contractions than expansions.

So inflation is generally considered not good for equities.  Equities like low rate environments, like we have had for the past 8.5 years. That is one of the primary drivers of the recent run up.  If you think we are in an economic expansion, then inflations impact will be felt, but less.
If however you think we may be in or near the contraction portion of the economic cycle (We are), the inflation effects will be more pronounced.

Discounting inflation when considering a fixed rate mortgage makes no sense, as arebelspy, brooklynguy and others have pointed out.  For many of us, a primary reason to hold a mortgage is because its a powerful hedge against inflation.

To illustrate with an example, imagine two scenarios. 
Scenario 1: Homeowner has a 30y fixed at 3% and an investment portfolio entirely in an SP500 index fund.  Over the next few decades the market returns 8% annually (non-adjusted) and inflation runs at 2% - typical of what was seen in the last decade+.
Scenario 2: Homeowner has same mortgage and investment portfolio, but the market returns 11% and inflation runs at 5% - typical of what was seen in the 1970s and 80s.

In both scenarios the real adjusted returns would be the same (6%) but the homeowner would be much better off in scenario 2. Why? because the mortgage is fixed and inflation eats into the principle owed. For those of us who currently hold fixed-rate mortgages moderate inflation is a very good thing. As simple peons who can't control global markets, holding a mortgage is a hedge against future inflation.
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nereo

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Re: Do you regret paying off your mortgage early?
« Reply #497 on: December 03, 2017, 10:45:28 AM »
I think I know a way how we can prevent every one of these types of threads from turning into a payoff verse non payoff....standoff. boarder42 has made it perfectly clear they will not stand down on what they deem a personal mission and service to the community, and will continue to haunt mortgage payoff topics to the end of eternity. So I say we just learn to live with the ghost.

Don't argue with them. All they want to do is let their presence be known, and to get their message out. Fine, so be it. They get to have their message out, those that come across it and want to take heed can, and those that want to stick with the topic of the thread can do so without pages upon pages of what we have here. I for one, as someone who plans on paying off their mortgage early in the future, really am interested in the original question of this topic.

And yes, I realize I too have also engaged. But I have seen the light, and understand the need of evangelicals to spread their word so they can rest their conscience. It's not how I would choose to spend my time, but I am choosing the path of least resistance; standing still until the objects stop flying across the kitchen...then continue my way to the fridge.
While your analysis that committed members of both camps may never agree is probably correct, you are clearly disparaging those that believe in not accelerating their mortgage payments.  So basically you're calling for a truce while lobbing a molotov cocktail at one group. That's not helpful.

No, I am disparaging the idea that a few posters can disrupt the topic of several threads (with the same tired dialogue....talk about boring).  When the last several pages of a topic, really have very little to do with the topic or question presented in the original post, it kind of ruins the purpose of having an original topic or question. And that's just a shame.

And the problem I have is not with whether or not someone decides to prepay or invest. My issue is with certain members and their (self admitted goal to have the loudest voice and to bulldoze over what they deem to be incorrect opinions or views). It's not merely disagreeing. It's openly antagonizing people who didn't come into this particular thread looking for a debate.
Fair enough.  After re-reading your post several times I believe what rankled me is how you described some posters as "evangelicals" who are "spreading the word".  That - to me - implies someone acting strictly on faith and without any critical analysis. While some posters are very passionate about their position, for the most part they back this up with rigorous math-based scenarios.

FWIW (and to return to the topic of this thread) we got into a situation where we had paid down a lot more of our mortage than intended, and yes we regretted it and have since taken steps to reduce the percentage of our NW tied to our home.  Similarly, my parents refinanced their home a few years before retirement so that they could carry a mortgage well into retirement. 
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slythr

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Re: Do you regret paying off your mortgage early?
« Reply #498 on: December 03, 2017, 10:58:39 AM »
If inflation does revert to the mean and increases, then historically stocks will underperform.  So a keep the mortgage would NOT want inflation to rise.

This is exactly backwards.  Inflation drives up nominal stock prices without increasing nominal mortgage loan expense, so leveraged-stock-investing-via-mortgage functions as an excellent hedge against inflation (the same is true of any leveraged-investing strategy that uses productive assets and fixed-rate debt, but the unique nature of U.S. 30-year mortgage loans makes them a superb tool for this purpose).

Right.

And to explain simply WHY this is the case, it goes like this: inflation = goods cost more = companies are making more money = their stock price rises to reflect the extra money they are making. Meanwhile, your mortgage payment (the P&I) part is fixed, making it an excellent inflation hedge.

Not initially
Here is how it really goes.  Inflation = goods cost more = company input costs are now more = companies have higher expenses so they keep prices the same and make less profit, but eventually must raise their prices which cause less sales = stock price drops. When prices go up, consumers have less spending power, so they consume less until equilibrium...which takes many years

From Investopedia
"if inflation continues to increase, the minimum return on stock investment will also be higher which will push market valuation lower. Share prices will fall until the estimated earnings yield increase to a point enough to offset the expected inflation. The expectation of rising inflation, albeit benign, can adversely affect the stock market in the short-term"

Additionally the PE ratio of all companies is the price which includes a discount to it's fair value to account for it's percieved RISK.  Inflation reduces the return so to compensate, the price must drop.

From CBS
"Since World War II, stock returns have done relatively poor when unexpected inflation occurs. This is because unexpected inflation causes investors to demand a higher risk premium for stocks. .... The link between unexpected inflation and stock returns changes depending on whether the economy is contracting or expanding. The risk premium for investing in stocks responds much more negatively to unexpected inflation during contractions than expansions.

So inflation is generally considered not good for equities.  Equities like low rate environments, like we have had for the past 8.5 years. That is one of the primary drivers of the recent run up.  If you think we are in an economic expansion, then inflations impact will be felt, but less.
If however you think we may be in or near the contraction portion of the economic cycle (We are), the inflation effects will be more pronounced.

Discounting inflation when considering a fixed rate mortgage makes no sense, as arebelspy, brooklynguy and others have pointed out.  For many of us, a primary reason to hold a mortgage is because its a powerful hedge against inflation.

To illustrate with an example, imagine two scenarios. 
Scenario 1: Homeowner has a 30y fixed at 3% and an investment portfolio entirely in an SP500 index fund.  Over the next few decades the market returns 8% annually (non-adjusted) and inflation runs at 2% - typical of what was seen in the last decade+.
Scenario 2: Homeowner has same mortgage and investment portfolio, but the market returns 11% and inflation runs at 5% - typical of what was seen in the 1970s and 80s.

In both scenarios the real adjusted returns would be the same (6%) but the homeowner would be much better off in scenario 2. Why? because the mortgage is fixed and inflation eats into the principle owed. For those of us who currently hold fixed-rate mortgages moderate inflation is a very good thing. As simple peons who can't control global markets, holding a mortgage is a hedge against future inflation.

You are quoting me so I assume you are talking to me?

I didn't discount inflation when considering a fixed rate mortgage. I mentioned nothing even close to that

I simply pointed out that higher inflation harms stock returns...those same stock returns that are necessary for the leverage and arbitration strategy to work.

I get that a mortgage is an inflation hedge. So is a TIPS bond. But the equity market has perform as well for the strategy to work.  If inflation runs 2% but the market loses money, you still lose, even with your hedge.

You point out 2 scenarios.  Conveniently both scenarios show a market that outperforms both inflation and it's own average and both scenarios show a 6pt spread.  Well no kidding.  That is math, and I don't argue math.  I argue presumptions and assumptions.

Here is a 3rd scenario. 

The market reverts to the mean over the next 10 years and returns -1%.  Inflation runs at 2%.

Now where did I get these numbers from.  I didn't just pull them out of a hat.  They are from last decade (inflation was  2.54% from 2000-2010 and has dropped to 1.86%  from 2010 to 2016).. 

From Forbes:
"For the period of December 31, 1999 through December 31, 2009, the S&P 500 index had an annualized simple price return of -2.72%.  When dividends are factored in, the results do not get much better as annualized total return for the S&P 500 index (with dividends reinvested back into the index) over the same timeframe was -0.95%."

So what about that scenario?  It is not speculation... It did happen. Could it happen again?


nereo

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Re: Do you regret paying off your mortgage early?
« Reply #499 on: December 03, 2017, 11:29:29 AM »
You are quoting me so I assume you are talking to me?

I didn't discount inflation when considering a fixed rate mortgage. I mentioned nothing even close to that

Here is the relevant passage. Perhaps I misunderstood.

[...]
And while your 10% return is correct 3% of that is due to inflation.  Real returns are closer to 7% historically. And things can go down...for along time...even 20 years.

As is famously quoted "After accounting for dividends, inflation, taxes and fees, $10,000 invested at the end of 1961 would have shrunk to $6,600 by 1981." That would have been a bad time to keep the mortgage.

I do agree that inflation could revert to the mean in the near future.  That is a very real possibility and at some point it is probable. If inflation does revert to the mean and increases, then historically stocks will underperform.  So a keep the mortgage would NOT want inflation to rise. If inflation goes up to the mean (about 2% higher than now), rates go up.  The higher rates go, the less incentive people will have to take the risk of equities when they can get a similar return risk free with fixed investments.
[snip]

Quote
I simply pointed out that higher inflation harms stock returns...those same stock returns that are necessary for the leverage and arbitration strategy to work.

I get that a mortgage is an inflation hedge. So is a TIPS bond. But the equity market has perform as well for the strategy to work.  If inflation runs 2% but the market loses money, you still lose, even with your hedge.

You point out 2 scenarios.  Conveniently both scenarios show a market that outperforms both inflation and it's own average and both scenarios show a 6pt spread.  Well no kidding.  That is math, and I don't argue math.  I argue presumptions and assumptions.

Here is a 3rd scenario. 

The market reverts to the mean over the next 10 years and returns -1%.  Inflation runs at 2%.

So if I udnerstand your position correctly, you are assuming i) someone fully retired with no income and ii) modeling your position around the possibility that we may have a protracted period of negative gains?
Is that a fair synopsis?
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