Author Topic: Do you regret paying off your mortgage early?  (Read 156918 times)

yandz

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Re: Do you regret paying off your mortgage early?
« Reply #50 on: January 22, 2015, 08:40:20 AM »
We didn't completely pay off our mortgage, but we did sink about 60k in one payment with plans to keep paying it down prior to finding MMM. Hindsight, I wish we had invested that money and do regret it. Fortunately, post MMM we decided to move closer to work, so we are able to re-leverage and get that money back out in the sale.

We plan to pay off the mortgage before RE because it will make our hearts happy, but we are first investing heavily while the mortgage is leveraged because the math makes sense. We will then give those investments another year or two to grow while we kill the mortgage.  We like this strategy because we work the math to our advantage first and sure, then make the emotional call.

Prairie Stash

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Re: Do you regret paying off your mortgage early?
« Reply #51 on: January 22, 2015, 08:49:58 AM »
Prepaying has been great. If I ever want to I can get a 2nd mortgage, its an easily reversible decision. I'm in the final stage of my mortgage, my overtime piled up the last few months and I have enough cash to pay it off. If I didn't want a mortgage I could tap my HELOC for investments.

The stability I get in my finances by removing my single largest expense is awesome. When I retire if there is any shortfall in my budget a part time job will cover it, if I had mortgage payments too I'd need to cover that. Theoretically if I retire and the stock market does a correction immediately after, like 2008, it won't matter. If I was covering mortgage though it would deplete my buffer quicker.

Couple that with the added benefit of being low income in retirement and I'll be farther ahead. No taxes, I'll be below income thresholds. Tax rebate checks for low income, I've paid hundreds of thousands in taxes, I'll take the rebates when I'm eligible. There's several benefits my government gives to low income that I wouldn't get If I was still paying mortgage in retirement through investment dividends.

brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #52 on: January 22, 2015, 08:59:29 AM »
If you're using a Roth conversion ladder or otherwise drawing on investments where you pay taxes, isn't the huge decrease in income required without a mortgage payment quite a boon? Tax reduction, aca subsidy, and in my state with a low adjusted gross income you get free college tuition for your kids. All of that goes poof if you bring expenses up from say $30k to $45k.

It is not true that paying off your mortgage necessarily results in a huge decrease in income.  In fact, keeping your mortgage outstanding can require almost no increase in income (at least in the early years), because you can control how much income you realize when you draw down on your investments.  See the discussion in Sol's thread on this topic for discussion of the issues you are raising about potentially losing out on government benefits by keeping your mortgage (including my response # 56, which explains the previous sentence in more detail):

http://forum.mrmoneymustache.com/ask-a-mustachian/should-i-pay-off-my-mortgage-early/


Jack

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Re: Do you regret paying off your mortgage early?
« Reply #53 on: January 22, 2015, 09:34:51 AM »
I don't believe in house payments any more than I believe in car payments. I paid cash for a (very) modest house in a good location, and make sure that whatever would have gone to a mortgage payment goes into my Vanguard index funds. I like to own myself and my house. I don't like the feeling that the bank owns me and my house.

If someone were willing to lend at a low interest rate for a car old enough to have already finished most of its depreciation, then I'd totally love to have a car loan.

Bobberth

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Re: Do you regret paying off your mortgage early?
« Reply #54 on: January 22, 2015, 02:19:05 PM »
We just refinanced into a 15 year loan at 3.125%.  It's going to be VERY hard not to pay extra on it over time as I would love to have it paid off early to RE but I know at that interest rate, I shouldn't.  It would be better financially to add 5 more rental properties to my FI number to make the leap to RE than to pay extra on the mortgage.

Also, this mortgage is part of our 'worst case scenario' retirement plan.  In 15 years the mortgage will be paid off and our youngest will be starting her 8th (and hopefully final) semester at college.  That is a lot of big expenses ending all at once.  Combined with our rental properties and additional savings over the years, there is no doubt we will be able to retire then.  And we both will be youngish retirees at 52. 

TomTX

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Re: Do you regret paying off your mortgage early?
« Reply #55 on: January 23, 2015, 08:46:37 AM »
Okay, the cFiresim said that investment beats payoff of a 4% mortgage 95% of the time. However,  without a mortgage,  we will be able to pretty readily get an extra $2k to $3k in tax credits per year, because I can hammer my AGI so low. Retirement savings credit is the obvious one, possibly EITC as well.

brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #56 on: January 23, 2015, 09:00:48 AM »
Okay, the cFiresim said that investment beats payoff of a 4% mortgage 95% of the time. However,  without a mortgage,  we will be able to pretty readily get an extra $2k to $3k in tax credits per year, because I can hammer my AGI so low. Retirement savings credit is the obvious one, possibly EITC as well.

Again, see my response immediately above (reply # 57).  Having no mortgage does not necessarily make it easier to keep your income low.  For ease of reference, here is the relevant quote from sol's thread that I linked to above (but I encourage anyone grappling with the question of whether paying off their mortgage will increase their chances of obtaining government benefits to read sol's thread in its entirety):

Sol - something occurred to me when I saw your latest response in the financial aid thread.  When comparing the "mortgage" and "no mortgage" options, are you assuming that under the "mortgage" option, the required mortgage payments translate into a need for additional income on a dollar-for-dollar basis?  Because that's not true--in fact, as long as you will be invested in assets that generate returns primarily through capital appreciation (as I'm sure you will be), your income will, in the early years of your retirement, probably be only negligibly higher under the "mortgage" option (because, as you sell assets to service the mortgage, the bulk of the sale proceeds will represent return of principal, not income (and therefore have no effect on your tax liability or eligibility for income-based benefit programs)).  Over time, your income will drift up as your cost basis decreases, but that may happen slowly enough not to matter (for example, you may become eligible for medicare before you become disqualified for maximum ACA subsidies).

Apologies if you've already properly factored this into your math, but I realized that I had fallen into this trap myself.  In trying to reconstruct my own cost-benefit analysis,* I just dug up the old thread that helped me decide to keep my mortgage.  The back and forth between me and foobar starting at reply #158 is most relevant.  In that thread, I had made the same argument that you are making in this one -- that carrying the mortgage (and investing the proceeds) will significantly increase my income level and thereby have the effect of disqualifying me for ACA subsidies and other (unspecified) means-tested government benefits.  However, foobar correctly pointed out that I was grossly overstating the problem, because, generally speaking, only a small fraction of the withdrawals from a typical stock/bond portfolio will count as income, for a long time into one's retirement (exactly how long will depend on your returns and opportunities to tax loss harvest and/or tax gain harvest).  Foobar made a convincing case that the math will almost always favor keeping the mortgage (assuming a low enough rate, like what's available today), even taking into account the considerations that led you to start this thread.


brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #57 on: January 23, 2015, 09:39:46 AM »
Another point worth making (which I recently made in another thread on the same topic) is that the cfiresim analysis ignores the effect of taxes, which could cut either way.  At one extreme, if you are getting the benefit of the mortgage interest tax deduction and investing primarily in tax advantaged accounts, the benefit of investing over prepaying will be magnified, perhaps greatly so (this is the likely situation for the prototypical mustachian who is still in the accumulation phase).  At the other extreme, if you don't get the benefit of the interest deduction and you are investing primarily in taxable accounts, the benefit of investing over prepaying will be reduced (but, as long as you are investing in tax efficient assets, the benefit will still exist and will still be substantial).  For the prototypical mustachian in the retirement/drawdown phase who manipulates their income such that they that are not subject to any tax liability, the cfiresim analysis applies as is (because the effect of taxes should be ignored in the case of a person who is not subject to taxes).

Norioch

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Re: Do you regret paying off your mortgage early?
« Reply #58 on: January 23, 2015, 10:33:46 AM »
I paid cash for my home, and I have never regretted it at all.

rocketpj

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Re: Do you regret paying off your mortgage early?
« Reply #59 on: January 23, 2015, 11:17:21 AM »
Here in Canada there is no such thing as a 30 year fixed rate mortgage.  If there was I'd be all over it, but unfortunately the best I can find is a 10 year, and that is at about 1.5% more than a 5 year (roughly speaking).  If you pick a wonky term like 8 or 9 years it is a bit better, though most people go for 5.

So there is some higher risk in Canada when not paying off a home ASAP, because rates are likely to go up sometime in the next 25 years. 

Currently I'm struggling with the various options, as we are about to renew our term (we had a 5 year fixed on a 25 year amortization).  I am likely to refinance at about a 17 year amortization, probably with an 8 year term.  I am then going to put some serious effort into bringing the balance down - because I really doubt we will see another decade of lower than low rates. 

Paying it off is also a key prerequisite to financial freedom for me because it dramatically reduces the amount of income you have to earn each month.  Resilience is a good quality in itself, and it is at least a little bit shockproof, assuming you don't have to move.

dragoncar

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Re: Do you regret paying off your mortgage early?
« Reply #60 on: January 23, 2015, 11:39:12 AM »
Here in Canada there is no such thing as a 30 year fixed rate mortgage.  If there was I'd be all over it, but unfortunately the best I can find is a 10 year, and that is at about 1.5% more than a 5 year (roughly speaking).  If you pick a wonky term like 8 or 9 years it is a bit better, though most people go for 5.

So there is some higher risk in Canada when not paying off a home ASAP, because rates are likely to go up sometime in the next 25 years. 

Currently I'm struggling with the various options, as we are about to renew our term (we had a 5 year fixed on a 25 year amortization).  I am likely to refinance at about a 17 year amortization, probably with an 8 year term.  I am then going to put some serious effort into bringing the balance down - because I really doubt we will see another decade of lower than low rates. 

Paying it off is also a key prerequisite to financial freedom for me because it dramatically reduces the amount of income you have to earn each month.  Resilience is a good quality in itself, and it is at least a little bit shockproof, assuming you don't have to move.

I was aware of this, but never thought to ask-- what are the closing costs like?  Seems like a lot of work every 5 years

jmusic

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Re: Do you regret paying off your mortgage early?
« Reply #61 on: January 23, 2015, 12:16:24 PM »
A lot of interesting discussion going on here(I read all of pg.1, haven't cracked into pg 2), but I think the OP's question itself invites hindsight bias, specifically regarding the real estate and stock markets. 

Someone with perfect 20/20 *foresight* could sell the stock market in Dec 2000/Aug2007 before the crashes, buy a crapton of houses in 2000 and sell in 2006, etc.   

But unfortunately my crystal ball is broken...  Yes, I wish I'd bought a house in 2010, but I didn't.  I thought the stock market was overvalued in the beginning of 2014, but it's still rocketing upwards...

So anyway, here's a line in the sand for everyone to consider: think of what happens in retirement with the 4% SWR.  Would the assets required to make mortgage payments exceed the assets required to pay off the house?  If yes, pay that bad boy off! 

In the meantime, I think a hybrid approach to the payoff/invest debate would be prudent as it would balance the risks of stock market correction/unplanned income shortages against the possibility of future gains.

brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #62 on: January 23, 2015, 12:39:15 PM »
So anyway, here's a line in the sand for everyone to consider: think of what happens in retirement with the 4% SWR.  Would the assets required to make mortgage payments exceed the assets required to pay off the house?  If yes, pay that bad boy off! 

If I'm understanding you correctly, you are proposing that one should pay off the mortgage if the outstanding principal balance is less than 25x the annual required principal + interest payments (on the theory that the 4% rule says you need a portfolio at least equal to 25x your annual expenses).

If so, that is bad advice and reflects a misunderstanding of the 4% rule--by that logic, your mortgage rate would need to be lower than 1.3% (!) before it makes sense to keep it instead of paying it off.  But, as demonstrated by the cfiresim analysis in my comments above, historically you would have been better off investing (and not paying off the mortgage) over 95% of the time even with a mortgage rate as high as 4%.

The error in your rationale is that it doesn't account for the fact that your fixed mortgage payments over the 30-year life of the loan do not adjust with inflation, while the 4% rule assumes returns sufficient to allow a 4% withdrawal rate after accounting for inflation.

Cassie

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Re: Do you regret paying off your mortgage early?
« Reply #63 on: January 23, 2015, 12:42:37 PM »
We paid cash 3 years ago. Our home was a foreclosure & only cash offers were considered. After paying for house & doing many upgrades we have paid $105,000 for a house that is now worth $225,000. In addition, our property taxes are very low because they are based on age of home so they are $600/year. It does not matter how nice your house is-just year it was built & size.

aj_yooper

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Re: Do you regret paying off your mortgage early?
« Reply #64 on: January 23, 2015, 01:28:57 PM »
So anyway, here's a line in the sand for everyone to consider: think of what happens in retirement with the 4% SWR.  Would the assets required to make mortgage payments exceed the assets required to pay off the house?  If yes, pay that bad boy off! 

If I'm understanding you correctly, you are proposing that one should pay off the mortgage if the outstanding principal balance is less than 25x the annual required principal + interest payments (on the theory that the 4% rule says you need a portfolio at least equal to 25x your annual expenses).

If so, that is bad advice and reflects a misunderstanding of the 4% rule--by that logic, your mortgage rate would need to be lower than 1.3% (!) before it makes sense to keep it instead of paying it off.  But, as demonstrated by the cfiresim analysis in my comments above, historically you would have been better off investing (and not paying off the mortgage) over 95% of the time even with a mortgage rate as high as 4%.

The error in your rationale is that it doesn't account for the fact that your fixed mortgage payments over the 30-year life of the loan do not adjust with inflation, while the 4% rule assumes returns sufficient to allow a 4% withdrawal rate after accounting for inflation.

Suppose there were a deflationary period for a decade or so.  Would that affect things?

SandyBoxx

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Re: Do you regret paying off your mortgage early?
« Reply #65 on: January 23, 2015, 02:21:19 PM »
Here in Canada there is no such thing as a 30 year fixed rate mortgage.  If there was I'd be all over it, but unfortunately the best I can find is a 10 year, and that is at about 1.5% more than a 5 year (roughly speaking).  If you pick a wonky term like 8 or 9 years it is a bit better, though most people go for 5.

So there is some higher risk in Canada when not paying off a home ASAP, because rates are likely to go up sometime in the next 25 years. 

Currently I'm struggling with the various options, as we are about to renew our term (we had a 5 year fixed on a 25 year amortization).  I am likely to refinance at about a 17 year amortization, probably with an 8 year term.  I am then going to put some serious effort into bringing the balance down - because I really doubt we will see another decade of lower than low rates. 

Paying it off is also a key prerequisite to financial freedom for me because it dramatically reduces the amount of income you have to earn each month.  Resilience is a good quality in itself, and it is at least a little bit shockproof, assuming you don't have to move.

While mortgage rates are this low, we are doing the "Smith Maneouvre" with our Canadian mortgage.  Simplistic explanation: We have a HELOC strictly for investing purposes (at 3%), that automatically increases with the amount of principle we pay in each mortgage payment.  We then invest that principle into the market.  The interest we pay on the investment loan is tax deductible resulting in a larger tax refund which we then apply against the mortgage.  Rinse, repeat. Mortgage gets paid off faster.  No additional cash flow is required out of pocket as the interest payment is capitalized (paid out of our account, then immediately reborrowed from the HELOC (yes it is legit.))

We are renewing our mortgage this week at a 2 year fixed, 2.49%.  If/when interest rates start to climb significantly, we will then start throwing extra funds at the mortgage and make that sucka disappear! (Currently have 11.5 years left - without the benefit of the Smith).

I would love to see a thread like this for Canadians specifically, as our non-tax deductible mortgages change the conversation quite a bit....hmmmm.

brooklynguy

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Re: Do you regret paying off your mortgage early?
« Reply #66 on: January 23, 2015, 02:40:00 PM »
Suppose there were a deflationary period for a decade or so.  Would that affect things?

Yes, a decade-long period of deflation would of course "affect things" (an expression that is a study in understatement), as would a period of hyperinflation, stagflation, or nuclear annihilation.  It goes without saying that the past does not necessarily predict the future, but the cfiresim results do tell us that after accounting for all covered historical periods (including the Great Depression, etc.), over 95% of the time it was better to use the proceeds of a 30-year mortgage with a 4% interest rate for investments rather than for prepayment.  Is it possible things could turn out differently for the person investing today?  Of course!  We could be in situation like one of the historical 5% failure cases, or the future could even turn out to be worse than any period ever to have occurred in the past.  But note that if over the next 30 years a standard stock/bond portfolio fails to outperform a mortgage with a rate like the ones available today, then anyone planning to start an MMM-style retirement today in reliance on the 4% rule is going to run out of money.

So what's the solution?  Any strategy that will perfectly equip you to deal with a deflationary spiral (such as, say, converting all of your assets into gold), or any other specific worst case scenario, will also leave you very poorly equipped to deal with all the other potential (and perhaps more likely) outcomes.  In my view, all things considered, a very sensible strategy to take is to exploit the low interest rates available on today's 30-year mortgages to increase your exposure to a well-diversified portfolio of low-cost index funds.

This JL Collins article makes for some good reading about how an internationally diversified portfolio provides some level of hedging protection against both inflation and deflation:

http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/

RetiredAt63

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Re: Do you regret paying off your mortgage early?
« Reply #67 on: January 24, 2015, 08:21:24 AM »
I was aware of this, but never thought to ask-- what are the closing costs like?  Seems like a lot of work every 5 years

I renewed my mortgage in September - it cost nothing.  I went in to my branch and met with the person I usually deal with, we discussed the options, I did the paperwork, it happened. 

Now if I had changed banks, it might have been a bit more work.  But since we have 5 major banks and a few smaller institutions, it is probably less complicated than in the US. where there are so many small local banks.  There is not a lot of difference in the main aspects, and I was happy with what my bank offered.  I could have gone elsewhere, since in my local area (several small towns) I have access to all of them.

Cookie78

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Re: Do you regret paying off your mortgage early?
« Reply #68 on: January 24, 2015, 08:59:50 AM »
I was aware of this, but never thought to ask-- what are the closing costs like?  Seems like a lot of work every 5 years

I renewed my mortgage in September - it cost nothing.  I went in to my branch and met with the person I usually deal with, we discussed the options, I did the paperwork, it happened. 

Now if I had changed banks, it might have been a bit more work.  But since we have 5 major banks and a few smaller institutions, it is probably less complicated than in the US. where there are so many small local banks.  There is not a lot of difference in the main aspects, and I was happy with what my bank offered.  I could have gone elsewhere, since in my local area (several small towns) I have access to all of them.

Ya

I did one in August 2013 and the other that October. I let my mortgage broker take a look, even though he wasn't involved in the first home purchase. For the first mortgage, he said he couldn't find anything better than what hey were offering me as a renewal. I signed the papers and sent them in.

The second mortgage he found a better option and I switched. It was just a matter of signing a lot more paper work, the new bank doing a credit check, and having to go into the bank to sign more things.

Both are Prime -0.4% for 5 years.

rocketpj

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Re: Do you regret paying off your mortgage early?
« Reply #69 on: January 24, 2015, 04:05:28 PM »
I was aware of this, but never thought to ask-- what are the closing costs like?  Seems like a lot of work every 5 years

That depends.  If you move to another lender there are usually some appraisal fees etc.  Typically if you stay with the same lender, and haven't set off any red flags (i.e. missed payments) then it is mostly just a round of signing papers.  But it's been 5 years since I did it, so I might be forgetting a couple hundred.

We are with a credit union, and we've been members there for a long time (much longer than we've had a mortgage).  They are very good with us and it costs us very little.  Every time I've opened or renewed a mortgage I've shopped around, and Vancity has always beat the rates I could find.  I'm doing the same this time, and we'll see how it goes.

MrsPete

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Re: Do you regret paying off your mortgage early?
« Reply #70 on: January 24, 2015, 07:31:06 PM »
Nope, I don't regret it a bit. 

Having been a poor kid who grew up without security, it was a huge emotional positive to know that my house is MY HOUSE.  Other investments may or may not do well in the future, but they don't compare to security.  Regardless, since my house is something like 5% of my total net worth, whatever opportunity cost may have been lost is insignificant. 

Davids

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Re: Do you regret paying off your mortgage early?
« Reply #71 on: January 25, 2015, 10:03:18 AM »
I bought my house in 2010, 30 year mortgage 4.25% interest rate. I have been aggressively paying down my mortgage and expect to have it paid off by end of 2018. I have no regrets for my decision.
Trying to be helpful - why not look into lowering the rate by a percent or so with a refinance (maybe to 10 or 15-year duration)?  You can even do it for free if you pay a little higher interest rate.  And you can still pay it off early with no penalty, so it's about the best deal you'll ever get from a bank :)
You are correct, I guess my laziness prevented me from doing it since I have been aggressively paying it down over the past couple years instead of just minimum payments. My current mortgage company has a 15 year rate of 3.125% according to their website. I'll give them a call this week to start the process. Given my remaining mortgage balance I suspect my minimum payment would decrease by around $150/month. Hopefully since I am already a mortgage customer there would be a discount on costs to refi.

SaintM

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Re: Do you regret paying off your mortgage early?
« Reply #72 on: January 25, 2015, 10:15:31 AM »
About 3 years ago, I paid the mortgage off on a rental property that was at 6%.  9 months later, I wanted some of the cash back. I was able to get half the money back in a new loan at 4.25%. I used the proceeds to pay cash for my current house and invest in the stock market. I live housing payment-free, the stocks have returned 15% CAGR, and the rental property remains cash flow-positive but is now tax-free.

That is a win-win-win-win situation in my book.

phillyvalue

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Re: Do you regret paying off your mortgage early?
« Reply #73 on: January 25, 2015, 11:04:01 AM »
Financially, if you have a mortgage in the ~4% or lower range, with an effective after-tax interest rate of <3%, it probably makes little sense for most people to pay any more than the standard monthly payment. That said, I can see two justifications that make sense.

First, as you see some people here saying, there's the "freedom" and "convenience" factors to no longer having an outstanding mortgage, i.e. feeling free because you are no longer indebted, and no longer having to make sure you have money in a certain account at the right time every month to make the payment, etc. Thus, you may fully acknowledge that on a pure financial basis, you'd be better off paying only the minimum and investing the rest, but you are willing to suffer some inefficiency in order to feel free and have greater convenience, just as you pay extra for many other luxuries in life.

Second, it may make financial sense or at least be a wash for some sets of individuals. For those with little income, low tax rates, and a small mortgage, the interest deduction may not be very valuable, so their effective interest rate may be closer to the 4%. Moreover, having a mortgage is the same as being short a bond. For those who are already retired and/or are older, a reasonable portfolio is some mix of stocks and fixed income. Paying off a mortgage in lieu of buying treasuries and being long treasuries / short mortgage makes for a simpler portfolio that does basically the same thing.

Personally, I am in my early 20s, just entering the workforce, and will have (a) a relatively high income, (b) face high tax rates, and (c) am at a stage in my life where I want to have almost all of my assets in equities. So for me in a few years, if I buy a house, paying extra towards the mortgage would be a terrible idea, but it depends on your situation.

« Last Edit: January 25, 2015, 11:07:24 AM by phillyvalue »

auntie_betty

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Re: Do you regret paying off your mortgage early?
« Reply #74 on: January 25, 2015, 07:36:42 PM »
Different in the UK as there is no tax relief on mortgage interest on your own home, only rental properties. Complicated by the fact that interest rates on rentals are higher than home loans, the best way to finance a rental property is to refinance your own home (and keep a clear audit trail of using the proceeds to buy a rental to get the tax relief).

We took the decision to overpay our own mortgage and haven't regretted it. Tiny amount left now and the feeling of security is great (or would have been if we weren't about to rent it out and leave the country!). We thought through the whole investing/pay off scenario carefully. Although we've overpaid fairly aggressively we've also paid into pensions and tax-free accounts, all of which were invested in equities. That was enough exposure for us. The only way I'd have been prepared to invest in the stock market further instead of overpaying would have been to take a very low risk profile - even 60:40 would have been high. Hedging against crashes in this way would have reduced the potential gain so much it didn't seem worth the increased risk.

Having said that, this was done over a 10ish year timescale with RE as the end goal. If I'd had the knowledge 30 years ago 'd have viewed it differently (though I may well then have been caught out in the low-cost endowment scandal!)


sharkstash

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Re: Do you regret paying off your mortgage early?
« Reply #75 on: January 01, 2016, 05:58:56 AM »
This is my first post on MMM forums. I know this is an old discussion but I would like to address several points that make us comfortable prepaying our mortgage. I am a longtime reader of MMM. My wife and I are prepaying our mortgage. We will be completely debt-free by 36 years old. Our mortgage is through a credit union so some features may be different than a conventional loan. Here is my take on prepaying our mortgage:

*Guaranteed 3.5% return.
*Prepayments move our payment forward, so if we lose our job it is essentially a larger emergency fund with a larger return than any guaranteed liquid investment currently.
*Both of us work. We can live off one income.
*Our mortgage is only 70K.
*My wife has a pension as she is a government employee and she contributes to her matching portion of it.
*I contribute to my 401(k) match at work.
*We both have Roth IRA's. Even though we don't take full advantage of them we do put more money in from time to time. We invest in those in target date vanguard funds so when we are ready to retire (approximately 45-50) we will be in very low risk for investments.
*Our children will be under 10 when paid off, so we will have a significant amount of income for their high school education (private schooling)
*I grew up in the 2008 recession. I watched people struggle, lose jobs and life savings and delay retirements.
*Our mortgage is higher interest rate than our car loan: 2.5%.
*Peak oil is occurring. Fluctuations in natural resources will create havoc down the road.
*Stock market is at an all time high with significant government intervention.

For these reasons investing heavily in stocks is not prudent, but paying off our house is. No one can guarantee the stock market. If anyone has insight let me know. I am willing to learn and grow, but sense my ability to properly judge risk is good and see no reason for anyone to not prepay unless you run your own business given the current climate.


nazar

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Re: Do you regret paying off your mortgage early?
« Reply #76 on: January 01, 2016, 08:08:46 AM »
To answer the original question, I have no regrets.  I had a 15 year mortgage and made incidental prepayments in months where I had some discretionary funds left over.  Nothing special.  Times passed, principal balance decreased. Given the interest rate environment at the time, this made sense.  At today's rates, I likely wouldn't prepay. 

For the younger crowd, here is some historical perspective: http://www.freddiemac.com/pmms/pmms30.htm

Take a look at the 80s.  Hopefully that will never happen again, but the 70s or 90s easily could.

Tabaxus

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Re: Do you regret paying off your mortgage early?
« Reply #77 on: January 01, 2016, 08:30:59 AM »
When I'm finally ready to buy my house, I intend to get as close as reasonably possible to buying it in cash, while still meeting my goals re having FU money (which I define as two years of expenses) and having a house that my spouse and I will be comfortable with.

I know it's not the financially optimal solution.  But for my spouse and I, the delta over time just isn't worth the difference in security/satisfaction of owning outright/etc.  I am a buy-and-hold investor, but I despise it--I despise the market swings, etc. I get a little ill every time the market drops a percentage, even though I manage to never sell through sheer willpower.  I am comfortable that I would not panic and sell in a crash like 2008, because I understand the math around that.   My spouse just doesn't pay attention, because if the spouse had their way, we would be all in cash/bonds because of their incredibly low risk tolerance.  They understand that isn't the way to go, but we both agreed that, when it comes to buying a house, unless we have to lock in very large losses in our investments, we will liquidate most of the investments to buy the house when the time comes.   
« Last Edit: January 01, 2016, 08:33:22 AM by Tabaxus »

aj_yooper

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Re: Do you regret paying off your mortgage early?
« Reply #78 on: January 01, 2016, 08:38:44 AM »
Quote
Plus (and, from my perspective, most importantly), because cheap, fixed-rate debt provides an excellent hedge against inflation, by prepaying your mortgage you are giving up an important inflation-protection tool and materially increasing your risk of being eaten alive by inflation.

We are now potentially heading into a deflationary environment (in Europe, and Canada, anyway) so this does not apply to everyone. Better to have zero debt AND savings, mind you, but having a massive mortgage in a deflationary environment is where many people in this country are headed, and frankly it's pretty scary.

I share your concern of 'potentially heading into a deflationary environment' and am glad our mortgage is done.  Japan, Europe, and commodity prices support the possibility of deflation.  Most of us don't have experience with deflation, but. as above, plenty of experience with inflation.

ltt

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Re: Do you regret paying off your mortgage early?
« Reply #79 on: January 01, 2016, 08:42:22 AM »
Absolutely not.  It is so freeing to not have that payment over our heads.  We paid ours off back during the beginning of the financial crisis in 2008.  Have never regretted it.


pbkmaine

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Re: Do you regret paying off your mortgage early?
« Reply #80 on: January 01, 2016, 08:52:54 AM »
Nope. No regrets.

MisterTwoForty

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Re: Do you regret paying off your mortgage early?
« Reply #81 on: January 01, 2016, 08:56:26 AM »
The only way the argument for earning more in the market works is if you actually have the cash, but finance instead.  Then, you put that cash in the market and earn gains above the interest rate.

Most just put whatever it is (house/car) on payments and justify it by saying they earn more in the market.  I don't consider 401K being auto deducted from your check to suffice.  You need to actually have the cash and put it in a brokerage account instead.  Very few can afford to do this on a house.

I can't imagine any reason why I would not want a paid for house (even though I don't).

bacchi

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Re: Do you regret paying off your mortgage early?
« Reply #82 on: January 01, 2016, 09:05:11 AM »
The only way the argument for earning more in the market works is if you actually have the cash, but finance instead.  Then, you put that cash in the market and earn gains above the interest rate.

Most just put whatever it is (house/car) on payments and justify it by saying they earn more in the market.  I don't consider 401K being auto deducted from your check to suffice.  You need to actually have the cash and put it in a brokerage account instead.  Very few can afford to do this on a house.

This is a self-selected audience of mustachians. Of course we can do this.

I'm stunned that so many people ignore the mortgage math yet still presumably believe in the 4% rule. I wonder how the beliefs would've shaken out pre-GFC, when house prices "never went down."


jengod

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Re: Do you regret paying off your mortgage early?
« Reply #83 on: January 01, 2016, 09:10:48 AM »
We paid off our mortgage in our mid-30s with a lump sum and we have never regretted it. We were able to do so because of stock options from a startup that my husband had worked for in the past.

We are so appreciative of the freedom it had given our family. I am able to stay at home with out two boys, my husband is  to make choices about his career that wouldn't be as easy to pick if we still had debt. We save a lot and live modestly but we can also travel and afford extracurriculars for the kids. I highly recommend a mortgage payoff to anyone who is willing to consider it.
« Last Edit: January 04, 2016, 10:01:28 PM by jengod »

BlueMR2

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Re: Do you regret paying off your mortgage early?
« Reply #84 on: January 01, 2016, 10:26:12 AM »
Paid off and no regrets.  Even at the low rate I had, the market's been so flat that keeping it would have been break-even at best.  What I really appreciate is the simplicity of not having any debt.

mancityfan

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Re: Do you regret paying off your mortgage early?
« Reply #85 on: January 01, 2016, 10:30:10 AM »
Every single person visiting this site is aware that money is a tool, and you want to maximize it to serve you, rather than be beholden to it. The math usually shows that investing rather than paying off a mortgage is the way to go. However, if paying off the mortgage gives you peace of mind, then you have used your money in a positive way that has served you. We paid off a balance of 75k on our mortgage last year. I was not as enthused as my wife. However, in years past (15 years ago) money was much tighter, and my wife recalls having a calculator in hand at the grocery store and stopping at a given dollar amount. Since paying off the mortgage my wife in particular has become much more content with our financial situation. Worth every penny, happy wifey happy lifey and all that. You are usually going to see this debate go 50:50 because we have different views on how we want to use money to further our future lives. In effect, both approaches (paying off v investing) are good, depending on the individual wants.

Michread

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Re: Do you regret paying off your mortgage early?
« Reply #86 on: January 01, 2016, 10:39:53 AM »
Yes and no.  We had a 15 yr mortgage. We were paying extra every month when our mortgage holder changed about 10 yrs into it and was only crediting our monthly payment NOT The extra money being paid.  It became a PAIN to get it straighten out every month.  It was mostly principle at that point and if we continued we had 2 yrs left.  Dh insisted we take our taxable investments and pay it off, so I let him even though I didn't want to.  Yes, we ran the numbers  and it would have been cheaper to pay it off in those 2 yrs but the headache with that mortgage holder went away.  Some things are worth spending on.

Mortgage paid off in 11 yrs.; that was in 2003. 😀

It all depends on the situation whether to paid it off or not.

Happy 2016!  May you find joy today and everyday!
« Last Edit: January 01, 2016, 10:52:28 AM by Michread »

justajane

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Re: Do you regret paying off your mortgage early?
« Reply #87 on: January 01, 2016, 11:56:18 AM »
I wonder how many people pay it off and unconsciously or even consciously adjust their lifestyle upwards, since they have more money at their disposal.

Conversely, if you're going to spend your surplus after paying the mortgage, it makes sense to prepay as a forced savings vehicle.

Roland of Gilead

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Re: Do you regret paying off your mortgage early?
« Reply #88 on: January 01, 2016, 12:04:45 PM »
I kind of regret paying ours off.   I do not think we will be able to sell our home for near what we paid for it and we want out.   If we had a big loan it would be very tempting to toss the keys in the mailbox and drive away.

dragoncar

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Re: Do you regret paying off your mortgage early?
« Reply #89 on: January 01, 2016, 01:02:24 PM »
The only way the argument for earning more in the market works is if you actually have the cash, but finance instead.  Then, you put that cash in the market and earn gains above the interest rate.

Most just put whatever it is (house/car) on payments and justify it by saying they earn more in the market.  I don't consider 401K being auto deducted from your check to suffice.  You need to actually have the cash and put it in a brokerage account instead.  Very few can afford to do this on a house.

This is a self-selected audience of mustachians. Of course we can do this.

I'm stunned that so many people ignore the mortgage math yet still presumably believe in the 4% rule. I wonder how the beliefs would've shaken out pre-GFC, when house prices "never went down."

Yup, look at it the other way around, which is my current perspective.  I could liquidate stocks equal to my mortgage and pay it off tomorrow (well, Monday).  But my mortgage is under 4%, so it makes zero sense. 

Would/did you mortgage payoff proponents liquidate investments to do so, or only dedicate new cash to early payoff?

TheNick

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Re: Do you regret paying off your mortgage early?
« Reply #90 on: January 01, 2016, 02:01:25 PM »
I'm in the pay off early crowd...paid mine off early and haven't regretted it.  I thought it was fantastic shaving down my monthly budget and increasing my savings rate.

Sure I fully understand that maybe you could do better in the market, and you have some assets to draw down to pay your mortgage if something happens...but what made me not opt to take this route was that the most likely time for many of us to lose a job and have to draw savings down is going to be in a recession and down market.  I hope it never happens to anyone here but if you end up having to sell equities at a loss to cover a mortgage payment you are probably going to end up way behind where you could have been just paying it off early.

Plus when we have a down year like this year...having no mortgage still pays me dividends.  The average person is probably down 2-3% this year in the market, and I avoided 3%(was 6% at one point) interest...so I ended up 5-6% ahead this year.  If you want to look at long term averages the market returns are going to beat interest rates, but then again considering we are coming out of a period of QE, ZIRP, and an already rather long bull market, I'm pretty doubtful the next few years are going to be at or above the long term market average.  I'll continue investing consistently because I have no debt at this point but if I had debt I'd be wagering the next few years would be a great time to pay it down.

dragoncar

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Re: Do you regret paying off your mortgage early?
« Reply #91 on: January 01, 2016, 02:50:30 PM »
I'm in the pay off early crowd...paid mine off early and haven't regretted it.  I thought it was fantastic shaving down my monthly budget and increasing my savings rate.

Sure I fully understand that maybe you could do better in the market, and you have some assets to draw down to pay your mortgage if something happens...but what made me not opt to take this route was that the most likely time for many of us to lose a job and have to draw savings down is going to be in a recession and down market.  I hope it never happens to anyone here but if you end up having to sell equities at a loss to cover a mortgage payment you are probably going to end up way behind where you could have been just paying it off early.

Plus when we have a down year like this year...having no mortgage still pays me dividends.  The average person is probably down 2-3% this year in the market, and I avoided 3%(was 6% at one point) interest...so I ended up 5-6% ahead this year.  If you want to look at long term averages the market returns are going to beat interest rates, but then again considering we are coming out of a period of QE, ZIRP, and an already rather long bull market, I'm pretty doubtful the next few years are going to be at or above the long term market average.  I'll continue investing consistently because I have no debt at this point but if I had debt I'd be wagering the next few years would be a great time to pay it down.

This is actually a great example of how paying off your mortgage early is akin to market timing
« Last Edit: January 01, 2016, 04:30:35 PM by dragoncar »

Cassie

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Re: Do you regret paying off your mortgage early?
« Reply #92 on: January 01, 2016, 03:18:00 PM »
I would think that the type of people that pay off their mortgage early are not the type to inflate their lifestyle and blow all the $.

FIRE me

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Re: Do you regret paying off your mortgage early?
« Reply #93 on: January 01, 2016, 03:25:07 PM »
I do not regret paying mine off early, but not everyone's circumstances are the same.

Why it worked for me:

In 2007 I had a 71K 30 year conventional mortgage at 6.5% taken out on a HUD repo with zero down. Due to the appraisal and my FICO, the rate was the same as if I had paid 20% down and I paid no PMI.

I always paid extra, but when stocks tanked badly I invested in my 401k S&P 500 index fund more heavily than the mortgage early principal payments. After stocks bounced back I poured money onto the mortgage.

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.

I paid it off in 6.5 years.

The other reason I paid it off early rather than investing was more emotional than rational. There is a peace of mind factor in knowing that I have a paid for place to live even if my investments lost 90% (or all) of their value, and if I simultaneously lost my job and unemployment went sky high.

Fishindude

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Re: Do you regret paying off your mortgage early?
« Reply #94 on: January 01, 2016, 04:16:11 PM »
Debt sucks.   Always a good idea to get out of debt if possible.  Can't imagine ever regretting paying off a loan.   

Fi(re) on the Farm

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Re: Do you regret paying off your mortgage early?
« Reply #95 on: January 01, 2016, 04:23:46 PM »
NO! Not one bit. I know it would make more financial sense to invest but I grew up dirt poor and am horribly debt phobic. I watched my mom struggle to keep a roof over our heads and food in our bellies. Knowing that I can stay in my house as long as I can pay the taxes lets me sleep so much easier.

TheNick

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Re: Do you regret paying off your mortgage early?
« Reply #96 on: January 01, 2016, 04:46:50 PM »
I'm in the pay off early crowd...paid mine off early and haven't regretted it.  I thought it was fantastic shaving down my monthly budget and increasing my savings rate.

Sure I fully understand that maybe you could do better in the market, and you have some assets to draw down to pay your mortgage if something happens...but what made me not opt to take this route was that the most likely time for many of us to lose a job and have to draw savings down is going to be in a recession and down market.  I hope it never happens to anyone here but if you end up having to sell equities at a loss to cover a mortgage payment you are probably going to end up way behind where you could have been just paying it off early.

Plus when we have a down year like this year...having no mortgage still pays me dividends.  The average person is probably down 2-3% this year in the market, and I avoided 3%(was 6% at one point) interest...so I ended up 5-6% ahead this year.  If you want to look at long term averages the market returns are going to beat interest rates, but then again considering we are coming out of a period of QE, ZIRP, and an already rather long bull market, I'm pretty doubtful the next few years are going to be at or above the long term market average.  I'll continue investing consistently because I have no debt at this point but if I had debt I'd be wagering the next few years would be a great time to pay it down.

This is actually a great example of how paying off your mortgage early is akin to market timing

Isn't not paying it off also akin to market timing as well?  You are gambling the next few years for the market will be at or above long term averages, I've gambled it will be below.

The best part is if I'm wrong I've still made a 3% return, lowered my monthly expenses, and had the peace and mind of no mortgage, while an average market year might have yielded me a 7-10% return...I still win but just not by as much.  If I'm right I've avoided market losses and nothing would be stopping me from refinancing and buying into a lower market, where as if I'm wrong and was in the market the whole time I just straight up lost.  I'd much rather take a coin toss where its heads I win, tails I win a lot more than heads I win, tails I lose.

frugal_c

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Re: Do you regret paying off your mortgage early?
« Reply #97 on: January 01, 2016, 04:50:36 PM »
NO! Not one bit. I know it would make more financial sense to invest but I grew up dirt poor and am horribly debt phobic. I watched my mom struggle to keep a roof over our heads and food in our bellies. Knowing that I can stay in my house as long as I can pay the taxes lets me sleep so much easier.

+1

I view paying off a house as diversification.   In 2008 it seemed entirely possible I could lose my job and who knew how long before I found another one.   With the stock portfolio down 50% it would have been a horrible time to tap into that.  It made me realize the value of having a paid for property.   You are in a much better position to survive on some low wage job whereas with a large mortgage it could just be impossible.
« Last Edit: January 01, 2016, 04:52:22 PM by frugal_c »

bacchi

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Re: Do you regret paying off your mortgage early?
« Reply #98 on: January 01, 2016, 05:32:26 PM »
I view paying off a house as diversification.   In 2008 it seemed entirely possible I could lose my job and who knew how long before I found another one.   With the stock portfolio down 50% it would have been a horrible time to tap into that.  It made me realize the value of having a paid for property.   You are in a much better position to survive on some low wage job whereas with a large mortgage it could just be impossible.

The question is whether to pay off the mortgage early or invest the difference.

In other words, it's far better to have $50k at Vanguard than it is to have half of a paid off mortgage. The bank won't give a whit that you've made extra principal payments.

frugal_c

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Re: Do you regret paying off your mortgage early?
« Reply #99 on: January 01, 2016, 05:45:30 PM »
I view paying off a house as diversification.   In 2008 it seemed entirely possible I could lose my job and who knew how long before I found another one.   With the stock portfolio down 50% it would have been a horrible time to tap into that.  It made me realize the value of having a paid for property.   You are in a much better position to survive on some low wage job whereas with a large mortgage it could just be impossible.

The question is whether to pay off the mortgage early or invest the difference.

In other words, it's far better to have $50k at Vanguard than it is to have half of a paid off mortgage. The bank won't give a whit that you've made extra principal payments.

No, the question is do you regret paying off your mortgage early.  In that scenario you just don't have a mortgage you MUST pay.  It is all about balance, so I wouldn't say put everything into the mortgage and I wouldn't say put everything into the stock market.   There are definitely scenarios, a severe depression, where you are better off with the house paid off.  Yes, in the long,long term stocks will definitely out-perform the mortgage rate, I acknowledge that.  However, due to timing it can be completely irrelevant if you need to draw it down during the depression.