Do you regret paying off your mortgage early?

[farmecologist]

It wouldn't have made much difference in my case.  We paid $52,000 for the house we live in and paid 20% down on that.  Those west coast/east coast house prices scare the crap out of this country boy.   You must invest before trying to pay off those monsters.   But hey, our cheap house allows more room in the budget for the tequila I'm drinking.

Cheers

This is why I don't get too excited either way with paying or not paying off the mortgage. I paid 71,000 for my house eight years ago, 20% down.

Yep.  For us Mustachioed types the question is moot.  Or in your case LMoot.

This is a good point.  For those of us that had a small mortgage, the pay-it-or-not question was much less of a big deal that those with supersized mortgages.

You are right...much of the talk in these threads is certainly not mustachian.  However, even in our 'flyover' city here in the Midwest, housing prices are sky high again.  Literally almost in mini-bubble territory.  I honestly don't know how first time buyers do it these days.  There is also an extreme lack of affordable housing.  Frankly, I'm absolutely horrified hearing what my younger coworkers are paying even for rent.  Not good!

[farmecologist]

Wow.  Still had some tequila in my system on that last post.  I'd go back and proof read it but nahhbh.  Just wanted to say I appreciate each and every one of you guys.  B42, Dicey and Rebel Spy are all correct.   The numbers are superior with their method for the very disciplined investor.

Ha! Tequila..always good to get the words flowing ( the good tequila anyway )!

[NoraLenderbee]

The fact that you all come to defend your case constantly for your personal situation speaks volumes more than I think you know. Who are you trying to convince yourself.

If there were one member who appeared in every -- and I do mean every -- single thread on the topic, crusading for a certain point of view, would that not also speak volumes?

Have you found Jesus?

[nereo]

The fact that you all come to defend your case constantly for your personal situation speaks volumes more than I think you know. Who are you trying to convince yourself.

If there were one member who appeared in every -- and I do mean every -- single thread on the topic, crusading for a certain point of view, would that not also speak volumes?

Have you found Jesus?

Is he still missing?

[Psychstache]

The fact that you all come to defend your case constantly for your personal situation speaks volumes more than I think you know. Who are you trying to convince yourself.

If there were one member who appeared in every -- and I do mean every -- single thread on the topic, crusading for a certain point of view, would that not also speak volumes?

Have you found Jesus?

Is he still missing?

Does Jesus have math to prove he is the son of God?

Sent from my Pixel using Tapatalk

[arebelspy]

The fact that you all come to defend your case constantly for your personal situation speaks volumes more than I think you know. Who are you trying to convince yourself.

If there were one member who appeared in every -- and I do mean every -- single thread on the topic, crusading for a certain point of view, would that not also speak volumes?

Have you found Jesus?

Is he still missing?

Does Jesus have math to prove he is the son of God?

Sent from my Pixel using Tapatalk

I think so.

Has something to do with Trinity three in one action.

[GuitarStv]

Something that has always bothered me.  If you're legally dead like Jesus, and then came back to life a few days later . . . would life insurance pay out?

[arebelspy]

Something that has always bothered me.  If you're legally dead like Jesus, and then came back to life a few days later . . . would life insurance pay out?

It's usually not that quick. And if they did, they'd probably try to claw it back.

[TomTX]

Yep, I have made this comment many times in various threads and was surprised at the negative reaction.  As an 'old timer' that has been thru it, I can guarantee that many will change their current sentiment very fast if another 'crash' happens.  I'm a bit afraid that there are many younger folks here who haven't been through a major upheaval in the markets and will be heartbroken when/if it happens.  I have seen very strong people get crushed and pull money out of the markets at exactly the wrong time...ALL due to emotion ( not math ).  The psychology of a market crash is not to be taken lightly...regardless of what people say.

I've been fully invested in stocks for the last two major market crashes, plus a variety of lesser ones since 1989. And I stayed the course. Admittedly the first crash (dot com bubble) cured me of investing in individual stocks.

I've been pondering, and I do regret paying down my mortgage faster than I needed to. I should have taken some cash out at the last refi, or at least extended the payoff timeframe. Sure, I'm sitting at 2.5% and it will be paid off in 2021 - but that's a lot of value sitting in the house not doing much.

[DirtDiva]

o.
Watching people mindlessly cheer others on to killing all the debt without seeing the big picture is just not what being mustachian is all about. I applaud B42's vigilence, though not always his syntax, and that of everyone else who chimes in anywhere on this forum because they care enough to learn and to help others by sharing their knowledge.

I get that, but b42's advice seems to be as whitewashed as the advice to the contrary. I appreciate the presentation of an alternative idea, but investing instead of paying off the mortgage is not the answer to every single situation. 

Wait! What? "Kill All The Debt" is whitewashing of the highest order.

Understanding the consequences of "investing instead of paying off the mortgage" is exactly and completely the point.

No one is saying you can't pay off your mortgage. Just be smart and learn all the angles before you do, especially if FIRE is your goal. Why is that so hard? And why would anyone call it whitewashing?

[DirtDiva]

o.
Watching people mindlessly cheer others on to killing all the debt without seeing the big picture is just not what being mustachian is all about. I applaud B42's vigilence, though not always his syntax, and that of everyone else who chimes in anywhere on this forum because they care enough to learn and to help others by sharing their knowledge.

I get that, but b42's advice seems to be as whitewashed as the advice to the contrary. I appreciate the presentation of an alternative idea, but investing instead of paying off the mortgage is not the answer to every single situation. 

Wait! What? "Kill All The Debt" is whitewashing of the highest order.

Understanding the consequences of "investing instead of paying off the mortgage" is exactly and completely the point.

No one is saying you can't pay off your mortgage. Just be smart and learn all the angles before you do, especially if FIRE is your goal. Why is that so hard? And why would anyone call it whitewashing?

Agree, that's why I said "as whitewashed as advice to the contrary".  B42's example of someone with a paid off house but zero savings  brings to mind Tom Sawyer at the fence with a paintbrush.

[boarder42]

o.
Watching people mindlessly cheer others on to killing all the debt without seeing the big picture is just not what being mustachian is all about. I applaud B42's vigilence, though not always his syntax, and that of everyone else who chimes in anywhere on this forum because they care enough to learn and to help others by sharing their knowledge.

I get that, but b42's advice seems to be as whitewashed as the advice to the contrary. I appreciate the presentation of an alternative idea, but investing instead of paying off the mortgage is not the answer to every single situation. 

Wait! What? "Kill All The Debt" is whitewashing of the highest order.

Understanding the consequences of "investing instead of paying off the mortgage" is exactly and completely the point.

No one is saying you can't pay off your mortgage. Just be smart and learn all the angles before you do, especially if FIRE is your goal. Why is that so hard? And why would anyone call it whitewashing?

Agree, that's why I said "as whitewashed as advice to the contrary".  B42's example of someone with a paid off house but zero savings  brings to mind Tom Sawyer at the fence with a paintbrush.

the statement i was responding to was there is NOTHING more powerful than being debt free i showed a case where being debt free put you in the poor house. an example where SOMETHING was more powerful.

[Zola.]

The fact that you all come to defend your case constantly for your personal situation speaks volumes more than I think you know. Who are you trying to convince yourself.

If there were one member who appeared in every -- and I do mean every -- single thread on the topic, crusading for a certain point of view, would that not also speak volumes?

My take is that it means he really, really cares. He wants others to understand before they act. It's not like he's getting rich personally or trying to direct traffic to his own blog, for example. 'Tis true that b42 can be terse at times, but his heart is 100% in the right place. I admire his dogged determination.

Had I learned the importance of sequencing early in life, it would literally shaved years off my FIRE date. Perhaps in the future, others will remember boarder42's intelligence, zeal and enthusiasm with gratitude.

Why now is also a great question. I cannot speak for b42, but over time I grew alarmed at the number of folks here who were joining "races" to pay off their mortgages, without fully understanding the cost of the choice they were making. If you want to get to FIRE as fast as possible, and you want to own a home, there's a faster, less expensive way to do it, but it's far less well known. It's so under- and mis-understood that just being willing to share the lesson can lead to heavy criticism.

What I wonder is why anyone pushes back? If you learn sequencing and make your informed decision, hooray, do whatever you want. Make your choice, but don't try to squelch the conversation. There are plenty of others who have no idea what sequencing even refers to.

Watching people mindlessly cheer others on to killing all the debt without seeing the big picture is just not what being mustachian is all about. I applaud B42's vigilence, though not always his syntax, and that of everyone else who chimes in anywhere on this forum because they care enough to learn and to help others by sharing their knowledge.
.

Can you talk a bit about sequencing please.

[sherr]

Can you talk a bit about sequencing please.

I assume she means this from the sticky in Investor Alley:
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Paying off your mortgage that has an interest rate of only 1-2% above the 10-Year Treasury Note (probably) would be at the very bottom of the list of things to do with your money given the mathematical returns, risk, and tax advantages of everything involved. You can still choose to do it, but you should know what you're giving up first.

Edit: oh I see you're in the UK. That might not be as helpful then, and I don't think anyone has created a similar list for the UK.

[Lmoot]

^thank you for posting that. I am American so it's helpful to me. My next goal is to max out HSA and ROTH. I also want to invest in real estate, so I likely won't make it to maxing out 401(k) due to need for high capital investing. But I am doing up to the employer match.

[boarder42]

^thank you for posting that. I am American so it's helpful to me. My next goal is to max out HSA and ROTH. I also want to invest in real estate, so I likely won't make it to maxing out 401(k) due to need for high capital investing. But I am doing up to the employer match.

you've been a proponent of mortgage paydown pre maxing tax advantaged accounts?

[Lmoot]

^thank you for posting that. I am American so it's helpful to me. My next goal is to max out HSA and ROTH. I also want to invest in real estate, so I likely won't make it to maxing out 401(k) due to need for high capital investing. But I am doing up to the employer match.

you've been a proponent of mortgage paydown pre maxing tax advantaged accounts?

Hmm, that's a bit presumptuous. Why are you putting words in my mouth, when the basis of most of your back and forth is that everyone should continue to invest in indexes even after maxing out retirement and pre tax accounts? If someone wants to prepay their mortgage, and they have no other investment plans in the works, then I would definitely advocate for them maxing out pre tax vehicles and retirement funds, first. I don't think I've ever said anything to the contrary.

And I didn't realize that in order to support someone's decision to pay down a mortgage, I myself needed to be in an ideal position to pay down my mortgage (which I am not currently doing btw, thanks for asking). Unlike you seem to do often, I don't measure other's standards by my own capabilities.

[GnomeErcy]

^thank you for posting that. I am American so it's helpful to me. My next goal is to max out HSA and ROTH. I also want to invest in real estate, so I likely won't make it to maxing out 401(k) due to need for high capital investing. But I am doing up to the employer match.

you've been a proponent of mortgage paydown pre maxing tax advantaged accounts?

Why are you putting words in my mouth

- "My next goal is to max out HSA and ROTH" - implying you aren't doing that yet. Guessing Boarder missed the part where you also said

"For now I am not paying my mortgage early"


And thought that you'd paid your mortgage off already?

[Lmoot]

^ to be fair, I edited my post (probably while you were typing yours). But that just goes to show what I have always berated b42 about on other threads....he assumes too much. He also didn't mention the numerous times I agreed with him. But that's ok...the world will continue to turn :)

[GnomeErcy]

^ to be fair, I edited my post (probably while you were typing yours). But that just goes to show what I have always berated b42 about on other threads....he assumes too much. He also didn't mention the numerous times I agreed with him. But that's ok...the world will continue to turn :)

I was referring to your post earlier in the thread on Page 9 - https://forum.mrmoneymustache.com/welcome-to-the-forum/do-you-regret-paying-off-your-mortgage-early/msg1791778/#msg1791778

[Lmoot]

^ Holy crap. Ace sleuth work.

[Dicey]

The reason some of us hang around is to help others learn and then decide what to do. It looks like there's a nice amount of learnin' happening here, which is excellent!

Lmoot, I completely agree that b42 can be a bit abrupt, but what I love about him is that he sees all sides of the issue. He can explain it left, right, sideways, backwards, upside down, etc. No matter how anyone hits the ball, he can field it. He clearly experiences fatigue from explaining the same things over and over ad nauseum. He also has little patience for proofreading, but I've come to accept that because I appreciate his endless willingness to help others learn.

As to the outside of the US sequencing question from Zola, the primary differences are the lack of long-term, fixed rate mortgages and the non-favored tax status. That makes the decision to prepay many shades more nuanced. The good news is that your healthcare system is way better than ours, so at least you won't be facing bankruptcy should you be faced with a catastrophic medical situation. I am not joking. Also, if I had access to a system such as the one in Australia, where you can prepay and pull the money back if needed, I think I'd be all over that.

[Lmoot]

Hey, I don't have a problem with b42 (anymore).  I've come to realize he's not coming from a malicious place. It's not all that effective though, as I'm sure he'd prefer it to be. Sometimes just presenting the information and pointing someone in the right direction, like sherr did, goes a lot further than belittling someone for their choice and demanding they defend their decisions, Pages among pages of convoluted verbiage.

But I disagree that he sees all sides… Maybe the sides surrounding his argument. But I rarely see him asking follow-up questions of the individuals he accuses of making terrible decisions....it's like he's more focused on using the people in threads like this, to put them up on the altar in front of the masses to show them what he believes are wrong examples. He doesn't attempt to understand what drove them to make a specific choice, and if they volunteer their rationale, and it's reasonable,, they get written off as not being in line with the "90%" he always brings up.

Just because someone chooses not to go into detail of why they did something, especially if they see what happens if someone does provide details to b42,  it doesn't mean there isn't a valid reason there. You can only analyze the truth, but if you don't know it then how can your analysis be accurate? You can provide examples left and right but people existn as generic examples. People have specific goals and reasons and backgrounds that can't be solved away with a mathematical solution.

[TexasRunner]

So, you're not convincing this particular guy who actually has paid off his mortgage and regrets it.

Just out of curiosity, and you don't have to answer, are you going to rectify the situation by pulling out a HELOC?

You may have answered elsewhere in the thread but I'm reading through the whole thing and didn't find it yet.

Also, if so, do HELOCs have "Call-ins" (where they can give a notice and require full payment) or not?

Thanks!

[shawndoggy]

Also, if so, do HELOCs have "Call-ins" (where they can give a notice and require full payment) or not?

Thanks!

If the goal were to get a chunk of equity out of the house to invest, why not just get a traditional mortgage vs. a HELOC?

[TexasRunner]

Also, if so, do HELOCs have "Call-ins" (where they can give a notice and require full payment) or not?

Thanks!

If the goal were to get a chunk of equity out of the house to invest, why not just get a traditional mortgage vs. a HELOC?

Very valid point.

I was actually unaware that a traditional mortgage was available outside of a buying situation.  Thank you for the lesson!

[dandarc]

So, you're not convincing this particular guy who actually has paid off his mortgage and regrets it.

Just out of curiosity, and you don't have to answer, are you going to rectify the situation by pulling out a HELOC?

You may have answered elsewhere in the thread but I'm reading through the whole thing and didn't find it yet.

Also, if so, do HELOCs have "Call-ins" (where they can give a notice and require full payment) or not?

Thanks!

Unlikely - we're a one income house for a few years and I just don't have the energy to convince my spouse.  The time for me to have been enlightened on this topic was 3 years ago when we moved house, it perhaps even earlier than that.  We were in a paid for condo, and decided we wanted a better location.  Bit of a pill to swallow to take out any mortgage, but we needed an additional $50-75k to get an in town detached house.

Luckily, we're in a lcol area, so this isn't as big of an inefficiency as it is for some others.  If I took out a mortgage tomorrow to 80%, we'd only add 20% or so to our investments.  Definitely would not do a Heloc - 30 year locked in low rate is the play.  The long term plus the low fixed rate is what makes the math go.

[AdrianC]

No regrets. We've reached our financial goals. No need or desire to bother with a mortgage, so we don't.

so dont both of you think you should be promoting keeping a mortgage to all of the other peoples around here and that it would be a benefit to the community as a whole.  I mean once you've made FI what you do with your money isnt really helpful to those who are not and could greatly benefit from advice that you infact followed.  This is why in my mind regardless of the choice that people personally made and whether they regret it or not is detrimental to a FIRE community as a whole b/c it doesnt convey the real message that needs to be conveyed. 

If you're confident you could hold on in a 2009 type scenario then buying stocks using uncallable low interest leverage via a mortgage is the way to go. It’s very likely to work out well for you over a long cycle (15-30 years).

I recommend using the investment order here (we did up to step 8):

https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. [NA]
3. Max HSA [NA]
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5) [SEP-IRA]
6. Fund a mega backdoor Roth if applicable. [NA]
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield. [NA]
8. Invest in a taxable account with any extra.

Given that investment order, we are really arguing about what to do in step 8. We went with about 50% to extra mortgage payments and 50% to taxable stock mutual funds. It worked out for us. We paid our mortgage off in 7 years and paid cash for our next place. As of right now, it would have worked out better financially if we had a mortgage on the new place, but then 08/09 would have been that much worse. We don’t need to be optimal. Good enough is good enough.

[TexasRunner]

So, you're not convincing this particular guy who actually has paid off his mortgage and regrets it.

Just out of curiosity, and you don't have to answer, are you going to rectify the situation by pulling out a HELOC?

You may have answered elsewhere in the thread but I'm reading through the whole thing and didn't find it yet.

Also, if so, do HELOCs have "Call-ins" (where they can give a notice and require full payment) or not?

Thanks!

Unlikely - we're a one income house for a few years and I just don't have the energy to convince my spouse.  The time for me to have been enlightened on this topic was 3 years ago when we moved house, it perhaps even earlier than that.  We were in a paid for condo, and decided we wanted a better location.  Bit of a pill to swallow to take out any mortgage, but we needed an additional $50-75k to get an in town detached house.

Luckily, we're in a lcol area, so this isn't as big of an inefficiency as it is for some others.  If I took out a mortgage tomorrow to 80%, we'd only add 20% or so to our investments.  Definitely would not do a Heloc - 30 year locked in low rate is the play.  The long term plus the low fixed rate is what makes the math go.

Understood.  Considering the income is already accelerating with your current investments, adding only 20% to the portfolio (likely) still makes sense mathematically but is a gain that includes a decent amount of risk.

If I were to sum up the whole thread (finally made it through the whole thing), The issue seems to be whether paying extra into the house falls on #1 through #3 or on #8....

https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

0. Establish an emergency fund to your satisfaction  (<- Some put the mortgage Extra HERE, which is a catastrophe in the making, namely talking about several of my Dave Ramsey follower friends)
1. Contribute to your 401k up to any company match  (<- Some put the mortgage Extra HERE, which is a BIG no-no)
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. [NA]  (<- Some put the mortgage Extra here, which is very ineffecient)
3. Max HSA [NA]
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5) [SEP-IRA]
6. Fund a mega backdoor Roth if applicable. [NA]
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield. [NA]
8. Invest in a taxable account with any extra.  (<- Some put the mortgage Extra here, which is probably not the best place, and not the most efficient, but is largely factors of time, security and size of the mortgage)

Given that investment order, we are really arguing about what to do in step 8.
...

Thats seems like a fairly accurate summation...  Not sure how it will be received.

[boarder42]

on this site most even who pay it off fall into - dont even talk about it til step 8 and then chalk it up to a horse race but by in large it is not a horse race there is one clear historical winner. and its not even close.  there isnt really any way you can do math to make it work out in your favor even at that stage.  but if you could I'd be all for it.

In all likelihood this will no longer be a debate in 5-10 years and all the newcomers will be drueling over everyone who was able to get a 30 year fix in the 3s or low 4s - and while those who paid it down will say they dont regret it(b/c who wants to regret something it doesnt add value regretting things) but many deep down will hold some "man if i'd only held on to that for 4 years i could have just bought bonds to feel more secure they're returning 6% right now.

[dandarc]

I think the question is does "extra to mortgage" fall on #8 or not at all.  Anything before that is likely a pretty inefficient idea, although still not as bad as "hookers and blow" for your marginal dollars.

Also - anyone prioritizing extra mortgage payments before an emergency fund is not following Dave Ramsey's advice.

Just ran the numbers again - at the end of 30 years, we're talking about a difference of 300K assuming 8% returns, 800K if we get 10% returns.  That's for a $100K mortgage.  When I stop there, I'm thinking "Goddamn, we HAVE to go get a mortgage".  But then I thought - well we've already got $500K invested.  When I factor that in, we're talking about $9.7M vs. $10.5M in 30 years.  Talking about a shitload of money vs a slightly smaller shitload of money.  The additional money we'd be investing either way would just make the "leverage the house" play an even smaller part of the overall picture.  That's how I'm justifying "not arguing harder with wife about this" anyway.

[Lmoot]

I'm curious on you all's thoughts of where non-market investing fits? Such as capital for real estate, a business or startup? I feel like that list, while helpful, focuses on people earning a high enough income to accomplish all of those things and who are just looking for places to shove their money before being able to make more flexible decisions (such as investing in real estate, a business, or a startup).

Diversification is important, but it becomes more difficult the less you earn. For many people, maxing out their 401K before investing in anything else…means they won't be able to afford to invest in anything else. So what may seem like ignorance, or lack of responsibility (not fully funding all retirement and pre tax accounts before moving onto other strategies), may simply just be an attempt to diversify.

All of the advice, and it's good advice, is great. I agree, maxing out pre tax and retirement accounts are awesome. It's easy advice to toss out. But when you are dealing with limited resources, financial creativity may need to come into play, and conventional wisdom becomes less effective or efficient.

[boarder42]

I'm curious on you all's thoughts of where non-market investing fits? Such as capital for real estate, a business or startup? I feel like that list, while helpful, focuses on people earning a high enough income to accomplish all of those things and who are just looking for places to shove their money before being able to make more flexible decisions (such as investing in real estate, a business, or a startup).

Diversification is important, but it becomes more difficult the less you earn. For many people, maxing out their 401K before investing in anything else…means they won't be able to afford to invest in anything else. So what may seem like ignorance, or lack of responsibility (not fully funding all retirement and pre tax accounts before moving onto other strategies), may simply just be an attempt to diversify.

All of the advice, and it's good advice, is great. I agree, maxing out pre tax and retirement accounts are awesome. It's easy advice to toss out. But when you are dealing with limited resources, financial creativity may need to come into play, and conventional wisdom becomes less effective or efficient.

ARS should probably chime in here but leveraging a low income into real estate and bypassing everything after company match(maybe HSA) if done properly is a very quick path to FIRE.  as he did that with 2 teachers salaries.

[Dicey]

FYI, all of the details in the post below have been mentioned over time, so if it sounds familiar...

Just a quick note. Dicey does not advocate particularly hard for re-mortgaging the ol' homestead and putting the money in the market. For one thing, in the US, the IRS doesn't just let you write that shit off over and over and over. There are limits to what you can write off. I mentioned it up thread (or on a related thread, who the hell can remember back that far?) and hoped that a CPA might chime in, because I am not a tax professional. Cheddar, where are you when we need you?

For the record, I am NOT against paying off mortgages. I am against pre-paying the cheap, fixed rate mortgage and paying off the mortgage BEFORE all the other steps are fulfilled.

If you pay the mortgage as scheduled, and meanwhile load up on everything else at your disposal (which can include a lot of investment categories, including rental or commercial real estate, or your own business, in addition to equities), you're gonna have a shit-ton of money in investments before you know it. Once you hit your FIRE number, if you want to pay the mortgage off all at once, please go right ahead.

In our case, we sold two mortgaged but equity-rich houses after we hit our number, so being able to pay cash for the new house was absolutely mind-blowing to us. Gotta say, it was damn fun saying, "Nah, we're just gonna skip the mortgage and pay cash" when the lender jerked us around over rates. It was also fun, when my brother's home loan went sideways at the 11th hour, to be able able to lend him the full purchase price of his house for a week-ish (we have the same bank, so we just moved the pea under a different shell) until the lender's problem got resolved.

I hope that's clear. I am aware that others advocate being fully leveraged at all times, which is A-okay if you're comfortable with that, but it's just not my cup of tea. OTOH, our rentals are pretty decently leveraged, and we do not intend to prepay them.

[Bbqmustache]

Paying off a mortgage is a sure thing.  Making good in the market is not.  No payments anymore, the emotional charge from that is so great, we are doing that in 2018!

[Lmoot]

Paying off a mortgage is a sure thing.  Making good in the market is not.  No payments anymore, the emotional charge from that is so great, we are doing that in 2018!

 I am going to try and intervene here, lest another bomb be detonated. If you are so inclined to investigate possible cons of paying off the mortgage, please refer from about page 10 forward. If you are solid in your decision, then go forth and good luck. Either way your decision will be smarter than a whole lot of other things you could be doing with your money.

[cerat0n1a]

Can you talk a bit about sequencing please.

I assume she means this from the sticky in Investor Alley:
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Paying off your mortgage that has an interest rate of only 1-2% above the 10-Year Treasury Note (probably) would be at the very bottom of the list of things to do with your money given the mathematical returns, risk, and tax advantages of everything involved. You can still choose to do it, but you should know what you're giving up first.

Edit: oh I see you're in the UK. That might not be as helpful then, and I don't think anyone has created a similar list for the UK.

Yep, no tax advantage to having a mortgage in the UK and interest rates are variable (very low at the moment and likely to stay that way, but they were over 7% in 2007 and been in double figures in the 1990s) although most people will fix them for 1-5 years ahead. Government contributes towards housing costs (including mortgage interest payments) of people temporarily out of work for a few months, but only for those without other assets, so not typically a consideration for mustachian people.

I think the closest thing on here to a UK version of the list referenced is in this thread

https://forum.mrmoneymustache.com/uk-tax-discussion/basic-investment-advice-for-uk-beginners/msg1643264/#msg1643264

[boarder42]

Paying off a mortgage is a sure thing.  Making good in the market is not.  No payments anymore, the emotional charge from that is so great, we are doing that in 2018!

You've got an FI blog and you're making this statement?   cmon man.  At least take the time to educate yourself as LMoot indicated above if not for your own peice of mind at least for those who may visit your blog. 

Briefly reviewing the titles on your blog you've latched on to half of what can help you get to FI, and be financially literate, the decreasing spending side.  Which is likely where this comment you've made is coming from b/c it looks really easy - in 2 years we'll have 0 payments on our mortgage.  but the other half of this is how that money grow thru investments and will support you in your life and if you plan to use some version of a 4% rule or real estate etc.  all of these perform much better at acheiving FI and keeping you safer in FIRE with a leveraged low fixed rate mortgage. 

The statement "making good in the market is not a sure thing" i find laughable how often this is brought up.  can we predict the future sequence of returns no.  but we've got a pretty damn good idea of what they will be over a 30 year period on avg.  This has to be one of the WORST arguements used by the paydown your mortgage crowd.  not even accounting for the fact that if bonds recover to their average they outperform these insanely low mortgage rates we have now which would be a sure thing like you're assuming with your mortgage. 

please do some research and learn

[Cycling Stache]

In law school, we learned about Ronald Coase and his theory that default laws don't matter if the parties can negotiate to the desired outcome free of transaction costs.

Of course the point, though, is that there are transaction costs, and thus the attempt to set up laws (by a certain segment of the legal community) to match the most productive outcome, because we don't get there otherwise.

I feel that way about this thread.  In a transaction-cost free environment, b42 is of course exactly right.  Especially over the long term, and especially when one is also considering relying on the 4% rule, which is based on trusting the market.

I also understand behavioral economics.  I understand the limitations of my own actions.  I understand that behavioral economics has come to exist because we consistently act irrationally, even when we believe we're acting rationally.

It's why the market timing threads constantly pop up.  It's why I'm skeptical each time someone claims that they will confidently hang in the market when it drops while also casually mentioning that they've got "extra powder" on the side when it drops (hello market timing).

I paid off my house (and all debts) in order to become a rational investor.  That was the cost to enable me (a very risk-averse me, despite fully understanding and attempting to internalize the market rationality) to invest every extra dollar in the market since paying off the house.

The market balance has increased dramatically, all while I've been expecting the "inevitable" downturn.  I also set up auto investing to transfer the money to Vanguard as soon as it hits my bank account to make sure that I don't interfere at all.  And still, when a little extra builds up in my bank account, I notice that my instincts are to hold back and I have to force myself to overcome it.

These are normal human reactions.  One of the key insights of behavioral economics is that we treat loss as twice as bad as the upside when we get a comparable gain.   That's the normal reaction.

So b42 is correct that I've paid a significant cost.  I paid that cost knowing that it would enable me to be rational going forward.  And I am frustrated that I haven't completely internalized that there is no difference between choosing investing over mortgage and relying on the 4% rule going forward.

But I suspect that behavioral economics is a bigger issue than b42 realizes.  That for all the talk of a good game, his rational approach has been demonstrated not to be the one people actually do, and it's very hard to overcome that despite all the pep talk.

How do I know?  For all the people in the don't pay off the mortgage early crowd, how many have constantly refinanced (or sought to refinance) to keep pulling the equity out of the house to invest?  Maybe a few have, but be honest, is that really your instinct?  That thread has popped up a few times in these forums, and the responses are overwhelmingly negative and cite to an example of the one time someone on Bogleheads leveraged himself in 2007 (an anecdotal story that shouldn't matter much when viewing the data globally).

But constantly refinancing, constantly pulling the equity out of the house (assuming it's worth the transaction costs) is the rational approach, for the exact same reason that the don't pre-pay the mortgage approach is correct.  But it's hard to do, even though it's correct. 

Thus the 100 pages of threads like this the last couple years, despite the very easy math.

[boarder42]

I've personally refinanced 6 times in my 7-8 years of home ownership.  It currently doesnt pay for me to do a REFI on our current house as we are 1.3 years into a 30 year mortgage at 3.25% - i'm not going to be able to make the math work right now to do a REFI on this house.  The easy way to do this math is when the rates are lower than your current rate - hense 6 REFI's in the last 7 years.  with rates basically .75% above my current fixed rate the equity i have in my house doesnt gain me enough in the market to do a cash out REFI.  Cash out REFI's also come at a cost of either forking over some money or accepting a slightly higher rate than the prime rate.  If the market drops below my current rate would i do a cash out REFI. yes in a heartbeat.  I've done it 6 times before.  and amassed wealth much faster. 

But what is cool about the current scenario we are in is even though the fed is raising rates and the 10 year is going up - bonds are still near all time highs - meaning low yields - so if the market crash happens everyone is talking about here the 10 year could reach new depths we havent seen at a time when the market has crashed and would be a fantastic time for everyone to remortgage or REFI their current property to take advantage of stocks on sale and the low rates.

Its not as simple as continuously REFI'ing when the rates arent better but to answer your question yes i would if the math worked out in my favor based on what history has told us. 

I also find your feelings to be the opposite of mine you call them normal.  but they are normal for you not for everyone.  You get a feeling of not wanting to pump money into the market when its sitting there where my emotional side says put it in as fast as possible - i have a variable income due to tradelines and am constantly running calculations based on when credit card payments are due and live at a negative cash to credit cards owed most of the time to keep every single dollar i can invested.  so maybe your normal is the norm for people but my normal is the opposite of that.

[Cycling Stache]

so maybe your normal is the norm for people but my normal is the opposite of that.

Correct.  The overvaluing of loss is the norm based on empirical data, thus the rise of behavioral economics in the last 30 years or so.

The reason you are constantly fighting this battle is because your views are not the norm, even though they are mathematically correct.  You are trying to overcome our human instincts.

I think what you're trying to do is good.  But keep in mind that a good plan is only good if you can stick to it.  The question is not what you would do, but how are the general people on this forum going to behave in times of crisis.  Thus, the question.  Your data points help us to become rational.  But we still have to ensure that we will act rationally (because we are human), and if not, we have to build that irrationality into the model.

[NorthernBlitz]

I've personally refinanced 6 times in my 7-8 years of home ownership.  It currently doesnt pay for me to do a REFI on our current house as we are 1.3 years into a 30 year mortgage at 3.25% - i'm not going to be able to make the math work right now to do a REFI on this house.  The easy way to do this math is when the rates are lower than your current rate - hense 6 REFI's in the last 7 years.  with rates basically .75% above my current fixed rate the equity i have in my house doesnt gain me enough in the market to do a cash out REFI.  Cash out REFI's also come at a cost of either forking over some money or accepting a slightly higher rate than the prime rate.  If the market drops below my current rate would i do a cash out REFI. yes in a heartbeat.  I've done it 6 times before.  and amassed wealth much faster. 

But what is cool about the current scenario we are in is even though the fed is raising rates and the 10 year is going up - bonds are still near all time highs - meaning low yields - so if the market crash happens everyone is talking about here the 10 year could reach new depths we havent seen at a time when the market has crashed and would be a fantastic time for everyone to remortgage or REFI their current property to take advantage of stocks on sale and the low rates.

Its not as simple as continuously REFI'ing when the rates arent better but to answer your question yes i would if the math worked out in my favor based on what history has told us. 

I also find your feelings to be the opposite of mine you call them normal.  but they are normal for you not for everyone.  You get a feeling of not wanting to pump money into the market when its sitting there where my emotional side says put it in as fast as possible - i have a variable income due to tradelines and am constantly running calculations based on when credit card payments are due and live at a negative cash to credit cards owed most of the time to keep every single dollar i can invested.  so maybe your normal is the norm for people but my normal is the opposite of that.

How much did you pay for doing your REFI's?

We looked into this when we had a mortgage in Canada, but the banks fixed it so that the price to break the mortgage to get a new interest rate was more than the savings offered by the new rate...I'd imagine that the price to break your mortgage is less in the US as there are more than 6 banks here though.

[boarder42]

I paid nothing for my REFI's other than an 8th of a point off the prime rate or so. 

[boarder42]

so maybe your normal is the norm for people but my normal is the opposite of that.

Correct.  The overvaluing of loss is the norm based on empirical data, thus the rise of behavioral economics in the last 30 years or so.

The reason you are constantly fighting this battle is because your views are not the norm, even though they are mathematically correct.  You are trying to overcome our human instincts.

I think what you're trying to do is good.  But keep in mind that a good plan is only good if you can stick to it.  The question is not what you would do, but how are the general people on this forum going to behave in times of crisis.  Thus, the question.  Your data points help us to become rational.  But we still have to ensure that we will act rationally (because we are human), and if not, we have to build that irrationality into the model.

An expansion on my earlier comments about not having regrets:

While the quote above may be true, a factor in our decision was the very real difference between a certain outcome (debt reduction) and an uncertain outcome (future stock market growth).

Some humans will rationally choose to optimize towards a 'certain' wealth outcome rather than towards a 'probable outcome', even if the latter is based on a solid logical model that predicts a higher wealth and earlier retirement date outcome.

We should not criticize these people based on 'math'.  They are just chosing one rational strategy over another based on what their weighing criteria are.  Obviously, educating them about the alternatives could be helpful. However, a facepunch is over the top, because their choice is justifiable on the difference in certainty of the outcome.

For example, I currently work with government employees.  It is well known that a government job generally pays less than a private sector job.  Sometimes quite a bit less.   However, goverment jobs also have a good level of employment certainty in times of economic downturn. The chances of getting fired or laid off are dramatically lower.  You have to try really hard to get let go. Several of my colleagues earn less than they would in the private sector, but rationally accept that based on their risk tollerance.  These govt employee  FIRE plans will take longer, but the combination of certainty and pension benefits make it a slow and steady choice that works for them.

I see the strategy of paying off the morgage as a rational risk reducing decision, similar to taking a safer job at lower pay.  Yes it does not optimize for the fastest possible FIRE, but it has benefits.  It is not logical to use back testing results to say that long term stock performance is certain. Its a good bet, but far from certain.  Debt reduction, with all its flaws regarding liquidity, is at least a more certain outcome, hence rational.

This is all i wish to add on the topic, so no replies are expected.  Happy holidays!

It is ridiculous to add that last sentence to a post.  If you do not care to be a part of the discussion why post at all.

The risk talked about is only viewed from a single side in your last paragraph.  There is in fact a larger inherent risk if a person is paying down a mortgage over time vs lump sum paying it off than the risk that is taken on by variablility of stock returns.  In a lump sum pay off your risk analysis is correct.  if paid down overtime total financial failure is more likely ie MORE RISKY for the mortgage payer downer vs the investor.

[NorthernBlitz]

I paid nothing for my REFI's other than an 8th of a point off the prime rate or so.

That's awesome. It's amazing how different the banking systems are with regards to mortgages. Americans certainly have many financial incentives to take out large mortgages over long terms. It's pretty clear that there are advantages to the strategy you propose of holding a mortgage forever (or at least over very long periods). But, it's a bit like CC rewards in that you need to make sure that you don't fall into the trap of extra spending (i.e. buying too much house & putting the leveraged money into an indexed portfolio).

If the scenario you describe comes to pass (i.e. market correction / crash + rate reduction), I would consider taking out a mortgage on our house and making a large lump sum investment in my portfolio. The downside would be that I would have to reduce ongoing contributions to retirement accounts, but I think that could be worth it for a large payment at a discounted price. This assumes that I have confidence in my ability to retain employment, it would also require some pretty serious market timing (how much of a correction / crash / rate reduction is required?).

It would also be a no-go for us if the reduction in cash flow meant that my wife would have to go to work and we'd need to start paying for child care for 3 kids (1 infant + 2 elementary school would probably cost upwards of $15-20k/year where we live). We also believe that her having freedom from work now (instead of when our children are in HS or University) has value because of the importance of their developmental years. While I believe that would be important, I don't know how I would incorporate it into a financial calculation. In that way, it's a bit like retiring early. It's obviously not the best decision for maximizing net worth, but it can certainly be the best decision for maximizing happiness.

[Dicey]

Cycling Stache, where did you get the idea that Mustachianism is "normal"? It's awesome that you seem to think so, but the belief in the possibility of successful early retirement is far, far from "normal" to most of the world's population.

We mustachians aim to do things differently. Learning before acting is all that's being suggested in this and related threads. Why is that so difficult? What does it cost anyone to learn before they act? Learning a different way to view the "norm" is the entire premise of mustachianism.

And unlike the person who wrote the words below, I'm happy to answer questions that help others learn. That's why I'm here.

This is all i wish to add on the topic, so no replies are expected.

[boarder42]

I paid nothing for my REFI's other than an 8th of a point off the prime rate or so.

That's awesome. It's amazing how different the banking systems are with regards to mortgages. Americans certainly have many financial incentives to take out large mortgages over long terms. It's pretty clear that there are advantages to the strategy you propose of holding a mortgage forever (or at least over very long periods). But, it's a bit like CC rewards in that you need to make sure that you don't fall into the trap of extra spending (i.e. buying too much house & putting the leveraged money into an indexed portfolio).

If the scenario you describe comes to pass (i.e. market correction / crash + rate reduction), I would consider taking out a mortgage on our house and making a large lump sum investment in my portfolio. The downside would be that I would have to reduce ongoing contributions to retirement accounts, but I think that could be worth it for a large payment at a discounted price. This assumes that I have confidence in my ability to retain employment, it would also require some pretty serious market timing (how much of a correction / crash / rate reduction is required?).

It would also be a no-go for us if the reduction in cash flow meant that my wife would have to go to work and we'd need to start paying for child care for 3 kids (1 infant + 2 elementary school would probably cost upwards of $15-20k/year where we live). We also believe that her having freedom from work now (instead of when our children are in HS or University) has value because of the importance of their developmental years. While I believe that would be important, I don't know how I would incorporate it into a financial calculation. In that way, it's a bit like retiring early. It's obviously not the best decision for maximizing net worth, but it can certainly be the best decision for maximizing happiness.

So your last paragraph doesnt add up.  It would still make sense.  you would just be drawing down on the funds invested to make up for the stop gap.  Similar to what a mortgage holder does when FIREd.  you would infact have added freedom in that if you lost your job you could continue to live your lifestyle while she didnt work b/c of the liquid capital that was now invested instead of tied up in a house.  Its very counterintuitive to approach this from that side and many people struggle with it. but it doesn work out mathmatically better assuming the market continues to do what its done for years

[Dicey]

I paid nothing for my REFI's other than an 8th of a point off the prime rate or so.

If the scenario you describe comes to pass (i.e. market correction / crash + rate reduction), I would consider taking out a mortgage on our house and making a large lump sum investment in my portfolio. The downside would be that I would have to reduce ongoing contributions to retirement accounts, but I think that could be worth it for a large payment at a discounted price.

NOOOOOOOOOOO! What you just said is that you will stop saving one way in order to start saving another way. If the market dumps, the easiest thing to do is simply to increase your contributions to your retirement account!!! There is minimal time delay, and no additional fees associated with increasing the amout of money you save through payroll savings. Just for fun, try logging on to your account and increasing your contribution by 1% today.

In mid 2008, after a super frugal trip to Hawaii, where I met some wise early retirees, I resolved to redouble my FIRE efforts. I rebuilt my budget from zero (a la The Frugalwoods) and resolved to save/invest every penny I could. I increased my 401k contributions significantly. You can see that I chose the very best period in modern history to do so. When the markets recovered, as they always do, my 'stache had increased dramatically, and FIRE happened soon after.

[boarder42]

I paid nothing for my REFI's other than an 8th of a point off the prime rate or so.

If the scenario you describe comes to pass (i.e. market correction / crash + rate reduction), I would consider taking out a mortgage on our house and making a large lump sum investment in my portfolio. The downside would be that I would have to reduce ongoing contributions to retirement accounts, but I think that could be worth it for a large payment at a discounted price.

NOOOOOOOOOOO! What you just said is that you will stop saving one way in order to start saving another way. If the market dumps, the easiest thing to do is simply to increase your contributions to your retirement account!!! There is minimal time delay, and no additional fees associated with increasing the amout of money you save through payroll savings. Just for fun, try logging on to your account and increasing your contribution by 1% today.

In mid 2008, after a super frugal trip to Hawaii, where I met some wise early retirees, I resolved to redouble my FIRE efforts. I rebuilt my budget from zero (a la The Frugalwoods) and resolved to save/invest every penny I could. I increased my 401k contributions significantly. You can see that I chose the very best period in modern history to do so. When the markets recovered, as they always do, my 'stache had increased dramatically, and FIRE happened soon after.

The problem with the statement is the poster is not considering the fungibility of money.  You dont stop contributing to retirement accounts you still can you are now just living off of some of your stache you took out to invest.  its a different way to view it.

[MsFrugal]

No I don't regret paying it off at all..I paid off the mortgage in 5 years so I doubt 5 years worth of investing would have helped me..now my monthly bills are £180 a month ..throw in food at £200 a month and it doesn't take a lot of money to live a rich and fulfilling life..I could easily live on £500 a month if i had to...love the peace of mind knowing that i'll never have to work for anyone again or have anyone tell me how to spend my days ...bliss !!!