For the 100th time, to pay off mortgage or not

[GodlessCommie]

The matter has been discussed to death over and over, but here's an aspect of it that I don't recall investigated. Help me validate or destroy the logic. Here's the situation:

We have ~$250K left with 3.5%. The rate is, historically, very low, and if the goal was to maximize TNW at the end of life, it would make sense to keep it, throwing all savings into ETFs. However, max(tnw) is not the goal - FIRE is. If we are to save enough to keep paying P&I on this mortgage, we need $510K (1700*12/0.04), which we can achieve in ~4 years. Or we can pay down $250K and be FIREd in ~2 years.

Not only that, income (including passive) is taxable, but avoided expenses are tax-free. A back of the envelope calculation shows that extra income required to pay P&I will increase our federal and state taxes, and reduce ACA subsidy by ~$4,000 a year, requiring another $90K in savings under the 4% rule - that's another 7-8 months delay to FIRE.

PS: Admittedly, the house is too big, too expensive, and in an area with high property and non-zero state taxes - but it all is still cheaper than a divorce, so let's take it as a given.

[therethere]

You don't need a 4% withdrawl rate for the mortgage payments, because the expense ends at one point. If you saved enough to continually pay PI on your mortgage, then at the end of the mortgage term you would still have the 510k left (because only it's earnings are covering your PI). You would require less than the sum of your remaining mortgage payments.

[JLee]

The matter has been discussed to death over and over, but here's an aspect of it that I don't recall investigated. Help me validate or destroy the logic. Here's the situation:

We have ~$250K left with 3.5%. The rate is, historically, very low, and if the goal was to maximize TNW at the end of life, it would make sense to keep it, throwing all savings into ETFs. However, max(tnw) is not the goal - FIRE is. If we are to save enough to keep paying P&I on this mortgage, we need $510K (1700*12/0.04), which we can achieve in ~4 years. Or we can pay down $250K and be FIREd in ~2 years.

Not only that, income (including passive) is taxable, but avoided expenses are tax-free. A back of the envelope calculation shows that extra income required to pay P&I will increase our federal and state taxes, and reduce ACA subsidy by ~$4,000 a year, requiring another $90K in savings under the 4% rule - that's another 7-8 months delay to FIRE.

PS: Admittedly, the house is too big, too expensive, and in an area with high property and non-zero state taxes - but it all is still cheaper than a divorce, so let's take it as a given.

Remember the 4% rule is for sustaining spending over a ~30 year timeframe - the proposed $510k would give you your mortgage payment effectively in perpetuity, not just until the mortgage was paid off.

[GodlessCommie]

That's fair. Thanks. That's exactly why this forum is so valuable. The math becomes kind of complex, but quick and dirty: the same $250K in ETFs at 7% should sustain a loan of 3.5%.

The question of taxes still remains, though.

[PathtoFIRE]

Run on a hypothetical on those taxes from your passive income, and you are likely going to get a 10% or less rate...possibly nearly 0% depending on your mix of account types and planned withdrawals needs.

And for mortgage, as touched on above, I just determine my non-mortgage expenses, calculate the necessary stash for that amount, and then tack on the remaining mortgage amount to get my final number. So add $250k to whatever your other expenses dictate, rather than the yearly mortgage payments x 25 or 30 or whatever SWR you are choosing to use.

[ericrugiero]

And for mortgage, as touched on above, I just determine my non-mortgage expenses, calculate the necessary stash for that amount, and then tack on the remaining mortgage amount to get my final number. So add $250k to whatever your other expenses dictate, rather than the yearly mortgage payments x 25 or 30 or whatever SWR you are choosing to use.

I would either do this or save the excess mortgage payments into a taxable account.  When you are ready to FIRE, you can take the $250K and pay off the mortgage at that point to lower your expenses and to reduce your risk from the market dropping.  At that point, a guaranteed 3% return (interest rate on mortgage) could replace bonds that aren't paying 3% and aren't guaranteed. 

[nereo]

Well... the obvious mistake here is that one does not need to save $510k to cover $250k of a mortgage in retirement (more than 2x of the remaining balance, if I’m reading the post correctly). That right there should be an indication that your math is amiss.

This is where I find more complex simulations like cFireSim to be so valuable.  You can plug in a theoretical retirement with PI payments for a the remainder of your amortization, and see how that stacks up against having less in savings but no payments on day 1 of retirement.  YOu can also plot how SS payments or a pension will change your numbers.

Yes, it’s more complex.

[Chaplin]

PS: Admittedly, the house is too big, too expensive, and in an area with high property and non-zero state taxes - but it all is still cheaper than a divorce, so let's take it as a given.

The divorce comment seems out-of-context. Is the issue here a disagreement between you and your spouse where one favors paying off the mortgage and the other doesn't?

[jpdx]

OP, I started a similar thread a few months ago and reached a similar conclusion to you. Paying off the mortgage now would allow me to FIRE now, instead of years in the future. The lower annual income required would reduce taxes and could open the door for other valuable government programs. I feel it also reduces sequence of returns risk, although there are two schools of thought here.

[Catbert]

PS: Admittedly, the house is too big, too expensive, and in an area with high property and non-zero state taxes - but it all is still cheaper than a divorce, so let's take it as a given.

The divorce comment seems out-of-context. Is the issue here a disagreement between you and your spouse where one favors paying off the mortgage and the other doesn't?

I suspect it means that OP would move to a smaller, cheaper house in order to FIRE but spouse wouldn't.  OP didn't want answers to focus on "just sell and move to LCOL area".

[10SNE1]

I always vote to pay it off. It is a certainty to remove an expense, and investments are not guaranteed. I like the peace of mind it gives me. I am only months from paying our mortgage off in full, and it feels great! No regrets as my investments are chugging right along, and I diligently save for retirement too.

[Catbert]

The other thing you need to figure into your decision is where the payoff money is coming from and how much tax you'll owe accessing it.  If you have 250K in a money market account there'll not be a tax impact using it.  But if you sell 250K in mutual funds you'll owe capital gains on some part of it and it might screw up other tax deductions.

I would probably aim for having it paid off or mostly paid off when your FIRE.  That will give you more flexibility to dial your income up or down for ACA or other purposes. 

[aetheldrea]

I always vote to pay it off. It is a certainty to remove an expense, and investments are not guaranteed. I like the peace of mind it gives me. I am only months from paying our mortgage off in full, and it feels great! No regrets as my investments are chugging right along, and I diligently save for retirement too.

I used to completely agree with your way of thinking. But probably the most important lesson I learned on this forum is that it is almost always a bad financial decision to prepay your mortgage. Your feelings are really working against your financial good here.
If I had not paid off my mortgage early, I would be somewhere around a quarter million dollars richer today. You say you have no regrets, perhaps that is because you have not done the math to see how much it really cost you?

[pdxvandal]

I understand and respect the emotional concept of paying off your mortgage, but many have 3.5% or less interest rates on their loans. Mine's at 2.75% ... I'll play the market and watch that grow faster over a long period. I also know I'll never pay off my house, but will have a fat payout when I sell in 7-9 years to buy something smaller/cheaper.

[GodlessCommie]

If I had not paid off my mortgage early, I would be somewhere around a quarter million dollars richer today.

I get it, I really do. The math is not complex, ~7% > ~3%, and compounding really makes it run away (although as someone who thought he needed $500K to maintain a $250K mortgage, maybe I shouldn't take any math as too simple). While FIRE was a distant possibility, I was keeping all I could in the market, and kept extending the life of the mortgage (even had it interest-only for a while). Now that the FIRE is close(-r), things start looking a bit different.

The open remaining question for me is extra taxes and reduced ACA subsidies caused by the need to draw more to keep paying the mortgage. Which is where I hope to get more clarity.

Once your assets are all in taxable accounts, you only pay taxes on capital gains and dividends, so the difference may not be that great. But while I'm filling the Roth pipeline, all conversions are taxable income. I need it to be $1700*12 = $20K more if I am to keep the mortgage. That's not nothing. I ran a bunch of simulations, and ended up needing anywhere between $4K and $6K a year for extra taxes and reduced subsidies. This is where putting money in ETFs instead of prepaying mortgage start to lose the edge.

Or not?

[rantk81]

If you have a long investment timeline, or are far away from retirement, then you are usually better off by *not* paying off a mortgage (with a low rate) early.

As you get closer to the need to dip into spending your assets (e.g. approaching or in retirement), then you’re much more affected by near term market volatility, which acts as a multiplier or magnification of whatever the market happens to do at the time - It could be really good or really bad for you.

The question is, do you feel lucky, punk?

;)

[wageslave23]

Think of the $250k taxable income as a sunk cost.  If you pay off the mortgage, where is the money coming from?  A taxable account?  Then you have to pay capital gains.  If its from a non-taxable account, then you have to recognize regular income.  So for the purposes of this question.  Just sell the investments that are needed to pay off the house right now either way.  That way you have $0 capital gains built in. If you pay off the house you pay the same taxes as if you just let the money sit in a savings account.  Now the question becomes if you invest that cash and use the proceeds to pay your mortgage payments over the years, how much in taxable income are you going to show.  Its likely not very much, because only a small portion of the money you withdraw each year will be capital gains. 

Scenario A:  sell $250k of investments, pay capital gains, payoff house

Scenario B:  sell $250k of investments, pay capital gains, reinvest with no built in capital gains, withdraw some each year to pay the mortgage, pay capital gains on the appreciation of the little bit that is withdrawn each year. 

Scenario B is probably not the most optimal way to continue paying your mortgage, but it gives you a more apples to apples comparison.

[GodlessCommie]

Think of the $250k taxable income as a sunk cost.  If you pay off the mortgage, where is the money coming from?  A taxable account?  Then you have to pay capital gains.  If its from a non-taxable account, then you have to recognize regular income.  So for the purposes of this question.  Just sell the investments that are needed to pay off the house right now either way.  That way you have $0 capital gains built in. If you pay off the house you pay the same taxes as if you just let the money sit in a savings account.  Now the question becomes if you invest that cash and use the proceeds to pay your mortgage payments over the years, how much in taxable income are you going to show.  Its likely not very much, because only a small portion of the money you withdraw each year will be capital gains. 

Thank you. I need to digest what you wrote.

[afox]

The simple (ignoring many factors such as your ACA eligibility) way I like to think about paying off debt or investing is that paying off the debt is like getting a guaranteed return at the interest rate of the debt. And its really guaranteed. So, in your case you can get 3.5% return for paying off your debt. If you know where I can get 3.5% guaranteed let me know! You can make it part of your portfolio in exchange for another low risk/low return investment.

[Flat9MKE]

How about keep the $250,000 in the market for 2 more years, and then pay it off?

Having a paid off house really frees you up both psychologically and financially.  Eliminating your biggest monthly expense is huge!  A paid off house (in addition to a certain dollar amount of investment savings) is one of my pre-requisites to FIRE too.  I think being more conservative and taking certainty helps with leaping into the FIRE.

[aetheldrea]

I don’t know enough about your situation to see how you could extract 250k now tax free, but would have to pay taxes on in retirement.
The 4-6k extra in taxes and fees you mentioned, is about what that 250k throws off every year in dividends, right? Considering that part as a wash, you would still expect more growth from an investment than your mortgage rate.
If you had taken 250k and paid off your mortgage 2 years ago, vs putting it in an S&P500 fund, where would you be now? About 100k poorer and looking at an extra year of working, I think.
Our human cognitive biases are working against us:

Loss aversion is a cognitive bias that refers to the human tendency to prefer avoiding losses to acquiring equivalent gains. In other words, the pain of losing is psychologically twice as powerful as the pleasure of gaining.

[Jack0Life]

I always vote to pay it off. It is a certainty to remove an expense, and investments are not guaranteed. I like the peace of mind it gives me. I am only months from paying our mortgage off in full, and it feels great! No regrets as my investments are chugging right along, and I diligently save for retirement too.

I used to completely agree with your way of thinking. But probably the most important lesson I learned on this forum is that it is almost always a bad financial decision to prepay your mortgage. Your feelings are really working against your financial good here.
If I had not paid off my mortgage early, I would be somewhere around a quarter million dollars richer today. You say you have no regrets, perhaps that is because you have not done the math to see how much it really cost you?

NO kidding, I paid off 2 houses between 2012 and 2018. Imagine had I just put that into an index fund, I'd easily be $250k++ richer.
I learned my lesson though. In process of refinancing the primary and pulling as much equity out as possible. Foolish to be paying off a 2.5% debt.

[GodlessCommie]

I don’t know enough about your situation to see how you could extract 250k now tax free, but would have to pay taxes on in retirement.

You are right. I think you are making the same point as @wageslave23 made. It is all after tax money, with tax being paid either now or in FIRE.

Loss aversion is, of course, a factor - but motivated thinking is a more immediate problem. I'm clearly very motivated to think that the taxman can somehow be avoided.

[Holocene]

I'm definitely in the don't pay it off camp.  The math supports this and debt doesn't bother me when I have a large portfolio balance giving me the ability to pay it off any time I want.  But if getting rid of the mortgage before FIRE helps you to feel more comfortable FIREing, then go for it.

As many have mentioned, you don't need to use the 4% rule for your mortgage payment.  I go with the same approach as @Path2FIRE mentioned (tack mortgage balance at retirement date onto stash needed to support all other non-mortgage expenses at 4% or whatever SWR chosen).  In the large majority of cases, you'll come out ahead by making minimum payments.  I did a cFIREsim calculation assuming a $250k mortgage taken out today for the next 30 years at 3.5%.  Monthly payments would be $1,123, so yearly would be $13,476.  If I put in $250k for portfolio value, $13,476 for yearly spending and make it non-inflation adjusted (this is key why 4% rule is not needed) for a 30 year period and leave all other values as default (75% stocks, 25% bonds), I get a 98.33% success rate.  The median ending portfolio is $366k.  So you're more than likely to have more than you started if you invest rather than pay it off.  But there is a small chance in the worst times, you'll run out of money.  Personally, I'll take those odds, but if that tiny chance is bothering you, then go ahead and pay it off.  Just realize you're likely giving up hundreds of thousands of dollars by doing so.
https://www.cfiresim.com/6bc44151-f401-4d0b-81be-2306631cbfcc

As far as extra taxes in retirement, that's definitely something worth considering and modeling if possible.  But like @wageslave23 said, you can realize all your gains today whether you pay off the mortgage or continue to invest so this shouldn't really be a major factor.  Any additional taxes you pay on gains shouldn't bother you.  Because you only have those gains by continuing to invest.  I'm happy to pay $200 tax on my $1000 gain rather than $0 tax on $0 gain.  I'm still $800 ahead even after paying taxes.  The ACA does complicate things but it's not impossible to model and come up with a plan that works for you.

Finally, it might make sense to refinance.  3.5% is low, yes.  But I refinanced last fall from 3.5% to 3.125% for no cost on a much lower mortgage balance ($115k or so).  I used LenderFi and they were quick and pretty painless.  Not sure if the deals are still out there, but if you can get a true no-cost refinance (get a lender credit to cover title and other fees), then it's a no-brainer. Obviously a lower rate will make the mortgage even more advantageous.

[10SNE1]

I always vote to pay it off. It is a certainty to remove an expense, and investments are not guaranteed. I like the peace of mind it gives me. I am only months from paying our mortgage off in full, and it feels great! No regrets as my investments are chugging right along, and I diligently save for retirement too.

I used to completely agree with your way of thinking. But probably the most important lesson I learned on this forum is that it is almost always a bad financial decision to prepay your mortgage. Your feelings are really working against your financial good here.
If I had not paid off my mortgage early, I would be somewhere around a quarter million dollars richer today. You say you have no regrets, perhaps that is because you have not done the math to see how much it really cost you?

This is only because you know what has happened in the past. You know the outcome of the market. You're right that I would more than likely come out ahead if I did not pay it off early, but it is not guaranteed. Plus, it depends a lot on how quickly you pay it off. You see, I have done the math, and I do the math frequently and over and over again (maybe too much). I chose to quickly pay off my mortgage within 2-3 years. This is absolutely a big factor that is very likely a unique situation. When I run the numbers and project what the difference of a couple of years is, it is only a few thousand more when investing instead. And that's not even guaranteed - so of course I'm going to stick with the guaranteed route every time. There are also a lot of variables (percent return, dollars invested, timeline) that could make the gap much wider or much smaller. When you have such a short period of time paying off your mortgage you are quickly back to investing for the long term anyway. That's why it made sense in my situation, and I will sleep well at night with no debt!

[nereo]

I always vote to pay it off. It is a certainty to remove an expense, and investments are not guaranteed. I like the peace of mind it gives me. I am only months from paying our mortgage off in full, and it feels great! No regrets as my investments are chugging right along, and I diligently save for retirement too.

I used to completely agree with your way of thinking. But probably the most important lesson I learned on this forum is that it is almost always a bad financial decision to prepay your mortgage. Your feelings are really working against your financial good here.
If I had not paid off my mortgage early, I would be somewhere around a quarter million dollars richer today. You say you have no regrets, perhaps that is because you have not done the math to see how much it really cost you?

This is only because you know what has happened in the past. You know the outcome of the market. You're right that I would more than likely come out ahead if I did not pay it off early, but it is not guaranteed. Plus, it depends a lot on how quickly you pay it off. You see, I have done the math, and I do the math frequently and over and over again (maybe too much). I chose to quickly pay off my mortgage within 2-3 years. This is absolutely a big factor that is very likely a unique situation. When I run the numbers and project what the difference of a couple of years is, it is only a few thousand more when investing instead. And that's not even guaranteed - so of course I'm going to stick with the guaranteed route every time. There are also a lot of variables (percent return, dollars invested, timeline) that could make the gap much wider or much smaller. When you have such a short period of time paying off your mortgage you are quickly back to investing for the long term anyway. That's why it made sense in my situation, and I will sleep well at night with no debt!

which begs the question:  why would you bet on the far less likely outcome?

[Psychstache]

This is only because you know what has happened in the past. You know the outcome of the market. You're right that I would more than likely come out ahead if I did not pay it off early, but it is not guaranteed. Plus, it depends a lot on how quickly you pay it off. You see, I have done the math, and I do the math frequently and over and over again (maybe too much). I chose to quickly pay off my mortgage within 2-3 years. This is absolutely a big factor that is very likely a unique situation. When I run the numbers and project what the difference of a couple of years is, it is only a few thousand more when investing instead. And that's not even guaranteed - so of course I'm going to stick with the guaranteed route every time. There are also a lot of variables (percent return, dollars invested, timeline) that could make the gap much wider or much smaller. When you have such a short period of time paying off your mortgage you are quickly back to investing for the long term anyway. That's why it made sense in my situation, and I will sleep well at night with no debt!

If this is your decision making heuristic, how are you ever going to retire?

[Dicey]

Well, if you had visited the DPOYM thread one hundred times, you probably wouldn't still be asking this question.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

Come on over any time. Bringing an open mind helps.

[10SNE1]

I always vote to pay it off. It is a certainty to remove an expense, and investments are not guaranteed. I like the peace of mind it gives me. I am only months from paying our mortgage off in full, and it feels great! No regrets as my investments are chugging right along, and I diligently save for retirement too.

I used to completely agree with your way of thinking. But probably the most important lesson I learned on this forum is that it is almost always a bad financial decision to prepay your mortgage. Your feelings are really working against your financial good here.
If I had not paid off my mortgage early, I would be somewhere around a quarter million dollars richer today. You say you have no regrets, perhaps that is because you have not done the math to see how much it really cost you?

This is only because you know what has happened in the past. You know the outcome of the market. You're right that I would more than likely come out ahead if I did not pay it off early, but it is not guaranteed. Plus, it depends a lot on how quickly you pay it off. You see, I have done the math, and I do the math frequently and over and over again (maybe too much). I chose to quickly pay off my mortgage within 2-3 years. This is absolutely a big factor that is very likely a unique situation. When I run the numbers and project what the difference of a couple of years is, it is only a few thousand more when investing instead. And that's not even guaranteed - so of course I'm going to stick with the guaranteed route every time. There are also a lot of variables (percent return, dollars invested, timeline) that could make the gap much wider or much smaller. When you have such a short period of time paying off your mortgage you are quickly back to investing for the long term anyway. That's why it made sense in my situation, and I will sleep well at night with no debt!

which begs the question:  why would you bet on the far less likely outcome?

Bc it gives me peace of mind and makes me content (money cannot buy me those things)

[10SNE1]

This is only because you know what has happened in the past. You know the outcome of the market. You're right that I would more than likely come out ahead if I did not pay it off early, but it is not guaranteed. Plus, it depends a lot on how quickly you pay it off. You see, I have done the math, and I do the math frequently and over and over again (maybe too much). I chose to quickly pay off my mortgage within 2-3 years. This is absolutely a big factor that is very likely a unique situation. When I run the numbers and project what the difference of a couple of years is, it is only a few thousand more when investing instead. And that's not even guaranteed - so of course I'm going to stick with the guaranteed route every time. There are also a lot of variables (percent return, dollars invested, timeline) that could make the gap much wider or much smaller. When you have such a short period of time paying off your mortgage you are quickly back to investing for the long term anyway. That's why it made sense in my situation, and I will sleep well at night with no debt!

If this is your decision making heuristic, how are you ever going to retire?

Before I answer this, I must kindly ask if you are being sarcastic?

[yachi]

4% is used for an expense that will continue for 30 years, and be subject to inflation.  That's a terrible approximation for your mortgage.  Paying off your mortgage (in the US) becomes increasingly easier in a market with rising inflation.

To model this using FIRECalc, use your expenses minus mortgage on the first page.  Under "Other Income/Spending" Put your yearly P&I Payment as "Off Chart Spending" starting this year, and uncheck the inflation adjustment box.
In the next line select "Pension Income" and put in your yearly P&I Payment, with a starting date of the year you pay off your mortgage, and uncheck the inflation adjustment box.

I second the questions about where you're going to get enough untaxed funds to pay this house off.  My situation right now is I lack funds outside of retirement accounts from which to fund a 5-year Roth Conversion Ladder.  If paying off my house is a bad idea at X, it's worse idea at 1.15X

[aetheldrea]

This is only because you know what has happened in the past. You know the outcome of the market. You're right that I would more than likely come out ahead if I did not pay it off early, but it is not guaranteed. Plus, it depends a lot on how quickly you pay it off. You see, I have done the math, and I do the math frequently and over and over again (maybe too much). I chose to quickly pay off my mortgage within 2-3 years. This is absolutely a big factor that is very likely a unique situation. When I run the numbers and project what the difference of a couple of years is, it is only a few thousand more when investing instead. And that's not even guaranteed - so of course I'm going to stick with the guaranteed route every time. There are also a lot of variables (percent return, dollars invested, timeline) that could make the gap much wider or much smaller. When you have such a short period of time paying off your mortgage you are quickly back to investing for the long term anyway. That's why it made sense in my situation, and I will sleep well at night with no debt!

If this is your decision making heuristic, how are you ever going to retire?

I can tell you how he will retire: much poorer or at a much later date than if he didn’t pay off his mortgage early :-) Some people just want to work a long time, that’s fine. Society needs productive workers paying income taxes and Social Security.  Not really what MMM is about, though.

[Dicey]

I always vote to pay it off. It is a certainty to remove an expense, and investments are not guaranteed. I like the peace of mind it gives me. I am only months from paying our mortgage off in full, and it feels great! No regrets as my investments are chugging right along, and I diligently save for retirement too.

I used to completely agree with your way of thinking. But probably the most important lesson I learned on this forum is that it is almost always a bad financial decision to prepay your mortgage. Your feelings are really working against your financial good here.
If I had not paid off my mortgage early, I would be somewhere around a quarter million dollars richer today. You say you have no regrets, perhaps that is because you have not done the math to see how much it really cost you?

This is only because you know what has happened in the past. You know the outcome of the market. You're right that I would more than likely come out ahead if I did not pay it off early, but it is not guaranteed. Plus, it depends a lot on how quickly you pay it off. You see, I have done the math, and I do the math frequently and over and over again (maybe too much). I chose to quickly pay off my mortgage within 2-3 years. This is absolutely a big factor that is very likely a unique situation. When I run the numbers and project what the difference of a couple of years is, it is only a few thousand more when investing instead. And that's not even guaranteed - so of course I'm going to stick with the guaranteed route every time. There are also a lot of variables (percent return, dollars invested, timeline) that could make the gap much wider or much smaller. When you have such a short period of time paying off your mortgage you are quickly back to investing for the long term anyway. That's why it made sense in my situation, and I will sleep well at night with no debt!

which begs the question:  why would you bet on the far less likely outcome?

Bc it gives me peace of mind and makes me content (money cannot buy me those things)

It's hard to imagine the day will come, but there will come a point when the money you've invested starts earning lots more money. Soon it starts earning more than you do at your j-o-b. Then your account balances have two commas in them. Then you are rich beyond your wildest imagination and you don't ever have to work at anything you don't choose to. Ever.

You have no idea how much more peace of mind and contentment that provides, but trust me, it does.

See also: The Shockingly Simple Math Behind Early Retirement
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

[Rdy2Fire]

Lots of good advice above. Personally if I could do it all again I WOULD NOT have paid mine. I'd have 10yrs of that money in the market probably equating to 400-500K at a minimum, most likely closer to 1M. Of course hindsight is always 20/20 right :)

[Dicey]

Lots of good advice above. Personally if I could do it all again I WOULD NOT have paid mine. I'd have 10yrs of that money in the market probably equating to 400-500K at a minimum, most likely closer to 1M. Of course hindsight is always 20/20 right :)

I live in a city where more than 25% of the population is over 65. I cannot tell you how often people rue prioritizing killing their mortgage over retirement savings/investment. Sadly, by the time they realize that, it's too late. The multibillion dollar Reverse Mortgage industry wouldn't exist if people saved/invested more. And those suckers aren't cheap! When you're older and less able to work, there are far fewer borrowing options available and they are typically far more expensive.

Currently, the cheapest money you can get, short of a windfall, is an acquisition mortgage on your primary home while you are collecting a steady paycheck*. Use that to your advantage. It could well be a once in a lifetime opportunity so why squander it?

Another thought I want to add to the list in my previous post is that if you start saving early enough, your money will earn more than you actually saved. Compounding interest leads to exponential growth. The earlier you start, the faster it happens. If you wait to max out your savings, you will have to contribute way more earned income. That means you're doing the heavy lifting instead of your investments. FIRE is all about finding the most efficient way to reach Financial Independence so that working becomes optional asap. Who here doesn't want that?

If you agree that FIRE is a way of looking at life differently,  why wouldn't you be willing to do the same with your mortgage?

*Good luck getting a mortgage post retirement. Banks stupidly care more about income than invested assets.  Though we own our current home outright, we intend to downsize before DH retires. When we do, we will get an 80% mortgage, because it will be the last time we'll ever get a crack at such cheap money. The payment will come out of our investment accounts, so we'll never see it. Better still, we won't feel it. Who cares if we die with a mortgage? We literally have millions to cover our expenses, and we were never huge wage earners. To quote a famous FIRE dude, this shit works!

[Greystache]

I prepaid my mortgage when I had extra cash on hand and I thought stock market was overpriced. Whenever stocks went on sale, I would dump all my available cash into the market and not make any mortgage prepayments. You could call it market timing if you wish. I simply looked at the current environment and took a guess at where I was likely to get the best return on my money. I did not carefully track my results, so I don't know if I did better or worse. Maybe I just did not like being in debt and this was just a way to rationalize eliminating debt a little sooner.  When I was ready to FIRE, I still had about $30K left on my mortgage. I did not want any debt in retirement and elected to pay it off the month before I quit working. No regrets.

[Dicey]

I prepaid my mortgage when I had extra cash on hand and I thought stock market was overpriced. Whenever stocks went on sale, I would dump all my available cash into the market and not make any mortgage prepayments. You could call it market timing if you wish. I simply looked at the current environment and took a guess at where I was likely to get the best return on my money. I did not carefully track my results, so I don't know if I did better or worse. Maybe I just did not like being in debt and this was just a way to rationalize eliminating debt a little sooner.  When I was ready to FIRE, I still had about $30K left on my mortgage. I did not want any debt in retirement and elected to pay it off the month before I quit working. No regrets.

In that case, it makes perfect sense. Go, you!

[GodlessCommie]

*Good luck getting a mortgage post retirement. Banks stupidly care more about income than invested assets.

No joke.

There is a way around it, although it temporary eliminates the RE part of FIRE. There was an article about a guy who got a job driving Amazon truck specifically to refinance his home, and dropped it the moment he signed the mortgage papers.

Of course, it's a hassle most of us would rather avoid.

[nereo]

*Good luck getting a mortgage post retirement. Banks stupidly care more about income than invested assets.

No joke.

There is a way around it, although it temporary eliminates the RE part of FIRE. There was an article about a guy who got a job driving Amazon truck specifically to refinance his home, and dropped it the moment he signed the mortgage papers.

Of course, it's a hassle most of us would rather avoid.

My parents have had their current mortgage for 43 years with about ten to go. They were very upset when they tried to refinance a few years ago and were denied. “You have no income” was their but response.
“But we have a 780 credit score and over $2MM in savings and no other debt!”  Nope. Didn’t work. Financially they are fine, but not very pleased that each month more of their wealth gets transferred to their home (which they have no intention of selling). And no, they don’t want to do a reverse mortgage due to the terms

[PathtoFIRE]

Yep, we are finding ourselves in a similar boat. Trying to refinance, but all 3 sources of income are part time jobs, and only one has been held for 2+ years, so that's the only income they'll consider. Just got a message from our broker asking for an updated Vanguard statement (we're using the dividend income to just get us under the 45% DTI) and $0 balances for our credit cards before final approval. It's incredibly annoying, especially since the only job they'll consider represent less than 33% of our actual monthly income. I've been told my part time position is being negotiated to a full time...I don't want to go back to 5 days a week, but on the other hand at least it will make the refinance easier if this attempt falls through. Like that Amazon truck driver, I though about asking to go temporarily full time just to refinance, and then dropping back, hah, but it sounded a little fraud-ish to me.

[10SNE1]

I prepaid my mortgage when I had extra cash on hand and I thought stock market was overpriced. Whenever stocks went on sale, I would dump all my available cash into the market and not make any mortgage prepayments. You could call it market timing if you wish. I simply looked at the current environment and took a guess at where I was likely to get the best return on my money. I did not carefully track my results, so I don't know if I did better or worse. Maybe I just did not like being in debt and this was just a way to rationalize eliminating debt a little sooner.  When I was ready to FIRE, I still had about $30K left on my mortgage. I did not want any debt in retirement and elected to pay it off the month before I quit working. No regrets.

This is basically me to a degree. It seems as if others' comments about me not being able to retire since I have been paying off my mortgage early have assumed that I haven't also diligently saved for retirement up until now as well. I am extremely familiar with the shockingly simple math blog post, and I follow a decent amount of MMM wisdom. I will be retiring in my 40s with my current plan and without debt, and I think that is pretty darn good.

[Psychstache]

This is only because you know what has happened in the past. You know the outcome of the market. You're right that I would more than likely come out ahead if I did not pay it off early, but it is not guaranteed. Plus, it depends a lot on how quickly you pay it off. You see, I have done the math, and I do the math frequently and over and over again (maybe too much). I chose to quickly pay off my mortgage within 2-3 years. This is absolutely a big factor that is very likely a unique situation. When I run the numbers and project what the difference of a couple of years is, it is only a few thousand more when investing instead. And that's not even guaranteed - so of course I'm going to stick with the guaranteed route every time. There are also a lot of variables (percent return, dollars invested, timeline) that could make the gap much wider or much smaller. When you have such a short period of time paying off your mortgage you are quickly back to investing for the long term anyway. That's why it made sense in my situation, and I will sleep well at night with no debt!

If this is your decision making heuristic, how are you ever going to retire?

Before I answer this, I must kindly ask if you are being sarcastic?

That's fair, given that this is the internet. My question is genuinely curious.

[Dicey]

Yep, we are finding ourselves in a similar boat. Trying to refinance, but all 3 sources of income are part time jobs, and only one has been held for 2+ years, so that's the only income they'll consider. Just got a message from our broker asking for an updated Vanguard statement (we're using the dividend income to just get us under the 45% DTI) and $0 balances for our credit cards before final approval. It's incredibly annoying, especially since the only job they'll consider represent less than 33% of our actual monthly income. I've been told my part time position is being negotiated to a full time...I don't want to go back to 5 days a week, but on the other hand at least it will make the refinance easier if this attempt falls through. Like that Amazon truck driver, I though about asking to go temporarily full time just to refinance, and then dropping back, hah, but it sounded a little fraud-ish to me.

Are you planning on defaulting on the loan? No? Didn't think so. That's the only metric that matters, IMO. You are making an agreement and you're gonna pay it back. Nothing fraud-ish about that.

I used Stated Income Loans (aka Liar's Loans) until they went away. I learned my lesson with my first house.  My employer had a system where we reimbursed ourselves weekly for our expenses. Yes, we had actual checks that we made out to ourselves. The lender insisted on counting those as personal expenses and made me put down a heftier down payment, leaving me with $6k with which to update the house.

I kind of wonder how long the dude had to drive for Amazon before the lender would do the loan. Methinks there's more to the story.

In our experience, lenders will ask how long at current job and how many years in the same industry. Perhaps the dude did something similar before he retired the first time.

[Lyngi]

I've done both.  About 8 years ago I paid off a $130K mortgage with an interest rate in the 4's.  In hindsight, I would have made a lot more by investing it, but it helped me sleep at night. I had little kids and an unstable work situation.  This year, I sold that house and bought a brand new house.  The housing market is bat-shit crazy here and I sold it for $400K.  I put enough down this time so the payment is comfortable at $1200/month.  Leaving 200k in savings.  I have to talk myself out of paying off this mortgage on a weekly basis, but that 200K is my glide path out of work.  Dicey is right,  my investments (401k) made more so far this year that I will earn by working.   I'm now converted to the Keep the Mortgage club. 

[Plina]

I stopped paying down the mortgage last summer as you could due to some relief you could get due to covid. I have only paid interest since last summer but the fun will end in the end of August. Instead I invested the money. My portfolio is up 22 % this year and with a interest rate of 1,42% it does not make sense to pay down. I don’t plan to stay here more than a couple of years.

[Jack0Life]

Yep, we are finding ourselves in a similar boat. Trying to refinance, but all 3 sources of income are part time jobs, and only one has been held for 2+ years, so that's the only income they'll consider. Just got a message from our broker asking for an updated Vanguard statement (we're using the dividend income to just get us under the 45% DTI) and $0 balances for our credit cards before final approval. It's incredibly annoying, especially since the only job they'll consider represent less than 33% of our actual monthly income. I've been told my part time position is being negotiated to a full time...I don't want to go back to 5 days a week, but on the other hand at least it will make the refinance easier if this attempt falls through. Like that Amazon truck driver, I though about asking to go temporarily full time just to refinance, and then dropping back, hah, but it sounded a little fraud-ish to me.

You're not the only one.
I've been desperately trying to refinance our primary home with a cash out. We are on a 15yr @ 2.79% which is low already. Trying to go 30 yr with a cash out of ~$100k. Too much equity in our primary home doing nothing for us.
I got furloughed in April of last year and I tried refinancing with just my wife's $49k salary on a $240k loan and they came back to us with an offer of $130k. WTF ??
Then in Nov I got laid off but I was getting 2 months worth of compensation so I tried refinancing again. Got approved quickly but they couldn't close until late Jan. i was actually signing the closing paper on the day when they call me and asked for the PIN for employment verification. Needless to say that didn't go through.
So now, I'm on my 3rd try. In the process now. Got my job back in April. Wife put in her notice but agreed to work till July 31st. Income shouldn't be a problem anymore but I hope we can close before July 31st. If we get an approval but won't close by then, my wife might need to keep her job just a little longer.
I agree the loan process is a bit ridiculous in a way that they only consider INCOME. You can have a million in the bank but no job, you have no chance to get a loan.

[Eco_eco]

I have felt the pain and joy of paying down mortgages early.

As a rental property investor our strategy for loans has been:
- borrow as much as possible for as long as possible (within prudent risk management and cashflow limits) and let inflation eat away at the loans

However, for our PPOR we have tried to borrow as little as possible and live in only the amount of space we need.

Back in 2013 our investments had reached the point where we could pay off the mortgage, so we sold down a large part of our portfolio of rentals and paid off 95% our personal mortgage. At first this felt great as we realised that we were now ‘coastFI’ and only really needed to work occasional part time jobs for living expenses (if we chose to). We could easily have gotten by on 75% of our household income.

However, I then had an absolutely miserable three years as the capital value of the properties we sold doubled. If we had waited until 2016 to sell then we would have an additional $1m of net worth and it was not until our investments took off again and we became fully FI that I was even remotely happy with our decision. Of course this could have gone the other way and if there had been a real estate crash I would have been relieved that we had cashed in when we did. But there wasn’t … and it really really sucked to see the lost opportunity.

I thought strongly that I was in the camp of wanting to have the house paid off for basic security. But as it turned out I learned the hard way that I am way more comfortable with having a larger total NW with some risk.

[slappy]

Yep, we are finding ourselves in a similar boat. Trying to refinance, but all 3 sources of income are part time jobs, and only one has been held for 2+ years, so that's the only income they'll consider. Just got a message from our broker asking for an updated Vanguard statement (we're using the dividend income to just get us under the 45% DTI) and $0 balances for our credit cards before final approval. It's incredibly annoying, especially since the only job they'll consider represent less than 33% of our actual monthly income. I've been told my part time position is being negotiated to a full time...I don't want to go back to 5 days a week, but on the other hand at least it will make the refinance easier if this attempt falls through. Like that Amazon truck driver, I though about asking to go temporarily full time just to refinance, and then dropping back, hah, but it sounded a little fraud-ish to me.

You're not the only one.
I've been desperately trying to refinance our primary home with a cash out. We are on a 15yr @ 2.79% which is low already. Trying to go 30 yr with a cash out of ~$100k. Too much equity in our primary home doing nothing for us.
I got furloughed in April of last year and I tried refinancing with just my wife's $49k salary on a $240k loan and they came back to us with an offer of $130k. WTF ??
Then in Nov I got laid off but I was getting 2 months worth of compensation so I tried refinancing again. Got approved quickly but they couldn't close until late Jan. i was actually signing the closing paper on the day when they call me and asked for the PIN for employment verification. Needless to say that didn't go through.
So now, I'm on my 3rd try. In the process now. Got my job back in April. Wife put in her notice but agreed to work till July 31st. Income shouldn't be a problem anymore but I hope we can close before July 31st. If we get an approval but won't close by then, my wife might need to keep her job just a little longer.
I agree the loan process is a bit ridiculous in a way that they only consider INCOME. You can have a million in the bank but no job, you have no chance to get a loan.

Meanwhile my mother in law makes $2500 a month and was somehow approved for a $200k mortgage with a payment that is 60% of her income. Spoiler alert...she is now 7 months behind on her mortgage. Who would have figured that the mortgage payment would not be sustainable?

In your case, you may have an issue with the fact that your wife has already given notice. I'm not a professional or anything, but I always thought that they employment verification included some language about an expectation of continued employment. 

[NorthernIkigai]

I have to talk myself out of paying off this mortgage on a weekly basis [...]

Haha, I'm glad I'm not the only one!

As our mortgage amount shrinks and we still keep a way too big emergency fund (spouse is looking for individual stocks for their cash, while I'm ploughing as much of mine as I dare to into funds and ETFs), the struggle to not sell just a few investments and contact the mortgage lender is real. We'd still have the rest of our investments and a strong social safety net as our "emergency fund", and of course an amazing cash flow.

Last quarter, we had 83.57% -- although who's counting? -- of the mortgage amount in cash. Some of that cash is, however, not easily accessible right now due to an unfortunate combination of Corona and geography.

By now publicly stating here that our (variable) mortgage rate is 0.45%, I hope to keep myself from doing anything stupid once we get to 100%... Obviously, having a smaller emergency fund wouldn't be too bad, either, but I'm working on that.

Luckily, we'll want to buy our "final" family home in a few years' time, so we'll have another bite at the mortgage apple at that point. I'll probably have to come back here for moral support then.

[partgypsy]

I have definitely have had times I wanted to pay off the mortgage early. I decided I will only pay off my mortgage when I have enough in checking to write that last check. So maybe I will pay off a few months, 6 months early, but that's about it. It doesn't make sense to do it because as I will be having a kid in college. For the next 4 years a paid off house counts against me while a higher retirement fund does not.