I'm going to pay off my mortgage

[frugalnacho]

I just sold a second house and should be getting a check for about $115k after everything is squared away.  I have about $20k in recently acquired debt related to the sale of the property that is going to get paid off, leaving me with about $95k.

The mortgage on my current residence has about $46k left and is at 5.5%.  We cannot refinance*. 

I think I am going to:

pay off my $46k mortgage,
pay off my wife's $6k in student loans,
set aside $8k for taxes,
replenish our savings account to $10k,
set aside about $6k for medical bills for the birth of our first kid (next month),
put the remaining $19k into VTSAX in a taxable account

Does this sound like a reasonable plan? I know everyone on MMM is all about keeping mortgages and investing the difference, but at 5.5% and  no ability to refinance I feel like my best option (mathematically) is to just pay it off.  I'm very much looking forward to being officially debt and mortgage free.

EDIT: I max out my 401k and my and my wife's tIRA.


*An incentive by the county was given when purchasing the house.  The county gave my wife an interest free mortgage for 50% of the purchase price of the home.  No payments need to be made as long as it's her primary residence.  If she sells the house, rents it out, refinances, or takes any home equity loans/credit then the mortgage becomes due.   

[RWD]

5.5% is in a bit of a grey area on the pay off versus invest decision. You're probably better off investing, but I think paying it off is a reasonable decision here.

[mathlete]

If being debt free will make an appreciable improvement in your quality of life, I say go for it. 5.5% is a pretty high interest rate if you truly can't refinance, and stocks aren't exactly "on sale" right now anyway.

Something you might want to try working out, is seeing what the difference is between investing $46K in an X year duration investment (where X is the number of years left on your mortgage), and investing $46K in a fund yielding 7% or 8% (whatever your assumption for market returns is).

Then rephrase your answer from dollars, to the number of years/months/days left until you reach financial independence. Depending upon how big of a number X is, it may only be a couple of months difference, which could be eaten up by volatility in the markets anyway.

[1962colreb]

I would do as you have planned, especially if
you and your spouse aren't currently maxing
out your 401ks, IRA's , etc... The additional
tax savings from maxing out the retirement
accounts should offset leaving interest income
on the table.

[MilesTeg]

I just sold a second house and should be getting a check for about $115k after everything is squared away.  I have about $20k in recently acquired debt related to the sale of the property that is going to get paid off, leaving me with about $95k.

The mortgage on my current residence has about $46k left and is at 5.5%.  We cannot refinance*. 

I think I am going to:

pay off my $46k mortgage,
pay off my wife's $6k in student loans,
set aside $8k for taxes,
replenish our savings account to $10k,
set aside about $6k for medical bills for the birth of our first kid (next month),
put the remaining $19k into VTSAX in a taxable account

Does this sound like a reasonable plan? I know everyone on MMM is all about keeping mortgages and investing the difference, but at 5.5% and  no ability to refinance I feel like my best option (mathematically) is to just pay it off.  I'm very much looking forward to being officially debt and mortgage free.


*An incentive by the county was given when purchasing the house.  The county gave my wife an interest free mortgage for 50% of the purchase price of the home.  No payments need to be made as long as it's her primary residence.  If she sells the house, rents it out, refinances, or takes any home equity loans/credit then the mortgage becomes due.

If you are happy to pay of the 5.5% with the _potential_ lowered efficiency of your dollars (vs investment) then just do it. If you are concerned about cash on hand, you can always take another mortgage out on your paid off residence. I would not suggest the latter unless you have a financial emergency (e.g. medical), but it's always an option.

However, as always, I disagree with large "emergency/savings funds". We typically:

* keep ~1 month of COH for budgeted expenses.
* have cultivated our credit to have 30k in available credit (could easily get more, but no need) to handle unexpected expenses that aren't budgeted for.
* keep at least 6 months or so of money invested in low/no risk vehicles such as bonds, CDs etc. that would be drawn upon to repay any expenses paid with credit. (the credit being just there for timeliness since pulling funds out of investments can take a while).

Unless you have a really great bank, putting money just in a savings account is losing you value (due to inflation). I've never seen a convincing argument (other than special cases) for keeping large amounts of cash sitting around losing value for you.

[FI4good]

Congratulations on the Kid i hope the birth goes well and you all are healthy .

Sounds like a good plan to me , having no rent or mortgage to pay is a wonderful feeling , not being beholden to anyone .

when i owned and lived in a house outright it was nice that only small bills came through the door, once the property taxes were paid i slept easy and knew with frugal living i could get by.   

[Davids]

At 5.5% and unable to refi then yes pay it off. I agree.

[frugalnacho]

I just sold a second house and should be getting a check for about $115k after everything is squared away.  I have about $20k in recently acquired debt related to the sale of the property that is going to get paid off, leaving me with about $95k.

The mortgage on my current residence has about $46k left and is at 5.5%.  We cannot refinance*. 

I think I am going to:

pay off my $46k mortgage,
pay off my wife's $6k in student loans,
set aside $8k for taxes,
replenish our savings account to $10k,
set aside about $6k for medical bills for the birth of our first kid (next month),
put the remaining $19k into VTSAX in a taxable account

Does this sound like a reasonable plan? I know everyone on MMM is all about keeping mortgages and investing the difference, but at 5.5% and  no ability to refinance I feel like my best option (mathematically) is to just pay it off.  I'm very much looking forward to being officially debt and mortgage free.


*An incentive by the county was given when purchasing the house.  The county gave my wife an interest free mortgage for 50% of the purchase price of the home.  No payments need to be made as long as it's her primary residence.  If she sells the house, rents it out, refinances, or takes any home equity loans/credit then the mortgage becomes due.

If you are happy to pay of the 5.5% with the _potential_ lowered efficiency of your dollars (vs investment) then just do it. If you are concerned about cash on hand, you can always take another mortgage out on your paid off residence. I would not suggest the latter unless you have a financial emergency (e.g. medical), but it's always an option.

However, as always, I disagree with large "emergency/savings funds". We typically:

* keep ~1 month of COH for budgeted expenses.
* have cultivated our credit to have 30k in available credit (could easily get more, but no need) to handle unexpected expenses that aren't budgeted for.
* keep at least 6 months or so of money invested in low/no risk vehicles such as bonds, CDs etc. that would be drawn upon to repay any expenses paid with credit. (the credit being just there for timeliness since pulling funds out of investments can take a while).

Unless you have a really great bank, putting money just in a savings account is losing you value (due to inflation). I've never seen a convincing argument (other than special cases) for keeping large amounts of cash sitting around losing value for you.

We cannot ever take another mortgage out on our principal residence without that second-zero-interest-no-payment mortgage becoming due.  The benefits of maintaining that second no cost mortgage are huge and we won't me messing with it until we move to a different house and can just pay it off with equity from the sale.  We are certainly going to not do anything to mess with that mortgage and cause it to be due until we've moved though.

The company I work for just got purchased last month and it was a scary time (especially since we were balls deep in a reno/selling of the second house and were 6 months pregnant at the time).  We put all our money into the house and racked up a significant amount of debt (@ 0% of course) because I felt secure in my job and thought it would be no big deal to deplete all savings and rack up some debt short term and it would all be paid back when we sold.  I didn't anticipate the very poorly timed (for me) acquisition of my company and nearly losing my job. It seems to have worked out, but I am leery of the new company and don't know how all the chips are going to fall for the long term.  I don't know exactly what to expect with a new baby coming either.  That's my motivation for setting aside $10k in a savings and $6k for medical.  That is probably not going to be a permanent situation, but I'd like to see how things work out with the company before I commit all my money to being invested.  It's probably too much, especially since I should have some ridiculous cash flow going forward with no mortgage.  I will probably be saving around $3k+/mo.  I'll very likely reduce the amount in savings over the next 6 months as I settle in with the new company and baby and get comfortable. 

To answer another poster:  We already max my 401k and both our IRAs.  We've temporarily stopped investments to free up cash flow for the house situation, but we plan to get back at it and max it all out before the end of the year. 

[HPstache]

I would, without skipping a beat, do the exact same thing.  Congrats on paying off your house!!

[MDM]

...put the remaining $19k into VTSAX in a taxable account

Do you already contribute the IRS maximum to tax-advantaged accounts?

If not, that $19K could allow you to do so.

[GuitarStv]

I'd absolutely pay off the mortgage in your situation.  It's nice to own things free and clear.

[frugalnacho]

...put the remaining $19k into VTSAX in a taxable account

Do you already contribute the IRS maximum to tax-advantaged accounts?

If not, that $19K could allow you to do so.

Yes we do.

[MilesTeg]

We cannot ever take another mortgage out on our principal residence without that second-zero-interest-no-payment mortgage becoming due.  The benefits of maintaining that second no cost mortgage are huge and we won't me messing with it until we move to a different house and can just pay it off with equity from the sale.  We are certainly going to not do anything to mess with that mortgage and cause it to be due until we've moved though.

I take it you mean then that the $46k is not actually paying off the home, only the 50% that is not the zero interest zero payment part? I read it as you were paying off the whole debt of the house.

That is probably not going to be a permanent situation, but I'd like to see how things work out with the company before I commit all my money to being invested.

Well, there's investing your cash, and then there's putting it in a savings vehicle or low risk investment that at least mitigates losses from inflation while still remaining easy to access (with access gaps covered by credit). I grok the nervousness over having a new baby, but once you get a handle on that I would review what you are doing and cut down COH.

[MDM]

...put the remaining $19k into VTSAX in a taxable account

Do you already contribute the IRS maximum to tax-advantaged accounts?
If not, that $19K could allow you to do so.

Yes we do.

In that case it's consistent with MMM philosophy as outlined in Investment Order.  You're not a heretic. ;)

I'd say "do it and sleep well" but the latter half may be difficult starting in ~1 month.  Nevertheless, congratulations and best wishes.

[Tyson]

Agreed, pay it off.  There is something very powerful, emotionally about the elimination of monthly payments, especially large ones.  Even moreso during times of potential job instability.

[frugalnacho]

We cannot ever take another mortgage out on our principal residence without that second-zero-interest-no-payment mortgage becoming due.  The benefits of maintaining that second no cost mortgage are huge and we won't me messing with it until we move to a different house and can just pay it off with equity from the sale.  We are certainly going to not do anything to mess with that mortgage and cause it to be due until we've moved though.

I take it you mean then that the $46k is not actually paying off the home, only the 50% that is not the zero interest zero payment part? I read it as you were paying off the whole debt of the house.

That is probably not going to be a permanent situation, but I'd like to see how things work out with the company before I commit all my money to being invested.

Well, there's investing your cash, and then there's putting it in a savings vehicle or low risk investment that at least mitigates losses from inflation while still remaining easy to access (with access gaps covered by credit). I grok the nervousness over having a new baby, but once you get a handle on that I would review what you are doing and cut down COH.

There are 2 separate mortgages on the house.  One is a normal 30 year mortgage for $46k @ 5.5% that we pay monthly.   This is the one I'm talking about paying off.

There is a separate "mortgage" that is 0% and never has any payments due - until we rent the house, sell the house, or refinance or take out a HELOC.  If we do any of those things this full mortgage becomes due, I believe as a balloon payment.  We aren't going to do any of those things right now.  We will eventually sell the house, and when we do we will just pay off this entire mortgage at the time with the proceeds from that sale.  This mortgage is really of no concern to us, other than the stipulations on what we can/can't do with our other mortgage and with our house in order to preserve the 0%/no payment status.  It's nice, but it has kind of jammed us too.  We can't take a HELOC, and we can't get a HELOC on our second house despite having tons of equity in both.  In all cases of trying to get a HELOC/refi/anything with the second house every lender said "yea sure, that's no problem, you guys have tons of equity! we'll just do it on your primary house instead of your second house" and then I'd have to say "actually no, that is a problem, we CANNOT borrow against our primary house" and then I'd have to explain the whole 2 mortgage system.   In the end we obviously didn't refinance or do HELOC or any of that, we just depleted our savings and racked up cc debt to pay for the renovations.

The new baby is causing nervousness, but mostly it's the new job.  I don't know if I'll be here in 6 months or how the company is going to look.  I probably will, but if shit goes sideways I'd like to have some cash available to float us while we get things figured out.  Once I get a better idea of my long term role at this company I'll reduce the savings cushion and invest more into taxable accounts.

[soccerluvof4]

I think your plan was well thought out and is the way to go!!

[MilesTeg]

There are 2 separate mortgages on the house.  One is a normal 30 year mortgage for $46k @ 5.5% that we pay monthly.   This is the one I'm talking about paying off.

I gotcha now. This changes my advice a bit. If the equity you'd have in this home is a large part of your non-retirement assets, I would hesitate to lock up that much money in something with this particular restriction. It's one thing to pay a 10% penalty to access 401k funds, it's another thing to have money locked up in something that would cost you whatever that 50% is to access (i'm guessing at least $50k).

[frugalnacho]

There are 2 separate mortgages on the house.  One is a normal 30 year mortgage for $46k @ 5.5% that we pay monthly.   This is the one I'm talking about paying off.

I gotcha now. This changes my advice a bit. If the equity you'd have in this home is a large part of your non-retirement assets, I would hesitate to lock up that much money in something with this particular restriction. It's one thing to pay a 10% penalty to access 401k funds, it's another thing to have money locked up in something that would cost you whatever that 50% is to access (i'm guessing at least $50k).

When it all settles we'll have about $110k equity in the paid off house, about $260k invested (mostly 401k/IRA), $20k cash, and no debt.   If I stick around at this job I am anticipating being able to save around $40k/yr.  I'm a little hesitant about locking it up in the house because I can't ever extract it again until I move, but with our mustachian life style and savings rate we should have piles and piles of money after the first year, so hopefully getting equity back our or getting 401k money shouldn't even be an issue.

[Hadilly]

You know, I'm going to be contrarian here. If your job is feeling uncertain or you aren't sure if you want to stick around, I would wait to pay off the mortgage. I would much rather have 46k in the bank/invested and relatively liquid if things change. A year of paying your mortgage while things stabilize with life/work/baby would be my recommendation.

[frugalnacho]

You know, I'm going to be contrarian here. If your job is feeling uncertain or you aren't sure if you want to stick around, I would wait to pay off the mortgage. I would much rather have 46k in the bank/invested and relatively liquid if things change. A year of paying your mortgage while things stabilize with life/work/baby would be my recommendation.

I'll still have over a years worth of expenses between savings and taxable investments though*.  I'm not sure having 2.5-3X annual expenses and a mortgage is any better.  I am concerned about the job, but I feel like there is more than enough left over to sustain us even with a paid off mortgage.   Plus I won't have a monthly mortgage payment at that point - I'll just need to set aside about $3,700 for taxes and insurance for the year.  I'm fairly certain because of the escrow account we are already prorated for our insurance and taxes too, so it will actually be less than that.

*$10k in savings
$19k in taxable accounts
+whatever I manage to save between now and then
(I assume the full $6k is going to be spent on medical)

[BTDretire]

I just sold a second house and should be getting a check for about $115k after everything is squared away.  I have about $20k in recently acquired debt related to the sale of the property that is going to get paid off, leaving me with about $95k.

The mortgage on my current residence has about $46k left and is at 5.5%.  We cannot refinance*. 

I think I am going to:

pay off my $46k mortgage,
pay off my wife's $6k in student loans,
set aside $8k for taxes,
replenish our savings account to $10k,
set aside about $6k for medical bills for the birth of our first kid (next month),
put the remaining $19k into VTSAX in a taxable account

Does this sound like a reasonable plan? I know everyone on MMM is all about keeping mortgages and investing the difference, but at 5.5% and  no ability to refinance I feel like my best option (mathematically) is to just pay it off.  I'm very much looking forward to being officially debt and mortgage free.


*An incentive by the county was given when purchasing the house.  The county gave my wife an interest free mortgage for 50% of the purchase price of the home.  No payments need to be made as long as it's her primary residence.  If she sells the house, rents it out, refinances, or takes any home equity loans/credit then the mortgage becomes due.

If you are happy to pay of the 5.5% with the _potential_ lowered efficiency of your dollars (vs investment) then just do it. If you are concerned about cash on hand, you can always take another mortgage out on your paid off residence. I would not suggest the latter unless you have a financial emergency (e.g. medical), but it's always an option.

However, as always, I disagree with large "emergency/savings funds". We typically:

* keep ~1 month of COH for budgeted expenses.
* have cultivated our credit to have 30k in available credit (could easily get more, but no need) to handle unexpected expenses that aren't budgeted for.
* keep at least 6 months or so of money invested in low/no risk vehicles such as bonds, CDs etc. that would be drawn upon to repay any expenses paid with credit. (the credit being just there for timeliness since pulling funds out of investments can take a while).

Unless you have a really great bank, putting money just in a savings account is losing you value (due to inflation). I've never seen a convincing argument (other than special cases) for keeping large amounts of cash sitting around losing value for you.

We cannot ever take another mortgage out on our principal residence without that second-zero-interest-no-payment mortgage becoming due.  The benefits of maintaining that second no cost mortgage are huge and we won't me messing with it until we move to a different house and can just pay it off with equity from the sale.  We are certainly going to not do anything to mess with that mortgage and cause it to be due until we've moved though.

The company I work for just got purchased last month and it was a scary time (especially since we were balls deep in a reno/selling of the second house and were 6 months pregnant at the time).  We put all our money into the house and racked up a significant amount of debt (@ 0% of course) because I felt secure in my job and thought it would be no big deal to deplete all savings and rack up some debt short term and it would all be paid back when we sold.  I didn't anticipate the very poorly timed (for me) acquisition of my company and nearly losing my job. It seems to have worked out, but I am leery of the new company and don't know how all the chips are going to fall for the long term.  I don't know exactly what to expect with a new baby coming either.  That's my motivation for setting aside $10k in a savings and $6k for medical.  That is probably not going to be a permanent situation, but I'd like to see how things work out with the company before I commit all my money to being invested.  It's probably too much, especially since I should have some ridiculous cash flow going forward with no mortgage.  I will probably be saving around $3k+/mo.  I'll very likely reduce the amount in savings over the next 6 months as I settle in with the new company and baby and get comfortable. 

  This last information about a questionable job situation could easily shift me away from paying off your mortgage.
But you do say will have $10k + $6K+ $19K= $35k, so that should get you through any tough times. You be the judge.
 Remember you always pay it off next year if things look better.

[Rocketman]

I would keep the money in the bank until the baby is born healthy. Then make your decision. The reason is the very very small chance of health problems with the baby. Once everyone is home, heathy and sleep deprived- then see what you want to do.

The reason for my advise is I had a nephew born full term, but had a hole in his heart. So he spent 2 weeks or so sleeping in NICU. (He looked like a giant compared to the prem-ies he was next to). But holy smokes that place is expensive!!!

Since you will not be able to get the 46k back - think of it was cheap insurance.

Good luck and I hope everything goes great!

[MrsPete]

I know everyone on MMM is all about keeping mortgages and investing the difference,

No, not everyone feels this way.  Buying a modest house and paying it off quickly was one of the best choices I've made.  I don't care if the investment math says I could've made more long-term -- that's hypothetical math, based upon (reasonable) assumptions, and assumptions don't always come true.  I love knowing that every brick is mine, mine, mine.  A part of this is based upon the fact that i was a poor kid and was worried more than once about "making rent"; nothing is as good as knowing that my home is mine, mine, mine.

[boarder42]

I know everyone on MMM is all about keeping mortgages and investing the difference,

No, not everyone feels this way.  Buying a modest house and paying it off quickly was one of the best choices I've made.  I don't care if the investment math says I could've made more long-term -- that's hypothetical math, based upon (reasonable) assumptions, and assumptions don't always come true.  I love knowing that every brick is mine, mine, mine.  A part of this is based upon the fact that i was a poor kid and was worried more than once about "making rent"; nothing is as good as knowing that my home is mine, mine, mine.

so are you using that same "hypothetical" math to retire on ...

and the govt can take your house any time they want they've done it before. its unlikely but just about as unlikely as owning a home saving you from "hypothetical" math.

[acroy]

......... I feel like my best option (mathematically) is to just pay it off.  I'm very much looking forward to being officially debt and mortgage free.

did you do the math - including the tax break??
here is a calculator
http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx

I know a lot of folks get pleasure from 'debt freedom', but debt can work for you. One more tool to accelerate FI. Just sayin ;)

congratulations on the sale, and good luck!

[CupcakeGuru]

You know, I'm going to be contrarian here. If your job is feeling uncertain or you aren't sure if you want to stick around, I would wait to pay off the mortgage. I would much rather have 46k in the bank/invested and relatively liquid if things change. A year of paying your mortgage while things stabilize with life/work/baby would be my recommendation.

I'm with Hadilly on this. I would hold off until after the baby comes and all are healthly and happy. Also, maybe hold off for a couple of months until your job stabilizes some more. A new baby and a new company merger is enough to deal with right now.

[frugalnacho]

I would keep the money in the bank until the baby is born healthy. Then make your decision. The reason is the very very small chance of health problems with the baby. Once everyone is home, heathy and sleep deprived- then see what you want to do.

The reason for my advise is I had a nephew born full term, but had a hole in his heart. So he spent 2 weeks or so sleeping in NICU. (He looked like a giant compared to the prem-ies he was next to). But holy smokes that place is expensive!!!

Since you will not be able to get the 46k back - think of it was cheap insurance.

Good luck and I hope everything goes great!

My max out of pocket for medical is $6k for the family.  Worst case is something is terribly wrong and we max out for 2017 and 2018.

[frugalnacho]

......... I feel like my best option (mathematically) is to just pay it off.  I'm very much looking forward to being officially debt and mortgage free.

did you do the math - including the tax break??
here is a calculator
http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx

I know a lot of folks get pleasure from 'debt freedom', but debt can work for you. One more tool to accelerate FI. Just sayin ;)

congratulations on the sale, and good luck!

I won't be able to itemize.  I've barely been able to itemize with owning 2 houses, so I'll for sure be doing standard deduction going forward.  So it's really just a matter of 5.5% guaranteed, or keep it and maybe beat that with investments, or maybe not.  I'd probably let it ride at 4% or lower, but 5.5%?   I think I should take the guaranteed return and enjoy being debt free. 

For those that say keep the mortgage: what is your cut off rate where you'd flip to paying it instead of investing?

[GenXbiker]

I did it with a 6.8% mortgage many years back - paid it off way early while rates were still over 6%.  At 5% in today's market, I would do the same thing.  I wasn't able to deduct mortgage interest, and by paying it off vs. investing, I didn't have to be concerned getting hit with additional taxes on gains/dividends like an investment.

[boarder42]

......... I feel like my best option (mathematically) is to just pay it off.  I'm very much looking forward to being officially debt and mortgage free.

did you do the math - including the tax break??
here is a calculator
http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx

I know a lot of folks get pleasure from 'debt freedom', but debt can work for you. One more tool to accelerate FI. Just sayin ;)

congratulations on the sale, and good luck!

I won't be able to itemize.  I've barely been able to itemize with owning 2 houses, so I'll for sure be doing standard deduction going forward.  So it's really just a matter of 5.5% guaranteed, or keep it and maybe beat that with investments, or maybe not.  I'd probably let it ride at 4% or lower, but 5.5%?   I think I should take the guaranteed return and enjoy being debt free. 

For those that say keep the mortgage: what is your cut off rate where you'd flip to paying it instead of investing?

you're right around it but i'd be looking to figure out a different path to get that money at a lower rate.  ie pay it off then take out a new mortgage against it and pull money out at a 4% or less rate to invest.

[frugalnacho]

......... I feel like my best option (mathematically) is to just pay it off.  I'm very much looking forward to being officially debt and mortgage free.

did you do the math - including the tax break??
here is a calculator
http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx

I know a lot of folks get pleasure from 'debt freedom', but debt can work for you. One more tool to accelerate FI. Just sayin ;)

congratulations on the sale, and good luck!

I won't be able to itemize.  I've barely been able to itemize with owning 2 houses, so I'll for sure be doing standard deduction going forward.  So it's really just a matter of 5.5% guaranteed, or keep it and maybe beat that with investments, or maybe not.  I'd probably let it ride at 4% or lower, but 5.5%?   I think I should take the guaranteed return and enjoy being debt free. 

For those that say keep the mortgage: what is your cut off rate where you'd flip to paying it instead of investing?

you're right around it but i'd be looking to figure out a different path to get that money at a lower rate.  ie pay it off then take out a new mortgage against it and pull money out at a 4% or less rate to invest.

We can't ever take another mortgage or refinance without losing the sweet 0%-no-payments-ever-due-second-mortgage that is almost $50k, so we are absolutely stuck with the 5.5% APR until it's paid off.   The benefits of keeping that deal in place (by not taking another mortgage or refinancing) far outweigh any minor benefit I'd get by refinancing the entire thing into a lower APR. 

See post #15 for a more detailed explanation of the 2 mortgages and their stipulations

[Bobberth]

Since you are worried about the safety of your job, how likely are you to find another job in an area where you can still live in that house? If you're facing a possible move, having cash would be better than equity that is locked up until the sale. If you're able to find another job in the area, I like your plan and that you're covering all your bases.

One thing to keep in mind is that if you think you will know more about your job in 6 months is that 6 months of interest on your $46k mortgage is less than $1300. Not end of the world expensive to keep cash a little bit longer until things play out if it makes you feel better.

[SwordGuy]

This doesn't help solve YOUR problem, but how did you get a mortgage that you don't have to pay back or pay interest while you just live in the home?   What kind of mortgage is that and who offers it?

[frugalnacho]

This doesn't help solve YOUR problem, but how did you get a mortgage that you don't have to pay back or pay interest while you just live in the home?   What kind of mortgage is that and who offers it?

My wife bought it before we were together during the financial crisis.  The county was offering it as an incentive to low income home buyers to get people to purchase and live in certain communities. They basically took on half the purchase price of the home, and the other half was your responsibility to get a conventional mortgage.  I believe she also got the $8k federal first time home buyers credit.  The market was so bad they were almost giving homes away.  It's really quite absurd, but they got her to purchase a home and she's been paying over $3k/yr in property taxes ever since.  She needed the assistance to be able to purchase a home at that time, but since I moved in and we became mustachians her situation has changed so drastically that we don't need the assistance, but we certainly aren't going to pay it back until required to by the terms of the contract.

[coppertop]

It's been awhile since I read MMM's blog posts, but I do believe that his philosophy is to not have a mortgage.  I am old-fashioned and believe in having no debts, period.  The fact of having to pay property taxes is bad enough; but I will not voluntarily subject myself to being in debt to any person or institution. 

All cars are paid for in cash; credit cards are paid in full monthly.  No mortgage or other consumer debt.  Perhaps unfashionable, but I sleep better at night. 

[RWD]

It's been awhile since I read MMM's blog posts, but I do believe that his philosophy is to not have a mortgage.

He seems to be on both sides of the fence.
https://www.mrmoneymustache.com/2012/04/25/unlocking-your-home-equity-for-profitable-investments/
https://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/

[boarder42]

It's been awhile since I read MMM's blog posts, but I do believe that his philosophy is to not have a mortgage.  I am old-fashioned and believe in having no debts, period.  The fact of having to pay property taxes is bad enough; but I will not voluntarily subject myself to being in debt to any person or institution. 

All cars are paid for in cash; credit cards are paid in full monthly.  No mortgage or other consumer debt.  Perhaps unfashionable, but I sleep better at night.

MMM isnt really on a side and the timing of his original mortgages was during a very different interest rate climate than we have now.  A MORTGAGE ISNT CONSUMER DEBT.  do not lump them together.  debt can be good.  i finance everything i can at today's rates after negotiating the price independent of financing.. you're leaving thousands to 10s of thousands of dollars on the table and in the case of a mortgage it can get to 100s of thousands lost opportunity by paying it off.  and in many cases leads to a riskier financial situation if paid down slowly over time, and in more cases than not leads to a riskier FIRE

[frugalnacho]

It's been awhile since I read MMM's blog posts, but I do believe that his philosophy is to not have a mortgage.  I am old-fashioned and believe in having no debts, period.  The fact of having to pay property taxes is bad enough; but I will not voluntarily subject myself to being in debt to any person or institution. 

All cars are paid for in cash; credit cards are paid in full monthly.  No mortgage or other consumer debt.  Perhaps unfashionable, but I sleep better at night.

MMM isnt really on a side and the timing of his original mortgages was during a very different interest rate climate than we have now.  A MORTGAGE ISNT CONSUMER DEBT.  do not lump them together.  debt can be good.  i finance everything i can at today's rates after negotiating the price independent of financing.. you're leaving thousands to 10s of thousands of dollars on the table and in the case of a mortgage it can get to 100s of thousands lost opportunity by paying it off.  and in many cases leads to a riskier financial situation if paid down slowly over time, and in more cases than not leads to a riskier FIRE

So what's your cut off APR that would make you pay the mortgage instead of invest?

[boarder42]

It's been awhile since I read MMM's blog posts, but I do believe that his philosophy is to not have a mortgage.  I am old-fashioned and believe in having no debts, period.  The fact of having to pay property taxes is bad enough; but I will not voluntarily subject myself to being in debt to any person or institution. 

All cars are paid for in cash; credit cards are paid in full monthly.  No mortgage or other consumer debt.  Perhaps unfashionable, but I sleep better at night.

MMM isnt really on a side and the timing of his original mortgages was during a very different interest rate climate than we have now.  A MORTGAGE ISNT CONSUMER DEBT.  do not lump them together.  debt can be good.  i finance everything i can at today's rates after negotiating the price independent of financing.. you're leaving thousands to 10s of thousands of dollars on the table and in the case of a mortgage it can get to 100s of thousands lost opportunity by paying it off.  and in many cases leads to a riskier financial situation if paid down slowly over time, and in more cases than not leads to a riskier FIRE

So what's your cut off APR that would make you pay the mortgage instead of invest?

its a dynamically moving target that depends somewhat on the ten year treasury yield ... i'd probably lean closer to a real rate around where you are right now over 6 i'm probably going to pay it down.  and thats a real 6% interest rate so in my case i have taxes at 25 and 6 for fed and state so i'd have to have an interst over 8.7% personally to pay it down.  Like mdm said you're in a doesnt really matter spot.

[Dicey]

Just saw this thread. I don't have time right now to do more than skim the comments.

Hope you're sitting down, because Dicey says, "PAY THAT SUCKER OFF!"

Then go enjoy your new baby. Mazel Tov!

[MrsPete]

I know everyone on MMM is all about keeping mortgages and investing the difference,

No, not everyone feels this way.  Buying a modest house and paying it off quickly was one of the best choices I've made.  I don't care if the investment math says I could've made more long-term -- that's hypothetical math, based upon (reasonable) assumptions, and assumptions don't always come true.  I love knowing that every brick is mine, mine, mine.  A part of this is based upon the fact that i was a poor kid and was worried more than once about "making rent"; nothing is as good as knowing that my home is mine, mine, mine.

so are you using that same "hypothetical" math to retire on ...

and the govt can take your house any time they want they've done it before. its unlikely but just about as unlikely as owning a home saving you from "hypothetical" math.

Your best guess about how your investments will increase are "hypothetical" because the market is not a sure thing ... sure, you're likely to win, but that's not a sure thing.  I'm sure you knew some people who were nearing retirement who were hurt pretty badly by the market around 2008-2009.  Had those people had their money invested in a house, they'd still have had the house regardless of the downturn.  Plenty of people have chosen poor investments or have had their investments reduced by fees. 

And again, having grown up with financial insecurity, all the math in the world doesn't matter when it comes to my house.  It's a security thing; if you weren't a child who's gone through your closet picking what you'll take /what you'll be forced to abandon, you may not get it.  If you weren't a child who was terrified of being sent away to live with relatives who could afford to feed you, you may not understand the importance of knowing your house is your own.  If you haven't stuffed cardboard into your shoes because you have holes in the soles, if you haven't split a bottle of antibiotics with your brother, if you haven't been forced to give away your kitten because your family can't feed it ... the list could go on ... you may not understand the security and control that comes with knowing your house is your own. 

To be fair, the government can't just "take your house".  They did take a bit of our farm for a road a decade or so ago, and it was a long, drawn-out process.  They had to go through many steps to make it happen, and they had to pay for it.  We demanded more than their initial offer, and they ended up being force to pay it. 

Before you worry too much about me, know that my paid-for house makes up not quite 5% of my total financial worth.  My total real estate holdings total almost 20%.  It's quite possible to have a paid-for house AND be solidly diversified. 

[frugalnacho]

I was looking forward to being debt free, but we've had a change of circumstances.  My wife was rear ended and our corolla was totaled.  We had full coverage so we got a payout of about $9k.  We went shopping and got her a 2015 Camry for $12k total.  We were planning to pay cash, but the dealership offered us financing @ 3.09%.  Apparently that was the lowest rate regardless of down payment or term length, so we went with $0 down and 72 months. That's a low rate so I think we are going to change plans and keep the $12k car note.  Since we already had enough money to pay off the mortgage, and we just converted $9k car equity into a 3.09% loan I am for sure going to pay off the mortgage.  I hate the idea of keeping debt, especially on a car, but I think I should just invest that money and make the minimum payments.

 

[Dicey]

I was looking forward to being debt free, but we've had a change of circumstances.  My wife was rear ended and our corolla was totaled.  We had full coverage so we got a payout of about $9k.  We went shopping and got her a 2015 Camry for $12k total.  We were planning to pay cash, but the dealership offered us financing @ 3.09%.  Apparently that was the lowest rate regardless of down payment or term length, so we went with $0 down and 72 months. That's a low rate so I think we are going to change plans and keep the $12k car note.  Since we already had enough money to pay off the mortgage, and we just converted $9k car equity into a 3.09% loan I am for sure going to pay off the mortgage.  I hate the idea of keeping debt, especially on a car, but I think I should just invest that money and make the minimum payments.

I think that's a good decision. Hope your wife and baby are okay.

[Hotstreak]

One more thing to do with this money would be to fund a tax deferred college savings plan for your baby.  I don't have children - but I believe you can make a large lump sum contribution under certain circumstances.

[frugalnacho]

The college savings plans don't seem like that great of a deal, especially considering it locks them into using it for school.  We are planning to be FIRE by the time the kid is age 5, so I'm sure by 18 we will be able to help them attend college if that's what they want to do.

I waffled back and forth between paying the mortgage off and just keeping it and investing it, but my wife really wants the peace of mind of a paid off mortgage so I just scheduled the payment today.  We also topped off our IRA's, and put aside about $35k for lots of stuff (taxes, max medical through 2018, IRA contributions through 2018, some planned spending, and enough money to cover all our 0% CC for when the promo rate expires).  We probabl set aside too much, and will invest the excess over the next year as we get a clearer picture of expenses going forward.  We had about $35k left over so I dumped it in our vanguard taxable account.

[boarder42]

The college savings plans don't seem like that great of a deal, especially considering it locks them into using it for school.  We are planning to be FIRE by the time the kid is age 5, so I'm sure by 18 we will be able to help them attend college if that's what they want to do.

I waffled back and forth between paying the mortgage off and just keeping it and investing it, but my wife really wants the peace of mind of a paid off mortgage so I just scheduled the payment today.  We also topped off our IRA's, and put aside about $35k for lots of stuff (taxes, max medical through 2018, IRA contributions through 2018, some planned spending, and enough money to cover all our 0% CC for when the promo rate expires).  We probabl set aside too much, and will invest the excess over the next year as we get a clearer picture of expenses going forward.  We had about $35k left over so I dumped it in our vanguard taxable account.

Agree with you on the college plans. And as strong an advocate as I am for keeping a mortgage your in such a grey area it's likely insignificant

[partgypsy]

If I was in your shoes I'd pay it off. Some considerations: I intend to stay in this town, even if I change jobs, and really like my neighborhood. So even if I went through a job change I would do my darndest to stay. My calculation for you would be different if you knew you likely had to move for a job change.

There is nothing like the peace of mind of a paid-off house.
And congratulations!

[HawkeyeNFO]

CASH IS KING!!!

Don't hand over the king.  Maintain your power over the king.  At least until baby is born and confirmed to be healthy.  You don't want to lose the option to spend money if you need it.

[gggggg]

I was in your shoes, and paid mine off. My interest rate wasn't even as high as yours, and I still did it, and would again in a second. Mathematically it's not usually the best choice, but there's almost no better feeling. I could be let go tomorrow, and almost no f's would be given, because my bills are so low with everything paid for.