### Author Topic: Trying to Calculate Early Mortgage Payoff vs Investing Extra  (Read 2924 times)

#### MikeTheSalesman

• Posts: 11
##### Trying to Calculate Early Mortgage Payoff vs Investing Extra
« on: November 03, 2018, 08:34:28 PM »
So I just found the blog and the forum today after the WSJ article about FIRE.  Perfect timing too, as I recently changed jobs and my wife and I had been digging deep into our budgeting because my former company is asking for \$10K back for tuition reimbursement. (I didn't give my committed 2 years after MBA graduation). Really enjoying reading the blog posts and forums so far!

My plan was originally to try and pay off my mortgage ASAP. I've already paid some small-medium extra chunks with past bonus checks. We originally put 5% down and we currently have about 40% equity or so based on extra payments and appreciation - which also allowed us to dump PMI.  I want to make sure I'm thinking about my math correctly here, because I'm now thinking I may be better off investing the extra money and only making the scheduled P&I payment.

(Disclaimer: I've read through a few early payoff debates, so I'm not trying to get a pros/cons list.  Just want to make sure I'm thinking about my math correctly here.  I already max out my allowed 401K contributions, company 401K match, my Roth IRA and my wife's Roth IRA)

So I currently have a 3.75% loan, owe \$279K more in principal, and my monthly P&I payment is \$1,407.  As scheduled, I'd pay it off 23.5 years from now.  If I want to pay it off in 10 years, I'd pay \$1,304 extra per month. This would save \$88,700 in interest over the life of the loan.  However, if I invested this \$1,304 monthly over the next 120 months, it would gain \$49,773 if I assumed 6% average annual returns.  After the 10 years my investment would have a total cash value of \$206,253, and if I use the same 6% annual average return over the next 13.5 years and just let that money sit, I'd theoretically end up with \$439,922 which is approx a \$284K gain from that \$1,304 monthly I invested in years 1-10 instead of paying extra on the loan. (\$241K if I apply a 15% LT Capital Gains tax.)

Am I thinking about this math soundly?  Am I leaving any important factors out just front a quantitative perspective?  Like I mentioned, not necessarily looking to drum up a philosophical debate on paying off early vs not, I just want to make sure there isn't a glaring error in how I'm approaching these numbers, (which there very well could be - I'm not a finance guy. :-) )

#### RWD

• Magnum Stache
• Posts: 2704
• Location: Mississippi
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #1 on: November 03, 2018, 09:04:16 PM »
I don't see any obvious flaws in your math, though I didn't double check all your numbers. Your scenario to 10 years looks correct. Though if you want to go out to the full 23.5 years you should factor in investing the payments that would have gone towards the mortgage (freed up cash flow from paying it off) and also continue investing the extra \$1,304 per month on both sides.

For these sorts of comparison I like to plot out each path in a spreadsheet then calculate the final net value of each approach for a given time frame (invested assets - remaining loan balance). Just make sure you're putting the same amount of dollars into each side for the whole time period.

#### MikeTheSalesman

• Posts: 11
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #2 on: November 03, 2018, 10:55:48 PM »
Thanks for the advice!  I extended both scenarios out to 23.5 years and 33.5 years.  For the early payoff scenario, I calculated investing the entire mortgage amount plus the 1304 after the mortgage was paid off.  Through 23.5 years the investing scenario was about \$67K stronger, even after including the difference interest. Through 33.5 years (10 years after the natural payoff) the investing scenario was about \$138K stronger.

I didn't take the extra 13.5 years of being able to write off mortgage interest on my taxes which would have made the gap even wider.  Certainly seems like at this interest rate that investing the extra money instead of putting it towards the mortgage is the better option.  Also considering splitting the difference and putting in \$500 extra per month towards the mortgage and investing \$500-\$700 so I can hedge between both.

#### PizzaSteve

• Pencil Stache
• Posts: 503
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #3 on: November 04, 2018, 01:02:00 AM »
I would recommend a few scenarios based on sequence of returns from various eras, to create bands of results.

For example, as a simple exercise, try your spreadsheet with markets return 2%, and markets return 10% (or even better, use actual numbers from a series of historic periods to create a chart with "performance bands" of possible results).  There are threads where folks have done this, so you can see "break even points" for what markets need to do to beat various loan rates. Once you are comfortable with the idea that I can make X, Y or lose Z, depending on sequence of returns variations, then make the decision.  You will get only one result, but your actual one may be better, average or worse than average.  Once you are comfortable with that concept, go for it.

Too many discussions assume average returns and just multiply a higher rate than their cost of capital ( times number of years) to show a win only analysis, since they assume a very long time period will average out at 7% or some assumed number, but the markets dont always work like a CD rate of return. The risk is often worth it, but should be taken knowing it is a risk.
« Last Edit: November 04, 2018, 01:06:55 AM by PizzaSteve »

#### MDM

• Walrus Stache
• Posts: 8843
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #4 on: November 04, 2018, 01:13:50 AM »
Start by ensuring apples vs. apples: if you hold bonds, compare your mortgage vs. bonds.  If you don't hold bonds, then go ahead with mortgage vs. stocks.

The math boils down to something very simple: put your money toward whichever use, mortgage payment or the applicable investment, you believe has the higher after-tax return.

If a spreadsheet shows otherwise, there is something wrong with the spreadsheet.

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #5 on: November 04, 2018, 04:28:44 AM »
Also considering splitting the difference and putting in \$500 extra per month towards the mortgage and investing \$500-\$700 so I can hedge between both.

How partially paying off your mortgage a reasonable "hedge"?

If you need a larger emergency fund (or an index fund held outside a retirement vehicle) to sleep better - sure. More equity in a house with a mortgage doesn't give you a lot of options other than a HELOC, which may  be difficult to get in a deep recession/market crash.

• Handlebar Stache
• Posts: 1064
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #6 on: November 04, 2018, 06:03:57 AM »
Also considering splitting the difference and putting in \$500 extra per month towards the mortgage and investing \$500-\$700 so I can hedge between both.

How partially paying off your mortgage a reasonable "hedge"?

If you need a larger emergency fund (or an index fund held outside a retirement vehicle) to sleep better - sure. More equity in a house with a mortgage doesn't give you a lot of options other than a HELOC, which may  be difficult to get in a deep recession/market crash.

+1

Making extra payments is the riskiest choice you can make. If you wish to pay off the mortgage early, do so all at one time when you’re ready. Home equity is difficult to access during tough economic times and the lien holder will not care that you’ve paid off a portion of the loan early if you have a personal financial catastrophe and cannot make your payments.

#### RWD

• Magnum Stache
• Posts: 2704
• Location: Mississippi
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #7 on: November 04, 2018, 06:27:05 AM »
(or even better, use actual numbers from a series of historic periods to create a chart with "performance bands" of possible results)
There is a good calculator for historical returns of the SP500 here: https://dqydj.com/sp-500-historical-return-calculator/. Just be sure to uncheck the "Adjust for Inflation" box if you're comparing to your mortgage interest rate.

#### MikeTheSalesman

• Posts: 11
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #8 on: November 04, 2018, 07:08:32 AM »
Also considering splitting the difference and putting in \$500 extra per month towards the mortgage and investing \$500-\$700 so I can hedge between both.

How partially paying off your mortgage a reasonable "hedge"?

If you need a larger emergency fund (or an index fund held outside a retirement vehicle) to sleep better - sure. More equity in a house with a mortgage doesn't give you a lot of options other than a HELOC, which may  be difficult to get in a deep recession/market crash.

Thanks - I guess I was thinking of it as a "hedge" in the sense that it's guaranteed interest savings that I won't pay back to the back.  My thinking is that interest not paid is just as good as interest earned.

#### SwordGuy

• Magnum Stache
• Posts: 4595
• Location: Fayetteville, NC
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #9 on: November 04, 2018, 08:09:22 AM »
Also considering splitting the difference and putting in \$500 extra per month towards the mortgage and investing \$500-\$700 so I can hedge between both.

How partially paying off your mortgage a reasonable "hedge"?

If you need a larger emergency fund (or an index fund held outside a retirement vehicle) to sleep better - sure. More equity in a house with a mortgage doesn't give you a lot of options other than a HELOC, which may  be difficult to get in a deep recession/market crash.

Thanks - I guess I was thinking of it as a "hedge" in the sense that it's guaranteed interest savings that I won't pay back to the back.  My thinking is that interest not paid is just as good as interest earned.

Interest not paid is not quite as good as MORE interest earned. Fixed that for you. :)

PARTIALLY pre-paying the mortgage just makes it easier for the bank to sell your home in foreclosure without THEM losing money.

#### Boofinator

• Bristles
• Posts: 344
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #10 on: November 04, 2018, 08:21:10 AM »
I don't see it mentioned: How much liquidity do you have? If you lost your job, would you be able to pay the bills (including the mortgage) for a long period of time if necessary? If you don't have a comfortable amount of liquidity, and given your mortgage rate, you reduce risk and increase expected returns by investing in equity. It is a no-brainer, in my opinion. Now if you are getting close to FIRE (meaning you have a whole lot of equity), the expected returns are still higher for equity, but the risk reverses, and it becomes riskier to hold the mortgage.

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #11 on: November 04, 2018, 08:29:22 AM »
Also considering splitting the difference and putting in \$500 extra per month towards the mortgage and investing \$500-\$700 so I can hedge between both.

How partially paying off your mortgage a reasonable "hedge"?

If you need a larger emergency fund (or an index fund held outside a retirement vehicle) to sleep better - sure. More equity in a house with a mortgage doesn't give you a lot of options other than a HELOC, which may  be difficult to get in a deep recession/market crash.

Thanks - I guess I was thinking of it as a "hedge" in the sense that it's guaranteed interest savings that I won't pay back to the back.  My thinking is that interest not paid is just as good as interest earned.

Interest not paid is not quite as good as MORE interest earned. Fixed that for you. :)

PARTIALLY pre-paying the mortgage just makes it easier for the bank to sell your home in foreclosure without THEM losing money.
Stock funds do not pay "more interest."  If you think this, you need to hit the books again and read up on stock returns over time.

He is thinking correctly and I get super annoyed when people parrot the old B52 missinformation that paying down a mortgage is the "riskiest thing to do" because of some wild scenario where mustashians with huge stock portfolios and emergency funds suddenly run out of money, but cant sell any investments to live off of.    It is less risky to pay down a mortgage than to leverage debt to invest more.  It may pay better to hold stocks, but taking market risk is a risk.  Holding risk is the very reason you earn more in the long term with stock.  This is so basic.  Why this site loves to pervert established rules of finamce by attempting to redefine risk in this odd way, I just dont get.  It is a cult like response by those who chose to use leverage `on faith in markets' I expect.

Ah, yes, PizzaSteve still trying to fight with a poster who isn't on the site anymore.

You still confuse volatility risk with overall risk (inflation risk, etc)

#### Boofinator

• Bristles
• Posts: 344
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #12 on: November 04, 2018, 08:40:53 AM »
Also considering splitting the difference and putting in \$500 extra per month towards the mortgage and investing \$500-\$700 so I can hedge between both.

How partially paying off your mortgage a reasonable "hedge"?

If you need a larger emergency fund (or an index fund held outside a retirement vehicle) to sleep better - sure. More equity in a house with a mortgage doesn't give you a lot of options other than a HELOC, which may  be difficult to get in a deep recession/market crash.

Thanks - I guess I was thinking of it as a "hedge" in the sense that it's guaranteed interest savings that I won't pay back to the back.  My thinking is that interest not paid is just as good as interest earned.

Interest not paid is not quite as good as MORE interest earned. Fixed that for you. :)

PARTIALLY pre-paying the mortgage just makes it easier for the bank to sell your home in foreclosure without THEM losing money.
Stock funds do not pay "more interest."  If you think this, you need to hit the books again and read up on stock returns over time.

He is thinking correctly and I get super annoyed when people parrot the old B52 missinformation that paying down a mortgage is the "riskiest thing to do" because of some wild scenario where mustashians with huge stock portfolios and emergency funds suddenly run out of money, but cant sell any investments to live off of.    It is less risky to pay down a mortgage than to leverage debt to invest more.  It may pay better to hold stocks, but taking market risk is a risk.  Holding risk is the very reason you earn more in the long term with stock.  This is so basic.  Why this site loves to pervert established rules of finamce by attempting to redefine risk in this odd way, I just dont get.  It is a cult like response by those who chose to use leverage `on faith in markets' I expect.

Ah, yes, PizzaSteve still trying to fight with a poster who isn't on the site anymore.

You still confuse volatility risk with overall risk (inflation risk, etc)

He isn't fighting B42, he's fighting the brainwashed masses repeating B42's "wisdom". Don't get me wrong, B42 had some valuable insights, but the lingering stench of his dogmatic approach has pushed this website to the cult of equities over basic common sense. Stocks are riskier in many cases than a mortgage, even at current interest rates, but it is easier to just parrot the broken record.

#### PizzaSteve

• Pencil Stache
• Posts: 503
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #13 on: November 04, 2018, 08:52:49 AM »
Ive got to stop trying to correct the odd, non traditional ways of looking at risk, capital and returns on this site.  My 30+ years in corporate finance and business degrees dont mean much to enthusiastic kids who have never seen a bear market during their lifetime, but believe in leveraged investing with all their hearts.  Note:  I am not confusing definitions of risk, I am sticking to established ways to perform a financial analysis to avoid confusing apples and oranges comparisons of returns, as any good analysis should.  In fact, corporations use risk adjustment factors when comparing investment alternatives, but these methods are probably a bit advanced for this site. A risk premium, such as stocks demand, is a well understood phenomenon.  Again, calling leveraged stocks less risky than a guaranteed return hugely perverts established definitions of risk that professionals use. It is like calling white darker than black, because, you know black is the new white.

I pray it works out for them because I am set for life, and have no real skin in the game (could skate through a long bear market fine, and an extended bull just means I donate more to charity).  Folks dont respect experience much here, which is fine.  My 40+ years of mustacian living work fine for me with or without forum posting (knew what to do and how to do it long before any blogs existed, bought vanguard funds in mid 80s).

Good luck OP.
« Last Edit: November 04, 2018, 09:04:31 AM by PizzaSteve »

#### EnjoyIt

• Handlebar Stache
• Posts: 1245
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #14 on: November 04, 2018, 11:16:31 AM »
Ive got to stop trying to correct the odd, non traditional ways of looking at risk, capital and returns on this site.  My 30+ years in corporate finance and business degrees dont mean much to enthusiastic kids who have never seen a bear market during their lifetime, but believe in leveraged investing with all their hearts.  Note:  I am not confusing definitions of risk, I am sticking to established ways to perform a financial analysis to avoid confusing apples and oranges comparisons of returns, as any good analysis should.  In fact, corporations use risk adjustment factors when comparing investment alternatives, but these methods are probably a bit advanced for this site. A risk premium, such as stocks demand, is a well understood phenomenon.  Again, calling leveraged stocks less risky than a guaranteed return hugely perverts established definitions of risk that professionals use. It is like calling white darker than black, because, you know black is the new white.

I pray it works out for them because I am set for life, and have no real skin in the game (could skate through a long bear market fine, and an extended bull just means I donate more to charity).  Folks dont respect experience much here, which is fine.  My 40+ years of mustacian living work fine for me with or without forum posting (knew what to do and how to do it long before any blogs existed, bought vanguard funds in mid 80s).

Good luck OP.

I am curious what this forum will look like when the next recession hits. I am positive most, not all of those brave high equity position souls will be shitting in their pants. A good exercise for anyone is to go to bogleheads and read some of those old posts. There was some serious fear back then. And this if from people who should know better. The reality is that when everyone around you is talking doom and gloom it starts to become very difficult to stay the course despite the fear mongering.

Personally I do not believe there is a decrease in risk by prepaying a mortgage. The decrease only happens once you make that final payment and not a day sooner.

#### EnjoyIt

• Handlebar Stache
• Posts: 1245
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #15 on: November 04, 2018, 11:19:27 AM »
Also considering splitting the difference and putting in \$500 extra per month towards the mortgage and investing \$500-\$700 so I can hedge between both.

How partially paying off your mortgage a reasonable "hedge"?

If you need a larger emergency fund (or an index fund held outside a retirement vehicle) to sleep better - sure. More equity in a house with a mortgage doesn't give you a lot of options other than a HELOC, which may  be difficult to get in a deep recession/market crash.

Thanks - I guess I was thinking of it as a "hedge" in the sense that it's guaranteed interest savings that I won't pay back to the back.  My thinking is that interest not paid is just as good as interest earned.

Interest not paid is not quite as good as MORE interest earned. Fixed that for you. :)

PARTIALLY pre-paying the mortgage just makes it easier for the bank to sell your home in foreclosure without THEM losing money.
Stock funds do not pay "more interest."  If you think this, you need to hit the books again and read up on stock returns over time.

He is thinking correctly and I get super annoyed when people parrot the old B52 missinformation that paying down a mortgage is the "riskiest thing to do" because of some wild scenario where mustashians with huge stock portfolios and emergency funds suddenly run out of money, but cant sell any investments to live off of.    It is less risky to pay down a mortgage than to leverage debt to invest more.  It may pay better to hold stocks, but taking market risk is a risk.  Holding risk is the very reason you earn more in the long term with stock.  This is so basic.  Why this site loves to pervert established rules of finamce by attempting to redefine risk in this odd way, I just dont get.  It is a cult like response by those who chose to use leverage `on faith in markets' I expect.

Ah, yes, PizzaSteve still trying to fight with a poster who isn't on the site anymore.

You still confuse volatility risk with overall risk (inflation risk, etc)

Did b42 leave? What happened?

#### RWD

• Magnum Stache
• Posts: 2704
• Location: Mississippi
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #16 on: November 04, 2018, 11:23:27 AM »

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #17 on: November 04, 2018, 11:27:11 AM »
I am curious what this forum will look like when the next recession hits. I am positive most, not all of those brave high equity position souls will be shitting in their pants. A good exercise for anyone is to go to bogleheads and read some of those old posts. There was some serious fear back then. And this if from people who should know better. The reality is that when everyone around you is talking doom and gloom it starts to become very difficult to stay the course despite the fear mongering.

Nah, I'll just keep my 100% equity position. Been through it before more than once at 100% equities, will go through it again.

Such fearmongering. Or is is shit-mongering? Shit-posting?

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #18 on: November 04, 2018, 11:31:08 AM »
Ive got to stop trying to correct the odd, non traditional ways of looking at risk, capital and returns on this site.  My 30+ years in corporate finance and business degrees dont mean much to enthusiastic kids who have never seen a bear market during their lifetime, but believe in leveraged investing with all their hearts.  Note:  I am not confusing definitions of risk, I am sticking to established ways to perform a financial analysis to avoid confusing apples and oranges comparisons of returns, as any good analysis should.  In fact, corporations use risk adjustment factors when comparing investment alternatives, but these methods are probably a bit advanced for this site. A risk premium, such as stocks demand, is a well understood phenomenon.  Again, calling leveraged stocks less risky than a guaranteed return hugely perverts established definitions of risk that professionals use. It is like calling white darker than black, because, you know black is the new white.

Well, I guess none of your denigration of other positions applies to me. As I just posted - been through plenty of bear markets and your "black is white" analogy is just pointless.

Again, your definition of risk is overly narrow for the context of this site. Those who pay down a (fixed, reasonable rate, 20+ year remaining duration) mortgage faster trade lowered volatility risk against a higher risk of delayed FIRE.

#### maizeman

• Magnum Stache
• Posts: 3190
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #19 on: November 04, 2018, 11:37:47 AM »
However, if I invested this \$1,304 monthly over the next 120 months, it would gain \$49,773 if I assumed 6% average annual returns.  After the 10 years my investment would have a total cash value of \$206,253, and if I use the same 6% annual average return over the next 13.5 years and just let that money sit, I'd theoretically end up with \$439,922 which is approx a \$284K gain from that \$1,304 monthly I invested in years 1-10 instead of paying extra on the loan. (\$241K if I apply a 15% LT Capital Gains tax.)

Am I thinking about this math soundly?  Am I leaving any important factors out just front a quantitative perspective?

The only point I'd add is to ask what you used to derive the 6% annual average return?

If you're assuming you'd be investing in the stock market, 6-7% gets thrown around as the long term expected return, but that is after correcting for inflation. For most purposes it's easier to just correct everything for inflation and then just not worry about it.

However, since the cost of your mortgage payments won't increase with inflation, the CAGR of stock market return without correcting for inflation might be more appropriate for your comparison calculations (~9%/year).

However, if you just picked 6% to be a bit more conservative, nothing wrong with that.

#### maizeman

• Magnum Stache
• Posts: 3190
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #20 on: November 04, 2018, 11:49:42 AM »
Again, your definition of risk is overly narrow for the context of this site. Those who pay down a (fixed, reasonable rate, 20+ year remaining duration) mortgage faster trade lowered volatility risk against a higher risk of delayed FIRE.

Yup, this is the key distinction to make. Risk and volatility are quite similar when you're working at an investment bank or hedge fund where a higher return means you keep your job and make a nice bonus and a lower job means all your investors pull their funds over to other banks that made different bets. In that context, there is no such thing as having enough money, more money is always better and less money is always worse.

In the context of FIRE the goal is precisely to have enough money to meet our needs, with additional money beyond that point not being nearly as valuable. For a person contemplating early retirement, a low volatility investment mix which usually doesn't provide enough return to keep up with both spending needs and inflation 50% of the time can be much riskier than a high volatility strategy which provides more money than you need for the rest of your life 95% of the time.

#### LetItGrow

• Posts: 17
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #21 on: November 04, 2018, 12:40:11 PM »
I am curious what this forum will look like when the next recession hits. I am positive most, not all of those brave high equity position souls will be shitting in their pants. A good exercise for anyone is to go to bogleheads and read some of those old posts. There was some serious fear back then. And this if from people who should know better. The reality is that when everyone around you is talking doom and gloom it starts to become very difficult to stay the course despite the fear mongering.

Nah, I'll just keep my 100% equity position. Been through it before more than once at 100% equities, will go through it again.

Such fearmongering. Or is is shit-mongering? Shit-posting?

I think idea of spending some time reading those old threads could be useful. I am also heavily weighted equities, same as I have been since around 95, but seeing how others reacted should at least be interesting. Especially if you know some of the people and how they are in the real good times.

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #22 on: November 04, 2018, 12:45:50 PM »
I am curious what this forum will look like when the next recession hits. I am positive most, not all of those brave high equity position souls will be shitting in their pants. A good exercise for anyone is to go to bogleheads and read some of those old posts. There was some serious fear back then. And this if from people who should know better. The reality is that when everyone around you is talking doom and gloom it starts to become very difficult to stay the course despite the fear mongering.

Nah, I'll just keep my 100% equity position. Been through it before more than once at 100% equities, will go through it again.

Such fearmongering. Or is is shit-mongering? Shit-posting?

I think idea of spending some time reading those old threads could be useful. I am also heavily weighted equities, same as I have been since around 95, but seeing how others reacted should at least be interesting. Especially if you know some of the people and how they are in the real good times.

Oh, sure - well worth reading, especially for those who have gotten seriously into the market in the past 10 years. Lots of people here have never been tested by a real equities market drop.

My last paragraph was in reference to the "brave high equity position souls will be shitting in their pants" hyperbole.

#### LoanShark

• Posts: 21
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #23 on: November 04, 2018, 04:07:50 PM »
Totally a philosophical question in my mind. For me, the opportunity cost is worth the peace of mind to know I don’t owe anyone any money...

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #24 on: November 04, 2018, 05:24:10 PM »
Totally a philosophical question in my mind. For me, the opportunity cost is worth the peace of mind to know I don’t owe anyone any money...

Sure, I get that.

I have an awfully big property tax bill every year anyway, whether it's paid off or not.

#### PizzaSteve

• Pencil Stache
• Posts: 503
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #25 on: November 04, 2018, 05:46:03 PM »
Again, your definition of risk is overly narrow for the context of this site. Those who pay down a (fixed, reasonable rate, 20+ year remaining duration) mortgage faster trade lowered volatility risk against a higher risk of delayed FIRE.

Yup, this is the key distinction to make. Risk and volatility are quite similar when you're working at an investment bank or hedge fund where a higher return means you keep your job and make a nice bonus and a lower job means all your investors pull their funds over to other banks that made different bets. In that context, there is no such thing as having enough money, more money is always better and less money is always worse.

In the context of FIRE the goal is precisely to have enough money to meet our needs, with additional money beyond that point not being nearly as valuable. For a person contemplating early retirement, a low volatility investment mix which usually doesn't provide enough return to keep up with both spending needs and inflation 50% of the time can be much riskier than a high volatility strategy which provides more money than you need for the rest of your life 95% of the time.
I agree with this.  I dont agree with posts that try to put positions on me I have never advocated.

Leverage is great if your goal is optimization for accumulation as quickly as possible.  Ive never said it isnt.

Less leverage is great if you have less need to optimize returns and wish for a more certain outcome.

This is the only point I have advocated.

Where I object is when posters try to use historic back testing of market returns to suggest it is less risky long term than a fixed rate of return asset class.  This type of statement is dangerous because it warps estimates the true risk of equities by overrelying on a very limited data set.  Information about investments and the nature of value and markets goes back thousands of years.  Modern stock markets havent seen crashes, like Roman grain or Chinese Tea prices, over time, but we have histories to study.

Again, I am not advocating not taking risk, not trying to dampen enthusiasm for the best asset class we have.  We just should try to define our variables properly and understand we are planning against unknowns in one case and knowns in another.

An example.  Assume your are super lucky and have a 500k salary and a 50k spending lifestyle.  Investing in a poor performing asset class is not at all risky to your fire plans.  You have so much money coming in, it really doesnt matter if you take a guaranteed 3% or a riskier 6%.  If I were asked, I would advise such a person to focus on saving up to a 2% withdraw rate, invest how they are comfortable (in something not junk) work 1 extra year and call it a career.  It doesnt matter if they leverage their 200k mortgage.  This exampke is meant to illustrate that saying 'holding a mortgage always reduces 'risk' of an unsuccessful FIRE,' is just not always useful or accurate.  Sure, it might help in some scenarios to shorten time to hit a wealth target, assuming that is the goal.

What is established and useful is comparing the financial risks of the actual financial asset classes available, like real estate, CDs, bonds, etc.  Stocks have a non 0 chance of not returning what you need, so they are 'riskier.', financially speaking, just as are rental properties.  Are they worth it, sure....This is not volatility, as has been implied above.  It is the risk premium stocks earn.  More likely one can lose money, hence investors demand returns.  The risk premium is not volatility, so please stop saying I am confused or just talking sequence of returns.

I recommend that everyone fully read a prospectus of a company stock, mutual fund and a bond.  I have and it is a useful exercise.

Anyway, I am not trying to criticize anyone, just to create a safe space for folks to feel ok about a common sense decision about whether to hold debt or not hold debt, in the context of stock market risks, with both decisions being ok for FIRE, assuming one understands the implications.

PS.  I respect everyone here who is posting.  The desire to help others is admirable.  No offences meant or taken.
« Last Edit: November 04, 2018, 05:58:16 PM by PizzaSteve »

#### MikeTheSalesman

• Posts: 11
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #26 on: November 04, 2018, 06:12:30 PM »
I certainly appreciate the help everyone!! Certainly has given me a lot to think about!  Glad to be a part of the community!

#### EnjoyIt

• Handlebar Stache
• Posts: 1245
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #27 on: November 04, 2018, 08:48:35 PM »
I am curious what this forum will look like when the next recession hits. I am positive most, not all of those brave high equity position souls will be shitting in their pants. A good exercise for anyone is to go to bogleheads and read some of those old posts. There was some serious fear back then. And this if from people who should know better. The reality is that when everyone around you is talking doom and gloom it starts to become very difficult to stay the course despite the fear mongering.

Nah, I'll just keep my 100% equity position. Been through it before more than once at 100% equities, will go through it again.

Such fearmongering. Or is is shit-mongering? Shit-posting?

That is why I said “most, and not all” in my position above.

I was 100% equities in 2001 with a low 5 figure portfolio. I was 100% equities in 2009 with a low 6 figure portfolio. Historically I was ok with 100% equities and very likely would be ok for the next recession. Now that I am semi-retired I am at 70/30. I don’t want to and don’t need to take on the additional risk.  I know more than likely equities will rebound eventually. I don’t want to take the risk of me panicking and working more than I want to. I also want to decrease my risk if markets staying depressed much longer than recent averages.

#### Telecaster

• Handlebar Stache
• Posts: 1423
• Location: Seattle, WA
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #28 on: November 04, 2018, 11:09:59 PM »

I am curious what this forum will look like when the next recession hits. I am positive most, not all of those brave high equity position souls will be shitting in their pants. A good exercise for anyone is to go to bogleheads and read some of those old posts. There was some serious fear back then. And this if from people who should know better. The reality is that when everyone around you is talking doom and gloom it starts to become very difficult to stay the course despite the fear mongering.

Possibly.  I'm a hair older than most here, I believe.  I've been through the Russian currency crisis (remember that one? Almost no one does.  It was huge at the time), the Asian Contagion (same thing), dot.com bust, and the housing bubble.

My first observation is that if you have the balls and guts to ignore the fear mongering you will become wealthy before you ever thought you would.

My second observation is that  a 4%-ish 30-year mortgage is literally the deal of a life time.  As in, you only get deals like that once in a life time.  You should get as many of those as is comfortable, safe, and prudent, and never pay them off.

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #29 on: November 05, 2018, 03:59:50 AM »
What is established and useful is comparing the financial risks of the actual financial asset classes available, like real estate, CDs, bonds, etc.  Stocks have a non 0 chance of not returning what you need, so they are 'riskier.', financially speaking, just as are rental properties.  Are they worth it, sure....This is not volatility, as has been implied above.  It is the risk premium stocks earn.  More likely one can lose money, hence investors demand returns.  The risk premium is not volatility, so please stop saying I am confused or just talking sequence of returns.

Sure, you reduce volatility* risk in exchange for the guarantee that you will work longer.

Absent people in your (extremely rare) example of earning \$500k and living on \$50k, for the vast majority of people investing primarily in things like CDs and bonds adds quite a few years to the first plausible FI date.

*Volatility: Wider value swings. Common for stocks and real estate.

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #30 on: November 05, 2018, 04:01:24 AM »

That is why I said “most, and not all” in my position above.

My apologies. I misread it as the more common expression "most, if not all"

#### PizzaSteve

• Pencil Stache
• Posts: 503
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #31 on: November 05, 2018, 08:48:49 AM »
What is established and useful is comparing the financial risks of the actual financial asset classes available, like real estate, CDs, bonds, etc.  Stocks have a non 0 chance of not returning what you need, so they are 'riskier.', financially speaking, just as are rental properties.  Are they worth it, sure....This is not volatility, as has been implied above.  It is the risk premium stocks earn.  More likely one can lose money, hence investors demand returns.  The risk premium is not volatility, so please stop saying I am confused or just talking sequence of returns.

Sure, you reduce volatility* risk in exchange for the guarantee that you will work longer.

Absent people in your (extremely rare) example of earning \$500k and living on \$50k, for the vast majority of people investing primarily in things like CDs and bonds adds quite a few years to the first plausible FI date.

*Volatility: Wider value swings. Common for stocks and real estate.
I dont want to argue, so I will try to make this the last post in this thread.  Again, the chance that you may lose money is not volatility.  I think this is the fundamental disconnect.

You seem to believe there is zero chance that a portfolio of Stocks is worth less 30 years from now than a stream of dollars created by avoiding debt payments. I do not agree with this belief and since I think it is wrong, I respond.*

*  My position is largely based on studying the fundamentals of economics, finance and markets as taught in business school and from working with large companies on strategies and plans around the world.  I've seen deep inside corporate income statements and balance sheets.  While I am optimistic about the future and the worlds business leaders are not fools, I also know how fragile the world's economy can be, so I hedge a bit.  I also lived in Japan in 1992, at a time when most smartJapanese investors believed in their markets as much as you believe in the US market.

In terms of practical advice, I think we are probably on the same page.  I just dont think it is wise to over sell the long term likelihood stocks perform.  I would rather emphasize they are the best option for free capital, but would also advise some diversification of capital and mental energy.  I want FIRE folks to take in stride the unlikely outcome of a long term bear, like Japan had, because they knew it was a possible outcome.  Mentally, I want people prepared, not in shock because they assumed stocks always go up 7% and are crushed if that doesnt happen because their life plan relied upon it.

A final note.  While my example was exaggerated, I do not think that having a high income or having saved successfully to a large stash, before being ready to quit working is an extremely rare phenomenon.  It is not at all uncommon among posts I read on this site.  We live near the tech center of the US and many people earn way more than they need, while still wanting to work ( because they enjoy it).  These people really dont need leverage to win the game.  Yes some people may need to take that chance, but some dont.  Many people on this forum chose to pay the debt off because they have had success investing and saving.  Their stock portfolio is large,  so they are now ready to take some stock risk off the table.  This is because their FIRE failure liklihood now is so low.  This group buys bonds and pays off debt.

We are an example, and if you polled actual retirees on this site as opposed to early accumulators I bet a majority has no debt and owns fixed income. We are not continuing to use leverage into retirement.  Any leverage based extra wealth generated is just excess money.  It is true I could mortgage my house (which has gone up a lot) or sell it, but why?  We want to live in it.  Why would we use leverage when we already have an almost zero chance of income failure (owning real estate, a large 401k, have a pension, SS coming)?   Why would we take on excess risk to earn money we dont need.   Do you advocate we increase consumption?

Once you have surplus wealth, it is obvious there is no need for leverage, unless one is greedy like our current president. If you are in the retirement phase, some reduction in volatility of returns is also helpful, as pointed out below.  Anyway, these are the reasons for my comments and I hope you can understand and respect them, even if we disagree.
« Last Edit: November 05, 2018, 03:20:12 PM by PizzaSteve »

#### Boofinator

• Bristles
• Posts: 344
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #32 on: November 05, 2018, 09:04:40 AM »
What is established and useful is comparing the financial risks of the actual financial asset classes available, like real estate, CDs, bonds, etc.  Stocks have a non 0 chance of not returning what you need, so they are 'riskier.', financially speaking, just as are rental properties.  Are they worth it, sure....This is not volatility, as has been implied above.  It is the risk premium stocks earn.  More likely one can lose money, hence investors demand returns.  The risk premium is not volatility, so please stop saying I am confused or just talking sequence of returns.

Sure, you reduce volatility* risk in exchange for the guarantee that you will work longer.

Absent people in your (extremely rare) example of earning \$500k and living on \$50k, for the vast majority of people investing primarily in things like CDs and bonds adds quite a few years to the first plausible FI date.

*Volatility: Wider value swings. Common for stocks and real estate.
It seems you want to keep arguing, so this will be the last post.  Again, the chance that you may lose money is not volatility.  Imthink this is the fundamental disconnect.  You seem to believe there is zero chance that a portfolio of Stocks is worth less 30 years from now than a stream of dollars created by avoiding debt payments.

I do not agree with this belief.

*  My position is largely based on studying the fundamentals of economics, finance and markets as taught in business school and my 30 year career working with large companies on strategies and plans on how to generate superior returns around the world.  I've seen deep inside the income statements and balance sheets of the worlds largest companies with their CEOs and CFOs.  While I am optimistic about the future, and the worlds business leaders are largely not fools, I also know how fragile the world's economy is.  Ive seen and advised about the governance of these entities and so I hedge a bit.

In terms of practical advice, I think we are probably on the same page.  I just dont think it is wise to over sell the long term likelihood stocks perform.  I woukd rather emphasize they are the best option for free capital, but would also advise some diversification of capital and mental energy.  I want FIRE folks to take in stride the unlikely outcome of a long term bear, like Japan had, because they knew it was a possible outcome.  Mentally, I want people prepared, not in shick because they assumed stocks always go up 7% and are crushed if that doesnt happen because their life plan relied upon it.

The other false assumption, from posters always reminding us this is a FIRE site, is that individuals will be earning money for 30 years during the term of the mortgage to buffer the volatility swings. Once someone enters FIRE, the calculus of the decision changes considerably, and sequence of returns risk pushes the optimal decision considerably toward preservation of capital (and hence paying off the mortgage). The link below is to three plots I made from cFIREsim historical data showing that a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early.

#### maizeman

• Magnum Stache
• Posts: 3190
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #33 on: November 05, 2018, 09:20:47 AM »
The other false assumption, from posters always reminding us this is a FIRE site, is that individuals will be earning money for 30 years during the term of the mortgage to buffer the volatility swings.

Who has (implicitly or explicitly) made that assumption?

Quote
Once someone enters FIRE, the calculus of the decision changes considerably, and sequence of returns risk pushes the optimal decision considerably toward preservation of capital (and hence paying off the mortgage). The link below is to three plots I made from cFIREsim historical data showing that a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early.

Oh come on now. I was really appreciating the new insight you provided about mortgages that are more than half payed down already. But even looking at all three graphs, a 30 year mortgage at the start of FIRE at 4% increases the maximum SWR in all cases rather than decreasing it. That observation, from your own calculations, not mine is not at all consistent with your statement in bold.

#### EnjoyIt

• Handlebar Stache
• Posts: 1245
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #34 on: November 05, 2018, 09:29:05 AM »

I dont want to argue, so I will try to make this the last post in this thread.  Again, the chance that you may lose money is not volatility.  I think this is the fundamental disconnect.

I see the same mistake happen on bogglehads where people confuse volatility with risk.  Sure Volatility has the risk of making an emotional mistake.  But there is also risk of a prolonged recession which can spoil many retiree plans if they relied, neigh expected a market to recover in under 3 years.  There is a chance that those 3 years could turn into 20.  That is some real risk which although low is not insignificant.

#### Boofinator

• Bristles
• Posts: 344
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #35 on: November 05, 2018, 11:21:35 AM »
The other false assumption, from posters always reminding us this is a FIRE site, is that individuals will be earning money for 30 years during the term of the mortgage to buffer the volatility swings.

Who has (implicitly or explicitly) made that assumption?

Quote
Once someone enters FIRE, the calculus of the decision changes considerably, and sequence of returns risk pushes the optimal decision considerably toward preservation of capital (and hence paying off the mortgage). The link below is to three plots I made from cFIREsim historical data showing that a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early.

Oh come on now. I was really appreciating the new insight you provided about mortgages that are more than half payed down already. But even looking at all three graphs, a 30 year mortgage at the start of FIRE at 4% increases the maximum SWR in all cases rather than decreasing it. That observation, from your own calculations, not mine is not at all consistent with your statement in bold.

The assumption is implicitly made every time someone says that you should invest your mortgage into equities, because equities win over 30 years. The only way that statement is correct is if you aren't pulling down on your savings (or if you are using expected returns in your calculations).

As to your second paragraph: Exactly. How many people still have 30 years left on their mortgage at the start of retirement? Certainly some, but I'd argue the vast majority have at least ten years already paid down. And of course 4% 30-year mortgages are not possible to find these days (I very recently looked); current rates are close to 5%. And finally, you cannot discount PizzaSteve's comments on risks not accounted for in cFIREsim's model.

To make it clear, I don't think it is necessarily bad to not pay off your mortgage and invest in stocks (I've been doing so), but the math isn't as clear cut as many posters put it out there to be, and it is highly dependent on the stage of life.

#### maizeman

• Magnum Stache
• Posts: 3190
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #36 on: November 05, 2018, 11:38:01 AM »
The assumption is implicitly made every time someone says that you should invest your mortgage into equities, because equities win over 30 years. The only way that statement is correct is if you aren't pulling down on your savings (or if you are using expected returns in your calculations).

This is incorrect. When I make that statement it is based on historical data analysis which looks at average outcomes and failure rates for FIREing with either more money and still paying down a mortgage or less money but no mortgage.

Quote
As to your second paragraph: Exactly. How many people still have 30 years left on their mortgage at the start of retirement? Certainly some, but I'd argue the vast majority have at least ten years already paid down. And of course 4% 30-year mortgages are not possible to find these days (I very recently looked); current rates are close to 5%.

Fair enough, but my statement is still true based on your data at mortgage interest rates of 4.5%, which would be achievable by any person entering FIRE today if they refinanced their current balance back to a new 30 year loan.

And many of the people asking the same question here on the forums have mortgages that are 3-5 years old (based on the reported interest rates which tend to be the the 4% to 4.25% range), which would put them at 25-27 years remaining, which again, based on your own results would be a set of circumstances where they getting better success rates/higher safe withdrawal rates with the mortgage than from paying it off.

I'm not trying to discount your insight that a person with less than half of the term remaining on their mortgage is not well served by carrying it into FIRE without modification. But you are dramatically exaggerating the number of people it applies to by saying that people are almost guaranteed to get better results from paying off their mortgage. In addition you are discounting a key consequence of the insight that if longer remaining term mortgages help FIRE success rates and shorter term mortgages hurt them: that the solution (at today's interest rates anyway) is to ensure that you have a mortgage with a long remaining payment turn before pushing the big read button and FIREing.

Quote
And finally, you cannot discount PizzaSteve's comments on risks not accounted for in cFIREsim's model.

I tried to have a discussion about this once. There are risks not accounted for on both sides (stock market and paying off your home).

Boring backstory that is not particularly interesting even to the participants behind the spoiler tag (why I'm choosing not to discuss this point further).

Spoiler: show

PizzaSteve thinks I am an unethical person because I, for example, would not feel morally obligated to continue paying my mortgage after my home was destroyed in a nuclear attack (not covered under most home insurance policies) in a non-recourse state.

Given this irreconcilable difference in world views, now the two of us don't speak, which appears to be better for all involved.

#### Boofinator

• Bristles
• Posts: 344
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #37 on: November 05, 2018, 12:04:07 PM »
The assumption is implicitly made every time someone says that you should invest your mortgage into equities, because equities win over 30 years. The only way that statement is correct is if you aren't pulling down on your savings (or if you are using expected returns in your calculations).

This is incorrect. When I make that statement it is based on historical data analysis which looks at average outcomes and failure rates for FIREing with either more money and still paying down a mortgage or less money but no mortgage.

Quote
As to your second paragraph: Exactly. How many people still have 30 years left on their mortgage at the start of retirement? Certainly some, but I'd argue the vast majority have at least ten years already paid down. And of course 4% 30-year mortgages are not possible to find these days (I very recently looked); current rates are close to 5%.

Fair enough, but my statement is still true based on your data at mortgage interest rates of 4.5%, which would be achievable by any person entering FIRE today if they refinanced their current balance back to a new 30 year loan.

And many of the people asking the same question here on the forums have mortgages that are 3-5 years old (based on the reported interest rates which tend to be the the 4% to 4.25% range), which would put them at 25-27 years remaining, which again, based on your own results would be a set of circumstances where they getting better success rates/higher safe withdrawal rates with the mortgage than from paying it off.

I'm not trying to discount your insight that a person with less than half of the term remaining on their mortgage is not well served by carrying it into FIRE without modification. But you are dramatically exaggerating the number of people it applies to by saying that people are almost guaranteed to get better results from paying off their mortgage. In addition you are discounting a key consequence of the insight that if longer remaining term mortgages help FIRE success rates and shorter term mortgages hurt them: that the solution (at today's interest rates anyway) is to ensure that you have a mortgage with a long remaining payment turn before pushing the big read button and FIREing.

Quote
And finally, you cannot discount PizzaSteve's comments on risks not accounted for in cFIREsim's model.

I tried to have a discussion about this once. There are risks not accounted for on both sides (stock market and paying off your home).

Boring backstory that is not particularly interesting even to the participants behind the spoiler tag (why I'm choosing not to discuss this point further).

Spoiler: show

PizzaSteve thinks I am an unethical person because I, for example, would not feel morally obligated to continue paying my mortgage after my home was destroyed in a nuclear attack (not covered under most home insurance policies) in a non-recourse state.

Given this irreconcilable difference in world views, now the two of us don't speak, which appears to be better for all involved.

maizeman, you are not one of the posters I'm preaching to. You have generally been rational in your posts and willing to see other arguments. I am also not preaching to those who have drunk the B42 Kool-Aid and consider anyone not investing in stocks with their mortgage in need of a facepunch. I am preaching to people like OP, who are seeking advice for the best way to invest their surplus. And the answer isn't one-size-fits-all, as so many on here tend to suggest. To illustrate, earlier in the thread I asked OP about his amount of liquidity, and mentioned that it really only might make sense to pay off the mortgage if he was close to retirement. Otherwise, I said it was "a no-brainer" to invest in equities. Given his interest rate, I don't think I'd pay it off in any case, as even intermediate bonds are likely to beat the interest rate if he wanted a low-risk investment.

Given a nuclear attack, I would expect the government would allow for debt forgiveness to those most affected, paying for it through government debt; they would also probably reimburse the banks for the mortgages. It would still fuck everyone with lots of equity in their homes. Good example of pay off the mortgage risk.

EDIT: Confused this OP with the one with a 2.5% mortgage. Given OP's interest rate of 3.75%, I might consider paying it off if I was retiring or had a desire to be FI imminently (and of course the duration resulted in a higher probability of success).
« Last Edit: November 05, 2018, 12:10:53 PM by Boofinator »

#### bognish

• Bristles
• Posts: 268
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #38 on: November 05, 2018, 12:30:28 PM »
I have been 100% equities since 1998. Yes 2008 was stressful and not fun seeing gains disappear. Yes October 2018 was a bad month. Since I had no idea if the bottom had hit or not I did not sell. Since I was working I did keep buying on the way down. It was a bummer to buy and find out the next day it wasn't the bottom. Since I never sold things worked out pretty well from 2008 to 2018.
I currently have 10 years left on a mortgage. My feeling is that I would rather have index funds that are easy to liquidate than more equity in a house. Last week I got laid off. I didn't see it coming at all. Once the severance is used up it will be pretty easy to cash out some index funds and keep paying the bills. It would be much harder to cash out an extra mortgage payment.
There is plenty of math to tell you whether to invest or early payoff. My advice is to make sure that enough of your savings are accessible if an emergency come knocking.

#### maizeman

• Magnum Stache
• Posts: 3190
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #39 on: November 05, 2018, 12:39:13 PM »
I have been 100% equities since 1998. Yes 2008 was stressful and not fun seeing gains disappear. Yes October 2018 was a bad month. Since I had no idea if the bottom had hit or not I did not sell. Since I was working I did keep buying on the way down. It was a bummer to buy and find out the next day it wasn't the bottom. Since I never sold things worked out pretty well from 2008 to 2018.
I currently have 10 years left on a mortgage. My feeling is that I would rather have index funds that are easy to liquidate than more equity in a house. Last week I got laid off. I didn't see it coming at all. Once the severance is used up it will be pretty easy to cash out some index funds and keep paying the bills. It would be much harder to cash out an extra mortgage payment.
There is plenty of math to tell you whether to invest or early payoff. My advice is to make sure that enough of your savings are accessible if an emergency come knocking.

I'm sorry to hear you got hit with the unexpected layoff bognish. Hopefully you're able to find something else as good or better soon... super low unemployment should be good for something.

I definitely agree with you that that expected cases like that are one of the cases where it is really nice to have that extra safety buffer of lots of liquid investments and I'm glad you've got the liquidity in easy accessible forms to ride this out.

I'm going to guess the folks arguing for paying off mortgages of this would agree that this is a very good reason not to pay down your mortgage if you cannot pay it off completely: missing mortgage payments when you have 60% equity in your house gets you in just as much trouble as missing a payment when you have 20% equity.

#### PizzaSteve

• Pencil Stache
• Posts: 503
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #40 on: November 05, 2018, 03:24:57 PM »
@maizeman Please post a quote where I said not paying off a mortgage was unethical.  I think you are confusing me with someone else.  Your other comments are thoughtful, so I wonder why you feel I am arguing for paying down a mortage (as opposed to clearly defining the risks, if one chooses to do it for leveraged stock investing, without much of a safety net).

I also resent being put on a 'side.'  I have never once said keeping a mortgage is wrong or bad, just not ALWAYS BETTER, regardless of the future. No member of this forum I can recall has ever advised someone to only pay down a mortgage and hold zero other investment assets.  Almost everyone has retirement funds, stocks, emergency funds, etc.  Nearly everyone says leverage is usually good during accumulation.

What we have are straightforward choices with well defined risks and possible outcomes to chose between.  There are not 'sides', there is just information to share.

@Boofinator I think all of us are actually on the same side in terms of options for OP.  I certainly dont enjoy back and forth debates.  But I dont want individuals shouted down for advising less aggressive approaches or being accused of stating positions they didnt post.  For me, mortgaging my home to make money I dont need would be a poor decision (because we are already below 3% WR and retired).  There is absolutely zero benefit, and non zero risk.
« Last Edit: November 06, 2018, 01:07:58 PM by PizzaSteve »

#### maizeman

• Magnum Stache
• Posts: 3190
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #41 on: November 05, 2018, 04:00:59 PM »
@maizeman Please post a quote where I said not paying off a mortgage was unethical.  You are confusing me with someone else and that odd spoiler thing is just, well odd.  Please edit your comment or prove it.  Your other comments are thoughtful, so I wonder why you feel I am arguing for paying down a mortage (as opposed to clearly defining the risks, if one chooses to do it for leveraged stock investing, without much of a safety net).

https://forum.mrmoneymustache.com/welcome-to-the-forum/mr-math-and-paying-off-your-mortgage/50/ in which quotations of portions of many your posts from other users will demonstrate that you were posting frequently and actively, however almost none of your original posts remain.

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #42 on: November 05, 2018, 05:45:46 PM »

I dont want to argue, so I will try to make this the last post in this thread.

Yes, PS frequently wants to be able to freely preach without anyone arguing with him - just accept his wisdom.
« Last Edit: November 05, 2018, 05:50:29 PM by TomTX »

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #43 on: November 05, 2018, 05:47:55 PM »
@maizeman Please post a quote where I said not paying off a mortgage was unethical.  You are confusing me with someone else and that odd spoiler thing is just, well odd.  Please edit your comment or prove it.  Your other comments are thoughtful, so I wonder why you feel I am arguing for paying down a mortage (as opposed to clearly defining the risks, if one chooses to do it for leveraged stock investing, without much of a safety net).

https://forum.mrmoneymustache.com/welcome-to-the-forum/mr-math-and-paying-off-your-mortgage/50/ in which quotations of portions of many your posts from other users will demonstrate that you were posting frequently and actively, however almost none of your original posts remain.

I remember the post. PizzaSteve is unethical for deleting it.

#### TomTX

• Magnum Stache
• Posts: 3225
• Location: Texas
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #44 on: November 05, 2018, 05:49:34 PM »

I also resent being put on a 'side.'  I have never once said keeping a mortgage is wrong or bad, just not ALWAYS BETTER, regardless of the future.

And you set up a strawman to argue against.

Who exactly is saying a mortgage is "ALWAYS BETTER, regardless of the future. "?

Nobody.

#### Boofinator

• Bristles
• Posts: 344
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #45 on: November 06, 2018, 07:19:24 AM »

I also resent being put on a 'side.'  I have never once said keeping a mortgage is wrong or bad, just not ALWAYS BETTER, regardless of the future.

And you set up a strawman to argue against.

Who exactly is saying a mortgage is "ALWAYS BETTER, regardless of the future. "?

Nobody.

I'll disagree with you here. Several posters, most notably the dearly departed B42, have argued vehemently that investing is superior to paying the mortgage under all circumstances (given today's rates). They even encouraged PMI, for Christ's sake. Perhaps PizzaSteve didn't choose the best wording, but I understand what he is trying to say.

#### NorthernBlitz

• Bristles
• Posts: 327
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #46 on: November 06, 2018, 07:28:25 AM »
Ive got to stop trying to correct the odd, non traditional ways of looking at risk, capital and returns on this site.  My 30+ years in corporate finance and business degrees dont mean much to enthusiastic kids who have never seen a bear market during their lifetime, but believe in leveraged investing with all their hearts.  Note:  I am not confusing definitions of risk, I am sticking to established ways to perform a financial analysis to avoid confusing apples and oranges comparisons of returns, as any good analysis should.  In fact, corporations use risk adjustment factors when comparing investment alternatives, but these methods are probably a bit advanced for this site. A risk premium, such as stocks demand, is a well understood phenomenon.  Again, calling leveraged stocks less risky than a guaranteed return hugely perverts established definitions of risk that professionals use. It is like calling white darker than black, because, you know black is the new white.

I pray it works out for them because I am set for life, and have no real skin in the game (could skate through a long bear market fine, and an extended bull just means I donate more to charity).  Folks dont respect experience much here, which is fine.  My 40+ years of mustacian living work fine for me with or without forum posting (knew what to do and how to do it long before any blogs existed, bought vanguard funds in mid 80s).

Good luck OP.

I am curious what this forum will look like when the next recession hits. I am positive most, not all of those brave high equity position souls will be shitting in their pants. A good exercise for anyone is to go to bogleheads and read some of those old posts. There was some serious fear back then. And this if from people who should know better. The reality is that when everyone around you is talking doom and gloom it starts to become very difficult to stay the course despite the fear mongering.

Personally I do not believe there is a decrease in risk by prepaying a mortgage. The decrease only happens once you make that final payment and not a day sooner.

While I don't want a recession / market crash, I think I would benefit from it so I could see how it feels when I have moderate six figures invested instead of waiting until I'm closer to having a second comma.

I haven't really experienced a large correction while having an appreciable amount invested because of this awesome bull run. I think I'll be able to keep my asset allocation (90% equities / 10% bonds), but thinking it is different than living through it. It's easy to think I'll be rational about it...

#### maizeman

• Magnum Stache
• Posts: 3190
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #47 on: November 06, 2018, 07:49:18 AM »
I haven't really experienced a large correction while having an appreciable amount invested because of this awesome bull run. I think I'll be able to keep my asset allocation (90% equities / 10% bonds), but thinking it is different than living through it. It's easy to think I'll be rational about it...

I'm in a similar boat as you. Went through 2007/8 but without significant invested assets. I'm at about 75% stocks if you look at total net worth and at close to 100% if you look at invested assets. Will be interesting to observe my own reactions the next time a serious decline hits the stock market. I'm less pessimistic than EnjoyIt, but it's certainly possible I could be proven wrong. We'll see.

#### RWD

• Magnum Stache
• Posts: 2704
• Location: Mississippi
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #48 on: November 06, 2018, 07:56:03 AM »
I also resent being put on a 'side.'  I have never once said keeping a mortgage is wrong or bad, just not ALWAYS BETTER, regardless of the future.

And you set up a strawman to argue against.

Who exactly is saying a mortgage is "ALWAYS BETTER, regardless of the future. "?

Nobody.

I'll disagree with you here. Several posters, most notably the dearly departed B42, have argued vehemently that investing is superior to paying the mortgage under all circumstances (given today's rates). They even encouraged PMI, for Christ's sake. Perhaps PizzaSteve didn't choose the best wording, but I understand what he is trying to say.

For someone that registered on the forum the day before boarder42 was banned you sure claim to know a lot about what he posted over the course of over four years. Even boarder42 didn't assert that investing is superior under all circumstances.

there are extremely rare circumstances where the math makes sense to pay off a mortgage.
I've also never said it's good for everyone all the time I've frequently said if it doesn't make math sense then someone shouldn't do it.

#### maizeman

• Magnum Stache
• Posts: 3190
##### Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #49 on: November 06, 2018, 08:20:18 AM »
Once someone enters FIRE, the calculus of the decision changes considerably, and sequence of returns risk pushes the optimal decision considerably toward preservation of capital (and hence paying off the mortgage). The link below is to three plots I made from cFIREsim historical data showing that a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early.

I am preaching to people like OP, who are seeking advice for the best way to invest their surplus. And the answer isn't one-size-fits-all, as so many on here tend to suggest.

Boofinator, given your big investment in the boarder42 story, combined with the timelines RWD points out, there may be some backstory here that I am not grasping.

However, I did want to point out what I see as an inherent contradiction between these two posts of yours, particularly given your (retroactive?) reading of boarder42 as advocating that not paying down a mortgage under all circumstances, despite the level of nuance present in his posts, which is at least equivalent to the level of nuance in your own bolded statement above.

The key distinction being that your statement is based on an analysis of essentially 15 year or shorter mortgages where the potential FIREee didn't choose to get a new 30 year mortgage prior to FIRE* and boarder42's was based on 30 year mortgages.**  We can certainly argue back and forth about how common people with 25-30 years left on their mortgages vs people with < 15 years left on their mortgages are on this forum.

However, given that the median american household has lived in their home for only 10 years (source), and people tend to move less as they get older, I am confident that your statement that "a new retiree is almost guaranteed [emphasis mine] to have a higher chance of success by paying off the mortgage early" does not apply to at least a significant fraction and likely a majority of posters on this forum.

Be careful that, in arguing against a poster you apparently don't like (despite barely overlapping with that poster at all on this forum), you don't become the mirror image of the characteristics you dislike about that poster.