Author Topic: Trying to Calculate Early Mortgage Payoff vs Investing Extra  (Read 2282 times)

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #50 on: November 06, 2018, 08:37:59 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.

Boarder had over 7,000 posts. I did not read every one. And I've stated he had some valuable insights and contributions. But he was generally dogmatic, and it was precisely his comments that encouraged me to join. I assure you, I had nothing to do with his banning, and I genuinely miss him because I missed the opportunity to debate him (not that I could ever change his mind, but so that others wouldn't be overcome by the DPOYM bombardment in to believing it to be true), but fortunately his legion of followers are still around.

To prove my point, I disagree with the assertion that the circumstances are "extremely rare" when one should pay off the mortgage. I'll let you choose your probability for the "extremely rare" category, but if we did a poll I'm sure the geometric average would be far less than 1%. In reality, it depends on quite a few factors, and a significant number of Mustachians would benefit with the reduction of risk that comes from paying off the mortgage. (And by benefit, I mean in the sense of future probabilities, not in the sense that thirty years from now they look back and realize the optimal solution in hindsight.)

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #51 on: November 06, 2018, 09:29:26 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.

*But you don't make any mention of this caveat in your posts, which will mislead people who don't follow your link and read your analysis.

**Which generally was stated explicitly, although I will certainly grant you people weren't thinking about the implications of people who bought a house early enough in the accumulation phase and stayed in the same house long enough to get through half the term of their mortgage before they started FIRE.

I admit, to some small extant I have exaggerated my position, but only to counteract the exaggerated positions of others. Any slight exaggeration on my part is dwarfed by B42. Let me quote some of what I was reading when I decided I had enough and couldn't sit back any more. (I hope when he rejoins he considers King Ad Hominem for his username.)

For everyone including me trying to talk numbers to one he doesn't understand doesn't care to understand and just trolls this shit he's done it a few times. As Ron white would say you can't fix stupid.
Sounds good but have you paid off your mortgage yet?

No because I'm not an idiot.
To put it another way. When is the most optimal time to buy a new truck. Well that's at the end of the season when they are trying to get rid of...... No fuck no there is never an optimal time to buy a new truck. Same shit applies to trying to be optimal about your mortgage paydown window. Could you get lucky and hit a Ford truck plant fire in a bottle and sell your raptor for more than you paid yes. But is it likely. Hell no. Then why bet on it.
There is inflation. I could have applied 1% to the 4% mortgage bc it doesn't index to inflation and used 7% if you don't expect those returns you're going to need a really low withdrawal rate. And if you're betting to win on sorr with paying down a mortgage first you're trying to find a needle in a haystack.

Using 10% with no consideration of SORR over 30 years is not realistic IMO.  As for long-term market returns, your guess is as good as mine, and both are worthless.

The snark about "math is hard" is unnecessary.  I think we all understand compounding.  I'm also well aware of historical stock market performance over longer timelines.  It's one of the reasons why we chose our payoff over a relatively short timeline (10 years).

The time frame you pay it off is irrelevant. And to be clear I give two fucks what you do it's the other people's lives your negativity effecting promoting this bull shit. Bc clearly you don't know the math.
just like you can build wealth and eat out our buying monster trucks you can build wealth while doing anything as long as youre saving something it doesnt mean that should be promoted.

Sorry, but the false equivalence between eating out/buying trucks (subtracting from your net wealth) and paying down mortgage (adding to your net wealth -- but likely more slowly than index investing) is just ridiculous.

It's not ridiculous when you look at the math both would be better habits for you than paying down your mortgage.

I could go on for what feels like forever....

By the way, even if it is optimal at the beginning of FIRE to hold your mortgage because it still has thirty years, after some period of time there will be a crossover for pretty much everyone. I'm not saying its the only solution (one might wish to maximize returns, risk be damned), but it is optimal to maximizing success.

maizeman

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #52 on: November 06, 2018, 09:45:44 AM »
I admit, to some small extant I have exaggerated my position, but only to counteract the exaggerated positions of others. Any slight exaggeration on my part is dwarfed by B42. Let me quote some of what I was reading when I decided I had enough and couldn't sit back any more. (I hope when he rejoins he considers King Ad Hominem for his username.)

Well that's disappointing. So it appears you adhere to the moral code that as long as there is at least one person you disagree with who is doing a bad thing (or at least a thing you think is bad), you believe you are justified in doing the same bad thing? Personally, I do try to hold myself to a higher standard of honesty than the people I disagree with. YMMV.

Quote
By the way, even if it is optimal at the beginning of FIRE to hold your mortgage because it still has thirty years, after some period of time there will be a crossover for pretty much everyone. I'm not saying its the only solution (one might wish to maximize returns, risk be damned), but it is optimal to maximizing success.

I'm not convinced this is the case, but it's certainly a valid hypothesis. Will try to run the simulations tomorrow as tonight I'll be watching the elections. Just to clarify your statement (so we don't get in a debate over whether or not it has been tested or not later), would you agree that a comparison of success rates looking at a potential FIREee who starts with a 30 year mortgage (which your work shows increasing overall success rates) and then pays off the remaining principle after 1, 2, 3, ... 29, or 30 years would be a fair test?

RWD

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #53 on: November 06, 2018, 10:10:26 AM »
[...] but fortunately his legion of followers are still around.
Who is still here that argues inflexibly for not paying down mortgages?

Any slight exaggeration on my part is dwarfed by B42.
It's been over a month since boarder42 was banned. It's only you now arguing against no one.

PizzaSteve

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #54 on: November 06, 2018, 01:14:24 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).

Unfortunately, you had the odd habit of deleting many of your comments retroactively, so no I cannot link to your specific statement. It occurred in this thread:
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.
It is not odd to delete back and forth posts that add no value to the forum, or which contain too much personal information.  That poster seemed crazy enough to track down someone and act in their beliefs in a physical way.  I took stuff off out of a bit of fear I was dealing with an unstable person, who might take action in real life.  The volume of posts alone smacked of a FIRE obsession that was boardering on unhealthy.

Also, I never once said, nor do I think not paying a mortgage is unethical.  I am certain you are confusing me with someone elso who may have been more strongly in favor or eliminating debt.  A lot of people objected to that guys over the top rhetoric, and I have loads of PMs from others I advised to not respond to him when he was being dogmatic and rude.

In every thread I have been active on this topic I have been consistent.

1) I always say levergage is fine, as long as one understands and accepts the risks.  Those who accuse me of arguing in favor of paying off debt during early accumulation are not carefully reading what I post and likely just want to argue. 

2) I always oppose over the top rhetoric about how stocks are certain to increase in value over a certain rate, if enough time passes.  I believe this is what people object to, because there are models that show stock produce reliable earnings over time.  This data is good data, largely because it is very likely well managed economies will grow.  I assume this will continue, but it is not CERTAIN.

Thats it.

These are the two topics I have been consistent about, other than responding to personal attacks, which certain people do seem to do `in defense' of other posters they seem to like, or are so frequently responding in the same way that I suspect they are actually puppet accounts of the same person.

Anyway, you seem to ignore positive comments and focus on something like accusing me of a random view I actually dont hold.  It is perfectly fine to stiff a bank.  Ive had family members do it.

PS.  Regarding trolls with multiple accounts, many set up false identities, some reasonable, some crazy.  Perhaps someone read the Ender's Game series of books and fancies themselves the character who debates himself on the web to influence policy.  That character had a right wing and left wing persona that debated, with the goal of setting up one to look good by skewering the other.  Anyway, a lot of posturing with limited value I agree.  That is why I delete the posts.  No one benefits from 10 posts explaining to B42 why it might be resonable to not want debt.

@maizeman you raise a good point, in that if you, a seemingly reasonable person, are accusing me of posting something I didnt say so passionately then the value of participating in this forum is not exceeding the cost of time spent.  My goal was to help other FIRE with good information and I do not enjoy arguing.  My FIRE is done, so I understand if I change my email to a nonesense email my account is effectively deleted.  Off I go to do that.

Cheers and good like everyone.
« Last Edit: November 06, 2018, 01:36:04 PM by PizzaSteve »

maizeman

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #55 on: November 06, 2018, 02:05:04 PM »
To be clear, my specific position is that PizzaSteve stated it would be unethical for me to fail to pay off my mortgage, even in a non-recourse state, even if the house was first destroyed in a nuclear attack.

Given PizzaSteve's propensity to delete their prior posts -- which I have provided direct evidence of, and which the poster admits to in the post above, for as long as that post remains -- we're unfortunately left in the position where absence of evidence is not evidence of absence and it boils down to two people's word against the the denial of one other (like any spoken conversation for the past hundreds if not thousands of years). In the end, it doesn't really matter one way or the other, and I'm somewhat sorry I made the mistake of reengaging with this poster, however obliquely.

Quoting the above post in its entirely below, because PizzaSteve has said they were going to delete they account for one reason or another, and yet eventually the posts claiming the account was to be deleted disappear and the account remains active. I'm not sure if the reference to Peter and Valentine playing Locke and Demosthenes in Ender's Game is an accusation that I'm actually the same person as boarder42? Can anyone else make sense of that part?

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@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).

Unfortunately, you had the odd habit of deleting many of your comments retroactively, so no I cannot link to your specific statement. It occurred in this thread:
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.
It is not odd to delete back and forth posts that add no value to the forum, or which contain too much personal information.  That poster seemed crazy enough to track down someone and act in their beliefs in a physical way.  I took stuff off out of a bit of fear I was dealing with an unstable person, who might take action in real life.  The volume of posts alone smacked of a FIRE obsession that was boardering on unhealthy.

Also, I never once said, nor do I think not paying a mortgage is unethical.  I am certain you are confusing me with someone elso who may have been more strongly in favor or eliminating debt.  A lot of people objected to that guys over the top rhetoric, and I have loads of PMs from others I advised to not respond to him when he was being dogmatic and rude.

In every thread I have been active on this topic I have been consistent.

1) I always say levergage is fine, as long as one understands and accepts the risks.  Those who accuse me of arguing in favor of paying off debt during early accumulation are not carefully reading what I post and likely just want to argue. 

2) I always oppose over the top rhetoric about how stocks are certain to increase in value over a certain rate, if enough time passes.  I believe this is what people object to, because there are models that show stock produce reliable earnings over time.  This data is good data, largely because it is very likely well managed economies will grow.  I assume this will continue, but it is not CERTAIN.

Thats it.

These are the two topics I have been consistent about, other than responding to personal attacks, which certain people do seem to do `in defense' of other posters they seem to like, or are so frequently responding in the same way that I suspect they are actually puppet accounts of the same person.

Anyway, you seem to ignore positive comments and focus on something like accusing me of a random view I actually dont hold.  It is perfectly fine to stiff a bank.  Ive had family members do it.

PS.  Regarding trolls with multiple accounts, many set up false identities, some reasonable, some crazy.  Perhaps someone read the Ender's Game series of books and fancies themselves the character who debates himself on the web to influence policy.  That character had a right wing and left wing persona that debated, with the goal of setting up one to look good by skewering the other.  Anyway, a lot of posturing with limited value I agree.  That is why I delete the posts.  No one benefits from 10 posts explaining to B42 why it might be resonable to not want debt.

@maizeman you raise a good point, in that if you, a seemingly reasonable person, are accusing me of posting something I didnt say so passionately then the value of participating in this forum is not exceeding the cost of time spent.  My goal was to help other FIRE with good information and I do not enjoy arguing.  My FIRE is done, so I understand if I change my email to a nonesense email my account is effectively deleted.  Off I go to do that.

Cheers and good like everyone.


RWD

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #56 on: November 06, 2018, 02:23:56 PM »
I'm not sure if the reference to Peter and Valentine playing Locke and Demosthenes in Ender's Game is an accusation that I'm actually the same person as boarder42? Can anyone else make sense of that part?
I am confused too. I was wondering if it might be directed at me too. But who knows?

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Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #57 on: November 06, 2018, 02:45:51 PM »
I admit, to some small extant I have exaggerated my position, but only to counteract the exaggerated positions of others. Any slight exaggeration on my part is dwarfed by B42. Let me quote some of what I was reading when I decided I had enough and couldn't sit back any more. (I hope when he rejoins he considers King Ad Hominem for his username.)

Well that's disappointing. So it appears you adhere to the moral code that as long as there is at least one person you disagree with who is doing a bad thing (or at least a thing you think is bad), you believe you are justified in doing the same bad thing? Personally, I do try to hold myself to a higher standard of honesty than the people I disagree with. YMMV.

Quote
By the way, even if it is optimal at the beginning of FIRE to hold your mortgage because it still has thirty years, after some period of time there will be a crossover for pretty much everyone. I'm not saying its the only solution (one might wish to maximize returns, risk be damned), but it is optimal to maximizing success.

I'm not convinced this is the case, but it's certainly a valid hypothesis. Will try to run the simulations tomorrow as tonight I'll be watching the elections. Just to clarify your statement (so we don't get in a debate over whether or not it has been tested or not later), would you agree that a comparison of success rates looking at a potential FIREee who starts with a 30 year mortgage (which your work shows increasing overall success rates) and then pays off the remaining principle after 1, 2, 3, ... 29, or 30 years would be a fair test?

Exaggeration ≠ Moral Shortcomings. If that is the case, you should have been all over B42 (or MMM for that matter). It does become an issue of morals if it strays to the area of purposeful misleading. I'll let you be the judge of me on that (for the record, I don't believe either B42 or MMM have been purposely misleading).

As to the situation you mention: as I've tried to stress, it depends on a number of factors and your definition of success. But to use one example: On the plots I posted, take the situation that most favors investing over paying the mortgage (4.6% increase in SWR): 30 years remaining on the mortgage, a 15% Mortgage-to-Portfolio ratio at the start, a 3% mortgage interest rate, 100% stocks, and success defined as maximum inflation-adjusted withdrawals that show a 95% success rate over thirty years in cFIREsim.

The result was a general utter failure for paying off the mortgage. If you started paying off the mortgage, you're better keeping the mortgage for the duration, if you ignore the changes in the loan-to-portfolio value. This is the first plot.

Note the qualifier at the end, because it makes a huge difference. If the market drops at the beginning of FIRE, your loan-to-portfolio value will skyrocket, and you would be committing FIRE suicide by pulling money out of the market at that time to pay down the mortgage. If instead you run the numbers and evaluate the scenario based on the loan-to-value at the decision point, POTM wins hugely. The second plot is essentially the same problem, but with a 15% loan-to-mortgage value at the actual decision point.

I feel the second case more accurately depicts the question, as someone shouldn't be making huge decisions for some point in the future based solely on data from today.

EDIT: Realized I had a typo in the first plot; reposted the plot.
« Last Edit: November 06, 2018, 03:29:09 PM by Boofinator »

maizeman

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #58 on: November 06, 2018, 02:51:49 PM »
I'm not sure if the reference to Peter and Valentine playing Locke and Demosthenes in Ender's Game is an accusation that I'm actually the same person as boarder42? Can anyone else make sense of that part?
I am confused too. I was wondering if it might be directed at me too. But who knows?

LlamaPineappleBatteryStaple <-- unique phrase in case I ever need to use google find this post again in the future.
xkcd inspired?
https://xkcd.com/936/

Hahaha, yes I am something of an XKCD addict. Also the human brain is remarkably bad at actually coming up with a random series of words (or numbers). Hopefully the first two are enough to retain google-uniqueness.

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #59 on: November 06, 2018, 03:10:21 PM »
[...] but fortunately his legion of followers are still around.
Who is still here that argues inflexibly for not paying down mortgages?

Any slight exaggeration on my part is dwarfed by B42.
It's been over a month since boarder42 was banned. It's only you now arguing against no one.

Wrong, because you are still arguing with me about B42. If you have no dog in the fight please just let it die. Nobody else is as big a dick as B42 about it, but if you go through the POTM and DPOYM threads you will find plenty of posters repeating his 'wisdom'.

maizeman

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #60 on: November 06, 2018, 03:23:16 PM »
Exaggeration ≠ Moral Shortcomings. If that is the case, you should have been all over B42 (or MMM for that matter). It does become an issue of morals if it strays to the area of purposeful misleading. I'll let you be the judge of me on that (for the record, I don't believe either B42 or MMM have been purposely misleading).

Sadly, I think summarizing your finding that, if your mortgage has less than 15 years to run on the clock makes more sense to refinance to 30 years or pay off than to carry into FIRE, while keeping a mortgage with 30 years to run almost always increases success given current interest rates as: "a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early" is either willfully misleading the people reading your posts, or results from a fundamental misunderstanding of your own result.

It's really too bad, because the truth was (and is) a cool concept and an important point for people planning to FIRE to be aware of, and it isn't one I've seen anyone else talk about before. I don't know what it is about the topic of mortgages that brings out the worst in people.

EnjoyIt

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #61 on: November 06, 2018, 03:43:19 PM »
BTW, interest rates have been on the rise and it is not too uncommon to find a mortgage rate of 5% for a 30 year loan.
In my personal opinion 5% is starting to be in the realm of pay off mortgage early camp. 

If someone today gave me an option to purchase an investment with 5% guaranteed return I would jump all over it.

My mortgage is 2.75% and I am ridding it out right to the end.  Maybe when I'm down to just a couple of payments I might put it out of its misery a little early.

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #62 on: November 06, 2018, 03:50:03 PM »
Exaggeration ≠ Moral Shortcomings. If that is the case, you should have been all over B42 (or MMM for that matter). It does become an issue of morals if it strays to the area of purposeful misleading. I'll let you be the judge of me on that (for the record, I don't believe either B42 or MMM have been purposely misleading).

Sadly, I think summarizing your finding that, if your mortgage has less than 15 years to run on the clock makes more sense to refinance to 30 years or pay off than to carry into FIRE, while keeping a mortgage with 30 years to run almost always increases success given current interest rates as: "a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early" is either willfully misleading the people reading your posts, or results from a fundamental misunderstanding of your own result.

It's really too bad, because the truth was (and is) a cool concept and an important point for people planning to FIRE to be aware of, and it isn't one I've seen anyone else talk about before. I don't know what it is about the topic of mortgages that brings out the worst in people.

This is an internet forum, right? Because I didn't realize that a small exaggeration, coupled with not bringing up an option that nobody else was bringing up at the time, would signal (1) liar or (2) incompetent. I am not sending these posts to a panel for review, or saving them and thinking about them for a day before posting. And I stand by my original statement, even though in retrospect the words could have been chosen more wisely. Maybe you could have added to the discussion at the time by recommending refinancing the mortgage right before FIRE rather than assume I was willfully misleading.

RWD

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #63 on: November 06, 2018, 04:10:12 PM »
[...] but fortunately his legion of followers are still around.
Who is still here that argues inflexibly for not paying down mortgages?

Nobody else is as big a dick as B42 about it, but if you go through the POTM and DPOYM threads you will find plenty of posters repeating his 'wisdom'.

I've read the entire DPOYM thread and don't recall anyone asserting that not paying off your mortgage is always the better choice. I've tried reading the POTM thread but it's nauseating. If you have some specific posts you can link me to I would appreciate it. Otherwise I'm sticking with my position that there isn't anyone here with the opinion you are railing against.


Wrong, because you are still arguing with me about B42. If you have no dog in the fight please just let it die.
こっちの台詞だ

maizeman

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #64 on: November 06, 2018, 04:29:33 PM »
This is an internet forum, right? Because I didn't realize that a small exaggeration, coupled with not bringing up an option that nobody else was bringing up at the time, would signal (1) liar or (2) incompetent. I am not sending these posts to a panel for review, or saving them and thinking about them for a day before posting. And I stand by my original statement, even though in retrospect the words could have been chosen more wisely.

In order for the statement "a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early" to be only a small exaggeration, I'd still expect the to apply in a significant majority of cases. Given current interest rates, that would mean the median time remaining on a mortgage at FIRE would need to be greater than 15 years, rather than only 10 years reported for the overall population (as cited above).

And FWIW, I certainly make plenty of mistakes in assumptions or logic or even facts when I'm posting to this forum. The difference is that, when someone points them out to me and explains why I'm wrong or points me to sources that show I misunderstood or misremembered a key fact, I don't say "I am not sending these posts to a panel for review, or saving them and thinking about them for a day before posting" I instead say "oh you're right, sorry about that" and I don't continue to repeat and defend the same false statement.

Quote
Maybe you could have added to the discussion at the time by recommending refinancing the mortgage right before FIRE rather than assume I was willfully misleading.

Yes, you're right, suggesting that would have been adding to the discussion. And that's exactly what I did when you started talking about your new idea on Nov 3rd in what I thought was an extremely positive post on the first thread where you brought up the point about mortgages that were more than halfway done when a person hit FIRE.

Then, when two days later on Nov 5th, when you brought up the same idea without any modification after the first time we talked about refinancing to a 30 year fixed rate mortgage right before FIRE and this time with the extremely misleading statement that "a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early" I again brought up the point about the potential the refinance into a new 30 year mortgage right before FIRE in a post that, I will be the first to admit, was somewhat more frustrated than the first.

So yes, it's a shame I didn't contribute to the discussion by bringing up this issue with your reasoning for the 3rd time on Nov 6th.

TomTX

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #65 on: November 06, 2018, 05:38:49 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.

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.

Again, the anti-mortgage side is arguing against posters who aren't in the thread or even on the site anymore.

Kudos on the strawman.

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #66 on: November 07, 2018, 06:47:36 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.

Again, the anti-mortgage side is arguing against posters who aren't in the thread or even on the site anymore.

Kudos on the strawman.

Kudos on misunderstanding logic.

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #67 on: November 07, 2018, 11:15:28 AM »
[...] but fortunately his legion of followers are still around.
Who is still here that argues inflexibly for not paying down mortgages?

Nobody else is as big a dick as B42 about it, but if you go through the POTM and DPOYM threads you will find plenty of posters repeating his 'wisdom'.

I've read the entire DPOYM thread and don't recall anyone asserting that not paying off your mortgage is always the better choice. I've tried reading the POTM thread but it's nauseating. If you have some specific posts you can link me to I would appreciate it. Otherwise I'm sticking with my position that there isn't anyone here with the opinion you are railing against.


Wrong, because you are still arguing with me about B42. If you have no dog in the fight please just let it die.
こっちの台詞だ

Did I log into the Japanese MMM site? J/k

Here's a few quotes. Note that, as I have said, B42 was the most vociferous, but he attracted many followers. I'm not attacking B42, I'm attacking his ideas, which still persist to a large extent on this forum (given today's interest rates, do not pay down the mortgage (some even recommend PMI!!)).  And as to why I bring up B42 so much: if it weren't for him I would have never joined the forum. I would have been content to chuckle and shake my head occasionally, and move on to the next topic. But B42 was a condescending prick to anyone suggesting paying off the mortgage was a wise thing to do, and rather than be ostracized for it, other posters (not all) praised his wisdom.

Note: As I have mentioned, none of these quotes have the same level of condescension as B42, but they are suggesting the same idea in a near-universal fashion.

I object to calling paying off ones mortgage 'conservative'.  A conservative approach is one that takes the least amount of perceived or anticipated risk.  If there's a common thread between points made by B42, myself and many others its that paying down a fixed low rate mortgage aggressively is more risky than putting that money into investments, preferably those of the tax-advantaged variety.

For all the scare-stories of recessions and investors losing money in the market, there are even more instances of homes decreasing in value, or being damaged and underinsured, or tying their owners to that spot because it was a soft market and they couldn't sell.

One can certainly pay off their mortgage aggressively and certainly there are situations where that is not a bad financial decision to make, but it isn't the 'conservative' play, despite the drum-beat from everyone from the RE insdustry (it's the best investment you'll ever make!) to Steve Ramsey (no one will ever be able to kick you out of a home you've paid cash for, and that's security!)
(I agree here with the sentiment about the RE industry.)
Also, people with 2 to 3 year EM Funds need facepunching too, unless they are already FIRE and do not include the cash in there 4% rule calcs.  But even still, early paydown on a low fixed-rate mortgage is worse...  thats how bad it is.
(TexasRunner has a load of quotes, was hard to pick one. Several advocate for keeping PMI(!!), indicating it adds about 0.5% to the loan, which is a huge underestimation.)
IT's NOT MATHEMATICALLY CORRECT TO PAY OFF YOUR MORTGAGE EARLY!
It is not mathematically correct to pay off your mortgage early.* ** *** **** *****

*In today's interest rate environment.
**Assuming it's a fixed, low interest rate mortgage.
***Assuming you will invest the money you would use to pay it down early into something that returns more than the mortgage rate.
****Assuming you won't sell said investment low, or anything like that
*****etc. etc. etc.

If the title of the thread was "Stop saying 'It is not correct to pay off your mortgage early.' " I'd agree.  Sometimes it IS correct to pay off the mortgage early.

But it's very, very rarely mathematically correct to do so, in the current environment.
(It's not as very, very rare as so many believe it to be.)

I'd like to thank b42 (and others)....

I just bought my first house 4 months ago, and unfortunately I discovered the world of FIRE after I had already put down enough to avoid PMI (face punch!), but fortunately, since then I've learned enough on this forum to scrap my plan of paying down my mortgage at lightning speed.
....
(Another civilized comment, but the comment about facepunching for not paying PMI is absurd.)
I could waste more time, needless to say, trying to convince you and others that there is a huge contingent at MMM who have swung way too far toward investing in equities over paying off debt (especially high debt like PMI). And in many cases, I have agreed, and want to continue encouraging those who are earlier in the accumulation phase to use this strategy. But there are a large number of scenarios where reducing debt improves FIRE success over investing that money in equities, and the general chatter is either (1) paying the mortgage is mathematically incorrect (except with high interest rates) or (2) I paid off the mortgage for the happy feeling.

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #68 on: November 07, 2018, 11:24:22 AM »
@Boofinator - you cannot truthfully say you are not attacking B42 and then call him "a condescending prick" in the same paragraph.

I value your opinion here, but please stop with the personal attacks, particularly against individuals who are incapable of responding.

Stick to debating the issue and avoid name-calling, please.

RWD

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #69 on: November 07, 2018, 11:37:42 AM »
[...] but fortunately his legion of followers are still around.
Who is still here that argues inflexibly for not paying down mortgages?

Nobody else is as big a dick as B42 about it, but if you go through the POTM and DPOYM threads you will find plenty of posters repeating his 'wisdom'.

I've read the entire DPOYM thread and don't recall anyone asserting that not paying off your mortgage is always the better choice. I've tried reading the POTM thread but it's nauseating. If you have some specific posts you can link me to I would appreciate it. Otherwise I'm sticking with my position that there isn't anyone here with the opinion you are railing against.


Wrong, because you are still arguing with me about B42. If you have no dog in the fight please just let it die.
こっちの台詞だ

Did I log into the Japanese MMM site? J/k

Here's a few quotes. Note that, as I have said, B42 was the most vociferous, but he attracted many followers. I'm not attacking B42, I'm attacking his ideas, which still persist to a large extent on this forum (given today's interest rates, do not pay down the mortgage (some even recommend PMI!!)).  And as to why I bring up B42 so much: if it weren't for him I would have never joined the forum. I would have been content to chuckle and shake my head occasionally, and move on to the next topic. But B42 was a condescending prick to anyone suggesting paying off the mortgage was a wise thing to do, and rather than be ostracized for it, other posters (not all) praised his wisdom.

Note: As I have mentioned, none of these quotes have the same level of condescension as B42, but they are suggesting the same idea in a near-universal fashion.

I object to calling paying off ones mortgage 'conservative'.  A conservative approach is one that takes the least amount of perceived or anticipated risk.  If there's a common thread between points made by B42, myself and many others its that paying down a fixed low rate mortgage aggressively is more risky than putting that money into investments, preferably those of the tax-advantaged variety.

For all the scare-stories of recessions and investors losing money in the market, there are even more instances of homes decreasing in value, or being damaged and underinsured, or tying their owners to that spot because it was a soft market and they couldn't sell.

One can certainly pay off their mortgage aggressively and certainly there are situations where that is not a bad financial decision to make, but it isn't the 'conservative' play, despite the drum-beat from everyone from the RE insdustry (it's the best investment you'll ever make!) to Steve Ramsey (no one will ever be able to kick you out of a home you've paid cash for, and that's security!)
(I agree here with the sentiment about the RE industry.)
Also, people with 2 to 3 year EM Funds need facepunching too, unless they are already FIRE and do not include the cash in there 4% rule calcs.  But even still, early paydown on a low fixed-rate mortgage is worse...  thats how bad it is.
(TexasRunner has a load of quotes, was hard to pick one. Several advocate for keeping PMI(!!), indicating it adds about 0.5% to the loan, which is a huge underestimation.)
IT's NOT MATHEMATICALLY CORRECT TO PAY OFF YOUR MORTGAGE EARLY!
It is not mathematically correct to pay off your mortgage early.* ** *** **** *****

*In today's interest rate environment.
**Assuming it's a fixed, low interest rate mortgage.
***Assuming you will invest the money you would use to pay it down early into something that returns more than the mortgage rate.
****Assuming you won't sell said investment low, or anything like that
*****etc. etc. etc.

If the title of the thread was "Stop saying 'It is not correct to pay off your mortgage early.' " I'd agree.  Sometimes it IS correct to pay off the mortgage early.

But it's very, very rarely mathematically correct to do so, in the current environment.
(It's not as very, very rare as so many believe it to be.)

I'd like to thank b42 (and others)....

I just bought my first house 4 months ago, and unfortunately I discovered the world of FIRE after I had already put down enough to avoid PMI (face punch!), but fortunately, since then I've learned enough on this forum to scrap my plan of paying down my mortgage at lightning speed.
....
(Another civilized comment, but the comment about facepunching for not paying PMI is absurd.)
I could waste more time, needless to say, trying to convince you and others that there is a huge contingent at MMM who have swung way too far toward investing in equities over paying off debt (especially high debt like PMI). And in many cases, I have agreed, and want to continue encouraging those who are earlier in the accumulation phase to use this strategy. But there are a large number of scenarios where reducing debt improves FIRE success over investing that money in equities, and the general chatter is either (1) paying the mortgage is mathematically incorrect (except with high interest rates) or (2) I paid off the mortgage for the happy feeling.

I appreciate you finding some actual quotes. Let's take a look at them one at a time:
  • nereo in that post acknowledges that there are situations where paying down the mortgage is the correct course of action.
  • TexasRunner is specifically referring to low fixed rate mortgages, so again not a blanket statement.
  • 2Birds1Stone's post was clearly a joke by being contrarian in response to the ALL CAPS thread title.
  • I assume you're not using arebelspy's post as an example? There are so many caveats in that post and he even says "Sometimes it IS correct to pay off the mortgage early."
  • I agree that I-Ranger's self face punch with regards to avoiding PMI is weird. But he's referring to his own personal case and again not generalizing to everyone with a mortgage.

Yes, there are a lot of people on this forum that believe paying down fixed low rate mortgages is suboptimal. But I still don't see the ones that blindly insist that it is always the inferior decision. If you are instead shifting your position to say that these posters are just taking it too far anyway then that is a matter of opinion on degree and I don't completely disagree. I would like to see more neutral discussion on a case by case basis. Every person's financial situation is unique and we can't prescribe an absolute solution (even though most of the time the answer is the same, invest more).

We have a great post on investment order which includes guidelines for when to make extra payments on debt. This is generally what I follow but there can always be exceptions for special circumstances.

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #70 on: November 07, 2018, 11:41:09 AM »
@Boofinator - you cannot truthfully say you are not attacking B42 and then call him "a condescending prick" in the same paragraph.

I value your opinion here, but please stop with the personal attacks, particularly against individuals who are incapable of responding.

Stick to debating the issue and avoid name-calling, please.

True. Apologies for being a hypocrite there.

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #71 on: November 07, 2018, 11:52:35 AM »
[...] but fortunately his legion of followers are still around.
Who is still here that argues inflexibly for not paying down mortgages?

Nobody else is as big a dick as B42 about it, but if you go through the POTM and DPOYM threads you will find plenty of posters repeating his 'wisdom'.

I've read the entire DPOYM thread and don't recall anyone asserting that not paying off your mortgage is always the better choice. I've tried reading the POTM thread but it's nauseating. If you have some specific posts you can link me to I would appreciate it. Otherwise I'm sticking with my position that there isn't anyone here with the opinion you are railing against.


Wrong, because you are still arguing with me about B42. If you have no dog in the fight please just let it die.
こっちの台詞だ

Did I log into the Japanese MMM site? J/k

Here's a few quotes. Note that, as I have said, B42 was the most vociferous, but he attracted many followers. I'm not attacking B42, I'm attacking his ideas, which still persist to a large extent on this forum (given today's interest rates, do not pay down the mortgage (some even recommend PMI!!)).  And as to why I bring up B42 so much: if it weren't for him I would have never joined the forum. I would have been content to chuckle and shake my head occasionally, and move on to the next topic. But B42 was a condescending prick to anyone suggesting paying off the mortgage was a wise thing to do, and rather than be ostracized for it, other posters (not all) praised his wisdom.

Note: As I have mentioned, none of these quotes have the same level of condescension as B42, but they are suggesting the same idea in a near-universal fashion.

I object to calling paying off ones mortgage 'conservative'.  A conservative approach is one that takes the least amount of perceived or anticipated risk.  If there's a common thread between points made by B42, myself and many others its that paying down a fixed low rate mortgage aggressively is more risky than putting that money into investments, preferably those of the tax-advantaged variety.

For all the scare-stories of recessions and investors losing money in the market, there are even more instances of homes decreasing in value, or being damaged and underinsured, or tying their owners to that spot because it was a soft market and they couldn't sell.

One can certainly pay off their mortgage aggressively and certainly there are situations where that is not a bad financial decision to make, but it isn't the 'conservative' play, despite the drum-beat from everyone from the RE insdustry (it's the best investment you'll ever make!) to Steve Ramsey (no one will ever be able to kick you out of a home you've paid cash for, and that's security!)
(I agree here with the sentiment about the RE industry.)
Also, people with 2 to 3 year EM Funds need facepunching too, unless they are already FIRE and do not include the cash in there 4% rule calcs.  But even still, early paydown on a low fixed-rate mortgage is worse...  thats how bad it is.
(TexasRunner has a load of quotes, was hard to pick one. Several advocate for keeping PMI(!!), indicating it adds about 0.5% to the loan, which is a huge underestimation.)
IT's NOT MATHEMATICALLY CORRECT TO PAY OFF YOUR MORTGAGE EARLY!
It is not mathematically correct to pay off your mortgage early.* ** *** **** *****

*In today's interest rate environment.
**Assuming it's a fixed, low interest rate mortgage.
***Assuming you will invest the money you would use to pay it down early into something that returns more than the mortgage rate.
****Assuming you won't sell said investment low, or anything like that
*****etc. etc. etc.

If the title of the thread was "Stop saying 'It is not correct to pay off your mortgage early.' " I'd agree.  Sometimes it IS correct to pay off the mortgage early.

But it's very, very rarely mathematically correct to do so, in the current environment.
(It's not as very, very rare as so many believe it to be.)

I'd like to thank b42 (and others)....

I just bought my first house 4 months ago, and unfortunately I discovered the world of FIRE after I had already put down enough to avoid PMI (face punch!), but fortunately, since then I've learned enough on this forum to scrap my plan of paying down my mortgage at lightning speed.
....
(Another civilized comment, but the comment about facepunching for not paying PMI is absurd.)
I could waste more time, needless to say, trying to convince you and others that there is a huge contingent at MMM who have swung way too far toward investing in equities over paying off debt (especially high debt like PMI). And in many cases, I have agreed, and want to continue encouraging those who are earlier in the accumulation phase to use this strategy. But there are a large number of scenarios where reducing debt improves FIRE success over investing that money in equities, and the general chatter is either (1) paying the mortgage is mathematically incorrect (except with high interest rates) or (2) I paid off the mortgage for the happy feeling.

I appreciate you finding some actual quotes. Let's take a look at them one at a time:
  • nereo in that post acknowledges that there are situations where paying down the mortgage is the correct course of action.
  • TexasRunner is specifically referring to low fixed rate mortgages, so again not a blanket statement.
  • 2Birds1Stone's post was clearly a joke by being contrarian in response to the ALL CAPS thread title.
  • I assume you're not using arebelspy's post as an example? There are so many caveats in that post and he even says "Sometimes it IS correct to pay off the mortgage early."
  • I agree that I-Ranger's self face punch with regards to avoiding PMI is weird. But he's referring to his own personal case and again not generalizing to everyone with a mortgage.

Yes, there are a lot of people on this forum that believe paying down fixed low rate mortgages is suboptimal. But I still don't see the ones that blindly insist that it is always the inferior decision. If you are instead shifting your position to say that these posters are just taking it too far anyway then that is a matter of opinion on degree and I don't completely disagree. I would like to see more neutral discussion on a case by case basis. Every person's financial situation is unique and we can't prescribe an absolute solution (even though most of the time the answer is the same, invest more).

We have a great post on investment order which includes guidelines for when to make extra payments on debt. This is generally what I follow but there can always be exceptions for special circumstances.

Please refer to the caveat at the beginning of my post (edited punctuation for clarity): "I'm not attacking B42, I'm attacking his ideas, which still persist to a large extent on this forum: given today's interest rates, do not pay down the mortgage." I think this idea was universal in all of the quotes provided. (Yes, I debated whether 2Birds1Stone was being facetious or not, could have probably found a better example.)

RWD

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #72 on: November 07, 2018, 12:03:19 PM »
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).
Please refer to the caveat at the beginning of my post (edited punctuation for clarity): "I'm not attacking B42, I'm attacking his ideas, which still persist to a large extent on this forum: given today's interest rates, do not pay down the mortgage." I think this idea was universal in all of the quotes provided. (Yes, I debated whether 2Birds1Stone was being facetious or not, could have probably found a better example.)

Included original quote, for posterity.

None of the quotes you included mentioned "today's rates" except for arebelspy's which is almost two years old (when rates were much better). For context, arebelspy retired at age 30 on a sub-$100k household income by focusing on real estate. There is no way he would have accomplished that by paying down his mortgages faster.

I-Ranger's post could be implied to be referring to today's rates, but again he is talking about his personal circumstances and not generalizing it for everyone. He's also a new member with only 13 posts so you can't really say he's contributed significantly to the anti-mortgage payoff voice.

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #73 on: November 07, 2018, 12:12:57 PM »
This is an internet forum, right? Because I didn't realize that a small exaggeration, coupled with not bringing up an option that nobody else was bringing up at the time, would signal (1) liar or (2) incompetent. I am not sending these posts to a panel for review, or saving them and thinking about them for a day before posting. And I stand by my original statement, even though in retrospect the words could have been chosen more wisely.

In order for the statement "a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early" to be only a small exaggeration, I'd still expect the to apply in a significant majority of cases. Given current interest rates, that would mean the median time remaining on a mortgage at FIRE would need to be greater than 15 years, rather than only 10 years reported for the overall population (as cited above).

And FWIW, I certainly make plenty of mistakes in assumptions or logic or even facts when I'm posting to this forum. The difference is that, when someone points them out to me and explains why I'm wrong or points me to sources that show I misunderstood or misremembered a key fact, I don't say "I am not sending these posts to a panel for review, or saving them and thinking about them for a day before posting" I instead say "oh you're right, sorry about that" and I don't continue to repeat and defend the same false statement.

Quote
Maybe you could have added to the discussion at the time by recommending refinancing the mortgage right before FIRE rather than assume I was willfully misleading.

Yes, you're right, suggesting that would have been adding to the discussion. And that's exactly what I did when you started talking about your new idea on Nov 3rd in what I thought was an extremely positive post on the first thread where you brought up the point about mortgages that were more than halfway done when a person hit FIRE.

Then, when two days later on Nov 5th, when you brought up the same idea without any modification after the first time we talked about refinancing to a 30 year fixed rate mortgage right before FIRE and this time with the extremely misleading statement that "a new retiree is almost guaranteed to have a higher chance of success by paying off the mortgage early" I again brought up the point about the potential the refinance into a new 30 year mortgage right before FIRE in a post that, I will be the first to admit, was somewhat more frustrated than the first.

So yes, it's a shame I didn't contribute to the discussion by bringing up this issue with your reasoning for the 3rd time on Nov 6th.

Apologies, I remember reading it somewhere by someone and didn't realize the timeline or poster, and to be honest didn't enter my mind my mind when I made the statement. Regardless, I agree with you, refinancing right before FIRE into a low-interest mortgage can often be an optimal decision.

Back to the statement. Since it was an exaggeration, I'll revise it: "A new retiree is likely to have a higher chance of success by paying off the mortgage early at interest rates of 3%+." Not necessarily at the beginning, but if they monitor the various parameters throughout retirement, it is likely (guesstimating 67-75%) that cFIREsim will show an improvement to SWR at some point by paying off the mortgage. The exception would be if the retiree had a major dip in stocks relatively early in retirement, which occurs less than half the time (historically). Needless to say, the exact timing depends on many factors, but if one goes based off the math and cFIREsim, it is the logical conclusion.

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #74 on: November 07, 2018, 12:15:25 PM »
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).
Please refer to the caveat at the beginning of my post (edited punctuation for clarity): "I'm not attacking B42, I'm attacking his ideas, which still persist to a large extent on this forum: given today's interest rates, do not pay down the mortgage." I think this idea was universal in all of the quotes provided. (Yes, I debated whether 2Birds1Stone was being facetious or not, could have probably found a better example.)

Included original quote, for posterity.

None of the quotes you included mentioned "today's rates" except for arebelspy's which is almost two years old (when rates were much better). For context, arebelspy retired at age 30 on a sub-$100k household income by focusing on real estate. There is no way he would have accomplished that by paying down his mortgages faster.

I-Ranger's post could be implied to be referring to today's rates, but again he is talking about his personal circumstances and not generalizing it for everyone. He's also a new member with only 13 posts so you can't really say he's contributed significantly to the anti-mortgage payoff voice.

I 100% agree that investing while holding a relatively low interest rate mortgage is an optimal decision during accumulation (except perhaps toward the very end).

nereo

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #75 on: November 07, 2018, 12:17:42 PM »
Since my name has been evoked here among others...

For the record I do not believe that it is universally better to invest rather than pay down one's mortgage.

I do believe that most people would be better served to prioritize filling their tax-advantaged accounts and ensuring they have substantial and easily assessable funds before aggressively paying down a low-rate fixed mortgage.

It's not universal (i.e. it is not the answer for everyone), but applicable for most.  There are certainly exceptions, and as we've discussed in other threads the less time it takes to pay down one's mortgage the less difference it makes in the long run. Mortgage rates, tax situations, sources of income, inflation, time horizons and even psychology play into the decision.

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #76 on: November 07, 2018, 12:48:54 PM »
Also, FYI - there was some really good analysis earlier in a different thread regarding the effect PMI has on a true mortgage rate. It often works out to be surprisingly low.

In my case we ended up taking a 90/10 at 4.125% with PMI. We could have pretty easily gone to 85/15 and cut PMI by about 1/3. It would have been uncomfortable to go to 80/20, and I don't think in either of those cases we would have been able to get a lower rate.

It so happens that we had very good credit which resulted in pretty reasonable PMI penalties. When doing the math it adds about an effective 1/8 to 1/4% to our APR. Thus, we have no intention of paying it off early and instead have focused entirely on investments. It will go away automatically at 22% down. It also helps that I have access to a mega-backdoor so our tax-advantaged space is ginormous. But, even were it not available I would still rather put the money into an after-tax account than pay off the mortgage early. I especially like keeping it as an inflation hedge. Even better, if there ever is another recession and rates drop again, I can probably refinance to an even lower rate! Not to say you couldn't do that with a paid off home, which would also be a great financial move if we ever return to the mid- to low-3%s.

I don't see anyone, even Boarder advocating for keeping mortgages that are short term and/or above 5-6%. At that point you're definitely pushing it. Even Boarder has made it clear from time to time that he specifically means 30 year low-rate fixed mortgages. If he doesn't include that in every single post, that doesn't mean it's not implicit in his statements.

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #77 on: November 07, 2018, 01:58:28 PM »
I don't see anyone, even Boarder advocating for keeping mortgages that are short term and/or above 5-6%. At that point you're definitely pushing it. Even Boarder has made it clear from time to time that he specifically means 30 year low-rate fixed mortgages. If he doesn't include that in every single post, that doesn't mean it's not implicit in his statements.

It is fairly maddening that caveat has to be repeated so frequently. 

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #78 on: November 07, 2018, 02:16:16 PM »
Also, FYI - there was some really good analysis earlier in a different thread regarding the effect PMI has on a true mortgage rate. It often works out to be surprisingly low.

In my case we ended up taking a 90/10 at 4.125% with PMI. We could have pretty easily gone to 85/15 and cut PMI by about 1/3. It would have been uncomfortable to go to 80/20, and I don't think in either of those cases we would have been able to get a lower rate.

It so happens that we had very good credit which resulted in pretty reasonable PMI penalties. When doing the math it adds about an effective 1/8 to 1/4% to our APR. Thus, we have no intention of paying it off early and instead have focused entirely on investments. It will go away automatically at 22% down. It also helps that I have access to a mega-backdoor so our tax-advantaged space is ginormous. But, even were it not available I would still rather put the money into an after-tax account than pay off the mortgage early. I especially like keeping it as an inflation hedge. Even better, if there ever is another recession and rates drop again, I can probably refinance to an even lower rate! Not to say you couldn't do that with a paid off home, which would also be a great financial move if we ever return to the mid- to low-3%s.

I don't see anyone, even Boarder advocating for keeping mortgages that are short term and/or above 5-6%. At that point you're definitely pushing it. Even Boarder has made it clear from time to time that he specifically means 30 year low-rate fixed mortgages. If he doesn't include that in every single post, that doesn't mean it's not implicit in his statements.

If I understand correctly, your mortgage rate is 4.125%; what's your PMI rate? I'll assume for the sake of math 0.5% PMI, but feel free to correct me. So for this exercise, until you get rid of PMI you're paying 4.625%.

Let's assume for the sake of easy numbers a $100k house purchase. To borrow that extra $10k, you need to pay both 4.125% on that $10k, but also 0.5% on the full $90k. This is an effective interest rate of 8.625% on the first dollar paid. And as the payments decrease, the effective interest rates continue to increase: at $80k remaining you will be paying an effective interest rate (since you say you need to get down to $78k for it to be canceled) of 26.625%. Only once you drop PMI does your effective rate fall again to 4.125%.

If you run the two scenarios through an amortization schedule over the life of the loan, in order to come out ahead, you would need a fixed return of about 6.7% annually for 30 years (so 0.5% PMI added an effective 2.575% to your interest rate). Of course stock returns aren't fixed but come with sequence of return risk, so if stocks do poorly at the beginning you would need a much bigger CAGR to break even (and vice versa if stocks do great at the beginning).

You may be ok with those odds. If you're not, you're kind of screwed unless you refinance: now that you're committed to the path, paying off PMI early only hurts you more (when you're in the accumulation stage).

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #79 on: November 07, 2018, 02:21:29 PM »
I don't see anyone, even Boarder advocating for keeping mortgages that are short term and/or above 5-6%. At that point you're definitely pushing it. Even Boarder has made it clear from time to time that he specifically means 30 year low-rate fixed mortgages. If he doesn't include that in every single post, that doesn't mean it's not implicit in his statements.

It is fairly maddening that caveat has to be repeated so frequently.

I too have been talking about fixed-rate, low-interest, 30-year mortgages. We're on the same page here.

Scortius

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #80 on: November 07, 2018, 02:47:23 PM »
Also, FYI - there was some really good analysis earlier in a different thread regarding the effect PMI has on a true mortgage rate. It often works out to be surprisingly low.

In my case we ended up taking a 90/10 at 4.125% with PMI. We could have pretty easily gone to 85/15 and cut PMI by about 1/3. It would have been uncomfortable to go to 80/20, and I don't think in either of those cases we would have been able to get a lower rate.

It so happens that we had very good credit which resulted in pretty reasonable PMI penalties. When doing the math it adds about an effective 1/8 to 1/4% to our APR. Thus, we have no intention of paying it off early and instead have focused entirely on investments. It will go away automatically at 22% down. It also helps that I have access to a mega-backdoor so our tax-advantaged space is ginormous. But, even were it not available I would still rather put the money into an after-tax account than pay off the mortgage early. I especially like keeping it as an inflation hedge. Even better, if there ever is another recession and rates drop again, I can probably refinance to an even lower rate! Not to say you couldn't do that with a paid off home, which would also be a great financial move if we ever return to the mid- to low-3%s.

I don't see anyone, even Boarder advocating for keeping mortgages that are short term and/or above 5-6%. At that point you're definitely pushing it. Even Boarder has made it clear from time to time that he specifically means 30 year low-rate fixed mortgages. If he doesn't include that in every single post, that doesn't mean it's not implicit in his statements.

If I understand correctly, your mortgage rate is 4.125%; what's your PMI rate? I'll assume for the sake of math 0.5% PMI, but feel free to correct me. So for this exercise, until you get rid of PMI you're paying 4.625%.

Let's assume for the sake of easy numbers a $100k house purchase. To borrow that extra $10k, you need to pay both 4.125% on that $10k, but also 0.5% on the full $90k. This is an effective interest rate of 8.625% on the first dollar paid. And as the payments decrease, the effective interest rates continue to increase: at $80k remaining you will be paying an effective interest rate (since you say you need to get down to $78k for it to be canceled) of 26.625%. Only once you drop PMI does your effective rate fall again to 4.125%.

If you run the two scenarios through an amortization schedule over the life of the loan, in order to come out ahead, you would need a fixed return of about 6.7% annually for 30 years (so 0.5% PMI added an effective 2.575% to your interest rate). Of course stock returns aren't fixed but come with sequence of return risk, so if stocks do poorly at the beginning you would need a much bigger CAGR to break even (and vice versa if stocks do great at the beginning).

You may be ok with those odds. If you're not, you're kind of screwed unless you refinance: now that you're committed to the path, paying off PMI early only hurts you more (when you're in the accumulation stage).

I encourage others to share links to the PMI discussions and calculations. I don't have them handy. My PMI is a bit lower, using your example of $10,000 remaining to get to 20%, my monthly PMI is approximately $22, or about $265 per year. That does translate to 2.65% of that 10k. And yes, it will effectively go up as we get closer so it may be worth paying off when we get closer to 17% principal or so. But, the trade-off of going to 20% was also potentially sacrificing tax-advantaged space for that year we built up our down-payment, so maybe my example isn't the best as it's not a true trade-off between mortgage and after-tax. Still, you've given me something to think about!

Boofinator

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Re: Trying to Calculate Early Mortgage Payoff vs Investing Extra
« Reply #81 on: November 07, 2018, 03:09:45 PM »
Also, FYI - there was some really good analysis earlier in a different thread regarding the effect PMI has on a true mortgage rate. It often works out to be surprisingly low.

In my case we ended up taking a 90/10 at 4.125% with PMI. We could have pretty easily gone to 85/15 and cut PMI by about 1/3. It would have been uncomfortable to go to 80/20, and I don't think in either of those cases we would have been able to get a lower rate.

It so happens that we had very good credit which resulted in pretty reasonable PMI penalties. When doing the math it adds about an effective 1/8 to 1/4% to our APR. Thus, we have no intention of paying it off early and instead have focused entirely on investments. It will go away automatically at 22% down. It also helps that I have access to a mega-backdoor so our tax-advantaged space is ginormous. But, even were it not available I would still rather put the money into an after-tax account than pay off the mortgage early. I especially like keeping it as an inflation hedge. Even better, if there ever is another recession and rates drop again, I can probably refinance to an even lower rate! Not to say you couldn't do that with a paid off home, which would also be a great financial move if we ever return to the mid- to low-3%s.

I don't see anyone, even Boarder advocating for keeping mortgages that are short term and/or above 5-6%. At that point you're definitely pushing it. Even Boarder has made it clear from time to time that he specifically means 30 year low-rate fixed mortgages. If he doesn't include that in every single post, that doesn't mean it's not implicit in his statements.

If I understand correctly, your mortgage rate is 4.125%; what's your PMI rate? I'll assume for the sake of math 0.5% PMI, but feel free to correct me. So for this exercise, until you get rid of PMI you're paying 4.625%.

Let's assume for the sake of easy numbers a $100k house purchase. To borrow that extra $10k, you need to pay both 4.125% on that $10k, but also 0.5% on the full $90k. This is an effective interest rate of 8.625% on the first dollar paid. And as the payments decrease, the effective interest rates continue to increase: at $80k remaining you will be paying an effective interest rate (since you say you need to get down to $78k for it to be canceled) of 26.625%. Only once you drop PMI does your effective rate fall again to 4.125%.

If you run the two scenarios through an amortization schedule over the life of the loan, in order to come out ahead, you would need a fixed return of about 6.7% annually for 30 years (so 0.5% PMI added an effective 2.575% to your interest rate). Of course stock returns aren't fixed but come with sequence of return risk, so if stocks do poorly at the beginning you would need a much bigger CAGR to break even (and vice versa if stocks do great at the beginning).

You may be ok with those odds. If you're not, you're kind of screwed unless you refinance: now that you're committed to the path, paying off PMI early only hurts you more (when you're in the accumulation stage).

I encourage others to share links to the PMI discussions and calculations. I don't have them handy. My PMI is a bit lower, using your example of $10,000 remaining to get to 20%, my monthly PMI is approximately $22, or about $265 per year. That does translate to 2.65% of that 10k. And yes, it will effectively go up as we get closer so it may be worth paying off when we get closer to 17% principal or so. But, the trade-off of going to 20% was also potentially sacrificing tax-advantaged space for that year we built up our down-payment, so maybe my example isn't the best as it's not a true trade-off between mortgage and after-tax. Still, you've given me something to think about!

I think the best way to think of it is as an 'equivalent' mortgage rate (not quite equivalent since your payments are higher at the beginning). This equivalent rate would be the interest your money has to earn from a fixed-return investment. In your case, using 0.294% PMI, I calculate an effective mortgage rate of roughly 5.55%.

As mentioned, once you start paying it makes more sense to keep paying and investing the difference, because you're losing opportunity cost on the loan (assuming you're in the accumulation stage). And once you agree to PMI, it becomes intertwined with mortgage rate and you are essentially paying roughly 4.5% per month.

I know this sounds confusing as all hell, but all I can recommend is run the numbers yourself to get a feel for it with an amortization schedule.