Author Topic: Amount to Stash to pay a mortgage using the 4% (or 5%) rule  (Read 661 times)

salty_monk

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So... Say you have a mortgage fixed at a given rate. It's obvious you don't need to stash the same amount of money as it's current redemption in order to pay it over the term so what's the calculation?

That's to say if the Mortgage is something like 500k & the percentage is 3.75-4%% repayments would be something like $2500 month. How much money would you need to stash in VTI to pay that $2500 a month for the 25 years or whatever & have that stash end up approx ZERO as the Mortgage also ends up at Zero?

As the payments are constant do we just add 7% to the "stash" each month & then take away $2500 then rinse & repeat?

jpompo

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Re: Amount to Stash to pay a mortgage using the 4% (or 5%) rule
« Reply #1 on: May 30, 2018, 04:56:45 PM »
I think the excel formula you're looking for is =PV(7%/12,300,-2500,0), where 7% is your interest rate you're earning on the money divided by 12 since this is monthly, 300 is the number of payments (25 years), -2,500 is your monthly payment and 0 is the future value.

The answer is $353,717.

boarder42

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Re: Amount to Stash to pay a mortgage using the 4% (or 5%) rule
« Reply #2 on: May 30, 2018, 05:24:07 PM »
I just use the remaining balance of the mortgage so if I need 40k not including The PI part of my mortgage and have 300k left I need 1.3MM to retire. Remember to include the TI art of your mortgage in your annual expenses so they are a part of the 40k in this example.

salty_monk

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Re: Amount to Stash to pay a mortgage using the 4% (or 5%) rule
« Reply #3 on: May 30, 2018, 06:06:14 PM »
Thanks. Will give that formula a whirl see what I get. :)

I've been basically doing the same as you Boarder42 but it's probably not correct (in a world of optimism) although it is safe. As shown in jpompo's post theoretically you could retire $150k earlier in that example - that's not peanuts.

boarder42

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Re: Amount to Stash to pay a mortgage using the 4% (or 5%) rule
« Reply #4 on: May 30, 2018, 06:24:54 PM »
Thanks. Will give that formula a whirl see what I get. :)

I've been basically doing the same as you Boarder42 but it's probably not correct (in a world of optimism) although it is safe. As shown in jpompo's post theoretically you could retire $150k earlier in that example - that's not peanuts.

Yes but that's assuming 7% annual returns per year. Throw that into cfiresim. Probably would kill your stash super fast in a time with some poor sequencing.  You're already increasing sequence risk with the mortgage that's allowing you to fire earlier. Depednding on shiller at the time I'd be highly cautious pushing that further.

Be interesting to see the numbers I may run them tomorrow. If you're low income 150k could be huge. For us it's about 3-6 months at the time we fire. And since you're in a house that size I'd assume you're likely higher income.
« Last Edit: May 30, 2018, 06:27:59 PM by boarder42 »