Author Topic: mortgage or no mortgage  (Read 5185 times)

cv

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mortgage or no mortgage
« on: February 06, 2015, 06:20:44 PM »
Seeking seasoned advise. I am in my mid 30s, single no children; carrying a 68k mortgage on a 130k condo since 6 month ago, at interest rate of 3.125%.  My officemate, self proclaimed "financial guru" explained to me today that her understanding is that one should carry the longest possible mortgage, so one can put all the extra savings into the (stock) market for the longest, strongest return.  many stories (including MMM's own) seem to point that folks want to pay back the mortgage as soon as possible. I am a bit confused, what is the right thing to do?  I'm currently more than half way saved to my personal goal of FI at the rate of (saving) 65% gross income per month. 

Thanks in advance!

JLee

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Re: mortgage or no mortgage
« Reply #1 on: February 06, 2015, 06:31:27 PM »
Generally, math says investments win over paying off a mortgage.

MrMoogle

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Re: mortgage or no mortgage
« Reply #2 on: February 06, 2015, 07:01:35 PM »
Generally, math says investments win over paying off a mortgage.
This, but people aren't math, we don't behave rationally.  Many people prefer not to have debt.  Prefer not to have that mortgage bill in case they lose their job, or have some other emergency.  MMM said it best, either way it's a win-win situation. 

If you only care about the quickest to FI, then stocks it is.

kpd905

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Re: mortgage or no mortgage
« Reply #3 on: February 06, 2015, 07:03:28 PM »
Are you already maxing out a 401k, IRA and HSA (if you have one)?

Eric

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MrMoogle

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Re: mortgage or no mortgage
« Reply #5 on: February 06, 2015, 07:15:47 PM »
For your reading pleasure:

http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/

Eric, do you keep a list of your like top 20 forum posts or something?  I know like 99.99% of questions asked now have already been answered (other than case studies).  Some are in the FAQ, maybe that's where I've seen this one before. 

Eric

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Re: mortgage or no mortgage
« Reply #6 on: February 06, 2015, 07:24:01 PM »
For your reading pleasure:

http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/

Eric, do you keep a list of your like top 20 forum posts or something?  I know like 99.99% of questions asked now have already been answered (other than case studies).  Some are in the FAQ, maybe that's where I've seen this one before.

Ha!  No, I don't keep a list.  It's just from memory, but it's reasonably easy (for me at least) to remember the "best" posts.  This one still gets bumped from time to time so it's easy to re-remember as well.

Another tip is to use Google instead of the search box above.  For example, to find the thread above, I typed the following into the Google search bar:

site:http://forum.mrmoneymustache.com/investor-alley/ mortgage

Where the "site:http......." tells Google to only search this site and "Mortgage" is the search word.  (note there's no space between site:http but there is a space between the end of the URL and the search term(s))  It helps to remember which forum section it was posted in first, but when in doubt, use the URL for the Ask a Mustachian section, since it has by far the most posts.
« Last Edit: February 06, 2015, 07:31:21 PM by Eric »

MrMoogle

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Re: mortgage or no mortgage
« Reply #7 on: February 06, 2015, 07:29:13 PM »
Thanks for the tip :)

Ricky

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Re: mortgage or no mortgage
« Reply #8 on: February 06, 2015, 07:32:17 PM »
While 3% isn't much, it's a guaranteed 3% return on your money.

I've found lately that I am just not a fan of debt. That said, if your income is pretty steady and you already have other investments, using the money for more investments isn't a bad idea.

Riff

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Re: mortgage or no mortgage
« Reply #9 on: February 06, 2015, 07:57:22 PM »
Just looking at the numbers in the long term, investing seems to be the better deal.  As long as you can weather the storms of the market, and perhaps also the storms of your personal life like losing a job or health.

For us, we chose to pay off the mortgage first.  Well, first after the company match on the 401k...

Bikeguy

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Re: mortgage or no mortgage
« Reply #10 on: February 07, 2015, 07:58:31 PM »
MMM ' S formula for whether you have enough to retire is your money will grow between 4 and 7 percent.   If you have an emergency fund,  4 beats 3 and 7 really beats 3. Even with tax deductions considered.

Davids

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Re: mortgage or no mortgage
« Reply #11 on: February 07, 2015, 08:23:01 PM »
I am in a somewhat similar boat. In 2010 I bought my house and put down a $200K mortgage for 30 years at 4.25%. Over the past couple years I was extremely paying it down and now have a $115K balance. Now I have refinanced the $115K balance to a 15 year mortgage at 3.125% and have gone back to the approach of just making the minimum payments as a result. In analyzing it I have decided that is the better approach. While the mindset of being debt free (my original plan was to pay off my mortgage by end of 2018 before I decided to refi) sounds great, taking that extra money and putting it towards my after tax brokerage Vanguard ETF account is better in the long term. I already MAX my 401K, Roth IRA and HSA.

CopperTex

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Re: mortgage or no mortgage
« Reply #12 on: February 07, 2015, 08:39:48 PM »
You will always get different answers to this question because it's such a personal decision. Some people are such numbers nerds that's all they care about. For some people the emotion overrides the math. Figure out what works for your personality type and your goals and do that.

frugaldrummer

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Re: mortgage or no mortgage
« Reply #13 on: February 07, 2015, 11:23:04 PM »
If a safe CD paying 3.125 percent was available today, would you invest part of your money in it? That's the real comparison, not comparing paying off the mortgage to much riskier stock investments.

Spondulix

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Re: mortgage or no mortgage
« Reply #14 on: February 08, 2015, 12:33:50 PM »
I agree with CopperTex - you could spend months reading about this and find a good argument for one or the other every day. It's more important to decide your own plan, stick to it, and feel comfortable saying to others, "that's interesting information, but I have my own plan already." You have a great interest rate and savings rate, so you're definitely on the right path!