Buckle up folks

[steveo]

steveo, you are correct; I was making a guess that you had an American style mortgage.  If that is not the case, disregard my comment for your particular scenario.

No problems.

[steveo]

I think it can be simultaneously true that:
-It can be the "right" move for an individual who dislikes debt and/or is extremely conservative to pay off low interest debt like a mortgage rather than investing. Maximizing your money is not the same thing as maximizing your happiness.
AND
-It is almost always suboptimal financially to pay off very low interest debt rather than investing, if maximum speed to FIRE/maximum returns on your money is your goal (and you have a long time horizon).

And of course, if you don't provide useful data, you shouldn't make any claims either way.

-W

It can also be true that paying off a mortgage is the best risk-reward decision to make. It can be an optimal decision. It should also be noted that when people don't know what they are talking about and have incorrect facts they should probably shut their peep holes.

I also think a very clear theme that I have seen on this thread is that there are a bunch of people who are completely ideologically smitten by the idea of not paying off your mortgage and that those people cannot think rationally. These people of course are clearly destined to struggle when it comes to FIRE as they cannot think rationally.

[steveo]

I based my statements off bits and pieces of data you provided. If you'd post your actual dates we could show you the awfulness of your decision but you refuse.

I personally give 2 shits about your personal performance it's the incorrect statements you made  and failed to provide any of the data necessary for anyone to confirm your claims. It's akin to a stock pickers showing up and claiming to have beaten the market after the fact.

I really couldn't care less about your irrational non-factual comments. Like I said if you need help it's a good idea to ask. You clearly are uneducated on the principles of investing and FIRE and clearly are someone who needs help as you are a candidate likely to fail when it comes to FIRE.

Hopefully you learn from this.

You sound like a troll. Why not provide the data to prove that your statements are correct? The window in time you paid down your mortgage, the specific interest rates during that time period, and the amounts. Then anyone could verify your statements. You have provided no data, and with the limited data available boarder's position is more defensible in the recent low-rate environment.

I sound like a troll - please. I came on here and posted a simple comment how paying off my mortgage has gone well for me and Boarder and others go crazy extrapolating out all sorts of crazy theories that are all factually incorrect. The only possible point that you could make is that potentially with hindsight I could have ended up with a little more money in my pocket. Even if that was the case we don't work on hindsight and the difference will be marginal at best.

I will though go back and try and find the exact dates to verify the interest payments at that time. It'll be interesting. Worst case though I bet I received a 5% risk free/no volatility return over the course of paying off my loan. That is pretty darn good. There is no way though I'll be able to get the prefect analysis for you as there is no way I kept that detailed records. Going back and revisiting the past is not easy and it's why I don't go and try and predict the markets or anything like that. I invest rationally which means accepting that I don't know what future returns will be.

Boarder had no facts and no rational opinion. He just made up a whole bunch of palava due to his arrogant ideological belief against paying off your mortgage.

It's crazy stuff.

[boarder42]

Now we're back to 5% still with no physical dates to backup any of the claims. Its quite trolling behavior I'd agree.

[mrmoonymartian]

Yep, Steveo is right. It makes a lot more sense to pay off the mortgage downunder. I've got 2 years left on mine, then she'll be apples.

[steveo]

Now we're back to 5% still with no physical dates to backup any of the claims. Its quite trolling behavior I'd agree.

https://tradingeconomics.com/australia/interest-rate

I think we know who the troll is. Facts matter.

Boarder - how many of your points that you made have been backed up by facts:-

1. I was irrational in my decision making process - proven false. A 5% return and potentially higher than that is pretty good. Especially when it's guaranteed.
2. I can't handle holding a high level of stocks. I hold 70% and if you have any idea about portfolio construction and the drawdown phase this is a nice high percentage,
3. I'm an extreme oversaver. I'll be retiring at a WR of 4%-5%.
4. I increased my risk of total financial failure prior to total payoff of the house. Nope. Nadda. Not a chance. I made my situation a lot safer. if I was to be retrenched today and I had no savings I could survive on government payments. If I had a mortgage there is no chance this would be the case.
5. "Are likely to make further poorer financial decisions in the face of the math and likely to let emotion override math in the face of a down turn in retirement." No facts. No rationality. Just completely illogical BS that doesn't match reality. I'm a consistent investor in the market. I don't even check or worry about the market. I just buy every time I get $10 grand.
6. "Everything here further points to your likelihood to try to time a market in FIRE". I mean this is pretty funny.
7. "Which is increased during the paydown period at these interet rates - there is no way around that - the risk of total financial failure is higher if one puts more money into a fixed illiquid asset. " Another illogical comment with no facts at all. In my situation this is clearly factually incorrect.
8. "That is if you are going to rashly apply emotion to house paydown with out even looking at what would have happened in hindsite and making grand(likely Wrong) market return assumption - then you're more likely to give into emotion during a downturn when FIREd when there is much more on the line than when you're in the earning stages.  Increasing your chances of financial failure again.". Yet again we have the delusional illogical comments.

I just left it there because it's pretty obvious that we are dealing with a fool and that fool is you.

Now let's sum it all up. You are not a logical rational investor. You cannot look at facts. You extrapolate everything based upon your obsession with not paying down your mortgage. You clearly do not have a clue what you are talking about.

It was a good attempt at a comeback though. Unfortunately you stuffed this up a long long long time ago.

I'm over this now. I'll ignore your irrational arguments from this point on.

[steveo]

Yep, Steveo is right. It makes a lot more sense to pay off the mortgage downunder. I've got 2 years left on mine, then she'll be apples.

Yep. It wasn't even meant to be a debate on this topic but this guy (and some others) have no idea and go nutters when you state something factually to them that they don't understand. Instead of thinking things through rationally they just go crazy man style.

It's the best decision we've made and has put us in a great position to FIRE within the next couple of years.

Good luck with paying your mortgage down.

[bob999]

No biggie if it's ugly today, tomorrow, or next week. On the scale of years, we'll all be sitting in the shade of trees we planted today.

I like to hope so - its getting tough to stay positive for me as I've been getting hammered given my Canadian and International holdings are 2/3 of my portfolio so this has been going on for the better part of a year at this point - firmly in the grip of a brutal bear market. At least I'm only 4 years in but losing 20k sucks no matter where you are in your journey.

Seriously I am worried for you. Not because of you 'losing' money but your attitude towards volatility. What did you think, markets will never go down? Warren B and Charlie M. always say "if you can't hold onto your stocks with a 50% drop in value then don't invest in stocks".

Remember, unless you sell during down turn you don't actually lose money. You still own the same number of shares.

[steveo]

No biggie if it's ugly today, tomorrow, or next week. On the scale of years, we'll all be sitting in the shade of trees we planted today.

I like to hope so - its getting tough to stay positive for me as I've been getting hammered given my Canadian and International holdings are 2/3 of my portfolio so this has been going on for the better part of a year at this point - firmly in the grip of a brutal bear market. At least I'm only 4 years in but losing 20k sucks no matter where you are in your journey.

Seriously I am worried for you. Not because of you 'losing' money but your attitude towards volatility. What did you think, markets will never go down? Warren B and Charlie M. always say "if you can't hold onto your stocks with a 50% drop in value then don't invest in stocks".

Remember, unless you sell during down turn you don't actually lose money. You still own the same number of shares.

My take is that you have to think long term. If it goes up that is great. If it goes down you are buying at a discount or it will go up later. If you have the right portfolio construction and back up plans a downturn isn't bad. If you are purchasing a downturn is good.

Just relax and pull through it. You should also consider bonds in your portfolio that allow you to sleep at night. Alternatively you can view bonds as a great way to manage sequence of returns risk.

[boarder42]

Still no dates.

[waltworks]

FFS just give us the dates and then at least we can run a few basic numbers....

-W

[boarder42]

Steveo's first statement was this.

"The problem with this comment is that different people are in different situations. I paid down my mortgage and in that time my house went from a value of about 580k to 900k. The return might even be more than that but I'm being conservative. Since paying off my mortgage I now also have more money to throw into investments. Paying off our house has been the best financial decision that we have made"

The problems with this statement-
1. using house appreciation to signify the return was better
   -  this was immediately corrected b/c the house appreciates either way.
2. Having more money to invest after paying off a mortgage - while true it doesnt properly evaluate the fact that more money could have been invested in lieu of paying off a mortgage - this comment is made frequently and doesnt actually make sense from a why one is better than the other standpoint.

Then you said this
"Really. A risk free/tax free return of 5% is pretty good. I doubt the markets outperformed that and if they did it wouldn't have been by much. My top tier tax rate is 50% so if I sold my market returns I think I would have come off second best. I also decreased leverage which decreased risk. I obtained a great return. I also lowered my living expenses for life........  You may be right via the math but I doubt it"

Problems with this statement
1. a 5% return is not risk free when slowly paying down a mortgage over time it actually increases your risk of total financial failure
2. " I doubt the markets outperformed that and if they did it wouldn't have been by much." - this statement is what set me off b/c this isnt data its an assumption - that could easily be figured out with guess what DATES of the paydown time frame and money put into the house each year.
3. Assuming your tax rate today is relevant b/c your tax rate will likely drop in FIRE
4. You admitted i may be right with the math but then went on to say you doubt it still not giving us the data we need to tell you if what you did won or lost - fear of knowing - ignorance is bliss?

then you posted this

"Start
200k invested in the market
600k invested in housing
300k debt

End

550k invested in the market
1200k invested in housing
Zero debt

Compared to:-

End

650k invested in the market (maybe) - this is pretty darn hard to guess but it's definitely not going to be that good. I'd also have to keep servicing a mortgage which is a burn for a long time.
1200k invested in housing
300k debt"

Problems with this statement -
1. you're guess at your market returns which can be calculated since they were in the past
2. there is a 200k gap in total money if we assume 0% market returns.
3. you're still including your houses value which isnt relevant to the discussion.


Then you have numerous posts saying i'm crazy and dont understand the data and i cant be right - well you still havent provided the data asked for multiple times.

Then you come back and say actually my rate was 9% which completely changes the math and the scope of the conversation. 


Does that outline this well enough for everyone.

[appleshampooid]

I think it can be simultaneously true that:
-It can be the "right" move for an individual who dislikes debt and/or is extremely conservative to pay off low interest debt like a mortgage rather than investing. Maximizing your money is not the same thing as maximizing your happiness.
AND
-It is almost always suboptimal financially to pay off very low interest debt rather than investing, if maximum speed to FIRE/maximum returns on your money is your goal (and you have a long time horizon).

And of course, if you don't provide useful data, you shouldn't make any claims either way.

-W

I agree with this, and with a variable rate mortgage it changes the equation even more.

Both sides of this argument have gotten too far into name calling and emotions for it to really be productive, but without solid numbers from a case study you can't make a call either way. Especially given the international question here, not many on this board are aware of the specific mortgage rate and tax factors in AUS.

[appleshampooid]

1. a 5% return is not risk free when slowly paying down a mortgage over time it actually increases your risk of total financial failure

The return on that investment is guaranteed over the life of the mortgage, that is what everyone means when they say "Risk-free." You can't lose money, in real terms, on paying extra toward your mortgage. Obviously there is the opportunity cost of not having that money in an investment that will likely provide higher yields over the long term (e.g. stocks). But no one can predict the future; stocks could be heading for the biggest bear market of all time over the next 20 years. Is it likely, of course not, am I betting on it? No, I'm not. But I'm not going to disparage anyone for getting a guaranteed return in the form of decreased interest payments if that's what they want to do.

[boarder42]

1. a 5% return is not risk free when slowly paying down a mortgage over time it actually increases your risk of total financial failure

The return on that investment is guaranteed over the life of the mortgage, that is what everyone means when they say "Risk-free." You can't lose money, in real terms, on paying extra toward your mortgage. Obviously there is the opportunity cost of not having that money in an investment that will likely provide higher yields over the long term (e.g. stocks). But no one can predict the future; stocks could be heading for the biggest bear market of all time over the next 20 years. Is it likely, of course not, am I betting on it? No, I'm not. But I'm not going to disparage anyone for getting a guaranteed return in the form of decreased interest payments if that's what they want to do.

Nope you're missing the risk

the risk of paying down a house slowly over time is the 2008 scenario hits(for example) and you lose your income stream.  Two identical people but one funneling money to a mortgage and the other funneling it to their taxable account .  The taxable account holder inherently has more money to ride out a longer time of job loss before having to lose their home.  couple that with a crashed market and lets say the house was a 200k house and you'd pumped 100k into - but the market crashes and now your house is worth 100k - and you're foreclosed on or forced to sell just to cover the loan. - the person who had pumped their money into the market while being able to ride out the tougher time could also perform a shortsale on their property b/c banks would be more likely to do that then to foreclose as the process is longer.  its not risk free.  it actually is riskier from a total financial failure standpoint - and while this OP didnt have a 30 year fixed rate - many in the US do and the risk of the market losing to a 5% fixed rate over 30 years is highly unlikley. 

[boarder42]

I think it can be simultaneously true that:
-It can be the "right" move for an individual who dislikes debt and/or is extremely conservative to pay off low interest debt like a mortgage rather than investing. Maximizing your money is not the same thing as maximizing your happiness.
AND
-It is almost always suboptimal financially to pay off very low interest debt rather than investing, if maximum speed to FIRE/maximum returns on your money is your goal (and you have a long time horizon).

And of course, if you don't provide useful data, you shouldn't make any claims either way.

-W

I agree with this, and with a variable rate mortgage it changes the equation even more.

Both sides of this argument have gotten too far into name calling and emotions for it to really be productive, but without solid numbers from a case study you can't make a call either way. Especially given the international question here, not many on this board are aware of the specific mortgage rate and tax factors in AUS.

my original opposition was more to the reasoning given for paying it off - if the reasoning was i live in australia where we have variable rates that have been between 5-10% the last 20 years i wouldnt have started the debate at all - but that wasnt the reason given.

[appleshampooid]

1. a 5% return is not risk free when slowly paying down a mortgage over time it actually increases your risk of total financial failure

The return on that investment is guaranteed over the life of the mortgage, that is what everyone means when they say "Risk-free." You can't lose money, in real terms, on paying extra toward your mortgage. Obviously there is the opportunity cost of not having that money in an investment that will likely provide higher yields over the long term (e.g. stocks). But no one can predict the future; stocks could be heading for the biggest bear market of all time over the next 20 years. Is it likely, of course not, am I betting on it? No, I'm not. But I'm not going to disparage anyone for getting a guaranteed return in the form of decreased interest payments if that's what they want to do.

Nope you're missing the risk

the risk of paying down a house slowly over time is the 2008 scenario hits(for example) and you lose your income stream.  Two identical people but one funneling money to a mortgage and the other funneling it to their taxable account .  The taxable account holder inherently has more money to ride out a longer time of job loss before having to lose their home.  couple that with a crashed market and lets say the house was a 200k house and you'd pumped 100k into - but the market crashes and now your house is worth 100k - and you're foreclosed on or forced to sell just to cover the loan. - the person who had pumped their money into the market while being able to ride out the tougher time could also perform a shortsale on their property b/c banks would be more likely to do that then to foreclose as the process is longer.  its not risk free.  it actually is riskier from a total financial failure standpoint - and while this OP didnt have a 30 year fixed rate - many in the US do and the risk of the market losing to a 5% fixed rate over 30 years is highly unlikley.

I'm not missing it. I understand exactly that risk you are describing. The point I was trying to make is that paying down a mortgage does in fact give you a guaranteed return. Some people describe that as risk-free, which I get is maybe technically wrong based on the overall financial analysis that you have provided. But when someone says "paying my mortgage down is giving me a risk-free X% return" and you come back with "no actually it's not risk free because..." you are being unnecessarily combative in my opinion. Yes based on the recent low rates, you are correct that they are increasing their overall financial risk by sacrificing market returns to build more equity, but the return on that specific investment (early payments) is actually risk-free.

In my view the words you are using in these discussions make you come off as a poor communicator, and I agree with your overall point.

[boarder42]

1. a 5% return is not risk free when slowly paying down a mortgage over time it actually increases your risk of total financial failure

The return on that investment is guaranteed over the life of the mortgage, that is what everyone means when they say "Risk-free." You can't lose money, in real terms, on paying extra toward your mortgage. Obviously there is the opportunity cost of not having that money in an investment that will likely provide higher yields over the long term (e.g. stocks). But no one can predict the future; stocks could be heading for the biggest bear market of all time over the next 20 years. Is it likely, of course not, am I betting on it? No, I'm not. But I'm not going to disparage anyone for getting a guaranteed return in the form of decreased interest payments if that's what they want to do.

Nope you're missing the risk

the risk of paying down a house slowly over time is the 2008 scenario hits(for example) and you lose your income stream.  Two identical people but one funneling money to a mortgage and the other funneling it to their taxable account .  The taxable account holder inherently has more money to ride out a longer time of job loss before having to lose their home.  couple that with a crashed market and lets say the house was a 200k house and you'd pumped 100k into - but the market crashes and now your house is worth 100k - and you're foreclosed on or forced to sell just to cover the loan. - the person who had pumped their money into the market while being able to ride out the tougher time could also perform a shortsale on their property b/c banks would be more likely to do that then to foreclose as the process is longer.  its not risk free.  it actually is riskier from a total financial failure standpoint - and while this OP didnt have a 30 year fixed rate - many in the US do and the risk of the market losing to a 5% fixed rate over 30 years is highly unlikley.

I'm not missing it. I understand exactly that risk you are describing. The point I was trying to make is that paying down a mortgage does in fact give you a guaranteed return. Some people describe that as risk-free, which I get is maybe technically wrong based on the overall financial analysis that you have provided. But when someone says "paying my mortgage down is giving me a risk-free X% return" and you come back with "no actually it's not risk free because..." you are being unnecessarily combative in my opinion. Yes based on the recent low rates, you are correct that they are increasing their overall financial risk by sacrificing market returns to build more equity, but the return on that specific investment (early payments) is actually risk-free.

In my view the words you are using in these discussions make you come off as a poor communicator, and I agree with your overall point.

risk free and guaranteed dont exist doesnt matter how you slice it.  nothing is risk free and guranteed - and the risks i pointed out do infact show that it is not a guranteed return specifically in the situation where they could not short sell the house they had pumped in 100k for a -100k return which would be a total loss(the stock market hasnt produced this as a whole before)  i dont view a total loss possiblity as risk free or guranteed but maybe you see otherwise.

[Phenix]

Congratulations guys!  This thread was brought back to demonstrate how irrational it is to pull money out of the market because of fear and you turned it in to a Urinary Olympics.

This picture sums up what you have accomplished.