Author Topic: 33 year old Cashes out Brokerage Account to pay off Mortgage.  (Read 6814 times)

thorto0803

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33 year old Cashes out Brokerage Account to pay off Mortgage.
« on: February 14, 2020, 10:09:12 AM »
https://www.cnbc.com/2020/02/13/why-this-33-year-old-paid-off-his-home-in-3-months.html

Not an attempt at debating paying down a mortgage vs. investing returns. This guy obviously has a FIRE mindset.

"Peace of mind isnít the only benefit to paying off his mortgage so quickly. It also gives him the freedom to pursue a secondary long-term financial goal: Leaving the workplace at 40."

dandarc

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #1 on: February 14, 2020, 10:46:43 AM »
Why would you take out a mortgage in the first place in this situation? Had the money, don't want to be in debt and yet chose to sign up for a mortgage, which typically makes it a more difficult and expensive transaction?

Unless he got a discount on the house to take a loan out, like sometimes happens at car dealerships, I don't see how this makes sense.

ducky19

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #2 on: February 14, 2020, 12:54:09 PM »
I wondered about this myself - I don't know what the closing costs are on a $225,000 loan, but it can't be free. I most certainly wouldn't call him mustachian (Boglehead, maybe?) - he likes to fly planes in his spare time, and I know that's not cheap. Also, he lists out his monthly housing costs without a mortgage at $1,695. That includes the following breakdown:

Property taxes: $500 ($6,000 paid annually)
Homeowners Association (HOA) fee: $160
Utilities: $485 ($65 home warranty, $200 cable, $80 gas, $80 water, $60 alarm)
Homeowners insurance: $400
Repairs: $150

Then later in the article, he states "I always wanted to have that stability ... As long as we can scrape up $6,000 per year for property taxes, weíre fine." Um... not really. You've introduced a lot of costs that are difficult (if not impossible) to pare down. 'Itís mine," he says. "You canít take it away." Until you can't scrape up that $6,000...

I mean, overall, kudos to him for saving up that much coin and buying his house outright. It just seems to me there is a LOT of wasted opportunity in this story. It's almost like a contest to see which author can come up with the most outrageous sounding title. If that's the case, the writer on this one wins.
« Last Edit: February 14, 2020, 12:56:42 PM by ducky19 »

bacchi

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #3 on: February 14, 2020, 08:34:35 PM »
Also, he lists out his monthly housing costs without a mortgage at $1,695. That includes the following breakdown:

Property taxes: $500 ($6,000 paid annually)
Homeowners Association (HOA) fee: $160
Utilities: $485 ($65 home warranty, $200 cable, $80 gas, $80 water, $60 alarm)
Homeowners insurance: $400
Repairs: $150

Something must be off. $400 a month for insurance? Is his home in a flood plain?

And $160/month for HOA fees? $200 a month for cable?

Aunt Petunia

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #4 on: February 15, 2020, 08:05:06 AM »
Why would you take out a mortgage in the first place in this situation? Had the money, don't want to be in debt and yet chose to sign up for a mortgage, which typically makes it a more difficult and expensive transaction?

Unless he got a discount on the house to take a loan out, like sometimes happens at car dealerships, I don't see how this makes sense.

I am trying to puzzle this out too. I can think of three reasons:
1 he didn't quite have the money to pay cash for the house but then his stocks went up enough in three months to do so.
2. A friend/ family member convinced him to get the mortgage and invest the money but then he simply changed his mind.
3. He just didn't know that you can pay cash for a house.

Either way that $200 for cable is making my eyes bleed, but he is still doing way better than most people.
« Last Edit: February 15, 2020, 08:09:58 AM by Aunt Petunia »

fredbear

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #5 on: February 19, 2020, 04:16:50 PM »
Doesn't make a lot of sense to me, either, but there is something to be said for having your credit reports reflect a relatively large loan paid off.

TVRodriguez

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #6 on: February 19, 2020, 05:11:19 PM »
Also, he lists out his monthly housing costs without a mortgage at $1,695. That includes the following breakdown:

Property taxes: $500 ($6,000 paid annually)
Homeowners Association (HOA) fee: $160
Utilities: $485 ($65 home warranty, $200 cable, $80 gas, $80 water, $60 alarm)
Homeowners insurance: $400
Repairs: $150

Something must be off. $400 a month for insurance? Is his home in a flood plain?


I didn't read the article, but $4800/year for HOI is what we pay in Florida.

mm1970

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #7 on: February 19, 2020, 06:38:17 PM »
So even *I*, who understand the value of pre-paying a mortgage (from a mental standpoint) think it's crazy to take money out of a brokerage account to do so.  I mean, really?

bacchi

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #8 on: February 20, 2020, 10:12:46 AM »
Also, he lists out his monthly housing costs without a mortgage at $1,695. That includes the following breakdown:

Property taxes: $500 ($6,000 paid annually)
Homeowners Association (HOA) fee: $160
Utilities: $485 ($65 home warranty, $200 cable, $80 gas, $80 water, $60 alarm)
Homeowners insurance: $400
Repairs: $150

Something must be off. $400 a month for insurance? Is his home in a flood plain?


I didn't read the article, but $4800/year for HOI is what we pay in Florida.

That makes sense but this person's house is in a suburb of Dallas, which is far from hurricanes and other natural disasters.

I'll chalk it up to a reporting mistake. (But a home warranty? Total waste of money.)

mm1970

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #9 on: February 20, 2020, 01:58:40 PM »
Also, he lists out his monthly housing costs without a mortgage at $1,695. That includes the following breakdown:

Property taxes: $500 ($6,000 paid annually)
Homeowners Association (HOA) fee: $160
Utilities: $485 ($65 home warranty, $200 cable, $80 gas, $80 water, $60 alarm)
Homeowners insurance: $400
Repairs: $150

Something must be off. $400 a month for insurance? Is his home in a flood plain?


I didn't read the article, but $4800/year for HOI is what we pay in Florida.

That makes sense but this person's house is in a suburb of Dallas, which is far from hurricanes and other natural disasters.

I'll chalk it up to a reporting mistake. (But a home warranty? Total waste of money.)
tornados?

Telecaster

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #10 on: February 20, 2020, 02:50:46 PM »

I didn't read the article, but $4800/year for HOI is what we pay in Florida.

I pay a grand a month for our place in Hawaii. 

dandarc

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #11 on: February 21, 2020, 09:17:07 AM »

I didn't read the article, but $4800/year for HOI is what we pay in Florida.

I pay a grand a month for our place in Hawaii.
I pay $800 / year for our place in Florida. Am I doing this right?

clarkfan1979

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #12 on: May 15, 2020, 09:43:07 PM »
I closed on my first home in May 2007. Once I got the house under contract, I closed out my brokerage account in March 2007 to come up with the down payment. I remember fighting on the phone with the manager. He didn't want me to close out my account. I told him that I had a house under contract and needed the money for the down payment. Within 2 years the S&P 500 was down 50%. My individual holdings would have been down 60%. Super lucky that I sold when I did.

Dicey

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #13 on: May 16, 2020, 12:46:12 AM »
It isn't really about missing potential stock market gains, it's about completely failing to understand how compound interest works, pure and simple. He can never regain those years of compounding that he has forfeited. It's mathematically impossible.

Sure he did a great thing, but with his hustle and drive, he could have used his brain and achieved FIRE even faster. We just don't teach this well enough.

talltexan

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #14 on: July 16, 2020, 07:13:29 AM »
@Dicey and I are obviously DNPYM'ers. The article is pretty balanced in acknowledging our position, which is that putting that capital in risky long-term investments while paying down a mortgage would produce higher overall returns given enough time.

However, I cannot help but read the story and think that this inspiring young man benefitted from having his goal. He worked harder knowing there was a fixed endpoint ("this house") rather than the vague ("build a bigger investment account").

The burden is on him now to continue this momentum through the rest of his thirties, putting that virtual house payment to productive use.

ender

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #15 on: July 16, 2020, 07:23:28 AM »
However, I cannot help but read the story and think that this inspiring young man benefitted from having his goal. He worked harder knowing there was a fixed endpoint ("this house") rather than the vague ("build a bigger investment account").

This is something I ponder from time to time.

It's a lot harder for me to be motivated about "save another $1k into an already six figure investment account!" than it is to get excited about a tangible goal.

Would I be better off focusing on paying down a mortgage, even though it's suboptimal mathematically, if it results in my behavior being more focused?

dogboyslim

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #16 on: July 24, 2020, 09:46:28 AM »
Also, he lists out his monthly housing costs without a mortgage at $1,695. That includes the following breakdown:

Property taxes: $500 ($6,000 paid annually)
Homeowners Association (HOA) fee: $160
Utilities: $485 ($65 home warranty, $200 cable, $80 gas, $80 water, $60 alarm)
Homeowners insurance: $400
Repairs: $150

Something must be off. $400 a month for insurance? Is his home in a flood plain?


I didn't read the article, but $4800/year for HOI is what we pay in Florida.

That makes sense but this person's house is in a suburb of Dallas, which is far from hurricanes and other natural disasters.

I'll chalk it up to a reporting mistake. (But a home warranty? Total waste of money.)
tornados?
Hail.

NumberJohnny5

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #17 on: July 24, 2020, 06:00:55 PM »
We paid cash for our house. Was going to go with a mortgage, but they were taking too long to get approved (they ended up giving us the clear to close the day before closing...when we HAD to know the day before that if it was going to be a cash sale or if there was going to be a mortgage; I relayed this story in the FU money thread).

Anyway, wife was a bit bummed, but I reminded her that neither option was BAD; there was simply a good choice, and a "probably" better choice. "Probably" as in, the stock market could crash and we lose a lot...but if the house is paid for, then we have a house (regardless of what the happens to the stock market and/or real estate prices; we have a paid for house). Peace of mind is worth something, and it was worth quite a bit during Covid. I think if we had to worry about the economy AND see the stock market drop (even though it went back up), it would have made us worry more.

So, I don't see paying off a house as a "bad" decision. Just one that is probably not optimal.

talltexan

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #18 on: July 27, 2020, 10:40:08 AM »
For people who are interested in the thoughtful case for building your asset stack rather than slaying that mortgage quickly, I invite you over to the Do NOT Pay off your Mortgage discussion thread. Rates are low right now...

BlueHouse

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #19 on: July 31, 2020, 07:51:02 AM »
It isn't really about missing potential stock market gains, it's about completely failing to understand how compound interest works, pure and simple. He can never regain those years of compounding that he has forfeited. It's mathematically impossible.

Sure he did a great thing, but with his hustle and drive, he could have used his brain and achieved FIRE even faster. We just don't teach this well enough.

He hasn't forfeited any years of compound interest that have already occurred, so you're talking about the potential in the future?  It's possible for him to re-fill that brokerage to what it was (and more) in a quick time frame now that he's so focused and he can save a bigger chunk of his earnings.  I know for me, once I got into high-earning jobs, I put away more in my 401k within 4 years than I had in the previous 20 years.  Most of us make more and can save more as we get older.    So the impact of losing those years may not be as great as one would think.

Dicey

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #20 on: July 31, 2020, 06:36:30 PM »
I love this chart. Note the difference between "Amount Saved" and "Investment Return" by decade. In short, the later you start, the more it's going to cost you out of pocket. The differences are even more astronomical the time passes, but I like the clean graphics and simple message of this version. If anyone has one they like better, feel free to share it.
« Last Edit: July 31, 2020, 06:38:35 PM by Dicey »

talltexan

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Re: 33 year old Cashes out Brokerage Account to pay off Mortgage.
« Reply #21 on: August 01, 2020, 08:44:31 AM »
Gosh, when I was 23, $415 felt like a monster sum, much more dear than $1,300 does to me today at 40.