DONT Payoff your Mortgage Club

[Dicey]

Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.

Can't all debt payoffs and investments be celebrated?  Does VTSAX have exclusive rights to celebrations?

Sure, if they're done optimally.

[talltexan]

My posts on this thread speak for themselves.

Still, I believe we ought to celebrate individuals taking control of their lives and finances and achieving mastery. Whatever your audacious goal is--even if it's not one I would choose--I pat you on the back.

[DadJokes]

Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.

[Teachstache]

If rates revert back to the historical average, we could board up this thread.

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???

We're those people. We live in a Midwestern city of 250,000+ and we own a 1955 3 bed/3 bath ranch that, when we had a mortgage on it cost us $584 per month as a 30 year mortgage. We paid it off in 5 years & 4 months.

[Tyson]

@Luz

I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.

The decision of IF to purchase a house is totally separate from the decision to pay early or not.  I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly

After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)

After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72

If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator).  Not necessarily the best ones, but the first ones I found :P

Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.

Hope that helps.

ETA: Fixed typos.

I guess this answers how much is it worth to have the peace of mind of having a paid off mortgage - about $900k in this case.

[EngagedToFIRE]

Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.

:)

[EngagedToFIRE]

@Luz

I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.

The decision of IF to purchase a house is totally separate from the decision to pay early or not.  I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly

After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)

After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72

If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator).  Not necessarily the best ones, but the first ones I found :P

Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.

Hope that helps.

ETA: Fixed typos.

I guess this answers how much is it worth to have the peace of mind of having a paid off mortgage - about $900k in this case.

You don't know that.  You can't see the future.  That's based on projected, possible, maybe, probably, but not sure market returns.  It's almost certainly assuming average returns over that first 10 years.  But who knows?  Look at the NIKKEI over the last 30 years....   You just never know.

[Tyson]

@Luz

I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.

The decision of IF to purchase a house is totally separate from the decision to pay early or not.  I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly

After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)

After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72

If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator).  Not necessarily the best ones, but the first ones I found :P

Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.

Hope that helps.

ETA: Fixed typos.

I guess this answers how much is it worth to have the peace of mind of having a paid off mortgage - about $900k in this case.

You don't know that.  You can't see the future.  That's based on projected, possible, maybe, probably, but not sure market returns.  It's almost certainly assuming average returns over that first 10 years.  But who knows?  Look at the NIKKEI over the last 30 years....   You just never know.

Are you planning to FIRE on the 4% rule?  Because it depends upon these assumptions being correct. 

Hell, in order to come out ahead the market doesn't even have to return 9%, it only has to return more than your mortgage interest rate.  So is the market going to return 9% over the next 10 years?  Probably.  Is it going to return more than 4% (most people's mortgage rate), almost certainly. 

[Radagast]

Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.

Can't all debt payoffs and investments be celebrated?  Does VTSAX have exclusive rights to celebrations?

Yesterday we went out to a restaurant to eat ramen (!) and paid $34 (!!) for two bowls and a noodle refill including tip (!!!). I just did the math, and I could get better results by eating at the ramen restaurant 19 times per month for 10 years straight as I would by paying off my 150k mortgage balance. Also eating ramen is less risky than paying off the mortgage because I could get hit by a big ass truck ;) tomorrow and have enjoyed all the ramen before I went, whereas paying off a mortgage would be delayed gratification that depends on a long string of being alive.

Therefore, I must start a thread to celebrate ramen, because it is a better investment than paying off a mortgage!

Who said VTSAX? Are you just making things up?

[Dicey]

Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.

I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

[EngagedToFIRE]

Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.

I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.

Doesn't sound like a facepunch to me.  In fact, it's very much celebrated on this site.  If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok.  Just own it yourself because YOU think it's sub-optimal.

[UnleashHell]

You don't know that.  You can't see the future.  That's based on projected, possible, maybe, probably, but not sure market returns.  It's almost certainly assuming average returns over that first 10 years.  But who knows?  Look at the NIKKEI over the last 30 years....   You just never know.

oh the NIKKEI argument. its a TRUMP CARD. WINNER.

whats the mortgage interest rate in Japan?
for a 35 year mortgage its just over 1% 0.85% for a variable rate.

(just to save you having to look it up)

and the average return with dividends reinvested in the NIKKEI for the past 35 years... 3.24%

so sure - lets look at the NIKKEI.. and whats your point?

The interest rate in Japan hasn't been above 2% since 1995. even when it was high here in the 80% they maxed at under 10%.

Th nikkei argument is bullshit - especially when talking about mortgages. Even if it wasn't who the hell is investing only in japan and getting a 30 year US mortgage?

[Dicey]

Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.

I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.

Doesn't sound like a facepunch to me.  In fact, it's very much celebrated on this site.  If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok.  Just own it yourself because YOU think it's sub-optimal.

You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.

There is a colossal difference between paying off a mortgage AFTER achieving FI, when one can do it in one lump sum, (or just pay cash up front), and throwing everything at the mortgage before funding every tax-favored retirement vehicle that's available to you. If you are FI, and don't want to have a mortgage, that's your decision. You do know we paid cash for our primary home, right? And that we have four other properties with mortgages? And we're FI & FIRE? Yeah, totally not hiding.

More importantly, this thread exists to thoroughly discuss this topic so that one can made the most optimal decision for their situation. You are not required to post contrarian views. There are plenty of other threads for that. Instead of snarking at me, you could shorten the number of years you have to work and the number of dollars you have to earn to attain your freedom by studying the Investment Order and following it to the best of your ability. While you're at it, be sure to bone up on the Forum Rules, especially Rule #1.

[nereo]

Th nikkei argument is bullshit - especially when talking about mortgages. Even if it wasn't who the hell is investing only in japan and getting a 30 year US mortgage?

The Nikkei is such a special example, and a non-standard one at that.  I think a lot of counter-arguments hang their hat on "oh, but the neikki went sideways... the lost decade(s)... it's proof all market projections must be suspect!!"

historical context is important.  The Nikkei (and Japan's GPD, ofr that matter) was not just in the toilet but flushed down the drain and in a septic tank somewhere after WWII.  It was in way worse shape than even Germany or Italy.  Entering the 1960s Japan's GDP was behind Canada - a country with 1/5th the population.  Remarkable for a country that had been a world power just a generation earlier and had been one of the more advanced civilizations for centuries.

Then Japan roared back.  It rebuilt, and its recovery was in part paved by a lot of western technological advances that they were able to capitalize on.  And lazy pundants looked at that growth from the 70s and 80s and made some predictions that in hindsight were bonkers.  Go back to financial articles from the late 80s/early 90s and most we absolutely certain Japan would eclipse the US before the end of the century. Of course they missed the mark.  What Japan (and the Nikkei) did was return to where Japan would otherwise have been had their economy not been bombed back to the stone-age and then trampled on by foreign boots. They never eclipsed the US in market size - which is not surprising given they have 1/3 the population and almost 1/5th the workforce (demographics play huge in developed economies).   Even their so-called "lost decade" wasn't that bad, considering the living standard for the median Japanese continued to improve, loans were incredibly affordable (as UnleashHell has already stated) and the national savings rate stayed in the double-digits.

The strength investing int he SP500 (and using that as your benchmark over the past century or so) is that those companies tend to be very large, diversified and pan-global, and exist within a regulated framework.  One could probably get similar results investing in the 500 largest european companies today - though historical data for those haven't been compiled for things like FireCalc. 

[Tyson]

Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years".  Which is, of course, a variation of market timing, and we all know how bad that is. 

Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit.  Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure.  In fact it's the opposite.  Paying extra toward the mortgage is actually very, very risky. 

A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID. 

Keep following that strategy until you are fully FI.  Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"?  If you don't, then pay it off.  If you do, then keep the extra $$ invested.  Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI. 

[CorpRaider]

Yeah, the lost decade was coming off a CAPE of ~100.  Japan is cheap now, on most metrics.  If they could clean up the corporate governance/unleash some capitalism forces like the U.S. (maybe with some liberalization of immigration and/or robotics replacing some human capital, we could see a repeat of the U.S. from the 1980s. 

[nereo]

Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years".  Which is, of course, a variation of market timing, and we all know how bad that is. 

Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit.  Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure.  In fact it's the opposite.  Paying extra toward the mortgage is actually very, very risky. 

A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID. 

Keep following that strategy until you are fully FI.  Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"?  If you don't, then pay it off.  If you do, then keep the extra $$ invested.  Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.

I think this is a good plan.   I do wonder how many people who have a 'home sinking fund' decide to eliminate their mortgage after becoming fully FI for two reasons; 1) a decade or so into a fixed-rate mortgage that payment looks pretty insignificant after inflation and increases in property taxes, and 2) once you've got a hefty six-figures in an VTSAX account it can be tough to watch that evaporate into a home you've lived in for years and already consider 'yours'.

My parents started a home sinking fund decades ago with the intent to follow this plan.  Now that account has enough money in it that the dividends alone are paying the mortgage (they did a couple of cash-Refis for lower rates, and plugged the money back into the account).  In another decade the mortgage will be gone and they should have an account with well over $1MM in it, which has been segregated from their comfy retirement portfolio.

[Dicey]

Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years".  Which is, of course, a variation of market timing, and we all know how bad that is. 

Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit.  Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure.  In fact it's the opposite.  Paying extra toward the mortgage is actually very, very risky. 

A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID. 

Keep following that strategy until you are fully FI.  Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"?  If you don't, then pay it off.  If you do, then keep the extra $$ invested.  Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.

I think this is a good plan.   I do wonder how many people who have a 'home sinking fund' decide to eliminate their mortgage after becoming fully FI for two reasons; 1) a decade or so into a fixed-rate mortgage that payment looks pretty insignificant after inflation and increases in property taxes, and 2) once you've got a hefty six-figures in an VTSAX account it can be tough to watch that evaporate into a home you've lived in for years and already consider 'yours'.

My parents started a home sinking fund decades ago with the intent to follow this plan.  Now that account has enough money in it that the dividends alone are paying the mortgage (they did a couple of cash-Refis for lower rates, and plugged the money back into the account).  In another decade the mortgage will be gone and they should have an account with well over $1MM in it, which has been segregated from their comfy retirement portfolio.

I see they got your smarts.

[Metalcat]

Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.

I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.

Doesn't sound like a facepunch to me.  In fact, it's very much celebrated on this site.  If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok.  Just own it yourself because YOU think it's sub-optimal.

You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.

There is a colossal difference between paying off a mortgage AFTER achieving FI, when one can do it in one lump sum, (or just pay cash up front), and throwing everything at the mortgage before funding every tax-favored retirement vehicle that's available to you. If you are FI, and don't want to have a mortgage, that's your decision. You do know we paid cash for our primary home, right? And that we have four other properties with mortgages? And we're FI & FIRE? Yeah, totally not hiding.

More importantly, this thread exists to thoroughly discuss this topic so that one can made the most optimal decision for their situation. You are not required to post contrarian views. There are plenty of other threads for that. Instead of snarking at me, you could shorten the number of years you have to work and the number of dollars you have to earn to attain your freedom by studying the Investment Order and following it to the best of your ability. While you're at it, be sure to bone up on the Forum Rules, especially Rule #1.

This is spot on.

I absolutely intend to pay my mortgage off early because between pensions and tax advantaged accounts, we will retire with far more money than we need and don't want to buy any more properties.

The mortgage will then just be a convenient place to dump excess money, plus I'm in Canada, so no magical US mortgages here. I might end up paying it off just to avoid the hassle of renewing it every 3-5 years.

That's a very very different reality from prioritizing prepaying a mortgage during accumulation though, especially at the expense of tax advantaged accounts.

It's fine to make an emotional decision, but it's critical to understand the actual increase of risk and cost of those emotional decisions.

One of my most respected FI community friends paid off her mortgage early and she fully and completely understood/understands the risks and costs of her decision and she has no regrets.

There's absolutely no judgement here of paying off mortgages early, many of us have/intend to. There is, however, heavy criticism of emotional financial decisions made with near total disregard for the very real increased risks and costs.

I *just* made a real estate decision that will likely cost me hundreds of thousands of dollars. I had a choice between two properties: one that is a smart and frugal choice that I love vs one that is a brilliant investment that I did not want to live in.

I made an emotional choice that will cost me hundreds of thousands of dollars, and I'm 100% okay with it. My choice is still frugal and savvy compared to wasteful over spending, but I'm not about to pretend that it's anywhere close as smart a financial move as the other place would have been.

Emotional decisions are valid...when they're fully informed.

ETA: I talked a good friend into buying the other place, and he loves it, and has no plans to pay down his mortgage ;)

[Fomerly known as something]

If rates revert back to the historical average, we could board up this thread.

Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right?  Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest

My parents love to tell me that they were such industrious workers that they could count on receiving 3-4% raises every year.

If you stretch to buy a house, but lock in fixed payments, having 10% more income to make those payments (two years later) is a really good thing.

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???

Quick look, if I were to refinance my current balance (about $165,000) my mortgage payment would be about $720 on a 30 year loan.  For a 3/2 house.

[SwordGuy]

If rates revert back to the historical average, we could board up this thread.

Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right?  Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest

My parents love to tell me that they were such industrious workers that they could count on receiving 3-4% raises every year.

If you stretch to buy a house, but lock in fixed payments, having 10% more income to make those payments (two years later) is a really good thing.

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???

Quick look, if I were to refinance my current balance (about $165,000) my mortgage payment would be about $720 on a 30 year loan.  For a 3/2 house.

If I had used a mortgage instead of cash on the last 3/2 house I bought, my mortgage would have been $280 for P&I, had it been for personal use.

The one I close on next month is a 4/2 with 2500+ sq ft finished space and probably 1000 sq ft unfinished would be the same, had it also been for personal use..

[fuzzy math]

Been toying around with refinancing for well over a year. Need to do it through my credit union because my name is still on a federal program blacklist til 3/2020, despite the foreclosure having fallen off my credit report 6 months ago.

Home balance is $156k. Current mortgage is a 15 yr FHA (12.5 yrs remain) with apr of 3.625%. Put down 20% to get out of PMI asap, but found out really late in the process that PMI is mandatory for 10 yrs of the loan, regardless of balance. Didn't fully think through the ramifications of putting down 20% despite having PMI because I hadn't found this thread at that point. PMI payment is $56 a month.

Have spoken with bank, and gotten online app link to refi. Home should have appreciated $10k or so since purchase, and we will most likely cash out refi back to 80% LTV. My spouse wants to keep the money liquid, I'd rather sock it away in work sponsored retirement accounts since we have nearly $90k in tax free space between our employers. It would allow us to significantly lower our tax bill for 2019, and would make up for an old 457b that I was forced to cash out upon leaving an old employer.

I was reading this thread and got excited again about going through with the refi. Went back to the bank site and their loans have gone up 1/8 of a point, which really irritated me. I was hoping that with the fed decision coming tomorrow that they'd be headed the other way. I think I need to wait a few weeks to see what the bank does. Currently they're 3.75% for a 30 yr, 3.5% for a 20 r and 3.5%for a 15 yr. The 20 yr rate remains unchanged, but the 15 and 30 yr rates went up. Jerks.

[EngagedToFIRE]

Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years".  Which is, of course, a variation of market timing, and we all know how bad that is. 

Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit.  Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure.  In fact it's the opposite.  Paying extra toward the mortgage is actually very, very risky. 

A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID. 

Keep following that strategy until you are fully FI.  Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"?  If you don't, then pay it off.  If you do, then keep the extra $$ invested.  Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.

This is exactly the approach I recommend.  It's still clearly POYM, but hell no to extra payments.  Lump sum approach.

[EngagedToFIRE]

Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.

I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.

Doesn't sound like a facepunch to me.  In fact, it's very much celebrated on this site.  If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok.  Just own it yourself because YOU think it's sub-optimal.

You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.

There is a colossal difference between paying off a mortgage AFTER achieving FI, when one can do it in one lump sum, (or just pay cash up front), and throwing everything at the mortgage before funding every tax-favored retirement vehicle that's available to you. If you are FI, and don't want to have a mortgage, that's your decision. You do know we paid cash for our primary home, right? And that we have four other properties with mortgages? And we're FI & FIRE? Yeah, totally not hiding.

More importantly, this thread exists to thoroughly discuss this topic so that one can made the most optimal decision for their situation. You are not required to post contrarian views. There are plenty of other threads for that. Instead of snarking at me, you could shorten the number of years you have to work and the number of dollars you have to earn to attain your freedom by studying the Investment Order and following it to the best of your ability. While you're at it, be sure to bone up on the Forum Rules, especially Rule #1.

Pointing out that MMM himself has no issue with paying off a mortgage is being a jerk?  Wow.  Your little attack on me, assuming I'm not FI, is more "jerkish" than anything I've posted.  I don't have to work at all.  I'm doing great, thanks.

My point, and it's fair, is that MMM has said that paying off a mortgage isn't terrible.  And that was DIRECTLY in response to a comment that we are on the MMM site and face punches are in order for paying off a mortgage.  That's not being a jerk, sorry.  Only pointing out what MMM has actually written.

I have actually said paying off a mortgage is rarely the best decision.

[Pizzabrewer]

I'll probably get banned from this "payoff" thread after this comment:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968

[nereo]

I'll probably get banned from this "payoff" thread after this comment:

[urlhttps://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968][/url]

Ok... my thought is that this thread and the other thread are both motivational "clubs" organized for a specific purpose.  I'd be happy to see more from over there come and join us, but it's probably not the best thread to throw stones in. 

[sherr]

I'll probably get banned from this "payoff" thread after this comment:

fixed link

Frankly, you should be.

[Pizzabrewer]

I'll probably get banned from this "payoff" thread after this comment:

[urlhttps://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968][/url]

Ok... my thought is that this thread and the other thread are both motivational "clubs" organized for a specific purpose.  I'd be happy to see more from over there come and join us, but it's probably not the best thread to throw stones in.

I'm "paying off my mortgage" also.  Just as slowly as possible.

[DadJokes]

That's called being a troll, and it's not something you should brag about. They've made it very clear that they don't want to hear the DPOYM side of the argument in that thread.

[CarolinaGirl]

That's called being a troll, and it's not something you should brag about. They've made it very clear that they don't want to hear the DPOYM side of the argument in that thread.

^This!! 

Why do people have to poop on other people’s parades?!  Per MMM it’s a win-win situation either way.  WHY all the hate?  If someone is asking your opinion, then yeah explain how one way is more optimal, else let them be proud of moving toward the finish line. 


“The Mustachian Way is flexible enough that it will make us all rich relatively quickly, so there is no need to lock on to one particular strategy as The Only Way To Do It.”  MMM

https://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/

[DeniseNJ]

A few sincere questions:
Now that state and local taxes are only federally deductible up to 10K, if you can't itemize and deduct your mortgage interest, has anybody changed their minds about hanging on to a mortage?

Also, along the lines of all the admittedly great arguments for not paying off the mortgage, would you recommend to increase your mortgage?  Basically leverage your house to reinvest in stocks.  This is just borrowing money at a low interest rate to invest it for a higher return--you pay back the loan and keep the difference, like cc churning.  Would you take out a personal loan at a lower rate than you think the market will return?

If you spend 500K on a house or 500K on stocks, you could borrow against either to buy more investmensts I suppose.  But most people borrow to buy houses, yet they don't generally borrow to buy stock.  I guess bc it's considered risky.  But your house could go underwater just like your stocks could tank in value.  So why isn't getting a "mortgage" to buy stock a thing for most people?

[nereo]

A few sincere questions:
Now that state and local taxes are only federally deductible up to 10K, if you can't itemize and deduct your mortgage interest, has anybody changed their minds about hanging on to a mortage?

I have not.  To me, interest deductions were rarely applicable and when they were they were merely icing on the cake.  The real benefit from not paying off oyur mortgage at an accelerated rate is that there are much better things to do with your money (particularly true if you have 'head-space' in your tax-advantaged accounts).

Also, along the lines of all the admittedly great arguments for not paying off the mortgage, would you recommend to increase your mortgage?  Basically leverage your house to reinvest in stocks.  This is just borrowing money at a low interest rate to invest it for a higher return--you pay back the loan and keep the difference, like cc churning.  Would you take out a personal loan at a lower rate than you think the market will return?

I believe that - when done systematically and intelligently, refinancing your home and using the proceeds for investments is a great use of your assets.  What worries me a great deal is when someone's NW is >>50% primary residence. There is so much that can go wrong there, and so little that can be done when things go south.  Personally I strive to have < 25% of my total NW in my home, and as I pay down my mortgage it's easy for that to get skewed. 

[RWD]

Another month another minimum payment. I calculate that the amount we are paying in interest on this mortgage is roughly 3% of our annual income.

We got this mortgage in 2016 with an interest rate of 3.125%. Since then the S&P 500 has returned 13.9% annualized. So far it has been overwhelmingly the correct decision to make minimum payments.

Car loan is a similar story at 1.69% acquired in 2018. S&P 500 at 8.9% annualized since.

[talltexan]

Rates are dropping again. Ten-year yield down in the 1.6-range. What a time to be alive!

[nereo]

Rates are dropping again. Ten-year yield down in the 1.6-range. What a time to be alive!

wrote a parallel thread about it, but we're house hunting right now and going through the process of getting a verified mortgage.  So far we've gotten a 30y fixed at 3.625%.  Oddly, the rates for 15y aren't substantially better (I think the lowest we were quoted was 3.4% - not something we're interested in). 5/1 ARMs are considerably higher than 30y fixed, if that makes any sense at all.
The yield on the 30 day is better than on the 10 year.  bonkers.

What a time to be alive indeed. 

Looking forward to paying off this mortgage as slooooooowly as humanly possible.

[Tyson]

Rates are dropping again. Ten-year yield down in the 1.6-range. What a time to be alive!

wrote a parallel thread about it, but we're house hunting right now and going through the process of getting a verified mortgage.  So far we've gotten a 30y fixed at 3.625%.  Oddly, the rates for 15y aren't substantially better (I think the lowest we were quoted was 3.4% - not something we're interested in). 5/1 ARMs are considerably higher than 30y fixed, if that makes any sense at all.
The yield on the 30 day is better than on the 10 year.  bonkers.

What a time to be alive indeed. 

Looking forward to paying off this mortgage as slooooooowly as humanly possible.

Hmm, makes me wonder if I should consider refinancing my house, it's currently at 4%

[Dicey]

DH and I actually had a conversation about this last night. When the flip house sells, we'll be back down to three rentals with well-seasoned mortgages. We might pull a mortgage on our primary, just to grab a chunk of cheap money. Interesting conundrum.

What we're definitely not going to do is use the proceeds from the flip house to pay off any rental mortgages.

[talltexan]

Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?

[Dicey]

Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?

Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?

[FIreDrill]

Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?

Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?

We just refinanced through Accelin Loans and it was a pretty good experience.  I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate.  3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)

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[Dicey]

Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?

Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?

We just refinanced through Accelin Loans and it was a pretty good experience.  I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate.  3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)

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What rate did you get? When we've tried to shop rates, it's been a fucking nightmare.

[FIreDrill]

Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?

Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?

We just refinanced through Accelin Loans and it was a pretty good experience.  I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate.  3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)

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What rate did you get? When we've tried to shop rates, it's been a fucking nightmare.

We paid "some" points and got 3.875 earlier this year. Breakeven on the refinance is 18 months so there is a high likelihood that it will pay off.  I usually shop via bankrate website, get a couple quotes, and then see if any of the lenders can beat the best quote.  We were somewhat limited because pmi is apart of our payment so getting a great rate with low pmi can be a challenge. I think Accelin is offering 3.875 with no points right now and 3.5 with.5 points. I've seen some lenders advertised 3.5 with 0 points over the last couple days so it may be possible to get that rate in the comings weeks.  This also depends on the area and loan amount though.

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[tralfamadorian]

I’ve been helping an older family member through the refi process (from an soon to expire ARM to a 30yr) and 3.875%/0pts was also the best I could get for her.

[TomTX]

I'm seeing 3.875 for a cashout refi in Texas, which tends to raise the rates a bit over other states and a non-cashout refi due to our overbearing legislature making all these silly restrictions...

[Dicey]

I'm seeing 3.875 for a cashout refi in Texas, which tends to raise the rates a bit over other states and a non-cashout refi due to our overbearing legislature making all these silly restrictions...

I'm not sure how they categorize a new first on a paid for house, because I've never had a paid for house before we bought this one. I'm not sure it's treated as favorably as an acquisition loan. In a way it is a cash-out loan, but not in the typical sense. Anybody have any experience getting a mortgage on a free & clear house? Where is boarder42 when you need him?*

*Rhetorical question. I hope he's out on his boat, in front of his lake-front house, enjoying a beer. Cheers, b42!

[TomTX]

I'm seeing 3.875 for a cashout refi in Texas, which tends to raise the rates a bit over other states and a non-cashout refi due to our overbearing legislature making all these silly restrictions...

I'm not sure how they categorize a new first on a paid for house, because I've never had a paid for house before we bought this one. I'm not sure it's treated as favorably as an acquisition loan. In a way it is a cash-out loan, but not in the typical sense. Anybody have any experience getting a mortgage on a free & clear house? Where is boarder42 when you need him?*

*Rhetorical question. I hope he's out on his boat, in front of his lake-front house, enjoying a beer. Cheers, b42!

At least here in Texas, I was told that it didn't matter if the house was already owned free and clear - but that was just one lender. I haven't investigated extensively.

[moonpalace]

So I'm thinking fairly seriously about refinancing.

I'm in year 3 of a 15-year fixed @ 2.75%.

Just got quoted a 30-year fixed @ 3.5%.

Making this switch would reduce monthly payment by about $840.

I would apply some of the difference (about $300/month) to fully maxing out pre-tax retirement savings (401a, 457, and solo 401k) at over $60k per year. The rest would go to paying down some medium-interest student-loan debt (5.4%).

Seems like a decent idea to me but am very interested to hear thoughts from the hive mind!

[FIreDrill]

So I'm thinking fairly seriously about refinancing.

I'm in year 3 of a 15-year fixed @ 2.75%.

Just got quoted a 30-year fixed @ 3.5%.

Making this switch would reduce monthly payment by about $840.

I would apply some of the difference (about $300/month) to fully maxing out pre-tax retirement savings (401a, 457, and solo 401k) at over $60k per year. The rest would go to paying down some medium-interest student-loan debt (5.4%).

Seems like a decent idea to me but am very interested to hear thoughts from the hive mind!

I think it's a pretty solid move assuming the entire 840/mo savings goes towards investments or high interest debt payoff.  How large is the student loan debt and how much money do you have available in non tax advantaged accounts? It may be a good idea to start building your taxable brokerage investment accounts as well in order to give you more flexibility in the event of a downturn. 

I'm weird though and would rather have 50k debt at 4% interest while also holding a 50k taxable portfolio versus having no debt and no taxable portfolio.  Having a large amount of money available at anytime really makes me feel more secure compared to having no money and no debt. All of this being said assuming debt interest rate is sub 5% and the monthly payments are easily manageable.



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[moonpalace]

I think it's a pretty solid move assuming the entire 840/mo savings goes towards investments or high interest debt payoff.  How large is the student loan debt and how much money do you have available in non tax advantaged accounts? It may be a good idea to start building your taxable brokerage investment accounts as well in order to give you more flexibility in the event of a downturn. 

I'm weird though and would rather have 50k debt at 4% interest while also holding a 50k taxable portfolio versus having no debt and no taxable portfolio.  Having a large amount of money available at anytime really makes me feel more secure compared to having no money and no debt. All of this being said assuming debt interest rate is sub 5% and the monthly payments are easily manageable.

The student loan is only $7300. We currently have $0 in non-tax-advantaged accounts. I would happily start building those up as well. All monthly debt payments are easily manageable, since we are already putting about $60k into pre-tax investments every year.

[FIreDrill]

I think it's a pretty solid move assuming the entire 840/mo savings goes towards investments or high interest debt payoff.  How large is the student loan debt and how much money do you have available in non tax advantaged accounts? It may be a good idea to start building your taxable brokerage investment accounts as well in order to give you more flexibility in the event of a downturn. 

I'm weird though and would rather have 50k debt at 4% interest while also holding a 50k taxable portfolio versus having no debt and no taxable portfolio.  Having a large amount of money available at anytime really makes me feel more secure compared to having no money and no debt. All of this being said assuming debt interest rate is sub 5% and the monthly payments are easily manageable.

The student loan is only $7300. We currently have $0 in non-tax-advantaged accounts. I would happily start building those up as well. All monthly debt payments are easily manageable, since we are already putting about $60k into pre-tax investments every year.

I'd say go for it max your tax deferred accounts and start hammering your taxable accounts.  Once you get them built up you can easily take a little bit and drop it on the student loans.  You're really only sacrificing .75% for a term extension of 18 years which will improve investable cash flow and greatly increase your odds of  beating that puny mortgage rate on an average yearly basis with the new term length given you invest the money in the market.

With average market growth of 9.6% the 840/mo invested would come out to about 230k over 12 years or by the time your current 15 year term is up.  Even with low returns at 4% it would be around 160k by the end of the term.  And none of this takes into account the tax savings you will get on the 300/mo tax deferred contributions.

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