Author Topic: DONT Payoff your Mortgage Club  (Read 360516 times)

moonpalace

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Re: DONT Payoff your Mortgage Club
« Reply #1750 on: August 11, 2019, 03:16:52 PM »
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

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Re: DONT Payoff your Mortgage Club
« Reply #1751 on: August 11, 2019, 03:48:23 PM »


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

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Re: DONT Payoff your Mortgage Club
« Reply #1752 on: August 11, 2019, 04:18:15 PM »
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

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Re: DONT Payoff your Mortgage Club
« Reply #1753 on: August 11, 2019, 05:01:14 PM »


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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talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1754 on: August 12, 2019, 08:26:27 AM »
How does your interest payment per month change?

I feel like rates will continue dropping, and being sub-3 is pretty special. It has a decent chance of being lower than inflation.

UnleashHell

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Re: DONT Payoff your Mortgage Club
« Reply #1755 on: August 22, 2019, 06:48:43 AM »
I now have another house. and another mortgage. thats 3 mortgages and I'm not overpaying on any of them. Thats how I win right?



oh expect I hope to pay the lowest interest one off in full this year...!!!


Its a long story...

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1756 on: August 22, 2019, 06:58:13 AM »
I now have another house. and another mortgage. thats 3 mortgages and I'm not overpaying on any of them. Thats how I win right?

oh expect I hope to pay the lowest interest one off in full this year...!!!

Its a long story...
I've been following that story and just commented on the topic over in your shiny new journal. I figured that was your plan. Once the mortgage has been vanquished, is The X required to take over payment of the taxes and insurance? If so, I'm with you: I'd kill that sucker asap. If the T&I are tied in to spousal or offspring support, I might arrange the flight pattern so they all end at about the same time. Bigger jolt upon landing for The X seems like a good thing, but maybe I'm just being petty ;-)

UnleashHell

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Re: DONT Payoff your Mortgage Club
« Reply #1757 on: August 22, 2019, 07:52:12 AM »
I now have another house. and another mortgage. thats 3 mortgages and I'm not overpaying on any of them. Thats how I win right?

oh expect I hope to pay the lowest interest one off in full this year...!!!

Its a long story...
I've been following that story and just commented on the topic over in your shiny new journal. I figured that was your plan. Once the mortgage has been vanquished, is The X required to take over payment of the taxes and insurance? If so, I'm with you: I'd kill that sucker asap. If the T&I are tied in to spousal or offspring support, I might arrange the flight pattern so they all end at about the same time. Bigger jolt upon landing for The X seems like a good thing, but maybe I'm just being petty ;-)


that IS petty. I would never think like that.
T&I is no longer my responsibility once I pay off the mortgage. I have just over 3 years to clear that debt according to the agreement.

The insurance gets paid each September.  Taxes in November.
The final CS payment is next July............
I think I may be in a position to clear that mortgage in the first half of next year......

Goldy

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Re: DONT Payoff your Mortgage Club
« Reply #1758 on: August 27, 2019, 08:13:25 AM »
Well I have now completely switched sides and reduced my overpayment to $4 to make my payment an even $1300.  The rest of that money that I used to put towards my 2.5% 5/1 ARM is now going into my after tax investments.  With rates becoming low again I suspect I will be refinancing in the future and will just ride out a 15 or 30 yr term.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1759 on: August 27, 2019, 08:16:11 AM »
Looks like I'll be signing a 30y fixed at 3.65% next week.  Looking forward to not paying that sucker off any faster than absolutely necessary.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1760 on: August 27, 2019, 08:36:50 AM »
Looks like I'll be signing a 30y fixed at 3.65% next week.  Looking forward to not paying that sucker off any faster than absolutely necessary.

Congrats! I've been following your journal, glad to hear this saga may finally be coming to an end!

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1761 on: August 27, 2019, 03:22:23 PM »
I have a buddy that I talk finances with a lot. We have been keeping an eye on mortgage rates and I found what appeared to be a crazy good rate for a streamlined VA 30 yr refi.  He just locked in at 3.25% with 1800 credit towards closing. His break even will be 6.5 months with 1100 in closing costs.

I'm just slightly jealous he will have a better rate than me now ;)

If you are VA eligible AimLoan has some crazy good rates.  30yr at 2.75% if you want to pay some points up front and 3.125% with no points.

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Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1762 on: August 28, 2019, 01:30:50 AM »
I have a buddy that I talk finances with a lot. We have been keeping an eye on mortgage rates and I found what appeared to be a crazy good rate for a streamlined VA 30 yr refi.  He just locked in at 3.25% with 1800 credit towards closing. His break even will be 6.5 months with 1100 in closing costs.

I'm just slightly jealous he will have a better rate than me now ;)

If you are VA eligible AimLoan has some crazy good rates.  30yr at 2.75% if you want to pay some points up front and 3.125% with no points.

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Wow!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1763 on: August 28, 2019, 09:23:22 AM »
Fantastic rates, guys!

The bond market continues to be kind to homebuyers, delivering the lowest ten-year yields since early 2016.

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1764 on: August 28, 2019, 11:08:56 AM »
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.

Goldy

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Re: DONT Payoff your Mortgage Club
« Reply #1765 on: August 28, 2019, 03:03:00 PM »
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.

I just looked into it but I really dislike the amount of information you need to give them so they can pass it on to their "partners".  I'm a much bigger fan of Zillow and Aimloans.com who will give you a rate quote based on your cursory information and not require your contact info unless you want to move forward.  I once signed up through lending tree and was amazed at the flood of mortgage solicitors on the phone and email and I suspect that Credible is the same.  Aimloans has the best rates I have seen outside of some USAA products.

EngagedToFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1766 on: August 28, 2019, 04:29:12 PM »
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.

I just looked into it but I really dislike the amount of information you need to give them so they can pass it on to their "partners".  I'm a much bigger fan of Zillow and Aimloans.com who will give you a rate quote based on your cursory information and not require your contact info unless you want to move forward.  I once signed up through lending tree and was amazed at the flood of mortgage solicitors on the phone and email and I suspect that Credible is the same.  Aimloans has the best rates I have seen outside of some USAA products.

Isn't the whole draw for credible that they DON'T pass it on to partners?  They import the lending formulas and keep it all in house.  I haven't used it, but that's the impression I got from MMM's description of the service.

Goldy

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Re: DONT Payoff your Mortgage Club
« Reply #1767 on: August 28, 2019, 09:22:11 PM »
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.

I just looked into it but I really dislike the amount of information you need to give them so they can pass it on to their "partners".  I'm a much bigger fan of Zillow and Aimloans.com who will give you a rate quote based on your cursory information and not require your contact info unless you want to move forward.  I once signed up through lending tree and was amazed at the flood of mortgage solicitors on the phone and email and I suspect that Credible is the same.  Aimloans has the best rates I have seen outside of some USAA products.

Isn't the whole draw for credible that they DON'T pass it on to partners?  They import the lending formulas and keep it all in house.  I haven't used it, but that's the impression I got from MMM's description of the service.

Here is what their terms and conditions say.  I didnít see the MMM tweet but this seems no different than the other lending brokers to me unless Iím missing something (entirely possible).


1) By using our Service you agree to receive calls and SMS messages from us and our Providers, including telemarketing calls, auto-dialed calls and texts and pre-recorded voice messages

5) Your contact information will be shared with Providers



sherr

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Re: DONT Payoff your Mortgage Club
« Reply #1768 on: August 29, 2019, 08:03:30 AM »
Isn't the whole draw for credible that they DON'T pass it on to partners?  They import the lending formulas and keep it all in house.  I haven't used it, but that's the impression I got from MMM's description of the service.

Here is what their terms and conditions say.  I didnít see the MMM tweet but this seems no different than the other lending brokers to me unless Iím missing something (entirely possible).


1) By using our Service you agree to receive calls and SMS messages from us and our Providers, including telemarketing calls, auto-dialed calls and texts and pre-recorded voice messages

5) Your contact information will be shared with Providers

Right, that means they'll give 3rd parties your email address / phone number so that they can contact you. The supposed difference is that the "other guys" also give out all the financial info you provide.

DeniseNJ

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Re: DONT Payoff your Mortgage Club
« Reply #1769 on: August 29, 2019, 08:49:40 AM »
Isn't the whole draw for credible that they DON'T pass it on to partners?  They import the lending formulas and keep it all in house.  I haven't used it, but that's the impression I got from MMM's description of the service.

Here is what their terms and conditions say.  I didnít see the MMM tweet but this seems no different than the other lending brokers to me unless Iím missing something (entirely possible).


1) By using our Service you agree to receive calls and SMS messages from us and our Providers, including telemarketing calls, auto-dialed calls and texts and pre-recorded voice messages

5) Your contact information will be shared with Providers

Right, that means they'll give 3rd parties your email address / phone number so that they can contact you. The supposed difference is that the "other guys" also give out all the financial info you provide.
I did all the Creditable info and have not had any solicitations--just an email maybe two or three times from Creditble asking if I still wanted to refi.  I went to the point of getting all the quotes and now have to decide which to go with and apply.  No calls or texts and no emails from anyone else.  I agree about Lending Tree--that was awful.

EngagedToFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1770 on: August 29, 2019, 09:26:45 AM »
MMM's comments were on his latest blog post, I'll just paste it here.  If the terms from Credible clearly state that you will get telemarketing calls because they sell your contact information, then MMM needs to update the blog accordingly, because he is giving out misleading information regarding the Credible product.

Quote
Watchful readers may have noticed I also mentioned this company on Twitter recently. After a few months of skepticism that the world needed yet another financial company, I was convinced by some conversations with the people running it and a Zoom video of the customer experience from a senior employee, with some very candid commentary on their design choices.

I like it because they import the lending models from their large supply of hooked-up finance companies, then run the rate comparisons on their own server rather than farming out your personal information to each separate lender. It saves you from filling out multiple applications when collecting rates, and also saves you from getting on everyoneís spam list (they donít sell your contact information, which is a rare thing among loan search engines).

It was a hard model for them to get going, because the banks naturally want to have your information so they can spam you.  But now that they have a growing presence in the market, lenders are forced to come through Credible to get access to this pool of qualified people. After enough testing with people I knew, I found the experience is worth recommending.

sisto

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Re: DONT Payoff your Mortgage Club
« Reply #1771 on: August 29, 2019, 12:24:20 PM »
I have been working with credible and have not gotten any unsolicited calls or emails. I just checked out the VA recommendation above, fingers crossed I can get that. Currently in a 15yr Vs with Quicken. 5 years in at 3.25. Been waiting awhile now for a good 30 year rate. Should save over $800/month

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1772 on: August 29, 2019, 12:35:59 PM »
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change. 

DadJokes

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Re: DONT Payoff your Mortgage Club
« Reply #1773 on: August 29, 2019, 12:47:21 PM »
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change.

Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1774 on: August 29, 2019, 01:42:24 PM »
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change.

Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.

I'm not going to rehash too deeply here, but it is more than just emotional: Once you reach FI, and would like to RE, it often makes financial sense to pay off the mortgage (though at 2.75%, I'm not sure I could part with such a gift). Reducing expenses at retirement often reduces SORR, even if it also reduces expected return.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1775 on: August 29, 2019, 02:53:19 PM »
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change.

Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.

I'm not going to rehash too deeply here, but it is more than just emotional: Once you reach FI, and would like to RE, it often makes financial sense to pay off the mortgage (though at 2.75%, I'm not sure I could part with such a gift). Reducing expenses at retirement often reduces SORR, even if it also reduces expected return.

That's quite right.

Not in my case, but it's very good general advice.

We have essentially zero sequence of returns risk from the market.   If we stay on budget we only need to pull $10,000 (total) out of the market over the next two years.  By then our rental income will fill in the gap and we'll have a 0% SWR.   Or, we could just spend down non-stock/bond assets instead for a 0% withdrawal rate now. 

I expect to have a negative SWR rate by 2022 at the latest.  We retired about 15 months ago.

I over-engineered our FIRE.  We have a mentally handicapped daughter who can't recover from any mistake we make in setting her up financially after we pass on, so I make no apologies for doing so. 

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1776 on: August 29, 2019, 03:05:16 PM »
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change.

Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.

I'm not going to rehash too deeply here, but it is more than just emotional: Once you reach FI, and would like to RE, it often makes financial sense to pay off the mortgage (though at 2.75%, I'm not sure I could part with such a gift). Reducing expenses at retirement often reduces SORR, even if it also reduces expected return.

That's quite right.

Not in my case, but it's very good general advice.

We have essentially zero sequence of returns risk from the market.   If we stay on budget we only need to pull $10,000 (total) out of the market over the next two years.  By then our rental income will fill in the gap and we'll have a 0% SWR.   Or, we could just spend down non-stock/bond assets instead for a 0% withdrawal rate now. 

I expect to have a negative SWR rate by 2022 at the latest.  We retired about 15 months ago.

I over-engineered our FIRE.  We have a mentally handicapped daughter who can't recover from any mistake we make in setting her up financially after we pass on, so I make no apologies for doing so.

No apologies necessary. Everyone should run their own race. Congrats, you can't lose when your plan is essentially bulletproof, and I'm sure your daughter will benefit from your foresight.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1777 on: September 19, 2019, 07:02:40 AM »
Things have been quiet on this thread lately. I just saw this today and thought I'd post it here. Anyone have any experience with this program?


https://www.yahoo.com/finance/news/costco-mortgage-program-worth-exploring-135350178.html

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1778 on: September 19, 2019, 07:10:27 AM »
I'm officially re-joining this thread with the purchase of our new (old) home.  3.7%, 30 year note (fixed).  No desire to pay that sucker off early.  My only regret is that had we waited another 10-14 days we likely could have gotten the rate down to 3.6%.  C'est la vie

moonpalace

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Re: DONT Payoff your Mortgage Club
« Reply #1779 on: September 19, 2019, 07:19:03 AM »
I just refinanced from 15-year to 30-year. 30-year rate is 3.5%. New payment is $865 less than the old.

Also refinanced my remaining $7k in student loans - was at 5.6%, now at 3.2%, through Earnest. Extended the payoff period to 5 years and the payment went down $100/month.

So now I can max out my wife's solo 401k to ~$33k/year (have been at about $29k last couple of years). Also have been maxing out 457 and 403b. Those are all pre-tax. Time to look further down in the investment order post!

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1780 on: September 19, 2019, 07:37:22 AM »
Given the current interest rates, I've considered refinancing (I even went through the process with Navy Federal but it seems my agent sucks and won't respond to me). That being said, I think there's a not-insignificant probability I may leave this house in the not-too-distant future, which means I have a strong desire to minimize fees at the expense of a possibly higher interest rate. Has anyone gotten or is aware of companies that offer low fees in this manner*?

*If it isn't clear, rolling in fees wouldn't be helpful in this situation, even if it gives the illusion of low fees.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1781 on: September 19, 2019, 08:34:29 AM »
Bond yields climbing this week, you guys may wind up glad you closed when you did. The talltexan family is getting quoted a 3.875 for 30-years (with no points)

moonpalace

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Re: DONT Payoff your Mortgage Club
« Reply #1782 on: September 19, 2019, 09:17:44 AM »
Given the current interest rates, I've considered refinancing (I even went through the process with Navy Federal but it seems my agent sucks and won't respond to me). That being said, I think there's a not-insignificant probability I may leave this house in the not-too-distant future, which means I have a strong desire to minimize fees at the expense of a possibly higher interest rate. Has anyone gotten or is aware of companies that offer low fees in this manner*?

*If it isn't clear, rolling in fees wouldn't be helpful in this situation, even if it gives the illusion of low fees.

I didn't end up using them, but when I got quotes from Credible, they gave a wide array of options all along the spectrum of fees and APRs.

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1783 on: September 20, 2019, 06:54:02 PM »
Given the current interest rates, I've considered refinancing (I even went through the process with Navy Federal but it seems my agent sucks and won't respond to me). That being said, I think there's a not-insignificant probability I may leave this house in the not-too-distant future, which means I have a strong desire to minimize fees at the expense of a possibly higher interest rate. Has anyone gotten or is aware of companies that offer low fees in this manner*?

*If it isn't clear, rolling in fees wouldn't be helpful in this situation, even if it gives the illusion of low fees.

Depending what your current rate a Home Equity Loan is more commonly available at slightly higher rates and no (or very low) fees. My CU has a HEL at 3.95% if it's a first mortgage.

DeedlesSci

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Re: DONT Payoff your Mortgage Club
« Reply #1784 on: September 23, 2019, 04:13:42 PM »
Joining the club. We just took off our extra mortgage payment and are now going to devote that money to a 457 account. We are far enough down on our amortization table that we will have the mortgage paid off the same year we plan to retire. We would prefer to not have a mortgage at retirement, but want to have more of our cash flow now going to investments.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1785 on: September 25, 2019, 01:24:26 PM »
Joining the club. We just took off our extra mortgage payment and are now going to devote that money to a 457 account. We are far enough down on our amortization table that we will have the mortgage paid off the same year we plan to retire. We would prefer to not have a mortgage at retirement, but want to have more of our cash flow now going to investments.
Welcome!

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Re: DONT Payoff your Mortgage Club
« Reply #1786 on: September 26, 2019, 06:39:03 AM »
Joining the club. We just took off our extra mortgage payment and are now going to devote that money to a 457 account. We are far enough down on our amortization table that we will have the mortgage paid off the same year we plan to retire. We would prefer to not have a mortgage at retirement, but want to have more of our cash flow now going to investments.

This is the right move for most people given today's mortgage interest rates. You're getting those investments in your tax-deferred account on sale by the percentage of your combined tax bracket. So even if the stock market dropped 25% next year (assuming your combined tax bracket is close to 25%) and then continued its upward march at 10% annually, you would be breaking even at the start and then making the difference between 10% and your mortgage rate. Hard to lose on those terms.

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Re: DONT Payoff your Mortgage Club
« Reply #1787 on: September 26, 2019, 08:14:24 AM »
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1788 on: September 26, 2019, 08:27:20 AM »
@SwordGuy That's why we've formed this group of like-minded mortgage maintainers. It's easier to trust in your logic when a group of like-minded people will help you hold the line. Why don't you share with us where you're investing the non-mortgage portion of your FI money?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1789 on: September 26, 2019, 08:54:23 AM »
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."
The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)

If you tend to be a worrier you're always going to find something to worry about. If it's not the taxes, it's the utilities, or the insurance or the roof in winter or the HVAC in August. Having more money than you ever imagined possible eases far more worries than killing off the mortgage will.

HOWEVER, if you've already hit your number and you have enough beyond that to erase the mortgage, it's harder to justify keeping it. I get that. Paying off the mortgage isn't the worst decision, provided that you make it at the right time. In your situation, I wouldn't necessarily disagree with paying it off. Shocker, I know.

Malkynn

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Re: DONT Payoff your Mortgage Club
« Reply #1790 on: September 26, 2019, 09:01:10 AM »
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

I just don't conceptualize my mortgage as debt, I look at it as rent-control. I may choose to wipe it out by retirement, I may not, I'll decide that in the future, but at this point, I really just accept it as a housing expense, like my condo fees and property taxes. For this place, all of those monthly costs are less than rent would be, so even if I never built any equity, I would still come out way ahead.

If I were you, I would examine the emotional reasons behind why it bothers you, and why you are struggling to be okay with math you trust. There's no such thing as just being "debt-averse", there has to be some emotional basis for that aversion, so determine what that basis is and why it bothers you.

As Dicey said though, just paying it off is really no big deal if you aren't doing it at the major expense of your retirement accounts. At a certain point in the game though, it's practically irrelevant if you do or don't.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1791 on: September 26, 2019, 09:09:37 AM »
I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

We should hijack that moniker:

"For today's Asset Allocation meeting, we'll discuss with SwordGuy the pros and cons of paying off his mortgage versus investing it in tax-deferred equities. Step one: Admitting that the instinct to pay off debt is a healthy one, though being able to use intellect to overcome instinct when circumstances favor debt is the path to wisdom."

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1792 on: September 26, 2019, 09:28:52 AM »
I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

We should hijack that moniker:

"For today's Asset Allocation meeting, we'll discuss with SwordGuy the pros and cons of paying off his mortgage versus investing it in tax-deferred equities. Step one: Admitting that the instinct to pay off debt is a healthy one, though being able to use intellect to overcome instinct when circumstances favor debt is the path to wisdom."

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Re: DONT Payoff your Mortgage Club
« Reply #1793 on: September 26, 2019, 09:34:14 AM »

I just don't conceptualize my mortgage as debt, I look at it as rent-control. I may choose to wipe it out by retirement, I may not, I'll decide that in the future, but at this point, I really just accept it as a housing expense, like my condo fees and property taxes. For this place, all of those monthly costs are less than rent would be, so even if I never built any equity, I would still come out way ahead.

If I were you, I would examine the emotional reasons behind why it bothers you, and why you are struggling to be okay with math you trust. There's no such thing as just being "debt-averse", there has to be some emotional basis for that aversion, so determine what that basis is and why it bothers you.


Great advice. I held off on pulling the trigger on a refi in part because I think rates may still go slightly lower and in part because I couldn't decide between 10, 15, and 30 year refis. I have a small mortgage balance (around $150K) and the difference in payment wasn't huge. But one of my goals has always been to be debt free once FiREd. I've been trying to explore the reasons why I feel that way.

We had a lot of lean years when we first got married. My wife also had a good amount of student loans with nothing to show for it. I think the appeal of being "debt free" was simply my emotions trying to convince me that if times got really lean again, a lower paying job would be able to cover all our bills. ---> Therefore "debt free" was the best move. We also had some lean years growing up, and I saw the financial stress/strain that put on my parents.

I also think it has been pounded into our heads as "good financial advice". An understanding of our monetary system would lead to exactly the opposite conclusion and is what this thread is about. View your mortgage as a rent controlled place to live where you can paint the walls and fix the landscaping how you like it. The only portion of your "rent" payment that can increase is taxes and insurance. I'm trying to pound this into my head as I hope mortgages go to sub 3.5% for 30 refis here before year end.

I'm glad I've rejoined the AA meeting.

Hi, I'm Kronsey. I have illogical feelings and emotions surrounding debt...

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1794 on: September 26, 2019, 10:40:01 AM »
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

Not to make light of your struggle, really, but I don't think many of us would try to talk someone that's FIRE and can pay off a mortgage in full immediately from doing it. It's the people who want to accelerate paying it off at the expense of savings that get the facepunches. Prepayments that turn a 30year into a 20 years, or a 15year into 10 years, are potentially dangerous if a family is not also saving a substantial percentage of their income.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1795 on: September 26, 2019, 10:53:02 AM »
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

I was thinking about this today - specifically why so many people have such a strong desire to "just have it gone" when it comes to the mortgage, regardless of the terms or other options.  Obviously I don't fall into that camp

Anyhow, I have a hypothesis that many people who "just want it gone" think this way because every month they see money leaving their account and they automatically think "if only I could put that money towards something else!" And they think this every single month with every payment.

 In a way they are discounting a previous purchase bought on credit in favor of a current (or future) one.  Analytically the problem with this is there's never the option of just not having a mortgage while not parting with a lot of money in order to not have it.  Or more simply, you have to spend money to get rid of a mortgage in order to be able to have money more money to spend on other things.  So it's circular logic of course. 

Anyway, that's my thinking...

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1796 on: September 26, 2019, 11:08:08 AM »
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."
The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)

If you tend to be a worrier you're always going to find something to worry about. If it's not the taxes, it's the utilities, or the insurance or the roof in winter or the HVAC in August. Having more money than you ever imagined possible eases far more worries than killing off the mortgage will.

HOWEVER, if you've already hit your number and you have enough beyond that to erase the mortgage, it's harder to justify keeping it. I get that. Paying off the mortgage isn't the worst decision, provided that you make it at the right time. In your situation, I wouldn't necessarily disagree with paying it off. Shocker, I know.

Everyone has had great points, as expected!

We FIRED 17 months ago.   We have multiple sources of passive income (rental houses, rental farm land and social security) as well as our stock and bond stash.   This year we needed a 0.34% WR from our stash to cover our budgeted expenses.  Next year it will drop to 0% as the income from our last two rental houses kicks in and I go on SS.   We'll actually have a significant budget surplus not counting any RMDs or any other stock/bond withdrawals.

So there's no burning financial need to pay it off early before I retire or to lower our WR to a safe level.  But there's also no burning financial need to amass more wealth either.

We used to be very poor and it was sometimes a real struggle to have the cash to pay bills when we needed it.   That was decades ago but some things stick with you. 

The other thing is that stocks are, in some ways, just funny money, not real money.   It's this abstract thing I buy and hold and do very little with otherwise.    But writing that mortgage check is very real, each and every month.   I know that's silly but feelings are what they are.

Part of it is that I've felt constrained with our current budget the last year because we've had a lot of one-off or occasional expenses all showing up (broken leg, injured ankle and knee, wife and I got really sick, replaced my 19 year old car, etc.     So that mortgage check coming out of our checkbook each month was even more noticeable.  I would have cash-flowed more of tthat rather than draw down on savings. 

Staying the course and paying the minimum pays off the mortgage in 11 years and 10 months.

Putting our budget surplus to work on it pays it off in 4 years.

Putting our budget surplus and the RMDs on it pays it off in 2 1/2 years.

Actually making a 4% stash withdrawal two years in a row (as opposed to 0% otherwise) plus the budget surplus pays it off in 14 payments.  That would only be done if stocks stayed at or above their current levels.

And if stocks went on sale at 30% off, I would be buying stocks instead of paying off the mortgage early, with no qualms whatsoever!
 





 

   

Malkynn

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Re: DONT Payoff your Mortgage Club
« Reply #1797 on: September 26, 2019, 01:38:20 PM »
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."
The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)

If you tend to be a worrier you're always going to find something to worry about. If it's not the taxes, it's the utilities, or the insurance or the roof in winter or the HVAC in August. Having more money than you ever imagined possible eases far more worries than killing off the mortgage will.

HOWEVER, if you've already hit your number and you have enough beyond that to erase the mortgage, it's harder to justify keeping it. I get that. Paying off the mortgage isn't the worst decision, provided that you make it at the right time. In your situation, I wouldn't necessarily disagree with paying it off. Shocker, I know.

Everyone has had great points, as expected!

We FIRED 17 months ago.   We have multiple sources of passive income (rental houses, rental farm land and social security) as well as our stock and bond stash.   This year we needed a 0.34% WR from our stash to cover our budgeted expenses.  Next year it will drop to 0% as the income from our last two rental houses kicks in and I go on SS.   We'll actually have a significant budget surplus not counting any RMDs or any other stock/bond withdrawals.

So there's no burning financial need to pay it off early before I retire or to lower our WR to a safe level.  But there's also no burning financial need to amass more wealth either.

We used to be very poor and it was sometimes a real struggle to have the cash to pay bills when we needed it.   That was decades ago but some things stick with you. 

The other thing is that stocks are, in some ways, just funny money, not real money.   It's this abstract thing I buy and hold and do very little with otherwise.    But writing that mortgage check is very real, each and every month.   I know that's silly but feelings are what they are.

Part of it is that I've felt constrained with our current budget the last year because we've had a lot of one-off or occasional expenses all showing up (broken leg, injured ankle and knee, wife and I got really sick, replaced my 19 year old car, etc.     So that mortgage check coming out of our checkbook each month was even more noticeable.  I would have cash-flowed more of tthat rather than draw down on savings. 

Staying the course and paying the minimum pays off the mortgage in 11 years and 10 months.

Putting our budget surplus to work on it pays it off in 4 years.

Putting our budget surplus and the RMDs on it pays it off in 2 1/2 years.

Actually making a 4% stash withdrawal two years in a row (as opposed to 0% otherwise) plus the budget surplus pays it off in 14 payments.  That would only be done if stocks stayed at or above their current levels.

And if stocks went on sale at 30% off, I would be buying stocks instead of paying off the mortgage early, with no qualms whatsoever!

Then stop over thinking it and do whatever you want.

I was going to ask if your monthly mortgage payment amount is enough to crunch your cash flow in tough times, and it sounds like it is. This can really motivate the urge to be rid of it. See, our mortgage payment is only about 5% of our after tax income, so we don't even really notice it. My income is variable and it varies per month more than our mortgage.

Your issue is that although the math favours investing, you would probably rather gnaw your own arm off rather than cash in some of those investments in tough times if it came to that, hence why paying off the mortgage *feels* like such a better option, because not paying it off, if the payment is large enough, could necessitate actually using some of your capital....*GASP*!!!

It's not silly to give credence to the feelings behind your financial motivations, in fact, it's critical to understand and respect your own feelings, because ALL financial decisions are just feelings. Sure, there's math and numbers behind them, but what those number represent are feeeeeeeelings.
Disregard them at your own peril.

Examine those feelings, look rationally at the options available to you to manage those feelings, and move confidently forward with a plan that actually fits your personal goals and risk tolerances.

The DPOYM club is all about feelings, we are all about respecting that feeling that paying off the mortgage would be nice, and we do our best to quantify what that feeling is worth, and then compare it to the computed cost of that transaction and decide if the trade off is worth it.

We don't choose this path because the numbers are better for investing, we choose this path because the particular numbers in our particular cases, combined with the increased risk isn't worth the value that the nice feeling would give us.
That's what we harp on over and over, is really looking at the feelings involved and deciding if they're worth it.

If they're worth it for you, then cool, they're worth it for you. Go nuts.
If they aren't...then what is fueling the dissonance, because that means you are somehow in conflict with your own motivations and risk tolerances, and that's actually a serious issue that you should internally address, because that means your compass is fucked up.

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Re: DONT Payoff your Mortgage Club
« Reply #1798 on: September 26, 2019, 01:49:45 PM »
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!



This is....not true.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1799 on: September 26, 2019, 02:37:17 PM »

I was going to ask if your monthly mortgage payment amount is enough to crunch your cash flow in tough times, and it sounds like it is. This can really motivate the urge to be rid of it. See, our mortgage payment is only about 5% of our after tax income, so we don't even really notice it. My income is variable and it varies per month more than our mortgage.

The P&I component of the mortgage is 19.5% of our budgeted expenses of $75k.   The full PITA is 30%.

Compared to our income, if we use a 0% SWR, those percentages would be 15.6% and 23.9% respectively.

If I actually took a 4% SWR, it would be 9.4% or 14.5% respectively.   

Your issue is that although the math favours investing, you would probably rather gnaw your own arm off rather than cash in some of those investments in tough times if it came to that, hence why paying off the mortgage *feels* like such a better option, because not paying it off, if the payment is large enough, could necessitate actually using some of your capital....*GASP*!!!

I think you are right.   Really right.

If they aren't...then what is fueling the dissonance, because that means you are somehow in conflict with your own motivations and risk tolerances, and that's actually a serious issue that you should internally address, because that means your compass is fucked up.

I think it really is the emotional dissonance over pulling things out of capital.   All my life that's been a big no-no unless I had to or it was for an investment.

It really bothered me to see the cash reserve going down even though that's its purpose.    The last 6 years we were working we had our expenses so low compared to our income that we could cashflow darn near anything we would be likely to do.  If one month's surplus income wouldn't handle it the next month's surely would.   Because our income is artificially low because we're not taking out the 4%, it feels like our financial position isn't as secure.    And that's what's driving this unease.

Thank you all very much!   It's nice to be able to talk this thru with people who understand the situation and the options.