Author Topic: DONT Payoff your Mortgage Club  (Read 360895 times)

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1800 on: September 26, 2019, 04:51:23 PM »
Someone here recommended this book:

Debt 1st 5,000 Years

I don't want to get into it too much, but the author talks quite a bit about the philosophy of debt, and how much of our society, even common words refer or relate to debt.  For example the word redemption:

mid-14c., "deliverance from sin," from Old French redemcion (12c.) and directly from Latin redemptionem (nominative redemptio) "a buying back, releasing, ransoming" (also "bribery"), noun of action from past participle stem of redimere "to redeem, buy back,"

In other words, being delivered from sin is essentially equal to not being in debt.  At least literally.  Many other words in English and other languages follow the same pattern. 

I think it is normal, human desire to not want to be in debt. In the POYM board, many people say it makes them feel better to pay off the mortgage.  I believe them,and even agree with them to a certain extent.   But not everything that feels good, is good.   I do agree though, with Dicey's comment that once you get everything else squared away it is probably fine.   The flipside though, is that once you get everything else squared away, you portfolio will be so large you won't need to or really even care.  That's where I am.   I'd rather be writing checks to myself than the bank at this point.  When I was staring down the barrel of 30 years of mortgage payments I felt differently. 

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1801 on: September 26, 2019, 06:12:56 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.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

DadJokes

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Re: DONT Payoff your Mortgage Club
« Reply #1802 on: September 27, 2019, 10:37:28 AM »
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.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.

Rufus.T.Firefly

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Re: DONT Payoff your Mortgage Club
« Reply #1803 on: September 27, 2019, 10:41:22 AM »
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.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.

Really? Consider this my monthly contribution to boost the page count. As if page count relates somehow to credibility.

(still sitting here quietly paying off my mortgage as slowly as possible and not regretting it)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1804 on: September 27, 2019, 10:59:43 AM »
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.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.
I never even open that thread any more. Much as I think it's nuts to promote such a one-sided perspective, I was asked to leave it alone and I have. I find it hilarious that someone over there is paying attention to our page count. It does give me hope. Thanks for sharing that, @DadJokes.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #1805 on: September 27, 2019, 11:08:28 AM »
#doitforthepagecount

Sent from my moto g(6) using Tapatalk


RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1806 on: September 27, 2019, 11:16:28 AM »
Looking forward to another minimum payment in four days.

post_count++;

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #1807 on: September 27, 2019, 11:54:01 AM »
I'm OK with asking us not to rain on the parade of people who are celebrating achieving a worthy (though sub-optimal) goal. I was less OK with @FrugalToque intervention as a moderator in another recent thread:

Dicey may have been a bit harsh in her tone, but you're the one who brought up the subject in a way that implied that your method was optimal.

[MOD NOTE:  No, the OP didn't.  The OP was criticising the ignorant "mortgage-hold" people in his circle of friends who blew their money.  The OP did not criticise the "mortgage-holders" in general or either of you in particular.  And while this isn't a journal entry, you've made your point and we can let it be from here on.

Thank you.]

People who will go to their grave telling me that it's mathematically stupid to pay off my mortgage
His words sound like implication that it's optimal to pay off the mortgage to me. I agree that the point has been made. I don't think anything in any of my posts comes off as an attack on the OP. I agree that nothing he posted was an attack on me or Dicey.

Ok, I took the incorrect path to FIRE and if I had optimized I could have accomplished this 1-2 years earlier. Cool. I'm not going to lose much sleep over it.

Your time might be better spent educating those who are not already FIRE.
You cruised to FIRE so fast that I'm sure it wasn't a big difference (probably no more than a year). For those of us like Dicey (past) and I (present) working towards FIRE on more modest income, the difference can be quite a bit larger.

Not everyone who reads this thread has reached FIRE.

REatc

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Re: DONT Payoff your Mortgage Club
« Reply #1808 on: September 27, 2019, 12:02:48 PM »
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? Iím asking since I we have a pretty high interest rate by todayís standards, looked into refinancing and itíll be 4 years to break even. We will be moving in 4ish years.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1809 on: September 27, 2019, 12:25:03 PM »
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? Iím asking since I we have a pretty high interest rate by todayís standards, looked into refinancing and itíll be 4 years to break even. We will be moving in 4ish years.

I follow the Investment Order

Based on the current 10-year treasury note yield at 4.688% and above I will pay down a loan instead of investing in a taxable brokerage account. At 6.688% and above I will forgo even investing in tax-advantaged accounts to pay extra on the loan.

DeniseNJ

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Re: DONT Payoff your Mortgage Club
« Reply #1810 on: September 27, 2019, 01:33:31 PM »
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? Iím asking since I we have a pretty high interest rate by todayís standards, looked into refinancing and itíll be 4 years to break even. We will be moving in 4ish years.

I follow the Investment Order

Based on the current 10-year treasury note yield at 4.688% and above I will pay down a loan instead of investing in a taxable brokerage account. At 6.688% and above I will forgo even investing in tax-advantaged accounts to pay extra on the loan.
Living in Mississippi this might not matter, but in NJ you may also cosider the effect of state taxes only being federally tax deductible to 10K.  My income tax and property tax are well over that amount but if I can only deduct to 10K, then my interest isn't going to be deductable, so I'm still getting the same 24K deduction that I would get without the house.  Might not be a huge effect but that used to be a selling point, that the interest was tax deductible and now basically it's not.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1811 on: September 27, 2019, 02:02:32 PM »
I am pretty sure we have been deducting some mortgage interest on our state taxes here. It's just not a consequential amount. Our interest rate (3.125%) is much lower the the above mentioned thresholds so I don't even really think about it.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1812 on: September 27, 2019, 02:17:04 PM »
I'm OK with asking us not to rain on the parade of people who are celebrating achieving a worthy (though sub-optimal) goal. I was less OK with @FrugalToque intervention as a moderator in another recent thread:

Dicey may have been a bit harsh in her tone, but you're the one who brought up the subject in a way that implied that your method was optimal.

[MOD NOTE:  No, the OP didn't.  The OP was criticising the ignorant "mortgage-hold" people in his circle of friends who blew their money.  The OP did not criticise the "mortgage-holders" in general or either of you in particular.  And while this isn't a journal entry, you've made your point and we can let it be from here on.

Thank you.]

People who will go to their grave telling me that it's mathematically stupid to pay off my mortgage
His words sound like implication that it's optimal to pay off the mortgage to me. I agree that the point has been made. I don't think anything in any of my posts comes off as an attack on the OP. I agree that nothing he posted was an attack on me or Dicey.

Ok, I took the incorrect path to FIRE and if I had optimized I could have accomplished this 1-2 years earlier. Cool. I'm not going to lose much sleep over it.

Your time might be better spent educating those who are not already FIRE.
You cruised to FIRE so fast that I'm sure it wasn't a big difference (probably no more than a year). For those of us like Dicey (past) and I (present) working towards FIRE on more modest income, the difference can be quite a bit larger.

Not everyone who reads this thread has reached FIRE.
I find the mods to be mostly pretty damn remarkable. This time, I didn't fully agree with FT's interpretation of what FD said, but I didn't think FD was worth any additional effort on my part, so I deliberately avoided further comment. Haters gonna hate. I'd rather help people that are interested in learning.

While I was out in the world since commenting earlier, I was thinking about that page count factoid. Given that we started this thread well  after that one, I guess it's safe to say we're gaining on 'em!

dreadmoose

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Re: DONT Payoff your Mortgage Club
« Reply #1813 on: September 27, 2019, 03:00:29 PM »
Just checking in to show support for the club. Another couple dozen minimum bi-weekly payments have come and gone.

If anything I'm leaning harder into selling the house to get the rest of the equity back into the market. Renting what I need has tipped into cheaper than owning for now.

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1814 on: September 27, 2019, 05:30:16 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.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.

Oh, noes!

BlueHouse

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Re: DONT Payoff your Mortgage Club
« Reply #1815 on: September 27, 2019, 06:00:14 PM »
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.
You misunderstood me. 
Quote
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 part is NOT true.  Discussion was always allowed and encouraged.  All perspectives had been thrashed about thoroughly. 
To go on about how other people behaved, when it's just not true is really frustrating.  No one was ever asked to leave because of their opinion.  You were asked to leave because you would not accept anyone else's opinion and you would not stop arguing your perspective.  It was downright rude.  And now you re-frame the issue.  It was never about the math.  It was about respecting other people's choices.   
Yes, I think you have behaved badly and I think you still behave terribly every time you misrepresent what happened.  Respect that other people have reasons for making the choices they make, and then you'll have no quarrel from me. 

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1816 on: September 27, 2019, 06:27:23 PM »
Sounds like a lot of reframing from BlueHouse here...

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1817 on: September 27, 2019, 06:50:39 PM »
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? Iím asking since I we have a pretty high interest rate by todayís standards, looked into refinancing and itíll be 4 years to break even. We will be moving in 4ish years.

In general I follow the Investment Order.
However, it's important to note that mortgage rates don't operate in a vacuum.  In the early 1980s 30y mortgages could be 10% or even higher.  So you'd think it would be a no brainer to pay that off ASAP, right?  well coinciding with those astronomically high rates were bonds that were returning 12-15%. 

Point is you need to look at the whole macroeconomic picture.  One reason why the Investment Order doesn't give an absolute %, but is tied to the 10year treasury note.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1818 on: September 30, 2019, 01:01:30 PM »
This would require a major sell off in long-term bonds, but I wouldn't mind buying a bond with a higher yield than the mortgage in lieu of paying off the mortgage.

BlueHouse

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Re: DONT Payoff your Mortgage Club
« Reply #1819 on: September 30, 2019, 02:26:59 PM »
Sounds like a lot of reframing from BlueHouse here...

LOL.  Love the pun. 

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1820 on: September 30, 2019, 03:04:05 PM »
This would require a major sell off in long-term bonds, but I wouldn't mind buying a bond with a higher yield than the mortgage in lieu of paying off the mortgage.

As would I.  It's all conjecture what the future holds, but 10y treasury yields were above 5% in the early 2000s and in the mid 3.x% as early as last year.  If 30 years is our timeframe, we've had rates as high as 8%.  Maybe we'll never go above 4% again, but I suspect we will again, and soon.  At which point the tax savings plus additional yield will far outstrip my 3.7% mortgage, and with even less risk.

It's hard to go backwards with a mortgage.  You can't unpay an overpayment, and while you can use a ReFi or HELOC, with fees and higher rates its rarely as good.  Prepaying your mortgage isn't just about the current enviornment, but about likely future environments.  It's hard for me to envision a scenario at our current sub 4% mortgage rates where it makes financial sense.

REatc

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Re: DONT Payoff your Mortgage Club
« Reply #1821 on: September 30, 2019, 08:31:45 PM »
What do you guys think about 5.125%? Thatís what mine is, which is more than the 10yr treasury+3%. And interestingly enough, the other day when I threw some cash into VTSAX I looked at my return so far, it was 5.1%.

Maybe a hedge strategy for a while?

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1822 on: September 30, 2019, 08:39:47 PM »
What do you guys think about 5.125%? Thatís what mine is, which is more than the 10yr treasury+3%. And interestingly enough, the other day when I threw some cash into VTSAX I looked at my return so far, it was 5.1%.

Maybe a hedge strategy for a while?

Can you refinance? If not then you should max your tax-advantaged space first then pay extra on the mortgage with anything left over.

REatc

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Re: DONT Payoff your Mortgage Club
« Reply #1823 on: October 01, 2019, 06:22:42 AM »
We looked into refinancing, not worth it. Itíll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but Iím leaning towards POYM at the 5.125% rate.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1824 on: October 01, 2019, 09:42:38 AM »
What do you guys think about 5.125%? Thatís what mine is, which is more than the 10yr treasury+3%. And interestingly enough, the other day when I threw some cash into VTSAX I looked at my return so far, it was 5.1%.

Maybe a hedge strategy for a while?
We looked into refinancing, not worth it. Itíll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but Iím leaning towards POYM at the 5.125% rate.

One major factor is whether you have available tax-advantaged 'head-space,' and what your current tax bracket is.  If you are not maxing out your IRA/401(k)/HSA, that greatly tilts the equation towards funding those first before paying off a mortgage, even at 5.125%.  Put another way, the savings on your tax bill (and the tax-free growth) will eclipse the interest you pay on your loan.

If you have no additional tax-advantaged space you fall into the "in-between" gap.  I certainly expect >3.5% real returns on my money over decade+ timescales (which is about what your rate will be minus current inflation).   

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1825 on: October 01, 2019, 08:29:21 PM »
We looked into refinancing, not worth it. Itíll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but Iím leaning towards POYM at the 5.125% rate.
Having readily available cash made the move to this house so much less stressful than what I see other people go through (including my co-worker currently) - we just bought the new house, put down 10%, did a 10% second mortgage/80% conventional, moved everything, got the other house ready to sell (mostly painting, replaced the remaining original outlets, plus new bedroom carpets). Once it sold, we paid off the second mortgage.

Sure the rate on the second was "high" - but we didn't have it long.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1826 on: October 02, 2019, 09:08:47 AM »
We looked into refinancing, not worth it. Itíll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but Iím leaning towards POYM at the 5.125% rate.
Having readily available cash made the move to this house so much less stressful than what I see other people go through (including my co-worker currently) - we just bought the new house, put down 10%, did a 10% second mortgage/80% conventional, moved everything, got the other house ready to sell (mostly painting, replaced the remaining original outlets, plus new bedroom carpets). Once it sold, we paid off the second mortgage.

Sure the rate on the second was "high" - but we didn't have it long.

This is what we're doing. I'm so relieved to not be living in a house with kids and an animal and having to prep for showings.

sisto

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Re: DONT Payoff your Mortgage Club
« Reply #1827 on: October 02, 2019, 09:34:53 AM »
I have learned so much from this turnover the years. Unfortunately I found out about this thread right after refinancing into a 15 year loan. My rate was 3.25 on a VA loan so bad to stay that course for a while. By staying up on topics around the forum I saw some good advice and good rates. I'm about to close on a refi VA streamline at 2.75 which will drop my payment in half. Originally I was in the camp of I need my house paid off to have less money going out. The math proved that the 30 year is better. I am on track to Fire in 2021 and will do it with the mortgage.

Plina

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Re: DONT Payoff your Mortgage Club
« Reply #1828 on: October 04, 2019, 09:38:50 AM »
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1829 on: October 04, 2019, 09:51:39 PM »
I just wanted to say "Thanks!!!" again.   It's been a week since you all chipped in with some good advice and I'm really feeling mellow about the whole topic.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1830 on: October 07, 2019, 09:21:41 AM »
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

These numbers don't sound like US numbers?

Plina

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Re: DONT Payoff your Mortgage Club
« Reply #1831 on: October 07, 2019, 09:39:47 AM »
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

These numbers don't sound like US numbers?

No, they are swedish.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1832 on: October 07, 2019, 11:10:07 AM »
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

These numbers don't sound like US numbers?

No, they are swedish.


I have not encountered a 40-year mortgage before.  When living in Canada we had a 25year - which is typical for that country.

If I had your loan I would love it like a cute kitten.  Someone (the bank) gave you a crap-ton of money and wants very little in return.

Plina

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Re: DONT Payoff your Mortgage Club
« Reply #1833 on: October 07, 2019, 11:27:18 AM »
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

These numbers don't sound like US numbers?

No, they are swedish.


I have not encountered a 40-year mortgage before.  When living in Canada we had a 25year - which is typical for that country.

If I had your loan I would love it like a cute kitten.  Someone (the bank) gave you a crap-ton of money and wants very little in return.

If you count the amount I am paying it off every month it should be a 50 year mortgage. After you pay it down to 50 % of the value of the apartment you can stop the paydown and only pay the interest. People see the mortgage more like a rent here. It is not something most of the people pay off.

Today the rate is so low you canít really justify to pay it off so I just have to live with it. It is like my government subsidized studentloan with an interestrate of 0,16 %. Annoying but no point to pay off faster.


FIRE@50

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Re: DONT Payoff your Mortgage Club
« Reply #1834 on: October 07, 2019, 01:13:44 PM »
Plina, how often will the rate reset? How much is it allowed to move at each reset date? Is there an overall cap rate?

Plina

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Re: DONT Payoff your Mortgage Club
« Reply #1835 on: October 08, 2019, 10:02:33 AM »
Plina, how often will the rate reset? How much is it allowed to move at each reset date? Is there an overall cap rate?

You can choose the time period that you want to have the rate for up to 10 years. I have chosen what we call a variable rate so the rate is determined every three months. I can always fix the rate for the whole loan or parts of the loan for a certain timeperiod. There is no cap rate but the rate is depending on the interestrate set by our central bank. You can see my current options below. I think it has changed once during the last couple years up 0,25 % but mostly it has gone down since I bought my first apartment. Because the interest rate is pretty much the same from 3 months up to 5 years I see now point in fixing it because if you sell your apartment you have to pay interest for the remaining period in a fixed rate. If the interestrates started to increase then I would probably consider fixing at least a part of the loans.

3 months - 1.64%
1 year -      1.59%
2 years - 1.54%
3 year -1.54%
4 year -1.59%
5 years -1.64%
7 Years - 1.89%
10 year - 2.29%

Mako52

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Re: DONT Payoff your Mortgage Club
« Reply #1836 on: October 08, 2019, 10:43:35 AM »
At the request of @talltexan https://forum.mrmoneymustache.com/welcome-to-the-forum/pay-off-3-38-mortgage-on-reduced-income-(not-fire-yet)/ I'm posting in this thread.

We had been throwing extra $ at our 4.125% 30-year fixed mortgage but refinanced in May to a 10-year ARM with a 3.375% rate.  We may recast but I don't plan to throw more at it due to reduced income. 

I've compared average 30-year mortgage rates with 10 year annualized S&P returns based on starting year.  Based on that, since 1990 the only time you would have been better off paying off a mortgage early, or paying cash for a house, is between 1999 and 2002, and it's a wash between 2003 and 2008.  One could compare 30 year returns, but most people don't stay in their homes for 30 years anymore.   

On the recasting note, it makes zero sense if you've been accelerating principal on your existing mortgage and are a few years into it.  It makes more sense if you're only a year or two in and haven't been paying it down IMHO. 

Historical S&P Returns: https://fourpillarfreedom.com/heres-how-the-sp-500-has-performed-since-1928/
30-year Fixed Rates since 1971: http://www.freddiemac.com/pmms/pmms30.html

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1837 on: October 08, 2019, 11:19:38 AM »
Glad to have you, @Mako52 !

I think you'll really enjoy paying that nice, lower rate. I think in the other discussion thread I recall that your loan balance was still over $450,000, so you should be saving $4k a year in interest costs, going forward.

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #1838 on: October 08, 2019, 11:21:27 AM »
On the recasting note, it makes zero sense if you've been accelerating principal on your existing mortgage and are a few years into it.  It makes more sense if you're only a year or two in and haven't been paying it down IMHO.

Did you mean refinancing instead of recasting?  The benefit of the recast (amortizing a reduced principal over the remaining term, resulting in lower monthly P&I) is proportional to the amount you've paid down the principal ahead of the original amortization schedule.  For someone who has paid down the principal aggressively and/or over several years or more, recasting could reduce the monthly P&I payment to a small fraction of the original amount.

If you haven't paid extra toward the principal, then recasting is a null operation no matter how long you've had your mortgage.  In fact the mortgage company won't let you recast unless you have paid extra, since it's pointless.

kenmoremmm

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Re: DONT Payoff your Mortgage Club
« Reply #1839 on: October 08, 2019, 11:40:31 AM »
On the recasting note, it makes zero sense if you've been accelerating principal on your existing mortgage and are a few years into it.  It makes more sense if you're only a year or two in and haven't been paying it down IMHO.

Did you mean refinancing instead of recasting?  The benefit of the recast (amortizing a reduced principal over the remaining term, resulting in lower monthly P&I) is proportional to the amount you've paid down the principal ahead of the original amortization schedule.  For someone who has paid down the principal aggressively and/or over several years or more, recasting could reduce the monthly P&I payment to a small fraction of the original amount.

If you haven't paid extra toward the principal, then recasting is a null operation no matter how long you've had your mortgage.  In fact the mortgage company won't let you recast unless you have paid extra, since it's pointless.

i agree BIH.

we did a recast a few months ago after a LS payment of $190k on a $320k balance. rate 3.375% on 30yr loan. cut off $950/mo in P&I.

Mako52

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Re: DONT Payoff your Mortgage Club
« Reply #1840 on: October 08, 2019, 12:21:51 PM »
@Bird In Hand - we looked at recasting the 4.125% last year and it made no sense for us.  7 years into the 30 year mortgage our payment term had been cut from 360 months to 315 months due to extra principal payments over those 7 years.  If we had recast, it would have taken us out to our original loan payoff date in 2042 instead of the year 2038 we were on track for.  That's probably why Wells Fargo sent a "consider this option very carefully" letter.....but didn't explain why. 

As an example, if we had recast with $25,000 on the $450,000(ish) loan value, at our desired move date in 2028, even though we would have saved $48k in payments between 2019 and 2028 due to a reduced monthly payment, our mortgage balance would have been $25k higher in 2028.  The mortgage balance is higher because you're paying a smaller monthly amount, AND it seems the principal/interest ratio is adjusted in the lender's favor because the recast extends the loan back to the loan's original payoff date. 

If I didn't analyze this correctly, please let me know.
« Last Edit: October 08, 2019, 12:44:37 PM by Mako52 »

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #1841 on: October 08, 2019, 12:45:39 PM »
@Bird In Hand - we looked at recasting the 4.125% last year and it made no sense for us.  7 years into the 30 year mortgage our payment term had been cut from 360 months to 315 months due to extra principal payments over those 7 years.  If we had recast, it would have taken us out to our original loan payoff date in 2042 instead of the year 2038 we were on track for.  That's probably why Wells Fargo sent a "consider this option very carefully" letter.....but didn't explain why.

That makes perfect sense: your early principal payments over the first 7 years had shifted the effective payoff date to almost 4 years earlier, from ~2042 up to ~2038.  The recast would have amortized the remaining principal over the remainder of the original term -- 2019 out through 2042.  So from your perspective it appeared that you were going backwards...adding 4 more years onto the loan.  But really it was those 4 years (or the early principal payments that resulted in shaving 4 years off the original loan, depending on how you look at it) that allowed the recast P&I to be smaller than your original P&I.

From my point of view, you exchanged your low-rate (4.125% is pretty darn good) 30 year term for a slightly-better-rate 10 year term.  The true DPYM play would have probably been to recast your mortgage and pay the minimum out through 2042, or refinance (preferably cash-out) to a new 30 year term at < 4.125%.  But don't sweat it -- I'm sure the DPYMC will still accept you here if you keep that 3.375% 10 year ARM and don't pay any more additional principal.  :)
« Last Edit: October 08, 2019, 12:48:29 PM by Bird In Hand »

Mako52

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Re: DONT Payoff your Mortgage Club
« Reply #1842 on: October 08, 2019, 12:55:37 PM »
Thanks.  All I know is that it gives us $800 a month over the next 9 years to (1) improve cash flow, (2) invest elsewhere with hopefully a better RoI than 3.38%.  I'm aware that this refi will increase our mortgage balance in 2028 compared to the prior mortgage, and I'm not too concerned about giving up the post-2029 borrowing rate security because we both want to be out of the house and area and on a beach somewhere by then. 

Again, we haven't planned on staying in the house beyond 2038 or 2042 so we never would have paid off the original loan anyway :-)
« Last Edit: October 08, 2019, 01:29:06 PM by Mako52 »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1843 on: October 08, 2019, 03:34:25 PM »
Thanks.  All I know is that it gives us $800 a month over the next 9 years to (1) improve cash flow, (2) invest elsewhere with hopefully a better RoI than 3.38%.  I'm aware that this refi will increase our mortgage balance in 2028 compared to the prior mortgage, and I'm not too concerned about giving up the post-2029 borrowing rate security because we both want to be out of the house and area and on a beach somewhere by then. 

Again, we haven't planned on staying in the house beyond 2038 or 2042 so we never would have paid off the original loan anyway :-)
Works for me! In fact, anything works for me as long as you 've done the math and have a plan. Ding, ding, we have a winner! Welcome aboard the good ship DPOYM, Mako52.

mustardstew

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Re: DONT Payoff your Mortgage Club
« Reply #1844 on: October 09, 2019, 03:55:26 PM »
Been reading this thread with interest (HA!)... I'm totally sold on not paying down early, at the expense of paying off other debts and investing...

 I finally signed to refinance into a 30-year 3.125% VA IRRRL. I had a good loan anyway (3.75%), but lowered my payment $100!  I'll gladly pay $720/mo for housing in the Triangle! This payment is prolly $250+ below what I'd pay for rent in my house .  I will need some SERIOUS incentive to move.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1845 on: October 10, 2019, 08:07:06 AM »
Don't compare your payment to imputed rent.

Compare the interest portion of your payment to imputed rent. Principal stays yours.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1846 on: October 10, 2019, 08:40:38 AM »
Don't compare your payment to imputed rent.

Compare the interest portion of your payment to imputed rent. Principal stays yours.

I'd say compare interest & taxes plus maintenance to imputed rent.  Still a much more honest comparison than mortgage to imputed rent.

DeniseNJ

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Re: DONT Payoff your Mortgage Club
« Reply #1847 on: October 10, 2019, 02:19:00 PM »
Don't compare your payment to imputed rent.

Compare the interest portion of your payment to imputed rent. Principal stays yours.

I'd say compare interest & taxes plus maintenance to imputed rent.  Still a much more honest comparison than mortgage to imputed rent.
You also have to consider the interest the principle would be earning if it wasn't in your house but in a financial instrument.  But maybe that's canceled out by equity build up?

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1848 on: October 18, 2019, 11:50:53 AM »
About to correct one of the largest financial mistakes I've made this week. We're moved back into our paid-off house, and we're doing a cash-out refinance.

Has me thinking - there will be about $3,000 in costs associated with the refinance. How do you factor that in to the decision to refinance. Right now, for us, it is a no-brainer. But in 5-10 years, maybe we'll have another $50K - $100K of equity we could pull out. Easy to figure based on an interest-rate savings, but what if the interest rate is the same or has even gone up a bit?

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1849 on: October 18, 2019, 12:03:54 PM »
Interest-only loan?

Or just wash, rinse, repeat. We cash out refinanced in 2015, I actually immediately regretted it a little, as the markets had a small slide and the portion that we had invested (about 1/3 of the cash out, the other 2/3 paid off student loans) didn't recover value until nearly 18 months later. But now looking back, that period is a pretty small blip, and I've started to feel the itch to do it again.