Author Topic: DONT Payoff your Mortgage Club  (Read 360894 times)

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1850 on: October 18, 2019, 12:28:58 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.
Wash, rinse repeat - it is a 30 year. Not at the level of doing a 5 or 10 year arm.

Car Jack

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Re: DONT Payoff your Mortgage Club
« Reply #1851 on: October 18, 2019, 12:53:33 PM »

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.

When we bought our house in 1985, we got an adjustable rate mortgage for 13.8%.  We left for a couple years for grad school, renting out that house and bought another nearby the grad school.  While there, I had extra money since my employer was paying full boat at the school plus my salary.  I took out a 6 month CD at 10% for $10k.  I might have taken out 2....can't remember.  After returning, we sold that first house, plus sold the one near the grad school and bought our current house as the economy was going in the toilet.  We took a fixed 30 year at about 10% (1992).  We refi'd maybe 3 times with zero cost refi's. 

So while mortgage rates were high, so were rates of returns on savings.

None of this reflects on whether to pay off a mortgage or not.  (Sorry...I paid mine off in 2002).  Having money to pay or invest is fairly unusual.  Not blowing everything is somewhat unusual.  Both sides of this mortgage payoff question are way ahead of most people, who save nothing.

DanceIntoTheFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1852 on: October 20, 2019, 10:31:16 PM »
I'm sure this post is on one of the prior 37 pages, but I may want to lock in a rate before I have a chance to read them all. I'd be grateful for a pointer to the appropriate posts.

What is the outlook of 15 v 30 after FIRE? I will likely quit megacorp next year and do odd jobs for a few years. I wouldn't be saving the difference, rather I wouldn't be withdrawing the difference.

options:
(1) stay in 2.9% mortgage for another 12 years
(2) refi to 3.7% 30 year, reducing monthly cash required by $1000

My spreadsheet seems too simple to be accurate.
* start with 250k
* either pay 30k/year for 12 years and end with 0 or pay 18k per year for 30 years and end up with ~80k based on 7%.

Am I oversimplifying? A lower withdrawl in the first 12 years will reduce SORR, is that right?

Thanks for helping this newb! I've been all about the saving and am just now looking at optimizing cash flow and withdrawl strategies.
« Last Edit: October 21, 2019, 05:02:23 PM by DanceIntoTheFIRE »

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #1853 on: October 21, 2019, 09:03:06 AM »
What is the outlook of 15 v 30 after FIRE? I will likely quit megacorp next year and do odd jobs for a few years. I wouldn't be saving the difference, rather I wouldn't be withdrawing the difference.
Many people prefer to remove the mortgage from the SORR altogether by paying it off altogether at FIRE. If you've reached FIRE, then it shouldn't matter that you could accumulate more by carrying a low interest mortgage; you already have enough. Also if you do get hit with a poor sequence of returns, you can leverage your equity as part of the plan to build your portfolio back up.

On the other hand, if your FIRE budget is close to bare bones (or you just can't help yourself from optimizing the size of the pile of wealth you leave when you die) then it might make sense to carry a mortgage in FIRE. I'd likely keep looking at 30 year mortgages in this case.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1854 on: October 21, 2019, 09:04:05 AM »
I'm sure this post is on one of the prior 37 pages, but I may want to lock in a rate before I have a chance to read them all. I'd be grateful for a pointer to the appropriate posts.

What is the outlook of 15 v 30 after FIRE? I will likely quit megacorp next year and do odd jobs for a few years. I wouldn't be saving the difference, rather I wouldn't be withdrawing the difference.

options:
(1) stay in 2.9% mortgage for another 12 years
(2) refi to 3.7% 30 year, reducing monthly cash required by $800

My spreadsheet seems too simple to be accurate.
* start with 250k
* either pay 30k/year for 12 years and end with 0 or pay 18k per year for 30 years and end up with ~80k based on 7%.

Am I oversimplifying? A lower withdrawl in the first 12 years will reduce SORR, is that right?

Thanks for helping this newb! I've been all about the saving and am just now looking at optimizing cash flow and withdrawl strategies.

Your numbers aren't quite adding up. If the monthly cash flow difference is $800 per month, then the annual difference would be $9,600, not $12,000. Using these numbers, it looks like the return at which the two would break even is about 7.5% (higher returns favor the 30-year refinance).

But yes, your spreadsheet is a bit too simplistic, and SORR would favor the longer-term mortgage. Alternatively, SORR may also favor paying off the mortgage entirely right now. Let me look for my post on the topic and I'll edit this post with a link.

ETA: Here's my post on the topic: https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733. Note that a 30-year mortgage at the interest rate you've been offered would historically give a better chance of success (though not by much), but these graphs also assume historical stocks returns; if you think the future will likely look like the past, go for the 30-year mortgage, but if you absolutely want to minimize risk, paying off might be the best bet.
« Last Edit: October 21, 2019, 09:34:43 AM by Boofinator »

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1855 on: October 21, 2019, 01:06:34 PM »
You've already got a rate that's 2.9%.

If you can, wait a few more months to see if rates come down. Moving to a 30-year fixed at 3.3% or 3.4% seems better than climbing all the way up to 3.7%

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1856 on: October 24, 2019, 10:31:27 AM »
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.

This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1857 on: October 24, 2019, 10:51:12 AM »
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.

This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.
Yeah, it's a total pain in the ass. I was a huge fan of Liar's Loans, because I was a commission-only manufacturer's rep, a category that the mortgage world completely fails to comprehend. Eventually, LL's were simply a sanity saver.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1858 on: October 24, 2019, 10:59:42 AM »
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.

This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.

I was pretty annoyed at the verification process I had to undergo through underwriting our latest loan.  Much of it lacked any sound logic, and seemed to be box-checking.  For example, we had to transfer a 'good-faith deposit' from one account to another in a certain time frame, and then we had to get proof that it came from another one of our accounts, adn then get proof that it came from an investment we sold, and then get proof that we had contributed into that account over a period of many years from our paychecks.  All for a rather paltry sum when compared to the larger mortgage, which in turn was much less than our life's savings and only about 2x our annual income (with great credit!).   So I was both surprised and fairly annoyed to be constantly asked to verify and document various buckets of money  when there was never any question that we had the income, history and savings for this particular mortgage.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1859 on: October 24, 2019, 11:17:27 AM »
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.

This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.

I refinanced back in the height of the mortgage craziness, and I actually got a stated income loan.  I think I had to provide some docs, but not very many.  Got a good interest rate too.  I'm self-employed, so I think they preferred not to see anything from me.  The really weird part is that the mortgage broker had a CPA, who verified my stated income was "plausible" given my profession.   

Then I bought a rental at the bottom of the market in 2010.  Holy crap.  The bank was about as paranoid as you could possibly imagine.  They went through about six months of bank statements and made me write an explanation for every deposit over about $1000.  Crazy.   Bank of America, by the way.  They were nothing but a pain in the ass for the whole process. 

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1860 on: October 28, 2019, 12:35:06 PM »
At closing on the refinance Friday the attorney asked what we were doing with the dough, and we were honest - "we're going to fund the 401K and IRAs for 2019 and 2020 - basically invest all of it within the next 2 months". The guy called it a "power move" - perhaps a member of this club? 2 more days until the money shows up from our power move.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1861 on: October 28, 2019, 12:40:55 PM »
At closing on the refinance Friday the attorney asked what we were doing with the dough, and we were honest - "we're going to fund the 401K and IRAs for 2019 and 2020 - basically invest all of it within the next 2 months". The guy called it a "power move" - perhaps a member of this club? 2 more days until the money shows up from our power move.

Waiting for our home to close and to do exactly this.  Sadly I left my job with a 403(b) and we've already funded our IRAs for 2019, but we could be well positioned to max everything out in Jan or Feb 2020.

That would be a nice feeling - and the first time ever we've hit the cap on all our tax-advantaged accounts

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1862 on: October 28, 2019, 01:46:18 PM »
Buying yourself a little more freedom, doesn't get much powerful than that!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1863 on: October 30, 2019, 09:04:18 AM »
We're already moving things into the new house, but I got a nice letter about the ARM on my old house. Rate indexed to LIBOR is being revised down from 5.0% back to 4.25%. Thank you, UK voters!

Brother Esau

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Re: DONT Payoff your Mortgage Club
« Reply #1864 on: October 30, 2019, 04:59:09 PM »
We're already moving things into the new house, but I got a nice letter about the ARM on my old house. Rate indexed to LIBOR is being revised down from 5.0% back to 4.25%. Thank you, UK voters!

That's fabulous!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1865 on: October 31, 2019, 06:44:39 AM »
The experience of having so much money trapped in one house while buying another has reinforced for me that DNPYM club is the club for me!

Once we get the old house sold, we can watch bond rates continue to fall and refinance the shit out of the new house.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1866 on: October 31, 2019, 06:49:44 AM »
The experience of having so much money trapped in one house while buying another has reinforced for me that DNPYM club is the club for me!

Once we get the old house sold, we can watch bond rates continue to fall and refinance the shit out of the new house.
I like the way you think!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1867 on: October 31, 2019, 09:26:57 AM »
@Dicey , the sum of our two mortgages together is only $550K, which wouldn't even provoke a deep breath in the markets where you own real estate.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1868 on: October 31, 2019, 09:35:28 AM »
@Dicey , the sum of our two mortgages together is only $550K, which wouldn't even provoke a deep breath in the markets where you own real estate.
Hmm.. the sum of our two mortgages is about half that at present. Even if we considered the starting balance of both we were well under $400k combined (and the mortgages were taken out 8 years apart).
The magnitude of difference between various markets always astounds me.  Our current home is slightly larger than my sister's place, and our yard is about 4x the size.  Yet her's is worth about 5x what ours is in her VHCOL area.  I used to live there too.  Certainly don't miss making $3,000 payments on a shoebox 900sqft house each month.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1869 on: October 31, 2019, 10:34:11 AM »
@Dicey , the sum of our two mortgages together is only $550K, which wouldn't even provoke a deep breath in the markets where you own real estate.
Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.

Continuing in that vein, the flip side is the expensive home has appreciated way more in the last seven years than the other three combined. The rentals just poke along at about the rate of inflation, which is why we haven't purchased another one there in over three years. If you can't buy substantially below market, it just doesn't make sense.

I just did the math. Our primary home is worth $550k more than we bought it for in 2013. Insane is right, @nereo.

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #1870 on: October 31, 2019, 04:03:37 PM »
Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.
You make it sound like a north/south issue. Sure, Bay Area is crazy but there are some crazy areas in SoCal too.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1871 on: October 31, 2019, 06:42:22 PM »
Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.
You make it sound like a north/south issue. Sure, Bay Area is crazy but there are some crazy areas in SoCal too.
Not at all. There was a big, fat hint there. Most "fancy senior communities" aren't located in Metro LA.  And believe it or not, I live in a comparatively "affordable" part of the Bay Area. Insane, but cheap-ish compared to the Peninsula or The City.

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #1872 on: November 01, 2019, 09:15:38 AM »
Not at all. There was a big, fat hint there. Most "fancy senior communities" aren't located in Metro LA.  And believe it or not, I live in a comparatively "affordable" part of the Bay Area. Insane, but cheap-ish compared to the Peninsula or The City.
Yeah, at $1000+/sq. ft. those places are crazy (4-6 times as expensive as central valley cities). I guess the biggest difference about the Bay Area vs. SoCal is that the commercial centers aren't the most expensive places to live in SoCal. SoCal's most desirable beach communities compete with The City and Peninsula for crazy housing prices, but they aren't thought of as jobs centers of the region.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1873 on: November 01, 2019, 09:24:46 AM »
god, I've always hated the phrase "The City" when people were talking about SF.  And I used to live just south of the Bay Area.
Want to make someone from San Francisco mad?  Just start calling it "San Fran". :-P

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1874 on: November 01, 2019, 09:34:58 AM »
god, I've always hated the phrase "The City" when people were talking about SF.  And I used to live just south of the Bay Area.
Want to make someone from San Francisco mad?  Just start calling it "San Fran". :-P
The late, great, Herb Caen is credited for that designation. He was still alive when I moved to the Bay Area and I loved his columns. My first landing place in NorCal was Noe Valley. There was definitely an "otherness" about San Francisco that made the moniker seem utterly appropriate, so I don't mind it at all. Now, "Cali" for California drives me nuts.

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1875 on: November 01, 2019, 11:01:09 AM »
I lived in the Bay Area as a kid for 3 years, my mom is from SF, and I still use "the City" to refer to SF specifically, and was actually just thinking about how odd that is when I last did so a few weeks ago while talking to a friend who had visited there this summer.

Psychstache

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Re: DONT Payoff your Mortgage Club
« Reply #1876 on: November 01, 2019, 01:09:14 PM »
Just made the 1st payment today on my shiny new mortgage. Just finished a no cost refi down to 3.75%, lowering my interest a point and cutting a couple hundred off the monthly payment.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1877 on: November 01, 2019, 03:59:08 PM »
Apparently making a $56K transaction (2019 soloK) will get you call from e-Trade trying peddle their premium services. So far, managed to buy on the best day since the re-finance funds hit the account, so that's fun I guess.

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1878 on: November 01, 2019, 05:39:30 PM »
Cashout refi approved. Total cost of $32, rate is 3.95% Credit union calls it a Home Equity Loan, so whatever. Going to put a chunk of it in the market via Chase this time with their low cost brokerage, because they're going to pay me $1k for setting up a Sapphire Checking and putting $75k in (investments count, just not retirement accounts)

(Cashouts in Texas are about 0.25% above elsewhere because of dumb onerous state laws)

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1879 on: November 03, 2019, 08:53:49 AM »
Cashout refi approved. Total cost of $32, rate is 3.95% Credit union calls it a Home Equity Loan, so whatever. Going to put a chunk of it in the market via Chase this time with their low cost brokerage, because they're going to pay me $1k for setting up a Sapphire Checking and putting $75k in (investments count, just not retirement accounts)

(Cashouts in Texas are about 0.25% above elsewhere because of dumb onerous state laws)
Curious how the cost was so low. Same bank?

I had like $3,000 in closing costs on ours. Our house was paid-off, so I think that's what screwed us - almost as much paperwork as a purchase. Florida also has pretty high document tax rates, from what I gather.

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1880 on: November 03, 2019, 01:16:27 PM »
Cashout refi approved. Total cost of $32, rate is 3.95% Credit union calls it a Home Equity Loan, so whatever. Going to put a chunk of it in the market via Chase this time with their low cost brokerage, because they're going to pay me $1k for setting up a Sapphire Checking and putting $75k in (investments count, just not retirement accounts)

(Cashouts in Texas are about 0.25% above elsewhere because of dumb onerous state laws)
Curious how the cost was so low. Same bank?

Like I said - classified as a "home equity loan" - those are often available with low/no closing costs.  This one is fixed rate and 30 years.

401Killer

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Re: DONT Payoff your Mortgage Club
« Reply #1881 on: November 04, 2019, 11:18:41 AM »
Need some advice...

Remaining mortgage = ~$47k @ 5.25%
All other debt = $0
Investments = $300k
House = $190k
40 Years old with retire date of ~50y/o.
Currently maxing out my 401K and Roth IRA limits.

House payment = ~$432/mo, currently paying $1500/mo to kill it.

With an interest rate as high as 5.25% is it a bit more grey area to decide to reduce my house payment to just drop in VTSAX or something? Or is it still very worth reducing my extra payments and investing it? Should I split the extra payments a bit or just go the full amount?

I assume I know your answer but just wanted you guys to see my numbers before assuming the answer. The rate is high as I just bought the home and didn't pay extra points as I was going to kill the principle in a few years anyway.
« Last Edit: November 04, 2019, 11:22:51 AM by 401Killer »

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1882 on: November 04, 2019, 11:28:58 AM »
Personally?  I'd see if I could do a cash-refi at somewhere at/under 4% (in line with current refi rates).  I'd try to pull out $150k, and invest it all.  Your monthly payment would be ~$900, which is less than the amount you are currently dumping into your mortgage, giving you a net positive cash-flow of about $600/mo ($7,200/year).


...that's what I'd do in your circumstance.  Take advantage of cheap credit and reduce your home equity exposure (currently you've got 34% of your NW tied to your home).

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1883 on: November 04, 2019, 11:33:53 AM »
Need some advice...

Remaining mortgage = ~$47k @ 5.25%
All other debt = $0
Investments = $300k
House = $190k
40 Years old with retire date of ~50y/o.
Currently maxing out my 401K and Roth IRA limits.

House payment = ~$432/mo, currently paying $1500/mo to kill it.

With an interest rate as high as 5.25% is it a bit more grey area to decide to reduce my house payment to just drop in VTSAX or something? Or is it still very worth reducing my extra payments and investing it? Should I split the extra payments a bit or just go the full amount?

I assume I know your answer but just wanted you guys to see my numbers before assuming the answer. The rate is high as I just bought the home and didn't pay extra points as I was going to kill the principle in a few years anyway.
Wait! Did you just say you put way over 50% down on the home and that's the best rate they could offer you? Something's missing here.

Also, will you be eligible for any kind of pension or anything that you haven't mentioned? What did you cash out to put so much down on the house?

401Killer

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Re: DONT Payoff your Mortgage Club
« Reply #1884 on: November 04, 2019, 11:43:03 AM »
Need some advice...

Remaining mortgage = ~$47k @ 5.25%
All other debt = $0
Investments = $300k
House = $190k
40 Years old with retire date of ~50y/o.
Currently maxing out my 401K and Roth IRA limits.

House payment = ~$432/mo, currently paying $1500/mo to kill it.

With an interest rate as high as 5.25% is it a bit more grey area to decide to reduce my house payment to just drop in VTSAX or something? Or is it still very worth reducing my extra payments and investing it? Should I split the extra payments a bit or just go the full amount?

I assume I know your answer but just wanted you guys to see my numbers before assuming the answer. The rate is high as I just bought the home and didn't pay extra points as I was going to kill the principle in a few years anyway.
Wait! Did you just say you put way over 50% down on the home and that's the best rate they could offer you? Something's missing here.

Also, will you be eligible for any kind of pension or anything that you haven't mentioned? What did you cash out to put so much down on the house?

It was the sale of my old home that was paid off. I was only able to put down 5% on the new home as my old one was not sold yet and I didn't want to lose the new one. I was then able to rerack my new loan with a $110k payment after being in the new house for 3 months. The loan keeps the original start date but just simply reset the monthly payments with the new principle. We did the numbers and with my plans to pay all the extra cash it was not really worth buying points to get the lower rates. My previous loan was 2.99% and my home credit score is in the 815 to 825 range.

I looked at my loan calculator sheet, if I keep my payments at $1500 I'll pay $4,700 in interest total. If I drop that to $1000/mo I'll pay $6,775 in interest. So savings only 2k in interest but be able to invest $500/mo over those 4 years to pay the mortgage off would be $24,000 invested.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1885 on: November 04, 2019, 11:45:09 AM »
Not in the US maybe? 5.25% is very high, even with only 5% down.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1886 on: November 04, 2019, 11:50:15 AM »
I'm still confused... a credit score over 800, more than $300k in investments, and a 75% equity stake in your home... why is your interest rate so high?  I just financed a similar mortgage for 3.7% with no points.

401Killer

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Re: DONT Payoff your Mortgage Club
« Reply #1887 on: November 04, 2019, 11:54:51 AM »
I don't know then, maybe they took advantage of me as I thought it was a good deal at the time considering my plans to kill the principle. Probably my mistake not knowing...

So I guess the question still stands though, reduce all extra payments or a portion to invest?

With only $47k remaining on the loan the interest paid with how much extra I'm putting down is only a few grand in interest. It does not seem to be enough of a balance to refinance to a lower rate if I can pay it off in 3 years regardless.

I'm personally leaning towards dropping it to $1,000/mo and dropping the $500 in VG.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1888 on: November 04, 2019, 12:08:41 PM »

So I guess the question still stands though, reduce all extra payments or a portion to invest?


Definitely reduce all payments, but you are a prime candidate for a cash-refinance*, which could give you a very large amount to invest coupled with a very low interest rate.

*based on the info you have provided.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1889 on: November 04, 2019, 12:09:43 PM »
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1890 on: November 04, 2019, 12:31:41 PM »
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.

Recognize that by doing that you would be increasing your monthly expenses -- and this isn't the beginning of a long market climb.   

You have to balance potential greater returns with the potentially greater losses.


nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1891 on: November 04, 2019, 12:41:03 PM »
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.

Recognize that by doing that you would be increasing your monthly expenses -- and this isn't the beginning of a long market climb.   

You have to balance potential greater returns with the potentially greater losses.

Except s/he wouldn’t.  The current rate is so high that monthly expenses could be reduced while transferring a lot of cash out of home equity.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1892 on: November 04, 2019, 01:07:02 PM »
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.

Recognize that by doing that you would be increasing your monthly expenses -- and this isn't the beginning of a long market climb.   

You have to balance potential greater returns with the potentially greater losses.

Good point!

Except s/he wouldn’t.  The current rate is so high that monthly expenses could be reduced while transferring a lot of cash out of home equity.

Kierun

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Re: DONT Payoff your Mortgage Club
« Reply #1893 on: November 08, 2019, 08:21:42 PM »
Just squeaked in below 380k and about 192 payments left @ 3.125%.  May end up paying it off lump sum towards the end as we reach FI since it'll knock off 30k/year in expenses, but more than likely will ride it out til maturity.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1894 on: November 09, 2019, 05:20:16 AM »
Just squeaked in below 380k and about 192 payments left @ 3.125%.  May end up paying it off lump sum towards the end as we reach FI since it'll knock off 30k/year in expenses, but more than likely will ride it out til maturity.

What would be the reason(s) for paying off a rate so low?
Will lower monthly expenses offset the less money you have in investments?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1895 on: November 11, 2019, 07:24:51 AM »
@Kierun what's your timetable to reach FI?

Kierun

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Re: DONT Payoff your Mortgage Club
« Reply #1896 on: November 11, 2019, 07:22:29 PM »
Just squeaked in below 380k and about 192 payments left @ 3.125%.  May end up paying it off lump sum towards the end as we reach FI since it'll knock off 30k/year in expenses, but more than likely will ride it out til maturity.

What would be the reason(s) for paying off a rate so low?
Will lower monthly expenses offset the less money you have in investments?
Haven't done the actual math yet since it's like 15+ years down the road.  Thinking mostly to just reduce the amount needed yearly and looking at it from a tax perspective, but no idea what taxes will look like in 15 years, ago (autocorrect) so mostly why it's just a thought on the back burner.

@Kierun what's your timetable to reach FI?
Guesstimating 2032 for stretch goal but maybe closer to 2035.  Quite a bit aways still. So nothing's really solid, semper gumby and all that.
« Last Edit: November 13, 2019, 06:19:44 PM by Kierun »

Malkynn

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Re: DONT Payoff your Mortgage Club
« Reply #1897 on: November 11, 2019, 07:32:21 PM »
Paid off one mortgage because we sold ;)
Long story, not the intended plan, but shit happens.

We only put 5% down on the new place, I'm in Canada, different system and more down didn't make sense. Once we have 20% equity though, I'll consider switching it to an LOC mortgage.

Do you guys have those in the US?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1898 on: November 11, 2019, 10:13:45 PM »
Paid off one mortgage because we sold ;)
Long story, not the intended plan, but shit happens.

We only put 5% down on the new place, I'm in Canada, different system and more down didn't make sense. Once we have 20% equity though, I'll consider switching it to an LOC mortgage.

Do you guys have those in the US?
Not really.

DadJokes

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Re: DONT Payoff your Mortgage Club
« Reply #1899 on: November 18, 2019, 11:48:25 AM »
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.