Author Topic: DONT Payoff your Mortgage Club  (Read 540825 times)

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #2600 on: February 16, 2021, 09:51:34 AM »
@BlueHouse ,

Well, investing instead of paying off a low interest, fixed rate mortgage will get you to FIRE sooner.  But you're already FIRED so that doesn't matter.

You'll still end up with more wealth over the next several decades if you invest instead of pay off the mortgage.   But you're FIRED with an obviously high margin of safety (all that cash just loafing around), so you already have enough.

If you were planning to stay in the house "forever" instead of maybe just 3 years, I wouldn't question doing it at all.
In 3 years you could find yourself needing a down payment for another house plus moving expenses before you've sold the old house.     Then again, the cash savings of $2200 a month ($26,400 annually) lets you build up a down payment in a year, assuming that's not including taxes and insurance.  Plus you'll still have cash reserves to draw on.

It's not the choice that will most likely lead to more wealth over the next few decades.  But that's not the biggest concern unless you're doing a leanFIRE.   

So unless your total stash is small enough that you're really stretching to make FIRE work, I wouldn't think you're crazy to just pay the damn thing off.     Did the same thing myself. :)
Thanks @SwordGuy
Yeah, making a downpayment on another house was the one thing I hadn't considered, but I think I'm okay along those lines.  Right now, I'm not sure I'd want to own another house after this one.  I'll probably rent for a while until I figure out where my next location will be.  And of that, I have NO IDEA except, not here. So really really glad for the feedback.  I'll write that one down to make sure I don't overlook it in case it becomes an issue later.

Just thought of one other issue if you want to get a mortgage on that new house.   If you pay off your house and then try to buy one after the mortgage falls off your credit report (7 years??), your credit score might be lower and the rate might be higher.   Not positive on that.

achvfi

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Re: DONT Payoff your Mortgage Club
« Reply #2601 on: February 16, 2021, 09:59:43 AM »
I usually agree that not pre-paying the mortgage the right path for most.  But now I'm seriously considering paying off my mortgage and I want to know if there's a good reason NOT to pay it off at this point and under my circumstances:

1.  I just quit my job and don't plan on going back.  I guess I'm FIREd
2.  I have $170K in a savings account that I could use to pay for my next 2 years of living expenses.
3.  Or I could use $140k of that to pay off the mortgage on my loan and reduce cash flow needs by $2200 each month.
4.  I plan to stay in this home for 3-10 more years.
5.  I also have $70K in my investment accounts that are not invested.  They're just in cash.  So if I need more than the $30k in cash over the next year, I can start using the cash in the taxable investment account. 
6.  It is unlikely that I will actually invest any of the $170K that is sitting in savings unless the market crashes and I see a great opportunity for "on sale" equities. 
7.  My mortgage rate is 3.875%

Should I just pay this off and save 300-400/month on interest charges for the next few years?
Why should I keep the mortgage?

You dont need to keep the mortgage, but if I were you I would keep the cash flexibility and refinance to low rates in 30 or 15 year fixed.

TempusFugit

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Re: DONT Payoff your Mortgage Club
« Reply #2602 on: February 22, 2021, 12:53:19 PM »
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option. 

UnleashHell

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Re: DONT Payoff your Mortgage Club
« Reply #2603 on: February 22, 2021, 01:52:52 PM »
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

I used bankrate . com to compare various rates and fees. it'll give you a good idea of where you are at and then see what your current lender is offering.

achvfi

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Re: DONT Payoff your Mortgage Club
« Reply #2604 on: February 22, 2021, 03:44:45 PM »
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

I had good experience with credit unions, local brokers, local banks. If wells Fargo makes it easier to refinance do it. I am done with big banks, they are usually expensive, frustrating and take long time to close.

Mr Mark

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Re: DONT Payoff your Mortgage Club
« Reply #2605 on: February 22, 2021, 08:02:43 PM »
Just refinancing my mortgage.

I FIREd 2.5 years ago in 2018. But the deal is too good to resist. The refi offer is 2.75%, fixed for 30 yrs, no points, usual USA deal, non-callable, no fee to refinance. While my payments drop immediately, it'll be about 9 months to nominal payback.

My AA has a solid 30% bonds, but it's there as a short term shock absorber and for tax leverage. Long term inflation is a big risk for me. So, I've got 12% of my stock/bond portfolio in a 30 yr fixed.

Essentially I'm long short bonds but short long bonds. I find it's a one way bet. And the mortgage people kindly make sure I pay my taxes and house insurance, one less thing to worry over.

If rates drop further (hey, a Euro buddy has a 10 yr 0.5% deal) I can still refinance. But if yields and inflation move up, that fixed 2.75% (and its associated principal) will seem like nothing in 15-20 years. Meanwhile having that 12% leverage boost at a 3% vs 9% yield... tasty.
« Last Edit: February 22, 2021, 08:08:07 PM by Mr Mark »

vand

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Re: DONT Payoff your Mortgage Club
« Reply #2606 on: February 23, 2021, 10:27:23 AM »
Don't know if anyone else caught this episode of RPF about using ratios to make financial decisions, where Joshua give us a clue to his own personal view on how much wealth you should have tied up in your home: "I don't want more than 10% of my wealth tied up in my home":

RPF - The Psychological Freedom of Ratios

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2607 on: February 23, 2021, 02:48:36 PM »
Don't know if anyone else caught this episode of RPF about using ratios to make financial decisions, where Joshua give us a clue to his own personal view on how much wealth you should have tied up in your home: "I don't want more than 10% of my wealth tied up in my home":

RPF - The Psychological Freedom of Ratios
Thanks for that, I look forward to listening to it. Sometimes, when one lives in a HCOLA, for example, it's impossible to buy a home for 10% of your net worth. That's why long, low-rate, fixed mortgages are such a lovely, lovely thing.

Even now, when we are FIRE, our damn clown house has appreciated so much that it's still a huge chunk of our NW. We compensate by having a stock-heavy asset allocation and by avoiding REITS. Yeah, we have enough RE exposure.

sonofsven

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Re: DONT Payoff your Mortgage Club
« Reply #2608 on: February 24, 2021, 08:00:19 AM »
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

Are you sure you're comparing apples to apples? I don't see how an interest rate of 2.875 could have an APR of 2.6 or even 2.85.
The difference between the interest rate and the APR basically is accounting for the fees involved in the transaction.
I just looked at Lender FI (I still have the app on my phone) and for me at least the 15 year rate of 2.875 has a corresponding APR of 3.031.
The closer the APR is to the interest rate, the lower the fees you are paying.
I found the best deal for me was through the online vendors (Lender FI) in my case. I refinanced at three percent, with a lender credit of $1200 that didn't quite pay all the lender fees, so actual cost was approx $900. 30 year payback. My credit union offered that rate but with costs approx $4000. (costs do not include the tax and insurance escrow pre pays).
B of A was my previous mortgage holder, their offer was similar to my CU.
Also, I think in most cases you will get a better rate if you don't do a cash out, but if your balance is really low you might get a better rate if you do a cash out.

TempusFugit

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Re: DONT Payoff your Mortgage Club
« Reply #2609 on: February 24, 2021, 03:43:54 PM »
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

Are you sure you're comparing apples to apples? I don't see how an interest rate of 2.875 could have an APR of 2.6 or even 2.85.
The difference between the interest rate and the APR basically is accounting for the fees involved in the transaction.
I just looked at Lender FI (I still have the app on my phone) and for me at least the 15 year rate of 2.875 has a corresponding APR of 3.031.
The closer the APR is to the interest rate, the lower the fees you are paying.
I found the best deal for me was through the online vendors (Lender FI) in my case. I refinanced at three percent, with a lender credit of $1200 that didn't quite pay all the lender fees, so actual cost was approx $900. 30 year payback. My credit union offered that rate but with costs approx $4000. (costs do not include the tax and insurance escrow pre pays).
B of A was my previous mortgage holder, their offer was similar to my CU.
Also, I think in most cases you will get a better rate if you don't do a cash out, but if your balance is really low you might get a better rate if you do a cash out.

I hope Iím comparing like with like, hence the APR, which as you say accounts for the costs of the refinance.  Thats why i was surprised to see the LenderFi numbers so much higher than the other two.

I have a low balance ~94k on my property valued around 300k, so perhaps that just doesn't get me very good rates.   


kenmoremmm

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Re: DONT Payoff your Mortgage Club
« Reply #2610 on: February 26, 2021, 11:41:20 AM »
i'm seeking crystal ball advice.
what do you think interest rates will do in the next 3 months?

i'm going to be selling and my understanding of our current market is that "rent-back" duration (list and close your house, but rent it back from the new owner) is limited to 30 days by most banks. i'd like to sell soon, but timing of things isn't going to allow that.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2611 on: March 01, 2021, 06:19:56 AM »
I will admit, I was shocked at how quickly ten year treasury yields have jumped, from below 1.0% at the start of the year to 1.4% now. There's not any change in monetary policy behind this, this is purely driven by the bond market's response to other things.

kimura

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Re: DONT Payoff your Mortgage Club
« Reply #2612 on: March 11, 2021, 11:31:06 AM »
SUBSCRIBED!
Wow I have some reading to do.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #2613 on: March 11, 2021, 11:38:07 AM »
SUBSCRIBED!
Wow I have some reading to do.
I was going to mention this on your other thread, but $100K in excess home equity today costs you around $500K at the end of a 30 year fixed rate mortgage. You'll get plenty of folks face-punching the spending stuff, which is important, but if you own your home, having it paid off when you can easily get a <4% fixed rate mortgage for 3 decades is an incredibly expensive luxury. This also goes contrary to conventional wisdom, where the alternative to paying down the mortgage is the metaphorical "hookers and blow" and not "investments".

You can probably cash-out refinance roughly $100K from the numbers presented on the other thread without getting into PMI or what have you.

mizzourah2006

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Re: DONT Payoff your Mortgage Club
« Reply #2614 on: March 11, 2021, 11:43:27 AM »
I'm doing a cash out refi on a 15 year note for 2.25% interest. I'll get about $35k in cash out. Using it to pay cash for a pool. It may not be "hookers and blow", but definitely not an investment :) Our family just loves to be around the water, my kids are young and I feel we'll get years of fun and memories out of it and frankly at some point we have to spend some of the money. We're doing way better income wise than I would have ever expected when I started this journey 5 years ago and have no plans to RE until the kids are a bit older, so I figured a splurge here and there is justified.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #2615 on: March 11, 2021, 11:57:42 AM »
That's much better than not doing the refinance and unplugging $35K from investments to put in the pool @mizzourah2006.

Now how do I explain this concept in a way to get a 2/3 affirmative vote at my church? For a liberal church (UU - we're probably getting towards the rightmost side of this denomination just by continuing to call ourselves a 'church' . . .), we have an extraordinarily conservative approach to finances.

kimura

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Re: DONT Payoff your Mortgage Club
« Reply #2616 on: March 11, 2021, 01:13:13 PM »
SUBSCRIBED!
Wow I have some reading to do.
I was going to mention this on your other thread, but $100K in excess home equity today costs you around $500K at the end of a 30 year fixed rate mortgage. You'll get plenty of folks face-punching the spending stuff, which is important, but if you own your home, having it paid off when you can easily get a <4% fixed rate mortgage for 3 decades is an incredibly expensive luxury. This also goes contrary to conventional wisdom, where the alternative to paying down the mortgage is the metaphorical "hookers and blow" and not "investments".

You can probably cash-out refinance roughly $100K from the numbers presented on the other thread without getting into PMI or what have you.

I feel extremely naÔve and uneducated because I don't understand what you just said. I appreciate your time and trying to help. I will try to wrap my head around what your posted.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #2617 on: March 11, 2021, 01:37:14 PM »
Yeah, this one takes time to digest, but basically "why would you not invest at an expected 8-10% annual return just to save 3% on your mortgage?".

Took me a while to fully grasp this - this forum was screaming this at me back in 2014 to not pay off our new-to-us house. I came up with every rebuttal I could think of. Finished paying off the house in 2016, knowing in my head but not my heart that it was a mistake even if our house is less expensive than many folks on here. Then had to convince my wife on the idea even when I was at "we should undo the error and refinance". Ultimately we didn't get the refinance done until October 2019 for various reasons. Been hemming and hawing on refinancing again, but this time it isn't like $125K that isn't working for us - just marginal savings on that and at most maybe $20K additional we can take out.

Back of the napkin tells me that we're behind by several tens of thousands of dollars that we'll never recover (and that only gets larger over time due to compounding) due to having that roughly $100K sum out of the market for those 3 years. Some of that is timing - market happened to perform very well over that period, but the thing that pisses me off the most about this loss looking back is not the dollar amount but my own stubbornness in the face of so many people telling me it was a bad move at the time I was making the mistake actively. The fact that the loss is probably about $50K already and growing and not a smaller amount just cements the lesson.

kimura

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Re: DONT Payoff your Mortgage Club
« Reply #2618 on: March 11, 2021, 01:51:10 PM »
Thanks for clarifying. We just refinanced our mortgage at %2.25. Our house payment is much less than many apartments in our area and a lot less than renting a house similar to ours so I feel like we are on the right track. I have no intention of making extra payments. So it sounds like we have made the best decision.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #2619 on: March 11, 2021, 01:56:48 PM »
@dandarc ,  yeah, you learned the lesson (that's important!), but don't beat yourself up about it.

You didn't do something stupid, you did something less than optimal.   There's a world of difference.

And in 3 years, if the market crashes, don't beat yourself up about so-called losses.    The market will recover and you'll still have been earning dividends about what the new mortgage interest is, so it's no big deal.   In 10 years you'll be ahead.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #2620 on: March 11, 2021, 03:23:38 PM »
@dandarc ,  yeah, you learned the lesson (that's important!), but don't beat yourself up about it.

You didn't do something stupid, you did something less than optimal.   There's a world of difference.

And in 3 years, if the market crashes, don't beat yourself up about so-called losses.    The market will recover and you'll still have been earning dividends about what the new mortgage interest is, so it's no big deal.   In 10 years you'll be ahead.
I'm still accumulating, though it will soon be slower with a new 24 hour per week Coast-FIRE job - I want the market to crash.

Actually went a little bit too all-in on the "find cheap debt - buy index funds - profit" thing last year. Took out what wound up being a total of about $35K in 0% balance transfer offers to buy stock with the proceeds. I was thinking "I've had these offers available continuously as long as I've had these credit cards - I should be able to pay minimums and roll-over as the promotional periods come to an end". I thought wrong - haven't seen one of those offers on any existing card since I cashed in 4 of them at 3 different banks last March. So I've been paying those off faster than I had planned originally. I was able to score one more 0% for 18 months introductory offer on a new card just recently to extend the runway a bit on paying it all off. I had also just invested over $30K in in January to front-load the IRAs and Solo 401K for 2020 so I was also thinking "if I was willing to pay 30% more two months ago . . ."

$1400 / month until September when remaining balance #1 pays off, then $600 until late 2022 when remaining balance #2 pays off is a lot more palatable than $3K per month total until October as my payoff plan before the new intro-offer came through was. Particularly in light of a "40% less time for 40% less money (*absent tax advantages I'll have now that I'm self-employed again)" move that presented itself earlier this year. Academic in the grand scheme, but I'd be lying if I didn't say that significantly reduced draw is making me feel a little better about the change - and I feel absolutely fantastic about this particular change.

2020 into early 2021 has been really strange for me on the job front - started self employed as I have been since 2011, got a verbal agreement from my full-time customer to extend the contract for another year. That was around March 5th I want to say. Literally a week later a year with expectations to renew beyond that turned into "3 months and then W-2 at an insultingly low salary if you want to stay on after that". Then they came up on the salary offer as the end of the 3 months was drawing near, but remaining self-employed was absolutely not an option with them any longer. Was still insulted a bit, but ultimately took the offer. W-2 started on July 1st.  Then the company merger that started in 2018 became more real to us rank-and-file folks, so I found out health insurance and various other benefits were changing again on 1/1/2021, and our leave policy was getting worse. Still though this job was paying enough that on the money front it was the best option. I've been taking calls from recruiters from time to time and being a contractor this long I discuss money immediately - best thing I've heard was "we could maybe match the salary but our benefits are worse". Then a former client reached out to me (they knew I had moved back from California in 2019, and I think they'd have reached out sooner except for the pandemic) and I thought "fuck it - ask for what you really want." Part time, self employed, hourly rate that will make this more than enough money to run the household without breaking a sweat". And they literally just said yes to everything I asked for. This is state-government contract work, so paperwork is not final yet but should be quite soon. My big challenge right now is not quitting my current job prematurely.

You know one thing that made all that change a little more palatable and gave me the confidence to straight up ask for the upcoming part time job? Having $125K more in liquid assets plus growth has pushed us to a level where if I try a little harder than I want to on reigning in our household budget, we don't actually need any jobs anymore - certainly not this big stress job I've been doing since spring of 2018. Even with the $600 mortgage payment added we're in much, much better shape than we were before, and that would be true even if the market was down and not up like it is.

I guess that is what I was trying to convey: $100K more invested today with a $500-$600 fixed monthly payment for the next 30 years, contrary to conventional wisdom, is a far better situation than $0 more invested and a $0 payment. This is one of those things I think a portion of the MMM forum is much more correct about than MMM himself, though note that the latest post on the main blog is about taking out a margin loan to buy a house, so maybe MMM is shifting of the idea of carefully using debt to keep more money invested?

Also don't take that to mean that I think buying more house than necessary (and of course everyone's criteria for 'acceptable house' is different, and real estate markets vary in a big way) is a smart move either. Just that if you do buy a house, think long and hard about the best way to finance it. House value will do whatever it is going to do regardless of whether you borrow against it or not, and residential mortgage terms, at least in the US, are very very favorable.
« Last Edit: March 11, 2021, 03:29:02 PM by dandarc »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2621 on: March 11, 2021, 04:05:26 PM »
Excellent post, @dandarc. I may or may not have been one of the screamers way back when. Ahem.

Two more points:
Money for the purchase of a property is the cheapest money you can get. Anything you do afterwards is considered a cash-out re-fi and typically costs more.

Tax deductibility comes into play here, too. IIRC, only $100k will be deductible on your taxes. This may have changed, or I may not be stating it clearly, so I'm paging @seattlecyclone for an assist.

seattlecyclone

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Re: DONT Payoff your Mortgage Club
« Reply #2622 on: March 11, 2021, 04:32:31 PM »
Excellent post, @dandarc. I may or may not have been one of the screamers way back when. Ahem.

Two more points:
Money for the purchase of a property is the cheapest money you can get. Anything you do afterwards is considered a cash-out re-fi and typically costs more.

Tax deductibility comes into play here, too. IIRC, only $100k will be deductible on your taxes. This may have changed, or I may not be stating it clearly, so I'm paging @seattlecyclone for an assist.

I think you can only deduct interest from a cash-out refinance if you used the extra money to make capital improvements to your house. This may be a change from a few years ago.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #2623 on: March 11, 2021, 04:54:44 PM »
Well shit - thanks for pointing that out. We were literally about to switch to "every other year" on property taxes and donations, but if the mortgage interest is not tax deductible, we might not come out ahead then. Monthly donations and "in November" for property taxes is easier for convenience and saving a little money if we're not getting thousands more dollars sheltered from income taxes by itemizing every other other.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2624 on: March 12, 2021, 05:26:02 AM »
I've often pondered an "every other year" approach to charitable giving.

It probably makes life tougher for the charities, though.

Raenia

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Re: DONT Payoff your Mortgage Club
« Reply #2625 on: March 12, 2021, 05:31:09 AM »
I've often pondered an "every other year" approach to charitable giving.

It probably makes life tougher for the charities, though.

Perhaps every other year contributions to a Donor Advised Fund, with annual or monthly contributions to the actual charities?

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #2626 on: March 12, 2021, 08:14:01 AM »
Maybe for a startup charity or if you're providing millions of dollars or something - I seriously doubt timing of under $10k of donations per year will cause anyone any angst at an established place. One check instead of 12 might be welcomed, particularly at a smaller one - less work to record it.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2627 on: March 15, 2021, 07:23:33 AM »
It's always stressful at the end of the year to try to arrange all these last-minute gifts. I can see the argument for just "setting and forgetting" a monthly contribution.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2628 on: March 15, 2021, 11:13:16 AM »
It's always stressful at the end of the year to try to arrange all these last-minute gifts. I can see the argument for just "setting and forgetting" a monthly contribution.
You can do that with a DAF, too.

kenmoremmm

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Re: DONT Payoff your Mortgage Club
« Reply #2629 on: March 24, 2021, 09:46:55 PM »
Here's my DPOYM story that I wish I had known 9 years ago:

Back in 2012, I received a settlement from an accident that was large enough to pay off the balance of a rental property (<$100k). We are now selling that rental at the sale price of $250k. Had I invested that $100k, I'm certain I would be ahead by several hundred thousand. It helps that we had a historic bull market, but this was certainly a stinging lesson for me.

Now, I am faced with a similar dilemma. We will have the sale of the rental property and are selling our primary residence and will be moving to Canada from the US. I expect to be sitting on about $825k when all is said and done (post taxes). I am tempted to buy the new house (not yet found) in cash to simplify things, realizing that it's a suboptimal choice compared to investing the balance. My TOP-IS-IN radar is beeping loudly and I would have a hard time justifying risk vs reward. Because of the complex relationship between the US and Canada on tax and investment treaties, I'm not (yet) confident on my investment strategy moving forward. New home purchase will likely be in the range of $600-800k USD (these are not clown houses, just high demand low inventory areas). Someone convince me to dump it all in on black and let it ride.

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #2630 on: March 25, 2021, 10:06:49 AM »
Someone convince me to dump it all in on black and let it ride.
If your own stories aren't enough, I don't know what would be. I'm not familiar with investing or purchasing a home in Canada, but I certainly wouldn't want to pass up on the low mortgage rates for a purchase in the US. I could see possibly using a wholly owned investment entity make the intimal purchase with cash, then personally purchasing from the investment entity using a traditional mortgage. as discussed a bit in this thread (with or without the use of a line of credit secured by paper investments to raise the cash). I have no idea what the additional transaction costs of doing this would be.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #2631 on: March 25, 2021, 01:08:11 PM »
Crap. I dun messed up and paid off my mortgage (sale).
Iíll throw myself out.
Jealous of all of you holding cheap money...

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #2632 on: March 25, 2021, 01:28:00 PM »
Crap. I dun messed up and paid off my mortgage (sale).
Iíll throw myself out.
Jealous of all of you holding cheap money...
Having no house at all frees up all the money for investments!

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #2633 on: March 25, 2021, 04:52:12 PM »
Crap. I dun messed up and paid off my mortgage (sale).
Iíll throw myself out.
Jealous of all of you holding cheap money...
Having no house at all frees up all the money for investments!

Hmm.... That would be great, if not for the monthly rent payment. Oh well, cíest la vie.

Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #2634 on: March 25, 2021, 05:58:31 PM »
Crap. I dun messed up and paid off my mortgage (sale).
Iíll throw myself out.
Jealous of all of you holding cheap money...
Having no house at all frees up all the money for investments!

Hmm.... That would be great, if not for the monthly rent payment. Oh well, cíest la vie.

I might be doing the same in a few months, either Iíll have the largest mortgage of my life, or Iíll have none because Iím renting.  Either way my monthly housing ďbudgetĒ. Is the same cash flow wise.  With one Iíll keep building home equity over 30 years, with the other, the old house equity will be tossed into my index funds to grow slowly until I spend it.

Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #2635 on: March 26, 2021, 04:51:44 AM »
Next quarter, my dividends from my taxable investment account, which is larger because I didnít pay off my mortgage will likely surpass my mortgage payment.  I have a $14 difference now, next goal would have been to be able to pay taxes and insurance as well but Iím likely to be moving so itíll be reset.

Naomi

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Re: DONT Payoff your Mortgage Club
« Reply #2636 on: March 26, 2021, 08:48:25 AM »
I made the first payment on the new loan/refinance today.
We ended up getting back around $365 at closing and $1190 escrow from our previous lender.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #2637 on: March 26, 2021, 09:16:21 AM »
Next quarter, my dividends from my taxable investment account, which is larger because I didnít pay off my mortgage will likely surpass my mortgage payment.  I have a $14 difference now, next goal would have been to be able to pay taxes and insurance as well but Iím likely to be moving so itíll be reset.

About three decades ago my parents created a ďmortgage sinking fundĒ with the idea that it could be used to pay off the mortgage if desirable. Now (and two ReFis later) their dividends more then pay for the monthly payments, and the sinking fund is worth several times the original mortgage

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2638 on: March 30, 2021, 06:54:51 AM »
Good job on your parents!

Goldy

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Re: DONT Payoff your Mortgage Club
« Reply #2639 on: April 03, 2021, 08:14:18 AM »
Well the refi has been completed and the cash has been put to work.

30yr 2.75% $1,700 total closing costs
Cashed out 90k in equity and tossed it in a VTSAX in a separate account so we can easily track its progress vs the 2.75% loan.

Dumped it all lump sum style into vanguard at an all time market high but the ISP says to do so.  Feels good!

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #2640 on: April 05, 2021, 11:22:35 AM »
Well the refi has been completed and the cash has been put to work.

30yr 2.75% $1,700 total closing costs
Cashed out 90k in equity and tossed it in a VTSAX in a separate account so we can easily track its progress vs the 2.75% loan.

Dumped it all lump sum style into vanguard at an all time market high but the ISP says to do so.  Feels good!

Nice! Basically a 0% loan after accounting for inflation :)

Now the fun part will be to see how long it will take for the 90K invested to overtake your mortgage balance!


talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2641 on: April 06, 2021, 06:51:27 AM »
We're getting a tax refund for 2020, I'm feeling particularly sub-optimal, since that money could have been going into the market instead of the Federal government this whole time. Will try to adjust that with-holding.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2642 on: April 06, 2021, 07:14:14 AM »
We're getting a tax refund for 2020, I'm feeling particularly sub-optimal, since that money could have been going into the market instead of the Federal government this whole time. Will try to adjust that with-holding.
Not the worst problem in the world. In the long run, it's only a small amount of money out of the market for six-ish months on average. Another advantage of FIRE is you'll have more control over your withholdings.

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #2643 on: April 06, 2021, 11:24:52 AM »
Question for the group:  We are 6 years into a 10/1 ARM home loan at 3.5%, and are looking to refinance now that the possible move we were considering in late 2020/early 2021 isn't going to happen. Started working with a mortgage broker recommended in the Dallas ChooseFI FB group, and their offer is Quicken loans, 3.125%.

However, there are a few snaps.

First this is a jumbo loan, remaining balance 705k.

Second, current loan is with BoA, and it's the result of a previous cash-out refinance in 2015; despite TX subsequently changing refinance rules to allow traditional refinances of previous cash-outs, BoA still has an internal rule in TX limiting their own refinance options to only "cash-out" type, so they essentially offered the same terms as what we now have with around 1% closing costs even with no actual cash-out; no bueno.

Third, DW has had a stable 10y job that accounts for <25% of our income, however I left my job 2 years ago to try self-employed that didn't work, ending 12/2020, and since 8/2020 I've been back at my old employer, but part time 50% and hourly (both I and my employer are very happy with this arrangement). However, the broker has said the underwriters won't consider this part time income since I've been doing it for less than 2 years, despite it being around $200k per year. Also, apparently assets don't factor in, since our retirement and investment accounts dwarf this loan.

None of this would be a problem, the broker initially said that DW's income was just enough to qualify for a 700k refinance amount, but now the underwriters calculated a max amount of 650k, which would mean brining 50k to the table, and defeating the entire purpose, which for us is to direct as little cash flow to the mortgage as possible, while not tapping into our bank and retirement accounts and letting them grow.

So question: do the broker/underwriter objections seem reasonable, or are we dealing with unusually stringent rules and should just try someone else out? If not, anyone see any way to get around this? I've asked why assets and my income can't at least play a role. Also, DW is taking on an additional 20%-time job running a course for the medical school, which will increase her income about 35% on May 1st, however this will be a new separate paycheck from the medical school rather than a raise from her main employer, so I'm guessing we'd run into the same underwriting problem of ignoring part-time work of <2years.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #2644 on: April 06, 2021, 11:52:15 AM »
Question for the group:  We are 6 years into a 10/1 ARM home loan at 3.5%, and are looking to refinance now that the possible move we were considering in late 2020/early 2021 isn't going to happen. Started working with a mortgage broker recommended in the Dallas ChooseFI FB group, and their offer is Quicken loans, 3.125%.

However, there are a few snaps.

First this is a jumbo loan, remaining balance 705k.

Second, current loan is with BoA, and it's the result of a previous cash-out refinance in 2015; despite TX subsequently changing refinance rules to allow traditional refinances of previous cash-outs, BoA still has an internal rule in TX limiting their own refinance options to only "cash-out" type, so they essentially offered the same terms as what we now have with around 1% closing costs even with no actual cash-out; no bueno.

Third, DW has had a stable 10y job that accounts for <25% of our income, however I left my job 2 years ago to try self-employed that didn't work, ending 12/2020, and since 8/2020 I've been back at my old employer, but part time 50% and hourly (both I and my employer are very happy with this arrangement). However, the broker has said the underwriters won't consider this part time income since I've been doing it for less than 2 years, despite it being around $200k per year. Also, apparently assets don't factor in, since our retirement and investment accounts dwarf this loan.

None of this would be a problem, the broker initially said that DW's income was just enough to qualify for a 700k refinance amount, but now the underwriters calculated a max amount of 650k, which would mean brining 50k to the table, and defeating the entire purpose, which for us is to direct as little cash flow to the mortgage as possible, while not tapping into our bank and retirement accounts and letting them grow.

So question: do the broker/underwriter objections seem reasonable, or are we dealing with unusually stringent rules and should just try someone else out? If not, anyone see any way to get around this? I've asked why assets and my income can't at least play a role. Also, DW is taking on an additional 20%-time job running a course for the medical school, which will increase her income about 35% on May 1st, however this will be a new separate paycheck from the medical school rather than a raise from her main employer, so I'm guessing we'd run into the same underwriting problem of ignoring part-time work of <2years.



I don't think they are being unreasonable.  All of this sounds pretty standard for Jumbo loans and, in an ideal situation, I would personally try to pay enough down in order to take this loan out of the Jumbo category because you will get way better access to good rates & loan terms.

If you are sitting on a lot of taxable investments(1-2M+).  I would look into using Interactive brokers to source some capital on a margin loan at their 1.57% rate and then get the mortgage down to non-Jumbo territory.  Then pay off the margin over the coming months with the extra income.  The benefit of this is that you are not liquidating any assets so you will not have any taxable sales of stocks or index funds, assuming you are up a bunch on them.  You are just being charged the 1.57% margin loan rate and as long as you keep your margin reasonably low then the risk of getting a margin call on broad market index funds is really low.   MMM recently did something similar to this and this situation was one of the reasons I switched all of my investments over to Interactive Brokers in 2019.  It's just a little more creative flexibility if the situation arises and is needed, assuming you are comfortable with structuring something like this though...

I would never plan to go over 20% margin for an extended period of time and ideally keep it to 10-15% margin for something like this assuming the assets are held in total market index funds.

Take all this info with a grain of salt.. Doing something like this comes with risks and is not for everyone but it's just one example of having some extreme flexibility if you are sitting on a large taxable brokerage account and need a good chunk of money to bridge a purchase and then repaying it without being subject to capital gains tax.

MMM Blog going over this: https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/


Alright, taking my creative thinking hat off now...
« Last Edit: April 06, 2021, 11:56:41 AM by FIreDrill »

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #2645 on: April 06, 2021, 12:07:07 PM »
Thanks FIreDrill, definitely something to think about. We've only got 840k spread out over Vanguard, Fidelity, and Merrill Edge accounts, I'm guessing that your suggestion would be to do an in-kind transfer to IB, and then do 80-120k margin loan, correct? Probably not for us, at least for the refi, especially as we are ~190k away from the conforming limits, but we are also considering a major remodel in the near future; in 16 months my income will factor in, but your idea would be a potential superior way of financing rather than a HELOC, which seems out of our reach before 16 months time; will give this some serious thought.

Heard back from the broker, the income issue is a 45% loan-to-income ratio, and DW's income puts it right at 46.5% with the 700k, so no amount of assets changes that math, and got confirmation that the expected new income source for DW is still problematic.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2646 on: April 06, 2021, 12:07:36 PM »
Question for the group:  We are 6 years into a 10/1 ARM home loan at 3.5%, and are looking to refinance now that the possible move we were considering in late 2020/early 2021 isn't going to happen. Started working with a mortgage broker recommended in the Dallas ChooseFI FB group, and their offer is Quicken loans, 3.125%.

However, there are a few snaps.

First this is a jumbo loan, remaining balance 705k.

Second, current loan is with BoA, and it's the result of a previous cash-out refinance in 2015; despite TX subsequently changing refinance rules to allow traditional refinances of previous cash-outs, BoA still has an internal rule in TX limiting their own refinance options to only "cash-out" type, so they essentially offered the same terms as what we now have with around 1% closing costs even with no actual cash-out; no bueno.

Third, DW has had a stable 10y job that accounts for <25% of our income, however I left my job 2 years ago to try self-employed that didn't work, ending 12/2020, and since 8/2020 I've been back at my old employer, but part time 50% and hourly (both I and my employer are very happy with this arrangement). However, the broker has said the underwriters won't consider this part time income since I've been doing it for less than 2 years, despite it being around $200k per year. Also, apparently assets don't factor in, since our retirement and investment accounts dwarf this loan.

None of this would be a problem, the broker initially said that DW's income was just enough to qualify for a 700k refinance amount, but now the underwriters calculated a max amount of 650k, which would mean brining 50k to the table, and defeating the entire purpose, which for us is to direct as little cash flow to the mortgage as possible, while not tapping into our bank and retirement accounts and letting them grow.

So question: do the broker/underwriter objections seem reasonable, or are we dealing with unusually stringent rules and should just try someone else out? If not, anyone see any way to get around this? I've asked why assets and my income can't at least play a role. Also, DW is taking on an additional 20%-time job running a course for the medical school, which will increase her income about 35% on May 1st, however this will be a new separate paycheck from the medical school rather than a raise from her main employer, so I'm guessing we'd run into the same underwriting problem of ignoring part-time work of <2years.



I don't think they are being unreasonable.  All of this sounds pretty standard for Jumbo loans and, in an ideal situation, I would personally try to pay enough down in order to take this loan out of the Jumbo category because you will get way better access to good rates & loan terms.

If you are sitting on a lot of taxable investments(1-2M+).  I would look into using Interactive brokers to source some capital on a margin loan at their 1.57% rate and then get the mortgage down to non-Jumbo territory.  Then pay off the margin over the coming months with the extra income.  The benefit of this is that you are not liquidating any assets so you will not have any taxable sales of stocks or index funds, assuming you are up a bunch on them.  You are just being charged the 1.57% margin loan rate and as long as you keep your margin reasonably low then the risk of getting a margin call on broad market index funds is really low.   MMM recently did something similar to this and this situation was one of the reasons I switched all of my investments over to Interactive Brokers in 2019.  It's just a little more creative flexibility if the situation arises and is needed, assuming you are comfortable with structuring something like this though...

I would never plan to go over 20% margin for an extended period of time and ideally keep it to 10-15% margin for something like this assuming the assets are held in total market index funds.

Take all this info with a grain of salt.. Doing something like this comes with risks and is not for everyone but it's just one example of having some extreme flexibility if you are sitting on a large taxable brokerage account and need a good chunk of money to bridge a purchase and then repaying it without being subject to capital gains tax.

MMM Blog going over this: https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/


Alright, taking my creative thinking hat off now...
While I respect FIreDrill's opinion, I do not agree in this case. I think they're being crazy unreasonable.

I live in the land of Everyone Has Jumbo Mortgages. Typically, the question asked is "How many years at your current employer?" or "How many years in this field of work?" An honest answer to either of those questions should make the box checkers happy. It's possible you gave them TMI. Could you characterize your time off as a sabbatical? You may just have to go with someone else. Plenty of lenders in the sea...

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #2647 on: April 06, 2021, 12:19:45 PM »
Thanks FIreDrill, definitely something to think about. We've only got 840k spread out over Vanguard, Fidelity, and Merrill Edge accounts, I'm guessing that your suggestion would be to do an in-kind transfer to IB, and then do 80-120k margin loan, correct? Probably not for us, at least for the refi, especially as we are ~190k away from the conforming limits, but we are also considering a major remodel in the near future; in 16 months my income will factor in, but your idea would be a potential superior way of financing rather than a HELOC, which seems out of our reach before 16 months time; will give this some serious thought.

Heard back from the broker, the income issue is a 45% loan-to-income ratio, and DW's income puts it right at 46.5% with the 700k, so no amount of assets changes that math, and got confirmation that the expected new income source for DW is still problematic.

No problem.  Yes, I would suggest in-kind transfers using their ACATS option.  I transferred multiple brokerage accounts and IRA's to IB using ACATS and it was pretty easy.  I have been with IB for around 2 years now and I do not see myself going anywhere else.  I've used margin several times in the way I described above, typically only for a couple of weeks or months.  The flexibility these provide combined with the insanely low rates make them very attractive for short-term bridge loans.

The only other thing I could think of is if you are receiving a decent amount of dividend/interest income in your taxable accounts that can usually be used to help qualify for a mortgage since it's re-occurring income.  Or just put it off for a little bit until the extra work income comes in for a couple of months and then get qualified off of that.  I would definitely try to get out of the ARM over the next couple of months though.


PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #2648 on: April 07, 2021, 01:33:29 PM »
<snip> receiving a decent amount of dividend/interest income in your taxable accounts that can usually be used to help qualify for a mortgage since it's re-occurring income <snip>

FYI this worked!

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #2649 on: April 07, 2021, 03:57:21 PM »
<snip> receiving a decent amount of dividend/interest income in your taxable accounts that can usually be used to help qualify for a mortgage since it's re-occurring income <snip>

FYI this worked!

Awesome!  I hope it made a big enough difference! :)