Author Topic: DONT Payoff your Mortgage Club  (Read 788896 times)

ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3250 on: June 10, 2022, 12:15:33 PM »
Sadly the era of sub-4% mortgages has ended, for the time being at least.   But some good news for everyone who obtained a sub-4% mortgage in the last few years and didn't pay it off:   Inflation has returned.   Why is that good news?   Because your mortgage payment is fixed at a much lower rate than current inflation.   That means your total expenses are also rising a lower rate than inflation. 
It is definitely good to under-spend inflation, but...

Quote
In retirement, that means your WR is decreasing!   
...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.

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In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER. 
I'm getting a 3.5% raise this evaluation season, when the national average is 5.5%, and when inflation is 8.6%. So this isn't a guaranteed thing. For people like myself who have maxxed out in their company or profession, there aren't as many arbitrage options. I've heard that wage gains are disproportionately going to low-skill, low-wage workers - which is good for them because they've fallen behind for decades.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #3251 on: June 10, 2022, 03:47:54 PM »
In retirement, that means your WR is decreasing!   
...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.

The SWR is based on your initial portfolio value.  If you are doing it right, your WR increases because of inflation, not because of portfolio value.  If we go back to 1980 when inflation in the US was at its modern peak, over the next 30 years (length of typical mortgage) stocks returned a robust 7.6% after inflation.   

In fact, there has been no 30-year period when the S&P 500 returned less than 4%.  Yes, it is possible it could happen, but very unlikely.   Of course, you couldn't get a 3.5% mortgage in 1980.   Mortgages were more like 15%.   But that hammers home a point I've made in this thread and elsewhere many times over the years:  A sub-4% mortgage was the deal of a lifetime.  The long term inflation rate is about 3.5%.  That means you would likely get to use the money for free.   But if inflation goes higher--which it did--that means the bank is paying you to use their money.   
« Last Edit: June 11, 2022, 10:32:44 AM by Telecaster »

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3252 on: June 10, 2022, 04:00:52 PM »
Quote
In retirement, that means your WR is decreasing!   
...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.

The SWR is based on your initial portfolio value.  If you are doing it right, your WR increases because of inflation, not because of portfolio value.  If we go back to 1980 when inflation in the US was at its modern peak, over the next 30 years (length of typical mortgage) stocks returned a robust 7.6% after inflation.   

In fact, there has been no 30-year period when the S&P 500 returned less than 4%.  Yes, it is possible it could happen, but very unlikely.   Of course, you couldn't get a 3.5% mortgage in 1980.   Mortgages were more like 15%.   But that hammers home a point I've made in this thread and elsewhere many times over the years:  A sub-4% mortgage was the deal of a lifetime.  The long term inflation rate is about 3.5%.  That means you would likely get to use the money for free.   But if inflation goes higher--which it did--that means the bank is paying you to use their money.

Öand yet there are people on this forum passionately arguing that a person cannot beat or even mitigate the impacts of inflation.

solon

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Re: DONT Payoff your Mortgage Club
« Reply #3253 on: June 23, 2022, 09:34:17 AM »
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Shuchong

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Re: DONT Payoff your Mortgage Club
« Reply #3254 on: June 27, 2022, 05:46:32 PM »
After some hand wringing -- and a post in the real estate subforum where @Dicey gently steered me this way -- I'm joining the club.  Closing late July on a house and taking out a $270k mortgage, likely at 5.5%. (In the unlikely event that rates go lower in the next two weeks, I can lock in a lower rate for a nominal fee.) 

Psychologically, I feel that debt = bad.  And my rate *feels* high, even though historically it isn't.  There is a large part of me that just wants the mortgage gone.

But my federal+state combined marginal tax rate is about 42%, and I itemize and get a mortgage interest deduction on state taxes too.  So if I'm doing the math right, my tax-adjusted mortgage rate is 3.2% (5.5%*(1-42%).  I also have some job and life uncertainty that, while not enough to prevent me from getting a house, are enough to make me conscious that prepaying the mortgage would be turning liquid assets into illiquid ones.  And my mortgage allows for low-cost, streamlined refinancing that I could take advantage of if rates drop in a few years. 

I'll reevaluate if I start making less money and therefore paying less in taxes and worrying more about cash flow.  But for now, you all have convinced me. 

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3255 on: June 27, 2022, 06:46:02 PM »


Psychologically, I feel that debt = bad.  And my rate *feels* high, even though historically it isn't.  There is a large part of me that just wants the mortgage gone.


Psychologically Iíve found it helpful to realize that: money > debt.
In almost every situation Iíve encounterd, having a lot more money is preferable to having no debt.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3256 on: June 27, 2022, 08:09:16 PM »
Welcome, Shuchong! Come on in, we don't bite.

Another way to look at it is to consider your mortgage a bond, except it's better because it can't go down in value. Even at 5.5% and before the tax break, it beats inflation. Re-jigger your AA to reflect that and you're good to go.

Over time, your income is likely to go up but your mortgage interest rate never will. Woo-hoo!

Actually, the only potential danger here is people are going to just might start bragging on their low interest payments, especially as rates increase. Bring it, I say!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3257 on: June 28, 2022, 06:47:03 AM »
@Shuchong , I totally get you when you talk about that life uncertainty.

In our particular case, the life uncertainty came in the form of moving. Because of the mortgage balance, we were able to change the order of our transactions such that we could purchase the new house before selling the old one, and that was right for our family.

Must_ache

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Re: DONT Payoff your Mortgage Club
« Reply #3258 on: June 28, 2022, 12:05:04 PM »
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Those stresses aren't nearly as big as the money lost when stocks go down.  I think that people that once focus on how future purchases are getting cheaper are deluding themselves.  It's not untrue, but it's a lopsided way of looking at the issue.  I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale.  That argument works best for a noob with next to nothing in the market and a 50-yr investing window.

Shuchong

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Re: DONT Payoff your Mortgage Club
« Reply #3259 on: June 28, 2022, 12:14:41 PM »
Thanks for the warm welcome, all!

@nereo, I will try to keep this in mind.  Having more money and more liquidity is definitely valuable:)

@Dicey, yeah, I am beating inflation at the moment.  Silver linings, I guess?  And if inflation stays high, it will be easy next year for me to take money I would be tempted to put towards the mortgage and put it into ibonds instead.  I doubt I will ever make more money than I'm making now (I work for a large law firm, but will probably have to downshift soon-ish due to health issues -- I could very well end up taking a 75% pay cut).  However, I would still be able to cover mortgage payments with my lower income, and that income will no doubt inflate over the course of 30 years. 

@talltexan, glad everything worked out with your new house sale!  And yes, flexibility and life uncertainty go nicely together:)

ATtiny85

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Re: DONT Payoff your Mortgage Club
« Reply #3260 on: June 28, 2022, 12:17:31 PM »
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Those stresses aren't nearly as big as the money lost when stocks go down.  I think that people that once focus on how future purchases are getting cheaper are deluding themselves.  It's not untrue, but it's a lopsided way of looking at the issue.  I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale.  That argument works best for a noob with next to nothing in the market and a 50-yr investing window.

But do you believe stocks will go up long term? If no, then you should not be buying equities at any price. If yes, then equities you buy today are a good deal, and the equities you bought last year, while depressed now, will also be a good deal later.

Watch out for the sunk cost fallacy.

I am down quite a bit more than $150,000, but so what? Itís done. My fate on the VTSAX I bought in December was sealed as soon as the purchase cleared. But I have doubt those shares will be worth holding for the next ten+ years (not counting the TLH I did, but I made a round trip by now) and will be valuable to exchange for money needed to live on.

Tyson

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Re: DONT Payoff your Mortgage Club
« Reply #3261 on: June 28, 2022, 12:31:37 PM »
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Those stresses aren't nearly as big as the money lost when stocks go down.  I think that people that once focus on how future purchases are getting cheaper are deluding themselves.  It's not untrue, but it's a lopsided way of looking at the issue.  I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale.  That argument works best for a noob with next to nothing in the market and a 50-yr investing window.

Short term losses don't matter.  With equities, the ride is bumpy.  Don't sell.  Keep buying. 

Besides, aren't a lot of people always complaining about how 'overpriced' stocks are?  Well, here we are, stocks are no longer overpriced.  But do people stop complaining?  No, they don't.  They just figure out something else to complain about (like volatility). 

EngineerOurFI

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Re: DONT Payoff your Mortgage Club
« Reply #3262 on: June 28, 2022, 01:08:00 PM »
In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER. 

Still waiting on that annual raise that seems to be MIA to help counter inflation.

ATtiny85

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Re: DONT Payoff your Mortgage Club
« Reply #3263 on: June 28, 2022, 01:16:51 PM »
In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER. 

Still waiting on that annual raise that seems to be MIA to help counter inflation.

My entire company got an out of sequence bump last year. 8%. So with that we got closer to evenÖbefore this recent inflation kicked us back down.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3264 on: June 28, 2022, 07:08:11 PM »
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Those stresses aren't nearly as big as the money lost when stocks go down.  I think that people that once focus on how future purchases are getting cheaper are deluding themselves.  It's not untrue, but it's a lopsided way of looking at the issue.  I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale.  That argument works best for a noob with next to nothing in the market and a 50-yr investing window.

But do you believe stocks will go up long term? If no, then you should not be buying equities at any price. If yes, then equities you buy today are a good deal, and the equities you bought last year, while depressed now, will also be a good deal later.

Watch out for the sunk cost fallacy.

I am down quite a bit more than $150,000, but so what? Itís done. My fate on the VTSAX I bought in December was sealed as soon as the purchase cleared. But I have doubt those shares will be worth holding for the next ten+ years (not counting the TLH I did, but I made a round trip by now) and will be valuable to exchange for money needed to live on.
I know I promised @Shuchong we don't bite, so please read this with a very gentle tone:  The stock market goes up and the stock market goes down in the short term. Over time, the stock market always goes UP. For proof, one only has to look at the history of the stock market. Therefore, what anyone believes doesn't really matter. It's the facts that count.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3265 on: June 29, 2022, 07:31:13 AM »
Actually, it's future returns that count. We are fallible humans, who can select excellent investments, but still find ways to mess up the returns we experience.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3266 on: June 29, 2022, 09:11:15 AM »
Actually, it's future returns that count. We are fallible humans, who can select excellent investments, but still find ways to mess up the returns we experience.
Do you mean by doing something like panic selling when the market drops? If not that, could you please elaborate?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3267 on: June 29, 2022, 09:34:17 AM »
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Tyson

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Re: DONT Payoff your Mortgage Club
« Reply #3268 on: June 29, 2022, 02:20:22 PM »
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that? 

ATtiny85

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Re: DONT Payoff your Mortgage Club
« Reply #3269 on: June 29, 2022, 02:32:32 PM »
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?

It can be tough for some people, especially the first time they see a little blip, let alone a major blip. We can only hope they post here in a panic and can be talked back from the cliff.

moof

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Re: DONT Payoff your Mortgage Club
« Reply #3270 on: June 29, 2022, 04:36:20 PM »
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?

It can be tough for some people, especially the first time they see a little blip, let alone a major blip. We can only hope they post here in a panic and can be talked back from the cliff.
I heard word from my old work that one fellow nearing retirement sold it all and pumped it into a triple negative leveraged ETF just a few weeks ago, which proceed to lose over 20% in a week when the cat corpse bounced a little last week.  Going back a ways he had tales of previously sinking his money in a hedge fund that lost a fair bit while the market had been up like 30% (he got very quiet about it once the S&P started whipping its performance).  Folks like that canít be saved from themselves.  I feel for the guy, but seeing his engineering skills (or lack there of), it does not surprise me, just a walking dumpster fire of poor numbers comprehension on many fronts.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3271 on: June 29, 2022, 05:36:41 PM »
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3272 on: June 30, 2022, 09:27:04 AM »
Not every investment I own is like this, but I'm holding about $580 worth of Bitcoin today, and--assuming my cost calculations are correct--I paid about $1,240 for it. So there are certainly some places where I've failed to maximize my investment returns with the money that has been provided to me.

Tyson

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Re: DONT Payoff your Mortgage Club
« Reply #3273 on: June 30, 2022, 09:29:36 AM »
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.

I can understand why people might feel trapped by a mortgage.  And that's a strong motivator to pay it off early.  I used to be one of those people.  But I found myself in a situation where I'd paid extra to my mortgage instead of building up my savings/investments and then suffered a 9 month job loss and holy crap that was awful. 

I almost lost my house because I wasn't able to make payments, because I'd sent in all my extra cash as 'early payments' to drive down the mortgage. 

Nowadays I just pay the minimum of $1900 every month and shove all my spare cash into savings/investing and I have a nice cushion, pretty soon I'll have enough saved/invested that I could pay off my mortgage in full, if I wanted to (which I don't).

ATtiny85

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Re: DONT Payoff your Mortgage Club
« Reply #3274 on: June 30, 2022, 11:41:12 AM »

I can understand why people might feel trapped by a mortgage.  And that's a strong motivator to pay it off early.  I used to be one of those people.  But I found myself in a situation where I'd paid extra to my mortgage instead of building up my savings/investments and then suffered a 9 month job loss and holy crap that was awful. 

I almost lost my house because I wasn't able to make payments, because I'd sent in all my extra cash as 'early payments' to drive down the mortgage. 

Nowadays I just pay the minimum of $1900 every month and shove all my spare cash into savings/investing and I have a nice cushion, pretty soon I'll have enough saved/invested that I could pay off my mortgage in full, if I wanted to (which I don't).

These types of stories are helpful. A nice real life example of how it can make things a challenge, especially if you stretch to pay extra and it is not after a bunch of other uses of the money.

We do corporate moves quite regularly, and having either a small mortgage, like now, or no mortgage, like the five years before, has provided us some flexibility that would not have been as easy otherwise. It also sort of streamlines our relos a bit.

It would be hard for me to want to go back to a large mortgage, I have become addicted to the large VTSAX purchase that happens each month. The small balance we have now, sitting at 2%, is barely noticed.  Now, if I fully understood things twenty plus years when we had the first mortgage, maybe we would have progressed differently. But at this point our plan has no need for a large cash out refinance to invest.

For our retirement which hopefully happens in just a few years, I have been using a model that assumes no mortgage, with the idea that we will just trade the equity in what we have for our retirement place far away from weather hell-hole we currently endure for the jobs.

Some really good info scattered in this thread.

Psychstache

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Re: DONT Payoff your Mortgage Club
« Reply #3275 on: July 02, 2022, 04:43:22 PM »
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

dragoncar

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Re: DONT Payoff your Mortgage Club
« Reply #3276 on: July 03, 2022, 01:38:35 AM »
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

Seems like you paid 15 days early, friend

(Mostly kidding but I set autopay to the 10th)

solon

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Re: DONT Payoff your Mortgage Club
« Reply #3277 on: July 03, 2022, 03:57:17 PM »
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

👍

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3278 on: July 05, 2022, 06:24:35 AM »
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

I think you've come to the right place, @Psychstache . Not sure what all these other jokers are doing ;-)

Dee_

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Re: DONT Payoff your Mortgage Club
« Reply #3279 on: July 07, 2022, 12:25:46 PM »
I came looking for this thread because I am feeling awfully smug about my (in retrospect) smart decisions that I happened into through a tiny bit of savviness and a whole lot of dumb luck. Locked in a fixed 15-year November of 2021 at 2.8%, hohoho.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3280 on: July 07, 2022, 12:30:28 PM »
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

I think you've come to the right place, @Psychstache . Not sure what all these other jokers are doing ;-)
Not sure either, but hopefully not too many of them are giving away pieces of their mind. I know I cannot afford to lose even a single functioning brain cell. ;-)

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3281 on: July 07, 2022, 12:50:24 PM »
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

I think you've come to the right place, @Psychstache . Not sure what all these other jokers are doing ;-)
Not sure either, but hopefully not too many of them are giving away pieces of their mind. I know I cannot afford to lose even a single functioning brain cell. ;-)

No mind to give away here!

GUNDERSON

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Re: DONT Payoff your Mortgage Club
« Reply #3282 on: July 15, 2022, 10:46:54 AM »
How do folks in this group feel about 15-year vs 30-year mortgages? I'm assuming you'd vote for the latter. And I think you're probably right... the flexibility of extra liquidity, and you put the extra savings into the market, and today's money is worth more than tomorrow's money. But just to run some numbers at today's rates...   Say you're looking at a 520k mortgage. You'd pay 1000 more per month to have a 15 year payoff, vs still owing about 350k in 15 years if you had a 30-year. To match that by putting the monthly 1000 in VTI, you'd need a consistent 9 percent return. But maybe that's close enough to what you'd actually get to still make the 30 year preferable given the advantage of liquidity. How would you think about this?

Dee_

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Re: DONT Payoff your Mortgage Club
« Reply #3283 on: July 15, 2022, 11:56:00 AM »
How do folks in this group feel about 15-year vs 30-year mortgages? I'm assuming you'd vote for the latter. And I think you're probably right... the flexibility of extra liquidity, and you put the extra savings into the market, and today's money is worth more than tomorrow's money. But just to run some numbers at today's rates...   Say you're looking at a 520k mortgage. You'd pay 1000 more per month to have a 15 year payoff, vs still owing about 350k in 15 years if you had a 30-year. To match that by putting the monthly 1000 in VTI, you'd need a consistent 9 percent return. But maybe that's close enough to what you'd actually get to still make the 30 year preferable given the advantage of liquidity. How would you think about this?

My rule is to play safe with the cash flow. For a personal home - if you can swing 15-year payments in a SHTF scenario (great recession, one or both partners lose their job, etc etc - pick a medium worse-case scenario for your family and your situation) for a good long time, go for the 15-year. Same with rentals. If you can't find a tenant for  6 months, if you have to replace the roof and furnace in the same year, does paying a 15-year mortgage cause undue personal pain or cause your cash reserves to dip unacceptably low? If so, go for the 30year.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3284 on: July 15, 2022, 01:04:42 PM »
It's all about the rate-delta for me.

When I was refi'ing in summer of 2020, the delta was maybe only 25 bps.

couponvan

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Re: DONT Payoff your Mortgage Club
« Reply #3285 on: July 15, 2022, 01:20:05 PM »
We did a 15 year on our IL house when rates went way way down because the payments were enough that we could make them on one salary and we had a one year emergency fund. In VA, we did 30 year because it was the almost the same rate as the 15 year, and our cash flow is more needed for college, and we became a one-income household. Itís whatever makes sense to you.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3286 on: July 16, 2022, 05:11:52 AM »
I remember what it was to agonize over this decision when I went through it.

But we built this club to celebrate responsible use of leverage. Why would you deny the chance at inexpensive leverage to yourself in 2037?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3287 on: July 16, 2022, 07:56:34 AM »
I remember what it was to agonize over this decision when I went through it.

But we built this club to celebrate responsible use of leverage. Why would you deny the chance at inexpensive leverage to yourself in 2037?
Lol, Dicey Brother consulted her about refinancing their starter home from a 30 to a 15. Y'all know what Dicey advised, but Dicey Brother didn't listen to big sister. About a year later they decided to upgrade, keeping the starter home as a rental. Whereupon, Dicey Brother refinanced again, back to a 30 year loan. Fifteen years later, the rental, with fifteen years left on the mortgage, is paying for Dicey Brother's Daughter's college education.

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #3288 on: July 16, 2022, 10:11:11 AM »


Psychologically, I feel that debt = bad.  And my rate *feels* high, even though historically it isn't.  There is a large part of me that just wants the mortgage gone.


Psychologically Iíve found it helpful to realize that: money > debt.
In almost every situation Iíve encounterd, having a lot more money is preferable to having no debt.

Well, in the past 12 months we bought 2021 iBonds (2x$10k), 2022 iBonds (2x$10k) and just pre-bought 2023* iBonds (2x$10k) using the gift box workaround.

Still have a fair amount of cash on hand, and we're keeping the low interest rate 30-year mortgage in place.

*Notionally 2023, but we can put off the transfer to whenever, so it may make more sense to just buy 2023 iBonds and leave $20k in gift boxes, earning interest and seasoning.

GUNDERSON

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Re: DONT Payoff your Mortgage Club
« Reply #3289 on: July 16, 2022, 12:29:19 PM »
The attractive difference is the rate, though, not the speed of paydown. There's appears to be as much as a 1.2% spread.

Shuchong

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Re: DONT Payoff your Mortgage Club
« Reply #3290 on: July 17, 2022, 12:39:44 AM »
The attractive difference is the rate, though, not the speed of paydown. There's appears to be as much as a 1.2% spread.

I hear you.  I just went through this, and opted for the 30 year.  I don't know how to mathematically model this/put a dollar value on it, but the 30 year gives you more options.  What if inflation stays super high for 30 years?  What if you have an emergency big enough that you need the lower payment the 30 year offers?  What if in four years rates are low again and refinancing becomes a no-brainer? 

GUNDERSON

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Re: DONT Payoff your Mortgage Club
« Reply #3291 on: July 17, 2022, 09:40:42 AM »
"What if in four years rates are low again and refinancing becomes a no-brainer?"

This seems like an ideal scenario, really? Since that scenario would see us refinancing regardless of what choice we make now. I would be totally comfortable paying a higher monthly cost for 4 years, lowering the principal in a meaningful way vs just paying mostly interest, then refinancing into a lower rate 30 year, which would feel like an actually good deal, for flexibility and liquidity.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3292 on: July 17, 2022, 10:05:31 AM »
"What if in four years rates are low again and refinancing becomes a no-brainer?"

This seems like an ideal scenario, really? Since that scenario would see us refinancing regardless of what choice we make now. I would be totally comfortable paying a higher monthly cost for 4 years, lowering the principal in a meaningful way vs just paying mostly interest, then refinancing into a lower rate 30 year, which would feel like an actually good deal, for flexibility and liquidity.

Iíd be Cautious about viewing through the lens if ďpaying off principleĒ or not. The advantage to holding a 30year fixed works despite minimal principle being paid down in the initial years. As a thought excercise, consider the proposed 50 year mortgages suggested for the UK - if you could get one for about the same yield as a 30 year it would be a no brained for responsible mustachians, even though you would pay off just a small fraction of the principle in the first decade. More importantly you would have more cash flow to invest and inflation would eat away at the principle in real terms.

dragoncar

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Re: DONT Payoff your Mortgage Club
« Reply #3293 on: July 19, 2022, 09:23:22 AM »
I remember what it was to agonize over this decision when I went through it.

But we built this club to celebrate responsible use of leverage. Why would you deny the chance at inexpensive leverage to yourself in 2037?
Lol, Dicey Brother consulted her about refinancing their starter home from a 30 to a 15. Y'all know what Dicey advised, but Dicey Brother didn't listen to big sister. About a year later they decided to upgrade, keeping the starter home as a rental. Whereupon, Dicey Brother refinanced again, back to a 30 year loan. Fifteen years later, the rental, with fifteen years left on the mortgage, is paying for Dicey Brother's Daughter's college education.

So dicey has been banging this drum for almost two decades or longer.  Donít piss off dicey she doesnít forget

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3294 on: July 19, 2022, 09:41:45 AM »
Different contracts make sense at different points in the economic cycle.

NorthernIkigai

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Re: DONT Payoff your Mortgage Club
« Reply #3295 on: September 03, 2022, 03:34:02 AM »


Psychologically, I feel that debt = bad.  And my rate *feels* high, even though historically it isn't.  There is a large part of me that just wants the mortgage gone.


Psychologically Iíve found it helpful to realize that: money > debt.
In almost every situation Iíve encounterd, having a lot more money is preferable to having no debt.

Iím just finishing The Value of Debt by Thomas J Anderson (a book I probably heard about on this board, maybe even in this thread). Although the practical advice in the book is unfortunately not applicable to the market Iím in, the ideas and points of view are great! Like many, Iím naturally adverse to debt, but the message that debt isnít necessarily something to be paid down, it all depends on the balance between assets and debts, is intriguing.

Meanwhile, our small adjustable rate mortgage is (unfortunately, but it was likely to happen sooner or later) about to be adjusted: For many years, weíve only paid the margin paid to the bank (0.45%) since the bank rate has been negative. Now the bank rate is at 1.2+%, so as of next month weíll be paying 1.7+%! A huge percentage increase, but still a stealÖ

Radagast

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Re: DONT Payoff your Mortgage Club
« Reply #3296 on: September 03, 2022, 04:58:09 PM »
Still diligently working every day to avoid paying off our mortgage!

Weisass

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Re: DONT Payoff your Mortgage Club
« Reply #3297 on: September 04, 2022, 05:19:45 AM »
Still diligently working every day to avoid paying off our mortgage!

Same, same.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3298 on: September 06, 2022, 07:37:41 AM »
I'm grateful for my low rate. From what I hear, those sub-4 rates (And I've been 3.0 or lower for much of the last ten years) are now a thing of the past. Ten year treasury yield is 3.2% currently.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3299 on: September 06, 2022, 09:52:28 AM »
I'm grateful for my low rate. From what I hear, those sub-4 rates (And I've been 3.0 or lower for much of the last ten years) are now a thing of the past. Ten year treasury yield is 3.2% currently.

Yeah, at 2.7% I canít justify paying down my mortgage aggressively, even with windfalls and rising incomes. At this point it would be deliberately increasing our risk and decreasing our return, which is just a strange scenario.

 

Wow, a phone plan for fifteen bucks!