Author Topic: DONT Payoff your Mortgage Club  (Read 788903 times)

Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #3600 on: February 23, 2023, 09:01:26 PM »
So, Iím really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow?  Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments?  Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. Iíd just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.

For what itís worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.

The mechanics of making the payments is the easy part. Organizing the rest of your life such that you're saving 25% or more of the remaining income takes discipline.

Not really.  401k automatic.  IRA/HSA/taxable also automatically done through reoccurring transfers. 

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3601 on: February 24, 2023, 07:48:41 AM »
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha

ATtiny85

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Re: DONT Payoff your Mortgage Club
« Reply #3602 on: February 24, 2023, 07:58:19 AM »
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha

Good thing the market is so overpriced, it makes that prepayment very wise.

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Re: DONT Payoff your Mortgage Club
« Reply #3603 on: February 24, 2023, 08:29:58 AM »
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha

Good thing the market is so overpriced, it makes that prepayment very wise.
Letís revisit in a couple decades and see. Iíll bet 55 cents it was a very poor place to put that money.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #3604 on: February 24, 2023, 08:43:58 AM »
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha

Good thing the market is so overpriced, it makes that prepayment very wise.
Letís revisit in a couple decades and see. Iíll bet 55 cents it was a very poor place to put that money.

At today's interest rates, that $0.55 will be worth...$2 over the life of the loan! I think someone needs to have their DPYM status shifted to "On Notice."

dragoncar

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Re: DONT Payoff your Mortgage Club
« Reply #3605 on: March 02, 2023, 01:50:28 AM »
Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?
Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
I'm thinking there is a cap on how much of the interest on the new loan would be tax deductible, though possibly tax code changes implemented by a certain former US president changed that.

Yes, I believe if you itemize, you can only deduct the mortgage interest if it was used to buy, build, or improve the house.  So if you have a $750k loan that you used to purchase the home you can deduct the interest.  But if you pay it off and then take a $750k cash out mortgage you can no longer deduct the interest.

I also believe the 100k limit you mentioned was the old rule and now it's 0 (thanks TCJA!)

Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #3606 on: March 02, 2023, 09:36:46 AM »
I was reflecting on my current mortgage that Iím in no hurry to pay off.  I realized that itís more important not to pay ahead now living an CA as a non recourse state.  If things go to heck, I can just walk away losing only what is already in my home.  I could then go live cheaply in BFE and be perfectly ok with my liquid assets.

couponvan

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Re: DONT Payoff your Mortgage Club
« Reply #3607 on: March 02, 2023, 11:10:30 AM »
I was reflecting on my current mortgage that Iím in no hurry to pay off.  I realized that itís more important not to pay ahead now living an CA as a non recourse state.  If things go to heck, I can just walk away losing only what is already in my home.  I could then go live cheaply in BFE and be perfectly ok with my liquid assets.

As someone who just came back from EgyptÖ.Some of those houses are really nice, and some of them are iffier than you could imagine. 10/10 would go back to Egypt though with the exchange rate right now!

nouseforausername

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Re: DONT Payoff your Mortgage Club
« Reply #3608 on: March 14, 2023, 05:25:07 PM »
I was reflecting on my current mortgage that I’m in no hurry to pay off.  I realized that it’s more important not to pay ahead now living an CA as a non recourse state.  If things go to heck, I can just walk away losing only what is already in my home.  I could then go live cheaply in BFE and be perfectly ok with my liquid assets.

Interesting. Even in recourse states, the risk of a deficiency judgment seems to be more of a bargaining chip for bank to get mortgagor to execute deed in lieu of foreclosure settlement than a standard outcome post foreclosure. Blood out of stone or what not.

But, hmm, will Redfin San Diego County just for fun...re: Millionaires Intentional Foreclosure Club membership
« Last Edit: March 14, 2023, 05:38:36 PM by nouseforausername »

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #3609 on: March 14, 2023, 05:40:32 PM »
It's really satisfying to have I-bonds yielding well over 2x what my mortgage rate is...

rmorris50

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Re: DONT Payoff your Mortgage Club
« Reply #3610 on: March 14, 2023, 06:23:14 PM »
It's really satisfying to have I-bonds yielding well over 2x what my mortgage rate is...



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dang1

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Re: DONT Payoff your Mortgage Club
« Reply #3611 on: March 15, 2023, 12:23:55 AM »
Homeowners who held onto a 3% mortgage rate are becoming Ďaccidental landlordsí
"The era of lower-than-ever mortgage rates is long gone, and itís been replaced with rates hovering around 7%. But homeowners who locked in lower rates before or during the Pandemic Housing Boom arenít selling. In fact, some of them are becoming ďaccidental landlords,Ē simply because they donít want to lose their low rates of the past. That being said, the so-called lock-in effect is putting pressure on both sides of the market. There arenít as many buyers looking for new digs and not as many sellers looking to move up or downsize, if theyíll get stuck with a mortgage rate more than twice as high as their old one."
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3612 on: March 15, 2023, 04:52:18 AM »
Homeowners who held onto a 3% mortgage rate are becoming Ďaccidental landlordsí
"The era of lower-than-ever mortgage rates is long gone, and itís been replaced with rates hovering around 7%. But homeowners who locked in lower rates before or during the Pandemic Housing Boom arenít selling. In fact, some of them are becoming ďaccidental landlords,Ē simply because they donít want to lose their low rates of the past. That being said, the so-called lock-in effect is putting pressure on both sides of the market. There arenít as many buyers looking for new digs and not as many sellers looking to move up or downsize, if theyíll get stuck with a mortgage rate more than twice as high as their old one."
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/

I get what they are saying, but Iím not keen on the  egative phrasing. People [should] keep their previous home as a rental if itís better than selling. The option to sell remains. Homeowners with low rates arenít ďlocked inĒ to anything and they certainly do not ďaccidentallyĒ become landlords. They decide to mov3 and realize that with their mortgage so low they can do better then selling.

Itís a blessing not a curse - both when they bought and when they move.

Wolfpack Mustachian

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Re: DONT Payoff your Mortgage Club
« Reply #3613 on: March 18, 2023, 11:47:53 AM »
Homeowners who held onto a 3% mortgage rate are becoming Ďaccidental landlordsí
"The era of lower-than-ever mortgage rates is long gone, and itís been replaced with rates hovering around 7%. But homeowners who locked in lower rates before or during the Pandemic Housing Boom arenít selling. In fact, some of them are becoming ďaccidental landlords,Ē simply because they donít want to lose their low rates of the past. That being said, the so-called lock-in effect is putting pressure on both sides of the market. There arenít as many buyers looking for new digs and not as many sellers looking to move up or downsize, if theyíll get stuck with a mortgage rate more than twice as high as their old one."
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/

I get what they are saying, but Iím not keen on the  egative phrasing. People [should] keep their previous home as a rental if itís better than selling. The option to sell remains. Homeowners with low rates arenít ďlocked inĒ to anything and they certainly do not ďaccidentallyĒ become landlords. They decide to mov3 and realize that with their mortgage so low they can do better then selling.

Itís a blessing not a curse - both when they bought and when they move.

That's where you're wrong. It's a curse because you're supposed to sell and then use that money to buy another bigger house over and over until you get a mansion that you can barely afford. Otherwise you aren't progressing forward on the consumerist treadmill and might actually grow your overall net worth and retire at some point :-).

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3614 on: April 11, 2023, 01:20:32 PM »
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #3615 on: April 11, 2023, 02:05:01 PM »
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the 10/6 rate with no points?

sonofsven

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Re: DONT Payoff your Mortgage Club
« Reply #3616 on: April 11, 2023, 02:19:16 PM »
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3617 on: April 11, 2023, 03:00:30 PM »
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
I tend to agree with this POV.

How would you feel if you paid the points and then rates drifted downward over the course of the next year or so?

Option 1 sounds good to me!

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3618 on: April 11, 2023, 03:24:35 PM »
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the 10/6 rate with no points?
I wasn't quoted but I estimate around 6% (0.4 points was a 5.75% rate)

We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
I tend to agree with this POV.

How would you feel if you paid the points and then rates drifted downward over the course of the next year or so?

Option 1 sounds good to me!
For the ARM comparing to itself, going from 0.4 -> 1 point pays for itself in 20 months. The extra 1 point from 1 to 2 points takes 33 months to pay for itself. Comparing to 30-year fixed no points, 1 point ARM pays for itself in 19 months. The full 2 points cost pays for itself in 24 months. We have no plans to move in the foreseeable future (15+ years is plausible).

If rates come down to ~4.5% in under 2 years I'll be a bit surprised but wouldn't mind losing a bit of those points for the chance that it takes 3 years or longer. The main risk is that rates never come down and actually go up and after 10 years we're stuck with a ridiculous rate.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3619 on: April 11, 2023, 03:44:56 PM »
I believe the points would be tax deductible. So that reduces the break even time by a little under 22% (compared to what I calculated in the above post).

ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3620 on: April 11, 2023, 05:36:31 PM »
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the 10/6 rate with no points?
I wasn't quoted but I estimate around 6% (0.4 points was a 5.75% rate)

We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
I tend to agree with this POV.

How would you feel if you paid the points and then rates drifted downward over the course of the next year or so?

Option 1 sounds good to me!
For the ARM comparing to itself, going from 0.4 -> 1 point pays for itself in 20 months. The extra 1 point from 1 to 2 points takes 33 months to pay for itself. Comparing to 30-year fixed no points, 1 point ARM pays for itself in 19 months. The full 2 points cost pays for itself in 24 months. We have no plans to move in the foreseeable future (15+ years is plausible).

If rates come down to ~4.5% in under 2 years I'll be a bit surprised but wouldn't mind losing a bit of those points for the chance that it takes 3 years or longer. The main risk is that rates never come down and actually go up and after 10 years we're stuck with a ridiculous rate.

I watch the Q&A after each monthly Jerome Powell presentation waiting - just waiting - for one of the reporters to ask if we are going to repeat the 1970's experience where rates were lowered in response to each recession, only to see of resurgence of inflation, necessitating the next round of increases, OR if the Fed truly means it when they talk about rates being "higher for longer"?

When I look at the dot plot for the FFR, I am looking for signs of the 1970s scenario playing out again. FOMC members currently anticipate about a 1% cut in each of the next 2 years, FWIW. Of course, the 1970s post-recession rate cuts were much more dramatic than what's being projected now: -5.25% in '69-'71, -8.4% in '74-'76, and -8% in 1980 alone! All this swerving around led to economic disaster.

Of course, the Fed has a poor track record of anticipating its own behavior, and they could never explicitly forecast a recession even if they did do something obviously recessionary like 500 basis points of rate hikes in 14 months. Yet the dot plot tells me that even if things are going well, FOMC participants expect to leave a decent-sized gap between CPI and the FFR for a while after they hit CPI=2%, just to make sure they don't repeat the mistakes of the past. We aren't going back to ZIRP unless there's a true disaster, like Putin nuking Ukraine.

So maybe the FFR falls 2% over the next 2 years, but another thing will happen too: The yield curve will un-invert.

Your mortgage options are determined in part by the yield on the risk-free alternative. 30 year treasuries today are 1.38% BELOW the FFR, but in the near future we should expect this rate to be about 1.5%-2% ABOVE the FFR as it was in, say, 2015 or 2018. Even 10-year treasuries are usually a couple percent above the FFR if that's your baseline for mortgage rates.

So... even if the FFR is cut 2%, the un-inversion of the yield curve might reasonably be expected to leave long-duration treasury rates about 2% above the FFR. So long-duration treasuries and mortgages could stay at roughly the levels where they are today, even though the FFR is being reduced.

In conclusion, I think any mortgage points payback timeframe of 24 months or less is a good decision, based on what we know today. In my baseline scenario, rate cuts and yield curve inversion cancel each other out.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3621 on: April 11, 2023, 05:55:14 PM »
Thanks. I appreciate your input, @ChpBstrd

sonofsven

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Re: DONT Payoff your Mortgage Club
« Reply #3622 on: April 11, 2023, 09:23:56 PM »
When I was evaluating this for my own re-fi's I looked at real numbers. So your 33 month break even (almost 3 years), how much will you save monthly/ yearly after reaching 33 months? If you invest the savings how much would you make in five, ten, fifteen years? (I don't expect you to answer, these were just examples I used myself).
I plan on never leaving my house (well, someday...) but in my case I decided the savings/potential investment income was minimal at best and it wasn't worth it to pay points.
Also, your fixed mortgage payment is an inflation hedge in the future regardless of if you pay points now.
And if you're paying points by adding it to your loan balance you need to account for that, too. Or if paying with cash, how else can you optimize that cash now and what will it be worth in the future?
I was really tempted because at one point a few years ago I could have gotten a sub 2% 30 year fixed by paying points. Bragging rights.
Once you consider all the angles I'm sure you'll make the right decision for you; there really is no right answer. You're guessing on what rates will do. An educated guess is still half guess ;-)

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3623 on: April 12, 2023, 07:05:53 AM »
When I was evaluating this for my own re-fi's I looked at real numbers. So your 33 month break even (almost 3 years), how much will you save monthly/ yearly after reaching 33 months? If you invest the savings how much would you make in five, ten, fifteen years? (I don't expect you to answer, these were just examples I used myself).
I plan on never leaving my house (well, someday...) but in my case I decided the savings/potential investment income was minimal at best and it wasn't worth it to pay points.
Also, your fixed mortgage payment is an inflation hedge in the future regardless of if you pay points now.
And if you're paying points by adding it to your loan balance you need to account for that, too. Or if paying with cash, how else can you optimize that cash now and what will it be worth in the future?
I was really tempted because at one point a few years ago I could have gotten a sub 2% 30 year fixed by paying points. Bragging rights.
Once you consider all the angles I'm sure you'll make the right decision for you; there really is no right answer. You're guessing on what rates will do. An educated guess is still half guess ;-)

Yes, I've run some estimates. At the 10 year mark the 2 point option will be $21k better than the 1 point option (assuming 7% opportunity cost). It's $70k better than the fixed-rate 0 point option.

Objectively I think the 1 point option is the best bet. But all options seem fine. I'm viewing the points as a bit of a hedge. If rates come down sooner than the break-even date I'll happily refinance to a fixed rate at relatively minimal loss. If I'm unable to refinance long term then I'll be very happy to have locked in a lower rate.

Treedream

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Re: DONT Payoff your Mortgage Club
« Reply #3624 on: April 17, 2023, 05:53:07 AM »
I am currently in the process of getting 2 mortgages to buy my first house. I have followed this threat for a while, understanding the math behind it all. But I must say, that making this step, it does feel like a big looming thing to take on, the mortgage. So for the first time I understand the emotional choice people in the other thread make.

But I got you guys to keep me on the straight and narrow XD

I expect an effective (after tax incentives) mortgage rate of 2.6%. I can get more on a savings account than that.

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3625 on: April 17, 2023, 06:20:38 AM »
Wow, that's an amazing rate! In the Netherlands?

Treedream

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Re: DONT Payoff your Mortgage Club
« Reply #3626 on: April 17, 2023, 06:22:22 AM »
Well its 3.91 and 3.6% but we have tax incentives for a couple of years more, which means I can deduct the interest I pay on my mortgage from my taxes. So if you calculate how much interest I really pay, its close to 2.6%

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3627 on: April 17, 2023, 07:02:35 AM »
I am currently in the process of getting 2 mortgages to buy my first house. I have followed this threat for a while, understanding the math behind it all. But I must say, that making this step, it does feel like a big looming thing to take on, the mortgage. So for the first time I understand the emotional choice people in the other thread make.

But I got you guys to keep me on the straight and narrow XD

I expect an effective (after tax incentives) mortgage rate of 2.6%. I can get more on a savings account than that.
Buying a house is a Huge Commitment. It's scary as hell. I remember having an entire sleepless night when I bought my first house, and buying a home was a milestone goal for me. Further, all of the people you interact with during the process have their hand in your pocket. It's hard to find unbiased help.

"Killing the mortgage" makes perfect sense if you're scared spitless. However, with a little help from unbiased sources, it's easier to calm down, do the math, and make the most optimal decision.

Congratulations, and welcome to the club!

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3628 on: April 17, 2023, 08:19:19 AM »
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US

jnw

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Re: DONT Payoff your Mortgage Club
« Reply #3629 on: April 17, 2023, 03:53:52 PM »
Sorry I have too much time on my hands, but thought it might make some laugh:


Weisass

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Re: DONT Payoff your Mortgage Club
« Reply #3630 on: April 17, 2023, 05:54:11 PM »
Sorry I have too much time on my hands, but thought it might make some laugh:



Man, that joke was silent and deadlyÖ.

rmorris50

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Re: DONT Payoff your Mortgage Club
« Reply #3631 on: April 17, 2023, 06:36:24 PM »
Sorry I have too much time on my hands, but thought it might make some laugh:



Man, that joke was silent and deadlyÖ.
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.

I really am starting to think we will never move again.


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jnw

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Re: DONT Payoff your Mortgage Club
« Reply #3632 on: April 17, 2023, 08:21:32 PM »
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.

I really am starting to think we will never move again.

Sweet!  Very nice :)  Yeah I wouldn't move either :)

Treedream

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Re: DONT Payoff your Mortgage Club
« Reply #3633 on: April 18, 2023, 01:38:47 AM »
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US

It has gone up considerably from the low, and is expected to rise further, but nothing like the percentage I read about in the USA.

getsorted

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Re: DONT Payoff your Mortgage Club
« Reply #3634 on: April 18, 2023, 05:21:22 AM »
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.

I really am starting to think we will never move again.


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This vampire, too! I was broke after a divorce, but I saw the writing on the wall as far as home prices and bought an 800 s.f. house for 20% below asking, with a 2.795% interest rate (which was pretty good considering I only had enough to put 5% down). Now I keep dating guys who tell me what a "great rental" my house would be... I guess because nobody wants to move into my tiny house in a McMansion town! I'm just like... You're gonna have to really make me love you, if I'm gonna love you more than this interest rate!

ender

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Re: DONT Payoff your Mortgage Club
« Reply #3635 on: April 18, 2023, 07:14:30 AM »
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

We have a <3% 30 year now, so obviously not in this case :) 

But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.

It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.




Treedream

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Re: DONT Payoff your Mortgage Club
« Reply #3636 on: April 18, 2023, 08:04:36 AM »
I think the consideration for me would be more dependant on whether I want to decrease my hours in say 5 years, to pay it down, so the monthly spend is lower. Or, if I decide to RE and I want to simplify by paying off the mortgage.

Besides that I would have to do a calculation of effective tax rate (so after the tax return shenanigans we have here in NL). So 6% effective tax? that would get to about 8% real rate. hmm, or at a lower percentage but counting it as my 'bonds' part? TBH I haven't truly considered diversification yet, since I am just starting accumulation.

rmorris50

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Re: DONT Payoff your Mortgage Club
« Reply #3637 on: April 18, 2023, 08:49:43 AM »
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

We have a <3% 30 year now, so obviously not in this case :) 

But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.

It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.
Probably yes. But some years back I was paying my 15 year mortgage aggressively then bam , I lost my job and all sudden I wished I had that cash in savings instead of my house. I do think in our society liquidity risk gets overlooked or underestimated, generally speaking. If I was gonna pay my mortgage off early now Iíd do the ďsinking fundĒ approach and pay off the house all at once once I have enough money and feel comfortable. A paid off house only helps once itís completely paid off. Until that point there is definitely risk in putting too much savings into your house.


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ChpBstrd

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Re: DONT Payoff your Mortgage Club
« Reply #3638 on: April 18, 2023, 09:20:30 AM »
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

I asked this question as a poll back in September 2022 and got the following responses:
https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/msg3063627/#msg3063627

It would be interesting to re-run the poll. Presumably, any deviation from the pattern 7 months ago might reflect shifting risk tolerance, changing cultural norms, or different alternatives for investment rather than a logic that applies in all times and circumstances.

I wonder if the people who would require 7-10% interest rates before they'd make a prepayment have moderated their demands now that the Fed has raised rates a lot higher, a couple of banks have failed, and the yield curve is the most inverted since the early 80's? Do those risk-free rates of return look better now?

18% of respondents said they would prepay a mortgage no matter how low the interest rate. Another 8% of respondents would prepay a 4% mortgage. I wonder if these combined 26% of respondents have discovered 5% CDs or 6.89% iBonds since then?

Three respondents said they'd never prepay a mortgage, no matter how high the interest rate. Another 11% would only consider prepayment if the rate was somewhere in the range of 8-10%. Assuming they understood the question, I wonder if they're still investing in things they expect to have a risk-free return at these levels, and what those things are?

YttriumNitrate

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Re: DONT Payoff your Mortgage Club
« Reply #3639 on: April 18, 2023, 10:40:35 AM »
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US
The Netherlands has a government guarantee on mortgages, so they are basically risk free for lenders. This has also caused the Netherlands to be in the interesting situation of being the most unequal country in the world in terms of wealth inequality. https://youtu.be/Ot4qdCs54ZE?t=378

Treedream

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Re: DONT Payoff your Mortgage Club
« Reply #3640 on: April 18, 2023, 11:11:50 AM »
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US
The Netherlands has a government guarantee on mortgages, so they are basically risk free for lenders. This has also caused the Netherlands to be in the interesting situation of being the most unequal country in the world in terms of wealth inequality. https://youtu.be/Ot4qdCs54ZE?t=378

Not everything in the video is correct. You cannot borrow more than 100% of the house value in NL. You used to be able to, but not anymore. You can subtract the amount paid in interest from your income for tax purpose. This means people who earn more and pay higher tax, get more of a discount. This was (rightly) judged unfair by the courts and this tax law is being changed, but it will take a while until the change is in effect.

We also do have a national mortgage guarantee, that means you basically insure yourself for the cost of 0.6% of the value of the loan. In the case you can no longer pay the loan (subject to some rules of course) the guarantee will mean that the bank will get its money when you can no longer pay, due to life circumstances.

Now, you don't need a downpayment on a house in order to get a loan. But the regulations of how much you can borrow versus the price of houses means its (at least as a singel person) impossible to pay for the house without putting in your own money.

I am in the process of getting a mortgage and purchasing a house. In effect I put 20% down, because I can't get a mortgage for the total amount. And I am not buying a obscene house, but a run of the mill apartment.

ender

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Re: DONT Payoff your Mortgage Club
« Reply #3641 on: April 18, 2023, 11:19:59 AM »
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

I asked this question as a poll back in September 2022 and got the following responses:
https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/msg3063627/#msg3063627

It would be interesting to re-run the poll. Presumably, any deviation from the pattern 7 months ago might reflect shifting risk tolerance, changing cultural norms, or different alternatives for investment rather than a logic that applies in all times and circumstances.

I wonder if the people who would require 7-10% interest rates before they'd make a prepayment have moderated their demands now that the Fed has raised rates a lot higher, a couple of banks have failed, and the yield curve is the most inverted since the early 80's? Do those risk-free rates of return look better now?

18% of respondents said they would prepay a mortgage no matter how low the interest rate. Another 8% of respondents would prepay a 4% mortgage. I wonder if these combined 26% of respondents have discovered 5% CDs or 6.89% iBonds since then?

Three respondents said they'd never prepay a mortgage, no matter how high the interest rate. Another 11% would only consider prepayment if the rate was somewhere in the range of 8-10%. Assuming they understood the question, I wonder if they're still investing in things they expect to have a risk-free return at these levels, and what those things are?

I also wonder if the framing matters too - in theory if I'm on team DPYM then I would want to put at most 20% down on a place.

Once we're at that amount, then really saving extra cash should just go to investments and not cash savings.


dragoncar

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Re: DONT Payoff your Mortgage Club
« Reply #3642 on: April 19, 2023, 12:37:10 AM »
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

We have a <3% 30 year now, so obviously not in this case :) 

But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.

It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.

I'm looking at a 2nd mortgage to fund new roof/solar.  Rates are high and fluctuating so I'm not even sure I'll do it.  On the one hand, I can deduct the interest and the rates beat other financing options by far.  On the other hand, I could just sell some stonks to pay for it. 

What do you think?  When I first started looking I could get 10 year at 6%.  I was re-reading the investment order thread and it suggested something like taking the 10-year treasury rate (3.6%) and adding 2-3%.  If it's within that, prefer 401k and even consider individual investments.  So if I choose NOT to take the loan, that's effectively the same as taking the loan and then "POYM".

But to me, that's still cutting it pretty close.  Not a slam dunk like my current 3%

And the dollar value is relatively low anyway.  And the company (DCU) is kinda being a pain about it.  They were like "your DTI is too high, what if you pay off this 3% loan and then we can lend you even MORE money at 6%." Uh... no thanks?

(Also rates edged up to around 6.25% since I applied, I didnít lock yet because I thought perhaps they would actually come down a bit but now Iím just hoping they go back to 6.  Also my appraisal came in massively undervalued which doesnít actually change much but I want to ask the appraiser WTF he is thinking since my neighbor with basically the same house bought for 44% higher 6.1 months ago and he claims values are stable over the last 6 mo., and though I take them with a grain of salt Redfin Zillow and corelogic are way higher as we)
« Last Edit: April 19, 2023, 12:46:38 AM by dragoncar »

ender

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Re: DONT Payoff your Mortgage Club
« Reply #3643 on: April 19, 2023, 06:44:47 AM »
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

We have a <3% 30 year now, so obviously not in this case :) 

But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.

It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.

I'm looking at a 2nd mortgage to fund new roof/solar.  Rates are high and fluctuating so I'm not even sure I'll do it.  On the one hand, I can deduct the interest and the rates beat other financing options by far.  On the other hand, I could just sell some stonks to pay for it. 

What do you think?  When I first started looking I could get 10 year at 6%.  I was re-reading the investment order thread and it suggested something like taking the 10-year treasury rate (3.6%) and adding 2-3%.  If it's within that, prefer 401k and even consider individual investments.  So if I choose NOT to take the loan, that's effectively the same as taking the loan and then "POYM".

But to me, that's still cutting it pretty close.  Not a slam dunk like my current 3%

And the dollar value is relatively low anyway.  And the company (DCU) is kinda being a pain about it.  They were like "your DTI is too high, what if you pay off this 3% loan and then we can lend you even MORE money at 6%." Uh... no thanks?

(Also rates edged up to around 6.25% since I applied, I didnít lock yet because I thought perhaps they would actually come down a bit but now Iím just hoping they go back to 6.  Also my appraisal came in massively undervalued which doesnít actually change much but I want to ask the appraiser WTF he is thinking since my neighbor with basically the same house bought for 44% higher 6.1 months ago and he claims values are stable over the last 6 mo., and though I take them with a grain of salt Redfin Zillow and corelogic are way higher as we)

Coincidentally we just priced out solar and one thing I found interesting was the financed price vs cash price was almost 60% more, so in that case paying cash would be a non-trivial savings.

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3644 on: April 19, 2023, 07:05:16 AM »
yeah, solar financing is an absolute racket

Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #3645 on: April 19, 2023, 06:45:01 PM »
On paying off a mortgage.  Itís not just about the rate.  CA being a non recourse state, Iíd rather put extra into investments.  Worst case scenario I can just walk away from my home losing only what principle if things get bad.

dragoncar

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Re: DONT Payoff your Mortgage Club
« Reply #3646 on: April 19, 2023, 10:03:27 PM »
On paying off a mortgage.  Itís not just about the rate.  CA being a non recourse state, Iíd rather put extra into investments.  Worst case scenario I can just walk away from my home losing only what principle if things get bad.

While this is true it only applies to original purchase principal which becomes vanishingly small after a moderate time paying down the mortgage and appreciation.  At least it was something I really thought a lot about in the early years and now after just a decade I donít see any way my home value could fall enough to resort to jingle mail (at least in any way that I or the stock market would also survive Ö eg asteroid hits my house or nuclear war)

rmorris50

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Re: DONT Payoff your Mortgage Club
« Reply #3647 on: April 27, 2023, 11:55:34 AM »
Being penalized for a good credit score?

https://finance.yahoo.com/news/mortgages-homebuyers-good-credit-cost-135954525.html


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grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3649 on: April 27, 2023, 12:15:46 PM »
So much consumer finance advice is absolutely asinine, Yahoo is definitely not an exception, and this is a perfect example. It's bad faith writing and willfully misleads the reader about what is happening. There's a difference between 'the government is changing the size of the premium paid by lower creditworthiness borrowers' and 'the government is making high credit borrowers pay more and low credit borrowers pay less', which is being read by the reading comprehension-challenged as a statement about the absolute levels. Not to mention it's a mountain of controversy out of a molehill of change, equal to about 12bps/yr or less than the typical weekly variation in mortgage rates.

Bleh.