Author Topic: DONT Payoff your Mortgage Club  (Read 929763 times)

Radagast

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Re: DONT Payoff your Mortgage Club
« Reply #3700 on: November 15, 2023, 04:22:53 PM »
https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/

;)

Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
Cliffs notes version, I was suggesting that current numbers may indicate paying off mortgages with rates in the 6%, 7%, or higher range could be a better move than investing. People with sub 5% rates should not be in a hurry to pay them off.

catccc

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Re: DONT Payoff your Mortgage Club
« Reply #3701 on: November 16, 2023, 07:03:20 AM »
Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
That still seems like a good rate. What are your plans for the $$, if you don't mind my asking.
Nevermind, I found your new thread.

Yeah, I thought it was good in the current environment.  In case people don’t want to go post hunting, it’s for a car.  And I just moved some $ around to mitigate the tax impact on interest income we’ll be earning since we opted not to pay cash, so it makes good sense.

catccc

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Re: DONT Payoff your Mortgage Club
« Reply #3702 on: November 16, 2023, 07:07:33 AM »
https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/

;)

Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
Cliffs notes version, I was suggesting that current numbers may indicate paying off mortgages with rates in the 6%, 7%, or higher range could be a better move than investing. People with sub 5% rates should not be in a hurry to pay them off.

Yup, I’m in agreement here on those thresholds, personally.  But referring back to the “investment order” gospel, I have a tricky time wrapping my head around having two different thresholds for the pay it off or don’t debate.  The way I make it work in my mind is different expected returns.

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Re: DONT Payoff your Mortgage Club
« Reply #3704 on: December 23, 2023, 08:30:42 AM »
Still just rounding up that $19.73 to an “even $50” every month.  I now have another excuse from others when I say I’m retiring when I’m first eligible for our pension.  In addition to me having no kids, I now have the advantage of a good mortgage rate (3.875).  Um if I were buying today, my purchase price would just be lower people.

LD_TAndK

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Re: DONT Payoff your Mortgage Club
« Reply #3705 on: January 07, 2024, 05:03:52 AM »
Just got our 1098 mortgage interest statement, looks like that deduction will save us around $1700 taxes.

Also, our mortgage rate is 2.875%, average 2023 inflation will probably come in around 4%. So the real value of our debt decreased more than $2500!

Additionally, our investments went up 22% during 2023, 18% factoring in inflation to be fair. That's more than $45k gained on the money that could have paid off our mortgage

Glad I didn't pay off my mortgage!

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #3706 on: January 07, 2024, 05:46:22 PM »
Also, our mortgage rate is 2.875%, average 2023 inflation will probably come in around 4%. So the real value of our debt decreased more than $2500!

Awesome!   Our obligations are eroding away at no cost to us. 

TheAnonOne

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Re: DONT Payoff your Mortgage Club
« Reply #3707 on: January 07, 2024, 08:37:22 PM »
Sitting on just under a $410,000 note on our house at 2.75% for 30 years.

We really nailed the bottom there on rate.

We do round up $120 a month to get it to a nice round number.


That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3708 on: January 08, 2024, 04:18:26 AM »

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

TheAnonOne

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Re: DONT Payoff your Mortgage Club
« Reply #3709 on: January 08, 2024, 10:17:04 AM »

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.

For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.

10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.


Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3710 on: January 08, 2024, 10:43:19 AM »

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.

For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.

10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.


Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.

I’m certainly not trying to say your choice would be “wrong” either way, and agree that it’s subjective and personal. I ask because I’m interested in each persons decision.

FWIW, my parents set up a “sinking fund” for their mortgage that was invested in mutual funds circa 1980. By the time that fund had more in it than the remaining balance on the mortgage (including two cash out ReFis) in the mid 1990s, my parents decided they much preferred having those investments over having no mortgage. No doubt that has shaped my outlook. They joke it took them 42 years to pay off a 30 year mortgage, and now their mortgage sinking fund has morphed into a sizeable chunk of their NW

TheAnonOne

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Re: DONT Payoff your Mortgage Club
« Reply #3711 on: January 08, 2024, 01:16:19 PM »

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.

For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.

10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.


Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.

I’m certainly not trying to say your choice would be “wrong” either way, and agree that it’s subjective and personal. I ask because I’m interested in each persons decision.

FWIW, my parents set up a “sinking fund” for their mortgage that was invested in mutual funds circa 1980. By the time that fund had more in it than the remaining balance on the mortgage (including two cash out ReFis) in the mid 1990s, my parents decided they much preferred having those investments over having no mortgage. No doubt that has shaped my outlook. They joke it took them 42 years to pay off a 30 year mortgage, and now their mortgage sinking fund has morphed into a sizeable chunk of their NW

Yeah, "wrong" in terms of "historically keeping the money results in the largest pile at the grave".

In my case, in this fantasy, I am already FAT FIRE'd (something I hope to be in 3-6 years), adding 400k to a FAT FIRE pile doesn't change my life, but removing a payment immediately increases my monthly budget by 2-3k per month.

Though, you could just keep that pile on the side invested and make the payments out of it too. <-- this is the main reason I think HYSA options are probably better in the windfall world.

jsap819

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Re: DONT Payoff your Mortgage Club
« Reply #3712 on: January 08, 2024, 01:29:59 PM »

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.

For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.

10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.


Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.

I’m certainly not trying to say your choice would be “wrong” either way, and agree that it’s subjective and personal. I ask because I’m interested in each persons decision.

FWIW, my parents set up a “sinking fund” for their mortgage that was invested in mutual funds circa 1980. By the time that fund had more in it than the remaining balance on the mortgage (including two cash out ReFis) in the mid 1990s, my parents decided they much preferred having those investments over having no mortgage. No doubt that has shaped my outlook. They joke it took them 42 years to pay off a 30 year mortgage, and now their mortgage sinking fund has morphed into a sizeable chunk of their NW

We are kind of in the same boat. Started a sinking fund in 2018 where all excess cash after expenses were invested in a taxable account with goals of paying off our mortgage in one lump sum once we had enough. Instead, we refi'd in 2021 from 3.75% to 2.375% to lower our monthly payment so we can invest more. Granted, the returns those years were phenomenal so luck played a big part.

As of today. we have surpassed our mortgage balance by $200k with no intention of paying it off. If we used those excess cash all these years to pay down the mortgage, we would still have $50k remaining. We have made a decision that we value liquidity over being debt free.

Radagast

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Re: DONT Payoff your Mortgage Club
« Reply #3713 on: January 08, 2024, 06:41:11 PM »
Meh, if you are in 32% tax bracket or less a treasury bond is guaranteed to give better returns if only by a little. At worst take the guaranteed more money and buy treasuries. Unless maybe you are concerned about a lawsuit in which you lose everything but your house.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3714 on: January 19, 2024, 01:16:45 PM »
At the end of last year, there was a convo over at the "... and Beyond" thread. I've been meaning to post my thoughts here. Quoting the whole thing is a bit confusing, but I didn't want to edit it. The most pertinent parts are in bold below. For more of the discussion, you can check out that thread.

FFS, I've been meaning to follow up on this, but I'm doing a "forum lite" week, as we're on a trip. The response above is so off the mark that apparently now is the time to elaborate.

As I mentioned upthread, I believe this topic is less of a concern for this group. Frankly, though some believe one should always have a mortgage, I do not fully subscribe to that theory, particularly for the folks racing from $2M to $4M...and Beyond!

The reason to hold a long, low, fixed-rate rate mortgage on an affordable home, in a country where mortgages are tax-advantaged, is that it allows you to invest in equities which will compound, resulting in a higher net worth faster than paying off the mortgage before maxing out every other investment option first.

The average shlub is assumed to be an idiot who will blow every spendable cent. (See: Dave Ramsey or Suze Orman for endless examples.) These people may never have the means to retire, let alone early. For them, the goal of paying off the mortgage is not unreasonable. At least they'll have something.

Mustachians are smarter more financially literate than that and know how to save and invest.

Since the goal of MMM, and by extension this forum, is to retire early, holding on to a mortgage (with the caveats listed above) is a smart strategy. Mortgages, if managed correctly, are a powerful tool for building wealth. The sooner you start investing, the faster compound interest will begin to do the heavy lifting. Waiting to invest until the mortgage is paid off simply means it's going to take longer, and you'll have to earn more money (i.e. work longer) to reach FIRE.

If you're on this forum, you're here to strategize so that you can at least reach FI efficiently. Ignoring the leverage a good mortgage creates over the imagined way it's going to "feel" to "kill the mortgage" before filling every other investment option makes so little sense that the blowback continues to surprise me.

Again, I don't believe this discussion is necessary in this group, but the recent scorn that's been directed my way is ironic, given that it's happening on this forum.

For the love of Dog, can we send this discussion back to the DPOYM thread, where both sides of the question are addressed?

NorthernIkigai

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Re: DONT Payoff your Mortgage Club
« Reply #3715 on: January 19, 2024, 02:15:25 PM »
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

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Re: DONT Payoff your Mortgage Club
« Reply #3716 on: January 19, 2024, 04:30:25 PM »
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

It certainly makes the decision-process more straight forward, but that doesn't mean you can't also benefit from not paying down a mortgage with an ARM.

There's plenty of people who took out 5/1 or 7/1 ARMs in 2021/22 at sub 3% rates. Certainly they would have been in a better position having invested, even in iBonds.  Provided there's no pre-payment penalty it makes good financial sense to continue stockpiling money and seeing what the rates look like in 2026-28.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #3717 on: January 19, 2024, 05:50:07 PM »
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

For sure.   That said, a 5/1 or a 7/1 ARM almost always make sense if you think you will live in a place for less than ten years.   I wouldn't pay those down at all.

But in general, an adjustable mortgage is like a time bomb.   It could go off, you don't know when, seems like a future unknown...sounds like something I don't want. 

But a sub 4% fixed rate?  Back up the truck.  Deal of a lifetime. 


Must_ache

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Re: DONT Payoff your Mortgage Club
« Reply #3718 on: January 19, 2024, 09:25:39 PM »
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

Not just fixed-rate, but low fixed-rate.  My own personal rate of 2.625% is almost certainly going to get trounced by the stock market.  It's really not clear you want to try to outdo more recent values like 7% and 8%.  I wonder where the ideal threshold is, no doubt it varies by person but at some point it shouldn't be considered subjective but decidedly disadvantageous.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3719 on: January 19, 2024, 09:54:12 PM »
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

I wouldn't argue with you at all. Here's what I actually said:

At the end of last year, there was a convo over at the "... and Beyond" thread. I've been meaning to post my thoughts here. Quoting the whole thing is a bit confusing, but I didn't want to edit it. The most pertinent parts are in bold below. For more of the discussion, you can check out that thread.

FFS, I've been meaning to follow up on this, but I'm doing a "forum lite" week, as we're on a trip. The response above is so off the mark that apparently now is the time to elaborate.

As I mentioned upthread, I believe this topic is less of a concern for this group. Frankly, though some believe one should always have a mortgage, I do not fully subscribe to that theory, particularly for the folks racing from $2M to $4M...and Beyond!

The reason to hold a long, low, fixed-rate rate mortgage on an affordable home, in a country where mortgages are tax-advantaged, is that it allows you to invest in equities which will compound, resulting in a higher net worth faster than paying off the mortgage before maxing out every other investment option first.

The average shlub is assumed to be an idiot who will blow every spendable cent. (See: Dave Ramsey or Suze Orman for endless examples.) These people may never have the means to retire, let alone early. For them, the goal of paying off the mortgage is not unreasonable. At least they'll have something.

Mustachians are smarter more financially literate than that and know how to save and invest.

Since the goal of MMM, and by extension this forum, is to retire early, holding on to a mortgage (with the caveats listed above) is a smart strategy. Mortgages, if managed correctly, are a powerful tool for building wealth. The sooner you start investing, the faster compound interest will begin to do the heavy lifting. Waiting to invest until the mortgage is paid off simply means it's going to take longer, and you'll have to earn more money (i.e. work longer) to reach FIRE.

If you're on this forum, you're here to strategize so that you can at least reach FI efficiently. Ignoring the leverage a good mortgage creates over the imagined way it's going to "feel" to "kill the mortgage" before filling every other investment option makes so little sense that the blowback continues to surprise me.

Again, I don't believe this discussion is necessary in this group, but the recent scorn that's been directed my way is ironic, given that it's happening on this forum.

For the love of Dog, can we send this discussion back to the DPOYM thread, where both sides of the question are addressed?

P.S. Any discussion about mortgages is a good discussion, IMO. Thanks for giving me the opportunity to clarify.

P.P.S. Before any of you always-have-a-mortgage-no-matter-what-folks start feeling left out, for the record, we still have three LLFRM's. We also never had a mortgage on our primary, so technically, except when we sell a property, we've never actually paid off a mortgage early. Everybody happy? I hope so, because year after year of not paying off your mortgage gets kind of ho-hum. Well, except for watching your investment balances grow...

NorthernIkigai

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Re: DONT Payoff your Mortgage Club
« Reply #3720 on: January 19, 2024, 11:56:51 PM »
Oh, not argue as in ”have an argument” but rather “make the argument that”.

In my mortgage market, fixed rates are hardly ever offered. If they are, it’s actually not a true fixed-rate but rather an ARM with a max 10-year initial rate. As they are rare, they are also not priced attractively.

So everyone just has a variable rate mortgage. I guess when everyone does, it’s normal to sit on a time bomb? Banks are required to calculate whether you could handle rates up to 6%, which felt silly a couple of years ago when rates were negative, but doesn’t feel silly anymore. People spend a lot of time and brain power thinking about which base rate to tie their mortgage to: 3m, 12m, etc. The differences are peanuts, but people basically don’t seem to like to be “surprised” by their mortgage payments changing more than once a year. (Although with the amount of space given to rates in the news, I don’t see how anyone can be surprised when it does change.)

We have two mortgages at the moment since we’re in the process of moving house, and both are adjustable rate at about 4.5% (adjusting at different moments). Although they’ve gone up a lot from the 0.4-something, I’m always thinking that for them to go up to something that’s unaffordable to *us* (our housing choices are not cheap, but certainly not extravagant) a whole lot of other people would already have been in trouble a long time ago. So I’m kind or trusting that the Mustachianism of our housing choices and savings will put a big damper on the time bomb.

Retire-Canada

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Re: DONT Payoff your Mortgage Club
« Reply #3721 on: January 20, 2024, 04:57:15 AM »
In my mortgage market, fixed rates are hardly ever offered. If they are, it’s actually not a true fixed-rate but rather an ARM with a max 10-year initial rate. As they are rare, they are also not priced attractively.

So everyone just has a variable rate mortgage. I guess when everyone does, it’s normal to sit on a time bomb?

The typical mortgages we have in Canada are 5 year fixed term or 5 year variable rate. You can get shorter and a little longer, but nothing meaningfully longer that compare to US 30 year fixed mortgages.

I've had a variable mortgage the last ~13 years. For most of that time it's been great. The last couple years my payments went up with the recent rate hikes. Less awesome, but not a big deal in so far as we expected that rates can move in either direction. Expectation here is rates will start to drop in 2024 again. Our 5 year term ends in 2026. I expect we'll get another variable rate mortgage.

Shorter fixed mortgages cost more in general than variable rate and unless you get lucky with the timing you'll be forced to renew and deal with the higher rates anyway. If you just happen to renew before rates climb and they go back down in time for the next renewal you win, but you were lucky.

I could simply pay off my mortgage if I wanted to and I would at least consider that option at renewal time. I would also consider taking out more equity and investing it and/or extending the amortization back to 25-30 years. I've got a few reasons to keep a mortgage including the risk of a very significant earthquake where we live.

I wouldn't say no to a low rate 30 year fixed mortgage, but we just don't have that option yet I am still a DPOYM fan.

NorthernIkigai

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Re: DONT Payoff your Mortgage Club
« Reply #3722 on: January 21, 2024, 03:48:07 AM »
I mean it makes sense for the rate of a variable mortgage to be lower than that of a fixed one (on average), since it’s the customer taking on the risk instead of the bank.

The Euribor rates are already coming down a little, and it seems the ~4.5 we’re paying now (which includes .x% going to the bank) was a peak that we’ve just passed.

Meanwhile, in a neighbouring country, it’s not actually required to pay off your mortgage. You have to pay it off (very slowly) until you’ve paid half (or half of the house, I’m not sure which), and after that you can just pay interest if you want. In an interview comparing different countries and typical mortgages, the people from that country didn’t even under the question about the length of the mortgage! X-D

davisgang90

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Re: DONT Payoff your Mortgage Club
« Reply #3723 on: January 21, 2024, 04:15:15 AM »
Through dumb luck, we refinanced into a 2.25% 30 year on our home.

We are in no hurry to pay that off for sure!

Our only problem is that though we are FIRE, this is not our forever home, so we'd like to downsize at some point, but it will probably be a while. We have enough deductions to itemize, so there isn't really a downside to us keeping the mortgage.

NorthernIkigai

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Re: DONT Payoff your Mortgage Club
« Reply #3724 on: January 21, 2024, 07:55:19 AM »
Through dumb luck, we refinanced into a 2.25% 30 year on our home.

We are in no hurry to pay that off for sure!

Our only problem is that though we are FIRE, this is not our forever home, so we'd like to downsize at some point, but it will probably be a while. We have enough deductions to itemize, so there isn't really a downside to us keeping the mortgage.

You have a Mustachian People Problem :-)

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #3725 on: January 21, 2024, 09:51:02 AM »
After years of being dedicated DPYMC member for years, I've decided this is for the birds. Going to pay off the 3.75% mortgage no later than early-to-mid 2025.

Spoiler: show
Put another, truer way,: we've decided that we're going to relocate and will be selling the house and renting wherever we land in North or possibly South Carolina to be closer to family. If we weren't moving then we'd just continue with our minimum-payments and possible take a 2nd mortgage or refinance if interest rates and my appetite for applying for loans get a little better.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3726 on: January 21, 2024, 09:58:12 AM »
After years of being dedicated DPYMC member for years, I've decided this is for the birds. Going to pay off the 3.75% mortgage no later than early-to-mid 2025.

Spoiler: show
Put another, truer way,: we've decided that we're going to relocate and will be selling the house and renting wherever we land in North or possibly South Carolina to be closer to family. If we weren't moving then we'd just continue with our minimum-payments and possible take a 2nd mortgage or refinance if interest rates and my appetite for applying for loans get a little better.

Spoiler: show
Haha. If you look at it that way, I've done it five times, plus paid all-cash twice. Oh, the shame!

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #3727 on: January 23, 2024, 08:12:15 AM »
Wow - that message came from the department of redundancy department in multiple places.

Bartie Musa

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Re: DONT Payoff your Mortgage Club
« Reply #3728 on: March 02, 2024, 09:57:40 PM »
Bartie Musa - I didn't even know a club like this existed, this forum is truly one of a kind. However there's arguments on both sides, neither matters unless you got the cash for it though hehe.

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3729 on: March 03, 2024, 04:54:02 AM »
Oh hi! My new mortgage is 30 year fixed 5.95%.

What say you?

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3730 on: March 03, 2024, 05:09:19 AM »
I think that's a no brainer payoff decision, but reasonable people can differ.

Some important variables -
How much is the balance, and do you itemize deductions?
Do you own any bonds, and are they in a taxable or tax free account if so?
Do you think rates are going to drop from here?

Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #3731 on: March 03, 2024, 07:44:48 AM »
Oh, not argue as in ”have an argument” but rather “make the argument that”.

In my mortgage market, fixed rates are hardly ever offered. If they are, it’s actually not a true fixed-rate but rather an ARM with a max 10-year initial rate. As they are rare, they are also not priced attractively.

So everyone just has a variable rate mortgage. I guess when everyone does, it’s normal to sit on a time bomb? Banks are required to calculate whether you could handle rates up to 6%, which felt silly a couple of years ago when rates were negative, but doesn’t feel silly anymore. People spend a lot of time and brain power thinking about which base rate to tie their mortgage to: 3m, 12m, etc. The differences are peanuts, but people basically don’t seem to like to be “surprised” by their mortgage payments changing more than once a year. (Although with the amount of space given to rates in the news, I don’t see how anyone can be surprised when it does change.)

We have two mortgages at the moment since we’re in the process of moving house, and both are adjustable rate at about 4.5% (adjusting at different moments). Although they’ve gone up a lot from the 0.4-something, I’m always thinking that for them to go up to something that’s unaffordable to *us* (our housing choices are not cheap, but certainly not extravagant) a whole lot of other people would already have been in trouble a long time ago. So I’m kind or trusting that the Mustachianism of our housing choices and savings will put a big damper on the time bomb.

My first house was on a 7/1 ARM.  Now it was a US ARM so could only go up at most 6% per the loan documents.  I made sure I could afford the loan at 12% just as much as I could afford it at 6%.  And seeing as I got it in 2004, it actually reset lower in 2011.

Edited for spelling.
« Last Edit: March 03, 2024, 07:50:37 AM by Fomerly known as something »

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3732 on: March 03, 2024, 07:58:53 AM »
Oh hi! My new mortgage is 30 year fixed 5.95%.

What say you?

Don't pay extra except maybe to get rid of PMI.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3733 on: March 03, 2024, 08:30:02 AM »
I think that's a no brainer payoff decision, but reasonable people can differ.

Some important variables -
How much is the balance, and do you itemize deductions?
Do you own any bonds, and are they in a taxable or tax free account if so?
Do you think rates are going to drop from here?
Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion,  only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?

Thanks again for popping in and giving me the chance to welcome you, and everyone who wants to learn more. All friendly discourse is helpful, no matter how anyone chooses to purchase their home.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3734 on: March 03, 2024, 08:41:45 AM »
Oh hi! My new mortgage is 30 year fixed 5.95%.

What say you?
Our kids just purchased a new home. The loan started at 7%, then dropped to 6%, so they locked in. The lender required a simultaneous closing of the house they were selling and the one they were buying. The loan closed a few weeks ago and they're renting back for a month or two. Loan rates have already increased since then. Good timing for both of you!

Since you asked your question here, you know what our answer will be: Congratulations, and welcome to the DPOYM club. Your golden passkey is on its way.

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3735 on: March 03, 2024, 09:15:48 AM »
Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion,  only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?

Thanks again for popping in and giving me the chance to welcome you, and everyone who wants to learn more. All friendly discourse is helpful, no matter how anyone chooses to purchase their home.
I did not create the other thread, nor did I ask that criticism be excluded from it, because I did not have a mortgage for the first ten years that thread existed. I stumbled into the thread late in its history, long after the blowups. I can't speak to what the POYM folks wanted, what the DPOYM folks wanted, or mods chose to do years before I clicked on the thread for the first time. Nor have I reported you to the mods for any reason, ever.

I am in favor of more speech, more disagreement on the merits of the arguments, and that way getting to a better understanding. I've learned a lot from the active traders on this site, who I disagree with, and I've learned from the DPOYM squad too.

What I criticized was not you making your arguments, it was your parade around the site exclaiming that you are being cancelled for your views, bringing up how unreasonably you were treated in the POYM thread. Even when I did that, it was a post addressed to you, not the mods. I don't think that post is something that doesn't belong on the site like an ad hominem, I just disagreed with it, so I wrote a post about why.
« Last Edit: March 03, 2024, 09:18:26 AM by grantmeaname »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3736 on: March 03, 2024, 09:38:57 AM »
Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion,  only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?

Thanks again for popping in and giving me the chance to welcome you, and everyone who wants to learn more. All friendly discourse is helpful, no matter how anyone chooses to purchase their home.
I did not create the other thread, nor did I ask that criticism be excluded from it, because I did not have a mortgage for the first ten years that thread existed. I stumbled into the thread late in its history, long after the blowups. I can't speak to what the POYM folks wanted, what the DPOYM folks wanted, or mods chose to do years before I clicked on the thread for the first time. Nor have I reported you to the mods for any reason, ever.

I am in favor of more speech, more disagreement on the merits of the arguments, and that way getting to a better understanding. I've learned a lot from the active traders on this site, who I disagree with, and I've learned from the DPOYM squad too.

What I criticized was not you making your arguments, it was your parade around the site exclaiming that you are being cancelled for your views, bringing up how unreasonably you were treated in the POYM thread. Even when I did that, it was a post addressed to you, not the mods. I don't think that post is something that doesn't belong on the site like an ad hominem, I just disagreed with it, so I wrote a post about why.
Funny, I said "some people" because they have, in fact, complained.

You have directed harsh words at me in the past, and they have been allowed to stand.

There is no such thing as a POYM thread. There are only celebration threads, unless someone starts a new thread, asking specific questions. What that happens, I happily chime in. I remain active here long after FIRE to offer encouragement to others on their journeys. Had something like this existed when I was younger, it would have made the journey easier. Consider my presence paying it forward.

And for Pete's sake, "Parade around the site" is freaking hilarious! With ~ 22,000 posts and thousands more PMs, of course I "parade around the site." I mention PMs, because I help organize the Magical Moab Meetup. Mr. Dicey and I also help mustachians behind the scenes in a specific field where we have extensive experience. Gratis, of course.

Yeah, I never thought of it that way, but I sure do "parade around the site." Thanks for noticing.

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3737 on: March 03, 2024, 10:06:42 AM »
I posted here on the substance of the conversation, whether Neo should pay down his mortage and the factors that influence that decision, which you say you welcome. All else I can say is that I haven't asked the mods to limit your speech in any way, nor asked you not to contribute on the substance of the discussion here or in any other thread. I've appreciated, and learned from, your posts relating to the substance of the mortgage payoff decision.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3738 on: March 03, 2024, 11:08:50 AM »
I posted here on the substance of the conversation, whether Neo should pay down his mortage and the factors that influence that decision, which you say you welcome. All else I can say is that I haven't asked the mods to limit your speech in any way, nor asked you not to contribute on the substance of the discussion here or in any other thread. I've appreciated, and learned from, your posts relating to the substance of the mortgage payoff decision.
Based on his posting history and long time participation on this thread and forum, I'm pretty sure @Neo was joking.

Whether it came from you or not, the fact is the mods have limited my speech, while allowing you to skate on thin Rule #1 ice in your comments to me. It is what is, apparently.

I did read your final sentence: it doesn't remove the sting from previous barbs.

Can we please move on? I think we've established that we are both contributing members here. There is room here for endless conversation, provided it's friendly.
« Last Edit: March 03, 2024, 04:01:03 PM by Dicey »

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3739 on: March 03, 2024, 12:27:52 PM »
Based on his posting history and long time participation on this thread and forum, I'm pretty sure @Neo was joking.
Welp. I knew this and forgot it today. And then went and stuck my foot in my mouth.

Happy to bury the hatchet. I've been an ass and let the someone is wrong on the internet energy take over my better sense. Sorry.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3740 on: March 03, 2024, 02:37:11 PM »
Mostly out of curiosity (sparked by a job offer that would have forced us to sell and relocate) I calculated how our mortgage from 2021 would change if we took out the same sized mortgage at today's rates:  We would be paying almost $7,800 more per month.

Adding to that, the median home sale price in our area has jumped about 30% since we purchased about three years ago, so if we were to have bought this exact same house today vs in 2021 we'd be paying about $14,180 more per year (entirely in added interest).  That's how big a difference 3 years can make with interest rate swings and escalating property values.

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3741 on: March 04, 2024, 06:47:29 AM »
Some important variables -
How much is the balance, and do you itemize deductions?
Do you own any bonds, and are they in a taxable or tax free account if so?
Do you think rates are going to drop from here?

Balance was $567k, sold $40k of bonds in taxable brokerage, which may be questioniable but I really think I'm increasing how aggressive my portfolio / AA is going forward. (I still have lots of bonds in my retirement accounts.) Put that $40k towards mortgage, so now $527k. PMI will drop at $504k.

I cannot predict the future :-) But yeah I think tipping below 6% I'll probably let this ride once I hit 80% LTV, drop PMI and recast for a smaller mortgage payment (a one-time $150 fee applies.)

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3742 on: March 04, 2024, 06:50:31 AM »
Didn't mean to stir up any hornets nest. Not 100% a joke - seriously wanted some rational, mathematical minds to weigh in. I do think the actual rate and other factors can weigh on the decision. I don't think it's 100% a case of "never pay off any mortgage no matter what" no matter which thread you post on :)

When we sell our old house, I plan to put $24k to get to 80% LTV, $15k to pay off a no-interest credit card we've been using for preparing that house for selling. (It might be $18k by the time we sell... deck staining should hopefully happen soon as the weather warms!) Then the rest (hopefully $210k or more) will likely all just get dumped into VTSAX, purchased at an all-time high!

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3743 on: March 04, 2024, 06:55:32 AM »
Where I was leading with that is you're getting a bit of the benefit of the tax deductibility of the mortgage interest, compared to taking the standard deduction. (More to the extent you have other big itemized deductions.) I have a little bit smaller loan and lower rate, and a low income tax state, so even on day 1 my mortgage wasn't enough to make itemized deductions make sense. In fact, your rate may be similar to mine after equalizing the taxes.

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3744 on: March 04, 2024, 06:57:17 AM »
Yes - I think current MFJ Standard is now $29k but our mortgage interest from the two mortgages plus state tax should push us comfortably into itemizing for 2024. After a couple years, it'll likely dip right back below the standard deduction though!

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3745 on: March 04, 2024, 06:59:45 AM »
Is your after tax bond yield (or gross bond yield if it's all in retirement accounts) higher than your after tax mortgage rate?

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3746 on: March 04, 2024, 07:00:44 AM »
Is your after tax bond yield (or gross bond yield if it's all in retirement accounts) higher than your after tax mortgage rate?

The bonds have been in the Admiral Share version of BND. I don't think the yield is very high? 3% or so?

grantmeaname

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Re: DONT Payoff your Mortgage Club
« Reply #3747 on: March 04, 2024, 07:04:01 AM »
Better than you might think intuitively - looks like 4.52%. Or at least, better than I would have thought.

I guess I would argue that unless you highly value the option to cash out refinance in the next couple of years (not unreasonable if you feel we are headed for substantial rate cuts), it may be better to have less financial liabilities yielding 5.5% and less financial assets yielding 4.5%. Every $100k you traded bonds for home equity would save you $1k/year. Of course, that doesn't apply if you're looking at selling your bonds for stocks anyway...
« Last Edit: March 04, 2024, 07:09:26 AM by grantmeaname »

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3748 on: March 04, 2024, 09:25:44 AM »
don't think it's 100% a case of "never pay off any mortgage no matter what" no matter which thread you post on :)
Unlike some who espouse always having a mortgage, I completely agree with you, and always have. My point continues to be that one gets to FIRE faster by paying yourself first. Then, if you still desire to do so, pay the loan off in one fell swoop. Or, sell your highly appreciated (still mortgaged) home and buy another one for cash, which is what we did. Don't worry, we still have mortgages on our rentals ;-)

A related point: At the beginning of the FIRE journey, it can be almost impossible to imagine getting to $1M. But the mortgage comes due every month, it's typically the largest bill, and it seems to be impediment to the goal. What is harder to grok is that by investing those payments, you will get to that first million faster than you thought possible. The next million comes even faster and before you know it, you're posting on the "and Beyond" thread. It's the miracle of compound interest.

Yes - I think current MFJ Standard is now $29k but our mortgage interest from the two mortgages plus state tax should push us comfortably into itemizing for 2024. After a couple years, it'll likely dip right back below the standard deduction though!

This doesn't apply to you, neo, but it's worth pointing out in this discussion, as it particularly impacts folks in HCOLAs:

Per IRS pub 936 for 2023 - "You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017."

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3749 on: March 04, 2024, 11:02:44 AM »
Per IRS pub 936 for 2023 - "You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017."

I learned this when filing my taxes for last year. My two mortgages overlapped in 2023, the combined total exceeding $750k (just barely). Of course, running through the worksheet I still qualified for the full deduction because you can use some sort of averaging of the balance(s) across the year.