DONT Payoff your Mortgage Club

[Dicey]

So nice to see a new conversation here! Not paying off your mortgage does become a rather non-event, leaving us with not a lot to talk about.

Hope everyone's having a nice summer!

[sonofsven]

So nice to see a new conversation here! Not paying off your mortgage does become a rather non-event, leaving us with not a lot to talk about.

Hope everyone's having a nice summer!

Well, I've had a few conversations IRL lately about the idea.
Since I stopped working last year I've had a few friends assume that I paid off my mortgage.
I tell them no, I have a 2.75% 30 year mortgage, I'll never pay that off!
Then they ask how I can afford to pay my mortgage if I'm not working, and I tell them I use my savings, and they kind of don't know what to say after that, because it's such a simple answer, I guess?
I try to explain the concept, that it's better to invest early so your investments in the market have time to grow, and continue to invest, than it is to pay off your mortgage early and then invest, because of the value of time in the market.  But their eyes kind of glaze over.
The problem is, is that it's kind of too late for this for the people I've been talking too, since they're mid 50's, like me (ok, late 50's!). Actually, it's never too late to invest in the market, especially index funds.
But they all just assume that they have to pay off their mortgage before they want to retire, and they do want to retire, they just aren't willing to sacrifice their lifestyle to do it (which is fine with me).

[Spruit]

I can see why people would want to pay it off, just to be done with it and simplify finances. A lot of folks still see investing (in indexes) as pure gambling. Especially with 'borrowed money', ie a mortgage. It comes down to their ability to deal with perceived risk.

[Fomerly known as something]

I was looking at Rocket Mortgage today since I got my “you payment has posted” notification.  Rocket has gotten into the credit card “rewards game”. You can get 2% back towards your mortgage with our “Rocket Visa”.  I’d much rather get 2% cash or towards something fun like travel.

[dandarc]

I was looking at Rocket Mortgage today since I got my “you payment has posted” notification.  Rocket has gotten into the credit card “rewards game”. You can get 2% back towards your mortgage with our “Rocket Visa”.  I’d much rather get 2% cash or towards something fun like travel.

Got me all excited but I misread - what I'd like is a rewards card I can pay my mortgage with - 2% back on that is a non-trivial sum of money.

[Dicey]

I can see why people would want to pay it off, just to be done with it and simplify finances. A lot of folks still see investing (in indexes) as pure gambling. Especially with 'borrowed money', ie a mortgage. It comes down to their ability to deal with perceived risk.

Dunno, many people who want to "simplify" finances are paying for a lot of crap they don't need. Cable, premium channels, streaming services, music, apps, fancy phones, meals out, drinks out, etc., etc., etc. There are a lot more beneficial ways to simplify than killing off a perfectly good mortgage.

Once a home is paid off, you will always and forever be on the hook for Insurance, Taxes, Utilities and Maintenance. Paying off a mortgage doesn't really simplify much of anything at all.

Investing in indexes is the safest way to buy equities, especially ETFs. Are you comparing index funds to individual stocks? BTW, "a lot of folks" are mostly not the people on this thread.

[Fomerly known as something]

I can see why people would want to pay it off, just to be done with it and simplify finances. A lot of folks still see investing (in indexes) as pure gambling. Especially with 'borrowed money', ie a mortgage. It comes down to their ability to deal with perceived risk.

Dunno, many people who want to "simplify" finances are paying for a lot of crap they don't need. Cable, premium channels, streaming services, music, apps, fancy phones, meals out, drinks out, etc., etc., etc. There are a lot more beneficial ways to simplify than killing off a perfectly good mortgage.

Once a home is paid off, you will always and forever be on the hook for Insurance, Taxes, Utilities and Maintenance. Paying off a mortgage doesn't really simplify much of anything at all.

Investing in indexes is the safest way to buy equities, especially ETFs. Are you comparing index funds to individual stocks? BTW, "a lot of folks" are mostly not the people on this thread.

Yes while it is true if I paid off my mortgage, my housing cost would fall by 55%, but I’d still have a significant amount to pay each month, that other 45% and now say my brokerage account could only cover 9.8 years of other costs while it can cover 14 years of PITI.

[Spruit]

I can see why people would want to pay it off, just to be done with it and simplify finances. A lot of folks still see investing (in indexes) as pure gambling. Especially with 'borrowed money', ie a mortgage. It comes down to their ability to deal with perceived risk.

Dunno, many people who want to "simplify" finances are paying for a lot of crap they don't need. Cable, premium channels, streaming services, music, apps, fancy phones, meals out, drinks out, etc., etc., etc. There are a lot more beneficial ways to simplify than killing off a perfectly good mortgage.

Once a home is paid off, you will always and forever be on the hook for Insurance, Taxes, Utilities and Maintenance. Paying off a mortgage doesn't really simplify much of anything at all.

Investing in indexes is the safest way to buy equities, especially ETFs. Are you comparing index funds to individual stocks? BTW, "a lot of folks" are mostly not the people on this thread.

Not disagreeing with you on this account, I did the math and put my savings in indexfunds and do not plan on paying off the mortgage any faster than strictly necessary. Not individual stocks, but I mean that many frugal folks might confuse them. I was brought up by frugal parents that held the conviction that one should always play it safe, never invest with money that you don't have and actually investing itself was questionable in my parents' book. Mostly because they did not really understand it. Individual stocks, indexes, all the same to them. Convictions like that can be ignored and put aside in favour of new insights, sure. But I can relate to the sense of security it might bring to some frugal people to have the expense go to zero. Even if taxes and insurance are still due. This is not enticing enough to forgo the profit from investing because I have no trouble sleeping at night with my mortgage and investments both on autopilot. But some are more stressed out by the idea of debts.

[jsap819]

I can see why people would want to pay it off, just to be done with it and simplify finances. A lot of folks still see investing (in indexes) as pure gambling. Especially with 'borrowed money', ie a mortgage. It comes down to their ability to deal with perceived risk.

Dunno, many people who want to "simplify" finances are paying for a lot of crap they don't need. Cable, premium channels, streaming services, music, apps, fancy phones, meals out, drinks out, etc., etc., etc. There are a lot more beneficial ways to simplify than killing off a perfectly good mortgage.

Once a home is paid off, you will always and forever be on the hook for Insurance, Taxes, Utilities and Maintenance. Paying off a mortgage doesn't really simplify much of anything at all.

Investing in indexes is the safest way to buy equities, especially ETFs. Are you comparing index funds to individual stocks? BTW, "a lot of folks" are mostly not the people on this thread.

Yes while it is true if I paid off my mortgage, my housing cost would fall by 55%, but I’d still have a significant amount to pay each month, that other 45% and now say my brokerage account could only cover 9.8 years of other costs while it can cover 14 years of PITI.

I'm exactly in the same boat. If I liquidate our taxable to pay off our mortgage, we've only eliminated about 35% of our fixed spending. Which means after the mortgage is gone, we'd have 8 years of expenses vs having 13 years of expenses with the mortgage.

Also, every year our mortgage isn't paid off, our taxable is growing 1.25 years of expenses without any additional contribution from here on out and increasing while the mortgage balance goes down.

Life is good.

[Dicey]

I can see why people would want to pay it off, just to be done with it and simplify finances. A lot of folks still see investing (in indexes) as pure gambling. Especially with 'borrowed money', ie a mortgage. It comes down to their ability to deal with perceived risk.

Dunno, many people who want to "simplify" finances are paying for a lot of crap they don't need. Cable, premium channels, streaming services, music, apps, fancy phones, meals out, drinks out, etc., etc., etc. There are a lot more beneficial ways to simplify than killing off a perfectly good mortgage.

Once a home is paid off, you will always and forever be on the hook for Insurance, Taxes, Utilities and Maintenance. Paying off a mortgage doesn't really simplify much of anything at all.

Investing in indexes is the safest way to buy equities, especially ETFs. Are you comparing index funds to individual stocks? BTW, "a lot of folks" are mostly not the people on this thread.

Yes while it is true if I paid off my mortgage, my housing cost would fall by 55%, but I’d still have a significant amount to pay each month, that other 45% and now say my brokerage account could only cover 9.8 years of other costs while it can cover 14 years of PITI.

I'm exactly in the same boat. If I liquidate our taxable to pay off our mortgage, we've only eliminated about 35% of our fixed spending. Which means after the mortgage is gone, we'd have 8 years of expenses vs having 13 years of expenses with the mortgage.

Also, every year our mortgage isn't paid off, our taxable is growing 1.25 years of expenses without any additional contribution from here on out and increasing while the mortgage balance goes down.

Life is good.

Yesss!!!

[NorthernIkigai]

thirty years of inflation at 9%+ would actually be really bad. You'd be well positioned with the Series I and the mortgage, but aren't the 1970s years when we saw most retirement failures in modeling?

Very good point.  I really meant that I'd like to lock in just the 9.6% rate for 30 years, not the inflation that goes with it!  I definitely do NOT want I bonds to continue to pay such high rates.  I agree that 30 years of 9% inflation would be very bad.  But for now, I bonds are the best game in town for something safe.  While they're still only paying 0% real, better than my savings account paying -9% real.

@NorthernIkigai - Definitely sounds worth it to drop your savings rate a bit to get some more space.  <800 square feet for 4 people sounds like it might be a tad tight!  Hope you're able to find something that works for you!

Thanks @Holocene! We're actually OK right now, I'm always amazed that many North Americans (even Mustachians!) seem to need so much space. But the kids are growing and it would be very nice to have at least another half bath and not just the one bathroom.

With prices for decent apartments in the size (still max 1k sq ft or so) and area we're considering starting from about 550 or 600k€, we're just patiently keeping an eye on the market and hoping for a rate rise and its effect on the market...

An update from the land of adjustable rate mortgages: A few months after I wrote this, we actually found a lovely and affordable 970 sqf apartment with everything we need. Well, we bought it, but it's not finished yet. It will be finished next summer, so we should sell our current apartment next spring some time with the caveat that we'll move out on an agreed date. We're still very happy in the current one, but that's because we know we'll be moving into a brand new one soon. If we would still be looking, we'd probably feel pretty stuck here right now.

So now we have 2 mortgages! The old one which has a current rate of 3.x% (which will go up soon again), and the new one for the new apartment (which we've only taken out partially so far) at 4.x%. Oh well, the 0.x% rates were great for the many years they lasted.

Although the cash flow looks bad at the moment, certainly with the second mortgage growing every few months, we're not worried. We'll also probably get quite a bit less for the old apartment than we had originally budgeted, since the whole market has stagnated due to the rising interest rates. But we're paying a bit less than we had originally budgeted (550--650k€) for the new apartment. And we have plenty of savings.

So we should have been selling our current (still) flat about now... We'll be doing the final inspection of the new flat this week, and can move in in about 6 weeks or so.

But now the housing market, which I described last summer as having stagnated, has simply come to a full stop. To make matters worse, the big renovation which we knew was coming at some point to the current house will start in about 6 months' time, making renting the old place out less likely and less profitable, as the flat will be unusable for a few months but we don't yet know exactly when. Maybe we'll find someone who needs to move out of their home due to a similar short-term renovation, maybe not.

Trying to sell now, when the market is a at 20+ year low in general and the upcoming renovation is scaring buyers away from this place in particular, is a fool's game. Instead, we'll be hanging on for a while waiting for the renovation to the done and the market to improve, paying more in total housing costs than what our whole monthly budget was before this moving project started. Some of it (almost half) is of course simply higher actual housing costs because we are moving to a newer, bigger place, and some are not actual costs (the principal paid on the old mortgage -- the plan was to pay this in a lump sum when we sold the place, but hey, now the lump sum will eventually be smaller).

Still, it's a crazy cash flow that will flow out for the next 12 or maybe even 18 months. I don't like it, but the market is not giving us a lot of choice and as Mustachians, we can afford if without having to worry at all.

An update on our "two-home-trap" as it is known here: We've moved into our new, lovely larger apartment which will probably be our forever home. It's actually even nicer than we thought it would be! Our only problem is that we seem to lose each other in the many rooms and two balconies :-D So anything bigger than 970 sqf would have been too big for us.

The old apartment, which we didn't even try to sell since the market was totally dead, is still there. We tried to rent it out, but the upcoming renovation is not only scaring away potential buyers but also potential renters, certainly since the exact timing isn't known yet. Through an amazing coincidence we did find a friend of a friend who needed a place fast, and rented it to them relatively cheaply because of all the uncertainty. They might also not stay there for very long but instead opt for something more permanent, but as long as we're getting that rent we're more than happy.

We might even end up with a positive cash flow, when this rent is added to our two good jobs and one other rental income (and accounting for some costs being tax deductible now that weren't when we lived in the old place ourselves). That'd be something! So it's not quite going according to plan, we're OK regardless, but I am looking forward to finally being able to sell the old apartment (once the renovation is over and it's an attractive place again + the market will probably have bounced back a bit) and settle back into Mustachian saving and investing again...We're still investing regularly since we've had bigish cash reserves, but of course they will dry up in the long run. Oh, and the interest rates are coming down, so our two mortgages are dipping below 4% soon.

[dandarc]

Glad you found a renter - we're also in 2 mortgages boat for the moment, but we're really hoping to sell soon. We had a friend-tenant for 17 months while we were temporarily living in another state - worked out fine, but we learned we really don't like being landlords. Marketing plan going to get more aggressive soon. So far 2 lowball offers that we basically just didn't accept (one laughably low). And one offer that started out reasonable but they got cold feet and demanded a $30K concession during the inspection period and which turned reasonable into un-reasonable so that didn't happen.

Will be sad to see 3.xx go (glad to have the $60-100K in cash that we should clear at end of the day vs. in that house though), but interest rates seem to be starting to come down so the new mortgage likely to be refinanced to something better soon-ish.

[dragoncar]

So nice to see a new conversation here! Not paying off your mortgage does become a rather non-event, leaving us with not a lot to talk about.

Hope everyone's having a nice summer!

Summers over.  Rates are getting cut.  When are we going to refi?

[Tigerpine]

I compared the following:
  1.  paying off my mortgage in a lump sum
  2.  making monthly mortgage payments until paid off

For case #1, the monthly payment amount would instead go directly to investments.
For case #2, the lump sum payment amount would be subtracted from current investments.

In both cases, I assumed a rate of return for investments of 8%, and dividends, at a 0.33% quarterly yield, would reinvest quarterly.  No additional money for external sources was added to investments in either case.

Comparing the final investment total at the month when the mortgage is paid off in scenario #2, I found that not paying off the mortgage brought about a higher balance by over $900k. 

Although I do think there are certain advantages to paying off one's mortgage, I can't deny the math for not doing so.

[Joel]

I was firmly in the don’t payoff your mortgage camp when I had a 2.5% rate… however that has changed, I’m now at 5.874% (and was briefly at 6.999%). The highest rate had me leaning towards paying down the mortgage, while my current rate has me starting to be on the fence.

Created a new thread to ask at what rate does that change for each person. Very curious this groups feedback in that thread:


https://forum.mrmoneymustache.com/real-estate-and-landlording/what-is-the-lowest-rate-you-would-aggressively-pay-down-your-mortgage-(us)/msg3298517/#msg3298517

[RWD]

I was firmly in the don’t payoff your mortgage camp when I had a 2.5% rate… however that has changed, I’m now at 5.874% (and was briefly at 6.999%). The highest rate had me leaning towards paying down the mortgage, while my current rate has me starting to be on the fence.

We're at 6.375% and I'm not paying a cent extra. That's still below the thresholds in the Investment Order post. There's always a chance we can refinance lower in a few years. Paying extra doesn't reduce the monthly payment, so it buys no security or cash flow if we can't pay it off all at once.

[neo von retorch]

There's always a chance we can refinance lower in a few years. Paying extra doesn't reduce the monthly payment, so it buys no security or cash flow if we can't pay it off all at once.

While I'm at 5.95% and doing the same thing (mostly) I initially had a $4K+ mortgage payment that I was not comfortable with. We paid off extra, and paid $150 so that the extra payment counted as a curtailment, and we could recast the mortgage to reduce the payment. It's now ~$3300 (PITI).

[RWD]

There's always a chance we can refinance lower in a few years. Paying extra doesn't reduce the monthly payment, so it buys no security or cash flow if we can't pay it off all at once.

While I'm at 5.95% and doing the same thing (mostly) I initially had a $4K+ mortgage payment that I was not comfortable with. We paid off extra, and paid $150 so that the extra payment counted as a curtailment, and we could recast the mortgage to reduce the payment. It's now ~$3300 (PITI).

Ah true, there is that potential option as well.

[Dicey]

Every time that celebration thread pops up, it makes me want this thread to stay active. Since there's nothing much to talk about mortgage-wise, how did everyone's summer go?

[dandarc]

We moved in July and got a new mortgage at 7.barf percent. We felt like it was time to be closer to family after some stuff transpired in the spring. Still have 3.5 loan on house in Florida because it hasn't sold yet.

Overall is a good move, but I'm at a level of exhaustion I haven't felt in a long time between the move itself and attendant stresses. house in Florida under contact . . . Again. Hopefully actually closes this time but won't know for sure until December probably. Will be a real load off once we're down to only 1 house owned in hurricane country, and the $80k check won't hurt either.

We just got back from a short trip to Ireland that was fun. Wife's friend who pushed for the trip and it being short backed out - for good reason, but still kinda annoying. so was just the two of us - good time except she caught a cold so I was sort of solo in Dublin for last couple days, then finally caught said cold myself once we got back home.

Overall good, but very tiring summer.