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.

[Rockies]

My 1.7% mortgage is looking pretty sweet right now. Have to renew in 2026 (I'm in Canada), but hopefully I can get a reasonable rate by then.

[LD_TAndK]

Life's still good not paying off the mortgage. We took out our ~$250,000 mortgage about 3.5 years ago at 2.875%. My brokerage account has returned an average 9.4% since that date

Some not very accurate back of the napkin math tells me we've "earned" about $60k for just not paying off our mortgage these last 3.5 years! (but not really because we haven't sold off the stock)

[dragoncar]

The problem is the mortgage balance keeps going down.  Significantly!  I need more time with the mortgage… 30 years isn’t enough to say goodbye

[ChpBstrd]

The problem is the mortgage balance keeps going down.  Significantly!  I need more time with the mortgage… 30 years isn’t enough to say goodbye

My 15-year loan balance at 3.5% has fallen to less than $88k, and I contribute over $500 in equity each month as part of my $1,100 house payment.

It's still an annoyance to see a decent-sized liability on my balance sheet, but watching it whither away so quickly now brings feelings of loss, like watching an elderly relative in suddenly declining health. Soon it will be gone and all I'll have left will be the stories.

[Fomerly known as something]

I was looking at my loan this morning.  With my rounding up to a $50, I still have 27 years left.  I realized part of my reason for being team mortgage is that California is a non recourse state.  So if an earthquake or wildfire wipes me out and there isn’t enough insurance to rebuild, I just “walk away.”  I’m only out my equity vs the whole thing.  Often pay off your mortgage people speak of doing so to reduce risk, to me locking up more money in something that could be gone due to widespread chaos is also a risk.  I’d rather have the mortgage.  (Oh with taxes, HOA and insurance I’m only losing 56% of the payment when I do pay off my place.)

[Retire-Canada]

I was looking at my loan this morning.  With my rounding up to a $50, I still have 27 years left.  I realized part of my reason for being team mortgage is that California is a non recourse state.  So if an earthquake or wildfire wipes me out and there isn’t enough insurance to rebuild, I just “walk away.”  I’m only out my equity vs the whole thing.  Often pay off your mortgage people speak of doing so to reduce risk, to me locking up more money in something that could be gone due to widespread chaos is also a risk.  I’d rather have the mortgage.  (Oh with taxes, HOA and insurance I’m only losing 56% of the payment when I do pay off my place.)

That's ^^ part of my thinking as well as I live in a high earthquake risk area that can be prone to wildfires. My part of Canada does not allow us to walk away from mortgage debt like your state does. That said I'd rather have a loan and the offsetting equity in my portfolio than stuck in my house. It gives me options and I'm expecting any large scale natural disaster to result in Gov't programs to accommodate the large numbers of people who can't pay their mortgages. No way to know what that will all look like, but I'm willing to bet I won't be worse off with a mortgage than without one if the SHTF.

Since we have to renew our mortgages every 5 years or so in Canada that allows an opportunity for us to withdraw equity and reamortize back to a longer duration. Essentially keeping a forever mortgage if the lender is happy. We can also go the other way and every 5 years we could just pay off the loan if we wanted to without any penalties.

[Dicey]

I was looking at my loan this morning.  With my rounding up to a $50, I still have 27 years left.  I realized part of my reason for being team mortgage is that California is a non recourse state.  So if an earthquake or wildfire wipes me out and there isn’t enough insurance to rebuild, I just “walk away.”  I’m only out my equity vs the whole thing.  Often pay off your mortgage people speak of doing so to reduce risk, to me locking up more money in something that could be gone due to widespread chaos is also a risk.  I’d rather have the mortgage.  (Oh with taxes, HOA and insurance I’m only losing 56% of the payment when I do pay off my place.)

As a fellow CA resident, I hear you. Our primary is paid off never had a mortgage. It's a big chunk of our TNW. However, if something catastrophic happened, we could afford to walk away. Even writing these words is shocking, but that's what a mustachian lifestyle with multiple streams of income and the magic of compound interest will do for you.

To take it one step further, between DH's DBP w/COLA and SS (when we start collecting it), our income will exceed anything we ever earned at a job during our working years, even adjusted for inflation. We could easily qualify for a new mortgage if we wanted to do that instead of cashing out other assets. We'd probably have to live in something smaller, which would be a really difficult way to downsize, but we wouldn't be ruined.

That makes me sleep way better than any short-lived elation over paying off a mortgage early.

Re: the bolded - that is such an eye-opener! I remember my Dad used to gripe about their utility bills. That's because the house was paid off and their Prop. 13 taxes were infinitesimal. Therefore, utilities became their largest expense. It is always something.

[dandarc]

If your utility bill is your largest expense and you're not doing something insane like running a grow-house or bitcoin mining operation, you're probably in pretty good financial shape. That or you probably have WAY too much house at a pretty low-cost for your situation.

[dragoncar]

I was looking at my loan this morning.  With my rounding up to a $50, I still have 27 years left.  I realized part of my reason for being team mortgage is that California is a non recourse state.  So if an earthquake or wildfire wipes me out and there isn’t enough insurance to rebuild, I just “walk away.”  I’m only out my equity vs the whole thing.  Often pay off your mortgage people speak of doing so to reduce risk, to me locking up more money in something that could be gone due to widespread chaos is also a risk.  I’d rather have the mortgage.  (Oh with taxes, HOA and insurance I’m only losing 56% of the payment when I do pay off my place.)

Early in the mortgage, this made a difference to me.  But with appreciation the way it is, it becomes a non-issue pretty soon.  Pretty sure just the land itself is now worth more than my remaining balance.... I'm unlikely to walk away unless something fundamentally changes the property (toxic waste crash lands on my house?)

[Fomerly known as something]

If your utility bill is your largest expense and you're not doing something insane like running a grow-house or bitcoin mining operation, you're probably in pretty good financial shape. That or you probably have WAY too much house at a pretty low-cost for your situation.

Connection fees are at least $150 a month for electric, water and sewer.  Normal household use is likely averaging another $100 over the course of the year for the same. Basic internet is $50 a month so it’s on average $300 a month baseline.  Not a ton but it ads up.

[dandarc]

so your largest expense totals about $300 per month - kinda making my point for me. That's an MPP if there ever was one.

[ChpBstrd]

If your utility bill is your largest expense and you're not doing something insane like running a grow-house or bitcoin mining operation, you're probably in pretty good financial shape. That or you probably have WAY too much house at a pretty low-cost for your situation.

Connection fees are at least $150 a month for electric, water and sewer.  Normal household use is likely averaging another $100 over the course of the year for the same. Basic internet is $50 a month so it’s on average $300 a month baseline.  Not a ton but it ads up.

My monthly numbers:

electric - $65 (solar panels generate over half my usage)
water/sewer - $35
nat gas - $15
internet - $50
insurance - $72
property tax - $145
P&I - $864 (15 year loan, 3.25%, $88k still owed)
HOA - $0 (fuck that nonsense)
-------------------
Total housing, communication, and utilities: $1,246/mo*
All bills except P&I / Total: 30.7%

These are the numbers from a 1300sf 3/2 detached home in a LCOL metropolitan area, but not even the lowest cost area in the country.

*does not include maintenance, which is very lumpy

[dandarc]

If your utility bill is your largest expense and you're not doing something insane like running a grow-house or bitcoin mining operation, you're probably in pretty good financial shape. That or you probably have WAY too much house at a pretty low-cost for your situation.

Connection fees are at least $150 a month for electric, water and sewer.  Normal household use is likely averaging another $100 over the course of the year for the same. Basic internet is $50 a month so it’s on average $300 a month baseline.  Not a ton but it ads up.

My monthly numbers:

electric - $65 (solar panels generate over half my usage)
water/sewer - $35
nat gas - $15
internet - $50
insurance - $72
property tax - $145
P&I - $864 (15 year loan, 3.25%, $88k still owed)
HOA - $0 (fuck that nonsense)
-------------------
Total housing, communication, and utilities: $1,246/mo*
All bills except P&I / Total: 30.7%

These are the numbers from a 1300sf 3/2 detached home in a LCOL metropolitan area, but not even the lowest cost area in the country.

*does not include maintenance, which is very lumpy

So utilities is not your largest expense - unless you're awfully close to paying off the mortgage, which at $88K to go you're not.

[dandarc]

These are odd figures to be sharing as if you're saying something. You both fall into "in pretty good financial shape" - what is the point you're trying to make here?

[ChpBstrd]

These are odd figures to be sharing as if you're saying something. You both fall into "in pretty good financial shape" - what is the point you're trying to make here?

I just jotted down my own situation to compare my LCOL area's bills with California bills. You'll obviously face *much* higher insurance premiums, and maybe property taxes, and as best I can tell being in a HOA is like having a mortgage you can never pay off. This is not to humblebrag, but rather to learn more about the financial consequences of living one way versus another.

"Pretty good financial shape" is always relative to some comparison point, such as the average person, or the average person in a particular area. Strategies to get into even better financial shape may vary based on one's location. In CA it might mean maintaining a modest or zero savings rate while holding on to real estate for dear life. In my LCOL area, it's more about maintaining a high savings rate, because real estate prices are more stable and the COL is low.

It's an interesting question which path to pursue. Obviously most people are not asking should I live in California or Missouri, but maybe they should be, depending on which path they think they'll be more successful pursuing.

[dandarc]

Not sure that's true about insurance premiums (albeit probably if you're thinking of a $1 million house). We rented 18 months we were in Sacramento, but houses were not out-of-this-world expensive in the valley. More than I've ever paid for a house, but $300-500K on new-builds in 2018-19 when we were there - you can easily spend that much if you want to in most of the country.

Also - health insurance on the exchange was cheaper in California. Significantly cheaper - was nice to be in an actual competitive market on that.

Dicey's post referenced complaints about utilities by parents because it had literally become their largest expense - I posit that if your largest expense is in the typical $200-1,000 range that utilities winds up at, you're in a pretty good situation.

[Fomerly known as something]

These are odd figures to be sharing as if you're saying something. You both fall into "in pretty good financial shape" - what is the point you're trying to make here?

I just jotted down my own situation to compare my LCOL area's bills with California bills. You'll obviously face *much* higher insurance premiums, and maybe property taxes, and as best I can tell being in a HOA is like having a mortgage you can never pay off. This is not to humblebrag, but rather to learn more about the financial consequences of living one way versus another.

"Pretty good financial shape" is always relative to some comparison point, such as the average person, or the average person in a particular area. Strategies to get into even better financial shape may vary based on one's location. In CA it might mean maintaining a modest or zero savings rate while holding on to real estate for dear life. In my LCOL area, it's more about maintaining a high savings rate, because real estate prices are more stable and the COL is low.

It's an interesting question which path to pursue. Obviously most people are not asking should I live in California or Missouri, but maybe they should be, depending on which path they think they'll be more successful pursuing.

Yeah HOA = I live in a condo.  Yes it’s a fee, but I personally don’t pay for when we need a new roof.  I’m not anti HOA.  It’s not like a mortgage at all it’s more like paying every month for upkeep of a joint asset.

ETA they also pay the bulk of the insurance for my place, my personal coverage is for walls in only.

[Dicey]

Not sure that's true about insurance premiums (albeit probably if you're thinking of a $1 million house). We rented 18 months we were in Sacramento, but houses were not out-of-this-world expensive in the valley. More than I've ever paid for a house, but $300-500K on new-builds in 2018-19 when we were there - you can easily spend that much if you want to in most of the country.

Also - health insurance on the exchange was cheaper in California. Significantly cheaper - was nice to be in an actual competitive market on that.

Dicey's post referenced complaints about utilities by parents because it had literally become their largest expense - I posit that if your largest expense is in the typical $200-1,000 range that utilities winds up at, you're in a pretty good situation.

Bwahhahaha! Things have changed a LOT since then. Homeowner's insurance has skyrocketed, if you can even get it. In most places "in the Valley" for that budget, you're probably talking condo or townhouse if you want a new build, and that means neverending HOA fees.

I agree with @Formerly knows as something. There is value received for the services included in the HOA fee. It's the board itself that can be an utter pain in the ass.

IIRC, Formerly... cited taxes, insurance and HOA fees as making up ~44% of the payment. Knowing what I do about the cost of things in the Bay Area, it's unlikely that the number is much below $1,000/month, if any.

[LD_TAndK]

... as best I can tell being in a HOA is like having a mortgage you can never pay off ...

Where I live at least it's more like property tax. We save a few thousand dollars on our property tax because our community is right outside city limits. Our HOA dues pay for the things the city would have taken care of, our trash collection, snow removal, street repair, common area lighting, sidewalks, yada yada. We end up saving money overall compared to living within the city limits (and also have a community pool!)

[ChpBstrd]

Sure, if a HOA provides tangible benefits such as supplying exterior maintenance, partial insurance coverage, or running a pool, I'm perfectly fine with that. There's no other way to run a condo building.

But there is another type of HOA which seems to primarily focus its attention on propping up suburban home values through strict enforcement of lawn standards and picking on anyone who changes their oil in the driveway or decorates too much for holidays. These often also lobby against pedestrian friendly infrastructure or nearby housing projects that would add density to the neighborhood. These services cost big money too. I will never be rich enough to send my money to such HOAs, or even an HOA that partially does such things.

Another issue with HOAs is the inability to time expenses. An owner of a detached SFH not in an HOA can, for example, choose to patch their worn-out roof to extend its life one more year if the timing of that expense is bad, decide that repainting a 20 year old deck is a waste of money, or opt not to pay for a landscaping crew, but the HOA dues are due like clockwork. In that sense they are mortgage-like, and deprive the owner of the option to cut back spending during a period of bad market returns.

[bacchi]

Another issue with HOAs is the inability to time expenses. An owner of a detached SFH not in an HOA can, for example, choose to patch their worn-out roof to extend its life one more year if the timing of that expense is bad, decide that repainting a 20 year old deck is a waste of money, or opt not to pay for a landscaping crew, but the HOA dues are due like clockwork. In that sense they are mortgage-like, and deprive the owner of the option to cut back spending during a period of bad market returns.

And there's little DIY and the board can often act like it's dealing with OPM.

[Dicey]

Another issue with HOAs is the inability to time expenses. An owner of a detached SFH not in an HOA can, for example, choose to patch their worn-out roof to extend its life one more year if the timing of that expense is bad, decide that repainting a 20 year old deck is a waste of money, or opt not to pay for a landscaping crew, but the HOA dues are due like clockwork. In that sense they are mortgage-like, and deprive the owner of the option to cut back spending during a period of bad market returns.

And there's little DIY and the board can often act like it's dealing with OPM.

Which is why I always advocate for people who live within HOA's to get on the damn board! At the very least, they should commit to attending board meetings. It takes so little time to protect the biggest investment most folks will ever make.

[rmorris50]

Still loving my 30yr, 2.5% fixed mortgage. When others ask don't I want to alleviate the worry of being in debt, I just say I feel much more in debt to the IRS due to all our pre-tax retirement savings (which makes up 80% of our household NW) than I do to my bargain basement mortgage.

Liquidity is much more important to me at this point in my life, I want to beef up after tax brokerage and savings.

[jsap819]

Just hit some new milestones with all the craziness in the stock market. Recently reached the two-comma club in my taxable brokerage account and is now also worth 2x more than the mortgage balance.

I know hindsight is 20/20, but if I took all of the extra money I invested the past 6 years plus the taxable brokerage balance at that time and used it to pay down the mortgage, there would still be at least $70k to pay off as of today. I'm also now in the FIRE territory with plans to keep going until Fat FIRE in a few years.

Current mortgage balance is a little over $500k with 26 years to go. Refinanced back in 2020 at 2.375%. Gonna take this mortgage to my grave if I could.

[grantmeaname]

That's an amazing rate. You timed that impeccably.

[Wolfpack Mustachian]

The stuff of legends!

[Weisass]

Just hit some new milestones with all the craziness in the stock market. Recently reached the two-comma club in my taxable brokerage account and is now also worth 2x more than the mortgage balance.

I know hindsight is 20/20, but if I took all of the extra money I invested the past 6 years plus the taxable brokerage balance at that time and used it to pay down the mortgage, there would still be at least $70k to pay off as of today. I'm also now in the FIRE territory with plans to keep going until Fat FIRE in a few years.

Current mortgage balance is a little over $500k with 26 years to go. Refinanced back in 2020 at 2.375%. Gonna take this mortgage to my grave if I could.

Right there with ya. Refinanced in 2020 at 2%, with about 475k left. I will ride this to the very last payment.

[Dicey]

Just hit some new milestones with all the craziness in the stock market. Recently reached the two-comma club in my taxable brokerage account and is now also worth 2x more than the mortgage balance.

I know hindsight is 20/20, but if I took all of the extra money I invested the past 6 years plus the taxable brokerage balance at that time and used it to pay down the mortgage, there would still be at least $70k to pay off as of today. I'm also now in the FIRE territory with plans to keep going until Fat FIRE in a few years.

Current mortgage balance is a little over $500k with 26 years to go. Refinanced back in 2020 at 2.375%. Gonna take this mortgage to my grave if I could.

Congratulations! i hope you do indeed outlive your mortgage. OTOH, if you do pay it off, you can always secure a new mortgage if you wish.

[nereo]

Just hit some new milestones with all the craziness in the stock market. Recently reached the two-comma club in my taxable brokerage account and is now also worth 2x more than the mortgage balance.

I know hindsight is 20/20, but if I took all of the extra money I invested the past 6 years plus the taxable brokerage balance at that time and used it to pay down the mortgage, there would still be at least $70k to pay off as of today. I'm also now in the FIRE territory with plans to keep going until Fat FIRE in a few years.

Current mortgage balance is a little over $500k with 26 years to go. Refinanced back in 2020 at 2.375%. Gonna take this mortgage to my grave if I could.

Right there with ya. Refinanced in 2020 at 2%, with about 475k left. I will ride this to the very last payment.

2021 at 2.70% (no points). Not quite as good as you folks but inflation alone has ‘taken away’ around $42k  in just three years - more than I’ve paid in interest & principle during that same period.

[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.

Still in our two-home trap. We had reliable, lovely renters in the old apartment for most of the autumn. They have just moved out, and the big renovation blocking the sale but hopefully also making the place more attractive once it's finished will start in a few weeks. The plan is to put the place on the market as soon as the renovation is finished in our apartment. By that time, they will still be working at the other end of the building and the final price tag of the renovation won't be known, but there's a pretty good estimate which of course will influence the asking price (but it's not like this cost wasn't baked into the theoretical asking prices before -- everyone knows these renovations are expensive, and even if it's still several years down the line people take that into account).

Meanwhile, the magic of variable rate mortgages is working in our favour again, and the small mortgage on the old place is now at 3.6% while the bigger on our current home just dropped to less than 3.1%, saving us more than 150 € per month in interest (which is not deductible). The only way is up! For our net worth, that is, the interest rates are set to keep going down.