Author Topic: DONT Payoff your Mortgage Club  (Read 363371 times)

Le Barbu

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Re: DONT Payoff your Mortgage Club
« Reply #400 on: October 07, 2017, 06:03:26 AM »
I have 11.5 more years to enjoy my 2.625% mortgage.  With the stock market as expensive as it is, it is unlikely that the next 10 yrs of returns will be similar to historical averages.  I think we would be smarter to only plan for 4-5% per year.

Wow, what a coincidence! That's exactly the same rate and approximate payoff date as runewell!

haha nice catch

Who knew there were TWO bridge playing actuaries on this board?!

Registration date is coincidently the same than the "Stop worrying about the 4% rule" thread wreck...

Runewell and JohnSteed both disapeared from the members list!

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #401 on: October 07, 2017, 08:59:07 AM »
...Thanks to RWD's great catch. Sharp!

Helvegen

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Re: DONT Payoff your Mortgage Club
« Reply #402 on: October 09, 2017, 10:34:09 AM »
I'm joining up.

We bought a house on a rushed whim this spring. Not the best way to do it, but the writing was on the wall with our insanely undermarket MTM rental, among a few other things that forced our hands.

We got a 7/1 ARM at 2.9%, no PMI. Our thought is at the end of the term, we will most likely sell. Our daughter will graduate from high school in 7 years, so it is a fairly perfect term in that regard.

We already have a lot of money tied up in the house. There were also several large capital expenditure$ that immediately had to be made to it upon possession. Yeah, I think it has eaten enough of our money for now.

My admission is that I have already made 4 extra principal payments. I knew each time I made them, it probably wasn't the best idea, but it made me feel better to pay down debt. I should really look at it like paying rent instead. I mean, I don't have any intention of owning it free and clear. I don't know if we will buy again after this. If we do buy again, it definitely will not be a bigger or more expensive place. So, it is really just renting with benefits.

The money will be sent to taxable. My Roths have been maxed, my HSA will be maxed next pay period, our 401ks I contribute to the match and not really interested in putting more in there than I have to (15% bracket). My taxable is sad anyway after buying the house and really needs more help than the mortgage does.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #403 on: October 10, 2017, 01:23:10 PM »
That's a great rate. Anything <3 may not be available again for a while. I'm late in the fourth year of a 5/1 at 3.0%, and my co-worker tried to persuade me to refinance to a 3.75% fixed. I said, "no thanks".

Helvegen

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Re: DONT Payoff your Mortgage Club
« Reply #404 on: October 10, 2017, 04:17:25 PM »
Seller paid for that rate, so that was about the only nice thing about buying a Fannie Mae foreclosure. The whole process to buy through them was a complete PITA for us, for both agents, for our loan officers. 0/10, do not recommend.

I thought it was interesting when we were going though the disclosure and it said in addition to a maximum adjustment rate of 7.9%, there was a minimum, I think at 1.9%. Darn, no negative interest rate mortgage for me with these terms!

Timmm

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Re: DONT Payoff your Mortgage Club
« Reply #405 on: October 10, 2017, 05:15:11 PM »
I'd have been pretty tempted by that 3.75 fixed option, talltexan. What would your current loan adjust to if it went floating today? Are you thinking you'll still be able to get 3.75 in a year?

We're at 2.625 on a 5/1 with 3 more years fixed, but I'm expecting we'll be very likely to sell within 2-3 years, so it would take a great deal to attract me to refinance this loan. I suppose I'll consider another ARM if it looks like we'll keep it another 5+ years at that time.

Helvegen

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Re: DONT Payoff your Mortgage Club
« Reply #406 on: October 11, 2017, 07:51:15 AM »
That was in the back of my mind when I decided to take the ARM. The thing is, there is no law that says there is a floor to these interest rates and they can only skyrocket from here. NIRP is a thing in some countries. There is nothing magical about the number 0 when it comes to interest rates.

I'm not betting the farm on them dropping to 0, but I can afford the maximum adjustment, should that happen. Again, I don't know how long I plan on being a homeowner past the 7 year term. I may not even live in the country anymore. Who knows.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #407 on: October 12, 2017, 07:20:31 AM »
Here was the trick to persuading my wife to take on the ARM: buying a new house for ~80% of the cost of the old one. (sure sounds Mustachian now that I'm typing it)

Our old mortgage payment: $1,252 (on a 30-year fixed at 4.75), starting loan balance of $240,000
Our new mortgage payment: $893 (on a 5/1 ARM at 3.00), loan balance of $212,000.

I showed my wife on a spreadsheet how much ahead on the new loan we'd have to be to guarantee that we'd never pay more than $1,252 after rate resets, so--shockingly--we paid a little extra in the early years. Then I started freaking out seeing the balance drop so much, so I found other places to be putting that money.

Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

DarkandStormy

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Re: DONT Payoff your Mortgage Club
« Reply #408 on: October 12, 2017, 07:59:27 AM »
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

LIBOR is dead, so I'm curious as to what your index is now.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #409 on: October 13, 2017, 10:05:20 AM »
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

LIBOR is dead, so I'm curious as to what your index is now.

Can you explain what you mean by this comment?

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #410 on: October 13, 2017, 10:09:49 AM »
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

LIBOR is dead, so I'm curious as to what your index is now.

Can you explain what you mean by this comment?

He might mean this?
https://www.cnbc.com/2017/07/27/scandalous-libor-rate-to-end-in-2021.html

terrifictim

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Re: DONT Payoff your Mortgage Club
« Reply #411 on: October 13, 2017, 04:54:18 PM »
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

Stats:
Purchased (2BR,1.5BA,1100SF) townhouse 05/2015
Purchase price: 289K.
Current market price: 360K
PITI: $1070/month
Initial Mortgage: $231,200 @ 3.75%
Remaining Mortgage: $202,450

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #412 on: October 13, 2017, 08:55:33 PM »
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

Stats:
Purchased (2BR,1.5BA,1100SF) townhouse 05/2015
Purchase price: 289K.
Current market price: 360K
PITI: $1070/month
Initial Mortgage: $231,200 @ 3.75%
Remaining Mortgage: $202,450

Welcome to the club. It's a relief to get that debt elephant off your shoulders isn't it!  When you truly see the light it frees up your life so much more than obsessing over paying down good debt.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #413 on: October 16, 2017, 12:59:53 PM »
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

LIBOR is dead, so I'm curious as to what your index is now.

Can you explain what you mean by this comment?

He might mean this?
https://www.cnbc.com/2017/07/27/scandalous-libor-rate-to-end-in-2021.html

So I read this article, and it sounds like LIBOR is still going to exist in its current form for more than 3 years.

moonpalace

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Re: DONT Payoff your Mortgage Club
« Reply #414 on: October 17, 2017, 06:47:13 AM »
I'm firmly in the DPYMC (15-year @ 2.75%), but I'm a little bit tempted to pay some student loans a little bit early (while still putting ~$40k/year into the stache).

The loans are at just under 4% right now, but they're adjustable rate. If I don't pre-pay they'll be gone in 4.5 years. If I just prepay by a few hundred bucks a month they'll be gone in more like 2.5 years. I wouldn't even consider it if not for the adjustable rate thing.

Thoughts?

Peter Parker

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Re: DONT Payoff your Mortgage Club
« Reply #415 on: October 17, 2017, 07:08:38 AM »
I'm firmly in the DPYMC (15-year @ 2.75%), but I'm a little bit tempted to pay some student loans a little bit early (while still putting ~$40k/year into the stache).

The loans are at just under 4% right now, but they're adjustable rate. If I don't pre-pay they'll be gone in 4.5 years. If I just prepay by a few hundred bucks a month they'll be gone in more like 2.5 years. I wouldn't even consider it if not for the adjustable rate thing.

Thoughts?

While I'm a big believer in the DPOYM theory (fact!), I feel differently about student loans--especially if they are adjustable.  I feel this way for a number of reasons:

1.  They are generally not tax deductible.
2.  They are not an appreciable asset--housing/real estate generally (not always) goes up in value.
3.  You can't live in, or rent, your student loan.
4.  In worst case scenario, you can' walk away from your mortgage--from my understanding it is harder to discharge student loans in bankruptcy.
5.  4%+ loans starts getting into my "conservative" break even analysis.

So I say, don't pay off your mortgage, but get the student loans off your shoulders and when paid, start dumping that money into investments.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #416 on: October 17, 2017, 07:13:52 AM »
I'm firmly in the DPYMC (15-year @ 2.75%), but I'm a little bit tempted to pay some student loans a little bit early (while still putting ~$40k/year into the stache).

The loans are at just under 4% right now, but they're adjustable rate. If I don't pre-pay they'll be gone in 4.5 years. If I just prepay by a few hundred bucks a month they'll be gone in more like 2.5 years. I wouldn't even consider it if not for the adjustable rate thing.

Thoughts?

While I'm a big believer in the DPOYM theory (fact!), I feel differently about student loans--especially if they are adjustable.  I feel this way for a number of reasons:

1.  They are generally not tax deductible.
2.  They are not an appreciable asset--housing/real estate generally (not always) goes up in value.
3.  You can't live in, or rent, your student loan.
4.  In worst case scenario, you can' walk away from your mortgage--from my understanding it is harder to discharge student loans in bankruptcy.
5.  4%+ loans starts getting into my "conservative" break even analysis.

So I say, don't pay off your mortgage, but get the student loans off your shoulders and when paid, start dumping that money into investments.
Not sure if #1 is correct, particularly if you own a home with enough interest expense to itemize.

I tend to agree with P. Pan's final point, unless there are any forgiveness options on the horizon, in which case I'd set minimum autopayments and forget about 'em.

marielle

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Re: DONT Payoff your Mortgage Club
« Reply #417 on: October 17, 2017, 07:44:36 AM »
I'm firmly in the DPYMC (15-year @ 2.75%), but I'm a little bit tempted to pay some student loans a little bit early (while still putting ~$40k/year into the stache).

The loans are at just under 4% right now, but they're adjustable rate. If I don't pre-pay they'll be gone in 4.5 years. If I just prepay by a few hundred bucks a month they'll be gone in more like 2.5 years. I wouldn't even consider it if not for the adjustable rate thing.

Thoughts?

While I'm a big believer in the DPOYM theory (fact!), I feel differently about student loans--especially if they are adjustable.  I feel this way for a number of reasons:

1.  They are generally not tax deductible.
2.  They are not an appreciable asset--housing/real estate generally (not always) goes up in value.
3.  You can't live in, or rent, your student loan.
4.  In worst case scenario, you can' walk away from your mortgage--from my understanding it is harder to discharge student loans in bankruptcy.
5.  4%+ loans starts getting into my "conservative" break even analysis.

So I say, don't pay off your mortgage, but get the student loans off your shoulders and when paid, start dumping that money into investments.
Not sure if #1 is correct, particularly if you own a home with enough interest expense to itemize.

I tend to agree with P. Pan's final point, unless there are any forgiveness options on the horizon, in which case I'd set minimum autopayments and forget about 'em.

You don't have to itemize to deduct student loan interest. I think there's an income limit of $80k though if you're single.

https://www.irs.gov/taxtopics/tc450/tc456

You claim this deduction as an adjustment to income, so you don't need to itemize your deductions on Form 1040, Schedule A (PDF), Itemized Deductions.

moonpalace

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Re: DONT Payoff your Mortgage Club
« Reply #418 on: October 17, 2017, 08:33:02 AM »
While I'm a big believer in the DPOYM theory (fact!), I feel differently about student loans--especially if they are adjustable.  I feel this way for a number of reasons:

1.  They are generally not tax deductible.
2.  They are not an appreciable asset--housing/real estate generally (not always) goes up in value.
3.  You can't live in, or rent, your student loan.
4.  In worst case scenario, you can' walk away from your mortgage--from my understanding it is harder to discharge student loans in bankruptcy.
5.  4%+ loans starts getting into my "conservative" break even analysis.

So I say, don't pay off your mortgage, but get the student loans off your shoulders and when paid, start dumping that money into investments.

Thanks! We do get a small deduction for the student-loan interest, but that deduction gets smaller every year. At this point it's probably about $1,000/year at most.

I think I will start pre-paying them a bit more in 2018, while still having a primary focus on investing, which is much more tax-favorable. Current monthly SL payments are $1,244 and current investments per month are ~$3,700. If I get a bit of a raise this fall, might just apply the raise (likely $100-200 / month) to student loans and keep everything else the same.

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #419 on: October 17, 2017, 01:41:03 PM »
I will start off by saying that I am FIRE'd, but not drawing down my savings as yet (lifestyle work is enough for the basics).

Recently my mortgage rate went up slightly.   Meanwhile I have a sizable amount (in terms of $'s not %'s) in my asset allocation as bonds.   This had me thinking -- one day, I will likely just pay off my mortgage and reduce my bond allocations.  I have a variable rate that renews every 5 years, so this need for mortgage review comes up somewhat regularly.  (Longer term, fixed rate mortgages are not financially attractive here)

Any of you thought of this?  If so, what would your break even  / switch over point be?

Most of the time we compare mortgage rates to what our overall portfolio is doing, so this is different.  Also, it is not a pure math decision because other factors, like monthly cash flow, and having a mortgage  with fixed risk set up in today's dollars but paying it with tomorrow's dollars, should be considered.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #420 on: October 17, 2017, 02:04:46 PM »
I will start off by saying that I am FIRE'd, but not drawing down my savings as yet (lifestyle work is enough for the basics).

Recently my mortgage rate went up slightly.   Meanwhile I have a sizable amount (in terms of $'s not %'s) in my asset allocation as bonds.   This had me thinking -- one day, I will likely just pay off my mortgage and reduce my bond allocations.  I have a variable rate that renews every 5 years, so this need for mortgage review comes up somewhat regularly.  (Longer term, fixed rate mortgages are not financially attractive here)

Any of you thought of this?  If so, what would your break even  / switch over point be?

Most of the time we compare mortgage rates to what our overall portfolio is doing, so this is different.  Also, it is not a pure math decision because other factors, like monthly cash flow, and having a mortgage  with fixed risk set up in today's dollars but paying it with tomorrow's dollars, should be considered.

i dont think you provided enough information for me to answer the question.  but my switch over percent in terms of real rate - meaning after i take my interest deduction would be around 5.5-6% probably - which means somewhere around a rate of 8.7%

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #421 on: October 17, 2017, 02:32:58 PM »
I will start off by saying that I am FIRE'd, but not drawing down my savings as yet (lifestyle work is enough for the basics).

Recently my mortgage rate went up slightly.   Meanwhile I have a sizable amount (in terms of $'s not %'s) in my asset allocation as bonds.   This had me thinking -- one day, I will likely just pay off my mortgage and reduce my bond allocations.  I have a variable rate that renews every 5 years, so this need for mortgage review comes up somewhat regularly.  (Longer term, fixed rate mortgages are not financially attractive here)

Any of you thought of this?  If so, what would your break even  / switch over point be?

Most of the time we compare mortgage rates to what our overall portfolio is doing, so this is different.  Also, it is not a pure math decision because other factors, like monthly cash flow, and having a mortgage  with fixed risk set up in today's dollars but paying it with tomorrow's dollars, should be considered.

i dont think you provided enough information for me to answer the question.  but my switch over percent in terms of real rate - meaning after i take my interest deduction would be around 5.5-6% probably - which means somewhere around a rate of 8.7%

Oh, thanks...I was unclear...
 I wasn't looking for a specific RATE, but more of the differential between Bond return and Mortgage rate...   and the rationale behind it.

My bonds are in my registered (not taxed) account.  What do you mean by "interest deduction"...   Assume I don't itemize deductions (because I don't, being in Canada).

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #422 on: October 18, 2017, 12:57:17 PM »
In the US, mortgage interest is tax deductible.

For us, we have to do the Smith maneuver (in order to make the mortgage a loan for investment, thus making it tax deductible up to 80% of the value of the house)
If you don't itemize, I thought that there was no difference about the mortgage being tax deductible?

Regardless, my question still stands -- any takers?

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #423 on: October 18, 2017, 01:11:18 PM »
I might be misunderstanding, but I think this is what you`re looking for:

The point of switch over would be around 5-6% (because your bonds won`t make more than 5-6%, so might as well pay into the mortgage and get the guaranteed return)

I am looking for a differential -- are you stating the differential at 0%, and to ignore all other factors, including the fact that a mortgage locks in a purchase price in today's dollars, but pays for them with tomorrow's dollars?

Le Barbu

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Re: DONT Payoff your Mortgage Club
« Reply #424 on: October 18, 2017, 03:28:08 PM »
I personally use my house as a hedge, and Smith maneuver the rest. Paying off the house would be counter optimized, but that's with the current interest rates. Inflation for houses are quite variable, so I wouldn't be too sure how to calculate out the difference in current/future dollars for the price. Your questions are too advanced for me, Sorry!

Did you used all of your available HELOC for SM? I actualy use 150k$ and 30k$ is unused. I keep it as a cushion on top of my EF. Actual debt/assets is less than 20% and portfolio is 100% stocks

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #425 on: October 18, 2017, 03:34:10 PM »
I personally use my house as a hedge, and Smith maneuver the rest. Paying off the house would be counter optimized, but that's with the current interest rates. Inflation for houses are quite variable, so I wouldn't be too sure how to calculate out the difference in current/future dollars for the price. Your questions are too advanced for me, Sorry!

I used to look at it that way, too.  But this past month, after rebalancing, and noting the low returns on the bond funds, and then seeing the small increase in my mortgage rate, I started to wonder....  -->Note, I won't increase my mortgage $ in future when I renew (to invest cash in markets), because my income will be too low to be approved for a large mortgage (FIRE  income only).

Essentially -- I have an asset allocation target in FIRE.   Eventually my mortgage will be similar $ in value to the Bond % in my asset allocation.   At what differential should I forgo the bonds and just carry my own mortgage?

When my bond return is = or < mortgage rate?   What else to consider?

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #426 on: October 18, 2017, 04:56:58 PM »
Hmmm,   good point... my asset rebalancing happens when I am about 5% out of whack,  so I only need to keep a reasonable portion of bonds that I can sell to rebalance, if I include the home value in the allocations..

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #427 on: October 19, 2017, 08:15:22 AM »
I'm still not sure what the purpose of bonds is when debt is so cheap and available. Isn't a mortgage basically negative bonds?

terrifictim

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Re: DONT Payoff your Mortgage Club
« Reply #428 on: October 19, 2017, 08:25:43 AM »
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

Stats:
Purchased (2BR,1.5BA,1100SF) townhouse 05/2015
Purchase price: 289K.
Current market price: 360K
PITI: $1070/month
Initial Mortgage: $231,200 @ 3.75%
Remaining Mortgage: $202,450

Welcome to the club. It's a relief to get that debt elephant off your shoulders isn't it!  When you truly see the light it frees up your life so much more than obsessing over paying down good debt.

Thanks! I came from an upbringing that was heavily influenced by Dave Ramsey and held that all debt was bad. While there's lots of people for whom his advice makes sense, I'm hopefully enough of an MMM enthusiast that I can still be saving money without the enforcement of paying off the mortgage sooner. Taking that $400 a month extra in principal and applying it to Vanguard is a great boost to the FIRE date.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #429 on: October 19, 2017, 09:32:32 AM »
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

Stats:
Purchased (2BR,1.5BA,1100SF) townhouse 05/2015
Purchase price: 289K.
Current market price: 360K
PITI: $1070/month
Initial Mortgage: $231,200 @ 3.75%
Remaining Mortgage: $202,450

Welcome to the club. It's a relief to get that debt elephant off your shoulders isn't it!  When you truly see the light it frees up your life so much more than obsessing over paying down good debt.

Thanks! I came from an upbringing that was heavily influenced by Dave Ramsey and held that all debt was bad. While there's lots of people for whom his advice makes sense, I'm hopefully enough of an MMM enthusiast that I can still be saving money without the enforcement of paying off the mortgage sooner. Taking that $400 a month extra in principal and applying it to Vanguard is a great boost to the FIRE date.

yep and its as simpe as that

OurTown

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Re: DONT Payoff your Mortgage Club
« Reply #430 on: October 27, 2017, 12:28:56 PM »
Okay, in the immortal words of the Monkees, now I'm a believer.

https://www.youtube.com/watch?v=wB9YIsKIEbA

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #431 on: October 27, 2017, 12:46:01 PM »
Okay, in the immortal words of the Monkees, now I'm a believer.

https://www.youtube.com/watch?v=wB9YIsKIEbA

Awesome and welcome its so hard to get over the mental hurdles of debt is bad and how can it be not in my best interest to pay this down.

OurTown

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Re: DONT Payoff your Mortgage Club
« Reply #432 on: October 27, 2017, 12:52:13 PM »
Okay, in the immortal words of the Monkees, now I'm a believer.

https://www.youtube.com/watch?v=wB9YIsKIEbA

Awesome and welcome its so hard to get over the mental hurdles of debt is bad and how can it be not in my best interest to pay this down.

I'm four years into a 15 year at 3 3/8 %.  Balance is around $140k.  Let it ride, baby.

Peter Parker

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Re: DONT Payoff your Mortgage Club
« Reply #433 on: October 27, 2017, 06:24:59 PM »
Okay, in the immortal words of the Monkees, now I'm a believer.

https://www.youtube.com/watch?v=wB9YIsKIEbA

I believe Neil Diamond wrote that song :-)

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #434 on: November 15, 2017, 12:00:53 PM »
bought some more VTSAX today!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #435 on: November 15, 2017, 02:19:39 PM »
It sounds a little contrarian, but I actually moved about $10,000 in bonds back into stocks last week. Tired of that stuff slowing me down when there's money to be made!!

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #436 on: November 15, 2017, 02:39:26 PM »
It sounds a little contrarian, but I actually moved about $10,000 in bonds back into stocks last week. Tired of that stuff slowing me down when there's money to be made!!

good work every green soldier working!

now when will we have a crash.  Being a post 2008 really big investor i'd like to see my portfolio lose 200k so i can feel that pinch.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #437 on: November 16, 2017, 01:01:33 PM »
Will it go up 20% before the next time it goes down 20%?

rpr

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Re: DONT Payoff your Mortgage Club
« Reply #438 on: November 21, 2017, 03:23:42 PM »
It's been about five years since I last refinanced into a 30 year FRM at 3.5%. Since then, instead of prepaying, we've been investing the money into a Vanguard stock fund. Compared to prepaying the mortgage, we are ahead by more about 10K. Granted that comparing a fixed rate instrument to a risky variable instrument is not the correct one to be doing.   This has been in an upward trending market and the results  could have been worse had the market gone into a tailspin. Nonetheless, it's nice to see that taxable account balance grow. 


SachaFiscal

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Re: DONT Payoff your Mortgage Club
« Reply #439 on: November 21, 2017, 05:54:52 PM »
Iím one of those people who really hates debt. However at a 3.5% interest I just canít justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #440 on: November 22, 2017, 12:02:42 AM »
Iím one of those people who really hates debt. However at a 3.5% interest I just canít justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
OMG! That is brilliant, SachaFiscal. That needs to be our new mantra!! Can we use this forever, pretty please?

SachaFiscal

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Re: DONT Payoff your Mortgage Club
« Reply #441 on: November 22, 2017, 01:29:22 AM »
Iím one of those people who really hates debt. However at a 3.5% interest I just canít justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
OMG! That is brilliant, SachaFiscal. That needs to be our new mantra!! Can we use this forever, pretty please?
Yes, of course!

Pizzabrewer

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Re: DONT Payoff your Mortgage Club
« Reply #442 on: November 26, 2017, 06:54:08 AM »
We have 14 years left on a 15-year, $100k, 2.75% mortgage. Before I found this site early this year we had planned to knock it out in 10 years. The first month I paid an extra $300.

Now we realize how valuable it is to hang on to the cheap money as long as possible.
« Last Edit: November 26, 2017, 06:55:58 AM by Pizzabrewer »

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #443 on: November 26, 2017, 07:22:19 AM »
congrats welcome !!

Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #444 on: November 26, 2017, 08:20:59 AM »
 I am about 2 years away from purchasing a home. I go back and forth with thinking about a 15 or a 30 year mortgage. I think the difference for me will be how low the monthly payment is. If it was $500 or less, I could see paying it for 30 years. If it was more than that, I think I would have to get a 15 year loan so I didn't drive myself crazy with payments for 30 years. Really I could afford with my current budget, a payment of $1000 per month. So if I need to do that for 15 years and then be free. I could. But I couldn't stomach that amount for 30 years!! The key for me is, what monthly payment will I be able to tolerate forever without paying extra or early. I'll probably need a LARGE down payment to get to the right numbers, which maybe defeats the purpose that people on this thread suggest in terms of leveraging? Lots to think about.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #445 on: November 26, 2017, 09:44:08 AM »
I am about 2 years away from purchasing a home. I go back and forth with thinking about a 15 or a 30 year mortgage. I think the difference for me will be how low the monthly payment is. If it was $500 or less, I could see paying it for 30 years. If it was more than that, I think I would have to get a 15 year loan so I didn't drive myself crazy with payments for 30 years. Really I could afford with my current budget, a payment of $1000 per month. So if I need to do that for 15 years and then be free. I could. But I couldn't stomach that amount for 30 years!! The key for me is, what monthly payment will I be able to tolerate forever without paying extra or early. I'll probably need a LARGE down payment to get to the right numbers, which maybe defeats the purpose that people on this thread suggest in terms of leveraging? Lots to think about.

this is an extremely backwards way to think about it - all finances in life should NOT be approached from a "what is my monthly payment" 

you should approach this from the side of

1. is it better than renting - if its not you should rent - there are many calculators to help you determine this - outside of large HCOL cities its usually more economical to buy.

2. Buy the correct sized house thats affordable - dont approach this from a how much per month will i pay - approach this from is this house suitable for my needs and is it priced correctly - you're buying the full purchase price of the house not the damn monthly payment - sorry i hate the monthly payment logic its a terrible way to view any financial purchase.

3. once you've found the right house put down 20% b/c that will get you the lowest rate and no PMI

4. if you plan to live in the house more than 7 years 30 year mortgages make sense if its less than 7 15 year mortgages usually come out ahead. https://michaelbluejay.com/house/15vs30.html  compare your rates in this calculator then determine if it makes sense based on how long you plan to remain in the house.

5. make the smallest payment youre allowed to pay no more and you'll come out miles ahead.

you need to be approaching this purchase from a much different mindset - cashflow is an issue but dumping a bunch of little green soldiers into it to make cash flow work is a terrible waste of money and a sign you're over purchasing a house.

Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #446 on: November 26, 2017, 12:05:05 PM »
Maybe I was misunderstood? My choice is either to buy a small house and pay straight up cash for the whole thing, or to finance some of it if the monthly payment doesn't drive me crazy. Why would I choose a monthly payment unless I could handle it?

For example- a $200,000 house. I could either pay $200,000 cash. Or I could pay $40,000 down and leverage the rest, which would be a monthly payment of about $700. I like the idea of using the leverage, but I don't want a $700 payment for 30 years...I would rather just pay a higher down payment to get my payments under $500. If I could keep my monthly payment at $500 and do a 15 year mortgage, I would do that.  I dont think its a bad thing. It's kind of splitting the difference between the "pay off your mortgage" camp, and the "don't pay off your mortgage" camp by paying it off to a point where the monthly payments don't frustrate or anger me lol.

Also on the "coming out miles ahead" thing....it would not really make any difference to my FI goals since I fully plan to be FI in 9 years. Once I reach my "number" (750,000) then I don't need any more. Having more money shouldn't make me any happier after that point. And I plan to have a small, easy to handle monthly house payment that my investments can support.

« Last Edit: November 26, 2017, 12:16:38 PM by Apple_Tango »

sherr

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Re: DONT Payoff your Mortgage Club
« Reply #447 on: November 26, 2017, 01:07:17 PM »
Maybe I was misunderstood? My choice is either to buy a small house and pay straight up cash for the whole thing, or to finance some of it if the monthly payment doesn't drive me crazy. Why would I choose a monthly payment unless I could handle it?

For example- a $200,000 house. I could either pay $200,000 cash. Or I could pay $40,000 down and leverage the rest, which would be a monthly payment of about $700. I like the idea of using the leverage, but I don't want a $700 payment for 30 years...I would rather just pay a higher down payment to get my payments under $500. If I could keep my monthly payment at $500 and do a 15 year mortgage, I would do that.  I dont think its a bad thing. It's kind of splitting the difference between the "pay off your mortgage" camp, and the "don't pay off your mortgage" camp by paying it off to a point where the monthly payments don't frustrate or anger me lol.

Also on the "coming out miles ahead" thing....it would not really make any difference to my FI goals since I fully plan to be FI in 9 years. Once I reach my "number" (750,000) then I don't need any more. Having more money shouldn't make me any happier after that point. And I plan to have a small, easy to handle monthly house payment that my investments can support.

I think the point is that you're missing the "benefit" side of the cost-benefit analysis.

So you could pay $200k cash for your house. Or you could put $40k down, have a $700 payment (or $8.4k / year) for 30 years, and invest the remaining $160k. Which (using the 4% rule) would add $6.4k / year to your wealth, forever.

Of course just naively comparing those numbers ($8.4k vs $6.4k) and forgetting about inflation and any other consideration, the pay-with-cash plan does come out ahead. Which must mean that you are assuming a larger-than-4% rate for your mortgage for some reason. Or you are including costs you would have anyway in your monthly payment number, like insurance (which you can theoretically dump or reduce if you own outright) and property tax (which you can't).

I think the point of this thread is that if you assume that reaching FI is good then reaching it faster must be better, and not paying off the mortgage or delaying paying it off will cause most people to reach FI faster, hence "coming out miles ahead".

Apple_Tango

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Re: DONT Payoff your Mortgage Club
« Reply #448 on: November 26, 2017, 01:31:40 PM »
My heart says just pay for it in cash. "PAY IN CASH. DEBT BAD." it is screaming at me. But this thread has convinced my brain to leverage part of it (actually quite a large part!). But not to the point that I'm paying more than $500 per month lol. It doesn't have to be all or nothing.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #449 on: November 26, 2017, 02:19:25 PM »
Your head is wrong it should be all or nothing. Start with the math.  The poster above is completely misunderstanding the 4% rule for starters.  And for the sake of this the 4% rule has nothing to do with the calculation. 

You could likely fire 1-2 years earlier than you 9 year projection by keeping the mortgage. For the sake of arguement let's just run the math on 160k invested over 30 years vs investing your payment on a 200k mortgage at 4% for 30 years. Percent return we'll use 10% which is less than most all 30 year periods of the us stock market. We don't exclude inflation in this calc because the mortgage is fixed and doesn't increase with inflation so our investments get full gains.

160k invested over 30 = 2.77MM

9168 invested annually for 30 = 1.67 MM

Holy cow 1MM yes it's that big a deal

Now let's just look at 9 years in what the difference is.

Mortgage 160k = 377k  and you have a mortgage with 130k remaining on your mortgage.

Investing 9168 for 9 = 136k

So 100k over 9 years. Just to like math more than hating debt.