Author Topic: DONT Payoff your Mortgage Club  (Read 360135 times)

letsdoit

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Re: DONT Payoff your Mortgage Club
« Reply #750 on: August 14, 2018, 08:52:52 AM »
i wonder if this thread also applies to 'dont buy a different abode  and , by doing so, saddle yourself with a higher interest rate'

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #751 on: August 14, 2018, 09:38:54 AM »
Really interesting thread that has got me thinking about my own situation...looking for some advice.

Age 44, single with no kids (and staying that way), in the UK. Discovered MMM just a couple of years ago after being a consumer sucka for most of my life. Totally changed my life. Now finally completely debt free other than the mortgage, and looking to retire at 55 to 57 rather than 67 which would otherwise be my normal retirement age. So not at all early retirement compared to most folks around here, but a wonderfully early retirement for me, potentially, especially given my stupid financial behaviour for most of my life. Got a pretty secure job teaching at a university.

Got a relatively small mortgage, latest remortgage to a 5 year fixed rate of 2.94%, with a starting balance £87k from Feb 2017, currently down to £82k. Monthly payments £461. Property worth £150k.

Having read this thread I've started looking into options for withdrawing the equity I have to invest in my Vanguard account.

With my existing mortgage lender (only option really due to early repayments penalties I would face otherwise) I could increase to 80% LTV and have £38k to invest. This would add another £222 per month to my mortgage payment fixed for 5 years (rate would go to 3.25%).

I'm not 100% sure how to use cfiresim for this sort of modelling, so I put something together in Excel that seems to suggest over the next 10 years given a 5% return on top of the mortgage rate I could end up £60-63k better off ( or £22-25k once you subtract the £38k) , compared to just continuing maxing out my monthly investing.

The big unknown (despite any errors in my sums) is of course the impact of Brexit. It would not surprise me if inflation continues to rise after March next year so the mortgage would be a good hedge against that..?

Any and all advice gratefully received.
Two of the main caveats are 1. Fixed rate mortgage and 2. Tax deductible interest. Absent those factors, it's not as easy to call. Since you're late to the saving game, it still might be worth it. How much do you have in other investments?

[Non-mortgage] Debt free is great, but investments and compounding are equally important for a secure long-term retirement (including and especially early retirement).

If I lived in your country and had enough money invested to kill the mortgage in case interest rates made a huge jump, I'd harness and ride that low rate mortgage as long as possible. This includes a re-fi to invest scenario.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #752 on: August 14, 2018, 09:47:10 AM »
If you're saving into a 401(k)--in keeping with the "investment order''--the money is tax-deductible anyway.

cartman1973

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Re: DONT Payoff your Mortgage Club
« Reply #753 on: August 14, 2018, 10:44:00 AM »

Two of the main caveats are 1. Fixed rate mortgage and 2. Tax deductible interest. Absent those factors, it's not as easy to call. Since you're late to the saving game, it still might be worth it. How much do you have in other investments?

[Non-mortgage] Debt free is great, but investments and compounding are equally important for a secure long-term retirement (including and especially early retirement).

If I lived in your country and had enough money invested to kill the mortgage in case interest rates made a huge jump, I'd harness and ride that low rate mortgage as long as possible. This includes a re-fi to invest scenario.

I had built up some funds in my Vanguard account but just took them out (at a good price thankfully, despite never originally intending or wanting to sell any) to clear my final bits of debt, so not much in other investments yet unfortunately, hence why this idea sounds appealing in order to really kickstart them... I have about £7k in additional voluntary contributions (AVCs - these are somewhat similar I think to your 401k in that it is a pension type account, no company match unfortunately but deferred tax until retirement, so £100 contribution costs £80 at the moment). These are linked to my DB teachers pension, the first part of which I will get when I am 60 and which will by itself be sufficient to cover my living expenses. I'll get the second part of my teacher's pension at 65 (paying extra into that to take it without reductions at 65 rather than 67) and then state pension (which I am not relying on) at 67 (at the moment, until our government screw us over again).

Now debts are cleared I should be able to invest about £1350 per month plus the £200 AVCs contributions per month - which the FIRE calcs reckon will see me FI in middle 50s, which is my target. I only need about £250k to be fully FIRE with 25x (LCOL area, small bungalow, modest living), I just don't want to work until I'm 60 - like my job, just plenty of other things I could be doing. So given my pensions I don't really need to reach 25 x living expenses, I could just get to an amount sufficient to clear the mortgage plus enough years living expenses to carry me over until my pension kicks in, but the idea is appealing...

cartman1973

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Re: DONT Payoff your Mortgage Club
« Reply #754 on: August 14, 2018, 10:47:21 AM »
If you're saving into a 401(k)--in keeping with the "investment order''--the money is tax-deductible anyway.
No 401ks in the UK unfortunately, but yes, the AVCs (no tax payable until withdrawal at pension age) and investments via my ISA (a tax advantaged account where you pay no tax and can access it at anytime) are the first target for my savings, and the ISA would be the target for investing any equity from the mortgage (we have a £20k per annum allowance).

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Re: DONT Payoff your Mortgage Club
« Reply #755 on: August 14, 2018, 11:01:26 AM »
Hi cartman1973. Fellow UKer here. This is a very interesting thread with lots of great advice and information, but please be aware it is heavily orientated to the US mortgage, tax, & financial system. Completely understandable as this is primarily a US site after all. You may find some useful threads on the UK tax board. We use this to talk about all things UK based not just tax. If there isn’t anything useful there feel free to post your questions there for some UK specific advice.

I was very cautious and a heavy mortgage over payer. I was always scared my 5 fix would end and interest rates would have rocketed during the fix and then I’d be forced into a 9% mortgage or something. If I had the ability to fix a mortgage for 30 years at the low rates we have today then I think I would have joined the people in this thread instead, despite how cautious I am.

In your situation I don’t think I would borrow any more. I would keep the low rate you have, control the controllables I.e. your expenses and invest the rest in whatever vehicles make sense tax wise for you. Good luck with your goal.

cartman1973

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Re: DONT Payoff your Mortgage Club
« Reply #756 on: August 14, 2018, 12:17:59 PM »
never give up (and others) - Many thanks, I think that seems to be the sensible conclusion in my situation.

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Re: DONT Payoff your Mortgage Club
« Reply #757 on: August 17, 2018, 07:24:04 PM »
does anyone have any wisdom nuggets for how much house they can afford.?
the rubrics that exist are slanted in favor of buying too much house.

any thoughts on house value vs NW or annual savings/investments ?

Max price of house I can afford, whatever price that makes me go No f*cking way minus $1.

Realistically from last year when I was house shopping between 1x and 3x my salary; the large discrepancy was based on having some expensive areas and some inexpensive areas in my target area.  I ended up buying in the middle at about 2x my income.  I offered on the first house I saw where I wouldn't have been disappointed if the "perfect" house appeared the next day as the only way I'd likely get perfect would be if I were to have a custom house built.

As for monthly mortgage cost, I'd say 1/4 to 1/3 of monthly take home pay is about as high as I'd want to go.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #758 on: August 20, 2018, 07:18:13 AM »
I estimated on another thread that our mortgage payments are roughly 9% of our monthly expenses. That will change when our rate resets, but it's been nice to have that kind of flexibility for achieving other goals with the 15% of our budget that isn't going toward house.

letsdoit

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Re: DONT Payoff your Mortgage Club
« Reply #759 on: August 20, 2018, 07:44:50 AM »
i am very thankful for this reply.

our current situation is pretty good (but it is a place with alot of challenges).
, but we are in a housing market where in order to buy a decent place , sticker price would be over 4x HHI



does anyone have any wisdom nuggets for how much house they can afford.?
the rubrics that exist are slanted in favor of buying too much house.

any thoughts on house value vs NW or annual savings/investments ?

Max price of house I can afford, whatever price that makes me go No f*cking way minus $1.

Realistically from last year when I was house shopping between 1x and 3x my salary; the large discrepancy was based on having some expensive areas and some inexpensive areas in my target area.  I ended up buying in the middle at about 2x my income.  I offered on the first house I saw where I wouldn't have been disappointed if the "perfect" house appeared the next day as the only way I'd likely get perfect would be if I were to have a custom house built.

As for monthly mortgage cost, I'd say 1/4 to 1/3 of monthly take home pay is about as high as I'd want to go.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #760 on: August 20, 2018, 07:47:57 AM »
our mortgage is around 25% of our monthly expenses.

Zola.

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Re: DONT Payoff your Mortgage Club
« Reply #761 on: August 20, 2018, 09:00:17 AM »
I used to overpay on the mortgage a bit and it is exciting and seductive seeing the number drop instantly, an instant result and return, but now I am pouring it more into investments instead.

Money given to the mortgage company is not money to you can get back if you really need it. e.g. job loss. / emergency.

I now am falling into line now, I have worked out that if I invest consistently well for the next 7 years I will be able to pay it off then and there via investments alone (provided there is no big crash).

I still may do the odd small overpayment though. e.g. £1000 here and there.



boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #762 on: August 20, 2018, 09:02:32 AM »
I used to overpay on the mortgage a bit and it is exciting and seductive seeing the number drop instantly, an instant result and return, but now I am pouring it more into investments instead.

Money given to the mortgage company is not money to you can get back if you really need it. e.g. job loss. / emergency.

I now am falling into line now, I have worked out that if I invest consistently well for the next 7 years I will be able to pay it off then and there via investments alone (provided there is no big crash).

I still may do the odd small overpayment though. e.g. £1000 here and there.

congrats and welcome - the bolded statement above is a bad decision worse IMO than just paying down a mortgage why would you put money that cant be obtained easily in an emergency into the house at all - a hybrid approach is worse than going hook line and sinkier one way or the other.

Zola.

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Re: DONT Payoff your Mortgage Club
« Reply #763 on: August 20, 2018, 09:24:15 AM »
As the saying goes 'everything in moderation' 

(playing devils advocate)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #764 on: August 20, 2018, 09:36:52 AM »
As the saying goes 'everything in moderation' 

(playing devils advocate)
But why do that when there's no need to?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #765 on: August 20, 2018, 09:41:12 AM »
Zola-
If you're determined to do something high-risk/high-reward with that extra thousand, may I suggest opening a brokerage account and putting it into a Small-Cap Value index fund?

Zola.

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Re: DONT Payoff your Mortgage Club
« Reply #766 on: August 20, 2018, 09:42:46 AM »
  • It gets the total debt down sooner
  • spreads risk between having cash, investments and lowered debt
  • psychological boost

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #767 on: August 20, 2018, 10:32:34 AM »
  • It gets the total debt down sooner
  • spreads risk between having cash, investments and lowered debt
  • psychological boost

its increasing your risk - you may feel like it pyschologically reducing risk but you're increasing it. 

Tyson

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Re: DONT Payoff your Mortgage Club
« Reply #768 on: August 20, 2018, 11:14:39 AM »
  • It gets the total debt down sooner
  • spreads risk between having cash, investments and lowered debt
  • psychological boost

It might get debt down sooner, but it also increases the time it takes to pay off the debt completely.

Andeanmustache

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Re: DONT Payoff your Mortgage Club
« Reply #769 on: August 20, 2018, 06:52:41 PM »
Hi all,

I understand well the logic behind not paying the mortgage under the current conditions in the US (rates about 3%, 30 year fixed term, etc.). However, different conditions apply in my country and I wonder if another path might be feasible/preferable.

Currently I have a 20 year mortgage at 7.25% fixed interest in local currency, for an apartment I bought 1.5 years ago (with a 30% downpayment). About three months ago I prepaid an amount equivalent to approximately of 1/7 of the outstanding balance. In my country the borrower has the option to make any number of prepayments at no cost, with the choice between reducing the term (and keeping the monthly mortgage payments constant) or keeping the term and reducing the monthly payment. I think this is called "recasting". I chose the first option, so that now my mortgage will be repaid in 16 years instead of the original 20. The payments remained the same but the principal is now decreasing at a faster rate, obviously.

Afterwards I regretted this decision, since unfortunately my P&I payments are higher than I am comfortable with (almost 50% of take home pay). If I could go back in time, I probably would have not made this purchase in the first place and would have opted for a smaller/cheaper apartment. However, that is done and I intend to stay at my current location indefinitely.

Looking forward, the standard advice in this thread would be to save as much as possible and invest, in order to accumulate enough funds that give me the option option to completely liquidate the loan at some point. Based on some calculations, if I stick to this plan I could reach that point in around 5-6 years.

However, the current mortgage costs in the meantime make me nervous. Would a "hybrid" approach make sense in my situation? To continue accumulating a stash, but also make some periodic prepayments that reduce the monthly payments to about half what they are now, and afterwards just holding the mortgage and focus 100% in saving/investing until maturity. The advantage I see is that I regain some flexibility that my situation is currently lacking.

Does this make sense or does the "don't payoff your mortgage" principle still apply in this scenario?

A couple of points for additional context:
- 7.25% is actually a good rate in my country, so that a refinancing is not realistic.
- Inflation is relatively low and stable, at about 3%.
- Market returns are extremely variable, and investing in the local stock market is also very costly (high fees, capital gains tax, etc.). On the other hand, term deposits at the bank pay up to 7% tax free.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #770 on: August 20, 2018, 11:16:03 PM »
I speak the language of 50% of take-home mortgage payments, even with a substantial down payment. It's what single people sometimes have to to to own a home in a HCOLA, so you won't get any hate from me. With mad frugal skills, I lived comfortably and saved well with the other half of my monthly take-home.  My first thought is if you bought more house than you need, do you have extra space you could rent out? A roommate or airbnb? Having roommates really kept me ahead in the FIRE game.

And I remember being thrilled that my excellent credit got me a 7% mortgage on that condo in 1996.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #771 on: August 21, 2018, 03:10:22 PM »
Just made my last payment for year 2 of 15.  Only 13 more years to go at 2.75%!

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #772 on: August 21, 2018, 04:39:52 PM »
Just made my last payment for year 2 of 15.  Only 13 more years to go at 2.75%!

Nice

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #773 on: August 22, 2018, 07:09:05 AM »
I have a co-worker who brags about his 2.75.

But he bought in Fall of 2012, so he only gets to enjoy that rate--which is lower than inflation--for nine more years.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #774 on: August 22, 2018, 07:12:51 AM »
Just made my last payment for year 2 of 15.  Only 13 more years to go at 2.75%!
Sweet! It will be interesting to see what mortgage interest rates do in the next 13 years.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #775 on: August 22, 2018, 07:26:57 AM »
Just made my last payment for year 2 of 15.  Only 13 more years to go at 2.75%!
Sweet! It will be interesting to see what mortgage interest rates do in the next 13 years.

i hope they go down again so i can cash out refi. Strongly looking into a 2nd fixed rate mortgage right now to pull out 50-100k in equity to buy some more VTSAX

onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #776 on: August 22, 2018, 07:35:38 AM »
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

I rely on the zillow value (it's pretty accurate since there are only 12 units in my building and one sells every year on average), then subtract my mortgage and HELOC, and then also subtract a somewhat arbitrary 40K, which is what I think it would cost to freshen the place up, move stuff out, and pay transfer taxes.  I should maybe change that to 50K at this point.

At any rate, is there a better way to do this so I get an accurate net worth?

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #777 on: August 22, 2018, 07:58:40 AM »
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

I rely on the zillow value (it's pretty accurate since there are only 12 units in my building and one sells every year on average), then subtract my mortgage and HELOC, and then also subtract a somewhat arbitrary 40K, which is what I think it would cost to freshen the place up, move stuff out, and pay transfer taxes.  I should maybe change that to 50K at this point.

At any rate, is there a better way to do this so I get an accurate net worth?

its all pretty personal to your area.  i keep up with all home sales so i know what my house is worth approximately.  i dont include the cost to update my house i the calcs though i just subtract transfer fees.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #778 on: August 22, 2018, 08:04:57 AM »
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

I rely on the zillow value (it's pretty accurate since there are only 12 units in my building and one sells every year on average), then subtract my mortgage and HELOC, and then also subtract a somewhat arbitrary 40K, which is what I think it would cost to freshen the place up, move stuff out, and pay transfer taxes.  I should maybe change that to 50K at this point.

At any rate, is there a better way to do this so I get an accurate net worth?
Hmmm, I'd expect the transaction alone to cost about that. I would add more for freshening up, or better still, stay on top of that stuff and enjoy "fresh" while you live there.

From the other side of the FIRE finish line, I suggest you just ballpark it. It won't matter that much. When I sold my house, my agent wanted to go on at $529k. I pushed for $539k and ended up getting $600k. No way to predict that.

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Re: DONT Payoff your Mortgage Club
« Reply #779 on: August 26, 2018, 07:32:59 PM »
DH is waffling all over the board. 

If you recall, a few months ago he was justifiably concerned about our 5 year variable rate mortgage that is being renewed next spring.  Two impacts -- one, it has been rising steadily for the past year, so we keep paying more each month, and two, we may not be able to renew / shop it for best rates next year as our income is much, much smaller now.  (Semi / Fire).

So, I ran the numbers to pull money from our bond funds into the mortgage to reduce it.  This can make sense for us, especially due to cash flow and ability to qualify.   But, not what I really want to do.

Then, DH ran the market numbers and showed me how keeping it in the market makes sense (D'uh..?), started arguing against what he was insisting upon....

Now, of course, he will be buying solar panels for the roof, as an alternate investment rather than the Bond funds or the mortgage payback.

I suppose the good news is that the solar panels are not nearly as large of chunk of money, only 10% of what we were talking about... and he has been prepping for this and running the numbers for two years... still.   It's a bit of a roller coaster with him.

ACK.   I don't want to know what is next.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #780 on: August 26, 2018, 07:48:25 PM »
Mortgage free home owners on the rise:

If you’re among the thousands struggling with the high cost of housing in Seattle, here’s a statistic that might make you wince.

Census data show that in 2016, more than one in four Seattle homeowners owned their home outright, free from any mortgage debt.

This lucky segment of Seattle households has grown at a remarkably fast pace. There were about 31,000 owner-occupied households with no mortgage in 2010. By 2016, the most recent data available, the number had jumped to almost 42,000, which pencils out to a 36 percent increase. That’s nearly seven times faster than the rate of growth for homeowners carrying a mortgage.



https://www.seattletimes.com/seattle-news/data/mortgage-free-homeowners-on-the-rise-in-seattle-data-show/

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #781 on: August 26, 2018, 11:15:46 PM »
Mortgage free home owners on the rise:

...This lucky segment of Seattle households...


https://www.seattletimes.com/seattle-news/data/mortgage-free-homeowners-on-the-rise-in-seattle-data-show/
Hmmm, what makes them "lucky"?

tomorrowsomewherenew

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Re: DONT Payoff your Mortgage Club
« Reply #782 on: August 27, 2018, 06:56:14 AM »
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

I rely on the zillow value (it's pretty accurate since there are only 12 units in my building and one sells every year on average), then subtract my mortgage and HELOC, and then also subtract a somewhat arbitrary 40K, which is what I think it would cost to freshen the place up, move stuff out, and pay transfer taxes.  I should maybe change that to 50K at this point.

At any rate, is there a better way to do this so I get an accurate net worth?

There are several houses in my area with the exact same floor plan as my own house. So, I look at what those houses have sold for, and judge whether they're in better or worse condition than mine. Also, do they have a pool? In my area, that adds about $30,000 to the selling price. (I live in FL).

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #783 on: August 27, 2018, 08:30:11 AM »
Mortgage free home owners on the rise:

If you’re among the thousands struggling with the high cost of housing in Seattle, here’s a statistic that might make you wince.

Census data show that in 2016, more than one in four Seattle homeowners owned their home outright, free from any mortgage debt.

This lucky segment of Seattle households has grown at a remarkably fast pace. There were about 31,000 owner-occupied households with no mortgage in 2010. By 2016, the most recent data available, the number had jumped to almost 42,000, which pencils out to a 36 percent increase. That’s nearly seven times faster than the rate of growth for homeowners carrying a mortgage.



https://www.seattletimes.com/seattle-news/data/mortgage-free-homeowners-on-the-rise-in-seattle-data-show/

42,000 seems like so few to me. I imagine there are 2,000,000 households in the Seattle area, something like 1,200,000 of them would own (not rent). So we're talking under 5%?

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #784 on: August 27, 2018, 09:09:53 AM »
Mortgage free home owners on the rise:

If you’re among the thousands struggling with the high cost of housing in Seattle, here’s a statistic that might make you wince.

Census data show that in 2016, more than one in four Seattle homeowners owned their home outright, free from any mortgage debt.

This lucky segment of Seattle households has grown at a remarkably fast pace. There were about 31,000 owner-occupied households with no mortgage in 2010. By 2016, the most recent data available, the number had jumped to almost 42,000, which pencils out to a 36 percent increase. That’s nearly seven times faster than the rate of growth for homeowners carrying a mortgage.



https://www.seattletimes.com/seattle-news/data/mortgage-free-homeowners-on-the-rise-in-seattle-data-show/

42,000 seems like so few to me. I imagine there are 2,000,000 households in the Seattle area, something like 1,200,000 of them would own (not rent). So we're talking under 5%?
Well it says 1 of 4 own their home outright so it would be 25%.

Not too shabby.

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Re: DONT Payoff your Mortgage Club
« Reply #785 on: August 27, 2018, 09:42:52 AM »
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

I rely on the zillow value (it's pretty accurate since there are only 12 units in my building and one sells every year on average), then subtract my mortgage and HELOC, and then also subtract a somewhat arbitrary 40K, which is what I think it would cost to freshen the place up, move stuff out, and pay transfer taxes.  I should maybe change that to 50K at this point.

At any rate, is there a better way to do this so I get an accurate net worth?

I have 2 cells in my spreadsheet: 1 is my mortgage balance, and the other is 0.85 x home value (Avg of Redfin and Zillow Estimates). I figure 85% is a reasonable estimate of what i would get after transaction costs and price variance of the estimates. Hardly perfect, but takes about 30 seconds to calculate and I call it good enough.

onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #786 on: August 27, 2018, 09:51:28 AM »
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

I rely on the zillow value (it's pretty accurate since there are only 12 units in my building and one sells every year on average), then subtract my mortgage and HELOC, and then also subtract a somewhat arbitrary 40K, which is what I think it would cost to freshen the place up, move stuff out, and pay transfer taxes.  I should maybe change that to 50K at this point.

At any rate, is there a better way to do this so I get an accurate net worth?

I have 2 cells in my spreadsheet: 1 is my mortgage balance, and the other is 0.85 x home value (Avg of Redfin and Zillow Estimates). I figure 85% is a reasonable estimate of what i would get after transaction costs and price variance of the estimates. Hardly perfect, but takes about 30 seconds to calculate and I call it good enough.

That's a cool idea... it would track increases in the value.  Thanks!

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #787 on: September 03, 2018, 06:25:44 PM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

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SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #788 on: September 04, 2018, 05:34:12 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

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Of course we are!   We all know that prices will drop -- someday.    And we all wish we knew beforehand when that will be.


Me?  I've been certain it's any day now since 2012...    Lost a lot of potential gains from 2012 to 2013 while I sat on the sidelines.


onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #789 on: September 04, 2018, 07:26:30 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

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Well, seven years is a long time.  Is part of your skepticism that you are getting closer to retirement?  Because that's actually rational.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #790 on: September 04, 2018, 08:36:46 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

Sent from my moto g(6) using Tapatalk

i mean you just said it the market could gain another 30% before a 30% dip no one knows.  and the market goes up more than down so its more likely to continue up.  it could even remain flat or earnings could continue to grow - all of this would start to realign PE ratios.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #791 on: September 04, 2018, 09:13:07 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

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Well, seven years is a long time.  Is part of your skepticism that you are getting closer to retirement?  Because that's actually rational.
We have probably been investing heavily for 5 of those 7 years.  Still have a ways to go to reach FI but our stache has gotten to the point where market fluctuations have more of an impact than contributions due to currently a low savings rate.

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FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #792 on: September 04, 2018, 09:14:47 AM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?

Sent from my moto g(6) using Tapatalk

i mean you just said it the market could gain another 30% before a 30% dip no one knows.  and the market goes up more than down so its more likely to continue up.  it could even remain flat or earnings could continue to grow - all of this would start to realign PE ratios.
Yep, I keep on telling myself this but it's getting hard dumping money into what appears to be an overvalued investment choice.

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K-ice

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Re: DONT Payoff your Mortgage Club
« Reply #793 on: September 05, 2018, 07:56:49 PM »
I’ve read some of this thread but not all yet.

Do you remember when you were that kid in class who didn’t want to ask a stupid question?

Well here goes. This Club only makes sense if you want to invest in the stock market & have the potential of growth larger than 6-7% right?

So would you tell “a friend” who is only comfortable with CDs (GICs) at about 2.5% and maybe a conservative mix like VCNS to “invest” or pay off their 3.5% mortgage?

Thanks.

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #794 on: September 05, 2018, 11:10:13 PM »
I’ve read some of this thread but not all yet.

Do you remember when you were that kid in class who didn’t want to ask a stupid question?

Well here goes. This Club only makes sense if you want to invest in the stock market & have the potential of growth larger than 6-7% right?

So would you tell “a friend” who is only comfortable with CDs (GICs) at about 2.5% and maybe a conservative mix like VCNS to “invest” or pay off their 3.5% mortgage?

Thanks.

Most people would say to pay off the mortgage if you can't get at least 1% better returns (or more, if you get an itemized tax deduction).   The exact cut off has different opinions.

BUT -- maybe that person expects that there is a 50% chance to be out of a job in 5 years and would like some accessible cash just in case?   What is the reason they are so conservative?  Would paying off a mortgage help or hinder whatever is driving their conservative goal / need for security?

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #795 on: September 06, 2018, 08:58:45 AM »
Since mortgages are in "nominal" dollars, you need to consider your investment returns nominally as well (inflation is irrelevant). SP500 returned 10.2% average over the last 80-ish years, so that's your benchmark. You may think you have an investment strategy that improves on that, or you may wish to invest with less risk since you have this massive mortgage you're trying to service: check out https://evergreensmallbusiness.com/100-stocks-allocation-suffers-two-big-flaws/ for a discussion of risk versus return.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #796 on: September 06, 2018, 09:32:32 AM »
I’ve read some of this thread but not all yet.

Do you remember when you were that kid in class who didn’t want to ask a stupid question?

Well here goes. This Club only makes sense if you want to invest in the stock market & have the potential of growth larger than 6-7% right?

So would you tell “a friend” who is only comfortable with CDs (GICs) at about 2.5% and maybe a conservative mix like VCNS to “invest” or pay off their 3.5% mortgage?

Thanks.

Most people would say to pay off the mortgage if you can't get at least 1% better returns (or more, if you get an itemized tax deduction).   The exact cut off has different opinions.

BUT -- maybe that person expects that there is a 50% chance to be out of a job in 5 years and would like some accessible cash just in case?   What is the reason they are so conservative?  Would paying off a mortgage help or hinder whatever is driving their conservative goal / need for security?

@K-ice To help visualize this point, the payoff is exponentially good or bad depending on your personal situation and anything in the middle is much more 'meh'.



Basically, anything within 1.5% either way is 'meh' on returns.  Probably not worth the slightly increased risk of paying off -or- inversely keeping the mortgage if you can eliminate in one fell swoop.  In other words, if you expect to have 8%-9% returns on your investments (remember we have to exclude inflation) and your mortgage is 200k at 7.5%- it doesn't make financial sense to make one decision over another.  At that point, if you can completely wipe out your mortgage and have a full emergency fund, it likely makes sense to do so.  If you cannot wipe out the mortgage in one fell swoop, paying extra is more risky than investing (where you can access the cash in an emergency).

However, if you have a 3% mortgage and expect 8% to 9% returns on investment, the factor of exponents comes in to play and all the sudden it makes absolutely no sense to pay off early.  The % variation between the mortgage and investments is so high that you are throwing away money. 

The exact same thing works in reverse.  If you have any loans at all that are more than 1% or 2% above your expected returns (IE high interest debt from credit cards) it absolutely makes no sense to invest.  You are much better off paying off debt.  That works for the mortgage too.  If I had a variable ARM that was looking at going to 9% or so, I would be much more concerned about paying off the mortgage than investing.  That is why there is caution given anytime one of our overseas friends wants to follow one path or another is because ARMs vary by their own nature and one must consider the highest possible average rate for the life of the loan.  In general ARMs don't get towards that 5% variation in rate vs. return because the ARM goes up cutting the differential.

That being said...  There is no reason your 'friend' needs to go above 10% or so of assets in CD's and bonds would be even better, unless your friend is going to retire within a year or two.  End-of-income advice varies greatly in this club and largely depends on the exact rate of the mortgage (see exponential affect above) and safety factors in FIRE.  If you are FIRE'ing with a 3.5% safe withdraw rate, you will get some loss from paying off a 3% mortgage but the withdraw rate is so low that it is hardly likely to cause a failure.  If you are FIRE'ing at 4% and not including a payoff in you after payoff numbers, you are in for a nasty surprise the month after you paid the thing off in full because your withdraw rate will have just gone up drastically.

Long story short, just be willing to do the math to see what path makes more sense.  I am in the 'middle ground' of a 5% mortgage but it still makes WAY more sense to ride out the mortgage than try to agressively pay it off because I'm sitting at a 4% return vs. mortgage rate variation.  If you must have bonds, that 2.5% is so close to the 3.5% mortgage that it is likely 'meh' either way.  Just don't lose assets that might protect you in an emergency....

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #797 on: September 09, 2018, 10:34:42 PM »
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

I've been a solid 100% stock supporter for the last 7 years but I'm starting to think about moving some into bonds or real estate if the right deal approaches me.

I'm having a hard time seeing the 10 year pe at 33+ and still dumping money into the market.  Maybe I'm nuts... Maybe I'm not... I'm just very weary of the current market.

I'm sure the bull will continue to run until companies start under reporting what the market is estimating.  Seems like we could be primed for another 30%+ dip.  Then again, the market could gain another 30% before that happens.

I really can't believe I'm posting this... Never thought I would potentially turn my back on a 100% stock portfolio.

Anyone else have similar concerns?


I don't.  The only rational way to view stock investing is to look at the long term potential returns. Next year or five years from now isn't long term. 

Dr.Jeckyl

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Re: DONT Payoff your Mortgage Club
« Reply #798 on: September 11, 2018, 09:34:26 AM »
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

I have a 349k Left on my mortgage and i will be taking that the full 29 years left.  Who's with me!!

3.25% fixed for 30 years

Sometimes I think I'm the only one and that I should be working on paying it down sooner. But to pay more on my house would mean investing less in my retirement accounts and they sure beat 3.5% fixed for the next 28 years.

boarder42

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Re: DONT Payoff your Mortgage Club
« Reply #799 on: September 11, 2018, 09:50:09 AM »
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

I have a 349k Left on my mortgage and i will be taking that the full 29 years left.  Who's with me!!

3.25% fixed for 30 years

Sometimes I think I'm the only one and that I should be working on paying it down sooner. But to pay more on my house would mean investing less in my retirement accounts and they sure beat 3.5% fixed for the next 28 years.

welcome - there are many around here who have seen the light.