Okay, so I'm dipping my toe in to ask...is there a formula or something you can use to determine where the point is in which it makes sense to pay down your mortgage early?
I think people tend to think our situations are all special unique snowflakes as a way of justifying the psychological comfort of having a paid off house. I know we do. We have run some basic numbers and we think that it doesn't make too much difference to our FI numbers. But I'll be the first to admit we may be missing something.
So...can you guys make me feel better/make sense of our numbers?
Yes I can, I'll put the formulas in the next post. The difference can be significant, but people are generally unable or uninterested to determine the difference - the opportunity cost.
Thanks, Runewell. Does the 7% rate of return for investments include dividends? We haven't been sure how to include those in the calculations.
Good call Rune on the taking down the effective rate in the tax rebates. thats 31% lower for me given 25% fed and 6% state. but shouldnt we also account for standard deduction coming off of that as it would count either way. the rest of my deductions without the mortgage interest get me there anyways. so i can assume the full amount. but others may not be able to assume the same. so my 3.25% becomes 2.245% that makes it even crazier to pay it down
HOW TO CALCULATE THE SAVINGS BY NOT PAYING DOWN YOUR MORTGAGE (using the previous post as an example)
Let
B = Mortgage balance [$160,000]
P = Mortgage payment (should be principle and interest only, exclude property taxes, property insurance, PMI, or anything else in escrow) [1,645]
N = number of payments remaining [120 = 10 x 12]
IM = EFFECTIVE Interest rate on your mortgage [.0433]
II = Interest rate on investments [Assuming .07 per year]
Calculate M= Monthly Investment Interest rate = (1+II)^(1/12) = 1.07^.0833333 = 1.0056541
If you don't know P, you can either go to a calculator on the internet or in Excel Type in =-PMT(0.0433/12,120,160000) to get the answer.
Deciding between a payoff assumes you have $160,000 lying around to extinguish the mortgage. The question is what is the difference at the end of 10 years between:
1) Leaving the $160,000 invested and regular making mortgage payments.
2) Paying off the $160,000 and immediately investing the newfound $1,645 each month at the investment rate.
Option 1 is easy to calculate. At the end of 10 years you have 160,000 x 1.07^10 = $314,744.
Option 2 is more convoluted. The first $1,645 payment grows by 1.07^10. The second $1,645 payment grows by 1.07^9.917, etc. The total is $282,973.
Here's how you calculate it: P x M x (M^N - 1) / (M - 1)
= 1,645 x 1.0056541 x (1.0056541^120 - 1) / (1.0056541 - 1)
= 1,654.30 x (1.96714 - 1) / 0.0056541
= 1,654.30 x 0.96714 / 0.0056541 (bit of rounding error)
The difference here is $31,771. Lower than other people's situations because (1) it's only a ten year mortgage, and (2) the interest rate is closer to 7% than many other people's mortgages. But for some people that could be easily be a year's worth of expenses, so prepaying your mortgage could delay your FIRE date by a year in this instance.
One other thing you should take into account is the effective interest rate of your mortgage. For those of us in the US that can deduct the interest rate on our mortgages (not everyone necessarily gets a benefit from this, you should check), that interest probably lowers your state and federal taxes. This calculation isn't so simple because we automatically qualify for a standard deduction, so if you aren't already filing a Schedule A you might not see a full benefit.
Hope that helps. If you can't be bothered to do the calculation, post your information here and I will try to help. People with (1) longer mortgages and (2) lower interest rates and going to find more benefit in not paying down early. I did this calculation for someone else on the forum and the difference was nearly TWO HUNDRED THOUSAND DOLLARS!
7% is the investment figure MMM has thrown around on the site, but you are welcome to tweak it depending on your age and risk tolerance. Any mustachian this involved in making their finances go longer sooner owes it to themselves to do this calculation before paying down their mortgage.
First of all, THANK YOU. That's very useful information.
I would like to posit a 3rd case.
I have $160,000 which will be invested, but I will pull the monthly payment from that amount that is invested.
So, I invest $160,000 and it makes money for a month. I pull out my mortgage payment from the balance. Whatever is left makes money for a month, then I pull out the 2nd payment, etc. And, of course, if this is based on stock market returns, how do we test this for sequence of return risks?
Um.. I think that amount is in today's dollars, since 7% is the after inflation return.
Since the mortgage payment remains the same, shouldn't we compare it to a 10% including inflation to get tomorrow's dollars?
Um.. I think that amount is in today's dollars, since 7% is the after inflation return.
Since the mortgage payment remains the same, shouldn't we compare it to a 10% including inflation to get tomorrow's dollars?
Is it? I really can't tell because although he uses that number from time-to-time he doesn't always explain what it implies, perhaps someone could quote the details.
My calculation shows you what a 7% return would look like. All I'm assuming is that you have 7% more than the year before. This is something we should nail down, as it could be stated in today's $$ or future $$ depending on the assumptions.
Does anyone weigh the chance of a long term deflationary environment when choosing to not pay off your mortgage? I get the idea of the power of a long term fixed rate mortgage at today's rates but honestly don't understand the true chances of a sustained deflationary environment occurring. Sure, do some googling and Japan is a prime example but should we be at all concerned in the US?
Also, as a Florida resident I've heard/read about the generous protections afforded to homeowners here in the event of bankruptcy but don't understand the law well enough to see how it might apply to me. If I'm struck with some terrible disease and fall deeply into medical debt could I declare bankruptcy and essentially start over by selling my home? My understanding is I could keep my home and its equity but I'd lose the rest (stocks, cash, other investments, etc.) Unlikely sure, but shouldn't I factor that in during my decision to pay off or hold leveraged debt?
Lets do this the right way. And spread the word about how great NOT paying down our mortgages are for our FIRE dates.Sorry it took so long for me to join ;)
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
Round numbers are fun. We're going to tip 500k here in a month or so.Nice! We may be able to hit 300k this year depending on market movements. Hoping to contribute at least 60k to investments this year.
The name of this thread amuses me so much. Love it!
I have posted about this before and no one has really given me a good answer, maybe you all can since you guys have spent a lot of time thinking about this.
Are you planning on having your mortgage payment x 25 (4% swr) for retirement so you can keep paying your mortgage? How are you planning on paying your actual mortgage payment in retirement?
For example, if you have 200k balance, refinance today at 4.125% for 30 years is just around a payment of 1,000 per month (for math simplicity). Will you just save the 200k or save for the 12k * 25 = 300k for your retirement in order to keep making those payments? It is easy to have a mortgage while working but what are actual plans for making payments when you are actually retired? I am reading many saying they will have lower balances or have paid off house when they retire, so I am interested in the 30 yr mortgage crowd.
Thanks in advance.
I ponder this all the time, and I think we have a somewhat unique situation around this forum:
The mortgage on our primary residence is currently a balance of 50k at 4.5% with 27 years left. 50k seems like it would be relatively easy to wipe out and just be done with, but our payment is just under $300.
Saving $300 a month doesn't seem like that big of a deal compared to the flexibility of having money easily accessible, or investing it. Or finally updating our kitchen. (We do have a HELOC open on the property, but have never used it.)
Our balances on our 2 rentals are $24k and $59k respectively. The payment on the smaller balance is under $175/month.
I ponder this all the time, and I think we have a somewhat unique situation around this forum:
The mortgage on our primary residence is currently a balance of 50k at 4.5% with 27 years left. 50k seems like it would be relatively easy to wipe out and just be done with, but our payment is just under $300.
Saving $300 a month doesn't seem like that big of a deal compared to the flexibility of having money easily accessible, or investing it. Or finally updating our kitchen. (We do have a HELOC open on the property, but have never used it.)
Our balances on our 2 rentals are $24k and $59k respectively. The payment on the smaller balance is under $175/month.
i dont get whats unique about it. math is math regardless of mortgage size.
I ponder this all the time, and I think we have a somewhat unique situation around this forum:
The mortgage on our primary residence is currently a balance of 50k at 4.5% with 27 years left. 50k seems like it would be relatively easy to wipe out and just be done with, but our payment is just under $300.
Saving $300 a month doesn't seem like that big of a deal compared to the flexibility of having money easily accessible, or investing it. Or finally updating our kitchen. (We do have a HELOC open on the property, but have never used it.)
Our balances on our 2 rentals are $24k and $59k respectively. The payment on the smaller balance is under $175/month.
i dont get whats unique about it. math is math regardless of mortgage size.
By unique, I wasn't insinuating we get special math. But looking at this thread alone, those who listed their current mortgage balances: 349k, 178k, 187k, 160k, 260k, 169k, 203k.
Thanks to this thread, I just realized we almost have enough saved and invested that we could actually pay off our mortgage with it, if we had to and cashed out. Our house was $459k when we bought it 2.5 years ago, we owe $330k on it. We have about $300k in the markets, and we should get above $330k pretty easily this year.I had the same thing happen to me. I realized this January that our investments had overtaken our mortgage balance. We bought a house 2.75 years ago and owed 211k on the mortgage. In January our investment accounts were around 205k, up from 24k 2.75 years ago, and the mortgage balance was 203k. I had an Oh shit moment that I'll never forget. This shit really works.....
Obviously we'd never actually do that (especially with penalties on our tax sheltered accounts), but it's nice to see investments are about to overtake house debt. 2 years ago when I discovered MMM I didn't even think something like this was possible, let alone was within reach.
yes it works incredibly well we probably crossed the point where our invested networth was 1x our mortgage balance around april last year. we will cross 2x around this time next year.
yes it works incredibly well we probably crossed the point where our invested networth was 1x our mortgage balance around april last year. we will cross 2x around this time next year.
1x last year and 2x next year? Holy crap that's amazing!
Mortgages in the UK are generally a little different to those in the US. The most common* type in the UK is called a "Fixed Rate" with which you get a mortgage (of however many years, up to 35) with an introductory, or "Fixed", rate typically last between 2 and 10 years. The longer the fix, the higher the interest rate.
Mortgages in the UK are generally a little different to those in the US. The most common* type in the UK is called a "Fixed Rate" with which you get a mortgage (of however many years, up to 35) with an introductory, or "Fixed", rate typically last between 2 and 10 years. The longer the fix, the higher the interest rate.
I'm so lucky. I'm in the UK too, bought my flat in 2002, I had a 2-year fix initially. When that came up for renewal in 2004, I want into the building society, to see what kind of a deal they would offer me. They ended up giving me a deal for the entire rest of the term of the 25 year mortgate, of BoE base rate + 0.65%. Even at the time, I thought that was a pretty good deal. Now, it's outstanding. I'm paying 0.90% PA :O
Suffice to say there's no way in hell I'm paying this off early.
Current balance is roughly 260K, 30 year FRM at 3.5% with about 25 remaining years. Every month we save extra into a taxable account what we could have prepaid the mortgage with.
The plan is to be FI at 25x expenses (without mortgage payments) + Mortgage balance.
Mortgages in the UK are generally a little different to those in the US. The most common* type in the UK is called a "Fixed Rate" with which you get a mortgage (of however many years, up to 35) with an introductory, or "Fixed", rate typically last between 2 and 10 years. The longer the fix, the higher the interest rate.
I'm so lucky. I'm in the UK too, bought my flat in 2002, I had a 2-year fix initially. When that came up for renewal in 2004, I want into the building society, to see what kind of a deal they would offer me. They ended up giving me a deal for the entire rest of the term of the 25 year mortgate, of BoE base rate + 0.65%. Even at the time, I thought that was a pretty good deal. Now, it's outstanding. I'm paying 0.90% PA :O
Suffice to say there's no way in hell I'm paying this off early.
We call these ARMs you can get them in all shapes and sizes. 5/1 3/1 10/2 etc.
$180,000 mortgage, 15 years, $1,235 P&I, 2.75% fixed rate. Invest the $180,000 and pay out of that for the mortgage. That works out to a non-inflation-adjusted yearly spend of $14,820.
cFireSim gave it an 80% success rate to pay off the mortgage and have money left over.
I'm joining, after someone in another thread recently talked me down from pre-paying my $283k mortgage, which is 15-year fixed at 2.75%.Welcome! You have some crazy low interest debt. Perfect for keeping around long term while you invest. Especially if they enable you to go over the standard deduction and save on that 40% tax bracket.
The most face-punchy thing about my pre-payment plan was that I came up with it despite the fact that the non-prepayment option is pretax saving my wife's self-employment income, which is otherwise taxed at nearly 40%. In hindsight I really can't believe I was going to do it.
They also talked me out of prepaying my student-loan debt, which is all at 3.75% or less. (Maybe that's a different club? :-))
Welcome! You have some crazy low interest debt. Perfect for keeping around long term while you invest. Especially if they enable you to go over the standard deduction and save on that 40% tax bracket.
29 years 364 days left. Just bought a house with $288k mortgage @ 4.25% yesterday.
Been considering investing vs. paying extra, last couple hours of reading has convinced me investing is the winner for me.......sucks having to wait so long to see if I made the best choice but it's gonna be a fun ride!
29 years 364 days left. Just bought a house with $288k mortgage @ 4.25% yesterday.
Been considering investing vs. paying extra, last couple hours of reading has convinced me investing is the winner for me.......sucks having to wait so long to see if I made the best choice but it's gonna be a fun ride!
29 years 364 days left. Just bought a house with $288k mortgage @ 4.25% yesterday.We are in very similar situations. I just refinanced my mortgage 2 months ago to a fixed 30 at 4.125. Although my mortgage balance is a little lower at 203k. I think we will have made the right decision in the end ;)
Been considering investing vs. paying extra, last couple hours of reading has convinced me investing is the winner for me.......sucks having to wait so long to see if I made the best choice but it's gonna be a fun ride!
"It also doesn't take into account taxes, either for the mortgage insurance or the investment income."
Sword guy, are you saying that your current mortgage includes MI? If so, can you run a scenario where you pay down the mortgage enough to get rid of the useless (to you) MI and then let the balance of the mortgage ride to maturity? After getting rid of the MI, you can recast the loan to get maximum leverage and inflation protection. You could then put the balance of your windfall into other investments for maximum return.
"It also doesn't take into account taxes, either for the mortgage insurance or the investment income."
Sword guy, are you saying that your current mortgage includes MI? If so, can you run a scenario where you pay down the mortgage enough to get rid of the useless (to you) MI and then let the balance of the mortgage ride to maturity? After getting rid of the MI, you can recast the loan to get maximum leverage and inflation protection. You could then put the balance of your windfall into other investments for maximum return.
Sorry, meant to write "mortgage interest" as in tax deduction for same.
I'll post how I ran the cFireSim scenario late tonight when I get home.
I did *try* to pick the non-inflated expenses but some fields popped up when I did that didn't make sense to me.
This ignores tax advantages etc.... and I failed to calculate the value of investing the ENTIRE mortgage amount in post-mortgage payment years... maybe I need to do that....
Standing by for face punches, what did I miss in this process, what am I not looking at? What am I looking at from the wrong angle?
Thanks!
Tim
This has really got me thinking about my mortgage plan, so I ran the numbers. I don't want to spend all of my cash and post tax investments to pay off the house all at once. But I can afford to pay extra principle each month, therefore maintaining my current investments.Did you adjust for inflation? Using $75k in today's dollars plus 3% inflation for 18 years the number would be around $124,000.
Mortgage Balance ~ $90,000
Interest Rate 3.5%
Payment ~$550
Remaining Payments 18 years and a few months
Extra Principle or Investment $2,500 a month
Assumed Investment Return 7%
If I invest the $2,500 I show a balance of just under $1.1M
If I add the principle I pay off in 32 months then invest the payment + added principle and end with about $75,000 less at the end.
So the question I ask myself is the peace of mind about not having a mortgage for 15 years worth $75,000 in 18 years. And what else could I do with that payment that I don't have to make, for example increase giving to my chosen charities.
I am maxing out my tax sheltered investments, and am on track for early retirement regardless of which direction I go.
I'm joining, after someone in another thread recently talked me down from pre-paying my $283k mortgage, which is 15-year fixed at 2.75%.Oh, God, I love this comment! Hooray! Another one has seen the Light! Yippee!!
The most face-punchy thing about my pre-payment plan was that I came up with it despite the fact that the non-prepayment option is pretax saving my wife's self-employment income, which is otherwise taxed at nearly 40%. In hindsight I really can't believe I was going to do it.
They also talked me out of prepaying my student-loan debt, which is all at 3.75% or less. (Maybe that's a different club? :-))
If all of your assets are tied up in pre-tax accounts, I think there is an even stronger reason for investing instead of pre-pay due to the easy access of the post tax investments. For example, you end up moving and need a down payment and some extra cash while you purchase a house somewhere else and then wait for your house to sell. 50-100k can go a long way in this situation and gives you more flexibility IMO.
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I know the thread you are talking about. In fact, I suggested they consider mortgaging the house to obtain enough cash to cover the first 5 years of expenses. Then they would be able to do a Roth conversion over those five years. This is what I plan to do if we end up in the same situation with a lot of home equity (We tax shelter over 60k a year after matches).
If all of your assets are tied up in pre-tax accounts, I think there is an even stronger reason for investing instead of pre-pay due to the easy access of the post tax investments. For example, you end up moving and need a down payment and some extra cash while you purchase a house somewhere else and then wait for your house to sell. 50-100k can go a long way in this situation and gives you more flexibility IMO.
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Frozenbits -- You make a very important point. In fact there was a poster a few days ago bemoaning the fact that since all of his assets were either in retirement accounts and in a fully paid house, he couldn't retire early as easily.
*Haha! Brilliant :)
Ok, obviously this club has math on its side. However, I've been pondering a conundrum - cash flow vs. optimal investing strategy. Here's the assumptions for our word problem:
Assume a Semi-FIRE path is desired, beginning with a step down to a 4 day a week situation and corresponding pay cut. Ignore expenses or assume they stay the same. Savings towards FIRE currently exceeds tax advantaged accounts (401k, Roth IRA), but not by a lot. There is a <$75k mortgage @ 3.25% with a payment that is about the amount necessary to balance the budget. Savings would need to reduce below tax advantaged account capacity to do the same. What is the most optimal way to execute the deliberately sub-optimal path?
Ok, obviously this club has math on its side. However, I've been pondering a conundrum - cash flow vs. optimal investing strategy. Here's the assumptions for our word problem:
Assume a Semi-FIRE path is desired, beginning with a step down to a 4 day a week situation and corresponding pay cut. Ignore expenses or assume they stay the same. Savings towards FIRE currently exceeds tax advantaged accounts (401k, Roth IRA), but not by a lot. There is a <$75k mortgage @ 3.25% with a payment that is about the amount necessary to balance the budget. Savings would need to reduce below tax advantaged account capacity to do the same. What is the most optimal way to execute the deliberately sub-optimal path?
Ok, obviously this club has math on its side. However, I've been pondering a conundrum - cash flow vs. optimal investing strategy. Here's the assumptions for our word problem:
Assume a Semi-FIRE path is desired, beginning with a step down to a 4 day a week situation and corresponding pay cut. Ignore expenses or assume they stay the same. Savings towards FIRE currently exceeds tax advantaged accounts (401k, Roth IRA), but not by a lot. There is a <$75k mortgage @ 3.25% with a payment that is about the amount necessary to balance the budget. Savings would need to reduce below tax advantaged account capacity to do the same. What is the most optimal way to execute the deliberately sub-optimal path?
How many years left on the mortgage? Can you refi the mortgage to 30 year? That could potentially help with cash flow.
30 year mortgage, 26 years left.
30 year mortgage, 26 years left.
Have you prepaid significantly on this mortgage? What was the original principal? I guess my question is -- if you were to refi again to a 30 year FRM would the new PITI be significantly less than your current PITI.
Ok, obviously this club has math on its side. However, I've been pondering a conundrum - cash flow vs. optimal investing strategy. Here's the assumptions for our word problem:
Assume a Semi-FIRE path is desired, beginning with a step down to a 4 day a week situation and corresponding pay cut. Ignore expenses or assume they stay the same. Savings towards FIRE currently exceeds tax advantaged accounts (401k, Roth IRA), but not by a lot. There is a $75k mortgage @ 3.25% with a payment that is about the amount necessary to balance the budget. Savings would need to reduce below tax advantaged account capacity to do the same. What is the most optimal way to execute the deliberately sub-optimal path?
"It also doesn't take into account taxes, either for the mortgage insurance or the investment income."
Sword guy, are you saying that your current mortgage includes MI? If so, can you run a scenario where you pay down the mortgage enough to get rid of the useless (to you) MI and then let the balance of the mortgage ride to maturity? After getting rid of the MI, you can recast the loan to get maximum leverage and inflation protection. You could then put the balance of your windfall into other investments for maximum return.
Sorry, meant to write "mortgage interest" as in tax deduction for same.
I'll post how I ran the cFireSim scenario late tonight when I get home.
I did *try* to pick the non-inflated expenses but some fields popped up when I did that didn't make sense to me.
you enter it at the end as an added expense. having a low cost fixed rate mortgage increases the chances for FIRE success so if your chances go down then you entered something wrong.
For the 30 yr mortgage at 3.125%, I only had to increase the amount to $185,000 to keep out of the hole.
Ok, I confess, I'm getting a whole lot more comfortable not paying the mortgage off early.
.*!
Ok, I confess, I'm getting a whole lot more comfortable not paying the mortgage off early.
Yes I can, I'll put the formulas in the next post. The difference can be significant, but people are generally unable or uninterested to determine the difference - the opportunity cost.
That would be awesome! This is one of those things we keep coming back to without really any idea of how to move forward on it. Throw in being raised by people who think the best investment is self-sufficiency and ammo and that the collapse of the economy is coming, it is hard to not let that have an influence. We want data and rational decision making, damnit!
The other complicating factor is we aren't totally sure on our path to FI, if we want to look at rentals and real estate or start up another business, so maybe having a paid off house and the cash flow to bankroll our other avenues makes more sense than just passive investing - In which case, does it make sense to be stuffing money into taxable accounts?
___
Thanks, Runewell. Does the 7% rate of return for investments include dividends? We haven't been sure how to include those in the calculations.
I'll see if your formula match what Hubs has been working with, numbers will be a little off since they aren't the starting amounts and we are on an accelerated weekly payment schedule.
I ponder this all the time, and I think we have a somewhat unique situation around this forum:
The mortgage on our primary residence is currently a balance of 50k at 4.5% with 27 years left. 50k seems like it would be relatively easy to wipe out and just be done with, but our payment is just under $300.
Saving $300 a month doesn't seem like that big of a deal compared to the flexibility of having money easily accessible, or investing it. Or finally updating our kitchen. (We do have a HELOC open on the property, but have never used it.)
Our balances on our 2 rentals are $24k and $59k respectively. The payment on the smaller balance is under $175/month.
i dont get whats unique about it. math is math regardless of mortgage size.
By unique, I wasn't insinuating we get special math. But looking at this thread alone, those who listed their current mortgage balances: 349k, 178k, 187k, 160k, 260k, 169k, 203k.
What is great about your balances is that many people have car pyments bigger than your mortgage(s). It probably kind of feels like it is already paid off.
I'm a firm member of this club - 1.5% mortgage rate currently, about 18 years remaining.How in the world did you get that low of a rate?
Just wanted to pop in to say thanks on the extra tips on Cfiresim. While I am a huge fan of a paid off mortgage and emotionally always will be, your actual math (and running my own scenarios with these tips) has shown me everything will be okay if we just slowly go the pace. I am actually getting over 100% success with my super conservative assumptions. So it might be better than that.
I think we are going to go back to 30 yr mortgage and just finance unpaid balance, as opposed to bringing extra cash to close for an even lower payment. We have a good rate now (2.875%) but we want better cash flow since retirement is under 20 months (when we took loan DH was planning on working longer so a 15 yr was not a problem). I can get 4% as of yesterday, so we'll see how this goes.
I want to know too. Wow!I'm a firm member of this club - 1.5% mortgage rate currently, about 18 years remaining.How in the world did you get that low of a rate?
One question....I didn't buy a house so I could write the interest off, but it sure is a nice benefit to have, as our Canadian friends can attest. Why shouldn't it be included in the calculations?
Are we putting too much emphasis on the "tax write-off" that we get by paying a mortgage?
I have spent the last year challenging my beliefs, asking myself where they came from, are they still valid and what is my purpose/motivation behind just about everything I do. I've found that the more "common sense" something is, the greater the chance that it's bullshit OR really needs evaluation before being applied to each individual/situation.I'd keep the mortgage.
Case in point, pre-paying on a mortgage. Here is our situation and my current point of view, please tell me if I'm not seeing this problem correctly.
Background:
We took a 186,000 30 year down to 109,363 in eight years via pre-payment.
NOTE: the military pays me 2K a month in housing stipend, I almost felt obligated to put the entire 2k towards the 1,300 monthly payment.
We refinanced three years ago when I couldn't stand to pay the 5.25 in a 3% environment any longer.
That left us with:
15 year note
109,363 balance
3.25% rate
I have a stable military retirement on the way, it pays more than our monthly bills including mortgage.
This ignores tax advantages etc.... and I failed to calculate the value of investing the ENTIRE mortgage amount in post-mortgage payment years... maybe I need to do that....
Standing by for face punches, what did I miss in this process, what am I not looking at? What am I looking at from the wrong angle?
Thanks!
Tim
I'm a firm member of this club - 1.5% mortgage rate currently, about 18 years remaining.How in the world did you get that low of a rate?
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I'm a firm member of this club - 1.5% mortgage rate currently, about 18 years remaining.How in the world did you get that low of a rate?
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The lowest rate around here is 1.8% to 1.85% variable -- with a smaller lending firm, not as much free legal docs included, etc., and the rate moves with the changes in interest rates, and is locked into that lender for 5 years, even if you have a 15 or 20 or 25 year amortization. You need great credit, of course, but this is possible in our very low rate bond markets.... but you have to accept risk of rates adjusting.
I have kind of gone back and forth on this myself. I prepaid my mortgage (5.375% rate on a rental property) but stopped after about $15k paid down. I only have about $40k left, which I could wipe out in less than 2 years and be mortgage free at 33. If I paid it off I would lower my DTI allowing me to more easily qualify for other investment properties, for cheaper. I don't make much (even with the rental income included) and so it doesn't take much debt to put me out of reach of the loans I would need to get this rolling.
Obviously I am investing in real estate because I am seeking to beat the market with rental properties. I currently only have retirement in stocks, which I contribute up to the employer max (since age 25), but never more, and some cash in a ROTH I do not currently contribute to.
For now I think I will hold off on paying off the mortgage on my one rental, and instead recast it as I believe that will reduce the monthly payment enough to give me a qualifying DTI. I plan on using the cash I would have used to pay it off, to purchase a second rental early next year. I do want to pay off property 1 before buying a 3rd property as it used to be my primary property, and I plan on making it my primary property again one day, and I don't want it to be at risk of foreclosure if something should happen. Since I don't have any stock investments that don't come with a penalty, I don't have an incentive to turn to my investments to pay my mortgage in a time of crisis; I would be paying a steep price to do that.
I do want to start investing in mutual, because I believe in a well-rounded portfolio (that is the main reason I don't want to automatically pour all of my money into stocks). I just want to first get over the hurdle of buying at least a second and 3rd property, so I can use the cashflow from them to run my real estate game, while I can use my earned income for investments. I highly expect someone to tell me I am doing it all wrong LOL.
13 years left of 230k @ 3% no PMI
and 13 years left on an investment property 235k @ 5%.
The best part is that the investment property pays BOTH of these mortgages.
Hi all, my first post here, loving the community and wish I'd discovered this sooner.
I'd been proudly paying off my mortgage at a good rate before hearing about the MMM route to FI, now almost all my capital is tied up in the house.
I owe £30k on a ~£150k house. Currently on 1.9% interest rate.
I think I should probably remortgage and stick the money into some index linked funds (stocks and shares isa) but I'd like some reassurance. Please an you help me with the pros and cons.
Thanks in advance.
Hi all, my first post here, loving the community and wish I'd discovered this sooner.
I'd been proudly paying off my mortgage at a good rate before hearing about the MMM route to FI, now almost all my capital is tied up in the house.
I owe £30k on a ~£150k house. Currently on 1.9% interest rate.
I think I should probably remortgage and stick the money into some index linked funds (stocks and shares isa) but I'd like some reassurance. Please an you help me with the pros and cons.
Thanks in advance.
Hi all, my first post here, loving the community and wish I'd discovered this sooner.Consider yourself reassured and welcomed, clickhappy!
I'd been proudly paying off my mortgage at a good rate before hearing about the MMM route to FI, now almost all my capital is tied up in the house.
I owe £30k on a ~£150k house. Currently on 1.9% interest rate.
I think I should probably remortgage and stick the money into some index linked funds (stocks and shares isa) but I'd like some reassurance. Please an you help me with the pros and cons.
Thanks in advance.
I think I might be sold on this idea, but it's amazing how resilient my brain is being to cold hard math. For so long I have believed in the mantra of paying off a mortgage. Just think how much money I'll save in interest!The missing piece I see is that you have not factored for inflation. The older your mortgage gets, the more inflation works in your favor. Makes the math even better.
I currently owe about $145,000 at 3.75%. I'm putting an extra $300 towards principal each month, but after reading this thread I might just be persuaded to save that $300 instead.
I have 17 years left if I just pay the regular amount. With the extra $300 I could be done in 12.
If my math is correct, if I save the $300 per month at 7%, in 17 years I will have $114000. If I pay of the mortgage in 12 years then save what my mortgage payment was, plus the $300, I'll have $92000, so about $22000 different.
Plus more years with a likelihood of being able to itemize my taxes.
More realistically, I would like to sell my house in about 10 years and downsize as step one in RE. The difference between making the extra payment or not is either a mortgage balance of $(28000) or, a mortgage balance of $(71000) and savings of $50000. Not making the extra payment will still leave me in a good place in terms of proceed from the sale for a smaller house, plus $7000 richer.
Thanks to all for the insights, especially Nords as I'm in the military pension category.We're in the middle of a refinance. The mortgage processor is having a very difficult time understanding Roth IRA conversions. She sees income on the tax return (because it's a taxable event) but she locks up over the idea that the money is just going from one asset account to another. Luckily the criteria for a VA loan are considerably looser than an FHA mortgage so it might not matter, but I hope I don't have to explain to her how the Roth ladder works.
I'm currently renting in Northern VA. We plan to buy a home in Roanoke VA after I retire next year. Plan is to keep that mortgage and pay it off per schedule. My pension will cover mortgage and all monthly expenses. Plan to take 4% via Roth ladder for extra expenses, vacations etc.
I am not paying down my 30 year 3.875% mortgage (28 years left). In fact, I've pulled out equity -- about $100k -- to invest.
I'm not persuaded that actively moving new equity out for investment is optimal without more information. You might be able to convince the bank the property will appraise today, but can you convince a buyer of that price in 3 years when you change jobs?
Having a stable cash flow for servicing the debt helps, though.
Don't you need the appraisal for the bank to let you do a cash-out refinance?
I agree that letting investment gains from stocks be rebalanced into additional principal when your house has gone down in value is nice, but that will ultimately reduce your mortgage balance, which is not the goal of people on this thread.
I always figured it was better to keep the mortgage as opposed to paying it off based on the low interest rate, 2.25% tax affected, but wow! I plugged in my numbers in the excel example mentioned earlier in the post and it produced a $74k savings from maintaining the mortgage. I used to make extra payments through out the year. Will immediately stop.
for nothing more than feelings.I think those who are accustomed to making decisions based on logic & math will struggle to understand the emotions of behavioral financial psychology.
Emotions are strong, and they are valid. Motivation is a feeling. If someone is more motivated to put money towards their house than they are motivated to invest it, then they will likely earn more money by paying down their house. Obviously that case study is less likely in this crowd.
Correct Frozenbits
We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate. this is pinching pennies while leaving thousands of dollars on the side lines. Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings. WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things.
Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.
I personally have a 10k emergency cash buffer as well.Correct Frozenbits
We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate. this is pinching pennies while leaving thousands of dollars on the side lines. Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings. WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things.
Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.
Good to read you boarder42!
What is you opinion about EF? Do you think it's a good idea to keep +/-3 months of living expenses or so in cash (or cash like assets) or just lives from cashflow?
I am 120% stocks, 90% of my available HELOC is used for investing but I still keep 10k$ siting stil in checking account wich is 1% of our NW...
I used to be a lot tigther than this, like 1-3k$ and dump the rest through investing account for the last 25 years
Correct Frozenbits
We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate. this is pinching pennies while leaving thousands of dollars on the side lines. Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings. WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things.
Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.
I don't dis-agree.
BUT
You won't get your home taken away because your dryer line broke and you can't hang clothes (it's not a perfect analogy, I get it).
You WILL get your home taken away if you lose your job/income and can't pay the mortgage. Hence, there is an un-calculated value to paying your home off early and being debt free.
YES, you can still lose a paid off home if you can't pay the yearly taxes etc. BUT, that risk goes way down.
Your statement indicates that you are clearly aware that many people are not rationale (saving pennies yet, from your POV, losing a lot more due to failure to take advantage of an "advanced" way of thinking about money/mortgage etc.). What we have to remember is that just because we are rational about XXXX, the next person may BE thinking in a rational manner (if all I owe is my house, I have cash in savings, funding ALL other types of retirement accounts and STILL paying off my mortgage early for the purpose of being debt free) that may LOOK irrational to you yet still be completely rational. What I guess I'm saying is that don't judge what appears to be irrational behavior without knowing the underlying cause behind that behavior. We judge ourselves by our intentions, we judge others by there actions....
Case in point, all of the above being said and even with my intent to not focus on paying off my mortgage early, I still could not resist putting an extra hundred on the autopayment for last week while filling it out. A chance to take just 1200 a year off the principle and lower my low rate even further towards the idea of being 100% debt free, couldn't pass it up. I was acting fully rationally. I don't hang clothes on a line though, that will have to wait until I retire.....
Good discussion!
What are folks' thoughts on paying down a mortgage just enough to get out of PMI? I've got ~2.5 years left of PMI ($91/month) unless I pay down principal faster than minimum. Mortgage is 15-year fixed at 2.75%.
I've been inclined to just let it ride, max out pre-tax savings, and when there's a chunk of extra $ around, pay off some student loans (3.8%).
What's the calculation here? I'm worried that I've fallen into the trap of basically ignoring the PMI as "small" because it's part of the mortgage payment. But I would scrutinize the hell out of any other $91/month expense...
Correct Frozenbits
We have people hang drying clothes ... yes hang drying their F***king clothes and paying down their mortgage with a low fixed rate. this is pinching pennies while leaving thousands of dollars on the side lines. Guess what the dryer costs are small compared to the amount of money people are leaving on the table b/c they have feelings. WTF get over your feelings. Stop wasting your time hang drying your own clothes if you arent going to take the time to put your feelings aside and optimize your mortgage/investing side of things.
Thats it i'm starting a new thread to show people the ridiculousness of some of the things they do while saying feelings get in the way of this act.
I don't dis-agree.
BUT
You won't get your home taken away because your dryer line broke and you can't hang clothes (it's not a perfect analogy, I get it).
You WILL get your home taken away if you lose your job/income and can't pay the mortgage. Hence, there is an un-calculated value to paying your home off early and being debt free.
YES, you can still lose a paid off home if you can't pay the yearly taxes etc. BUT, that risk goes way down.
Your statement indicates that you are clearly aware that many people are not rationale (saving pennies yet, from your POV, losing a lot more due to failure to take advantage of an "advanced" way of thinking about money/mortgage etc.). What we have to remember is that just because we are rational about XXXX, the next person may BE thinking in a rational manner (if all I owe is my house, I have cash in savings, funding ALL other types of retirement accounts and STILL paying off my mortgage early for the purpose of being debt free) that may LOOK irrational to you yet still be completely rational. What I guess I'm saying is that don't judge what appears to be irrational behavior without knowing the underlying cause behind that behavior. We judge ourselves by our intentions, we judge others by there actions....
Case in point, all of the above being said and even with my intent to not focus on paying off my mortgage early, I still could not resist putting an extra hundred on the autopayment for last week while filling it out. A chance to take just 1200 a year off the principle and lower my low rate even further towards the idea of being 100% debt free, couldn't pass it up. I was acting fully rationally. I don't hang clothes on a line though, that will have to wait until I retire.....
Good discussion!
if you have the ability to pay your home off early that means you had the option to save and invest the money which has been discussed in depth here as being the far safer way ... if you're 40k away from paying off your home and you've been making extra payments the bank could give 2 flying F's if you start missing payments you lose it ... where as everyone else who has been investing has a much larger liquid buffer to ride out any storm. This arguement is fundamentally flawed using emotion in place of logic.
the way you're paying off your home puts you at much higher risk than someone investing just so you know. you THINK its safer but in reality its alot less safe.
The only way investing comes out worse than mortgage is if returns are less than 3.5% over the long term. In that case doing the mortgage would be marginally better.
From a risk standpoint, it's possible that will happen. But based on history its not very likely.
The only way investing comes out worse than mortgage is if returns are less than 3.5% over the long term. In that case doing the mortgage would be marginally better.
From a risk standpoint, it's possible that will happen. But based on history its not very likely.
It depends how you define "long term". The shorter your mortgage is, the higher the investment risk is over that term.
whats the total loan balance. and what percent of that is 1092. likely if you just included it in your rate you'd still not pay it down faster.Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.
whats the total loan balance. and what percent of that is 1092. likely if you just included it in your rate you'd still not pay it down faster.Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.
Not sure I understand the "what percent of that is 1092" part of your question?
Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.
whats the total loan balance. and what percent of that is 1092. likely if you just included it in your rate you'd still not pay it down faster.Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.
Not sure I understand the "what percent of that is 1092" part of your question?
1092 is your total annual PMI cost which is .3% so no I wouldn't pay it down faster to save .3%
whats the total loan balance. and what percent of that is 1092. likely if you just included it in your rate you'd still not pay it down faster.Loan balance is $281k. Has to get down to ~$245k to get out of PMI, unless there's a very unusual sudden increase in real-estate values around here.
Not sure I understand the "what percent of that is 1092" part of your question?
1092 is your total annual PMI cost which is .3% so no I wouldn't pay it down faster to save .3%
So previously I have looked at PMI differently than what you reference. Since PMI is basically a penalty for being over 80% LTV, I never ran the % calculations against the entire loan amount. I would only run them against the amount that was ensuring I paid PMI. So in this case it would be..
1092/36000=.03 or 3%
So the added interest rate on the portion of the loan that is requiring PMI is 3%. Add that to the 2.75% mortgage rate and that 36000 part of the mortgage has an actually rate of 5.75%.
At this rate I would still advise maxing out all pre-tax accounts before even considering pay down to drop PMI. After you max out pre-tax accounts it becomes a little more favorable since you would effectively be getting a 5.75% return over 2.5 years if you dropped 36k down to take off PMI. Although that 36k would then be tied up in a non liquid asset returning 2.75% over the remainder of the mortgage.
I would still just invest the money in order to keep my stache more liquid in case of emergency and in order to have that 36k in an investment than could bring much higher returns after the first 2.5 years. Idk, maybe I am over thinking the numbers in this particular scenario lol
So previously I have looked at PMI differently than what you reference. Since PMI is basically a penalty for being over 80% LTV, I never ran the % calculations against the entire loan amount. I would only run them against the amount that was ensuring I paid PMI. So in this case it would be..
1092/36000=.03 or 3%
So the added interest rate on the portion of the loan that is requiring PMI is 3%. Add that to the 2.75% mortgage rate and that 36000 part of the mortgage has an actually rate of 5.75%.
At this rate I would still advise maxing out all pre-tax accounts before even considering pay down to drop PMI. After you max out pre-tax accounts it becomes a little more favorable since you would effectively be getting a 5.75% return over 2.5 years if you dropped 36k down to take off PMI. Although that 36k would then be tied up in a non liquid asset returning 2.75% over the remainder of the mortgage.
I would still just invest the money in order to keep my stache more liquid in case of emergency and in order to have that 36k in an investment than could bring much higher returns after the first 2.5 years. Idk, maybe I am over thinking the numbers in this particular scenario lol
Another "Should I pay down my mortgage just to get out of PMI" question.
Loan Information: $266,222.39 @ 3.125% with 29.5 years left.
P&I: $1,190.48
PMI: $42.64
80% LTV @ $255,270.80, 78% LTV @ $248,041.58
Welcome to the boards!
Infromsea go debate this in my other thread you can literally argue the emotion fact on anything we face punch people for.
This is for people to see the light or to join in the fun of not paying it down. And to help people FiRE early
Damn daniel!
Rough day?
If you look back on page 4 you'll see I'm already in.
I was just trying to engage in discussion.
My apologies if I took the post off track.
Cheers,
Tim
This is pure gold. Here's a big ol' mmmmmwah! for you, FB. Another one who gets it. Oh, boyoboyoboy!Emotions are strong, and they are valid. Motivation is a feeling. If someone is more motivated to put money towards their house than they are motivated to invest it, then they will likely earn more money by paying down their house. Obviously that case study is less likely in this crowd.
True, but what I find funny is much of what MMM teaches is directly involved with overcoming emotions in order to build a better life for yourself. Like learning to overcome emotions that make you spend money on crap you don't need. The whole philosophy of MMM is based around efficiently deploying your little green army so it grows as fast as possible.
It seems like a lot of the MMM community will bash people for making many decisions based on emotions, but as soon as it comes to pre-paying mortgages, well then emotions are totally valid. And this decision can have a 200k swing in our 30 year time frame, kind of hypocritical IMO.
What they should really be doing is focusing on is overcoming or re-wiring their emotions to the rewards of what the numbers come out to over the long term. That's what I did, and now investing motivates me more than anything else. It wasn't always like that though....
One thing to keep in mind is that if your PMI payment isn't reducing linearly with as you approach 80% LTV (i.e. such that it would be ~$0/month at 80% LTV) then the equation for whether it's worth paying down faster is constantly changing (in favor of trying to get rid of PMI). You may want to reevaluate in a year.
To help understand this, imagine that your PMI isn't being reduced at all as you pay down the mortgage balance. Imagine you're down to $250k and still paying $91/month in PMI. In that scenario the additional $5k to get rid of PMI would save you an effective ~22% interest rate.
This is pure gold. Here's a big ol' mmmmmwah! for you, FB. Another one who gets it. Oh, boyoboyoboy!Emotions are strong, and they are valid. Motivation is a feeling. If someone is more motivated to put money towards their house than they are motivated to invest it, then they will likely earn more money by paying down their house. Obviously that case study is less likely in this crowd.
True, but what I find funny is much of what MMM teaches is directly involved with overcoming emotions in order to build a better life for yourself. Like learning to overcome emotions that make you spend money on crap you don't need. The whole philosophy of MMM is based around efficiently deploying your little green army so it grows as fast as possible.
It seems like a lot of the MMM community will bash people for making many decisions based on emotions, but as soon as it comes to pre-paying mortgages, well then emotions are totally valid. And this decision can have a 200k swing in our 30 year time frame, kind of hypocritical IMO.
What they should really be doing is focusing on is overcoming or re-wiring their emotions to the rewards of what the numbers come out to over the long term. That's what I did, and now investing motivates me more than anything else. It wasn't always like that though....
So, lets say you've all-but paid off the house. And you're starting to think "maybe we shouldn't have done that." Obvious play is to cash-out refinance to a 30 year loan and invest the lump sum right?
Question - what to say to a risk-averse spouse to convince them this is a good idea. Particularly with said spouse about to leave job to go back to school for a career change.
Need help with doing the math...
Purchase price: $360k, 3.5% down
Mortgage remaining: $347,400
Interest rate: 4% @ 30 year fixed
PMI: 0.85 ($246/month)
PMI is for the life of the loan (FHA) and does not go away on its own. A full refinance into a new loan is needed.
Anyone have an analysis? Thanks!
I understand the appeal of cashing out in order to invest. But more loan does equal more risk.
I feel like the ideal loan would be 60% of the value of your house (interest only). The bank is happy because you're never under water, and you're happy because that's a lot of extra green employees working for you at the salt mine of VTSAX
Need help with doing the math...
Purchase price: $360k, 3.5% down
Mortgage remaining: $347,400
Interest rate: 4% @ 30 year fixed
PMI: 0.85 ($246/month)
PMI is for the life of the loan (FHA) and does not go away on its own. A full refinance into a new loan is needed.
Anyone have an analysis? Thanks!
PMI is that .85% meaning the 246 will decrease over time as the loan balance decreases. Or is it 246 per month for the life of the loan.
if its the former its easily a 4.85% rate. if its the latter its a craptasitc situation where your interest is effectively increasing over time
Either way. What i would do in your case is invest money in the market. at the point that your house appreciates to or you have the funds to obtain 20% Equity. evaluate the rate climate at that time.
This is the best of both worlds. if rates are low you can REFI to a 30 year with 20% equity then you can decide if it does make sense at that point. if rates are higher than 4.85% then you're still in great shape and you can let you money keep growing for you.
Need help with doing the math...
Purchase price: $360k, 3.5% down
Mortgage remaining: $347,400
Interest rate: 4% @ 30 year fixed
PMI: 0.85 ($246/month)
PMI is for the life of the loan (FHA) and does not go away on its own. A full refinance into a new loan is needed.
Anyone have an analysis? Thanks!
PMI is that .85% meaning the 246 will decrease over time as the loan balance decreases. Or is it 246 per month for the life of the loan.
if its the former its easily a 4.85% rate. if its the latter its a craptasitc situation where your interest is effectively increasing over time
Either way. What i would do in your case is invest money in the market. at the point that your house appreciates to or you have the funds to obtain 20% Equity. evaluate the rate climate at that time.
This is the best of both worlds. if rates are low you can REFI to a 30 year with 20% equity then you can decide if it does make sense at that point. if rates are higher than 4.85% then you're still in great shape and you can let you money keep growing for you.
I believe it is the latter case, where PMI is locked in for the life of the loan. What does this mean, numbers-wise?
This is pure gold. Here's a big ol' mmmmmwah! for you, FB. Another one who gets it. Oh, boyoboyoboy!Emotions are strong, and they are valid. Motivation is a feeling. If someone is more motivated to put money towards their house than they are motivated to invest it, then they will likely earn more money by paying down their house. Obviously that case study is less likely in this crowd.
True, but what I find funny is much of what MMM teaches is directly involved with overcoming emotions in order to build a better life for yourself. Like learning to overcome emotions that make you spend money on crap you don't need. The whole philosophy of MMM is based around efficiently deploying your little green army so it grows as fast as possible.
It seems like a lot of the MMM community will bash people for making many decisions based on emotions, but as soon as it comes to pre-paying mortgages, well then emotions are totally valid. And this decision can have a 200k swing in our 30 year time frame, kind of hypocritical IMO.
What they should really be doing is focusing on is overcoming or re-wiring their emotions to the rewards of what the numbers come out to over the long term. That's what I did, and now investing motivates me more than anything else. It wasn't always like that though....
Need help with doing the math...
Purchase price: $360k, 3.5% down
Mortgage remaining: $347,400
Interest rate: 4% @ 30 year fixed
PMI: 0.85 ($246/month)
PMI is for the life of the loan (FHA) and does not go away on its own. A full refinance into a new loan is needed.
Anyone have an analysis? Thanks!
PMI is that .85% meaning the 246 will decrease over time as the loan balance decreases. Or is it 246 per month for the life of the loan.
if its the former its easily a 4.85% rate. if its the latter its a craptasitc situation where your interest is effectively increasing over time
Either way. What i would do in your case is invest money in the market. at the point that your house appreciates to or you have the funds to obtain 20% Equity. evaluate the rate climate at that time.
This is the best of both worlds. if rates are low you can REFI to a 30 year with 20% equity then you can decide if it does make sense at that point. if rates are higher than 4.85% then you're still in great shape and you can let you money keep growing for you.
I believe it is the latter case, where PMI is locked in for the life of the loan. What does this mean, numbers-wise?
In this case you should treat PMI as part of the total interest rate. If you consider refinancing you'll just need to compare the new rate to that, while taking into account any closing costs.
Need help with doing the math...
Purchase price: $360k, 3.5% down
Mortgage remaining: $347,400
Interest rate: 4% @ 30 year fixed
PMI: 0.85 ($246/month)
PMI is for the life of the loan (FHA) and does not go away on its own. A full refinance into a new loan is needed.
Anyone have an analysis? Thanks!
PMI is that .85% meaning the 246 will decrease over time as the loan balance decreases. Or is it 246 per month for the life of the loan.
if its the former its easily a 4.85% rate. if its the latter its a craptasitc situation where your interest is effectively increasing over time
Either way. What i would do in your case is invest money in the market. at the point that your house appreciates to or you have the funds to obtain 20% Equity. evaluate the rate climate at that time.
This is the best of both worlds. if rates are low you can REFI to a 30 year with 20% equity then you can decide if it does make sense at that point. if rates are higher than 4.85% then you're still in great shape and you can let you money keep growing for you.
I believe it is the latter case, where PMI is locked in for the life of the loan. What does this mean, numbers-wise?
This property is also a rental property where the PMI is eating into cash flow. The PMI is decreasing my cash-on-cash return by 23%. Yikes. Does this change the circumstances at all?
Need help with doing the math...
Purchase price: $360k, 3.5% down
Mortgage remaining: $347,400
Interest rate: 4% @ 30 year fixed
PMI: 0.85 ($246/month)
PMI is for the life of the loan (FHA) and does not go away on its own. A full refinance into a new loan is needed.
Anyone have an analysis? Thanks!
PMI is that .85% meaning the 246 will decrease over time as the loan balance decreases. Or is it 246 per month for the life of the loan.
if its the former its easily a 4.85% rate. if its the latter its a craptasitc situation where your interest is effectively increasing over time
Either way. What i would do in your case is invest money in the market. at the point that your house appreciates to or you have the funds to obtain 20% Equity. evaluate the rate climate at that time.
This is the best of both worlds. if rates are low you can REFI to a 30 year with 20% equity then you can decide if it does make sense at that point. if rates are higher than 4.85% then you're still in great shape and you can let you money keep growing for you.
I believe it is the latter case, where PMI is locked in for the life of the loan. What does this mean, numbers-wise?
Dear God, is there any way you could refinance into a conventional mortgage? That PMI is just dumb, the conventional loans I was looking at for 200k had PMI around 64/month that drops off at 80%LTV. Also, some conventional mortgages you can take a premium hit on the interest rate with no PMI. Basically PMI is built into the loan at that point and you are taking a 4.375% rate instead of a 4.25% rate. Still might be way better than your current deal. Id keep an eye on rates and your property value, if you can refinance with a break even of 2 years on the closing costs, I'd do it in a heartbeat.
No, conventional isn't possible here, because a conventional mortgage on a multi family property requires 25% down. That's 90 grand I don't have. FHA owner occupied is the only way to do this deal.
No, conventional isn't possible here, because a conventional mortgage on a multi family property requires 25% down. That's 90 grand I don't have. FHA owner occupied is the only way to do this deal.
I would ride it out then and watch the appreciation of the property. As soon as you cross that 25% threshold start looking into a conventional mortgage if rates are still competitive with what you currently have.
As long as you have strong cash flow on the property you should be fine.
No, conventional isn't possible here, because a conventional mortgage on a multi family property requires 25% down. That's 90 grand I don't have. FHA owner occupied is the only way to do this deal.
I would ride it out then and watch the appreciation of the property. As soon as you cross that 25% threshold start looking into a conventional mortgage if rates are still competitive with what you currently have.
As long as you have strong cash flow on the property you should be fine.
The downside is I don't think it's going to appreciate. Well, it might, but I'm not counting on it by any means. I'm paying the seller what they put into it. It's a good income-producing property, cash flowing about $700/month even with PMi. But I think I'm also buying it at full price (FHA is picky about repairs anyways, will not pass an appraisal for chipped paint).
Full disclosure: we paid over 900k CASH for our current house, more than 10x our annual income. Yup, we have no mortgage on our primary home. I am retired, but we live on DH's income and don't touch our considerable 'stache. WTF? How did we do it?This is pure gold. Here's a big ol' mmmmmwah! for you, FB. Another one who gets it. Oh, boyoboyoboy!Emotions are strong, and they are valid. Motivation is a feeling. If someone is more motivated to put money towards their house than they are motivated to invest it, then they will likely earn more money by paying down their house. Obviously that case study is less likely in this crowd.
True, but what I find funny is much of what MMM teaches is directly involved with overcoming emotions in order to build a better life for yourself. Like learning to overcome emotions that make you spend money on crap you don't need. The whole philosophy of MMM is based around efficiently deploying your little green army so it grows as fast as possible.
It seems like a lot of the MMM community will bash people for making many decisions based on emotions, but as soon as it comes to pre-paying mortgages, well then emotions are totally valid. And this decision can have a 200k swing in our 30 year time frame, kind of hypocritical IMO.
What they should really be doing is focusing on is overcoming or re-wiring their emotions to the rewards of what the numbers come out to over the long term. That's what I did, and now investing motivates me more than anything else. It wasn't always like that though....
Aw shucks, Thanks :)
Glad to see a bunch of like minded Mustachians here that are milking their mortgage long term. Makes me feel better about the decision I made a couple years ago when we bought the house.
I'd like to make it perfectly clear: there is nothing wrong with having a mortgage-free home. What's wrong is to pre-pay a mortgage, at the expense of fully funding all retirement vehicles available to you, and before building a healthy taxable investment account, if you wish to RE.
No, conventional isn't possible here, because a conventional mortgage on a multi family property requires 25% down. That's 90 grand I don't have. FHA owner occupied is the only way to do this deal.
I would ride it out then and watch the appreciation of the property. As soon as you cross that 25% threshold start looking into a conventional mortgage if rates are still competitive with what you currently have.
As long as you have strong cash flow on the property you should be fine.
The downside is I don't think it's going to appreciate. Well, it might, but I'm not counting on it by any means. I'm paying the seller what they put into it. It's a good income-producing property, cash flowing about $700/month even with PMi. But I think I'm also buying it at full price (FHA is picky about repairs anyways, will not pass an appraisal for chipped paint).
Alright time to break this out with actual numbers.
Current situation
Purchase price: $360k, 3.5% down
Mortgage remaining: $347,400
Interest rate: 4% @ 30 year fixed
PMI: 0.85 ($246/month)
Total monthly payment(P,I,+PMI) = 1907
Conventional Option 1 @ 4%
Assessed value: $360k,
Mortgage remaining: $270,000 (Bring 77k to closing in order to hit 75% LTV and drop PMI)
Interest rate: 4% @ 30 year fixed
PMI: None
Total monthly payment(P,I,+PMI) = 1298
Conventional Option 2 @ 4.25%
Assessed value: $360k,
Mortgage remaining: $270,000 (Bring 77k to closing in order to hit 75% LTV and drop PMI)
Interest rate: 4.25% @ 30 year fixed
PMI: None
Total monthly payment(P,I,+PMI) = 1328
Conventional Option 3 @ 4.5%
Assessed value: $360k,
Mortgage remaining: $270,000 (Bring 77k to closing in order to hit 75% LTV and drop PMI)
Interest rate: 4.5% @ 30 year fixed
PMI: None
Total monthly payment(P,I,+PMI) = 1368
Option 1 = 7,308 yearly cash flow increase on 77,000 "investment" = 9.49% yearly return on investment
Option 2 = 6,948 yearly cash flow increase on 77,000 "investment" = 9.02% yearly return on investment
Option 3 = 6,468 yearly cash flow increase on 77,000 "investment" = 8.4% yearly return on investment
Depending on the rates in the future you could increase your cash flow and ROI drastically by throwing 77k in and refinancing.
I would start investing money in taxable accounts and then re-assess the situation in a couple years. But a guaranteed return of 9.5% on 77k is nice, assuming I did the math right.
Another "Should I pay down my mortgage just to get out of PMI" question.
Loan Information: $266,222.39 @ 3.125% with 29.5 years left.
P&I: $1,190.48
PMI: $42.64
80% LTV @ $255,270.80, 78% LTV @ $248,041.58
Your PMI is adding 4.67% interest for the amount remaining to get to 80% LTV. Or 2.81% more interest for the amount remaining to get to 78%.
Does this mean I should pay down the mortgage to 80% LTV to get a 3.125+4.67=7.795% return?
I commented in the other thread that you've convinced me.
Your 200k math is correct. It's THAT much better. one of the big reasons I'm overly passionate about it almost to a fault in many instances in this forum.
I am not sure I am looking at this correctly. And, I think I used the wrong numbers in my calculations above. When I reran it, I got a benefit of almost 200k.I prefer the cFireSim calculator myself.
Basically, if I used the extra to prepay as fast as possible, I would be done with the mortgage in 142 months, and have 201 months of investing $1,452.72 at 7%. Or, I could invest $687.81 at 7% for the full 343 months. The graphic below is what I came up with. I might go look at that cFIRE or whatever people were talking about and run the numbers in that. To see if I get something close. In either case, $75k or $200k, it's all good.
You guys are brilliant. I had never heard of this strategy before this thread. It sounds great! Appreciated the link to MMM's thoughts on it too.That's a tough one.
In Canada, we generally lock in a mortgage rate for 2-5 years (sometimes up to 10). According to one article, there is an option for the full amortization period, but it was expensive at the time of writing: http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-how-to-play-it-really-safe-in-housing-at-a-price
Does this strategy work in Canada, then? According to some sources, mortgage rates and stock prices don't maintain a consistent relationship -one may go down while the other goes down too, or the other may go up. So, just a potential scenario:
I lock in for 7 years at 3.4%.
At the 7 year mark for renewal, mortgage rates are 7.2%.
I can renew at that OR pay off the mortgage OR go with variable until rates mellow again.
My investments happen to be in a dip, returning only 4% at that point.
I'd be selling stocks at a nonoptimal moment in order to pay the mortgage off now or going with a crap mortgage rate (short, medium, or long term).
What say you?
Your 200k math is correct. It's THAT much better. one of the big reasons I'm overly passionate about it almost to a fault in many instances in this forum.Not possible. It's a message worth preaching. Keep the faith, b42!
Thanks very much, FrozenBits.No problem.
Just wanted to see if i'm missing something...
I think I'm eternally shell-shocked by the 21% rate that hit my parents and countless others. I was just barely old enough to understand the stress and ramifications. It (and other variables, like my house taxes and house insurance tripling to ~$2400 each, and a few awful tenants) compelled me to sell after just six years. Up til that point, I was trying to pay down the mortgage because of all the variables present.
What about people who decide to keep a mortgage but meanwhile invest in bonds? I can understand and indulge 5-10% bonds for short term needs but 30-50%? No way! Maybe I am missing something...I've come to the conclusion that bonds just aren't worth it to have in my portfolio. My version of bonds will be my ability to pick up part time work while FI if I need it.
I am not sure I am looking at this correctly. And, I think I used the wrong numbers in my calculations above. When I reran it, I got a benefit of almost 200k.
Basically, if I used the extra to prepay as fast as possible, I would be done with the mortgage in 142 months, and have 201 months of investing $1,452.72 at 7%. Or, I could invest $687.81 at 7% for the full 343 months. The graphic below is what I came up with. I might go look at that cFIRE or whatever people were talking about and run the numbers in that. To see if I get something close. In either case, $75k or $200k, it's all good.
I am not sure I am looking at this correctly. And, I think I used the wrong numbers in my calculations above. When I reran it, I got a benefit of almost 200k.
Basically, if I used the extra to prepay as fast as possible, I would be done with the mortgage in 142 months, and have 201 months of investing $1,452.72 at 7%. Or, I could invest $687.81 at 7% for the full 343 months. The graphic below is what I came up with. I might go look at that cFIRE or whatever people were talking about and run the numbers in that. To see if I get something close. In either case, $75k or $200k, it's all good.
I think you forgot to include the reduced mortgage interest in your pre-pay example? Not sure... even so, mortgage interest is still much less than the 200k
What about people who decide to keep a mortgage but meanwhile invest in bonds? I can understand and indulge 5-10% bonds for short term needs but 30-50%? No way! Maybe I am missing something...I've come to the conclusion that bonds just aren't worth it to have in my portfolio. My version of bonds will be my ability to pick up part time work while FI if I need it.
As for treating a mortgage like a bond allocation of your portfolio, it kinda defeats the main purpose of a bond. Bonds are for down times so you can rebalance and take advantage of lower stock prices. If your mortgage is your bond allocation, then you can't rebalance unless you refinance, and you are totally missing out on the main purpose of bonds in an investment portfolio. Just my opinion but I'm sticking to it.
I am basically 100% VTSAX and plan on keeping that allocation for the foreseeable future.
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I think I need to join this club. Mathematically, I know paying off the mortgage is the wrong decision, but I feel the urge to do it anyway. So far, I have held off and haven't paid even $1 more than the minimum payment. We are 10 months into a 30 year VA @3.375.
The thing that I think we do need to consider is Obamacare subsidies. In retirement, if I need an additional $13k a year in income, that could cause me to lose or greatly reduce my subsidies. Has anyone come up with a spreadsheet for this? We're about 10-11 years out right now, so I figure if we need to knock out the mortgage or maybe refinance into a new 30 yr we can do that later.
So, I think I may have ended up doing this slightly wrong ;-)There are many other options than just your 401k. HSA? Roth? Backdoor Roth? Don't forget if you're going to RE you'll want a nice, fat taxable investment account to live on. This is an awesome first step, but there's still a lot of low-hanging fruit to be picked. You cab do this!
After reading this thread and finally being convinced that it was OK to not being paying extra towards my mortgage (which before I was always told as a gospel truth), I decided I would stop making the $300 additional payment towards principal each month.
Like a naughty boy, I was not maxing out my 401k. Once I adjusted my contributions to equal an additional $300/month, it really didn't make much difference to my take home pay, since the contributions are pre-tax. And I'm now pretty much at the point of maxing out, once contributions from bonus paychecks and such are accounted for.
Sooooo, I think I'll just keep paying the extra $300 on the mortgage anyway... At least until I clear some of this excess cash that seems to have built up in my checking accounts.
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!Yes it's awesome seeing it click for people. Although, it's also very frustrating when people that don't get it continually argue with "math" that is plain wrong or takes very incorrect assumptions..... :/
Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!Yes it's awesome seeing it click for people. Although, it's also very frustrating when people that don't get it continually argue with "math" that is plain wrong or takes very incorrect assumptions..... :/
Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
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I chuckled when I found your hidden motive behind that thread. LolBTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!Yes it's awesome seeing it click for people. Although, it's also very frustrating when people that don't get it continually argue with "math" that is plain wrong or takes very incorrect assumptions..... :/
Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
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Thanks. One of them was frozens idea I just turned it into a thread. Also it's a never ending losing battle for some on the math side. My new thread to determine what the FiRE demographic is around here shows many ~90% of respondents plan to use some version of the 4% rule meaning they should not be paying down mortgages.
I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.I agree as well with the idea of mortgage arbitrage.
I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.I agree as well with the idea of mortgage arbitrage.
However, in looking at the current outlook of investment options, getting a guaranteed return of 4.31% (my mortgage rate) seems like the best choice. Stocks seem very overbought and currently declining. Bonds are going to have an uphill battle against the Fed raising interest rates. So instead of putting money in my IRAs (401K maxed), I'm choosing to make extra principal payments. If something changes (stocks crash or corporate tax rates are reduced), I can always switch back to investing in the stock market via IRAs.
Good luck trying to time the market....I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.I agree as well with the idea of mortgage arbitrage.
However, in looking at the current outlook of investment options, getting a guaranteed return of 4.31% (my mortgage rate) seems like the best choice. Stocks seem very overbought and currently declining. Bonds are going to have an uphill battle against the Fed raising interest rates. So instead of putting money in my IRAs (401K maxed), I'm choosing to make extra principal payments. If something changes (stocks crash or corporate tax rates are reduced), I can always switch back to investing in the stock market via IRAs.
...Having a lower mortgage P&I payment of $899 (we pay our tax and insurance ourselves twice a year) feels almost like it is paid off and manageable even in bad circumstances. Plus, since this is a fixed rate, this payment will soon be even cheaper as time goes on. And we keep our cash.I hear a chorus of angels singing!
So my advice to people that are so focused on having a paid off house is to find a mortgage payment that is stomachable (is that a word?), that will "feel" like it is paid off, and maybe refinance to that amount so you get best of both worlds. Through your property taxes, you are leasing the land anyways....so the payment never really goes away.
Thanks everyone.
I totally agree to never paying down your mortgage faster than you need to if rates are significantly lower than what can be gained somewhere else.I agree as well with the idea of mortgage arbitrage.
However, in looking at the current outlook of investment options, getting a guaranteed return of 4.31% (my mortgage rate) seems like the best choice. Stocks seem very overbought and currently declining. Bonds are going to have an uphill battle against the Fed raising interest rates. So instead of putting money in my IRAs (401K maxed), I'm choosing to make extra principal payments. If something changes (stocks crash or corporate tax rates are reduced), I can always switch back to investing in the stock market via IRAs.
I know I have posted this elsewhere but I was in the camp of paying off our mortgage in the next 18 months or so (one fat, big wire at once for the unpaid principle balance, no to few extra principle payments before then).
You all, esp Boarder, convinced me that it does not have to be all or nothing. We just opted to convert our 15 yr to a 30 yr with much, much lower payments and we can cover those payments with a 4% rule now making us essentially FI with this refinance that occured this week!!!!!!
We just refinanced pretty close to existing balance (paid a bit more down to get to a desirable mortgage payment balancing FI today and cash on hand). Our appraisal came in higher than expected and we could have gotten cash back to refinance a higher amount - we didn't want the higher payments. Otherwise, we would have kept our 15 yr mortgage. I was able to get 4% before rates went up. It's done now and settlement went through. Once I get this puppy on an auto debit program (hopefully tomorrow), I never want to think about my mortgage again.
Having a lower mortgage P&I payment of $899 (we pay our tax and insurance ourselves twice a year) feels almost like it is paid off and manageable even in bad circumstances. Plus, since this is a fixed rate, this payment will soon be even cheaper as time goes on. And we keep our cash.
So my advice to people that are so focused on having a paid off house is to find a mortgage payment that is stomachable (is that a word?), that will "feel" like it is paid off, and maybe refinance to that amount so you get best of both worlds. Through your property taxes, you are leasing the land anyways....so the payment never really goes away.
Thanks everyone.
We have $340K mortgage, 30yr fixed at 3.624% ... one year in.
We have about $120K in equity.
Not too worried about paying it off. We will likely sell and downsize again after retiring.
Right now it makes more sense to invest instead of paying the mortg. down.
Since mortgage interest is tax deductible, the effective rate is lower than the face value rate.
We are in 28% marginal tax rate so, my effective rate is actually (1- 0.28)*3.625 = 2.61% !
I can easily beat that by far, with investments.
Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?
Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?
Thanks for the responses. So what I am seeing is any time debt is available under 5%, you ought to take it and invest while just making minimum payments? Because for the last year I put all expenses on a credit card at 0% promo APR while paying the minimums and investing what I would have paid the CC company, and then at the end of the 12 month promo period I did a 0% balance transfer fee to another card. I am currently at a $5500 balance with 14 months left at 0%, and I already have another card picked out with a 0% balance transfer fee that I could put the balance on for another 15 months. Eventually I will have a $15k or so balance that I'll need to pay off in full in the fall of 2019, but in the meantime I'll have gotten 3 years of investing returns without paying a dime of interest.Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?
It is just about the gap in the difference between investment returns and mortgage rates. Whether you itemize on your tax return or not may also impact the size of your gap where it matters.
ARS had a good thread. If I recall, within 2%, it is up to you what you choose, more than 2% gap (mortgage lower) and you definitely want to stay invested versus paying off mortgage, unless you have other non-monetary reasons in play.
Thanks for the responses. So what I am seeing is any time debt is available under 5%, you ought to take it and invest while just making minimum payments? Because for the last year I put all expenses on a credit card at 0% promo APR while paying the minimums and investing what I would have paid the CC company, and then at the end of the 12 month promo period I did a 0% balance transfer fee to another card. I am currently at a $5500 balance with 14 months left at 0%, and I already have another card picked out with a 0% balance transfer fee that I could put the balance on for another 15 months. Eventually I will have a $15k or so balance that I'll need to pay off in full in the fall of 2019, but in the meantime I'll have gotten 3 years of investing returns without paying a dime of interest.Does the fact that it's mortgage debt change anything, or is the rate all that matters? For example, should any debt under 3% not be paid off past the minimum payments? 4%?
It is just about the gap in the difference between investment returns and mortgage rates. Whether you itemize on your tax return or not may also impact the size of your gap where it matters.
ARS had a good thread. If I recall, within 2%, it is up to you what you choose, more than 2% gap (mortgage lower) and you definitely want to stay invested versus paying off mortgage, unless you have other non-monetary reasons in play.
Why are so few people doing this? Is it just because it's a small amount of money compared to the mortgage? At 10% returns I'm already making $550 a year in free income using this method, and it's very simple to do. Car loans are another obvious candidate, as you can often get 0% interest. The same could be said for undergraduate student loans. Most of them are 3% interest or so (if federal) and the interest is subsidized until after you graduate (meaning you can go 4-5 years at 0% interest. If you don't need the money to actually pay tuition, why not loan up to the hilt and invest it at all? Just curious why it's typically only mortgage loans where people recommend investing instead of paying more on low interest rates.
1) Most people live paycheck to paycheck, investing is a foreign language.
2) You are betting that in 3 years you'll be able to sell the stock for a profit. In 3 years you might be able to do that. Or the market might be down 50% and now you've got a whopping big credit card bill at 20% or more. Won't take long to wipe out any profits at that interest rate.
3) The more you do this, the harder it is to get a great deal on the next 0% card. Or to get one at all, because your % of available credit in use gets higher and higher.
4) Do you really get 0% interest and 0% transfer fee with your new card offers? All the ones I ever see want 3% or more up front as a fee, then 0% for many months afterwards.
Quote1) Most people live paycheck to paycheck, investing is a foreign language.
Well yes of course. I'm referring to people on MMM. I understand why most of society is not doing this. The median net worth in the US is ~$100k. People aren't investing. But I only really hear taking advantage of cheap credit in reference to mortgages on MMM, even though it shouldn't matter what loan you use.Quote2) You are betting that in 3 years you'll be able to sell the stock for a profit. In 3 years you might be able to do that. Or the market might be down 50% and now you've got a whopping big credit card bill at 20% or more. Won't take long to wipe out any profits at that interest rate.
It's true the markets could be down at that point. Of course that's true for any investment. I won't have a whopping credit card bill either way though. For two months or so before the final bill is due you just save your cash instead of immediately investing it. The cash flow from work will cover the bill, I'm not going to sell any investments or anything.Quote3) The more you do this, the harder it is to get a great deal on the next 0% card. Or to get one at all, because your % of available credit in use gets higher and higher.
This isn't true. I'm talking about opening 2 extra cards over 3-4 years. Credit churners (a group which I am a part of) open many more cards then this in a shorter time span.Quote4) Do you really get 0% interest and 0% transfer fee with your new card offers? All the ones I ever see want 3% or more up front as a fee, then 0% for many months afterwards.
Yes. Here's an example. Open this Citi card: https://tinyurl.com/lg9y673
That gives you 21 months of purchases at 0%. Then open this Barclays card with a 0% balance transfer offer and 0% promo APR for 15 months: https://tinyurl.com/h8qvrbr
Transfer your balance on that, then when 15 months are up transfer your balance to the Chase Slate 0% balance transfer card and 0% promo APR for 15 months: https://creditcards.chase.com/slate-credit-card/
Boom. You've just paid for all of your expenses (besides probably rent) with someone else's money for 51 months (4.3 years) without paying a dime of interest, meanwhile all of your cash is invested. If you run say $7k of non-rent expenses per year like me then the average balance on your card over that time was about $15k, meaning over 4 years at 10% compounding you made about $7k in extra income with this method. In the last 3 months before the final balance is due you just save your cashflows to pay off the card.
What am I missing? Why not take advantage of a 0% loan, when this whole thread is advocating investing money rather than paying a 4% loan down?
Quote1) Most people live paycheck to paycheck, investing is a foreign language.
Well yes of course. I'm referring to people on MMM. I understand why most of society is not doing this. The median net worth in the US is ~$100k. People aren't investing. But I only really hear taking advantage of cheap credit in reference to mortgages on MMM, even though it shouldn't matter what loan you use.Quote2) You are betting that in 3 years you'll be able to sell the stock for a profit. In 3 years you might be able to do that. Or the market might be down 50% and now you've got a whopping big credit card bill at 20% or more. Won't take long to wipe out any profits at that interest rate.
It's true the markets could be down at that point. Of course that's true for any investment. I won't have a whopping credit card bill either way though. For two months or so before the final bill is due you just save your cash instead of immediately investing it. The cash flow from work will cover the bill, I'm not going to sell any investments or anything.Quote3) The more you do this, the harder it is to get a great deal on the next 0% card. Or to get one at all, because your % of available credit in use gets higher and higher.
This isn't true. I'm talking about opening 2 extra cards over 3-4 years. Credit churners (a group which I am a part of) open many more cards then this in a shorter time span.Quote4) Do you really get 0% interest and 0% transfer fee with your new card offers? All the ones I ever see want 3% or more up front as a fee, then 0% for many months afterwards.
Yes. Here's an example. Open this Citi card: https://tinyurl.com/lg9y673
That gives you 21 months of purchases at 0%. Then open this Barclays card with a 0% balance transfer offer and 0% promo APR for 15 months: https://tinyurl.com/h8qvrbr
Transfer your balance on that, then when 15 months are up transfer your balance to the Chase Slate 0% balance transfer card and 0% promo APR for 15 months: https://creditcards.chase.com/slate-credit-card/
Boom. You've just paid for all of your expenses (besides probably rent) with someone else's money for 51 months (4.3 years) without paying a dime of interest, meanwhile all of your cash is invested. If you run say $7k of non-rent expenses per year like me then the average balance on your card over that time was about $15k, meaning over 4 years at 10% compounding you made about $7k in extra income with this method. In the last 3 months before the final balance is due you just save your cashflows to pay off the card.
What am I missing? Why not take advantage of a 0% loan, when this whole thread is advocating investing money rather than paying a 4% loan down?
so the game youre playing used to be popular when fixed interest rates were in the high single digits to low double digits b/c guaranteed return. And i dont remember who one of the main players in that was but he pokes his head in from time to time. He doesnt play this game anymore. using it to invest is treading on a very slippery slope b/c as SwordGuy stated you cant be sure those cards will always be there. if you want to start another thread on this topic go ahead but dont derail this thread - its purely for not paying down your mortgage.
https://www.fatwallet.com/forums/finance/813161
Here is secondcor521's thread from back in the day on how he took your idea to extremes. but he was using fixed interest return whch doesnt exist like it does now. i'm all for a thread on discussing this and looking at the risks. i see them as quite steep.
Quote3) The more you do this, the harder it is to get a great deal on the next 0% card. Or to get one at all, because your % of available credit in use gets higher and higher.
This isn't true. I'm talking about opening 2 extra cards over 3-4 years. Credit churners (a group which I am a part of) open many more cards then this in a shorter time span.
Please forgive me if someone has already asked this here the thread got pretty long. I'm wondering if anyone has created the calculations to determine if you should refi to a 30 year mortgage from a 15 year in order to shave time off of FIRE date? I have 13 years left on my 15 year and currently owe $187K. 3.25% rate. I plan to FIRE is about 4 years. I'm wondering if there is a way to calculate if it would be a good idea to refi for a longer term. Too many variables for my time brain to figure out a formula.
Thanks for this! Yes, I agree I think in the long run it's better I just find it hard to quantify. I agree the difference in interest should be less than 1%, but this is at least something to start with.Please forgive me if someone has already asked this here the thread got pretty long. I'm wondering if anyone has created the calculations to determine if you should refi to a 30 year mortgage from a 15 year in order to shave time off of FIRE date? I have 13 years left on my 15 year and currently owe $187K. 3.25% rate. I plan to FIRE is about 4 years. I'm wondering if there is a way to calculate if it would be a good idea to refi for a longer term. Too many variables for my time brain to figure out a formula.
I made a spreadsheet to compare 15-year vs 30-year. I would share it but would need to spend more time making the spreadsheet straight forward to use.
Inputs are...
- 30-year rate
- 15-year rate
- fed+state tax rate > for mortgage interest deduction savings
- rate of return on investments
- I assume 15% tax rate on dividends and appreciation
I currently pull in the yearly principal and interest payments from amortization-calc.com, but ideally I could build this in. It then shows what scenario would be ahead every year.
Generally, the 15 year is ahead at first and the 30 year passes it at some point. With a 4% 30-year, 3% 15-year, and 6.8% ROI, the 30-year passes the 15-year between year 10-11.
I believe in reality you don't get a whole point difference between terms, and 6.8% ROI would increase with inflation factored in, so 30-year would actually win out several years sooner.
http://michaelbluejay.com/house/15vs30.html
I didn't make one bc here is the online one. It's typically a 7 year break even. Then the 30 wins. That being said it also needs to be weighed against your current loan.
I'd likely just be comparing your current loan to the 30. I doubt refinancing a 15 year mortgage 2 years in is worth it if only going to a 15 year.
http://michaelbluejay.com/house/15vs30.html
I didn't make one bc here is the online one. It's typically a 7 year break even. Then the 30 wins. That being said it also needs to be weighed against your current loan.
I'd likely just be comparing your current loan to the 30. I doubt refinancing a 15 year mortgage 2 years in is worth it if only going to a 15 year.
Awesome, that site is great. Verify's the spreadsheet I was using but is much easier to use/understand.
I'm thinking this could be taken away from the results, at least for the 3-4% mortgage interest range we are currently in.
* For the first few years a lower interest rate beats lower payments, because that interest acts upon the entire mortgage balance
* But as years pass, a lower payment allows more money to be compounding in an investment account instead of locked up as equity
Personally, for my next home, I am going to consider an ARM for the low interest and payment. I'm thinking I can always pay it down very quickly using taxable accounts if they raise the interest rate on me significantly.
I have a 5 Fixed/1 ARM so it just makes sense to pay down the mortgage fast to a manageable level before the 1 ARM kicks in annually.
Investments have been increasing at a good pace for us this year. Aiming to break 300k invested by the end of the year!
Nice work frozen. This market has been nuts.Yeah this market is ridiculous. Eventually it will go down, but until then I'll enjoy the ride!
Investments have been increasing at a good pace for us this year. Aiming to break 300k invested by the end of the year!
Love that in December the value of your investments blew past the cost of your mortgage!
Ah, I think I've found my people on this board! I've been milking mortgages for about 20 years now after a brief with extra payments on our first mortgage in the mid-90s. We've got a few now:Ooh, Timmm, how are you finding such low rates on rental properties?
Residence: 2.625% fixed for another 30 months, then 25 years adjustable, balance $510k
Rental 1: 3.75% for another 29.5 years, balance $200k
Rental 2: 3.75% for another 29.5 years, balance $340k
We've been actively refinancing all of them all along, probably average about 1 per year. Always for very low cost up-front - never more than 12 mos ROI, to paying us immediate cash about 20% of the time. Only a couple were true "cash out" refinances, but we always take as much of a balance increase as the lender will allow while avoiding the higher rates for cash out. That money generally goes toward any real closing costs, escrow balances, a month or two of skipped payments. For us, the money has most directly gone toward holding all 3 properties, but also covering big expenses like college. We've been maxing out 401k and IRA contributions for about 10 years (plus smaller contributions before that). We've also built substantial nonretirement savings, invested in cheap funds and an overweight portion in a previous employer's stock that I've started selling off this year. We have good W2 income and are frugal in most important ways, but the flexibility and leverage from all of this cheap money has been a key to our savings growing so well. My wife was impressed when I pointed out just yesterday that for a few years now, our investment gains, not even including our contributions, have outpaced our job incomes for several years now. We've had some good fortune there, but we wouldn't have come close without the mortgage money on our side.
It looks like the refinancing bonanza days are probably behind us, but I expect at least one more mortgage in our future as we are nearly ready to RE. All 3 of our properties have appreciated significantly since our purchases - LTV well under 50% now for each. We may relocate, and I hope to be able to keep mortgage leverage for investment, whether that's rental property and/or market funds. And even if we stay put, our biggest mortgage now is a 5/1 ARM and there's a decent chance a refi in a couple of years would make sense - locking in a fixed rate and maybe paying it down to a non-jumbo balance.
Ooh, Timm, how are you finding such low rates on rental properties?
I like this thread so much, I'm giving it a bump. We submitted loan paperwork last week to get pre-approved for the next rental we intend to buy. As long as we're at it, we're checking to see if he can lower our rates on any of our other properties.
We made another minimum payment on our mortgage this monthWoot!
I like this thread so much, I'm giving it a bump. We submitted loan paperwork last week to get pre-approved for the next rental we intend to buy. As long as we're at it, we're checking to see if he can lower our rates on any of our other properties.
Kind of a catch-22 for this club. Once we decide to not pay off our mortgage's there isn't really anything to track in here to keep bumping the thread. We could start tracking how much money we've "saved" by not paying off our mortgage's, though real numbers for that are trickier to standardize than chasing your mortgage to zero.
We could start tracking how much money we've "saved" by not paying off our mortgage's, though real numbers for that are trickier to standardize than chasing your mortgage to zero.
In March 2015 we refinanced to a 15 year 3% mortgage (Bought house in March 2010 on 30 year 4.25% mortgage). Prior to refi in 2013 and 2014 we were very aggressive in paying down our mortgage. We still do put extra each month in our mortgage but not as crazily. Our current mortgage balance is $92K and at this rate we should have it fully paid off in 2025.The peace of mind you feel when you have a shit load of money in investments is really something! It's unbelievable how good it feels when you have more invested than you owe on the mortgage. When your investments compound at such a rapid rate that eventually they earn more than you do at your day job, it's mind-blowing.. You can make your puny little infllation-protected fixed-rate mortgage payments forever as your 'stache continues to flourish. Peaceful, easy feeling indeed!
I would put us in the in between club. I agree not to go crazy in paying off mortgage but as a peace of mind I would like to get rid of this even though the rate is low.
In March 2015 we refinanced to a 15 year 3% mortgage (Bought house in March 2010 on 30 year 4.25% mortgage). Prior to refi in 2013 and 2014 we were very aggressive in paying down our mortgage. We still do put extra each month in our mortgage but not as crazily. Our current mortgage balance is $92K and at this rate we should have it fully paid off in 2025.The peace of mind you feel when you have a shit load of money in investments is really something! It's unbelievable how good it feels when you have more invested than you owe on the mortgage. When your investments compound at such a rapid rate that eventually they earn more than you do at your day job, it's mind-blowing.. You can make your puny little infllation-protected fixed-rate mortgage payments forever as your 'stache continues to flourish. Peaceful, easy feeling indeed!
I would put us in the in between club. I agree not to go crazy in paying off mortgage but as a peace of mind I would like to get rid of this even though the rate is low.
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
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
An oversimplification. When weighing the opportunity costs, one should always consider interest rates (both for your mortgage and the federal rate), loan balance, and prevailing stock/bond market valuations.
To say never pay off your mortgage or to say always pay off your mortgage is to ignore these very real variables.
I made this mistake myself in my early 20s. I shared this mistake as my-biggest-financial-mistake-part-i My Biggest Financial Mistake (Part 1) and going-small Lack of Self Awareness and Thinking Ahead of Myself Was Costly.
The mortgage interest deduction is IMO the most overrated and insidious tax policy in the US. Most individuals don't weigh it against the amazing standard deduction and it encourages people to buy too much house.
Amen!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
An oversimplification. When weighing the opportunity costs, one should always consider interest rates (both for your mortgage and the federal rate), loan balance, and prevailing stock/bond market valuations.
To say never pay off your mortgage or to say always pay off your mortgage is to ignore these very real variables.
I made this mistake myself in my early 20s. I shared this mistake as my-biggest-financial-mistake-part-i My Biggest Financial Mistake (Part 1) and going-small Lack of Self Awareness and Thinking Ahead of Myself Was Costly.
The mortgage interest deduction is IMO the most overrated and insidious tax policy in the US. Most individuals don't weigh it against the amazing standard deduction and it encourages people to buy too much house.
The "not prepaying mortgage" strategy does not offset the mistake of owning to much of a house!
If the "top" is in on the market (whenever that is), then it might make sense to throw extra money at the mortgage while waiting for stocks to bottom out -> then flip and buy those cheap investments! Of course, that relies on "timing the market" so to speak, but for now, stocks have floundered around all-time highs for 2-3 months. Will be interesting to see what Q3 and Q4 brings....stocks have "floundered" for 2-3 months? That's hilarious on so many levels!
If the "top" is in on the market (whenever that is), then it might make sense to throw extra money at the mortgage while waiting for stocks to bottom out -> then flip and buy those cheap investments! Of course, that relies on "timing the market" so to speak, but for now, stocks have floundered around all-time highs for 2-3 months. Will be interesting to see what Q3 and Q4 brings....stocks have "floundered" for 2-3 months? That's hilarious on so many levels!
VTIAX is up 6.3% (plus dividend) over the last four months. I'm glad my portfolio is diversified.
If the "top" is in on the market (whenever that is), then it might make sense to throw extra money at the mortgage while waiting for stocks to bottom out -> then flip and buy those cheap investments! Of course, that relies on "timing the market" so to speak, but for now, stocks have floundered around all-time highs for 2-3 months. Will be interesting to see what Q3 and Q4 brings....stocks have "floundered" for 2-3 months? That's hilarious on so many levels!
A lot of people love indexed funds, right?
S&P500:
March 1: 2,395
May 5: 2,399
midday today: 2,422
The S&P 500 has barely increased 1% in over 4 months (plus a few days). Depending on which fund you are using, your dividend yield in June may have been in the 1.8 range (typically has been about $1/share, but again, depends on where you are investing it).
DOW JONES:
March 1: 21,115
May 5: 21,007
midday today: 21,415
Similar outlook for the DOW - up about 1.4% over the last 4 months.
NASDAQ:
March 1: 5,904
May 5: 6,101
midday today: 6,110
While the NASDAQ is up 3.5% since March 1st, it's essentially flat over the last two months.
A 4-month increase of ~1% = 3% annual ROI
Unless you are actively investing and outpacing the major indices, please tell me how my original statement was wrong. If you are invested in indexed funds, your investments have increased very little (minus reinvested dividends, if you received any and reinvested them) over the last 2 months, and in some cases over the last 4 months.
If the "top" is in on the market (whenever that is), then it might make sense to throw extra money at the mortgage while waiting for stocks to bottom out -> then flip and buy those cheap investments! Of course, that relies on "timing the market" so to speak, but for now, stocks have floundered around all-time highs for 2-3 months. Will be interesting to see what Q3 and Q4 brings.
If the "top" is in on the market (whenever that is), then it might make sense to throw extra money at the mortgage while waiting for stocks to bottom out -> then flip and buy those cheap investments! Of course, that relies on "timing the market" so to speak, but for now, stocks have floundered around all-time highs for 2-3 months. Will be interesting to see what Q3 and Q4 brings.
Your thinking is much like mine. In short, the answer to the question of whether or not to throw extra money at a mortgage is it depends.
But the much important decision is how much mortgage to take in the first place. And my answer is always as small as possible.
If the "top" is in on the market (whenever that is), then it might make sense to throw extra money at the mortgage while waiting for stocks to bottom out -> then flip and buy those cheap investments! Of course, that relies on "timing the market" so to speak, but for now, stocks have floundered around all-time highs for 2-3 months. Will be interesting to see what Q3 and Q4 brings....stocks have "floundered" for 2-3 months? That's hilarious on so many levels!
A lot of people love indexed funds, right?
S&P500:
March 1: 2,395
May 5: 2,399
midday today: 2,422
The S&P 500 has barely increased 1% in over 4 months (plus a few days). Depending on which fund you are using, your dividend yield in June may have been in the 1.8 range (typically has been about $1/share, but again, depends on where you are investing it).
DOW JONES:
March 1: 21,115
May 5: 21,007
midday today: 21,415
Similar outlook for the DOW - up about 1.4% over the last 4 months.
NASDAQ:
March 1: 5,904
May 5: 6,101
midday today: 6,110
While the NASDAQ is up 3.5% since March 1st, it's essentially flat over the last two months.
A 4-month increase of ~1% = 3% annual ROI
Unless you are actively investing and outpacing the major indices, please tell me how my original statement was wrong. If you are invested in indexed funds, your investments have increased very little (minus reinvested dividends, if you received any and reinvested them) over the last 2 months, and in some cases over the last 4 months.
Oh, no, I definitely agree. Any loan under 5% I'd be investing the excess cash flow instead of paying additional to the principal on the loan.
What I was saying when the markets start to slide (and they will eventually) then it would be advantageous to pay extra on the mortgage.
If the "top" is in on the market (whenever that is), then it might make sense to throw extra money at the mortgage while waiting for stocks to bottom out -> then flip and buy those cheap investments! Of course, that relies on "timing the market" so to speak, but for now, stocks have floundered around all-time highs for 2-3 months. Will be interesting to see what Q3 and Q4 brings.
Your thinking is much like mine. In short, the answer to the question of whether or not to throw extra money at a mortgage is it depends.
But the much important decision is how much mortgage to take in the first place. And my answer is always as small as possible.
Keep the mortgage small? Or keep the price low? Because nothing is smaller than no mortgage.
Oh, no, I definitely agree. Any loan under 5% I'd be investing the excess cash flow instead of paying additional to the principal on the loan.
What I was saying when the markets start to slide (and they will eventually) then it would be advantageous to pay extra on the mortgage.
Wow I like this thread - it's very unsusual not to be treated like a leper for not paying the mortgage off as soon as possible!
Congratulations to those of you who have a higher amount in investments than they do mortgage balance. I've only been investing since April last year so that day is quite a few years away from me yet.
Currently I have just under one year remaining of a 3.89% fix, and 31 years left on my mortgage. Come April next year I will shop around for the best fixed deal I can find as I don't like the idea of switching to variable with the interest rate being so low in the UK at the moment.
Wow I like this thread - it's very unsusual not to be treated like a leper for not paying the mortgage off as soon as possible!
Congratulations to those of you who have a higher amount in investments than they do mortgage balance. I've only been investing since April last year so that day is quite a few years away from me yet.
Currently I have just under one year remaining of a 3.89% fix, and 31 years left on my mortgage. Come April next year I will shop around for the best fixed deal I can find as I don't like the idea of switching to variable with the interest rate being so low in the UK at the moment.
welcome.
I treat people like lepers for paying off their low fixed rate mortgages. I'm of the opinion it should be very high on your list of optimizing your spending/investing around here. and yet its treated very much as a personal decision - which is why we have a 55 page thread of people paying down sub 4% interest mortgages.
@DarkandStormy
@Dicey
I'm enjoying this spat between you two as you both have great points you're making.
Dicey - do you happen to be an Axis & Allies player or a player of some other dice-heavy game?
@DarkandStormy
@Dicey
I'm enjoying this spat between you two as you both have great points you're making.
Dicey - do you happen to be an Axis & Allies player or a player of some other dice-heavy game?
Fair enough. Just started on my mortgage, and of course have been paying the minimum required on a 30-year fixed. I know I'm not going to "time" the market, so in practice, I'll probably continue to pay the minimum and either keep cash on the sidelines or in bonds. So it's a bit hollow/hypocritical to be making the point I was haha.
Pizza Steve this thread is for people to get together about not paying off their mortgages. Feel free to spread you stock fear in your own thread.
@DarkandStormy
@Dicey
I'm enjoying this spat between you two as you both have great points you're making.
Dicey - do you happen to be an Axis & Allies player or a player of some other dice-heavy game?
I've never played Axis & Allies. Good guess, though. It's kind of a play on my old name, which I changed when I started a journal.
Pizza Steve this thread is for people to get together about not paying off their mortgages. Feel free to spread you stock fear in your own thread.
His point about couples needing to be on the same page is extremely valid. Wisdom, pure and simple. And anybody feeling 100% certain that stocks will deliver a better rate of return than paying down a mortgage over any period of time (either 5 years or 29 years) should reevaluate why they hold such a belief.
Count me, somewhat reluctantly, in. We have a 15 year fixed-rated at 3.25% (was supposed to be 2.89%, but that's a story for another time). We have about 10 years left with a balance around 117k, closing in on 50% equity.
I really hate debt and wanted to pay it off early.
My wife and I ran the numbers on this a few weeks ago. I was hoping we could pay it of in 2-3 years so she could quit her job after we have a second child. We decided throwing all her paycheck that isn't going towards bills into savings instead of the mortgage. We could make a nice dent in the principle, but it wasn't enough for either of us to feel comfortable or to pay it off.
Count me, somewhat reluctantly, in. We have a 15 year fixed-rated at 3.25% (was supposed to be 2.89%, but that's a story for another time). We have about 10 years left with a balance around 117k, closing in on 50% equity.
I really hate debt and wanted to pay it off early.
My wife and I ran the numbers on this a few weeks ago. I was hoping we could pay it of in 2-3 years so she could quit her job after we have a second child. We decided throwing all her paycheck that isn't going towards bills into savings instead of the mortgage. We could make a nice dent in the principle, but it wasn't enough for either of us to feel comfortable or to pay it off.
good choice investing the money probably will win over the long run. you dont need a paid off house for her to quit her job if you invest the money you would have put towards the house and then draw from it for cash flow if needed you'll likely come out farther ahead than having pumped it in.
Count me, somewhat reluctantly, in. We have a 15 year fixed-rated at 3.25% (was supposed to be 2.89%, but that's a story for another time). We have about 10 years left with a balance around 117k, closing in on 50% equity.
I really hate debt and wanted to pay it off early.
My wife and I ran the numbers on this a few weeks ago. I was hoping we could pay it of in 2-3 years so she could quit her job after we have a second child. We decided throwing all her paycheck that isn't going towards bills into savings instead of the mortgage. We could make a nice dent in the principle, but it wasn't enough for either of us to feel comfortable or to pay it off.
good choice investing the money probably will win over the long run. you dont need a paid off house for her to quit her job if you invest the money you would have put towards the house and then draw from it for cash flow if needed you'll likely come out farther ahead than having pumped it in.
extremely flawed thinking. for multiple reasons.
1. this is market timing
2. the money once dumped into the mortgage cant be easily removed to invest in stocks at the bottom. I'd bet you be very hard pressed to find a historical 30 year period where this strategy actually worked well.
3. see number 1.
extremely flawed thinking. for multiple reasons.
1. this is market timing
2. the money once dumped into the mortgage cant be easily removed to invest in stocks at the bottom. I'd bet you be very hard pressed to find a historical 30 year period where this strategy actually worked well.
3. see number 1.
4. Stocks are bought and sold every day. That's a lot of market timing.
5. Ben Stein wrote an interesting book called "Yes you can time the market" which agrees with the concept of not buying stocks when they are more expensive compared to a long-term average.
I think that stocks are expensive and a more conservative asset allocation could make a lot of sense right now.
Count me, somewhat reluctantly, in. We have a 15 year fixed-rated at 3.25% (was supposed to be 2.89%, but that's a story for another time). We have about 10 years left with a balance around 117k, closing in on 50% equity.
I really hate debt and wanted to pay it off early.
My wife and I ran the numbers on this a few weeks ago. I was hoping we could pay it of in 2-3 years so she could quit her job after we have a second child. We decided throwing all her paycheck that isn't going towards bills into savings instead of the mortgage. We could make a nice dent in the principle, but it wasn't enough for either of us to feel comfortable or to pay it off.
good choice investing the money probably will win over the long run. you dont need a paid off house for her to quit her job if you invest the money you would have put towards the house and then draw from it for cash flow if needed you'll likely come out farther ahead than having pumped it in.
apply that to absolutely anything to do with investing money and expecting it to last regardless of in your home or in the market or in real estate.
the earth probably will be around tomorrow
donald trump probably will still be president
you probably will be alive tomorrow
the sun probably will come up tomorrow.
I just came to the conclusion I need to join the club. It wasn't an entirely welcome realization, as I hate debt.
But I'll be renewing at 2.34%, so I save very little from extra payments and lose what returns I could get from the market. And then I'd just pay more tax, because less interest to write off. (I'm Canadian, but this is an investment property.) And then it reduces my cash flow too.
I'll probably be considering refinancing at some future point, either to reduce my payments further or take advantage of equity.
I will be keeping an account with money saved in case interest rates jump substantially on renewal.
Fair point - just chiming in to add my husband and I are 100% on the same page now - communication truly goes a long way. I won't argue about what provides a better return, to be fair history may not repeat itself. My husband and I both understand the stock market may go up or down in any given time period but usually in the long haul it does go up.Great to hear it!
I don't want to hijack this thread though so I'll just add that we're excited to be 2 weeks out from closing on our next rental and adding another mortgage to the pile (along with some nice CF). Cheers to everyone on their journey :)
Boarder42 often throws out personal attacks at me that missrepresent and selectively quote what i write. I strongly support the intent of this thread and the strategy of growing personal wealth, as long as everyone fully understands their decision and respects those who chose other paths. I hope you reach the point where the mortgage is so small relative to your wealth, it doesnt matter much. We all want the long bull market to continue (in the long term).
I wish your family much success with your investments and real estate.
The thing I love about this thread those like it, especially as championed by B42, is that this approach tends to get little respect. People just don't understand the math. The emotional response to "kill all the debt" because "all debt is bad" is fine if your hair is on fire with sukka consumer debt. However, if one is solvent and desires to create wealth, that approach is simplistic, at best.
I strongly support the intent of this thread and the strategy of growing personal wealth, as long as everyone fully understands their decision and respects those who chose other paths.
The thing I love about this thread those like it, especially as championed by B42, is that this approach tends to get little respect. People just don't understand the math. The emotional response to "kill all the debt" because "all debt is bad" is fine if your hair is on fire with sukka consumer debt. However, if one is solvent and desires to create wealth, that approach is simplistic, at best.
I strongly support the intent of this thread and the strategy of growing personal wealth, as long as everyone fully understands their decision and respects those who chose other paths.
.
.
To use a gambling analogy, keeping an affordable mortgage in order to stuff other financial vehicles is kind of like playing the Don't Pass Line in Craps*. The odds are better, but you're playing against the rest of the table. It takes a surprising amount of confidence to do this, but that's where the best results are. And OMG, is it fun!
.
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What is a far better feeling is to know you have enough green soldiers to RE ~and~ pay your mortgage off any time you feel like it. That, as more and more people are learning, is true peace of mind and amazing power.
So I have paid my mortgage ahead a couple months and count that as part of my 'emergency fund' (current mortgage due October 1st). It is by no means a significant chunk of my emergency fund' but if sh*t hits the fan - not worrying about a mortgage for a couple months would be nice. Does that allow me to be part of the 'don't payoff my mortgage club'? I'm a new convert to this mmm team and I'm open to suggestions.
So I have paid my mortgage ahead a couple months and count that as part of my 'emergency fund' (current mortgage due October 1st). It is by no means a significant chunk of my emergency fund' but if sh*t hits the fan - not worrying about a mortgage for a couple months would be nice. Does that allow me to be part of the 'don't payoff my mortgage club'? I'm a new convert to this mmm team and I'm open to suggestions.
The thing I love about this thread those like it, especially as championed by B42, is that this approach tends to get little respect. People just don't understand the math. The emotional response to "kill all the debt" because "all debt is bad" is fine if your hair is on fire with sukka consumer debt. However, if one is solvent and desires to create wealth, that approach is simplistic, at best.
I strongly support the intent of this thread and the strategy of growing personal wealth, as long as everyone fully understands their decision and respects those who chose other paths.
.
.
To use a gambling analogy, keeping an affordable mortgage in order to stuff other financial vehicles is kind of like playing the Don't Pass Line in Craps*. The odds are better, but you're playing against the rest of the table. It takes a surprising amount of confidence to do this, but that's where the best results are. And OMG, is it fun!
.
.
What is a far better feeling is to know you have enough green soldiers to RE ~and~ pay your mortgage off any time you feel like it. That, as more and more people are learning, is true peace of mind and amazing power.
In order of these 3 paragraphs - gold, great metaphor, and platinum!
If I could speak to my 18 year old self, then the main conversation I'd have is around my own psychology of debt. Even though I have no debt today, I'm not vehemently opposed to using good debt tactically anymore.
So I have paid my mortgage ahead a couple months and count that as part of my 'emergency fund' (current mortgage due October 1st). It is by no means a significant chunk of my emergency fund' but if sh*t hits the fan - not worrying about a mortgage for a couple months would be nice. Does that allow me to be part of the 'don't payoff my mortgage club'? I'm a new convert to this mmm team and I'm open to suggestions.
I don't personally see the benefit of that. It seems more beneficial to keep the funds in high yields savings where it is earning at least over 1% as I don't believe pre-paying the mortgage saves you anything on interest.
So I have paid my mortgage ahead a couple months and count that as part of my 'emergency fund' (current mortgage due October 1st). It is by no means a significant chunk of my emergency fund' but if sh*t hits the fan - not worrying about a mortgage for a couple months would be nice. Does that allow me to be part of the 'don't payoff my mortgage club'? I'm a new convert to this mmm team and I'm open to suggestions.In the US, for the vast majority of mortgages, paying ahead doesn't earn you any grace period at all. Payment is due on the due date, every month, without fail. Missing payments can trigger foreclosure, no matter how far "ahead" you are. There are many better uses for "extra" money, like investing it so one never has to worry about missing payments.
So I have paid my mortgage ahead a couple months and count that as part of my 'emergency fund' (current mortgage due October 1st). It is by no means a significant chunk of my emergency fund' but if sh*t hits the fan - not worrying about a mortgage for a couple months would be nice. Does that allow me to be part of the 'don't payoff my mortgage club'? I'm a new convert to this mmm team and I'm open to suggestions.In the US, for the vast majority of mortgages, paying ahead doesn't earn you any grace period at all. Payment is due on the due date, every month, without fail. Missing payments can trigger foreclosure, no matter how far "ahead" you are. There are many better uses for "extra" money, like investing it so one never has to worry about missing payments.
I appreciate your willingness to learn, jag, so, welcome!
he has paid it ahead... which should mean he has a grace period.
But I want to pay it off twice as fast, so I send in one payment every 1/2 month when I get paid.
But I want to pay it off twice as fast, so I send in one payment every 1/2 month when I get paid.
This would not pay off your mortgage twice as fast. It would be sooner. 15-year mortgages are not twice the payment of 30-year mortgages.
Part of the club, but wondering: have investment gains from the market lately been so extraordinary, that rebalancing a little bit makes sense?
Example: I have a $100,000 mortgage, but also $130,000 investment account. During the past eight months, that investment account has increased in value to $160,000, while--simply by making payments on time--that mortgage balance has decreased to $98,000.
Should I sell some of the gains while the market is up to throw against the mortgage? I'm thinking about 20% of my investment gains (which would be equivalent to rebalancing at 80-20 if you think of mortgage as "negative" bonds)?
Part of the club, but wondering: have investment gains from the market lately been so extraordinary, that rebalancing a little bit makes sense?
Example: I have a $100,000 mortgage, but also $130,000 investment account. During the past eight months, that investment account has increased in value to $160,000, while--simply by making payments on time--that mortgage balance has decreased to $98,000.
Should I sell some of the gains while the market is up to throw against the mortgage? I'm thinking about 20% of my investment gains (which would be equivalent to rebalancing at 80-20 if you think of mortgage as "negative" bonds)?
You may wish to rebalance your investment portfolio (e.g. stocks/bonds ratio). But selling investments to pay down your mortgage actually decreases your total gross assets. All you gain is more home equity (less leverage). The value of your house does not change.
Part of the club, but wondering: have investment gains from the market lately been so extraordinary, that rebalancing a little bit makes sense?
Example: I have a $100,000 mortgage, but also $130,000 investment account. During the past eight months, that investment account has increased in value to $160,000, while--simply by making payments on time--that mortgage balance has decreased to $98,000.
Should I sell some of the gains while the market is up to throw against the mortgage? I'm thinking about 20% of my investment gains (which would be equivalent to rebalancing at 80-20 if you think of mortgage as "negative" bonds)?
Part of the club, but wondering: have investment gains from the market lately been so extraordinary, that rebalancing a little bit makes sense?
Example: I have a $100,000 mortgage, but also $130,000 investment account. During the past eight months, that investment account has increased in value to $160,000, while--simply by making payments on time--that mortgage balance has decreased to $98,000.
Should I sell some of the gains while the market is up to throw against the mortgage? I'm thinking about 20% of my investment gains (which would be equivalent to rebalancing at 80-20 if you think of mortgage as "negative" bonds)?
You're better off saving/investing until you have enough $$ to pay the mortgage in full. Which is where you are right now. So your choice is: Cash out investments and get rid of the mortgage, so that expense is totally gone. Or, keep the $$ invested and let it accumulate at an accelerated rate, knowing that you can cash out and pay the mortgage any time you want.
Count me in. One upside of living in Finland are low interest rates, my mortgage is currently (variable rate) at 0.79% AND the government also supports homeowners by allowing almost half of the interest to be deductible. There are people here who took mortgages before the financial crisis and have currently 0% interest rate on their mortgage! That's because the variable part of the rate is actually negative.That is so enlightened! Both you and your government. Kudos!
So there is zero sense in any extra payments. In fact, I just took a "free" (as in no fees) year off payments, just paying interest for another 6 months, which is around €100 per month on a ~150k mortgage. Currently throwing all I can at the stock market as well as looking for new rental properties.
the current PE is around 26 which isnt that much higher than 25 which is what sustains the 4% SWR.
You may wish to rebalance your investment portfolio (e.g. stocks/bonds ratio). But selling investments to pay down your mortgage actually decreases your total gross assets. All you gain is more home equity (less leverage). The value of your house does not change.
Count me, somewhat reluctantly, in. We have a 15 year fixed-rated at 3.25% (was supposed to be 2.89%, but that's a story for another time). We have about 10 years left with a balance around 117k, closing in on 50% equity.
I really hate debt and wanted to pay it off early.
My wife and I ran the numbers on this a few weeks ago. I was hoping we could pay it of in 2-3 years so she could quit her job after we have a second child. We decided throwing all her paycheck that isn't going towards bills into savings instead of the mortgage. We could make a nice dent in the principle, but it wasn't enough for either of us to feel comfortable or to pay it off.
good choice investing the money probably will win over the long run. you dont need a paid off house for her to quit her job if you invest the money you would have put towards the house and then draw from it for cash flow if needed you'll likely come out farther ahead than having pumped it in.
apply that to absolutely anything to do with investing money and expecting it to last regardless of in your home or in the market or in real estate.
My wife asked me what we should do about the mortgage last night. We have a fixed rate through another 15 payments. Looking for strategies to put her mind at ease.More details needed to help. Rate? Balance? Overall financial health?
My wife asked me what we should do about the mortgage last night. We have a fixed rate through another 15 payments. Looking for strategies to put her mind at ease.
My wife asked me what we should do about the mortgage last night. We have a fixed rate through another 15 payments. Looking for strategies to put her mind at ease.
Depends on your interest rate. Is clearing that debt your top priority? If so, then you could double up the payment each month and get it off the books sooner. Would you rather be investing as much as possible the next 15 months? Then make the minimum payments.
With just over a year left I don't think it will make a huge difference either way. Congrats on nearly reaching the end!
My wife asked me what we should do about the mortgage last night. We have a fixed rate through another 15 payments. Looking for strategies to put her mind at ease.
Depends on your interest rate. Is clearing that debt your top priority? If so, then you could double up the payment each month and get it off the books sooner. Would you rather be investing as much as possible the next 15 months? Then make the minimum payments.
With just over a year left I don't think it will make a huge difference either way. Congrats on nearly reaching the end!
15 months left fixed I assume he isn't 15 payments from the end
If it were me, I'd pay off the house. Its on a short enough time line that the market is more volatile. Plus, how awesome would it be to never have another mortgage payment?
You've clearly forgotten my frequent contributions to this thread where I generally support not paying off the mortgage.
You've clearly forgotten my frequent contributions to this thread where I generally support not paying off the mortgage.
if you think he only has 15 payments left you're read his entire post incorrectly
If it were me, I'd pay off the house. Its on a short enough time line that the market is more volatile. Plus, how awesome would it be to never have another mortgage payment?This isn't about paying off the house. It's about what to do when the rate lock expires on an ARM. Far more interesting topic, IMO.
Indeed we've had very nice investment gains on money that could have been thrown at our mortgage.
And as long as we can keep the rate on the mortgage below 4% (reminder: it's at 3% now), the math favors paying it down slowly.
Will it take one year or five years to close the door on our access to rates that low?
I'm curious as to what the feeling of people in this thread is towards refinancing to increase monthly cash flow. I've got about 8 years left on my 15 year mortgage. If I refi to a new 15 year mortgage I estimate that I could reduce my payment by $800-$900 a month.Need more info to do the math. Your "refinance" option is the easiest to compute - I went with 7% expected return for 15 years on $6000 per year, and I get $150K or so. At the end of 15 years, you have a paid-off house and $150K.
I would be kidding myself if I said that I would invest all of that savings as I know some portion would get spent. I think I could safely say that I would put $500 a month into an index fund.
Why 15. If you plan to stay there at least 7 more years a 30 will come out ahead. But if the interest rates are comparable a refi will make a lot of financial sense. And if the mortgage is that old the rates now are better.
This is a pretty boring update.....I made another mortgage payment with zero extra principle added. Only 356 payments to go until it's paid off. LOLI'm so impressed and even a tiny bit envious of your lovely, long mortgage..
This is a pretty boring update.....I made another mortgage payment with zero extra principle added. Only 356 payments to go until it's paid off. LOLI'm so impressed and even a tiny bit envious of your lovely, long mortgage..
This is a pretty boring update.....I made another mortgage payment with zero extra principle added. Only 356 payments to go until it's paid off. LOL
we just hit one year on our REFI from the absolute bottom of the market. its nuts to think i have a 3.25% interest rate on a 30 year note.
we just hit one year on our REFI from the absolute bottom of the market. its nuts to think i have a 3.25% interest rate on a 30 year note.
I timed our refi about the same as you, but picked 15-year fixed at 2.75%. The other option was 30 at 3.20, and now I'm sorta kicking myself for not picking that one...
But still, can't complain about the 15-year rate!
Yeah, I'm right there with you. 14 years to go on our 2.75% rate.
Yeah, I'm right there with you. 14 years to go on our 2.75% rate.
Nice!
I'm keeping an eye out for opportunities to refi to 30 years at some point, if rates go down further. You?
It's unlikely we see rates that low again anytime soon with the fed raising rates again.
Just checking in to join the club. I'm enjoying paying my mortgage slowly.
These are some nice interest rates being posted. We bought our house right before rate increases took effect - locking in 3.625% for 30 years.
So I was reading some investing articles over the weekend. It's a common theme that the market may perform well (10%/year before accounting for inflation), but the individual investor does not (because we buy high and sell low, and buy individual stocks, which carry a heavy risk penalty).
Being a member of this club means we need to perform the heavy lifting on the investment side as well...so...what are you doing to minimize fees, maximize returns, and stay the course when the next bear market comes?
So I was reading some investing articles over the weekend. It's a common theme that the market may perform well (10%/year before accounting for inflation), but the individual investor does not (because we buy high and sell low, and buy individual stocks, which carry a heavy risk penalty).
Being a member of this club means we need to perform the heavy lifting on the investment side as well...so...what are you doing to minimize fees, maximize returns, and stay the course when the next bear market comes?
[...] only charges .04% - yes, four tenths of one percent.Isn't that four hundredths of one percent?
So I was reading some investing articles over the weekend. It's a common theme that the market may perform well (10%/year before accounting for inflation), but the individual investor does not (because we buy high and sell low, and buy individual stocks, which carry a heavy risk penalty).
Being a member of this club means we need to perform the heavy lifting on the investment side as well...so...what are you doing to minimize fees, maximize returns, and stay the course when the next bear market comes?
That is what "active" investors do. On MMM we are buy & hold passive investors. So bear markets don't affect us because we never sell. In fact, during a dip we might double down on buying more stock. But otherwise we just more or less sit on our investments and re-balance our stocks/bonds to 80/20 (or 60/40).
A lot of us use Vanguard because they have some of the lowest fees in the industry. For example, a financial advisor might charge you 1% to manage your money, but the VTSAX total sock market Vanguard fund only charges .04% - yes, four tenths of one percent. VTBLX, which is the total Bond market index fund has an expense ratio of .05%. So you can get total stocks and total bonds, set them up in whatever ratio you like, and only get charged .04% and .05% which is a massive savings vs. traditional managed accounts.
[...] only charges .04% - yes, four tenths of one percent.Isn't that four hundredths of one percent?
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.
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.
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 (https://forum.mrmoneymustache.com/investor-alley/getting-scared-of-stock-market/msg1691522/#msg1691522)! That's exactly the same rate (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1581891/#msg1581891) and approximate payoff date (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1451763/#msg1451763) as runewell!
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 (https://forum.mrmoneymustache.com/investor-alley/getting-scared-of-stock-market/msg1691522/#msg1691522)! That's exactly the same rate (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1581891/#msg1581891) and approximate payoff date (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1451763/#msg1451763) as runewell!
haha nice catch
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 (https://forum.mrmoneymustache.com/investor-alley/getting-scared-of-stock-market/msg1691522/#msg1691522)! That's exactly the same rate (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1581891/#msg1581891) and approximate payoff date (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1451763/#msg1451763) as runewell!
haha nice catch
Who knew there were TWO bridge playing actuaries on this board?!
I was thinking of another permutation yesterday while working on my house.
I was thinking of another permutation yesterday while working on my house. (Removing carpet and installing vinyl plank flooring).Many are planning on doing this. Not me - I have a spouse to convince before I could re-mortgage our paid off house, but lots on this board have done / are doing this. You weigh the amount you can pull out easily against interest and closing costs and if it makes sense do it. I'd probably invest the dough in your scenario because 3.49% is also a very low rate.
My mortgage has a $180-185K balance but because of market appreciation is probably worth nearly $300K. What if I did a cash-out, no-cost, refinance and take out $50-60K. I think a fear would be that the housing market is overvalued, but I think the main issue with this is if you try to sell the home and are underwater. In my situation, if I plan to use the money somewhat wisely, I am just leveraging an asset.
Instead of having the money sitting in equity, I could pull it out, pay tax deductible interest on the loan, and use it to invest, or pay down debt at a higher real rate. In my case I have a car loan at 3.49% which costs me more than my mortgage interest rate of 3.625% - tax deduction.
regardless of starting a business or indexing or real estate investing if i have money left over after paying my minimum mortgage payment it should be going to any one of those 3 over paying down a mortgage b/c if the real estate or the business isnt beating passive investing why in the F. would you being doing it.
i dont understand any part of what your statement is and it makes 0 sense.
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
regardless of starting a business or indexing or real estate investing if i have money left over after paying my minimum mortgage payment it should be going to any one of those 3 over paying down a mortgage b/c if the real estate or the business isnt beating passive investing why in the F. would you being doing it.
i dont understand any part of what your statement is and it makes 0 sense.
I didn't mention pre-paying a mortgage in my statement. I was referring to your theory that an emergency fund should be irrrelevant when someone reaches a certain level of investing. But once again, you are assuming that based on only one specific type of investment. And it just reminds me yet again that the underlying bias of most of your comments and maths are assuming a priority on index investing.
Can you go into more detail about why you judge the higher interest rate situation to be better?
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 (https://forum.mrmoneymustache.com/investor-alley/getting-scared-of-stock-market/msg1691522/#msg1691522)! That's exactly the same rate (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1581891/#msg1581891) and approximate payoff date (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1451763/#msg1451763) 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...
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.
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.
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?
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
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
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?
Not sure if #1 is correct, particularly if you own a home with enough interest expense to itemize.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'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.
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.
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.
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 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%
In the US, mortgage interest is tax deductible.If you don't itemize, I thought that there was no difference about the mortgage being 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)
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 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 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!
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.
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.
Okay, in the immortal words of the Monkees, now I'm a believer.
https://www.youtube.com/watch?v=wB9YIsKIEbA
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.
Okay, in the immortal words of the Monkees, now I'm a believer.
https://www.youtube.com/watch?v=wB9YIsKIEbA
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!!
I’m one of those people who really hates debt. However at a 3.5% interest I just can’t 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!I’m one of those people who really hates debt. However at a 3.5% interest I just can’t 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?
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.
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 see the math. But I don't need an extra 1.67 million, or 2.77 million. I'm already going to have at least that much in my 401k/IRA accounts in addition to my 750,000 FIRE number. Why would I need double that already insane amount??!!? That's more than I will ever use, touch, etc. It won't make me any happier. If money could make me happier than I would be planning to work at my job for 45 years instead of 9. The only benefit I see is that I could give it away and make the world a better place. But that's not really my motivator, as I could easily work until FI, and then keep working for 45 years and give 100% of the rest away with the same results. But I won't do that either lol...call me selfish. As for giving up $100,000 over the 9 years towards FI, that one DOES sting a little. But at the same time, working either 8 years or 9 years to FI is not going to be too much of a difference. I'm ok with my choice.
So you posted here to gain what information then? Confirmation you're making a bad choice and to ignore all data presented?
Read some of the pro and against paying off the house.
The math states don't make extra payments but the human side knows my past. The IRA account may not be the fastest growing but it has the largest sum in it because I can't put my hands on it.
If I pay extra on the house, I will make the ends meet by cutting somewhere else(not investments). If I don't pay extra, my past shows that money will find a place to go that is not an investment.
Still deciding on which route to take. 31 year old car guy(damn you car hobby), $159k mortgage(house worth $265k) 3.25% for 15 years.
So you posted here to gain what information then? Confirmation you're making a bad choice and to ignore all data presented?
Honestly I posted to follow the conversation! And to tell everyone that this thread has made me willing to finance part of a mortgage. Contrary to your assessment of me, I am willing to learn. But people seem to be adverse to the technique of saying "Posting to Follow" So instead I posted with my thought process.
So for starters are you maxing all tax advantaged accounts. 18k to 401k 5500 to Roth x2 for two people and maxing your hsa if available?
So for starters are you maxing all tax advantaged accounts. 18k to 401k 5500 to Roth x2 for two people and maxing your hsa if available?
Roger that! I'm a SINK. The tax advantaged accounts are all maxed and should be worth around somewhere between $3-4 mil once I'm 65-70 ish. I am not eligible for an HSA but if I become eligible, that's the next one to be maxed. The predicted $750,000 9 years from now to live off in ER will be coming from a taxable account I have set up through vanguard. The house fund is in addition to all that in a 1.3% APR savings account since it's set aside for short term spending. In addition to that, I seem to have around $2000 per month extra income that i'm able to very comfortably live off without dipping into savings.
You don't need a separate taxable bucket for starters. You can access all those funds early. 1.3% is losing money to inflation. This is worse than mortgage debt.
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?
Yeah my understanding of how mortgages work in England and Canada is they get insanely good rates but for short term locks 2-5 years.
I think it's sad when people wait to fix up properties until right before they sell. Do the work well, enjoy it, then market it as "newer"or "upgraded" when you sell. Win-win.
I'm generally in favor, albeit with a few significant caveats:
- NO to P2P lending. It's just not worth the headspace, IMO.
- Borrow less and cash flow the rest of the cost of improvements. Maybe 8k? Your rate locks are so short that borrowing to invest is a much riskier move. Should rates rise, you don't want to be on the hook for a bigger mortgage. If your investments are down when the interest rates rise, you'll feel a double hit. Even when the (theoretical) down market recovers, you will have subjected yourself to unnecessary risk, stress and cost.
Congratulations on getting off to such a fast start! I like the way you think.
In the UK, I don't know how to recommend investing when I cannot accurately assess currency risk. The economy seems pretty strong there, now, but I'm worried that a poor handling of the departure from the EU could turn into a serious devaluing of your currency.
Hi Manchester. I’m also a UK person. Being quite cautious I was a mortgage over payer so I don’t particularly belong on this thread! However there is a lot of good advice here and there are other threads that are worth looking at that discuss mortgage overpaying versus investing.
The US do have the security of 30 year fixes and I believe they can claim back tax against their mortgage payments. Someone on here can correct me if I’ve got this wrong. Therefore the case for not overpaying in the US is a lot stronger than it is for us. My worry was always coming out of a fixed period and finding interest rates were now 8%+. My parents stories of a 12% mortgage rate got to me here.
With the marvellous wisdom of hindsight my mortgage was never higher than about 4.5% and the markets have performed well over the last few years. So I would have been better investing.
So it really is about your attitude to risk and how easy it will be for you to sleep at night with whatever choice you make. How much do you expect interest rates to rise in the next few years? How do you think markets will perform over the next few years. How will Brexit turn out? What’s your job security like as far as you can tell? All questions I don’t expect you to be able to answer. Although if you do know the answers please tell me!
What rate can you get a 5 year fix at? Although it won’t be as low as 1.7% if it’s 3% or something and you have 5 years where you know it can’t go up that would give you more freedom to invest.
Good luck. Well done for getting on the housing ladder so young and putting proper thought into how to proceed. Although there is an optimum choice here (hindsight will inform you what it was) at the end of the day investing or paying off a mortgage are great things to do. You’re not using the money to buy a £40,000 monster truck on credit so either way you’re winning.
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread.Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.
In my post over there, I've outlined how my DW is very conservative and nervous about investments. Well, after going over our estimated taxes owed for the year and reworking our budget for after our refinance goes through, I told DW that I think I should double my 401k contributions from 6% (this was to get the match which is essentially 3%) to 12%. She simply said "sounds great!" and we moved on! Win!
I've brought stuff like this up before and she has not been open to the idea. After she agreed, it probably helped that I could show her how our budget and mortgage payoff date is relatively unaffected.
Edit: So, basically, I will have an extra ~$314 going into investments/month (with a total amount of ~$628 per month) as opposed to $314 to investments and $200 going to the mortgage every month.
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread.Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.
In my post over there, I've outlined how my DW is very conservative and nervous about investments. Well, after going over our estimated taxes owed for the year and reworking our budget for after our refinance goes through, I told DW that I think I should double my 401k contributions from 6% (this was to get the match which is essentially 3%) to 12%. She simply said "sounds great!" and we moved on! Win!
I've brought stuff like this up before and she has not been open to the idea. After she agreed, it probably helped that I could show her how our budget and mortgage payoff date is relatively unaffected.
Edit: So, basically, I will have an extra ~$314 going into investments/month (with a total amount of ~$628 per month) as opposed to $314 to investments and $200 going to the mortgage every month.
FWIW, I'm not completely against paying off mortgages entirely. I just want people to know what they're giving up if they prepay the mortgage at the expense of other savings. Learn the optimal sequence and play your cards in the smartest order.
Hooray! Honestly, that's why I'm still here. If I can help anyone get to FIRE more easily than I did, it makes me happy.So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread.Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.
In my post over there, I've outlined how my DW is very conservative and nervous about investments. Well, after going over our estimated taxes owed for the year and reworking our budget for after our refinance goes through, I told DW that I think I should double my 401k contributions from 6% (this was to get the match which is essentially 3%) to 12%. She simply said "sounds great!" and we moved on! Win!
I've brought stuff like this up before and she has not been open to the idea. After she agreed, it probably helped that I could show her how our budget and mortgage payoff date is relatively unaffected.
Edit: So, basically, I will have an extra ~$314 going into investments/month (with a total amount of ~$628 per month) as opposed to $314 to investments and $200 going to the mortgage every month.
FWIW, I'm not completely against paying off mortgages entirely. I just want people to know what they're giving up if they prepay the mortgage at the expense of other savings. Learn the optimal sequence and play your cards in the smartest order.
Thanks Dicey! I was very pleased my wife was so open to the idea this time. I'm not sure what changed her mind, but I feel like we've made a huge leap that we will be thankful for down the road.
I think we will always have a delicate balance between paying down the mortgage and investing for retirement. I used to be very risk averse and nervous about investing too, but as I've read more and more have become much more comfortable.
Does The Math change now that the standard deduction is significantly higher so fewer people will be itemizing?
I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.
I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.I have no issues with pre-paying or even paying off a mortgage under the right circumstances. Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.
DH just brought up again that we should consider putting a large payment down on the mortgage... I will have to run the numbers... We've made an amazing amount in the markets this year, however, so it may be time to remove some of our profits..
DH just brought up again that we should consider putting a large payment down on the mortgage... I will have to run the numbers... We've made an amazing amount in the markets this year, however, so it may be time to remove some of our profits..
This would be a bad idea. It's market timing
DH just brought up again that we should consider putting a large payment down on the mortgage... I will have to run the numbers... We've made an amazing amount in the markets this year, however, so it may be time to remove some of our profits..
This would be a bad idea. It's market timing
B42, what is the market timing boundary? I have 185k$ mortgage now but 30k$ HELOC available. I could use it to buy index funds (VTI + VXUS) or wait to buy for cash over the next 3 years...
My actual leverage (debt/assets) is 17% now and this move would get me to 17.5%. My FI would increase from 78% to 80% wich is good but trivial...
HELOC @ 3%, expected returns @ 5-6%
DH just brought up again that we should consider putting a large payment down on the mortgage... I will have to run the numbers... We've made an amazing amount in the markets this year, however, so it may be time to remove some of our profits..
This would be a bad idea. It's market timing
B42, what is the market timing boundary? I have 185k$ mortgage now but 30k$ HELOC available. I could use it to buy index funds (VTI + VXUS) or wait to buy for cash over the next 3 years...
My actual leverage (debt/assets) is 17% now and this move would get me to 17.5%. My FI would increase from 78% to 80% wich is good but trivial...
HELOC @ 3%, expected returns @ 5-6%
Why not go with CAD bank stocks instead? dividends are above your rate of HELOC so no matter what you should be fine?
We made another minimum payment this month. Our non-retirement, liquid assets now exceed our mortgage balance. In other words, we could knock out our mortgage at any time. But I took a quick peek at the mortgage payoff club thread and the handwavy non-math made me nauseous. I think we'll stay in this thread.
this thread will be short lived if rates keep going the way they are - if we get back to normal rate territory over 6% with mortgage interest deduction not playing a roll for many people anymore - there really wont be a strong - clear black and white case as there is for those of us who have fixed rates in the 4's or lower.
this thread will be short lived if rates keep going the way they are - if we get back to normal rate territory over 6% with mortgage interest deduction not playing a roll for many people anymore - there really wont be a strong - clear black and white case as there is for those of us who have fixed rates in the 4's or lower.
this thread will be short lived if rates keep going the way they are - if we get back to normal rate territory over 6% with mortgage interest deduction not playing a roll for many people anymore - there really wont be a strong - clear black and white case as there is for those of us who have fixed rates in the 4's or lower.
But the path to these higher rates involved the remarkable stock appreciation we've seen over the past few years. Many of us are better off because of the leverage we took on (in my case) in 2013. The thread has done its job.
I have contributed to both this thread AND the "pay off your mortgage" thread. I think each one of us has an internal compass that tells us where we truly belong.So have I...
I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.I have no issues with pre-paying or even paying off a mortgage under the right circumstances. Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.
Under your circumstances, I probably would not have suggested this route. You will never get a loan on an investment property as cheaply as when you are owner occupied. In fact, I'd recommend before you decide to move (i.e. right this minute) you mortgage it to the hilt for the best rate possible. Not sure what tax law change that effects rental property you're referring to (???), but your position is absolutely worth re-evaluating. Obviously, you don't breathe a word about a possible move to the lender. As long as their payments come in on time and uninterrupted they do not care. Besides, you haven't made a final decision yet, have you?I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.I have no issues with pre-paying or even paying off a mortgage under the right circumstances. Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.
glad to see this acknowledged. that's what we essentially did. had the mortgage for 4 years then eliminated it last week. particularly given the tax law changes it didn't make any sense.
ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...
Under your circumstances, I probably would not have suggested this route. You will never get a loan on an investment property as cheaply as when you are owner occupied. In fact, I'd recommend before you decide to move (i.e. right this minute) you mortgage it to the hilt for the best rate possible. Not sure what tax law change that effects rental property you're referring to (???), but your position is absolutely worth re-evaluating. Obviously, you don't breathe a word about a possible move to the lender. As long as their payments come in on time and uninterrupted they do not care. Besides, you haven't made a final decision yet, have you?I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.I have no issues with pre-paying or even paying off a mortgage under the right circumstances. Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.
glad to see this acknowledged. that's what we essentially did. had the mortgage for 4 years then eliminated it last week. particularly given the tax law changes it didn't make any sense.
ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...
There is a huge difference between killing all debt and using a mortgage to create wealth! I'd rather be wealthy, wouldn't you?
Teaching is the whole point of this thread and others like it. Full stop. If anyone had taught me this shit, I could have retired so.much.earlier. Oh, wait! Someone finally did teach me, but it came much later in the game. Teaching the lesson(s), so one can one then make their own fully informed decision, does not require knowledge of every facet of every single snowflake student's life! Someone can teach you how to code, for example, without knowing jack-all about you.Under your circumstances, I probably would not have suggested this route. You will never get a loan on an investment property as cheaply as when you are owner occupied. In fact, I'd recommend before you decide to move (i.e. right this minute) you mortgage it to the hilt for the best rate possible. Not sure what tax law change that effects rental property you're referring to (???), but your position is absolutely worth re-evaluating. Obviously, you don't breathe a word about a possible move to the lender. As long as their payments come in on time and uninterrupted they do not care. Besides, you haven't made a final decision yet, have you?I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.I have no issues with pre-paying or even paying off a mortgage under the right circumstances. Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.
glad to see this acknowledged*. that's what we essentially did. had the mortgage for 4 years then eliminated it last week. particularly given the tax law changes it didn't make any sense.
ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...
There is a huge difference between killing all debt and using a mortgage to create wealth! I'd rather be wealthy, wouldn't you?
i think i was unclear. if/when we move to a new home, we will obviously get a mortgage on that new home.
the new tax law doubles the standard deduction so in my case, we will avail ourselves of that option.
you talk to people as if you are teaching them a lesson, even when you know very little about their investment philosophy or personal situation.
you should avoid that, at least in my case.
Under your circumstances, I probably would not have suggested this route. You will never get a loan on an investment property as cheaply as when you are owner occupied. In fact, I'd recommend before you decide to move (i.e. right this minute) you mortgage it to the hilt for the best rate possible. Not sure what tax law change that effects rental property you're referring to (???), but your position is absolutely worth re-evaluating. Obviously, you don't breathe a word about a possible move to the lender. As long as their payments come in on time and uninterrupted they do not care. Besides, you haven't made a final decision yet, have you?I'm confused about why we are celebrating pre-paying a mortgage on the "DON'T Payoff your mortgage Club" thread. It doesn't seem as though the actions people are describing here will have the results that people claim they will have.I have no issues with pre-paying or even paying off a mortgage under the right circumstances. Sometimes, no mortgage is the best choice. Hint: typically, it's after you have amassed a big ball o' money, not before. That's what the infamous "Do the math" refers to. It doesn't mean you can't kill a mortgage or pay cash for a house, it just means it's sub-optimal to do it first.
glad to see this acknowledged. that's what we essentially did. had the mortgage for 4 years then eliminated it last week. particularly given the tax law changes it didn't make any sense.
ironically we are looking at moving. if we keep our existing house as a rental we'll once again have a mortgage on the new home...
There is a huge difference between killing all debt and using a mortgage to create wealth! I'd rather be wealthy, wouldn't you?
i think i was unclear. if/when we move to a new home, we will obviously get a mortgage on that new home.
the new tax law doubles the standard deduction so in my case, we will avail ourselves of that option.
you talk to people as if you are teaching them a lesson, even when you know very little about their investment philosophy or personal situation.
you should avoid that, at least in my case.
Made another mortgage payment on our 15 year fixed rate, 2.75% mortgage.
Only 13 years, 7 months to go.
Maybe by then, I can refinance at the same low rate and invest it again!
While I cannot predict interest rates, I'd like to point out that all of the inflation news lately is great news for people in this discussion: inflation of 2.1% when you have a 3% mortgage rate is basically eating up 70% of your interest for you.
Made another mortgage payment on our 15 year fixed rate, 2.75% mortgage.
Only 13 years, 7 months to go.
Nah, you're just a couple of really smart cookies er- mustachians! When rates rise, people may start saying how "lucky" you two are, to which I preemptively call Bullshit!Made another mortgage payment on our 15 year fixed rate, 2.75% mortgage.
Only 13 years, 7 months to go.
What, are we twins? I have a 15-year, 2.75% mortgage with 13 years, 10 months to go. Paying the minimum each month.
I've been heavily in the don't payoff your mortgage club, however, I'm starting to stray. I've utilized ARMs with both homes I've owned and its turned out great since I would just refinance at the end of the adjustable period into a lower rate but with the rate increase now it looks like its time to pay the piper. I currently have a 5/1 ARM at 2.25% that resets this June to Libor + 2.25% = 4.95%.What is your mortgage balance and what do your other investment balances look like? How long do you plan to stay in the home in question? Those new rates do not suck, based on historical averages.
Refinancing to a flat 30 year would be 4% and 7/1 ARM would be 3.5%. Any thoughts on paying this off with the bump in rates?
Mortgage balance is $345K, and have around $2M investment balance. Plan on staying another 4-5 years but that is up for grabs. If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?
Mortgage balance is $345K, and have around $2M investment balance. Plan on staying another 4-5 years but that is up for grabs. If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?
Mortgage balance is $345K, and have around $2M investment balance. Plan on staying another 4-5 years but that is up for grabs. If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?
What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
For those lingerers on this thread, it is also important to note that the "Best Case Scenario" that has the opportunity to make you a literal shit-ton of money is a 30-year fixed, low rate, first mortgage. Anything beyond that and it may be worth paying down the mortgage in lieu of holding on to it. The whole point of the thread is that one needs to do the math and make an educated decision instead of just saying "Debt is bad, I must kill it!"
The biggest example of potential pay-it-down-ASAP mortgages are the Adjustable Rate Mortgages or any with a high interest rate, specifically like those found in the UK or Canada, or the (fewer) ARM's available in the US. And even then it should be after tax-deferred and tax-advantaged accounts are maximized.
The biggest example of potential NEVER-pay-it-down mortgages are the aforementioned holy grail of mortgages, long-term low-rate fixed mortgages with (basically) no risk and high margins over the market (long term).
Just thought I should reiterate that...
From IRS.gov:Mortgage balance is $345K, and have around $2M investment balance. Plan on staying another 4-5 years but that is up for grabs. If zillow/redfin estimates are correct, we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?
What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
From IRS.gov:we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?
What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.
https://www.irs.gov/taxtopics/tc701
From IRS.gov:we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?
What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.
https://www.irs.gov/taxtopics/tc701
Merci. That was my question. Has this rule changed in the past? Has it changed depending on administrations? Or is it one of those long-time rules that one may expect to be around for a while?
.From IRS.gov:we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?
What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.
https://www.irs.gov/taxtopics/tc701
Merci. That was my question. Has this rule changed in the past? Has it changed depending on administrations? Or is it one of those long-time rules that one may expect to be around for a while?
That's a "new" rule (1997 Tax Relief Act I believe) and all tax rules are subject to change.....
As long as the Cheeto is in charge, who knows what will happen?.From IRS.gov:we are quickly approaching the $500K tax free capital gains limit in house value...so that might influence our decision to move sooner.Now that's an interesting wrinkle... It seems you have lots of choices, which is a beautiful thing. Have you made significant improvements to the property or just riding the market appreciation tidal wave?
What does this mean and why is it good? (Not sarcastic, I actually don't know). We have a house that is riding the market appreciation tidal wave.
Topic Number 701 - Sale of Your Home
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.
https://www.irs.gov/taxtopics/tc701
Merci. That was my question. Has this rule changed in the past? Has it changed depending on administrations? Or is it one of those long-time rules that one may expect to be around for a while?
That's a "new" rule (1997 Tax Relief Act I believe) and all tax rules are subject to change.....
Both the House and the Senate proposed changes to this rule as part of the 2017 tax reform process, including increasing the number of years you had to reside in the home, and phasing out the benefit for high income taxpayers. The final version did not change the rule, but it shows that there was some desire to change this rule, and that could resurface in the future.
checking in. My 1040 reported $5,500 of dividends from taxable investment accounts, in addition to positive capital gains.Nice!
I paid $4,800 in mortgage interest on my primary residence; this figure may increase in 2019 when my ARM starts adjusting. Hopefully the dividend income goes up, too.
Have spent way too much time trying to find an old thread here on mortgages from maybe three years ago where it was posited that once you get into 5 years or less on a 30-year, low-interest mortgage, it might hit a crossover point where it would make sense to pay it off. I believe the idea was (a) assuming you plan to pay off the mortgage once and done (and not remortgage like a boss), (b) assuming you have the funds and won't take too bad a tax hit, and (c) that the risk of hitting a recession/downturn within 5 years (rather than over 30) could make finishing it off a reasonable strategy. Anyone else remember this?
Or, for example, should a person with a $500k, 30-year fixed, 2.85% mortgage always just let it ride to the bitter end? Again assuming there's no strong AA impetus to remortgage/reset.
Gotcha, makes sense. We'll see how we feel in 20 years ; )
...
...
Your logical reasoning is just absurd.
Stop judging me.
Well that might be fine for you but I want o <insert stupid thing here>
etc. etc....
/sarcasm off
On a similar note, is there a formula post somewhere that I can quote on how to calculate the loos-on-return? Numbers speak to the MMM type much more than words seem to sometimes.
Have spent way too much time trying to find an old thread here on mortgages from maybe three years ago where it was posited that once you get into 5 years or less on a 30-year, low-interest mortgage, it might hit a crossover point where it would make sense to pay it off. I believe the idea was (a) assuming you plan to pay off the mortgage once and done (and not remortgage like a boss), (b) assuming you have the funds and won't take too bad a tax hit, and (c) that the risk of hitting a recession/downturn within 5 years (rather than over 30) could make finishing it off a reasonable strategy. Anyone else remember this?
Or, for example, should a person with a $500k, 30-year fixed, 2.85% mortgage always just let it ride to the bitter end? Again assuming there's no strong AA impetus to remortgage/reset.
Have spent way too much time trying to find an old thread here on mortgages from maybe three years ago where it was posited that once you get into 5 years or less on a 30-year, low-interest mortgage, it might hit a crossover point where it would make sense to pay it off. I believe the idea was (a) assuming you plan to pay off the mortgage once and done (and not remortgage like a boss), (b) assuming you have the funds and won't take too bad a tax hit, and (c) that the risk of hitting a recession/downturn within 5 years (rather than over 30) could make finishing it off a reasonable strategy. Anyone else remember this?
Or, for example, should a person with a $500k, 30-year fixed, 2.85% mortgage always just let it ride to the bitter end? Again assuming there's no strong AA impetus to remortgage/reset.
Type in your assumptions for your future stock market returns. If we can't beat 2.85% over 30 years, then we are all screwed. If you don't think that we would hit 2.85%, then it probably makes sense to sell the house as the world is going to hell and we are in a deflationary situation. Rent and watch rent decrease every year vs. having a house that goes down in value every year.
Have spent way too much time trying to find an old thread here on mortgages from maybe three years ago where it was posited that once you get into 5 years or less on a 30-year, low-interest mortgage, it might hit a crossover point where it would make sense to pay it off. I believe the idea was (a) assuming you plan to pay off the mortgage once and done (and not remortgage like a boss), (b) assuming you have the funds and won't take too bad a tax hit, and (c) that the risk of hitting a recession/downturn within 5 years (rather than over 30) could make finishing it off a reasonable strategy. Anyone else remember this?
Or, for example, should a person with a $500k, 30-year fixed, 2.85% mortgage always just let it ride to the bitter end? Again assuming there's no strong AA impetus to remortgage/reset.
Type in your assumptions for your future stock market returns. If we can't beat 2.85% over 30 years, then we are all screwed. If you don't think that we would hit 2.85%, then it probably makes sense to sell the house as the world is going to hell and we are in a deflationary situation. Rent and watch rent decrease every year vs. having a house that goes down in value every year.
Have spent way too much time trying to find an old thread here on mortgages from maybe three years ago where it was posited that once you get into 5 years or less on a 30-year, low-interest mortgage, it might hit a crossover point where it would make sense to pay it off. I believe the idea was (a) assuming you plan to pay off the mortgage once and done (and not remortgage like a boss), (b) assuming you have the funds and won't take too bad a tax hit, and (c) that the risk of hitting a recession/downturn within 5 years (rather than over 30) could make finishing it off a reasonable strategy. Anyone else remember this?
Or, for example, should a person with a $500k, 30-year fixed, 2.85% mortgage always just let it ride to the bitter end? Again assuming there's no strong AA impetus to remortgage/reset.
Type in your assumptions for your future stock market returns. If we can't beat 2.85% over 30 years, then we are all screwed. If you don't think that we would hit 2.85%, then it probably makes sense to sell the house as the world is going to hell and we are in a deflationary situation. Rent and watch rent decrease every year vs. having a house that goes down in value every year.
Nice calculator! If I had an extra $1k per month and I put it toward investments rather than mortgage, and my inputs are:
Mortgage rate - 3.9%
Current Mortgage Balance - $345,000
# of Mortgage Payments remaining - 324
Additional Monthly Payment - $1000
Long term Capital Gains Taxes - 15%
Investment Yield - 10%
I come out about $703,000 ahead, just by investing and not paying extra on the mortgage. Wow.
You missed one: 7. I was able to convince my spouse to throw an extra $3,200 at the mortgage more readily than I was able to convince zher that $3,200 into an IRA would enable us to retire early.
I suspect many of us envy Rufus Firefly's ability to convert all marital disagreements into a matter of math. I have a BS in math, and my wife has a Ph.D. in Applied Mathematics, and, yet, we are not able to do so.
Still, another month paying the minimum mortgage payment is in the books.
Long-time member of the club, here. I've been enjoying my 5/1 ARM at its teaser rate of 3.0% for 53 months.
Unfortunately, the loan servicer just sent me notice that my rate will be increased for my Jan. 1, 2019 payment, perhaps to as high as 5%. Logically, I know I got the math right; emotionally, it was hard to sleep last night. I had thought we might be able to upgrade in 2-3 years, and suddenly that's feeling completely out of reach. Need some support from my friends here who delight in carrying responsible mortgage debt.
Long-time member of the club, here. I've been enjoying my 5/1 ARM at its teaser rate of 3.0% for 53 months.
Unfortunately, the loan servicer just sent me notice that my rate will be increased for my Jan. 1, 2019 payment, perhaps to as high as 5%. Logically, I know I got the math right; emotionally, it was hard to sleep last night. I had thought we might be able to upgrade in 2-3 years, and suddenly that's feeling completely out of reach. Need some support from my friends here who delight in carrying responsible mortgage debt.
https://fred.stlouisfed.org/graph/?g=NUhFun chart! Thanks, @boarder42! I bought my first house in 1988. I think I paid right around 10%. I recall being thrilled to get 7% on my next property, purchased in 1996. Judging by the chart, I did get a helluva rate, but not by today's standards, lol! Thanks for digging that up and sharing it.
click max and you can see the history of the 30 year mortgage rate.
Add to that the fact that keeping a mortgage in FIRE actually increases your chances for success in the worst years. it only minorly magnifies sequence of return risk but you fail with a mortgage or without it just happens a few years sooner.
Personally i prefer to play the statistical odds that put things overwhelmingly in my favor in lieu of a feeling of being debt free. But thats a personal choice for you to make - when presented with data do you choose the best path?
Add to that the fact that keeping a mortgage in FIRE actually increases your chances for success in the worst years. it only minorly magnifies sequence of return risk but you fail with a mortgage or without it just happens a few years sooner.
Personally i prefer to play the statistical odds that put things overwhelmingly in my favor in lieu of a feeling of being debt free. But thats a personal choice for you to make - when presented with data do you choose the best path?
I'm with you on the overall strategy - I get it and I agree. I think it does make sense for most, and the math is the math.
I am taking what I consider to be a "balanced" approach to this... In theory, we could pay off the house today, we are already at a 1.750MM Investable Net Worth. One of my FIRE goals is to do so without a mortgage. We save approximately $5K monthly, and could funnel that extra $1629 into those accounts instead of mortgage paydown - but I feel like a difference of $40K (even $100K) over 10 years is not significant enough to me (in lieu of a paid off mortgage) - Facepunch please?
Can you explain the bolded section? If my house were paid off, with me having a potentially > 4MM Investable Net Worth in 10 years, why would maintaining a mortgage increase my chances for success? If I don't have a mortgage to pay, wouldn't I be in a better position?
Add to that the fact that keeping a mortgage in FIRE actually increases your chances for success in the worst years. it only minorly magnifies sequence of return risk but you fail with a mortgage or without it just happens a few years sooner.
Personally i prefer to play the statistical odds that put things overwhelmingly in my favor in lieu of a feeling of being debt free. But thats a personal choice for you to make - when presented with data do you choose the best path?
I'm with you on the overall strategy - I get it and I agree. I think it does make sense for most, and the math is the math.
I am taking what I consider to be a "balanced" approach to this... In theory, we could pay off the house today, we are already at a 1.750MM Investable Net Worth. One of my FIRE goals is to do so without a mortgage. We save approximately $5K monthly, and could funnel that extra $1629 into those accounts instead of mortgage paydown - but I feel like a difference of $40K (even $100K) over 10 years is not significant enough to me (in lieu of a paid off mortgage) - Facepunch please?
Can you explain the bolded section? If my house were paid off, with me having a potentially > 4MM Investable Net Worth in 10 years, why would maintaining a mortgage increase my chances for success? If I don't have a mortgage to pay, wouldn't I be in a better position?
first WTF do you need 4MM for thats absurd. but if we use a calculator like http://www.cfiresim.com/input.php and we input a typical scenario of 1MM in assets and a 4% SWR of 40k with a paid of house that could be mortgaged at say 200k - we get a chance of success of 91.67% pretty great
then we take that same idea 1.2MM in assets 40k per year plus a 200k mortgage for 30 years at 4% - and we get a chance of success of - 93.5%
2% may not seem like a huge difference but it is when we're talking about running out of money or not.
if you plan is to oversave to infinity then do whatever you want though mortgage or no mortgage who really cares.
Advantages of no mortgage
1. sequence of return risk - when historically back tested you'll still fail in all scenarios when a 4% SWR fails with or without a mortgage its just a matter of failing about 30% sooner but you're going to have to adjust your FIRE plan either way IMO so its a small risk
2. deflation risk- not really a risk IMO
Advantages of mortgage
1. inflation hedge - this is why you see the increase in the success rates with a mortgage b/c it doesnt index to inflation
2. your money will last longer and likely continue to grow.
your lack of feeling like getting 140k for doing nothing basically is quite ridiculous IMO. If i walked up to future you in ten years and said hey how bout another 140k you'd just say nah i have no use for that money - and i dont know anyone who is deserving of it who may like some extra money - charity/friend who's down on their luck.
money is money personally those paying down their mortgage b/c ehh 140k isnt that much i'd like to "feel safer" are some of the more selfish people alive. Those who say who cares i could die with an extra million are some of the more selfish people alive. that money could go to help someone who needs it since you dont seem to think its significant. Could you apply that logic to all FIREes in general b/c they could keep working and make more money to support people yes - but the thing is you dont have to do anything other than click send 1629 to VG vs into my mortgage and forget about it.
So you're planning to market time and bet against history. Best of luck then. But when you don't care about money who gives a fuck.
LOL - Thanks!
If you can guarantee me $140K difference in 10 years, then yes of course I'd do it....
Let me clarify: I said $40K (not $140K) and was alluding to the $100K in parentheses that you believe we might be able to get since you think we will get > 7% returns over these next 10 years... I'm not so bullish. So when I say that $40K is not "significant" enough for me, what I really mean is that the "risk" to potentially get $40K more does not seem worth it to me, over the "guaranteed" freedom of having no mortgage. I'm concerned about a correction that may not have me fully recovered by the time I retire... We'll see how the next ten years plays out... maybe hindsight will be 20/20.
So you're planning to market time and bet against history. Best of luck then. But when you don't care about money who gives a fuck.
Why the hostility
You sound like a pretty angry person and are probably an asshole in real life.. best of luck to ya!
Have a blessed day!
@PseudoStache, there is a thread that celebrates mortgage payoff, in which apparently no discussion of other/better options is allowed. Then there is this thread, where discussion and learning is encouraged and paying off cheap, affordable, fixed rate, primarily US-based mortgages is not. This is obvious, based on the all-cap "DONT" in the thread title. You have quite possibly just stumbled into the wrong thread. Or you could be a troll. For sure you do not understand B42's direct style. Someone who cares enough to tirelessly teach the same lesson over and over to people who are often hostile, skeptical, and unwilling to listen to reason is clearly NOT what you impolitely suggest he is. As the mods have pointed out, you do not get to do that here or anywhere else on this forum.So you're planning to market time and bet against history. Best of luck then. But when you don't care about money who gives a fuck.Why the hostilityYou sound like a pretty angry person and are probably an asshole in real life..best of luck to ya!
Have a blessed day!
MOD EDIT: Forum rule #1.
LOL - Thanks!
If you can guarantee me $140K difference in 10 years, then yes of course I'd do it....
Let me clarify: I said $40K (not $140K) and was alluding to the $100K in parentheses that you believe we might be able to get since you think we will get > 7% returns over these next 10 years... I'm not so bullish. So when I say that $40K is not "significant" enough for me, what I really mean is that the "risk" to potentially get $40K more does not seem worth it to me, over the "guaranteed" freedom of having no mortgage. I'm concerned about a correction that may not have me fully recovered by the time I retire... We'll see how the next ten years plays out... maybe hindsight will be 20/20.
In my view, having a big pile of money gives me more freedom than paid off mortgage would. There might be an interesting business opportunity or something down that road that is easy to take advantage of if you have cash. If the money is in the house, it is a more expensive and difficult thing to do.
Story from two weekends ago: A dear friend is an MD and while I wouldn't call her Moustachian exactly, she's reasonably savy about money and quite debt adverse. For example, she paid about $100,000 in student loans in four years by living in an apartment with a room mate. Drives a modest car that is paid off, etc.
She meets a great guy who makes quite a bit less than her, and so they get married, have a kid, and buy their dream home. And it is straight up a cool house. It cost a lot of money, but it is really great. Anyway, she has a 2.75% 15-year mortgage that she's been paying down fairly aggressively. Her plan was that the house is paid before the kid gets to college and the money that had been going to the mortgage could pay for college. And with the mortgage paid off and kid off to college, they could perhaps downsize to smaller place and rent this place out, for a nice bit of coin.
The guy turns out to be not that great, and filed for divorce. I think he's an idiot because she's funny, good-looking, athletic, intelligent, the whole package. Anyway she lives in a community property state, so she has to take the money that she put into the house, back out of the house so she can pay him his half. And it is a lot of cash, like $150,000 or something. So she has to get a HELOC or something, she's not sure what to do. Anyway, of course I didn't say anything, but had money been invested out side of the house she could have just cut a check. And now the whole plan to be debt free has been blown up.
Of course, I'm not suggesting that you are about to be divorced or anything. Just that circumstances change, and having liquid assets provides flexibility and options. And flexibility and options provide freedom.
Hello - Can someone help me understand my numbers (see attached pic) .... Granted I'm a bit more conservative on the Projected Investment Yield front than most of you at 7%.
My goal is to FIRE in 10-11 years, which is how/why I've calculated my extra monthly payment to be $1629.
Maybe I'm misreading the spreadsheet, but it seems to indicate that after 10-ish years, my "benefit" will only be about $35K-$40K.
I understand that $35K is still better than $0 and could be more if we get better than 7% returns - but it could also be less.
Given my inputs, and FIRE timeline, what would be an optimal strategy?
Should I just stick to my plan of paying extra or is it really worth it to extend this out as long as possible? - which means after 10 years, I'd be paying out of investments rather than earned income.
I am starting to get torn about not paying off more of my mortgage.
The interest rate has been creeping up on it.
The mortgage needs to be renewed in 12 months.
It was still a very good mortgage decision when we got it, but the cashflow to service it now that I am FIRED is quite high out of our monthly income. And it will only get to be more $$'s as the rates go up. It was a great mortgage decision when we got it 4 years ago, but now? hmmm. Maybe out situation has changed.
Meanwhile, the BOND funds I have money in have lost about 4% of their value.
AND we have less income and may not re-qualify for the full mortgage amount next year (we can't shop the mortgage this large to other lenders).
Shouldn't I be thinking about moving money from my BOND asset allocation, to get a guaranteed payoff against the mortgage?
Recap --
Have a large variable mortgage renews in 2019. Currently at 2.85% now. Has increased from 2.1% in the past 16 months and likely to go to at least 3% this year.
20 year amortization remaining.
5 year variable rates are 2.5% (today, likely to increase)
5 year fixed rates are 3.15% (today, likely to increase, especially if we can't shop it around)
I am currently cashflow negative (drawing from savings), and it will get to be moreso as my mortgage rate increase.
No tax benefits for holding a mortgage - both because of country differences, and also because my income is so low that the Marginal Tax Rate is also quite low. So don't need to adjust for taxes in the calcs.
Bond fund in my (tax free) investments have dropped (negative returns) over the past 18 months. Return average over 5 years would at best be, what, 1% more than a mortgage rate?
-- Should I put a large lump sum ($100k to $200k) onto my mortgage, drawing down my fixed income portfolio?--
@Le Barbu, funny, I said something very similar on another thread this week. Wish I'd worked that out in my head when I was much younger. I think I was unnecessarily conservative way back then because I failed to realize this. It simply wasn't taught that way then, which, once again, underscores the value of resources like this forum.I am starting to get torn about not paying off more of my mortgage.
The interest rate has been creeping up on it.
The mortgage needs to be renewed in 12 months.
It was still a very good mortgage decision when we got it, but the cashflow to service it now that I am FIRED is quite high out of our monthly income. And it will only get to be more $$'s as the rates go up. It was a great mortgage decision when we got it 4 years ago, but now? hmmm. Maybe out situation has changed.
Meanwhile, the BOND funds I have money in have lost about 4% of their value.
AND we have less income and may not re-qualify for the full mortgage amount next year (we can't shop the mortgage this large to other lenders).
Shouldn't I be thinking about moving money from my BOND asset allocation, to get a guaranteed payoff against the mortgage?
Recap --
Have a large variable mortgage renews in 2019. Currently at 2.85% now. Has increased from 2.1% in the past 16 months and likely to go to at least 3% this year.
20 year amortization remaining.
5 year variable rates are 2.5% (today, likely to increase)
5 year fixed rates are 3.15% (today, likely to increase, especially if we can't shop it around)
I am currently cashflow negative (drawing from savings), and it will get to be moreso as my mortgage rate increase.
No tax benefits for holding a mortgage - both because of country differences, and also because my income is so low that the Marginal Tax Rate is also quite low. So don't need to adjust for taxes in the calcs.
Bond fund in my (tax free) investments have dropped (negative returns) over the past 18 months. Return average over 5 years would at best be, what, 1% more than a mortgage rate?
-- Should I put a large lump sum ($100k to $200k) onto my mortgage, drawing down my fixed income portfolio?--
I am not a fan of holding debt and bonds at the same Time. For me, it’s a continuum. First, you have debt and 100% stocks, then deleverage but still 100% stocks, finaly introduce short term bonds. YMMV, let see what others think!
@Le Barbu, funny, I said something very similar on another thread this week. Wish I'd worked that out in my head when I was much younger. I think I was unnecessarily conservative way back then because I failed to realize this. It simply wasn't taught that way then, which, once again, underscores the value of resources like this forum.I am starting to get torn about not paying off more of my mortgage.
The interest rate has been creeping up on it.
The mortgage needs to be renewed in 12 months.
It was still a very good mortgage decision when we got it, but the cashflow to service it now that I am FIRED is quite high out of our monthly income. And it will only get to be more $$'s as the rates go up. It was a great mortgage decision when we got it 4 years ago, but now? hmmm. Maybe out situation has changed.
Meanwhile, the BOND funds I have money in have lost about 4% of their value.
AND we have less income and may not re-qualify for the full mortgage amount next year (we can't shop the mortgage this large to other lenders).
Shouldn't I be thinking about moving money from my BOND asset allocation, to get a guaranteed payoff against the mortgage?
Recap --
Have a large variable mortgage renews in 2019. Currently at 2.85% now. Has increased from 2.1% in the past 16 months and likely to go to at least 3% this year.
20 year amortization remaining.
5 year variable rates are 2.5% (today, likely to increase)
5 year fixed rates are 3.15% (today, likely to increase, especially if we can't shop it around)
I am currently cashflow negative (drawing from savings), and it will get to be moreso as my mortgage rate increase.
No tax benefits for holding a mortgage - both because of country differences, and also because my income is so low that the Marginal Tax Rate is also quite low. So don't need to adjust for taxes in the calcs.
Bond fund in my (tax free) investments have dropped (negative returns) over the past 18 months. Return average over 5 years would at best be, what, 1% more than a mortgage rate?
-- Should I put a large lump sum ($100k to $200k) onto my mortgage, drawing down my fixed income portfolio?--
I am not a fan of holding debt and bonds at the same Time. For me, it’s a continuum. First, you have debt and 100% stocks, then deleverage but still 100% stocks, finaly introduce short term bonds. YMMV, let see what others think!
@Goldielocks - It would freak me the fuck out to have a mortgage system that's not fixed for a very long period of time and is not tax deductible. My "don't prepay the mortgage" stance assumes both. In your shoes, I'd probably wondering the same things. However, I can't hope to provide an answer your last question without a lot more information. My gut response is "Cash is king, no matter where you live". Good luck, whatever you decide!
Hi All,
We paid off our mortgage a few months early last Tuesday. We did that as my wife has 'pre-tired' and her income has halved so it is a debit we didn't need coming out of our account on the 1st of each month. Also, although the interest is very low, the mortgage protection is a lot higher and we are saving that. It was, in fairness, a small enough amount left to pay. Just wanted to tell someone. It's a bit anticlimactic and, this week, our beloved cat died, the fridge freezer packed in same day and a rad in the rental house has been leaking(unknown to us) for 2 months and those are all extra expenses this week! I miss the cat. All else is just stuff! IT
I am starting to get torn about not paying off more of my mortgage.
The interest rate has been creeping up on it.
The mortgage needs to be renewed in 12 months.
It was still a very good mortgage decision when we got it, but the cashflow to service it now that I am FIRED is quite high out of our monthly income. And it will only get to be more $$'s as the rates go up. It was a great mortgage decision when we got it 4 years ago, but now? hmmm. Maybe out situation has changed.
Meanwhile, the BOND funds I have money in have lost about 4% of their value.
AND we have less income and may not re-qualify for the full mortgage amount next year (we can't shop the mortgage this large to other lenders).
Shouldn't I be thinking about moving money from my BOND asset allocation, to get a guaranteed payoff against the mortgage?
Recap --
Have a large variable mortgage renews in 2019. Currently at 2.85% now. Has increased from 2.1% in the past 16 months and likely to go to at least 3% this year.
20 year amortization remaining.
5 year variable rates are 2.5% (today, likely to increase)
5 year fixed rates are 3.15% (today, likely to increase, especially if we can't shop it around)
I am currently cashflow negative (drawing from savings), and it will get to be moreso as my mortgage rate increase.
No tax benefits for holding a mortgage - both because of country differences, and also because my income is so low that the Marginal Tax Rate is also quite low. So don't need to adjust for taxes in the calcs.
Bond fund in my (tax free) investments have dropped (negative returns) over the past 18 months. Return average over 5 years would at best be, what, 1% more than a mortgage rate?
-- Should I put a large lump sum ($100k to $200k) onto my mortgage, drawing down my fixed income portfolio?--
@Le Barbu, funny, I said something very similar on another thread this week. Wish I'd worked that out in my head when I was much younger. I think I was unnecessarily conservative way back then because I failed to realize this. It simply wasn't taught that way then, which, once again, underscores the value of resources like this forum.snip
I am not a fan of holding debt and bonds at the same Time. For me, it’s a continuum. First, you have debt and 100% stocks, then deleverage but still 100% stocks, finaly introduce short term bonds. YMMV, let see what others think!
@Goldielocks - It would freak me the fuck out to have a mortgage system that's not fixed for a very long period of time and is not tax deductible. My "don't prepay the mortgage" stance assumes both. In your shoes, I'd probably wondering the same things. However, I can't hope to provide an answer your last question without a lot more information. My gut response is "Cash is king, no matter where you live". Good luck, whatever you decide!
Bolded part of your post is exactly what happened to me!
@PseudoStache, there is a thread that celebrates mortgage payoff, in which apparently no discussion of other/better options is allowed. Then there is this thread, where discussion and learning is encouraged and paying off cheap, affordable, fixed rate, primarily US-based mortgages is not. This is obvious, based on the all-cap "DONT" in the thread title. You have quite possibly just stumbled into the wrong thread. Or you could be a troll. For sure you do not understand B42's direct style. Someone who cares enough to tirelessly teach the same lesson over and over to people who are often hostile, skeptical, and unwilling to listen to reason is clearly NOT what you impolitely suggest he is. As the mods have pointed out, you do not get to do that here or anywhere else on this forum.So you're planning to market time and bet against history. Best of luck then. But when you don't care about money who gives a fuck.Why the hostilityYou sound like a pretty angry person and are probably an asshole in real life..best of luck to ya!
Have a blessed day!
MOD EDIT: Forum rule #1.
One more caution: This forum is populated by a significant number of people who range from casually agnostic to full-on atheist. You're welcome to stay and learn, but please refrain from flamethrowing blessings. As written, your final words are as deserving of redlining as the ones that were.
Pseudo, you're a man of contradictions. You want a low-risk, guarantee on your mortgage. But you're already planning to work extra years so you can buy a Ferrari? How will owning a car that's worth the same amount as your house make your retirement less risky?
B42 already explained the math pretty well.
But here's a missing part of your thought process: you're only considering the first 10 years of the math. Have you consider how the numbers fair 30 or 40 years from now? I think you came here in earnest, so I'll take the time to post this using your figures considering a 30 year time-frame.
Scenario 1: Pay Off Mortgage Early (367K, 3.5% interest, 30 year term)
Additional monthly payment: $1,629
*runs mortgage payoff calculator* (see bankrate.com)
*result: mortgage will be paid off in 11 years, 4 months*
So at the end of 11 years, 4 months, you will have:
Mortgage loan: $0
Additional Investments: $0
Now, presumably you will invest the additional monthly payment + your normal payment in the stock market:
Additional Investment: $3,277/month
*runs investment return calculator* (see bankrate.com)
After the remaining 19 years, you'll have $1,525,048
End result after 30 years:
Mortgage Loan: $0
Additional Investments: $1,525,048
Scenario #2: Pay off Mortgage slowly
Additional Investment: 1,629/month
*runs investment calculator*
After 30 years, you'll have $1,915,810
End result after 30 years:
Mortgage Loan: $0
Additional Investments: $1,915,810
Difference between two scenarios: $390,762
***Note this is with conservative, 7% investment rate of return. If you use 10% return rate instead of 7%, the difference is $1,268,003***
Hello - Can someone help me understand my numbers (see attached pic) .... Granted I'm a bit more conservative on the Projected Investment Yield front than most of you at 7%.
My goal is to FIRE in 10-11 years, which is how/why I've calculated my extra monthly payment to be $1629.
Maybe I'm misreading the spreadsheet, but it seems to indicate that after 10-ish years, my "benefit" will only be about $35K-$40K.
I understand that $35K is still better than $0 and could be more if we get better than 7% returns - but it could also be less.
Given my inputs, and FIRE timeline, what would be an optimal strategy?
Should I just stick to my plan of paying extra or is it really worth it to extend this out as long as possible? - which means after 10 years, I'd be paying out of investments rather than earned income.
Yes, you are misreading the spreadsheet. If you plan on dying in 10 years, then the $35k would be accurate. If you plan on living longer, then it shows after 30 years that you will be $168k better off. If you project it out farther that number will continue to grow.
if you are 40k ahead after 10 years put 40k into this caluclator with 0 extra invested at 7% over the next 20 years. -- its worth 154k at the end of that. time value of money and compounding
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
if you are 40k ahead after 10 years put 40k into this caluclator with 0 extra invested at 7% over the next 20 years. -- its worth 154k at the end of that. time value of money and compounding
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Yup - I've done the math and get compounding... I didn't get to $1.75MM invested by mistake :)
Despite what appears to be cluelessness, I've been on here since 2013 and have learned a lot.
This is a purely psychological battle that I'm fighting within.... as I've mentioned, the math is the math.
But I am taking baby steps! I just opened up a separate Vanguard account for the sole purpose of modulating "extra payments" into.
If I can't make myself go all in, I'll take it month by month :)
Hmm, Thanks to you both. Good thoughts. DH thinks of it as a cash continuum, too. I also hold out that bonds, pensions and mortgage are all in the same field as "fixed investments" in the asset allocation game.@Goldielocks, my chief resistance to people paying off the mortgage early is when they are missing out on other opportunities just for the sake of ferociously killing.all.the.debt. Are they getting their full employer match? Maxing their 401k? Roth-ing, if eligible? Backdoor? Mega-Backdoor? Decent EF? Taxable account? Blah x3. I differ with B42 a bit in that I'm okay with people paying off their mortgages eventually, provided they've taken all these other steps first. It's missing out on the tsunami-like power of compound interest that I don't want to see happen to people. If they learn the math and value of sequencing, then they really can make decisions that will accelerate their path to FIRE, as counterintuitive as that seems. What no one can ever do is regain those lost years of compounding. Once they're gone, they're gone forever.
Dicey -- what sorts of additional information would be important to you to consider in this scenario?
In the past, I have been basically looking at rates of return, net of taxes for mtg versus investments.
...You sound like a pretty angry person and are probably an asshole in real life..best of luck to ya!
MOD EDIT: Forum rule #1.
So Boarder's "Direct Style" of being a Jerk doesn't conflict with your rules? Tell me how in my previous post that I in any way attacked him? While he goes on to tell me I'm one of the selfish people that he DOESN'T know?
Look I'm all about learning and facepunches - but you don't have to be rude or mean about it.
...You sound like a pretty angry person and are probably an asshole in real life..best of luck to ya!
MOD EDIT: Forum rule #1.
So Boarder's "Direct Style" of being a Jerk doesn't conflict with your rules? Tell me how in my previous post that I in any way attacked him? While he goes on to tell me I'm one of the selfish people that he DOESN'T know?
Look I'm all about learning and facepunches - but you don't have to be rude or mean about it.
Seriously? Because, "you sound like an angry person and are probably an asshole in real life" is a direct attack on a person, not an opinion or argument or position. Boarder can be... "relentless" in attacking positions he disagrees with, and I've had a run-in or two with him about that in the past. But you attacked him as a person, directly. Are you seriously incapable of distinguishing between the two? How can you even ask a question like "Tell me how in my previous post that I in any way attacked him"?
if you are 40k ahead after 10 years put 40k into this caluclator with 0 extra invested at 7% over the next 20 years. -- its worth 154k at the end of that. time value of money and compounding
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Yup - I've done the math and get compounding... I didn't get to $1.75MM invested by mistake :)
Despite what appears to be cluelessness, I've been on here since 2013 and have learned a lot.
This is a purely psychological battle that I'm fighting within.... as I've mentioned, the math is the math.
But I am taking baby steps! I just opened up a separate Vanguard account for the sole purpose of modulating "extra payments" into.
If I can't make myself go all in, I'll take it month by month :)
How about:
1. Dump all extra funds into investments
2. Save up enough to FIRE in the shortest time possible
3. Save up any additional amount needed to pay off your morgage
4. Pay off the mortgage
This allows you to front load your investments (where it matters the most) without having to carry the mental burden of thinking you'll have to pay a mortgage for 20 more years.
That's what I'm doing. My FIRE number is 1.5m plus $320k. The 1.5 mil gets my expenses taken care of, the $320k abolishes my mortgage. Just something to think about.
Are we good now - or do we need to keep this going?
Are we good now - or do we need to keep this going?
Well obviously there would be no point in that, but Mods disagree with you, and I do too.
Are we good now - or do we need to keep this going?
Well obviously there would be no point in that, but Mods disagree with you, and I do too.
"Direct Style" and "Relentlessness" do not break the Number 1 Forum rule of not being a jerk nor rule 4 of being respectful to other members - Noted.
if you are 40k ahead after 10 years put 40k into this caluclator with 0 extra invested at 7% over the next 20 years. -- its worth 154k at the end of that. time value of money and compounding
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Yup - I've done the math and get compounding... I didn't get to $1.75MM invested by mistake :)
Despite what appears to be cluelessness, I've been on here since 2013 and have learned a lot.
This is a purely psychological battle that I'm fighting within.... as I've mentioned, the math is the math.
But I am taking baby steps! I just opened up a separate Vanguard account for the sole purpose of modulating "extra payments" into.
If I can't make myself go all in, I'll take it month by month :)
How about:
1. Dump all extra funds into investments
2. Save up enough to FIRE in the shortest time possible
3. Save up any additional amount needed to pay off your morgage
4. Pay off the mortgage
This allows you to front load your investments (where it matters the most) without having to carry the mental burden of thinking you'll have to pay a mortgage for 20 more years.
That's what I'm doing. My FIRE number is 1.5m plus $320k. The 1.5 mil gets my expenses taken care of, the $320k abolishes my mortgage. Just something to think about.
That is sort of what I'm doing right now - but stretching it out to 10 years since I am a work from home SWAMI. If my job circumstances change before then, then so will my mindset, likely.
We are already saving/investing about $5K per month and figured that the additional $1629 applied to the mortgage would be a good use of funds.
I'm not really worried about portfolio failure at this point.... so I think that in my case, I'm probably good either way.
I was simply just looking for an objective analysis/understanding of my spreadsheet results to figure out the best way to optimize these next ten to eleven years.
It seems like the spreadsheet is NOT accounting for FIRE (with no additional investment).
I'm about to buy a 250k home with 20 percent down. Even with over 2 million in current net worth that debt scares the hell out of me.
I am starting to get torn about not paying off more of my mortgage.Goldielocks: are you currently retired? What percentage of your expenses would go to the mortgage payments under different scenarios?
The interest rate has been creeping up on it.
The mortgage needs to be renewed in 12 months.
Hi Dicey, thanks for explaining.
Yeah, I do have a pension with my tiny part time job, that I definitely max out at $2k/yr contributions. RRSP's (kinda like IRAs) have the same (or less) tax credit going in as coming out, so minimal net benefit on those now.
DH essentially has no employer benefits, working for a small manufacturing company in their R&D department.
We do max out the kids RESP, (for the free money), and our TFSA's, and yeah, I am thinking of pulling money from the TFSA's (sort of like a Roth) and non-registered to put on the mortgage. If I do, I would readjust our asset allocations and treat the mortgage pre=payment like the bond percentage we keep.
So, the only better places to put the money is non-registered funds, and keep the $$ in our TFSAs. (tax free growth).
The decision is to keep the fixed income part of our portfolio, or pay off the mortgage (partially) now.?
I am starting to get torn about not paying off more of my mortgage.
The interest rate has been creeping up on it.
The mortgage needs to be renewed in 12 months.
It was still a very good mortgage decision when we got it, but the cashflow to service it now that I am FIRED is quite high out of our monthly income. And it will only get to be more $$'s as the rates go up. It was a great mortgage decision when we got it 4 years ago, but now? hmmm. Maybe out situation has changed.
…
Recap --
Have a large variable mortgage renews in 2019. Currently at 2.85% now. Has increased from 2.1% in the past 16 months and likely to go to at least 3% this year.
20 year amortization remaining.
5 year variable rates are 2.5% (today, likely to increase)
5 year fixed rates are 3.15% (today, likely to increase, especially if we can't shop it around)
I am currently cashflow negative (drawing from savings), and it will get to be moreso as my mortgage rate increase.
No tax benefits for holding a mortgage - both because of country differences, and also because my income is so low that the Marginal Tax Rate is also quite low. So don't need to adjust for taxes in the calcs.
…
Should I put a large lump sum ($100k to $200k) onto my mortgage, drawing down my fixed income portfolio?--
[snip]Wow! Lots of changes! I'm just thinking that 30% of a higher income, especially one with a possibility of significant increase, is still a lot of dollars. I had a boss who used to say it was dollars that bought groceries, not percentages.
The good news is our income potential here is MUCH higher. The transition took us from a 60% savings rate to an estimated 30% savings rate so we will see if that pays off in the next 5 years.
Glad to be back. Time to stache.
Savings will probably suffer as we get settled in, buy furniture, and get back to "normal", but we are on our way.
Savings will probably suffer as we get settled in, buy furniture, and get back to "normal", but we are on our way.
Why?
Did the movers lose your old furniture?
Was the old furniture destroyed in a flood?
Does your new house have an extraterrestrial gravitational field that prevents the old furniture from functioning correctly? And somehow new furniture is immune to this?
Seriously, why is new furniture needed? :) I see this mentality all the time and have always wondered about it.
[snip]Wow! Lots of changes! I'm just thinking that 30% of a higher income, especially one with a possibility of significant increase, is still a lot of dollars. I had a boss who used to say it was dollars that bought groceries, not percentages.
The good news is our income potential here is MUCH higher. The transition took us from a 60% savings rate to an estimated 30% savings rate so we will see if that pays off in the next 5 years.
Glad to be back. Time to stache.
Congratulations on the move and the mortgage.
I know this is a slight hijack, but it's house related, so please bear with me. I think there comes a point where it's okay to stop living like a student, with board and cinder block bookcases. I think it's also wise not to pay to move flimsy secondhand crap across the country. When DH and I married, we combined households, then sold each of our houses and bought one together. The new house is open plan with few walls. We held a giant Estate Sale when we moved. I kept everything we could use and sold the rest. I then got busy furnishing the new house. Everything came from a Consignment Store or CraigsList. My dining room table is eleven feet long. It was custom made from recycled timbers at a posh shop. It just wasn't custom made for us, lol. Not many people have room for an eleven foot long table and ten chairs, so the price was right. Our house is worth over a million bucks and I love that It's filled with quality used stuff that we didn't pay anything close to retail for.Savings will probably suffer as we get settled in, buy furniture, and get back to "normal", but we are on our way.Why?
Did the movers lose your old furniture?
Was the old furniture destroyed in a flood?
Does your new house have an extraterrestrial gravitational field that prevents the old furniture from functioning correctly? And somehow new furniture is immune to this?
Seriously, why is new furniture needed? :) I see this mentality all the time and have always wondered about it.
Haha, our first home we didn't buy any good quality furniture. It was all on the cheap, and I mean extremely cheap. So when we moved 2500 miles it made more sense financially to sell/trash the stuff than to get it moved here. We saved 1-2k in moving expenses, maybe more.
Some of the furniture we are looking to buy or build will be completely new to us. Bedroom sets come to mind, we are loosening up financially a bit and now that we have a decent stache started we want to get some of the stuff that we put off in the past.
Over the last year, my mindset has kinda shifted from "Accumulate as much as you can!" to "Accumulate a good amount and spend money on pre-structuring your FI lifestyle". I'm hoping that this makes the path to FI more enjoyable while setting us up for a successful post FI life. Granted, it will extend our time to FI.
I know this is a slight hijack, but it's house related, so please bear with me. I think there comes a point where it's okay to stop living like a student, with board and cinder block bookcases. I think it's also wise not to pay to move flimsy secondhand crap across the country. When DH and I married, we combined households, then sold each of our houses and bought one together. The new house is open plan with few walls. We held a giant Estate Sale when we moved. I kept everything we could use and sold the rest. I then got busy furnishing the new house. Everything came from a Consignment Store or CraigsList. My dining room table is eleven feet long. It was custom made from recycled timbers at a posh shop. It just wasn't custom made for us, lol. Not many people have room for an eleven foot long table and ten chairs, so the price was right. Our house is worth over a million bucks and I love that It's filled with quality used stuff that we didn't pay anything close to retail for.Savings will probably suffer as we get settled in, buy furniture, and get back to "normal", but we are on our way.Why?
Did the movers lose your old furniture?
Was the old furniture destroyed in a flood?
Does your new house have an extraterrestrial gravitational field that prevents the old furniture from functioning correctly? And somehow new furniture is immune to this?
Seriously, why is new furniture needed? :) I see this mentality all the time and have always wondered about it.
Haha, our first home we didn't buy any good quality furniture. It was all on the cheap, and I mean extremely cheap. So when we moved 2500 miles it made more sense financially to sell/trash the stuff than to get it moved here. We saved 1-2k in moving expenses, maybe more.
Some of the furniture we are looking to buy or build will be completely new to us. Bedroom sets come to mind, we are loosening up financially a bit and now that we have a decent stache started we want to get some of the stuff that we put off in the past.
Over the last year, my mindset has kinda shifted from "Accumulate as much as you can!" to "Accumulate a good amount and spend money on pre-structuring your FI lifestyle". I'm hoping that this makes the path to FI more enjoyable while setting us up for a successful post FI life. Granted, it will extend our time to FI.
Oh, and our office furniture deserves its own paragraph. We buy rentals in a retirement community. Sellers often leave things behind that they can't or don't want to deal with. Big things. The last one we bought had a lovely office with a suite of expensive furniture. Since we rent our houses unfurnished we were going to donate all of it. Then we realized it was better quality than what we had at home. We packed up the pieces we wanted in the truck and drove it eight hours home. We donated the rest. All it cost us was a little time and gas. We joke that it's free furniture that "only" cost us $235k. At least we bought the house for below market value.
PMI is gone after 5 years (yes, bought a house with 10% down and went FHA - NOT doing that again)!! Hello paying my mortgage with no extra. Going straight to the market!Congratulations!
I'm getting divorced so we'll be selling our home soon. We've been lucky and the house appreciated in value a lot during our 4 years here. Around $160k each when all is said and done. I'll use $100k of mine as a downpayment on a new house (20% down) and finance to a low interest 30 year loan. The rest I'll put in to a separate account for spousal/child support payments.There's a book, "Ordinary People, Extraordinary Wealth" which has the clearest explanation of this concept I've ever seen. The first chapter (the only one you need to read, IMO) was literally life-changing for me. It is my Ah-Ha! moment on the path to FIRE. I used to believe that killing the mortgage was the gold standard. My SO tried valiantly to explain why putting more than 20% down and prepaying the mortgage was woefully sub-optimal, but I wasn't having any of it.
My wife, on the other hand, wants to take all of her $160k and put the entire thing as a downpayment on a house "so that I'll have smaller monthly payments". When I point out that keeping as much $$ as possible in cash (or invested) will actually give her a lot more safety and flexibility it just doesn't seem to register. And I think it's especially important in her case because she's still getting her real estate business going, so her income is very lumpy right now (and will likely continue to be in the near future), and thus having the cash in the bank instead of in the house will buy her time during those down months. It really does make me want to bang my head on the nearest desk.
On the other hand, she is very smart and is capable of processing new information well. My personal thoughts are that she's just not able to take advice "from me" and it'll stand a better chance of being heard if it comes from a different person.
I'm getting divorced so we'll be selling our home soon. We've been lucky and the house appreciated in value a lot during our 4 years here. Around $160k each when all is said and done. I'll use $100k of mine as a downpayment on a new house (20% down) and finance to a low interest 30 year loan. The rest I'll put in to a separate account for spousal/child support payments.There's a book, "Ordinary People, Extraordinary Wealth" which has the clearest explanation of this concept I've ever seen. The first chapter (the only one you need to read, IMO) was literally life-changing for me. It is my Ah-Ha! moment on the path to FIRE. I used to believe that killing the mortgage was the gold standard. My SO tried valiantly to explain why putting more than 20% down and prepaying the mortgage was woefully sub-optimal, but I wasn't having any of it.
My wife, on the other hand, wants to take all of her $160k and put the entire thing as a downpayment on a house "so that I'll have smaller monthly payments". When I point out that keeping as much $$ as possible in cash (or invested) will actually give her a lot more safety and flexibility it just doesn't seem to register. And I think it's especially important in her case because she's still getting her real estate business going, so her income is very lumpy right now (and will likely continue to be in the near future), and thus having the cash in the bank instead of in the house will buy her time during those down months. It really does make me want to bang my head on the nearest desk.
On the other hand, she is very smart and is capable of processing new information well. My personal thoughts are that she's just not able to take advice "from me" and it'll stand a better chance of being heard if it comes from a different person.
Some years later, I stumbled upon this book in the library. What a game changer! It's old now, but the concept is still rock-solid and presented in an easy to read and understand way. It's written by Ric Edelman. He's a financial planner with a radio show, which I know isn't Mustachian, but it is if you get the book at the library. Excellent advice that you don't have to pay for, for the win. Even if you pay full retail and only read the one chapter, it's well worth it.
It sounds as though each of you is now single and buying a $500,000 house. We would be remiss as MMM'ers were we not to suggest a simple way of lowering your monthly payments: buy a $400,000 house instead. Improves cash flow by $400/month.
It sounds as though each of you is now single and buying a $500,000 house. We would be remiss as MMM'ers were we not to suggest a simple way of lowering your monthly payments: buy a $400,000 house instead. Improves cash flow by $400/month.
In Denver there's a big, big difference in quality for a $400k home and a $500k home. I can afford it and still save a ton of money every month (even with paying spousal support). For me it won't actually be $400 extra a month since the payments will be roughly the same as the payments on our current home, which I've been paying by myself for over 4 years (along with all other household expenses).
there yet.
Out of curiosity, where is there not a difference between two homes that have a spread of 100k? Adding 100k of house is pretty huge...
...Now, if FIRE is really anyone's goal, than they need to go the method of Jacob at ERE. Otherwise, its all fluff (MMM included).I totally call Bullshit on this total non-sequiter. This thread is dedicated to learning how to use the power of leverage (i.e. mortgages) to hasten the path to FIRE, which is anything but fluff.
...Now, if FIRE is really anyone's goal, than they need to go the method of Jacob at ERE. Otherwise, its all fluff (MMM included).I totally call Bullshit on this total non-sequiter. This thread is dedicated to learning how to use the power of leverage (i.e. mortgages) to hasten the path to FIRE, which is anything but fluff.
Jacob lived in an RV, which he presumably bought used and paid cash for. He split expenses with his wife, only reporting his half. I found his message helpful in my Pre-FIRE days, especially before Pete started MMM. I have great respect for Jacob's ERE, but this forum is much more interactive. Questions can be asked, experiences shared, advice given. Minds and lives can be changed. That is powerful mojo. Go take a look at @Silverback761's new journal. His turnaround has been swift and amazing. The input from our community has been anything but fluffy.
If what you're saying is that MMM's too fluffy for you, fine, see ya. But others are being helped every day, and there ain't nothin' fluffy about that.
And while I'm gently ranting, I'll add that It's a helluva lot easier to hit FIRE when you can buy the deluxe version of a basic home for only $155k. Try doing that when the median home price is five or six times higher. Yet there are plenty of HCOLA mustachians who have done or are in the process of doing just that. And there's nary a jar of Kraft Jet-Puffed Marshmallow Creme in sight.
Is it still beneficial to make the minimum payment on the mortgage on a 30yr with a 4.75% rate? Or at this point would I be better off on a 15 @ 4.375%
135k loan 10% down......(I know it should be 20% but...stuff happens.)
There's a book, "Ordinary People, Extraordinary Wealth" which has the clearest explanation of this concept I've ever seen. The first chapter (the only one you need to read, IMO) was literally life-changing for me. It is my Ah-Ha! moment on the path to FIRE. I used to believe that killing the mortgage was the gold standard. My SO tried valiantly to explain why putting more than 20% down and prepaying the mortgage was woefully sub-optimal, but I wasn't having any of it.
Some years later, I stumbled upon this book in the library. What a game changer! It's old now, but the concept is still rock-solid and presented in an easy to read and understand way. It's written by Ric Edelman. He's a financial planner with a radio show, which I know isn't Mustachian, but it is if you get the book at the library. Excellent advice that you don't have to pay for, for the win. Even if you pay full retail and only read the one chapter, it's well worth it.
You know it's a fast read. Try offering her $100 to read it. Might be the best money you ever spent.There's a book, "Ordinary People, Extraordinary Wealth" which has the clearest explanation of this concept I've ever seen. The first chapter (the only one you need to read, IMO) was literally life-changing for me. It is my Ah-Ha! moment on the path to FIRE. I used to believe that killing the mortgage was the gold standard. My SO tried valiantly to explain why putting more than 20% down and prepaying the mortgage was woefully sub-optimal, but I wasn't having any of it.
Some years later, I stumbled upon this book in the library. What a game changer! It's old now, but the concept is still rock-solid and presented in an easy to read and understand way. It's written by Ric Edelman. He's a financial planner with a radio show, which I know isn't Mustachian, but it is if you get the book at the library. Excellent advice that you don't have to pay for, for the win. Even if you pay full retail and only read the one chapter, it's well worth it.
I read this the other day on your recommendation (on Hoopla, which I had never tried before but is actually pretty solid) and just recommended it on reddit to someone in /r/pf. Gonna try to get my wife to read it, although I'm pretty sure she's not going to care. She doesn't have an opinion about our finances past "don't lose the money".
You know it's a fast read. Try offering her $100 to read it. Might be the best money you ever spent.There's a book, "Ordinary People, Extraordinary Wealth" which has the clearest explanation of this concept I've ever seen. The first chapter (the only one you need to read, IMO) was literally life-changing for me. It is my Ah-Ha! moment on the path to FIRE. I used to believe that killing the mortgage was the gold standard. My SO tried valiantly to explain why putting more than 20% down and prepaying the mortgage was woefully sub-optimal, but I wasn't having any of it.
Some years later, I stumbled upon this book in the library. What a game changer! It's old now, but the concept is still rock-solid and presented in an easy to read and understand way. It's written by Ric Edelman. He's a financial planner with a radio show, which I know isn't Mustachian, but it is if you get the book at the library. Excellent advice that you don't have to pay for, for the win. Even if you pay full retail and only read the one chapter, it's well worth it.
I read this the other day on your recommendation (on Hoopla, which I had never tried before but is actually pretty solid) and just recommended it on reddit to someone in /r/pf. Gonna try to get my wife to read it, although I'm pretty sure she's not going to care. She doesn't have an opinion about our finances past "don't lose the money".
Holy cow!You know it's a fast read. Try offering her $100 to read it. Might be the best money you ever spent.There's a book, "Ordinary People, Extraordinary Wealth" which has the clearest explanation of this concept I've ever seen. The first chapter (the only one you need to read, IMO) was literally life-changing for me. It is my Ah-Ha! moment on the path to FIRE. I used to believe that killing the mortgage was the gold standard. My SO tried valiantly to explain why putting more than 20% down and prepaying the mortgage was woefully sub-optimal, but I wasn't having any of it.
Some years later, I stumbled upon this book in the library. What a game changer! It's old now, but the concept is still rock-solid and presented in an easy to read and understand way. It's written by Ric Edelman. He's a financial planner with a radio show, which I know isn't Mustachian, but it is if you get the book at the library. Excellent advice that you don't have to pay for, for the win. Even if you pay full retail and only read the one chapter, it's well worth it.
I read this the other day on your recommendation (on Hoopla, which I had never tried before but is actually pretty solid) and just recommended it on reddit to someone in /r/pf. Gonna try to get my wife to read it, although I'm pretty sure she's not going to care. She doesn't have an opinion about our finances past "don't lose the money".
Huh. Well, she read it. Turns out she’s been on team “don’t pay off the mortgage” forever, we just hadn’t really discussed it in those terms. She’s skeptical of the author’s 7-8% returns but I think I can build on this.
Oh and all she required was foot rubs.
You know it's a fast read. Try offering her $100 to read it. Might be the best money you ever spent.There's a book, "Ordinary People, Extraordinary Wealth" which has the clearest explanation of this concept I've ever seen. The first chapter (the only one you need to read, IMO) was literally life-changing for me. It is my Ah-Ha! moment on the path to FIRE. I used to believe that killing the mortgage was the gold standard. My SO tried valiantly to explain why putting more than 20% down and prepaying the mortgage was woefully sub-optimal, but I wasn't having any of it.
Some years later, I stumbled upon this book in the library. What a game changer! It's old now, but the concept is still rock-solid and presented in an easy to read and understand way. It's written by Ric Edelman. He's a financial planner with a radio show, which I know isn't Mustachian, but it is if you get the book at the library. Excellent advice that you don't have to pay for, for the win. Even if you pay full retail and only read the one chapter, it's well worth it.
I read this the other day on your recommendation (on Hoopla, which I had never tried before but is actually pretty solid) and just recommended it on reddit to someone in /r/pf. Gonna try to get my wife to read it, although I'm pretty sure she's not going to care. She doesn't have an opinion about our finances past "don't lose the money".
Huh. Well, she read it. Turns out she’s been on team “don’t pay off the mortgage” forever, we just hadn’t really discussed it in those terms. She’s skeptical of the author’s 7-8% returns but I think I can build on this.
Oh and all she required was foot rubs.
You know it's a fast read. Try offering her $100 to read it. Might be the best money you ever spent.There's a book, "Ordinary People, Extraordinary Wealth" which has the clearest explanation of this concept I've ever seen. The first chapter (the only one you need to read, IMO) was literally life-changing for me. It is my Ah-Ha! moment on the path to FIRE. I used to believe that killing the mortgage was the gold standard. My SO tried valiantly to explain why putting more than 20% down and prepaying the mortgage was woefully sub-optimal, but I wasn't having any of it.
Some years later, I stumbled upon this book in the library. What a game changer! It's old now, but the concept is still rock-solid and presented in an easy to read and understand way. It's written by Ric Edelman. He's a financial planner with a radio show, which I know isn't Mustachian, but it is if you get the book at the library. Excellent advice that you don't have to pay for, for the win. Even if you pay full retail and only read the one chapter, it's well worth it.
I read this the other day on your recommendation (on Hoopla, which I had never tried before but is actually pretty solid) and just recommended it on reddit to someone in /r/pf. Gonna try to get my wife to read it, although I'm pretty sure she's not going to care. She doesn't have an opinion about our finances past "don't lose the money".
Huh. Well, she read it. Turns out she’s been on team “don’t pay off the mortgage” forever, we just hadn’t really discussed it in those terms. She’s skeptical of the author’s 7-8% returns but I think I can build on this.
Oh and all she required was foot rubs.
It would be a great value to start building a list of service providers who will accept foot rubs in place of $100. (It also wouldn't be on the topic of this discussion)
I'm all in on not paying my mortgage early (15-year fixed at 2.75%, with ~13 years to go).
But I am starting to wobble on some of my law-school loans. It's a group of loans, all at adjustable rates. The weighted average rate been as low as 3.6% but is now at about 5.1%.
Total balance is $11k but that includes a bunch of small loans, so I could pay off one or more of the constituent loans (i.e. the ones with the highest interest rates) and reduce my monthly payment.
Question for the group is: at what interest rate should I start doing that?
I think you are there. Short term, variable and non dischargeable debt in this range is fine to pay down. Rates are going up in the near future for these loans.
Question for the group - is there ever a good reason to pay points?? We are looking at a house and the lender has offered 4.625% with no points and credits to the closing so we would pay $1K total (not including DP) or pay points and no closing credit for $10K down. The rate would then be 4.000% for 30 years. Trying to justify the $4550 points payment for dropping the rate 625 basis points. (I am also asking if they have any credits for the 4.000% too.) If I stay there for 30 years and just pay the mortgage every month the $4550 will save us over $37K in interest. The savings crossover for the $4550 is just under 4 years. Thoughts? I feel like I am going crazy number crunching here and I need my sanity straightened out.
*edited for interest calculation.
Question for the group - is there ever a good reason to pay points?? We are looking at a house and the lender has offered 4.625% with no points and credits to the closing so we would pay $1K total (not including DP) or pay points and no closing credit for $10K down. The rate would then be 4.000% for 30 years. Trying to justify the $4550 points payment for dropping the rate 625 basis points. (I am also asking if they have any credits for the 4.000% too.) If I stay there for 30 years and just pay the mortgage every month the $4550 will save us over $37K in interest. The savings crossover for the $4550 is just under 4 years. Thoughts? I feel like I am going crazy number crunching here and I need my sanity straightened out.
*edited for interest calculation.
With the current rising rate environment I'd take the 4 year break even gamble. But I'm seeing a difference of 9k. Not 4550 unless I'm missing how youre calcing this. Also you should be compounding your savings at 5-6% annually. I use 7 some think that's high. You also should at the same time compound the 9k extra now annually. This difference is likely longer than 4 years. Would need to know the mortgage amount to do this calc better.
It's about a 12 year break even. You should use nominal returns here at 10% and 9k difference to invest today. I probably wouldn't buy those points.
It's about a 12 year break even. You should use nominal returns here at 10% and 9k difference to invest today. I probably wouldn't buy those points.
Thanks - this is helpful. I do also have an option from the lender for no points but I pay all the closing costs of $4148 and the rate is 4.375%. I think I am going to lean more to this as I have the money to pay the closing costs and really don't want the bank to give a credit for a higher rate.
It's about a 12 year break even. You should use nominal returns here at 10% and 9k difference to invest today. I probably wouldn't buy those points.
Thanks - this is helpful. I do also have an option from the lender for no points but I pay all the closing costs of $4148 and the rate is 4.375%. I think I am going to lean more to this as I have the money to pay the closing costs and really don't want the bank to give a credit for a higher rate.
this is actually worse its a 15 year payback - i'd jsut take the 4.625 assuming you will invest the 4148 and if you're not maxing tax advantaged accounts then definitely take the higher rate and funnel all that money into the accounts.
Looks like a bad time to step in here, but maybe I can offer a different perspective that could show this is not a black and white thing for everyone.
I'm on the other thread despite my instinctive desire to be here, because that is what makes the most mathematical sense for me. In Australia, things are different...
- We never had your really low interest rates - no great recession or QE here.
- Our mortgage rates are mostly variable and the banks put up the rates whenever they want (you can pay higher rates to fix them for a few years).
- There is no tax deduction for mortgage interest.
- There is high tax on investment income and moderate tax on realised capital gains (home excluded), while saving on mortgage interest is tax free.
- Homes are not included in asset tests for various things like welfare, so as long as you have a paid off house you're set for life no matter what.
- There are caps on low-tax retirement funds and we have no backdoor options to access them before the age of 60 (except in extreme circumstances).
- Our stock market returns are not as high as the US, and returns from international stocks are taxed at a higher rate.
- Redrawing on extra loan payments is free and easy, so it's not like the money is locked up in the event of emergencies.
- Inflation is kept reasonably low.
I really wanted to get started on investing in full-tax accounts but had to reluctantly conclude it wasn't the right move for me to make. I max out my low-tax account concessional contributions and throw everything else at the mortgage. I have about 18 months left on it.
My main consolation is that if the market crashes then it may become worthwhile to 'rebalance' into discounted stocks at some stage regardless of these points. I consider the home equity to be similar to holding cash in that regard, only with a much better return.
Anyway, I hope everyone is able to analyse their circumstances rationally and take actions in their long-term best interests... even if it sometimes seems too boring or volatile, as the case may be.
I drove by a nice neighborhood they're putting in about half-way between church and my in-laws house. (Currently we drive 7 mi to one and another 6 mi further past that to the other). But they're just starting to build there now, and we probably won't be ready to move for another two years. By then, the window on these crazy low interest rates may close for good.
This is an excellent response, and I agree. My wife and I have discussed the two-year timetable for moving as it aligns better with her childcare goals for our son (who is currently three). It will be nice to have easier drives to in-laws' house and church.We are in a similar situation. We plan to move before our daughter starts middle school in 3 years. I'm interested in seeing how the housing market reacts to the rising interest rates. The timing of the inevitable next recession will be interesting as well.
Secretly, I'm hoping that the recession everyone is expecting will come by then, and house prices will drop, making it cheaper to "trade up". As long as the recession doesn't also cost one of us a job, that is ;-)
In the meantime, I'm planning to pay down our current mortgage at least some so that we make enough from the sale of our current home to cover a 20% down payment on the new home. I'm still undecided on how aggressively we should pay down that future mortgage. Do I want to join a club???
In the meantime, I'm planning to pay down our current mortgage at least some so that we make enough from the sale of our current home to cover a 20% down payment on the new home.This is the equivalent of having extra money withheld from your paycheck so you can get a bigger tax return. Sure, it works, but it's completely inefficient
If I do decide to forgo the guaranteed return of paying down my mortgage over the next 2-3 years, where do you recommend I put my money? I should also mention that we are currently paying PMI which I would like to get rid of. Thanks.In the meantime, I'm planning to pay down our current mortgage at least some so that we make enough from the sale of our current home to cover a 20% down payment on the new home.This is the equivalent of having extra money withheld from your paycheck so you can get a bigger tax return. Sure, it works, but it's completely inefficient
The smart thing to do is save aggressively, and keep the money under your own control so you have the most flexibility. What if home values go down in the meantime and you've locked up your money in a depreciating asset? (See: 2008. It happened to thousands upon thousands of homeowners.)
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When do you expect to use the money? Since your first choice was paying down the mortgage, than I would guess you are not planning on using it for a very long time. If that's the case, I would just invest it according to your current asset allocation. For me that would be 100% into a total us stock market fund. If you are looking at using it in the next 5 years I may do a 60/40 stock to bond split. Generally I'm 100% stock though.If I do decide to forgo the guaranteed return of paying down my mortgage over the next 2-3 years, where do you recommend I put my money? I should also mention that we are currently paying PMI which I would like to get rid of. Thanks.In the meantime, I'm planning to pay down our current mortgage at least some so that we make enough from the sale of our current home to cover a 20% down payment on the new home.This is the equivalent of having extra money withheld from your paycheck so you can get a bigger tax return. Sure, it works, but it's completely inefficient
The smart thing to do is save aggressively, and keep the money under your own control so you have the most flexibility. What if home values go down in the meantime and you've locked up your money in a depreciating asset? (See: 2008. It happened to thousands upon thousands of homeowners.)
Since I would not be planning an early mortgage payoff on this house or the next one, I'd put it in the market, a la jlcollinsnh's brilliant Stock Series.If I do decide to forgo the guaranteed return of paying down my mortgage over the next 2-3 years, where do you recommend I put my money? I should also mention that we are currently paying PMI which I would like to get rid of. Thanks.In the meantime, I'm planning to pay down our current mortgage at least some so that we make enough from the sale of our current home to cover a 20% down payment on the new home.This is the equivalent of having extra money withheld from your paycheck so you can get a bigger tax return. Sure, it works, but it's completely inefficient
The smart thing to do is save aggressively, and keep the money under your own control so you have the most flexibility. What if home values go down in the meantime and you've locked up your money in a depreciating asset? (See: 2008. It happened to thousands upon thousands of homeowners.)
I turn my nose up at that meager amount of high-price debt as a way of virtue-signalling to people outside of this club that I'm still worthy.I have no idea what this means. Care to elaborate?
I'm looking at the 20% down as a mental price control mechanism both for me and my slightly less frugal wife. Putting down less than 20% and paying PMI feels equivalent to the 'I bought the new car because I got 0% financing' logic. I don't want to allow myself to overspend just because I can.Since I would not be planning an early mortgage payoff on this house or the next one, I'd put it in the market, a la jlcollinsnh's brilliant Stock Series.If I do decide to forgo the guaranteed return of paying down my mortgage over the next 2-3 years, where do you recommend I put my money? I should also mention that we are currently paying PMI which I would like to get rid of. Thanks.In the meantime, I'm planning to pay down our current mortgage at least some so that we make enough from the sale of our current home to cover a 20% down payment on the new home.This is the equivalent of having extra money withheld from your paycheck so you can get a bigger tax return. Sure, it works, but it's completely inefficient
The smart thing to do is save aggressively, and keep the money under your own control so you have the most flexibility. What if home values go down in the meantime and you've locked up your money in a depreciating asset? (See: 2008. It happened to thousands upon thousands of homeowners.)
PMI doesn't bother me. It's the price you pay for not having 20% down. Big deal. At least it got you into the RE market. Okay, it does bother me, but sometimes it just can't be helped.
At what interest rate would the scale tip the other way for you?I follow the Investment Order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153). So currently 7.877% for comparing to tax-advantaged accounts and 5.877% for taxable accounts.
To pay the mortgage I would need $300k in the portfolio to kick off the $12k per year for the mortgage using a 4% SWR.That would be to pay the mortgage without your investments running out. A SWR is not the expected return on investment. It's perfectly fine for your investments to be depleted as you pay off your mortgage in retirement.
For example, let's say instead you invest $183k (exactly your mortgage balance). We'll assume a conservative 6% return on investment. Your investments will generate $915/month, almost enough to pay the mortgage. Each year your investment will deplete by ~$1k, but eventually the mortgage will be paid off and you'll still have the majority of your investment remaining.
I always like to look a things from all reasonable sides. I've recently decided to pay off my mortgage (don't yell at me). Please forgive me if I've missed this info in earlier posts. At what interest rate would the scale tip the other way for you? Would the likely volatility in the market over the next few years sway you or are you focused mostly on historic long term returns? I was firmly in the invest camp, but my desire to walk away earlier put me in the pay off the mortgage earlier camp.
My situation - I want to the option to not work at all in a couple of years (this might not actually happen). My monthly mortgage payment is just under $1k. I would like to max out Roth conversion ladders in "retirement." My mortgage balance is about $183k. I have access to a $56k HELOC. If I put the full HELOC towards the mortgage and pay it back ASAP, I should be able to pay off the mortgage completely in less than 36 months. The interest rate on the HELOC will be less than the interest rate on the mortgage for the first 12 months. After that the HELOC interest rate will be slightly higher than the rate on the mortgage. Due to the new tax law I will be taking the standard deduction for the foreseeable future. To pay the mortgage I would need $300k in the portfolio to kick off the $12k per year for the mortgage using a 4% SWR. I thought it was a bit of a toss up but the Roth conversion ladder space was my tiebreaker.
Is anyone in this thread on the fence or was investment always a foregone conclusion for you?
To pay the mortgage I would need $300k in the portfolio to kick off the $12k per year for the mortgage using a 4% SWR.
I'm assuming that people on this thread are saving money in taxable accounts. Wouldn't that $915/mo* also be subject to tax? My thoughts were that if I can pay off the mortgage quickly and invest after it's paid off, I could stay under taxable thresholds for withdrawals in the future. If I have to pull out $12k/year for the mortgage, it makes staying in the (current) 12% tax bracket much more difficult going forward. Being single for tax purposes shifts this to the payoff mode for me. MFJ provides way more space for long-term capital gains.
*the mortgage payment is closer to $1k. $915 could be withdrawn as the initial amount invested on the $183k. I believe the other $85 would be subject to tax depending on LTCG v. STCG and tax bracket at the time.
Ugh...I've flip flopped again. I think the only path I can force myself to stay on is to split this 50/50. I know mathematically speaking investing wins over the long run. I also have an illogical desire to be debt-free because it feels like I will have more freedom/options. If I go 100% in either direction I end up doing a complete 180. A Vulcan I am not.
Ugh...I've flip flopped again. I think the only path I can force myself to stay on is to split this 50/50. I know mathematically speaking investing wins over the long run. I also have an illogical desire to be debt-free because it feels like I will have more freedom/options. If I go 100% in either direction I end up doing a complete 180. A Vulcan I am not.This is where I am at. Max IRA & 401k accounts and then throw a large chunk at the mortgage. On track to have it paid off in 4 years, then I will buy another house.
Ugh...I've flip flopped again. I think the only path I can force myself to stay on is to split this 50/50. I know mathematically speaking investing wins over the long run. I also have an illogical desire to be debt-free because it feels like I will have more freedom/options. If I go 100% in either direction I end up doing a complete 180. A Vulcan I am not.
I've flipped a few times myself but I think I've finally, permanently come around to the view that investing the cash instead of paying extra on the mortgage yields more flexibility, and ultimately a bigger return. Like, yes, debt free is for sure a great feeling (I was there before we bought this house) but if I have enough investments to pay off the debt and then some, that's also pretty great.
Ugh...I've flip flopped again. I think the only path I can force myself to stay on is to split this 50/50. I know mathematically speaking investing wins over the long run. I also have an illogical desire to be debt-free because it feels like I will have more freedom/options. If I go 100% in either direction I end up doing a complete 180. A Vulcan I am not.
Ugh...I've flip flopped again. I think the only path I can force myself to stay on is to split this 50/50. I know mathematically speaking investing wins over the long run. I also have an illogical desire to be debt-free because it feels like I will have more freedom/options. If I go 100% in either direction I end up doing a complete 180. A Vulcan I am not.
Ugh...I've flip flopped again. I think the only path I can force myself to stay on is to split this 50/50. I know mathematically speaking investing wins over the long run. I also have an illogical desire to be debt-free because it feels like I will have more freedom/options. If I go 100% in either direction I end up doing a complete 180. A Vulcan I am not.
50/50 is the worst of both choices, not the best of both choices.
Your living expenses are just as high because the mortgage payment is just as high even though the balance is lower.
So it gives you no cash flow advantage at all, nor does it help you keep your income lower for tax or subsidy purposes.
You have depleted your reserves, so if things go bad, you have less saved up to ride out the bad times. Even worse, if things get really bad and the bank forecloses on your house, you just made it EASIER for them to do so! How? Because they only need to sell it for enough to cover what you owe them plus administrative/closing costs. Since you cut the debt in half, they'll have a much easier time finding a buyer!
This situation, depending upon interest rates of course, is one of those times where compromise is a bad idea.
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I will be in the vicinity of FIRE in or around 2023. At that time I will have a mortgage balance of appx $69,000, with 5 years left to go on a 15-year fixed at 3 3/8 %. My monthly payment is $1,800; which is approximately $500 escrow and $1,300 P&I. So the magic question is, how much do I need above my FIRE number to retire with a mortgage payment? Is it 60 months of payments, which would be $108k? Is it 60 months of P&I, which would be $78k? Or is it the remaining principal balance, which at that time would be about $69k?
I will be in the vicinity of FIRE in or around 2023. At that time I will have a mortgage balance of appx $69,000, with 5 years left to go on a 15-year fixed at 3 3/8 %. My monthly payment is $1,800; which is approximately $500 escrow and $1,300 P&I. So the magic question is, how much do I need above my FIRE number to retire with a mortgage payment? Is it 60 months of payments, which would be $108k? Is it 60 months of P&I, which would be $78k? Or is it the remaining principal balance, which at that time would be about $69k?
You can sim this out in cfiresim, but I think the prudent thing would be to count the $500 escrow as part of your basic FIRE expenses (because it covers taxes and insurance which don't go away) but not the P&I, and then an additional $78k to cover the rest of the P&I.
I turn my nose up at that meager amount of high-price debt as a way of virtue-signalling to people outside of this club that I'm still worthy.I have no idea what this means. Care to elaborate?
I enjoy the company of people who care about personal finance things, whether they are "all debt is bad" people or "use debt smartly as a tool" people. Our club here is the latter group.
When I'm with the former group--whom I do not actively try to educate about the value smart use of debt can have--I can at least say I don't use PMI on my primary residence as a way of fitting in.
Now that is some fine mustachian thinking! Where do you put the funds received so that they don't count against you? Seems like you could funnel it into retirement funds over a few years time. This requires some advanced planning, but that's another fine mustachian trait. Hmmm, more discussion please.I enjoy the company of people who care about personal finance things, whether they are "all debt is bad" people or "use debt smartly as a tool" people. Our club here is the latter group.
When I'm with the former group--whom I do not actively try to educate about the value smart use of debt can have--I can at least say I don't use PMI on my primary residence as a way of fitting in.
And this also gives you bonus points among the "live and let live" crowd. :D
Back to the topic at hand, I recently discovered that quite a few of the more prestigious colleges and universities in the US use the so-called "institutional methodology" in determining how much parents are expected to pay. This considers home equity in the calculations. I ran a couple simulations and discovered that our family's hypothetical expected family contribution (EFC) roughly doubles, from $9,xxx to $18,xxx per year, when our home equity is included. I could imagine in HCOL areas with much higher real estate prices, a large amount of home equity could all but eliminate need-based institutional grants, even for a mustachian couple drawing ~$60k from retirement accounts.
I'm not sure it would make sense to take out a new mortgage on a paid-off house just to bring the EFC down, but a fresh 30 year low-rate mortgage and marginal home equity when your kids are starting college could be highly advantageous in some situations.
I'm not sure it would make sense to take out a new mortgage on a paid-off house just to bring the EFC down, but a fresh 30 year low-rate mortgage and marginal home equity when your kids are starting college could be highly advantageous in some situations.
Now that is some fine mustachian thinking! Where do you put the funds received so that they don't count against you? Seems like you could funnel it into retirement funds over a few years time. This requires some advanced planning, but that's another fine mustachian trait. Hmmm, more discussion please.
I was idly thinking that if you weren't investing up the annual limits in your 401k because it simply wasn't possible*, you could ratchet them up to the max and use the proceeds from the re-fi to fill the gap. Do this for you and your spouse.
I'd think by the time your offspring was about 12, you'd have a pretty good idea if they were college bound. That would give you a good chunk of years to make your position as optimal as possible before the reams of paperwork started.
Yep earlier Roth conversions to eat some tax now to get savings later. Would be quite the math equation. I'm fully aware my idea behind keeping the mortgage may change as life situations change the math with healthcare or college assistance driving the needle the other way. It's just extremely difficult to do. Esp when my rate is at inflation for 30 years.
But it wouldn't be much higher. Seriously, what are the odds that this will happen?Yep earlier Roth conversions to eat some tax now to get savings later. Would be quite the math equation. I'm fully aware my idea behind keeping the mortgage may change as life situations change the math with healthcare or college assistance driving the needle the other way. It's just extremely difficult to do. Esp when my rate is at inflation for 30 years.
Your admittedly desirable rate could still be above inflation for those 30 years if things break badly and we have a substantially deflationary period a la Japan in the 1990's.
Yep earlier Roth conversions to eat some tax now to get savings later. Would be quite the math equation. I'm fully aware my idea behind keeping the mortgage may change as life situations change the math with healthcare or college assistance driving the needle the other way. It's just extremely difficult to do. Esp when my rate is at inflation for 30 years.
Your admittedly desirable rate could still be above inflation for those 30 years if things break badly and we have a substantially deflationary period a la Japan in the 1990's.
But it wouldn't be much higher. Seriously, what are the odds that this will happen?
I agree that the 3% mortgage is better.Don't know the specifics of what you're referring to, but one way to hang on to that mortgage whilst optimizing your living situation might be to keep it as a rental.
But I don't want to be locked into a less-optimal living situation because I don't want to change my mortgage, either.
Hi, all,
First post here! I've been binge-reading the blog and really researching investing and saving after having ignored it for the first 9 or so years of my professional career. Luckily, I have very good income now and will just work extra hard to getting to that sweet spot of financial freedom over the next 15 years or so.
Anyway, in regards to mortgage, I see a lot of folks just using the interest rate of the loan rather than APR when calculating how much their income would be worth once they are mortgage free. Which should we be using?
I ask, because in late 2016, I took a 30-year fixed rate mortgage in the US with only 3.5% down. My interest rate is 3.625%, but once you add in the costs and my MIP, which will always be a part of the loan since I was under 90% LTV when I took the loan, my APR comes out to 4.716%.
I could refinance to a conventional loan now to get rid of the MIP (around 0.85%), but interest rates have risen to the point that it probably doesn't make sense.
So, should I look at my potential mortgage-free income (assuming I prioritize paying it down) at having an effective interest rate of 3.625% or 4.716%?
Sorry if this is a dumb question, but all of this is still rather new to me.
Hi, all,
First post here! I've been binge-reading the blog and really researching investing and saving after having ignored it for the first 9 or so years of my professional career. Luckily, I have very good income now and will just work extra hard to getting to that sweet spot of financial freedom over the next 15 years or so.
Anyway, in regards to mortgage, I see a lot of folks just using the interest rate of the loan rather than APR when calculating how much their income would be worth once they are mortgage free. Which should we be using?
I ask, because in late 2016, I took a 30-year fixed rate mortgage in the US with only 3.5% down. My interest rate is 3.625%, but once you add in the costs and my MIP, which will always be a part of the loan since I was under 90% LTV when I took the loan, my APR comes out to 4.716%.
I could refinance to a conventional loan now to get rid of the MIP (around 0.85%), but interest rates have risen to the point that it probably doesn't make sense.
So, should I look at my potential mortgage-free income (assuming I prioritize paying it down) at having an effective interest rate of 3.625% or 4.716%?
Sorry if this is a dumb question, but all of this is still rather new to me.
Hi and welcome! I'm not sure APR is the right term for interest rate + MIP, but I understand what you're asking. You should definitely be including MIP in your calculations and comparisons. There are several other people with similar questions earlier in this thread (if you dare dig through 15 pages to find them).
The way to do this calculation is to look at how much you save by getting rid of MIP and divide it by how much it takes to get rid of MIP to calculate the return on investment of just this partial mortgage paydown. You also need to be sure that the terms of your MIP allow it to go away just by getting your LTV low enough. Some mortgages, like relatively recent FHA loans, require refinancing to get rid of PMI. This calculation may also change as you get closer to the drop point, so you may want to rerun it periodically to see if it makes sense to make a single principal payment to knock it out.
Here's an example of the calculation, since you didn't provide your specific numbers:
$100k value
$90k mortgage
$81.83/month MIP removed automatically at $78k
$12k required to remove MIP which will save $981.96/year = 8.18% return on investment
edit: you could also add your mortgage interest rate to that return on investment, depending on what you're trying to calculate
The above math to calculate your interest rate with pmi is incorrect I'll post some correct math later or you could provide your numbers and I can get real specific.
Assuming my calculations are correct, that's a pretty tough choice. I would be effectively paying $13,451 for peace of mind and a good chunk of equity in rapidly appreciating Seattle-area real estate (who knows how long that will continue, though). On the other hand, I wouldn't have nearly $600k in investments that could easily pay for a lifestyle should I decide to sell the property at that point and downsize to something less expensive (although there's no telling where the Seattle real estate market will be then).
Assuming my calculations are correct, that's a pretty tough choice. I would be effectively paying $13,451 for peace of mind and a good chunk of equity in rapidly appreciating Seattle-area real estate (who knows how long that will continue, though). On the other hand, I wouldn't have nearly $600k in investments that could easily pay for a lifestyle should I decide to sell the property at that point and downsize to something less expensive (although there's no telling where the Seattle real estate market will be then).
Minor point of clarification. Equity does not grow faster by paying down the mortgage. For example, let's you put $0 down on a property that appreciates from $400K to $600K. You now have $200K in equity. Now let's say you put $400K down on a property that appreciates from $400K to $600K. You now have $200K in equity. Same thing. It doesn't matter if you put it down all at once or over time, equity does not grow faster.
If you invest inside a tax sheltered account (401k, Roth IRA, etc.) you won't have any capital gains tax. If you've used up all your tax advantaged space then you would be slightly more conservative to account for taxes. The Investment Order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) recommends setting the debt payments vs invest threshold 2% lower (currently 8% for tax advantaged and 6% for taxable).
Depending on your tax situation you may owe very little in capital gains taxes (https://www.gocurrycracker.com/never-pay-taxes-again/).
If you invest inside a tax sheltered account (401k, Roth IRA, etc.) you won't have any capital gains tax. If you've used up all your tax advantaged space then you would be slightly more conservative to account for taxes. The Investment Order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) recommends setting the debt payments vs invest threshold 2% lower (currently 8% for tax advantaged and 6% for taxable).
Depending on your tax situation you may owe very little in capital gains taxes (https://www.gocurrycracker.com/never-pay-taxes-again/).
Wow, thanks a lot for this. Great information. Looks like I've got some more studying this stuff to do, but perhaps paying towards the mortgage after maxing out 401k and Roth IRA each year is not a bad idea.
YouTube recommended this video to me about why it's a bad idea to pay down your mortgage early:
https://www.youtube.com/watch?v=AJSCT51Rfws
YouTube recommended this video to me about why it's a bad idea to pay down your mortgage early:
https://www.youtube.com/watch?v=AJSCT51Rfws
It's unfortunate that he started off his 3-part argument with the oft-repeated, usually specious claim that you can write off your entire mortgage interest as a tax deduction. It's 2018, man. The standard deduction was a thing before, but now it's a kind of huge thing for most people, and basically everyone outside of HCOL areas. He lost a lot of credibility right off the bat, given that the video was posted in May 2018.
Also, from the comment section, I'm pretty dang sure that Golumn (sic) McSmeagolHomie is boarder42. Or his long lost brother.
YouTube recommended this video to me about why it's a bad idea to pay down your mortgage early:
https://www.youtube.com/watch?v=AJSCT51Rfws
It's unfortunate that he started off his 3-part argument with the oft-repeated, usually specious claim that you can write off your entire mortgage interest as a tax deduction. It's 2018, man. The standard deduction was a thing before, but now it's a kind of huge thing for most people, and basically everyone outside of HCOL areas. He lost a lot of credibility right off the bat, given that the video was posted in May 2018.
Also, from the comment section, I'm pretty dang sure that Golumn (sic) McSmeagolHomie is boarder42. Or his long lost brother.
Seriously. How the hell could you think that was s me lol I don't ever fucking lol this isn't a laughing matter lol this is people wasting money.
yup he's never gonna change we've got to love him the way he is ♡♡♡♡♡Seriously. How the hell could you think that was s me lol I don't ever fucking lol this isn't a laughing matter lol this is people wasting money.
Same difficulty with caps and run-on sentences, though.
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 ?
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 ?
which is another way of saying: don't pick a house to live thinking of it as an investment. Think of it as a lifestyle choice, which implies trying to minimize what you spend.I don't think that necessarily implies minimizing your spend. Housing is one area where we recently "splurged". We spent a lot of money on a modest house in a great location which also cut our commute time by about 70%. The goal was to buy a house that we would be happy with for a long time and I honestly don't see us ever moving unless we decided to move out of state. Upgrading homes is a killer and real estate fees can really make an impact on your net worth if you "upgrade" 2 or 3 times in 30 years.
Also if you're using a 7% growth rate for equities you've deducted inflation. Which means you should pull 3% off your mortgage interest too. So you're comparing apples to apples
Also if you're using a 7% growth rate for equities you've deducted inflation. Which means you should pull 3% off your mortgage interest too. So you're comparing apples to apples
Jesus, I didn't even think about that. 2 ~ 3% off of my interest (3.625%) would mean it's 0.625% ~ 1.625% and even if I look at my APR (4.716%), it's still just 1.716% ~ 2.716%. Hard to justify paying that down rather than investing it just for peace of mind.
Jesus, I didn't even think about that. 2 ~ 3% off of my interest (3.625%) would mean it's 0.625% ~ 1.625% and even if I look at my APR (4.716%), it's still just 1.716% ~ 2.716%. Hard to justify paying that down rather than investing it just for peace of mind.
Great analogy!
Jesus, I didn't even think about that. 2 ~ 3% off of my interest (3.625%) would mean it's 0.625% ~ 1.625% and even if I look at my APR (4.716%), it's still just 1.716% ~ 2.716%. Hard to justify paying that down rather than investing it just for peace of mind.
Indeed.
And it is even worse (better?) than that, because not only is the cost of borrowing close to zero, you are using full value dollars today to save inflation ravaged dollars in the future. The other thing is that the peace of mind issue is also an illusion. I just made a post about it in another thread:
https://forum.mrmoneymustache.com/welcome-to-the-forum/equity-shaming/msg2093302/#msg2093302
You're taking on more risk, not less, by paying down the mortgage even though most people don't think about it that way. An analogy is learning to ski. Beginners instinctively want to lean back because you essentially falling forward down the hill. But you really need to learn forward to get control of your skis. Leaning back is instinctive, but wrong. Same with paying off the mortgage.
Cartman-Yes, in the UK we have variable, tracker and fixed rate mortgages, and you might typically fix for 2, 5 or increasingly 10 years, but not really any longer than that, and then they revert to the lender's normal variable rate (currently 4.35% on the one I looked at) - but then, providing rates haven't gone up massively in the meantime you normally take out another fixed rate mortgage... and of course for the last 10 years or so we've had really low rates here in the UK... these 30 year mortgages you guys have in the US sound wonderful in comparison.
I do not know what mortgage risk you're bearing with that rate. Will it reset again in five or more years? The extent to which you can guarantee the time during which you'll have the low rate is the most important variable in the DNPYM club. Otherwise, having a lower mortgage balance can significantly reduce the risk you bear from an increase in your mortgage rate.
Really interesting thread that has got me thinking about my own situation...looking for some advice.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?
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.
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).
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 ?
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.
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.
As the saying goes 'everything in moderation'But why do that when there's no need to?
(playing devils advocate)
- It gets the total debt down sooner
- spreads risk between having cash, investments and lowered debt
- psychological boost
- It gets the total debt down sooner
- spreads risk between having cash, investments and lowered debt
- psychological boost
Just made my last payment for year 2 of 15. Only 13 more years to go at 2.75%!
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.
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.
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?
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?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.
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?
Mortgage free home owners on the rise:Hmmm, what makes them "lucky"?
...This lucky segment of Seattle households...
https://www.seattletimes.com/seattle-news/data/mortgage-free-homeowners-on-the-rise-in-seattle-data-show/
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?
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/
Well it says 1 of 4 own their home outright so it would be 25%.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%?
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?
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.
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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Is anyone else in this thread concerned with the current market and correlated P/E ratios.Well, seven years is a long time. Is part of your skepticism that you are getting closer to retirement? Because that's actually rational.
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
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
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.Is anyone else in this thread concerned with the current market and correlated P/E ratios.Well, seven years is a long time. Is part of your skepticism that you are getting closer to retirement? Because that's actually rational.
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
Yep, I keep on telling myself this but it's getting hard dumping money into what appears to be an overvalued investment choice.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.
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.
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?
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?
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
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.
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.
I may have to come back to this thread from time to time for moral support.We're here for you! I stopped worrying about our low interest debt a long time ago; probably roughly when we had a year's worth of payments saved up outside of retirement accounts.
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
Just finished reading "The Value of Debt in Building Wealth" by Thomas J. Anderson (from the library, of course) and some blog posts on not paying off debt. It seems clear that the best way to optimize net worth and flexibility is to not pay down low interest fixed-rate debt aggressively. It's a bit more dangerous to do so when the debt is merely paid down and not paid off. I get it. I really think I do. I just know that I'll always have the knee jerk reaction to want to be out of debt. I may have to come back to this thread from time to time for moral support.
If you have an amortization schedule, you can see how much interest and how much principal is being paid at different times based on the current equity level (how much principal is left to pay down). So let's say you have 169K to pay down still... My thinking is if you put down, say, an extra 2K in principal on a payment, meaning that there would be 167K left, then you would just then locate the 167K principal amount on the amortization table, and then see how much interest you avoided by putting down the extra money. Add up all the interest payments between the 169K level and the 167K level. That's what I would do anyway. Not sure if it's right or not.If you do it this way, add up the principal and the interest between 167K and 169K. Take the example in the article as stated - a $2,000 payment at the beginning is $360 of principal and $1640 of interest. You pay an extra $2,000, and rather than having made the last payment and nothing else happening, you jump in the amortization schedule as you've said - about 5-6 months forward ($2,000 / 360). so that's $10K - $12K of payments on the loan you don't have to make.
Did anyone happen across this article today?
https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j (https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j)
I'm a little confused by some of the examples the author used. I'm not sure I agree with some of his statements. I'm sure this crowd can either confirm or refute what he says. I generally agree on the fact that paying off a low interest mortgage early is sub-optimal, but I think this guy is just wrong on some big particulars.
Specifically, I don't think this is correct:
"For example, assume you have a 30-year mortgage with a monthly payment of $2,000. Your first payment includes about $360 in principal and $1,640 in interest, while the last payment includes about $60 in interest and $1,940 in principal. If you made a double payment of $4,000 (to "save" on interest), all you're saving is $60, and that's 30 years from now. Put another way, it's a return of less than 0.1% per year."
This he bases on an earlier statement (which is not exactly clear):
"Mortgage interest is calculated differently from interest on other items (like credit cards). Essentially, the majority of your first monthly payment is interest, while the last payment is mostly principal. Each regular monthly payment you make applies to the next payment due, and any extra payment applies to the last payment due."
I think that the $1,940 in principal paid early will have a return of (your rate)* ($1940) * (the number of years remaining on your) mortgage (ignoring any inflation or tax related stuff). That's damn sure more that $60.
I don't think it is bad math so much as he is incorrect about how interest is applied. Paying $1940 of principal early means you aren't paying 4% or whatever on that $1940 for 29 years. That's >$2K not $60.It is actually quite a bit more than that - more like $10K saved from that one principal payment (compound interest is amazing that way).
I don't think it is bad math so much as he is incorrect about how interest is applied. Paying $1940 of principal early means you aren't paying 4% or whatever on that $1940 for 29 years. That's >$2K not $60.
Hi,
I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance. I realize that it's crazy to pay it off, but would love the security of having no mortgage payment. Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance? Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario. Thoughts?
Hi,
I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance. I realize that it's crazy to pay it off, but would love the security of having no mortgage payment. Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance? Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario. Thoughts?
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years. Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years. Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?
yeah somewhere aroun 6-7% depending on what the 10 year yield is
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years. Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?
yeah somewhere aroun 6-7% depending on what the 10 year yield is
OMG boarder42 told me to pay down my HELOC early!
No one is saying only pay off a morgage. Obviously one should not only invest in one thing, whether stocks, debt payment or rental real estate in a single area unless they want to take that risk level. If you already have 2M in stocks, are 60 yrs old and carry a 200k morgage, would your advice change?Hi,
I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance. I realize that it's crazy to pay it off, but would love the security of having no mortgage payment. Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance? Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario. Thoughts?
I don't understand how no mortgage payment means more security. If I had $170k invested and a mortgage payment I would feel much more secure than $0 and no mortgage payment.
The fact that you can get CD rates better than your mortgage just shows how absurd it would be to pay any amount extra on it. As for how to invest your spare dollars you should follow your investment policy statement (https://www.bogleheads.org/wiki/Investment_policy_statement). If CDs are part of your desired asset allocation then go for it.
Again, this is not saying carrying debt when you are accumulating to invest more is not awsome for wealth building, just to stimulate thinking.
If I had $2 million in stocks at 60 years old with a $200k fixed rate mortgage at 2.5% (or 4% or whatever reasonable number) I would still make the minimum payment. There would have to be some large incentive not to (maybe a tax cliff or something).♡♡♡♡♡♡♡♡♡♡♡
Hi,
I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance. I realize that it's crazy to pay it off, but would love the security of having no mortgage payment. Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance? Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario. Thoughts?
I'd like to join the club!
I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k. I've only paid the required payment ever since I refinanced at the end of 2014.
When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero. I get the math when it comes to mortgage rates so I'm not going to pay it off early. However, I am looking how to get that same "good feeling" and working towards a goal. What do others here do to stay motivated on aggressively investing? Track NW every month? Set a goal to get an investment account up to mortgage amount? Just looking for fun ways to track and feel the progress.
I'd like to join the club!
I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k. I've only paid the required payment ever since I refinanced at the end of 2014.
When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero. I get the math when it comes to mortgage rates so I'm not going to pay it off early. However, I am looking how to get that same "good feeling" and working towards a goal. What do others here do to stay motivated on aggressively investing? Track NW every month? Set a goal to get an investment account up to mortgage amount? Just looking for fun ways to track and feel the progress.
However, I am looking how to get that same "good feeling" and working towards a goal. What do others here do to stay motivated on aggressively investing? Track NW every month? Set a goal to get an investment account up to mortgage amount? Just looking for fun ways to track and feel the progress.
There's a thread where a few people are working on exceeding their debt in their taxable brokerage accounts. Though obviously you should be using tax advantaged space (IRAs, 401k, 403b, etc.) as much as possible first.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/
I track our net worth, but mostly I get excited about keeping our expenses low (also tracked).
I track the dividend income from my investments versus the interest on my mortgage.
I track the dividend income from my investments versus the interest on my mortgage.
My sixth FIREversary is around the corner. A lot of appreciation has happened since I pulled the plug on the paycheck. Maybe I saved exactly the right amount and compound interest and market gains did the "oversaving" for me while I was off doing other things? Hmmm, wasn't that my point in the first place?The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.
Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
I guess I'll join this club.
Every few months, I start thinking about what ifs regarding our financial life, and of course a big one of those is "what if I didn't have the mortgage expense anymore", but I always snap back to reality and realize that having a mortgage was and is one of the keys to our current financial success plus living how we want to live right now.
Does anyone here try to determine what an optimal mortgage balance is for them, and then try to maintain that in some way, either by refinancing every few years or using interest only loans, etc.?
I'm in a little different situation than many on this board, our financials would look more Boglehead-ish. We originally had a mortgage of 698k at 5%, we then refinanced in 2015 with cashout to increase the balance to 840k at 3.5% (used proceeds to pay off student loans that we couldn't deduct and that had rates of just over 4%, and then also invested about 50k in an aftertax account). We are now down to a balance of 762k (we prepay a small amount extra each month just to round up the payment, the extra probably represented less than 5% of what we save each month), and while we are maybe 1/3 to 1/2 of the way to hitting our FIRE number, I am trying to internally gauge what the ideal balance would be for me.
I've kinda always ballparked that comfortable number around 500k, which would mean doing nothing for the next 7 years (we have a 10/1, so that will be a decision point) as we'll still be above 500k. But I do toy with the idea of getting our payment down a little by refinancing again on this smaller amount while resetting the 30y clock, or even going the interest-only route. We _probably_ won't move for another 12 years (youngest is in kindergarten), although I do constantly feeling the siren call of upgrading to a nicer place in the neighborhood.
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.
Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
I've been slowly coming around to this concept over the past year or so. Can anyone read over the following to see if I've got this straight? If I write it down I'll understand it better.
1. The problem with paying off your mortgage is that then all that money is locked up in an asset that is not very liquid at all.
2. Here are our circumstances:
Mortgage: $298k left on a 30 year fixed mortgage at 3.75%. The condo is worth ~$425k.
The interest rate is low and fixed. So....
3. The smart thing to do is to let the mortgage ride, while investing as much as possible in our retirement accounts. Since we budget very carefully and do not randomly blow extra money, making the intentional decision to invest extra money rather than pay off the mortgage is a better choice because
A. The money will probably earn more (possibly substantially more) interest in an index fund than it will save us interest by paying down the mortgage early
B. 3.75% is an extremely low rate, and the risk involved with keeping this mortgage is pretty low, too, since we're nowhere near underwater on the condo and we both have very stable incomes.
4. To put extra money towards paying off the condo early would mean tying up money in an ill-liquid asset--we'd have to sell the place to get the money out, in the event of a situation in which we needed money--and the opportunity cost paid by putting the money towards the 3.75% interest rate instead of the 7+% returns on index funds.
Have I got this thing dialed in yet? It took me a long time to come around.
My sixth FIREversary is around the corner. A lot of appreciation has happened since I pulled the plug on the paycheck. Maybe I saved exactly the right amount and compound interest and market gains did the "oversaving" for me while I was off doing other things? Hmmm, wasn't that my point in the first place?The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.
Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
Not comparing myself to the master, except to mention that Pete himself has experienced something similar, albeit on a much larger scale, with the success of his blog, and, presumably, the extended bull market we've all enjoyed.
One can't predict a bull run the likes of which we're still experiencing, so sure, it happens. Why does your comment sound slightly accusatory? Sad if that's all you could glean from my post.
I owe $143k at 4.25% and have 28.5 years on it. The psychological effects of NOT paying off early is really huge for me. I have read the arguments and I am sure I am now doing the right thing but it is tough. At least for a couple years the couple hundred I get back from taxes is probably going into the mortgage just so I can feel better. Also the fact that I won't ever have a partner to rely on makes me even more timid. Realistically I am way more likely to get injured with my job in the next 30 than the next 15 and not be able to work for awhile.
Anyways, I am glad for Boarder42 and glad I joined this club but I will probably be stressed for the next 28.5 years. *chuckle*
Rather than banned, I think boarder42 must have been moved to view-only status. On his profile (https://forum.mrmoneymustache.com/profile/?u=11328) his last active date is today (10-4). But his last post was 9-29.
I'd like to join the club!
I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k. I've only paid the required payment ever since I refinanced at the end of 2014.
When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero. I get the math when it comes to mortgage rates so I'm not going to pay it off early. However, I am looking how to get that same "good feeling" and working towards a goal. What do others here do to stay motivated on aggressively investing? Track NW every month? Set a goal to get an investment account up to mortgage amount? Just looking for fun ways to track and feel the progress.
My sixth FIREversary is around the corner. A lot of appreciation has happened since I pulled the plug on the paycheck. Maybe I saved exactly the right amount and compound interest and market gains did the "oversaving" for me while I was off doing other things? Hmmm, wasn't that my point in the first place?The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.
Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
Not comparing myself to the master, except to mention that Pete himself has experienced something similar, albeit on a much larger scale, with the success of his blog, and, presumably, the extended bull market we've all enjoyed.
One can't predict a bull run the likes of which we're still experiencing, so sure, it happens. Why does your comment sound slightly accusatory? Sad if that's all you could glean from my post.
I think he was pointing out a bit of ambiguity with your "account balances grow at a rate higher [...] than your FI number". Does that mean your investments are earning your original FI number every year? For example, you hit FI at $1 million and now you have $10 million earning $1 million per year (assuming 10% returns).
Yup! I meant that if you just by your FI number, you've oversaved. (Sure it might have been by accident, or due to markets, but still oversaved!)
For you to receive your FI number in account changes, we're talking about 100% gain.If I've translated what you're saying here correctly (in account = in your investment accounts), yes, that's the miracle of compound interest! More than 100% gain, given sufficient time, so start early, people! Do it before you prepay your ...blah, blah, blah.
He can see us, but we can't see him. Miss you B42, but I know you're killing it IRL.Rather than banned, I think boarder42 must have been moved to view-only status. On his profile (https://forum.mrmoneymustache.com/profile/?u=11328) his last active date is today (10-4). But his last post was 9-29.
@boarder42 ..."view-only," but not forgotten! Thanks, b42, for carrying the DPYM torch!
But you said it like it was a bad thing. In fact, IMO, oversaving (OMY) is a bad thing, but that's not really what happened.My sixth FIREversary is around the corner. A lot of appreciation has happened since I pulled the plug on the paycheck. Maybe I saved exactly the right amount and compound interest and market gains did the "oversaving" for me while I was off doing other things? Hmmm, wasn't that my point in the first place?The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.
Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
Not comparing myself to the master, except to mention that Pete himself has experienced something similar, albeit on a much larger scale, with the success of his blog, and, presumably, the extended bull market we've all enjoyed.
One can't predict a bull run the likes of which we're still experiencing, so sure, it happens. Why does your comment sound slightly accusatory? Sad if that's all you could glean from my post.
I think he was pointing out a bit of ambiguity with your "account balances grow at a rate higher [...] than your FI number". Does that mean your investments are earning your original FI number every year? For example, you hit FI at $1 million and now you have $10 million earning $1 million per year (assuming 10% returns).
Yup! I meant that if you just by your FI number, you've oversaved. (Sure it might have been by accident, or due to markets, but still oversaved!)
I've been going through all pages of this thread for awhile as well as reading other don't pay off your mortgage threads. I haven't been able to quite figure out what is best for my situation and I am truly open to suggestions. Both low income earners but wife and I were able to max out TIRAS and put little in 401s. We bought a house this year because our cheap rent was going to increase more than what we could get a mortgage payment for... However we only put 10% down and have PMI. (Conventional) Loan is for 125k and PMI is $75/mo and rate is 4.75%. I think theres roughly 94 payments until we would get 20% equity, so roughly $7050 in PMI would be paid if we did do the min payment for mortgage.
Also have $35k in student debt @ 4.25% Federal loans. - 8 years left.
Purchased at 135k and original appraisal at 137k. About 15k lump sum would do it. PMI at 80% LTV ratio will be removed after written request... Supposedly. Otherwise 78% LTV it is removed by law. Problem is I don't have a lump sum to do that with. At least at this time. Thats why I was wondering if I would be better off making extra payments towards principal to get the PMI off faster than switch over to making the minimum payment. I agree though, any tax deferred accounts should be a priority. Theres just not much leftover after that though lol.How much extra could you realistically put towards the mortgage each month?
Everything I'm hearing makes me think you should keep the PMI until your income grows and your liquidity is stronger. My 2 cents.I'm leaning towards that recommendation as well.
Purchased at 135k and original appraisal at 137k. About 15k lump sum would do it. PMI at 80% LTV ratio will be removed after written request... Supposedly. Otherwise 78% LTV it is removed by law. Problem is I don't have a lump sum to do that with. At least at this time. Thats why I was wondering if I would be better off making extra payments towards principal to get the PMI off faster than switch over to making the minimum payment. I agree though, any tax deferred accounts should be a priority. Theres just not much leftover after that though lol.How much extra could you realistically put towards the mortgage each month?
I was already set for $100 extra a month. Without touching what we are putting into pretax accounts... Maybe another (monthly)$300 - $400.... Whereas again the pretaxes are still not maxed out where this money could be going into them instead.Everything I'm hearing makes me think you should keep the PMI until your income grows and your liquidity is stronger. My 2 cents.I'm leaning towards that recommendation as well.
I was already set for $100 extra a month. Without touching what we are putting into pretax accounts... Maybe another (monthly)$300 - $400.... Whereas again the pretaxes are still not maxed out where this money could be going into them instead.
So if I'm understanding this correctly. Pay the minimum - Worse case I'll come ahead 0.3% and best case 5.6%. Is this my overall scenario or just during the PMI period?No, that's not what I meant. 0.3% to 5.6% is the return expected by paying $500/month extra on your mortgage until PMI is gone. But looking at my math again I'm not sure that's the right way to think about it.
Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.
Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.
Your math is solid. Compounding is awesome!
Also keep in mind that Mr. Metal Mustache will have more options through liquidity if he has it in an investment account. Even in his very-close-to-break-even situation, the options are better from keeping the mortgage.
Also keep in mind that extra money invested to get rid of PMI is for the life of the mortgage. You can't pull that money back out (without HELOC expenses and fees) so you really need to be using compounding across the life of the loan, rather than only the PMI portion. That will increase the numbers towards the keep-the-mortgage scenario.
Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.
Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.
Okay, I found a big problem with my math. I double counted the extra payments. The investment balance I came up with already takes into account the difference in payments cost so I should not have been also counting the extra cost of those. Just adding principal reduction and ending investment balances should be fine.
Revised summary...
Worst case scenario (-4.953% returns): Paying $500/month extra is better by $13k
Really bad returns (2.442% returns): Paying $500/month extra is better by $8k
Median stock market (8.513% returns): Paying $500/month extra is better by $1.3k
Really good returns (17.288% returns): Minimum payments is $14.9k better
Best 94 months ever (27.556% returns): Minimum payments is $52.2k better
As TexasRunner mentioned this does not take into account the capital locked up in the mortgage. And it also is ignoring the pre-tax benefits of investing in a 401k. Both of those factors would make paying the minimum more advantageous.
I will follow up with more comprehensive analysis.
SP500 returns | Minimum payment advantage | |
Min | 3.635% | -$22k |
Bad | 6.376% | $1.5k |
Median | 9.879% | $85k |
Good | 12.443% | $238k |
Max | 14.319% | $452k |
SP500 returns | Minimum payment advantage | |
Min | 3.635% | -$28k |
Bad | 6.376% | $2.0k |
Median | 9.879% | $109k |
Good | 12.443% | $305k |
Max | 14.319% | $580k |
Don't forget inflation analysis... Either reduce the mortgage rate by ~3.1% (or more conservative if you prefer) or increase the stock return numbers. IE - Paying the mortgage payment in 2030 will be in reduced value 2030 dollars, vs prepaying in higher-value 2018 dollars.
I'm just gonna build a spreadsheet for this, because it comes up way to much and I'm sure it can be done.
Okay, 30 year analysis.
Assumptions:
125k starting balance at 4.75% interest with $653 P+I payment
$75 PMI until loan balance drops below $110k
Extra payment (or investment) of $500
Extra payments only made until PMI is removed
30 year historic S&P 500 returns source (https://dqydj.com/sp-500-historical-return-calculator/) (using nominal returns)
Investing in post-tax account (ignoring capital gains and taxes on dividends, e.g. Roth IRA)
SP500 returns Minimum payment advantage Min 3.635% -$22k Bad 6.376% $1.5k Median 9.879% $85k Good 12.443% $238k Max 14.319% $452k
There is some oscillation in between. For 6.376% returns (worst 10 percentile in history) paying the minimum will be ahead for 25 months, will slip behind shortly after the PMI drops off, but pulls back ahead at the 305 month mark. For median returns you'll be ahead for 48 months with minimum payments, but will drop behind until month 94 where it blazes on ahead. Anything at 10.6% returns or higher is always better no matter the time frame. All this assumes a consistent yearly return. A certain sequence of returns could make it better or worse than expected.
Assuming 22% marginal tax bracket and investing in a pre-tax account (e.g. 401k):
SP500 returns Minimum payment advantage Min 3.635% -$28k Bad 6.376% $2.0k Median 9.879% $109k Good 12.443% $305k Max 14.319% $580k
In the pre-tax scenario the oscillation is not nearly as bad. The 6.376% case only results in a disadvantage from months 73 through 120. Returns over 7.1% will always favor minimum payments, no matter the time frame.
So, in conclusion, @Mr. Metal Mustache, my recommendation would be to make the minimum payments.Don't forget inflation analysis... Either reduce the mortgage rate by ~3.1% (or more conservative if you prefer) or increase the stock return numbers. IE - Paying the mortgage payment in 2030 will be in reduced value 2030 dollars, vs prepaying in higher-value 2018 dollars.
I'm just gonna build a spreadsheet for this, because it comes up way to much and I'm sure it can be done.
All my numbers used nominal returns so they can be compared to the actual mortgage rate.
I built a spreadsheet myself. (attached)
I built a spreadsheet myself. (attached)
I can't see these spreadsheets at work, but sounds awesome. One small thing that might move the needle the tiniest bit is fees on your investment account, but they should be pretty low.
The spreadsheet is much more usefull for **trying** to prove to the 600k mortgage at 3% crowd than the 150k at 5% crowd...
The math at 5% is going to be much different than 3%... Exponents and all....
I'll dig through the spreadsheet shortly and let you know if I find anything. :)
The spreadsheet is much more usefull for **trying** to prove to the 600k mortgage at 3% crowd than the 150k at 5% crowd...
The math at 5% is going to be much different than 3%... Exponents and all....
I'll dig through the spreadsheet shortly and let you know if I find anything. :)
I agree.
Thanks, I appreciate it.
I appreciate all the digging for my case. That's why I had to post. I just couldn't figure it out either. So as of right now we're on the still on the 'Do not prepay mortgage' page and focus on pretax investments?
The spreadsheet is much more usefull for **trying** to prove to the 600k mortgage at 3% crowd than the 150k at 5% crowd...
The math at 5% is going to be much different than 3%... Exponents and all....
I'll dig through the spreadsheet shortly and let you know if I find anything. :)
I agree.
Thanks, I appreciate it.
Spreadsheet looks correct. Technically.... Since OP is alread a bit into his loan, we aren't seeing the exact values on a 360 term but its 100% accurate for him as far as time is concerned. I doubt he is in the 22% income tax threshold. Still, the fact that if he were to dump $3,000 into the mortgage to remove PMI monthly, he would lose another $30,000 by the end of the loan is telling. Its not a good idea, generally, for him to prepay.
Also note: he has to get down to 78% LTV to get rid of PMI or pay for another appraisal. The agreement with the bank is 80% based on the standard amort schedule or 78% by law, or 80% LTV based on a re-appraisal (hence recommending a re-app now). Getting to 80% ahead of schedule isn't enough, they still want the 2% or an app done.
I appreciate all the digging for my case. That's why I had to post. I just couldn't figure it out either. So as of right now we're on the still on the 'Do not prepay mortgage' page and focus on pretax investments?
All valid points. If it helps any. 12% (Thinking 6% for state?) Tax bracket and 359 payments left.
I really am grateful for all the help.
Gotta say, there are a number of disclaimers, such as:The points 2 & 3 are true, but I need to point out:
1. If you're funding every retirement/investment vehicle available to you and still have money left over
2. You don't live where you can get fixed-rate mortages
3. You don't live where mortgages are tax deductible
4. You live in a place where housing is cheap and
5. You haven't bought a clown house
...then the advantages of Don't Payoff vs. Prepayment become smaller and smaller.
With such a small mortgage, I'd consider skipping the math and PMI gyrations and stockpiling $125k asap (side hustles, belt tightening, etc.). Once I had the payoff amount in hand, the option of decimating the mortgage in one fell swoop might seem a reasonable option.
But I live in a high COLA where $125k won't even buy you a garage.
@RWD -- can you elaborate, 6.3% returns are "bad" ? Is that annual return or return over all 94 months? Why "Bad"?
Ah, thanks. I see where my misunderstanding occurred. I always use the nominal rates NET of inflation, so I can compare everything in today's dollars... and 6.3% over 94 months NET OF INFLATION is not bad at all. :-)@RWD -- can you elaborate, 6.3% returns are "bad" ? Is that annual return or return over all 94 months? Why "Bad"?
It's bad for nominal annual returns over 30 years as 90% of the time they have been higher (https://dqydj.com/sp-500-historical-return-calculator/). For a 94 month period 2.442% annual returns would be bad (again, worst 10 percentile). I used "bad" because it was short and fit nicely in the table...
Ah, thanks. I see where my misunderstanding occurred. I always use the nominal rates NET of inflation, so I can compare everything in today's dollars... and 6.3% over 94 months NET OF INFLATION is not bad at all. :-)@RWD -- can you elaborate, 6.3% returns are "bad" ? Is that annual return or return over all 94 months? Why "Bad"?
It's bad for nominal annual returns over 30 years as 90% of the time they have been higher (https://dqydj.com/sp-500-historical-return-calculator/). For a 94 month period 2.442% annual returns would be bad (again, worst 10 percentile). I used "bad" because it was short and fit nicely in the table...
I think you or another person already pointed out the impact of inflation, and how to adjust the final numbers to take it into account.. ..a mortgage is paid off in FUTURE dollars, at a $ amount decided today, but the dollars themselves are worth less and less due to inflation over time... which is why a mortgage has another advantage to keeping it for a long time.
My thought of saving the money in investments until I have enough to pay it off in is that I would have more liquid available in case of job loss or other emergency. Just paying extra on the mortgage every month does get me the guaranteed return, but obviously is not at all liquid.
I'm thinking about putting half toward the mortgage for the guaranteed return and the other half in taxable.
Anybody have thoughts on this? Invest then pay off in lump sum vs. extra principal payments with guaranteed 4.65% returns?
A couple thoughts. First--and this seems subtle, but it really isn't--is that you don't get a guaranteed "return" by paying down the mortgage. What you are really getting is a future savings. If you were getting an actual return, then you could become richer than Bill Gates by paying off your 23% credit card every month. As a matter of shorthand, everyone says "return" and I often do too, but it is important to understand the difference.
Second, you are making the calculation wrong. You have to compare apples to apples. Nominal stock market returns are about 10%. If you are going to adjust for inflation down to 7%, then you also need to adjust your mortgage cost down to about 1.5%. Is a 1.5% "return" even worth your time? As you correctly point out, in case of a job loss or other calamity (hate to use the word divorce, but divorces happen), the money is locked up in your house where it is expensive and difficult to access. And again, you are locking up your money indefinitely for 1.5.%. But even with the very conservative stock market returns you are using, you are still coming out a million bucks ahead. That's real money. Even if it is only half a million bucks ahead, that's still real money.
Imagine if it wasn't a mortgage, it was some other investment. We'll call it private shares in the Deadward Bones Company. Here's the FAQ:
Q: How long does it take for my shares to become fully vested in Deadward Bones?
A: 30 years. But if you pay extra, you get a bonus return of 4.5%.
Q: Bonus return? Sounds great! What is the standard return during that time?
A: Nothing.
Q: But once I'm vested, it pays dividends, right?
A: No. You get nothing, other than you don't have continue making payments.
Q: You mean, once I'm fully vested those shares generate no return?
A: Correct.
Q: What if I want or need part of the money I've invested?
A: Too bad. You can't get your money back unless you sell the entire investment and there are very high costs and commissions that go along with that. However, you might be able to borrow against it. But no guarantees on that one.
Q: What if I can't make the payments before I'm fully vested? Like say in the event of disability or job loss?
A: We seize your assets, including most or even all of the extra payments you've made. You are guaranteed of getting nothing, and you might even owe us. That only thing that is is guaranteed is that this happens you will pay us enormous fees.
Q: Really? You'd kick a guy when he's down like that?
A: Damn straight.
Q: This sounds like the stupidest fucking investment I've ever heard of! What kind of lunatic would even consider something so obviously nutso?
A: You'd be surprised.
This is so good, I just had to share it here. Thanks, @Telecaster, this is brilliant! B42 would heartily approve.Yes, it ticks all the B42 boxes.My thought of saving the money in investments until I have enough to pay it off in is that I would have more liquid available in case of job loss or other emergency. Just paying extra on the mortgage every month does get me the guaranteed return, but obviously is not at all liquid.
I'm thinking about putting half toward the mortgage for the guaranteed return and the other half in taxable.
Anybody have thoughts on this? Invest then pay off in lump sum vs. extra principal payments with guaranteed 4.65% returns?
A couple thoughts. First--and this seems subtle, but it really isn't--is that you don't get a guaranteed "return" by paying down the mortgage. What you are really getting is a future savings. If you were getting an actual return, then you could become richer than Bill Gates by paying off your 23% credit card every month. As a matter of shorthand, everyone says "return" and I often do too, but it is important to understand the difference.
Second, you are making the calculation wrong. You have to compare apples to apples. Nominal stock market returns are about 10%. If you are going to adjust for inflation down to 7%, then you also need to adjust your mortgage cost down to about 1.5%. Is a 1.5% "return" even worth your time? As you correctly point out, in case of a job loss or other calamity (hate to use the word divorce, but divorces happen), the money is locked up in your house where it is expensive and difficult to access. And again, you are locking up your money indefinitely for 1.5.%. But even with the very conservative stock market returns you are using, you are still coming out a million bucks ahead. That's real money. Even if it is only half a million bucks ahead, that's still real money.
Imagine if it wasn't a mortgage, it was some other investment. We'll call it private shares in the Deadward Bones Company. Here's the FAQ:
Q: How long does it take for my shares to become fully vested in Deadward Bones?
A: 30 years. But if you pay extra, you get a bonus return of 4.5%.
Q: Bonus return? Sounds great! What is the standard return during that time?
A: Nothing.
Q: But once I'm vested, it pays dividends, right?
A: No. You get nothing, other than you don't have continue making payments.
Q: You mean, once I'm fully vested those shares generate no return?
A: Correct.
Q: What if I want or need part of the money I've invested?
A: Too bad. You can't get your money back unless you sell the entire investment and there are very high costs and commissions that go along with that. However, you might be able to borrow against it. But no guarantees on that one.
Q: What if I can't make the payments before I'm fully vested? Like say in the event of disability or job loss?
A: We seize your assets, including most or even all of the extra payments you've made. You are guaranteed of getting nothing, and you might even owe us. That only thing that is is guaranteed is that this happens you will pay us enormous fees.
Q: Really? You'd kick a guy when he's down like that?
A: Damn straight.
Q: This sounds like the stupidest fucking investment I've ever heard of! What kind of lunatic would even consider something so obviously nutso?
A: You'd be surprised.
A home does pay dividends, in a sense, though. It provides you a place to live - something you'd have to pay for otherwise. Don't get me wrong, I agree that a home is not an investment and that it make more sense to invest rather than pay down your mortgage if the rate is low. But to completely ignore the value of being able to live in the house during those 30 years is short sighted. Maybe a better example for the imaginary conversation above would be investing in a Organic Farm that provides food throughout the year while your are reaching full vesting. Sure it's not a monetary dividend, but it does provide something of value during the years that you'd have to pay for otherwise. I might be wrong, but it seems strange to completely ignore the functional value of buying a house...
A home does pay dividends, in a sense, though. It provides you a place to live - something you'd have to pay for otherwise. Don't get me wrong, I agree that a home is not an investment and that it make more sense to invest rather than pay down your mortgage if the rate is low. But to completely ignore the value of being able to live in the house during those 30 years is short sighted. Maybe a better example for the imaginary conversation above would be investing in a Organic Farm that provides food throughout the year while your are reaching full vesting. Sure it's not a monetary dividend, but it does provide something of value during the years that you'd have to pay for otherwise. I might be wrong, but it seems strange to completely ignore the functional value of buying a house...
Not quite, because you still have a place to live regardless if you pay down the mortgage or not, and therefore you capture the imputed value of rent no matter what. Now, if you are deciding whether to rent or buy, then you definitely need to consider the cost of rent. But in this case, we're assuming that we already bought and we deciding to pay down the mortgage or not.
Regardless, my point is that if you didn't call a mortgage a "mortgage" but called it "cattle futures" or some other thing with all the same characteristics of a mortgage*, people would universally view it as a poor investment. And it is a poor investment. The upside is small, barely above inflation, yet requires a long time horizon and the investment is illquid, expensive to access, and no guarantees you even can access it. Why would you choose an investment like that? There are a host of much more attractive options. The answer is people have emotional attachments to their house (nothing wrong with that, I have an emotional attachment to mine), and that blinds them from thinking about the financial aspects.
*Standard disclaimers apply: A long-term mortgage at today's low interest rates.
4) Use of swear words (f bombs, which Dicey seems to think add something to the dialog)There is so much meat on this bone. It's going to be tough to choose where to begin. Let's try #4, shall we?
It's been about a year since I've firmly joined the DPYMC folks and before then I must admit I was paying it down. However I just got an email for redemption! My lender is willing to recast my loan back to the original maturity date with a lower monthly payment. +1 for being able to course correct and pay $150 less on my mortgage each month =D
Not really sure why they're doing it. It's great for me to lock in at my 3.25% interest rate - it seems like it'd be better for them if I did a refinance at a new, higher interest rate.
It's been about a year since I've firmly joined the DPYMC folks and before then I must admit I was paying it down. However I just got an email for redemption! My lender is willing to recast my loan back to the original maturity date with a lower monthly payment. +1 for being able to course correct and pay $150 less on my mortgage each month =DOMG, do it before they change their minds!
Not really sure why they're doing it. It's great for me to lock in at my 3.25% interest rate - it seems like it'd be better for them if I did a refinance at a new, higher interest rate.
This is somewhat baffling because today's rates are up around 5% (for 30 year fixed refi at any rate), so I don't see why the re-cast is in the lender's interest in this case. They must really want to keep you as a customer for some reason! Was there any fee associated with the re-cast offer? Do you mind sharing which lender you're using?
My loan was sold to Chase about a year ago so they're the ones offering the recast. Perhaps it's because I'm a relatively safe client? Credit score over 800, loan balance is equal to roughly half of my households annual salary. That's the only reason I can think they want to do it but I'm totally spit-balling here because it still doesn't make sense to me. It will be free for me to get the recast since my account is in "good standing" and will apply for Dec 1 payment!
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course. Our lender has a fairly modest $100 fee for recasting. If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course. Our lender has a fairly modest $100 fee for recasting. If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).
The problem isn't people paying down their mortgage. The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so. Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund. Those are the issues. As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.
Kudos on the paydown. :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course. Our lender has a fairly modest $100 fee for recasting. If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).
The problem isn't people paying down their mortgage. The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so. Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund. Those are the issues. As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.
Kudos on the paydown. :)
@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.
Right! But that depends on where you put your EF money. Agreed that under the mattress and passbook savings are terrible options. Losing your home because you have no EF is worse.it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course. Our lender has a fairly modest $100 fee for recasting. If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).
The problem isn't people paying down their mortgage. The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so. Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund. Those are the issues. As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.
Kudos on the paydown. :)
@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.
You two do realize that having an significant e-fund is also not mathematically optimal? Right?
The problem isn't people paying down their mortgage. The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so. Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund. Those are the issues. As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.
Right! But that depends on where you put your EF money. Agreed that under the mattress and passbook savings are terrible options. Losing your home because you have no EF is worse.it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course. Our lender has a fairly modest $100 fee for recasting. If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).
The problem isn't people paying down their mortgage. The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so. Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund. Those are the issues. As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.
Kudos on the paydown. :)
@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.
You two do realize that having an significant e-fund is also not mathematically optimal? Right?
You do realize that having no EF, prepaying a cheap-ass, fixed rate mortgage, and not getting your employer's full match is worse still. Right?
Can you believe there are people who do this and still believe they're being mustachian? And they're not getting facepunched??
@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.
You two do realize that having an significant e-fund is also not mathematically optimal? Right?
(https://i.imgflip.com/2ki2x8.jpg)
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!This is a complete misscharacterization of the debate, with maximum spin. No one objected to the illustration that keeping a morgage to leverage investments could deliver a better long term return.
Luckily, that is not the "Best Post..." thread, so you are certainly welcome to post it there, @rpr. It's certainly worthy of wider distribution and always, always, always, further discussion.
I had a stray thought about mortgage payoff. One that I do not recall being addressed.
Because I live in the land of 5 year terms, we essentially need to shop for a mortgage every 5 years.
When I was in the USA I was a bit shocked at first, at the upfront costs to get into a mortgage, and "buying points" costs for mortgages. Here, the costs are all back end loaded, so it can be nearly free upfront, but with a huge penalty if you end your mortgage before 5 years are up.
Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".? I have owned / lived in 4 different locations, plus a rental location, since I first became a home owner 23 years ago.
If new mortgage origination costs are incurred by selling every 7 years, or 3x over a 30 year investment horizon.... how much of an impact/ drag does it put into the equation.
For someone with a "pay off" mentality:
I would assume that loan origination costs are needed at the start, then are quite small for the first move after 7 years, (e.g., 1/2) because half the mortgage is gone. The next 2 moves would then have zero loan origination costs because there is no loan.
For the person keeping the mortgage to invest, they would have added loan origination costs after 7 years, 17 years, 27 years, for each move.
How big of an impact to the "keep mortgage" math is it to someone moving every 7 to 10 years?
For most, I agree that maximizing one's mortgage and investments typically pays off. -- this is my genuine question, not an attempt to negate the theme of this thread.
Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?
(https://i.imgflip.com/2ki2x8.jpg)
I had a stray thought about mortgage payoff. One that I do not recall being addressed.The first step would be to make your best guesses at the information required to fill out https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html and see if buying made sense. Owning a house can introduce anchoring bias into your decisions, making them take a turn for the worse. Also they really do take time and work to sell.
Because I live in the land of 5 year terms, we essentially need to shop for a mortgage every 5 years.
When I was in the USA I was a bit shocked at first, at the upfront costs to get into a mortgage, and "buying points" costs for mortgages. Here, the costs are all back end loaded, so it can be nearly free upfront, but with a huge penalty if you end your mortgage before 5 years are up.
Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".? I have owned / lived in 4 different locations, plus a rental location, since I first became a home owner 23 years ago.
If new mortgage origination costs are incurred by selling every 7 years, or 3x over a 30 year investment horizon.... how much of an impact/ drag does it put into the equation.
For someone with a "pay off" mentality:
I would assume that loan origination costs are needed at the start, then are quite small for the first move after 7 years, (e.g., 1/2) because half the mortgage is gone. The next 2 moves would then have zero loan origination costs because there is no loan.
For the person keeping the mortgage to invest, they would have added loan origination costs after 7 years, 17 years, 27 years, for each move.
How big of an impact to the "keep mortgage" math is it to someone moving every 7 to 10 years?
For most, I agree that maximizing one's mortgage and investments typically pays off. -- this is my genuine question, not an attempt to negate the theme of this thread.
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.
If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.
If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.
Agreed. If one can get an after-tax risk-free return greater than the mortgage rate, one should absolutely never pay down the mortgage. But that's not the current case. The current choice involves risky equities versus low-interest bonds versus mortgage "bonds" with a duration equal to the amortization payoff schedule (and of course numerous other investment possibilities). The winner in this picture will only be clear after the fact.
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.
If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.
Agreed. If one can get an after-tax risk-free return greater than the mortgage rate, one should absolutely never pay down the mortgage. But that's not the current case. The current choice involves risky equities versus low-interest bonds versus mortgage "bonds" with a duration equal to the amortization payoff schedule (and of course numerous other investment possibilities). The winner in this picture will only be clear after the fact.
Equities are not risky across 30 year timespans. That is a fact.
If you believe they are, then you cannot FIRE until you have a stash of <years expecting to live> x <annual spending> saved, which is WAY higher than the 4% rule.
I'm going to accept the math of not paying off producing a bigger stash in the end. B42 beat that into me last year. But, I still think I'm going to pay the SOB off before FIRE. The stash is 10 times what is owed on the mortgage. I just don't want the hassle of owing money. Especially since I've pretty much decided to wait for 2020 anyhow.
I'm going to accept the math of not paying off producing a bigger stash in the end. B42 beat that into me last year. But, I still think I'm going to pay the SOB off before FIRE. The stash is 10 times what is owed on the mortgage. I just don't want the hassle of owing money. Especially since I've pretty much decided to wait for 2020 anyhow.
I won't "get there" for a few years, so it's still kind of academic at this point. But let's say I arrive at my number, for purposes of argument $1M. Then let's say I save up an additional amount that is equivalent to the outstanding mortgage balance at that time, say $75k for example. Let's further assume I have about five years left to go on the mortgage at that point and I'm booking along at 3 1/8 percent. The arbitrage is, of course, make the mortgage payments as they come along and invest the 75k. Here's the deal: at a short time horizon (five years or less) it's not necessarily a sure thing that my investment will beat the interest rates. It's more likely than not, but it's not a sure thing. At that point it might be simpler to just pay the sucker off and go on with life.
I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.I'm going to accept the math of not paying off producing a bigger stash in the end. B42 beat that into me last year. But, I still think I'm going to pay the SOB off before FIRE. The stash is 10 times what is owed on the mortgage. I just don't want the hassle of owing money. Especially since I've pretty much decided to wait for 2020 anyhow.
I won't "get there" for a few years, so it's still kind of academic at this point. But let's say I arrive at my number, for purposes of argument $1M. Then let's say I save up an additional amount that is equivalent to the outstanding mortgage balance at that time, say $75k for example. Let's further assume I have about five years left to go on the mortgage at that point and I'm booking along at 3 1/8 percent. The arbitrage is, of course, make the mortgage payments as they come along and invest the 75k. Here's the deal: at a short time horizon (five years or less) it's not necessarily a sure thing that my investment will beat the interest rates. It's more likely than not, but it's not a sure thing. At that point it might be simpler to just pay the sucker off and go on with life.
The SP500 has historically returned 4.65% or better 70% of the time over 5 year periods. Nothing is a sure thing in investing. We have had plenty of periods in US history where inflation has exceeded 3.125%. In those time periods the return on investment of paying down this mortgage would be negative in real terms.
I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
Having the taxes and insurance all rolled into one monthly payment is certainly convenient. I once owned a small amount of land outright (was a gift) and paying taxes on it was a nightmare. The county kept mailing paperwork to the wrong address and since it was so infrequent I would forget that I should be expecting said paperwork. I got hit with lots of late penalties on that. I'm pretty sure I paid more than 10% of the value of the property in late fees alone...I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
many ppl make mistake of buying too much house. but it's an easy trap to fall into , espec in HCOL
does anyone have any threasds or info about ascertaining how much house is too much?
Actually it would not really be enough of a burden to think about twice, just not an advantage either. Though I can say the county mails me my property tax summaries once a year to be paid out quarterly as far as I can tell, and they look really annoying. I might have to join RWD in the 10% penalty club if I was in charge.For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company. But I am curious what makes that a significant burden.
Yes, I know this is an MPP - I used to like having an impound account, but DH does not, therefore, we pay our taxes semi-annually ourselves. The taxes on all our properties total $32,500 per year. I know the tenants pay their share of the taxes in their rent, but that is still a fuck-ton of money. Fortunately, DH pays the bills, so I don't actually have to write the check(s), but damn, it hurts. I totally understand how an impound account takes some of the sting out of the taxman's bite.Actually it would not really be enough of a burden to think about twice, just not an advantage either. Though I can say the county mails me my property tax summaries once a year to be paid out quarterly as far as I can tell, and they look really annoying. I might have to join RWD in the 10% penalty club if I was in charge.For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company. But I am curious what makes that a significant burden.
Yes, I know this is an MPP - I used to like having an impound account, but DH does not, therefore, we pay our taxes semi-annually ourselves. The taxes on all our properties total $32,500 per year. I know the tenants pay their share of the taxes in their rent, but that is still a fuck-ton of money. Fortunately, DH pays the bills, so I don't actually have to write the check(s), but damn, it hurts. I totally understand how an impound account takes some of the sting out of the taxman's bite.Actually it would not really be enough of a burden to think about twice, just not an advantage either. Though I can say the county mails me my property tax summaries once a year to be paid out quarterly as far as I can tell, and they look really annoying. I might have to join RWD in the 10% penalty club if I was in charge.For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company. But I am curious what makes that a significant burden.
Last we checked, the fees were prohibitive - i.e. for cash strapped Sukkas only, not worth the "rewards". Also, that 32.5k is spread out over five properties in two counties. Any fee, however modest, multiplied times five, tends to turn us off. I will look into the fixed payment schedule, but it would still essentially be pre-paying. We have the money to pay the taxes, it just hurts in a mustachian kind of way when the big checks get written.Yes, I know this is an MPP - I used to like having an impound account, but DH does not, therefore, we pay our taxes semi-annually ourselves. The taxes on all our properties total $32,500 per year. I know the tenants pay their share of the taxes in their rent, but that is still a fuck-ton of money. Fortunately, DH pays the bills, so I don't actually have to write the check(s), but damn, it hurts. I totally understand how an impound account takes some of the sting out of the taxman's bite.Actually it would not really be enough of a burden to think about twice, just not an advantage either. Though I can say the county mails me my property tax summaries once a year to be paid out quarterly as far as I can tell, and they look really annoying. I might have to join RWD in the 10% penalty club if I was in charge.For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company. But I am curious what makes that a significant burden.
Do your counties really not offer an online pre-payment or fixed payment schedule? Ours charges $1 per online transactions and allows you to prepay as early as you want for the tax. I was curious so I looked up the rules. Get a rewards credit card, set up auto payments online and don't worry about it...?
Everyone might not have the same options though.
Last we checked, the fees were prohibitive - i.e. for cash strapped Sukkas only, not worth the "rewards". Also, that 32.5k is spread out over five properties in two counties. Any fee, however modest, multiplied times five, tends to turn us off. I will look into the fixed payment schedule, but it would still essentially be pre-paying. We have the money to pay the taxes, it just hurts in a mustachian kind of way when the big checks get written.
Zero chance that we'll forget to pay, the penalties are huge. Not gonna happen.Last we checked, the fees were prohibitive - i.e. for cash strapped Sukkas only, not worth the "rewards". Also, that 32.5k is spread out over five properties in two counties. Any fee, however modest, multiplied times five, tends to turn us off. I will look into the fixed payment schedule, but it would still essentially be pre-paying. We have the money to pay the taxes, it just hurts in a mustachian kind of way when the big checks get written.
Dang that stinks. Though it might help to compare the cost of the fees - even stacked together - compared to the costs of missing one payment by even a week. The online fees might simply be a cheap insurance against forgetting to pay it (assuming your allowed to schedule in advance).
By the way, came across this very thorough approach to the question of having a mortgage during early retirement: https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)
...she knows the chances are decent she might have to work as a Walmart greeter for five to ten years sometime in the next twenty years in order to not lose her house (and go hungry).
...Beatrice, on the other hand, knows that the consequence of failing in FIRE leads to a much less desirable conclusion.
...she knows the chances are decent she might have to work as a Walmart greeter for five to ten years sometime in the next twenty years in order to not lose her house (and go hungry).
...Beatrice, on the other hand, knows that the consequence of failing in FIRE leads to a much less desirable conclusion.
I think the situation of the second person as presented is unnecessarily dire. Despite the fact that a 3% withdrawal rate has a 100% success in the forecasters we have available, if Beatrice was concerned about a market drop affecting the longevity of her portfolio, she has a myriad of choices besides working at Walmart. She could do any or combination of the following- 1) cut her vacation budget by 50% for a year or two, 2) cut her hobby/fun budget by 50% for a year or so, 3) work a fun part time job that ties into an interest of hers- taster at a winery, PT at an art gallery, brewer's assistant as a brewery. Or she could do both by working PT at an outdoor store, knitting shop, her gym, etc to both boost her income and an employee discount to help her fun budget stretch further.
Don't make the mistake of thinking that once someone leaves their chosen profession, they become a pariah in the working world. FIREd people are smart and hardworking- what every employer wants in an employee and isn't always easy to find in someone looking to work part time.
Hell, given what they pay people at wally world, she could probably earn more churning bank account bonuses.
By the way, came across this very thorough approach to the question of having a mortgage during early retirement: https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)
That was has come up before. He makes a basic assumption inflation will remain constant at 2%. Terrible assumption. Current inflation rate is 2.5% and the historical average is about 3.5%. Many people on this board remember when inflation was well into the double digits. In fact, he sort of acknowledges this issue:
Finally, I can see how at some point down the road interest rates could be much higher than today. If you retire in 5 years and still have 20 years left on your 3.25% fixed rate mortgage but bond interest rates are now 3.5 or 4%, then by all means, hold on to that mortgage. Now the mortgage vs. bond leverage works beautifully!
The 10-year bond has already been over 3% a couple times this year, and historically has been been well above 4%. There is a natural human tendency to assume that current conditions will extend into the future forever, but that's not the case in the real world. We should anticipate bond and interest rates will return to something like average eventually. Which is the more likely event? A 1929-style market collapse or bonds yielding average returns? And if the latter happens--which it almost certainly will--his whole argument about paying down the mortgage goes away.
Speaking of changes in input assumptions: Divorce. I don't know MMM's personal circumstances so I won't speculate. But let's take a hypothetical couple who has say, $700,000 in investments and a paid off house, and some years later they decide to get divorced. How do you split the house? One former spouse has to buy out the other one. Where does that money come from? Or they have to sell the house, which is expensive and time consuming--and you don't wind up with a house.
If they had kept the mortgage, it would be much easier to buy out the other ex-spouse and they would have more liquid assets to do so. Nobody plans on getting divorced, but it happens. Sadly, it is a more likely event for most people than a 1929-style market collapse.
The Walmart greeter was a bit of an exaggeration, but the tail risk is nonetheless real. And of course a lot depends on the job market; in the current market, you can probably get a decent job if you have a pulse, but there have been some rough job markets that coincided with a shitty stock market.
I played with Cfiresim and compared my own personal situation as to paying down the mortgage now vs over its natural life. For my OWN situation with a 3% mortgage, 95% success rate while factoring approximate tax differences (barely affects things), and so forth I get a shoulder shrug result.
My SWR goes down 1.5% by paying down my mortgage early over the next 5 years compared to finishing it off over the next 13 remaining years.
So in my case I chose to stick with the 13 year payout. I completely understand the the arguments on both sides, I chose to base my own decision on numbers. If my rate was anything north of 4% I would probably have gone the other way.
The Walmart greeter was a bit of an exaggeration, but the tail risk is nonetheless real. And of course a lot depends on the job market; in the current market, you can probably get a decent job if you have a pulse, but there have been some rough job markets that coincided with a shitty stock market.
But that is one of the benefits of FIRE, no? If the stock market dropped 40% on year 2 of your retirement with 4% SWR and you're in that one Oh, Shit! monte carlo simulation, you wouldn't be need to go out immediately to get a job to make ends meet. You could cut back some of the discretionary spending for a couple years and casually search for a PT job that interests you. If the market stinks and it takes awhile that find that job, big deal.
I agree with you that if we are looking at average expected returns, the best bet is to not pay the mortgage for a variety of reasons (including inflation). My comment was referring to minimizing tail risk in early retirement (which is the same objective of the 4% rule and cFIREsim), and looking at the tails one can see that deflationary events and poor stock returns (and shitty job markets) are correlated. (Do you think the unleveraged brokers were jumping out windows in 1929?)
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection. When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.
You should be aware of your States homestead laws and how that relates to protecting your assets. Where I live (Florida) - we have no limit on homestead value/protection. So every penny in your homestead is protected against creditors. This could be bankruptcy, it could be an auto accident, it could be a lot of things. And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.
For example. Maybe you have $200k remaining on your mortgage and $1M in stocks. Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.
Most states also have laws that give IRA's the same treatment as 401ks when it comes to lawsuits as well.I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection. When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.
You should be aware of your States homestead laws and how that relates to protecting your assets. Where I live (Florida) - we have no limit on homestead value/protection. So every penny in your homestead is protected against creditors. This could be bankruptcy, it could be an auto accident, it could be a lot of things. And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.
For example. Maybe you have $200k remaining on your mortgage and $1M in stocks. Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.
Most 401k plans are also protected from bankruptcy and lawsuits.
This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.
This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.
I'd like to see how you ran this through cFIREsim. I've also ran different scenarios through to compare mortgage vs invest and I found the opposite. Accelerating mortgage payoff almost always resulted in a longer time to FI if you assumed sub 4% mortgage rates.
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This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.
I'd like to see how you ran this through cFIREsim. I've also ran different scenarios through to compare mortgage vs invest and I found the opposite. Accelerating mortgage payoff almost always resulted in a longer time to FI if you assumed sub 4% mortgage rates.
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I _think_ the logic goes like this (correct me if I'm wrong please): Let's say you have a $1MM portfolio. Your monthly expenses except housing are $26K a year. You can:
1) Take out a nice $250K mortgage at sub 4% interest, your payments would be about $14K per year, add in the $26K in other expenses and boom! The math works. You can retire on 4% of your portfolio. cFIREsim gives this a 96% chance of success.
2) Plunk down $250K cash for a house, leaving you with $750K. Since you only need the $26K, you can retire on a WR of only 3.4%. Since 3.4% is safer than 4% there is less chance you go bust. And indeed, cFIREsim gives this a 100% chance of success.
There is some logic there. A 4% chance of going bust is not nothing, and the standard of living is the same (at least early on). However, cFIREsim allows you to model holding a mortgage by fixing some spending, instead of letting it rise with inflation. If you fix the $14K mortgage spending then the success rate of holding a mortgage goes to 100%.
I suppose in theory the 3.4% WR is still microscopically safer, but c'mon! Putting a large portion of your money in a single, non-liquid asset is plenty risky, and it is flat foolish to ignore those risks in order to protect yourself from scenarios that have never happened in recorded US financial history.
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection. When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.
You should be aware of your States homestead laws and how that relates to protecting your assets. Where I live (Florida) - we have no limit on homestead value/protection. So every penny in your homestead is protected against creditors. This could be bankruptcy, it could be an auto accident, it could be a lot of things. And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.
For example. Maybe you have $200k remaining on your mortgage and $1M in stocks. Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.
Most 401k plans are also protected from bankruptcy and lawsuits.
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection. When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.
You should be aware of your States homestead laws and how that relates to protecting your assets. Where I live (Florida) - we have no limit on homestead value/protection. So every penny in your homestead is protected against creditors. This could be bankruptcy, it could be an auto accident, it could be a lot of things. And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.
For example. Maybe you have $200k remaining on your mortgage and $1M in stocks. Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.
Most 401k plans are also protected from bankruptcy and lawsuits.
Correct. But who said it has to be one or the other? Protecting $1M in a homestead is not comparable to $60k in an IRA. Both are good options for asset protection. But anyways, my point was simple and that is anyone having this debate about paying off a mortgage should also factor in asset protection. I know doctors who take asset protection very seriously with malpractice lawsuit concerns. It's not the solution for everyone, but again, it is something to consider. I personally paid off my mortgage on a $1.4M home. I like knowing I could FIRE by selling my house and that the money is protected, the security of that is a big deal for me. It also freed up a lot of cashflow that I aggressiveky invest.
If your income is high enough to pay off a 1.4m home then we are probably picking at small issues but here are my thoughts.I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection. When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.
You should be aware of your States homestead laws and how that relates to protecting your assets. Where I live (Florida) - we have no limit on homestead value/protection. So every penny in your homestead is protected against creditors. This could be bankruptcy, it could be an auto accident, it could be a lot of things. And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.
For example. Maybe you have $200k remaining on your mortgage and $1M in stocks. Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.
Most 401k plans are also protected from bankruptcy and lawsuits.
Correct. But who said it has to be one or the other? Protecting $1M in a homestead is not comparable to $60k in an IRA. Both are good options for asset protection. But anyways, my point was simple and that is anyone having this debate about paying off a mortgage should also factor in asset protection. I know doctors who take asset protection very seriously with malpractice lawsuit concerns. It's not the solution for everyone, but again, it is something to consider. I personally paid off my mortgage on a $1.4M home. I like knowing I could FIRE by selling my house and that the money is protected, the security of that is a big deal for me. It also freed up a lot of cashflow that I aggressiveky invest.
This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.
I'd like to see how you ran this through cFIREsim. I've also ran different scenarios through to compare mortgage vs invest and I found the opposite. Accelerating mortgage payoff almost always resulted in a longer time to FI if you assumed sub 4% mortgage rates.
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If your income is high enough to pay off a 1.4m home then we are probably picking at small issues but here are my thoughts.I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection. When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.
You should be aware of your States homestead laws and how that relates to protecting your assets. Where I live (Florida) - we have no limit on homestead value/protection. So every penny in your homestead is protected against creditors. This could be bankruptcy, it could be an auto accident, it could be a lot of things. And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.
For example. Maybe you have $200k remaining on your mortgage and $1M in stocks. Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.
Most 401k plans are also protected from bankruptcy and lawsuits.
Correct. But who said it has to be one or the other? Protecting $1M in a homestead is not comparable to $60k in an IRA. Both are good options for asset protection. But anyways, my point was simple and that is anyone having this debate about paying off a mortgage should also factor in asset protection. I know doctors who take asset protection very seriously with malpractice lawsuit concerns. It's not the solution for everyone, but again, it is something to consider. I personally paid off my mortgage on a $1.4M home. I like knowing I could FIRE by selling my house and that the money is protected, the security of that is a big deal for me. It also freed up a lot of cashflow that I aggressiveky invest.
1. It is very easy to shelter a TON of money into 401k/IRA accounts. If we stopped investing now we would still have about 4.3M between our tax advantaged accounts by "traditional" retirement assuming historical inflation adjusted returns.
2. If you did happen to sell the house and FIRE then that 1.4m is no longer protected as it is now not secured by your home.
3. Potentially a better solution would be to do a mega backdoor roth if possible. That way the money is protected until you withdraw minimal amounts to fund FIRE. It sounds like you may already be doing this though.
Either way you are kicking ass. Even though it may not be the most optimal route for asset growth and protection.
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As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early? Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.
As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early? Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.
But you can touch them (without penalty) before 60 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/).
If you go the "Roth Pipeline" route you pretty much only need 5 years' expenses in taxable accounts and/or Roth contributions.
It isn't that complicated - you max your tax advantaged accounts to the extent possible, then invest in taxable. At an income that allows you to put $200K/year into investments, you almost certainly want to favor Traditional over Roth whenever you can. Depending on your situation, you might have:As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early? Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.
But you can touch them (without penalty) before 60 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/).
If you go the "Roth Pipeline" route you pretty much only need 5 years' expenses in taxable accounts and/or Roth contributions.
That's interesting. Not something I was familiar with. Now, can you tell me how I can put $200k/year in earnings in to an IRA so I can do this? At the moment, at least to the best of my knowledge (always happy to learn more) - I can only put $18,000 or so in to my IRA's annually.
It isn't that complicated - you max your tax advantaged accounts to the extent possible, then invest in taxable. At an income that allows you to put $200K/year into investments, you almost certainly want to favor Traditional over Roth whenever you can. Depending on your situation, you might have:As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early? Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.
But you can touch them (without penalty) before 60 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/).
If you go the "Roth Pipeline" route you pretty much only need 5 years' expenses in taxable accounts and/or Roth contributions.
That's interesting. Not something I was familiar with. Now, can you tell me how I can put $200k/year in earnings in to an IRA so I can do this? At the moment, at least to the best of my knowledge (always happy to learn more) - I can only put $18,000 or so in to my IRA's annually.
401K/403B/TSP - 19K / year max (2019)
457B (available to a lot of teachers / government workers) - another 19K
IRA - 6K (depending on income may have to be Roth - under current law, if you're careful you can always make Roth IRA contributions, either straight-forwardly or via the backdoor)
Then your employer might have a 401a in addition to all of the above - often a non-optional fixed percentage goes into there. Then your 401K might support the Mega-backdoor Roth technique to get you up to the $56K limit.
Does any of your income come in the form of a side-business? Then up to another $56K into a solo 401K or SEP-IRA. If you have employees in your side business, do your homework on options. If you've got a large side business, you might even start a defined-benefit plan.
All of these numbers are per person if you're married. OK, 401K and the like are per working person. A lot of them also depend on the particulars of your employer's retirement plans, so there is no getting out of doing your homework.
At that income, you might want to check out whitecoatinvestor.com - targeted at doctors, but has a lot of ideas that apply to pretty much anyone with a high income.
Are you eligible for a solo 401k? If so, there are no fees associated with them.
No, I have a lot of employees. None of which took the SIMPLE IRA offer with matching.. Lol. Oh well... darn. You want proof that people just don't understand the basics? My office is it.
There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.
Really? You know what rates will be 7 years from now? Care to share?There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.
One thing to consider if the poster really does intend to move is something like a 7/1 ARM. The interest rate is between a 15 and a 30-year. But the loan is amortized over 30 years, so the monthly payments will be lower than either. You have to be pretty sure you will move before the fixed period is over though.
Really? You know what rates will be 7 years from now? Care to share?There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.
One thing to consider if the poster really does intend to move is something like a 7/1 ARM. The interest rate is between a 15 and a 30-year. But the loan is amortized over 30 years, so the monthly payments will be lower than either. You have to be pretty sure you will move before the fixed period is over though.
I have no idea what rates will be in seven years. That's exactly why a 7/1 ARM only makes sense if you are sure you are going to move. The beauty of the 30-fixed is the extremely long period fixed at today's low rates. But if you can't take advantage of that long time period, why pay extra?Why the snark, @FIRE@50? What do you mean by "Care to share?"
Dang I messed up and paid off the mortgage today. I blame MMM's accountant. Granted, he's already FIRE'd.The guy has a point. And that point is... after successfully timing the market, it's a good idea to pocket some winnings if there is some piddling 6-figure debt that is mildly annoying to your 8-figure magnificence.
https://wealthyaccountant.com/2018/09/24/paying-off-the-mortgage-vs-investing-the-difference/
Should I take out a HELOC and invest in the market?
Dag I messed up and paid off the mortgage today. I blame MMM's accountant. Granted, he's already FIRE'd.You could take out a HELOC, but a more straightforward way would to simply refinance.
https://wealthyaccountant.com/2018/09/24/paying-off-the-mortgage-vs-investing-the-difference/
Should I take out a HELOC and invest in the market?
There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.
Dag I messed up and paid off the mortgage today. I blame MMM's accountant. Granted, he's already FIRE'd.Sorry, if we can't comment on that other thread, comments like yours are not welcome here. Take it to the proper thead. Unless you're joking. In which case, welcome to the world of the enlightened.
https://wealthyaccountant.com/2018/09/24/paying-off-the-mortgage-vs-investing-the-difference/
Should I take out a HELOC and invest in the market?
Our mortgage just got paid off. Although, it happened, cause I already paid too much in. Otherwise, it had just ran it's course,Again, there's a thread for celebrating premature mortgage payoff and this is not it.
It was paid off in 10 years.
We just sold our other home. Planning to invest it. Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out. Well, it happened. Couldn't come at a better time, in our opinion.
Our mortgage just got paid off. Although, it happened, cause I already paid too much in. Otherwise, it had just ran it's course,Again, there's a thread for celebrating premature mortgage payoff and this is not it.
It was paid off in 10 years.
We just sold our other home. Planning to invest it. Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out. Well, it happened. Couldn't come at a better time, in our opinion.
As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?
It seems unnecessarily antagonistic.
He was, but has since been banned for multiple forum decorum violations. For those of us who considered him an integral part of this forum it is sad to not have him around, regardless of whether we agreed with 100% of his postings.Our mortgage just got paid off. Although, it happened, cause I already paid too much in. Otherwise, it had just ran it's course,Again, there's a thread for celebrating premature mortgage payoff and this is not it.
It was paid off in 10 years.
We just sold our other home. Planning to invest it. Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out. Well, it happened. Couldn't come at a better time, in our opinion.
As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?
It seems unnecessarily antagonistic.
Antagonistic. I am so sorry, if it came off that way. Not intended. I followed his advice and am honestly looking for what the next step should be.
I thought he was the author of the thread. Just making conversation.
Just making conversation with someone who is banned? If you really want him to know, you can compose a message, pm it to me and I will forward it to him. Otherwise, please take this topic to the other thread(s).Our mortgage just got paid off. Although, it happened, cause I already paid too much in. Otherwise, it had just ran it's course,Again, there's a thread for celebrating premature mortgage payoff and this is not it.
It was paid off in 10 years.
We just sold our other home. Planning to invest it. Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out. Well, it happened. Couldn't come at a better time, in our opinion.
As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?
It seems unnecessarily antagonistic.
Antagonistic. I am so sorry, if it came off that way. Not intended. I followed his advice and am honestly looking for what the next step should be.
I thought he was the author of the thread. Just making conversation.
I didn't know Boarder was banned. That makes me sad. I was in celebratory mode about selling off the rental.Or you could let the mods know you'd like him back :-))
Was waiting for him to reply to me thread in another place on the site. LOL We better get that removed.
Sad.
Well, life happened and I disappeared for a while. But now I'm back and with a mortgage bigger than ever! (Unfortunately)
We took an opportunity to move from our LCOL area to an area that we absolutely love... However, housing here is absolutely mind-blowingly stupid and I don't see it getting any better anytime soon.
Long story short... We moved and sold our house for 250k. Relocated and bought a modest home that will fit us well for a long time, but at a price of around 650k. We commuted a round trip time of 7-8 hours between the two of us for a while before we bought our house. Now are combined round trip commute is about 2.5 hours. Not the best commute but a hell of a lot better than before. Other than the high costs, we absolutely love the home, location, and all the activities to do around here. Our base incomes increased by about 20% so that should help to offset the housing costs a little.
Now for the fun stuff.... We now have a huge mortgage at a much higher interest rate of 4.75%. I had to take a long hard look at our plan of attack when it comes to paying down versus investing but I came to the same conclusion as last time. Max out retirement accounts and then hit the taxable brokerage accounts hard. The pre-tax savings of retirement accounts is too good to pass up and I still feel the higher returns and flexibility of taxable investments works better for us than a guaranteed 4.75% return.
Savings will probably suffer as we get settled in, buy furniture, and get back to "normal", but we are on our way.
The good news is our income potential here is MUCH higher. The transition took us from a 60% savings rate to an estimated 30% savings rate so we will see if that pays off in the next 5 years.
Glad to be back. Time to stache.
But I live in a high COLA where $125k won't even buy you a garage.
What do you all think? What is the rate range where you would switch from long term minimum payments to lump sum payoff and why?
With the standard deduction being so high, the tax breaks on mortgage interest is probably irrelevant to most people here.Thanks for sharing your insights, @AlexMar.
"putting it into the market and building a diversified portfolio is the way to go."
So the author thinks "diversified" means having all of your money in the stock market? To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.
I think the Motley Fool author has Captain Hindsight syndrome. Though they do admit the stock market will "likely" have better returns.... Compared to your guaranteed return on your mortgage.
So the author thinks "diversified" means having all of your money in the stock market? To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.
OMG - You've triggered a memory, nereo. I can hear (and see in my mind) exactly where we were standing in my parent's house when my dad was griping about how much their utility bills were. Even then, my smart-ass self told him he was lucky to be facing such a "big" problem. My taxes for a month were more than he paid in a year, and after 30+ years, they had no mortgage, so the utilities loomed large in comparison. It was a pretty funny conversation.QuoteSo the author thinks "diversified" means having all of your money in the stock market? To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.
Among the financially affluent, I think these people are more common than you realize. My parents like to joke that they are 40 years into their 30 year mortgage, nad they ‘only’ have another 12 to go. Refinancing a home to pull out equity is a rather common strategy - unfortunately it’s gotten a bad rap lately when countless spends-pants consumers used the equity in their homes unintellegently, like for exotic vacations or installing a pool instead of increasing their wealth. Ultimately that’s what refinancing is - transferring equity from one asset class into another. In this case it’s pulling it from a rather illiquid asset with an historically low rate of return into something else. If that something else allows for something like increased contributions into one’s 401(k) it’s likely a smart move. If it’s to buy a luxury SUV, that’s not so intelligent use of money.
Finally, a key reason why you don’t hear a lot of people say “gosh, i wish I had never paid down my house” or hear people talking about using tons of equity to throw it all into the market iis because these people never let it get to that point. They’ve realized they can carry a mortgage for decades, and allow inflation to eat away at their payments while bulking up the rest of their financial buckets. It’s been an intentional, gradual process where each month they chose saving and investing more over reducing manageable low-interest debt. Some - like my parents - carry their mortgages deep into retirement, and by that point their Principle and Interest payments pale in comparison to Taxes and Insurance (which never go away).
So the author thinks "diversified" means having all of your money in the stock market? To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.
I think the Motley Fool author has Captain Hindsight syndrome. Though they do admit the stock market will "likely" have better returns.... Compared to your guaranteed return on your mortgage.
In a perfect world, I would be posting this elsewhere on this forum, but the mods have spoken, so here I am, sharing these golden eggs with the enlightened. At least it's good confirmation. Feel free to share it far and wide, if you find a place that seems appropriate and not inflammatory. After all, the people celebrating their payoffs don't want to hear from the Debbie Downers like us, lol.
3. Inflation offsets savings in interest
Despite the fact you can earn better returns by investing than by paying off your mortgage early, some people still prefer to prepay their mortgage. This may be because of an aversion to debt, or a belief it's better to get the guaranteed return that comes from mortgage prepayment, since there's no guarantee invested money will grow.
The problem is, you need to factor in inflation when deciding if this strategy makes sense. Due to inflation, your mortgage effectively becomes cheaper to pay over time since the value of your money erodes but your mortgage payment stays the same (assuming you have a fixed-rate loan). If you have a monthly payment of $1,500 today, in 25 years, the $1,500 you'll pay toward your mortgage would be the equivalent of around $942 of today's dollars -- assuming inflation of 2% annually.
Since your mortgage payment is continually getting cheaper over time, it seldom makes sense to prepay it. Don't forget that all the interest savings you net from paying off the mortgage early are also reduced by inflation, making this even less of a good deal over time. If you save around $80,000 in interest by paying off a $300,000 4.5% mortgage in 21.5 years instead of 30 years, you've actually saved less than $50,000 when accounting for the fact you don't benefit from the interest savings for more than two decades.
Hahaha!
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Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.Inflation is completely relevant to whether one should pay off one's mortgage early, assuming a fixed rate mortgage. The higher the inflation the less one should pay early. Much better to pay off a fixed rate mortgage with highly inflated dollars.
See point 3 on post #1014 above.Hahaha!
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Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
See point 3 on post #1014 above.Hahaha!
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Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
Another way to look at this: Let's assume the government controls prices and has regulated 0% inflation, guaranteed for the next 30 years (you even have a crystal ball that confirms this is the case). How would that affect your investment strategy (to include paying off debt)?Can I have a unicorn in this magical scenario?
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.
The real interest rate = nominal interest rate - rate of inflation.
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.
The real interest rate = nominal interest rate - rate of inflation.
Let's apply this to two scenarios. One in which there is 0% inflation for 30 years and one in which there is 4% inflation for 30 years and compare the differences in pre-paying a mortgage. You can run these numbers for yourself using a mortgage pre-payment calculator.
(I'm using 200K mortgage, 4% interest, 30 year loan, $1,000/month additional mortgage payment)
Scenario 1: inflation is 0% (making the real interest rate 4%) - By paying off the mortgage early, you will save $98,732
Scenario 2: inflation is 4% (making the real interest rate 0%) - By paying off the mortgage early, you will save $0
And if inflation is ever higher than your nominal interest rate, the bank is in fact paying YOU to hold the loan.
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).
And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.
The real interest rate = nominal interest rate - rate of inflation.
This is also why one must treat claims that "paying off your mortgage gives you a guaranteed X% return [with 'X' being the mortgage rate]" with a hefty dose of salt. What you are getting is a nominal return, and the real return will be quite a bit less (and possibly negative).
The same logic is applied to market returns; annualized returns over the last 30 years has been 10%, but 'real' returns have averaged 7.2%. We used real returns because we want to compare apples to apples (we want to equate spending power in 1987 to spending power in 2018).
It makes no sense to use inflation adjusted numbers for market returns but not use inflation adjusted numbers for your mortgage payments.
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.Actually, you save the exact same amount of money in both scenarios. The purchasing power of that money is just going to decrease faster in Scenario 2.
The real interest rate = nominal interest rate - rate of inflation.
Let's apply this to two scenarios. One in which there is 0% inflation for 30 years and one in which there is 4% inflation for 30 years and compare the differences in pre-paying a mortgage. You can run these numbers for yourself using a mortgage pre-payment calculator.
(I'm using 200K mortgage, 4% interest, 30 year loan, $1,000/month additional mortgage payment)
Scenario 1: inflation is 0% (making the real interest rate 4%) - By paying off the mortgage early, you will save $98,732
Scenario 2: inflation is 4% (making the real interest rate 0%) - By paying off the mortgage early, you will save $0
And if inflation is ever higher than your nominal interest rate, the bank is in fact paying YOU to hold the loan.
Your second paragraph is spot on. You need to compare investments (which include debt payments) using the same inflation criteria (either adjusted or not adjusted). So if people say "hold your mortgage because inflation", by that logic they should also say "dump stocks because inflation". Because you want that dollar today, right? What if inflation was at double digits and forecasted stock returns were single digits; would you sell all your stock, because theoretically you're paying those companies to hold your money, right? (Or would gold start coming into the conversation?)
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).This hit the nail on the head. If you own or produce real goods, then by definition the value of your remaining mortgage will become relatively smaller because of inflation. If you own nothing and produce nothing, then it won't matter either way.
And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.
and inflation shouldn't really be considered when comparing two different investment strategies since all investments are subject to inflation (except TIPS (and some say gold)).Honestly it doesn't really matter. Use real returns for both, or nominal returns for both, just don't mix them together.
What is the rate range where you would switch from long term minimum payments to lump sum payoff and why?I would pay off the mortgage as a lump sum if 1) its rate was greater than 1/PE10 + expected inflation, and 2) I had enough money (edit: in taxable accounts) to pay it off as a lump sum.
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?
(I'll post my answer and math in a little while.)
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?
(I'll post my answer and math in a little while.)
I'm not sure I understand. If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?
(I'll post my answer and math in a little while.)
I'm not sure I understand. If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.
Mortgage A is a standard mortgage.
Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.
Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?
(I'll post my answer and math in a little while.)
I'm not sure I understand. If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.
Mortgage A is a standard mortgage.
Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.
that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't. Where's the logic in that?
Yeah I don't get this at all.... Why would you ever want a mortgage that is adjustable and increases as inflation occurs over time. Mortgage B make no sense.Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?
(I'll post my answer and math in a little while.)
I'm not sure I understand. If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.
Mortgage A is a standard mortgage.
Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.
that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't. Where's the logic in that?
In theory, mortgage B would be better if you're investing the difference because your money would be invested for longer.
Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?
(I'll post my answer and math in a little while.)
I'm not sure I understand. If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.
Mortgage A is a standard mortgage.
Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.
that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't. Where's the logic in that?
In theory, mortgage B would be better if you're investing the difference because your money would be invested for longer.
Yeah I don't get this at all.... Why would you ever want a mortgage that is adjustable and increases as inflation occurs over time. Mortgage B make no sense.Turning this on its head for a minute - why would you want a mortgage that costs more in real terms at the beginning, when you're younger and your wages are presumably lower, and the money could be invested earlier to work longer for you instead; and costs less in real terms later in the mortgage, when you're earning so much you have lots of spare money but if you invest it instead it has less time to grow?
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).
And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.
As we've veered away from the purpose of this thread and into the realm of hypothetical loan structures, I'd ask those who want to continue that line line of analysis to start a new thread and post a link to it below.
I thought it was pretty well accepted that inflation depresses real stock returns.
A somewhat dense paper exploring inflation on stock returns in ten countries here:
https://www.federalreserve.gov/pubs/ifdp/1994/464/ifdp464.pdf
A less dense explanation from Warren Buffet why inflation depresses real stock returns here:
http://fortune.com/2011/06/12/buffett-how-inflation-swindles-the-equity-investor-fortune-classics-1977/
1) Mortgages are an inflation hedge, since the price is locked in upon purchase. This can be a valid argument when comparing purchasing a house to purchasing things that rise with inflation (or renting). However, historical stock returns appear to be relatively independent from inflation (certainly there's a correlation, since both are generally rising, but if both metrics are transformed than the correlation is minimal).In the long run stock values are tied to real prices and the economy, plus expectations. If the economy and expectations are tanking while inflation soars then they will not do well in real terms, but that is because of those other two factors. All else being equal, they correlate to inflation. Another issue is choosing too short a period to test for correlation. The idea is that stocks compensate for inflation over say ten years or more, so checking one year rolling correlations is a poor test of this. It is like the people a couple years ago who were saying "US and international stocks are almost perfectly correlated. Besides, international returns are negative over the past ten years while US stocks are positive!" You can tell from the statement that something is wrong, and the something is checking short term correlations and incorrectly extending them to longer terms despite that obviously being incorrect.
2) Mortgages are great because payments don't rise with inflation.There is nothing inherently great about mortgages. But they don't rise with inflation, so if you are considering one, that is something to include in the consideration.
The hypothetical mortgage was meant to show the fallacy in argument #2.
Read "Deep Risk" by William Bernstein.Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).
And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.
This (bolding mine) is intuitive, but from what I have read is not the historic case. There is some correlation of stocks with inflation at lower inflation values (at which time a mortgage could be considered a deflation hedge and stocks an inflation hedge, as someone else has noted), but the stock market tends to tank even in nominal terms with high inflation (presumably because wages do not rise as fast, and thus consumerism suffers). So overall, there appears to be generally little to no correlation between stocks and inflation. If you have data to the contrary I am open to being educated otherwise.
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?
(I'll post my answer and math in a little while.)
PS I think a mortgage product that starts low and increases over time is...a lot like the one I have.
My 5/1 ARM included sixty payments at a rate of 3.0%, now it's just reset up to 5.0%. It's chunkier than the escalating payments, but my lender gave me a premium, which was five years at that teaser rate.
Another month, another minimum payment on our 3.125% mortgage.What a thrill!
I feel pretty damn lucky to have a 2.6% mortgage :-)Another month, another minimum payment on our 3.125% mortgage.What a thrill!
Thirty year? OMG!I feel pretty damn lucky to have a 2.6% mortgage :-)Another month, another minimum payment on our 3.125% mortgage.What a thrill!
25y. O' Canada...Thirty year? OMG!I feel pretty damn lucky to have a 2.6% mortgage :-)Another month, another minimum payment on our 3.125% mortgage.What a thrill!
Another month, another minimum payment on our 3.125% mortgage.
Another month, another minimum payment on our 3.125% mortgage.
While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?
Another month, another minimum payment on our 3.125% mortgage.
While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?
Sure. Dividends alone are already significantly more than the interest on the mortgage. I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k. Our taxable brokerage account is roughly equal to our mortgage balance. Despite the recent drops the stock market is still up significantly since we bought the house (Spring 2016).
That's a pretty nice way of thinking of it. I hadn't though of that before. Using http://www.multpl.com/s-p-500-dividend-growth dividends have grown by an average of 5.94% per year. Say you had taken a 3.5% mortgage in November 2012. Back then the S&P500 dividend was $33.6 on a price of 1422.29, or 2.2% (lots of imprecision in these numbers). In September 2018 (most recent available) S&P500 dividend was 52.26 on a price of 2785.46. The dividend increased by a factor of 1.55. Apply that to your starting 2.2% dividend yield, and your would dividend is 1.55*2.2%=3.42% of principal. Your dividend now pays as many dollars per year as the interest savings from paying down the mortgage would have! Plus your stock value nearly doubled in that time.Another month, another minimum payment on our 3.125% mortgage.
While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?
Sure. Dividends alone are already significantly more than the interest on the mortgage. I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k. Our taxable brokerage account is roughly equal to our mortgage balance. Despite the recent drops the stock market is still up significantly since we bought the house (Spring 2016).
25y. O' Canada...Thirty year? OMG!I feel pretty damn lucky to have a 2.6% mortgage :-)Another month, another minimum payment on our 3.125% mortgage.What a thrill!
:-)
25y. O' Canada...Thirty year? OMG!I feel pretty damn lucky to have a 2.6% mortgage :-)Another month, another minimum payment on our 3.125% mortgage.What a thrill!
:-)
Jeebus, thought my 3.25% was pretty good. 2.6% seems almost criminal.
25y. O' Canada...Thirty year? OMG!I feel pretty damn lucky to have a 2.6% mortgage :-)Another month, another minimum payment on our 3.125% mortgage.What a thrill!
:-)
Jeebus, thought my 3.25% was pretty good. 2.6% seems almost criminal.
For a while I had the mortgage and a few student loans (subsidizsed) at 0%, then 2.1%. Folks from the DR forum piled on me about snowballing and killing that debt.
Nope - not going to pay off any sub 3% debt when I still have oodles of headspace in my tax-advantaged accounts.
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.
One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%. The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate. Mind you the 10y treasury note is paying out at 2.7% right now....
I'm still waiting for the paperwork for that loan to come through. Any day now.
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.
One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%. The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate. Mind you the 10y treasury note is paying out at 2.7% right now....
I'm still waiting for the paperwork for that loan to come through. Any day now.
I have a confession to make.Sweet Baby Jeebus, 2.75% is an amazing rate! Good for you for locking that in @SwordGuy . I differ from B42 in that I don't believe in endless refinancing. I believe in paying off the mortgage last, after all other boxes have been checked. You have done exactly that.
I didn't exactly fall off the wagon, but I added an extra $140 dollars to my mortgage payment so the principal would go down a full $1,000 each payment. We have a 15 year, fixed rate mortgage at 2.75%.
I've been tracking our net worth each month for the last 8 months (since we FIRED) and it makes me happy each time I update my spreadsheet to show the mortgage balance dropped another $1000.
Totally emotional. Totally math irrational. But it really made me happy to do it. Because owing that money bugs me. It sticks in my craw.
I could have paid off the mortgage any time in the last 3 years by withdrawing from our investments, but I didn't because of what I've learned in this thread.
I could have paid off the mortgage when we sold our old house last spring, but I didn't.
I could pay off the mortgage when the buyers of our owner-financed Flip #1 finish their renovations and refinance to a lower rate. I expect it will happen sometime in 2019, probably in the fall. I think if I see the balance falling $1,000 a month I'll be less likely to pay off our mortgage then. It will stick in my craw a bit less.
The only reason I can see for paying the mortgage off early (other than I would like to see the back of it!) is that I'll be switching over to the ACA in 2020 from COBRA. COBRA runs out at the end of 2019 for me. I know that the ACA premiums are affected by how much our income is, and I don't know (yet) how much that will affect us. I've got a bunch of research to do to learn what the rules are and how we can tax shelter our income so we don't go over the subsidy cliff.
We have a variety of income sources:
farmland that is sharecropped.
rental houses.
social security.
minimum required distributions from an inherited IRA and also from my wife's 401K.
teaching income
art income (hopefully)
So, it may be that we'll be falling over that subsidy cliff regardless. But if we can shelter some of that income so it doesn't count against the subsidy, we might need to reduce our expenses. Being able to drop our expenses by $14,658.36 (P&I) per year that we don't have to treat as income might save us a fair bit in subsidies. I'll just have to do the math.
I hadn't taken the time to really understand the ACA rules in detail because I expected the GOP would crap on them bigly over the last 2 years. Now it looks like we're more likely to have the current rules for the next 2 years.
Another month, another minimum payment on our 3.125% mortgage.
While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?
I have a confession to make.
I didn't exactly fall off the wagon, but I added an extra $140 dollars to my mortgage payment so the principal would go down a full $1,000 each payment. We have a 15 year, fixed rate mortgage at 2.75%.
I've been tracking our net worth each month for the last 8 months (since we FIRED) and it makes me happy each time I update my spreadsheet to show the mortgage balance dropped another $1000.
Totally emotional. Totally math irrational. But it really made me happy to do it. Because owing that money bugs me. It sticks in my craw.
I could have paid off the mortgage any time in the last 3 years by withdrawing from our investments, but I didn't because of what I've learned in this thread.
I could have paid off the mortgage when we sold our old house last spring, but I didn't.
I could pay off the mortgage when the buyers of our owner-financed Flip #1 finish their renovations and refinance to a lower rate. I expect it will happen sometime in 2019, probably in the fall. I think if I see the balance falling $1,000 a month I'll be less likely to pay off our mortgage then. It will stick in my craw a bit less.
The only reason I can see for paying the mortgage off early (other than I would like to see the back of it!) is that I'll be switching over to the ACA in 2020 from COBRA. COBRA runs out at the end of 2019 for me. I know that the ACA premiums are affected by how much our income is, and I don't know (yet) how much that will affect us. I've got a bunch of research to do to learn what the rules are and how we can tax shelter our income so we don't go over the subsidy cliff.
We have a variety of income sources:
farmland that is sharecropped.
rental houses.
social security.
minimum required distributions from an inherited IRA and also from my wife's 401K.
teaching income
art income (hopefully)
So, it may be that we'll be falling over that subsidy cliff regardless. But if we can shelter some of that income so it doesn't count against the subsidy, we might need to reduce our expenses. Being able to drop our expenses by $14,658.36 (P&I) per year that we don't have to treat as income might save us a fair bit in subsidies. I'll just have to do the math.
I hadn't taken the time to really understand the ACA rules in detail because I expected the GOP would crap on them bigly over the last 2 years. Now it looks like we're more likely to have the current rules for the next 2 years.
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.
One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%. The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate. Mind you the 10y treasury note is paying out at 2.7% right now....
I'm still waiting for the paperwork for that loan to come through. Any day now.
whether I would accept an interest only, $1MM loan at 2%.
Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market [...]?
This is an interesting intellectual exercise.
Is the lender offering this $1,000,000 loan with no collateral? Suppose my $200,000 house is collateral (so it's basically a negative LTV loan; and let's assume the price of the house is fixed)...Bear markets occur routinely in the stock market, perhaps every 3-4 years. So I can expect to be under water--perhaps wayyy under water--at some point in the next four years if I put the money 100% into stocks.
Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market, with my stocks at $680,000, leaving me to sell my house and beg friends/family for the extra $120,000 to make the lender whole at that point? I recognize that Dave Ramsey is a bogeyman in the DNPYM club, but I think there is still quite a bit of risk in the scenario you're describing, much more than in the situation most of us are in here with mortgages that are 60%-80% of the value of our properties.
So really, I ought to
Agreed. One of the many reasons I'm not a DR fan. Even real world mortgage loans aren't callable any more. Duh, DR.whether I would accept an interest only, $1MM loan at 2%.
Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market [...]?
Every time I've seen this hypothetical dream loan it's always stated to be non-callable so you can ride out the market long term. Callable loans already exist (investing on margin) so there is not much point in making a hypothetical about those.
Agreed. One of the many reasons I'm not a DR fan. Even real world mortgage loans aren't callable any more. Duh, DR.whether I would accept an interest only, $1MM loan at 2%.
Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market [...]?
Every time I've seen this hypothetical dream loan it's always stated to be non-callable so you can ride out the market long term. Callable loans already exist (investing on margin) so there is not much point in making a hypothetical about those.
Edit: Found his stuff- https://www.daveramsey.com/baby-steps/?snid=start.steps (https://www.daveramsey.com/baby-steps/?snid=start.steps)
He still says to pay off the mortgage AFTER saving 15% of your income. Not sure why 15%. Why not 10%? Why not 45%? Why not 24,000 that you can put away tax-advantaged? Or is 15% just a nice round number that seems easy for people to swallow and allows you to sell to people without pushing too many away (you betcha)...
My objections are when advice becomes gospel...
My objections are when advice becomes gospel...
Heh heh heh. I see what you did there. :D
Very valid, though, and it is (one of the reasons*) why we don't teach DR at my local church. We have a financial class that covers staying out of unproductive debt, and that cover the biblical definitions of money and spending (particularly that wasting it and spending more than you have or earn actually does go against the Bible...). We use some of his stuff, but not nearly as much as the whole program.
*Note: The other reason we don't use his stuff as it seems extremely unethical to charge $139.00 dollars to someone who is struggling to tithe and struggling with finances. When that point is brought up (poor people can't afford to pay for the program to even learn how to get on the right track), the excuse given seems to be that "the church should cover the fee"... So 139 bucks for what should be a 25$ (ish) book and some youtube videos. That doesn't sit right with many of us- hence our class that uses a $4.45 book, free youtube videos, and volunteer time which we happily give.
I have a confession to make.
I didn't exactly fall off the wagon, but I added an extra $140 dollars to my mortgage payment so the principal would go down a full $1,000 each payment. We have a 15 year, fixed rate mortgage at 2.75%.
I've been tracking our net worth each month for the last 8 months (since we FIRED) and it makes me happy each time I update my spreadsheet to show the mortgage balance dropped another $1000.
...
Sword guy-
if your goal is for the principal to drop by $1,000 every payment, you can start adding less than $140 soon, because the amount of principal change should rise with each payment in the amortization schedule.
This is an interesting intellectual exercise.
Is the lender offering this $1,000,000 loan with no collateral? Suppose my $200,000 house is collateral (so it's basically a negative LTV loan; and let's assume the price of the house is fixed)...Bear markets occur routinely in the stock market, perhaps every 3-4 years. So I can expect to be under water--perhaps wayyy under water--at some point in the next four years if I put the money 100% into stocks.
Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market, with my stocks at $680,000, leaving me to sell my house and beg friends/family for the extra $120,000 to make the lender whole at that point? I recognize that Dave Ramsey is a bogeyman in the DNPYM club, but I think there is still quite a bit of risk in the scenario you're describing, much more than in the situation most of us are in here with mortgages that are 60%-80% of the value of our properties.
So really, I ought to
It's a very real example DR uses to try to convince people why they shouldn't carry any debt.
In this particular, hypothetical case, the bank would never call the loan due. I'd owe $20,000/year in interest, or $1,667/month. In exchange I'd have $1MM to do with as I pleased.
The idea (as I understand it) is to make people feel uncomfortable at the idea of paying $1,667 every single month, and in effect bring them to the conclusion that they must get rid of all debt now, regardless of the rate or its fixed (not indexed to inflation) status. The interest payment is supposed to feel like a weight around your neck, while one is told to ignore the massive asset because you're reminded of the weight every single month. In this thought exercise it aways came back to "but you'd be paying over a thousand dollars every single month!!!"
Of course the counter-argument is that one could simply rely on the gains from that $1MM to more than pay off the interest. A 2% WR is in crazy-conservative territory, particularly if one doesn't index it to inflation. There's never been a 30year period where that wouldn't result in having more money, and under the majority of scenarios you'd have a ton more money. Even the worst 30 year period would have you more than doubling the initial $1MM. If even that were too 'risky' for you one could put the money into 10year US treasury bonds and still come out (slightly) ahead.
ETA: I was curious about the effects of NOT adjusting for inflation with a constant (not adjusted for inflation) withdraw rate, so I monkeyed a bit with cFireSIM - turns out there has never been a 40 year period when a 4% WR failed if one does NOT index (increase) distributions with inflation each year. Your purchasing power would steadily erode, but in this absurd hypotthetical interest-only loan one could pay off the interest and have an additional $20k/year to do with as he or she pleased in perpetuity. Man, i wish this actually existed...
But--when you add conditions such as collateral and the possibility of calling a loan--the riskiness of being in debt is real and present. You're welcome to review my posts if you think I'm not still a member of the DNPYM club (I am).I know you are, but for Pete's sake, please stop with the loan calling boogeyman act! US based mortgage loans are simply NOT callable.
As we've veered away from the purpose of this thread and into the realm of hypothetical loan structures, I'd ask those who want to continue that line line of analysis to start a new thread and post a link to it below.
One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%. The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate. Mind you the 10y treasury note is paying out at 2.7% right now....
I'm still waiting for the paperwork for that loan to come through. Any day now.
Agreed. One of the many reasons I'm not a DR fan. Even real world mortgage loans aren't callable any more. Duh, DR.whether I would accept an interest only, $1MM loan at 2%.
Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market [...]?
Every time I've seen this hypothetical dream loan it's always stated to be non-callable so you can ride out the market long term. Callable loans already exist (investing on margin) so there is not much point in making a hypothetical about those.
In his defense, he has updated his advice online to pay off everything but a "normal mortgage", which is a big step up from "kill all the debt now". I'm not sure what he actively teaches, because I won't pay for his content, but the online (free) stuff isn't a bad place to start at all. My biggest issue is his "save now to spend later" mentality about having a Fat FIRE retirement... And he pushes mutual funds and doesn't ever mention ETFs.
Edit: Found his stuff- https://www.daveramsey.com/baby-steps/?snid=start.steps (https://www.daveramsey.com/baby-steps/?snid=start.steps)
He still says to pay off the mortgage AFTER saving 15% of your income. Not sure why 15%. Why not 10%? Why not 45%? Why not 24,000 that you can put away tax-advantaged? Or is 15% just a nice round number that seems easy for people to swallow and allows you to sell to people without pushing too many away (you betcha)...
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
But DR isn't a bad guy
But DR isn't a bad guy
I disagree. Claiming 12% returns on the mutual funds he recommends (and gets a kickback for) is bad in my book.
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?
No.
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
"if your expenses and income are such that you can barely afford your mortgage payment" then you aren't even investing "on margin", You are over-consuming on housing... The typical discussion in here is <invest 30k a year toward tax-deferred accounts> vs <pay down the mortgage>. If someone was paying a 3 grand a month mortgage and saving 2 grand a year, I'm pretty sure EVERYBODY in this thread would tell them to sell the house.
Not to mention, paying extra on the mortgage is money that you cannot quickly get back out in an emergency. Paying extra into investments is money you can quickly liquidate to keep from getting foreclosed. Not even comparable options...
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
"if your expenses and income are such that you can barely afford your mortgage payment" then you aren't even investing "on margin", You are over-consuming on housing... The typical discussion in here is <invest 30k a year toward tax-deferred accounts> vs <pay down the mortgage>. If someone was paying a 3 grand a month mortgage and saving 2 grand a year, I'm pretty sure EVERYBODY in this thread would tell them to sell the house.
Not to mention, paying extra on the mortgage is money that you cannot quickly get back out in an emergency. Paying extra into investments is money you can quickly liquidate to keep from getting foreclosed. Not even comparable options...
Thank you for pointing out the semantics involved.
Let's use a better example. A Mustachian buys a house with 20% down, with a resulting (very Mustachian) budget of $3k per month and income of $4k per month. The extra $1k per month is funneled into VTSAX. After three months, the economy craters, our friend loses their job, and VTSAX loses a third of its value. Now our friend still has to scrape up $3k per month, with $2k per month of unemployment and $2k in investments.
I'm certainly not suggesting putting the extra money into the mortgage, but I am suggesting there are always added risks involved when investing with debt. (In this case, I would suggest our friend was not in a good position to buy a house, but should have instead invested their down payment and waited until they had a substantial emergency fund built up beyond the down payment before making that purchase.)
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
"if your expenses and income are such that you can barely afford your mortgage payment" then you aren't even investing "on margin", You are over-consuming on housing... The typical discussion in here is <invest 30k a year toward tax-deferred accounts> vs <pay down the mortgage>. If someone was paying a 3 grand a month mortgage and saving 2 grand a year, I'm pretty sure EVERYBODY in this thread would tell them to sell the house.
Not to mention, paying extra on the mortgage is money that you cannot quickly get back out in an emergency. Paying extra into investments is money you can quickly liquidate to keep from getting foreclosed. Not even comparable options...
Thank you for pointing out the semantics involved.
Let's use a better example. A Mustachian buys a house with 20% down, with a resulting (very Mustachian) budget of $3k per month and income of $4k per month. The extra $1k per month is funneled into VTSAX. After three months, the economy craters, our friend loses their job, and VTSAX loses a third of its value. Now our friend still has to scrape up $3k per month, with $2k per month of unemployment and $2k in investments.
I'm certainly not suggesting putting the extra money into the mortgage, but I am suggesting there are always added risks involved when investing with debt. (In this case, I would suggest our friend was not in a good position to buy a house, but should have instead invested their down payment and waited until they had a substantial emergency fund built up beyond the down payment before making that purchase.)
And for the purposes of this thread, the alternative is that our Mustachian puts that extra 1k into the mortgage to KILL ALL THE DEBT ™. Now after three months, the mustachian loses their job, the economy craters, and he has to scrape together 3k per month out of 2k of unemployment and NO investments. Fortunately for him the bank is happy that he paid an extra 3k towards the mortgage during those months since that will cover the extra fees for selling.
In the "PAY DOWN THE MORTGAGE NOW™" scenario, the mustachian will last exactly 0 months.
In the "Evil Leveraging" scenario, the mustachian will last exactly 1 months, and hopefully can stretch that out to 2 months and find a job.
"Evil Leveraging" still wins in your example... Yes debt incurs risk but trying to kill all the debt asap is actually riskier. The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing. One of these is a good decision, one of them is not.
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?
No. If you borrow money for a mortgage on your house, and are unable to sustain those payments, your home (and the equity built up in it) are "callable".
are you 'Market Timer' @Boofinator?
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?
No. If you borrow money for a mortgage on your house, and are unable to sustain those payments, your home (and the equity built up in it) are "callable".
That's not what "callable" means, not by any standard usage of the term. A "callable loan" means that the lender can demand repayment of the full value of the loan at the lender's discretion. That is the definition of a callable loan.
Except for very rare exceptions, home mortgages in the United States are not callable. You do, of course, have to abide by the conditions of the loan agreement, but that requirement in no sense makes the loan callable.
Bank can call your loan for no reason = callableDespite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?
No. If you borrow money for a mortgage on your house, and are unable to sustain those payments, your home (and the equity built up in it) are "callable".
That's not what "callable" means, not by any standard usage of the term. A "callable loan" means that the lender can demand repayment of the full value of the loan at the lender's discretion. That is the definition of a callable loan.
Except for very rare exceptions, home mortgages in the United States are not callable. You do, of course, have to abide by the conditions of the loan agreement, but that requirement in no sense makes the loan callable.
As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
Let's see, Formerly known as something (FKaS) is a Federal Employee.
FKaS decided to only put a bit over 20% down on her current residence in 2017 even though FKaS could have paid for the residence in cash. FKaS is "essential" and continues to go to work even though FKaS is not getting a paycheck until whenever.
FKaS has 7.3 years of current expenses (not cutting anything) in a taxable account or 3.5 years at a 50% reduction in the taxable account. If FKaS had paid cash for a house she would have 5.5 years of current expenses - Mortgage or 2.75 years of expenses at a 50% reduction.
FKaS is not regretting choosing to have a mortgage even though FKaS is getting paid with an IOU.
As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.
As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.
As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.
Yes, in both situations (margin calls and foreclosure) you owe your collateral.
"Evil Leveraging" still wins in your example... Yes debt incurs risk but trying to kill all the debt asap is actually riskier. The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing. One of these is a good decision, one of them is not.
I'm not arguing with you on that point. I'm arguing with your bold caps italicized comment up thread. Come to think of it, Market Timer was invested significantly in non callable debt (in addition to callable debt). His saving grace was that he was able to command significant income to pull himself out of the hole he was in.
As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.
Yes, in both situations (margin calls and foreclosure) you owe your collateral.
This is not the same thing.
Here is an example to illustrate. Let's say you take out a $200k, 30y note @ 4%. Your monthly payments (PI) will be ~$950/month.
Your bank cannot decide that you must pay the entirety of the loan for any reason. The most you are obligated to pay is the $950/mo +TA.
What you seem to be discussing is what happens if you are delinquent on your loan, which is not the same thing. Even here, up and until the property goes into foreclosure you can return to good standing by paying the owed payments plus applicable fees. Again, this is not callable. Your 'net assets' have nothing to do with it, and the bank cannot decide that you suddenly have to pay the full value of the note even if you lose your job or if you raid your 401(k) or whatever.
If the property does go into foreclosure you are entitled to whatever equity remains from the sale after subtracting the remainder of what's owed plus selling costs. So following this example, let's suppose that 18 years into your mortgage you would have $100k remaining, but you default on multiple payments. The bank sells the property at 'fair market value' for $300k (because: appreciation). After fees and penalties, etc. the bank would still owe you over $100k. Since the bank is only interested in recouping their money, they will list it low enough for a quick sale and will not pay money to fix the place up, but there are laws against them dumping properties far below market value.
Alternatively, you can decide at any point to sell your home to a 3rd party, and the bank cannot prevent you from doing this or 'call' your mortgage due before it is sold.
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.
https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Doesn't apply. His loan was CALLABLE. Its not even a close comparison...
"Evil Leveraging" still wins in your example... Yes debt incurs risk but trying to kill all the debt asap is actually riskier. The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing. One of these is a good decision, one of them is not.
I'm not arguing with you on that point. I'm arguing with your bold caps italicized comment up thread. Come to think of it, Market Timer was invested significantly in non callable debt (in addition to callable debt). His saving grace was that he was able to command significant income to pull himself out of the hole he was in.
So you admit that (all else being equal) carrying a mortgage is safer than paying extra cash into the house at warp speed... Because thats what this thread is primarily about. Its not about leveraging callable assets, its not about leveraging yourself "into richness", its not even about buying houses... Its about the most efficient place to put your little green soldiers and what actual, real world risk those places present.
1. There is more risk in paying down your mortgage early than investing.**
2. There is very little reason to pay down a low-rate, fixed interest, long-term, non-callable, US-Based mortgage in real life- Despite what others on this forum may espouse with " KILL ALL THE DEBT™ " mentality this actually puts one in a riskier position.
3. The bigger your mortgage, the lower your rate, and the higher your savings- The better off you are NOT paying early. Yet these are the same people paying off in 5 years so they can feel warm and squishy inside while not maxing out their 401ks...
**Caveat 1: It may be slightly less risky to lump-sum pay off the mortgage as you no longer have that monthly expense. You still lose out mathematically, but the risk becomes negligible as you cannot be foreclosed on (except for taxes...).
**Caveat 2: It may be valid to pay off the mortgage immediately preceding FIRE to reduce sequence of return risk. It doesn't completely eliminate it, but for those who plan on lean-FIRE then it is a valid consideration. It is also a consideration to move to a lower cost of living area and pay cash for housing.
But not for no fucking reason at all - a crucial distinction. Which is why big 'stache, including EF, and a buffer, is exponentially better strategy than prepayment. Oops - i see nereo has this covered.
As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.
Yes, in both situations (margin calls and foreclosure) you owe your collateral.
Yes, I agree 99% with what you say. It has been the path I have used to become fairly close to FI (as defined by 25x bare-bones expenses). The only 1% I don't agree with is that the size of the mortgage and the savings rate shouldn't play that much of a role (outside of ensuring you have sufficient liquidity to cover the mortgage should the shit hit the fan with your income stream). Obviously interest rate on the mortgage is a big factor, and I would recommend using a sliding scale based on accumulated savings and mortgage interest rate to determine whether it might be financially prudent to pay off the mortgage (for example, if someone has no savings, I'd probably recommend investing in taxable over paying off a mortgage up to at least 8% interest rate (if not 10%); as someone gets close to FI, I'd recommend paying off the mortgage at a lower interest rate (perhaps as low as 4%) to improve the odds of securing FI (of course considering market valuations (hat tip to MT))).
I have much more in agreement than disagreement with most on this thread, but we should humbly acknowledge that most of us in some respect have been extremely lucky with stock returns over the last decade. Others might not realize the risk inherent in using leverage to invest, and I fear it may burn them (as it did to me in 2000, which turned me off from the stock market for almost a decade).
I agree with TallTexan'scomments as well: It's not even a close comparison. Buying stocks on margin is not remotely comparable to holding a fixed-rate mortgage. With a margin call you must either liquidate your holdings or provide more capital. I see no similarities when holding a mortgage - you cannot be asked to pay more due to market fluctuations, changes in income, assets, or anything else.
Yes, I agree 99% with what you say. It has been the path I have used to become fairly close to FI (as defined by 25x bare-bones expenses). The only 1% I don't agree with is that the size of the mortgage and the savings rate shouldn't play that much of a role (outside of ensuring you have sufficient liquidity to cover the mortgage should the shit hit the fan with your income stream). Obviously interest rate on the mortgage is a big factor, and I would recommend using a sliding scale based on accumulated savings and mortgage interest rate to determine whether it might be financially prudent to pay off the mortgage (for example, if someone has no savings, I'd probably recommend investing in taxable over paying off a mortgage up to at least 8% interest rate (if not 10%); as someone gets close to FI, I'd recommend paying off the mortgage at a lower interest rate (perhaps as low as 4%) to improve the odds of securing FI (of course considering market valuations (hat tip to MT))).
I have much more in agreement than disagreement with most on this thread, but we should humbly acknowledge that most of us in some respect have been extremely lucky with stock returns over the last decade. Others might not realize the risk inherent in using leverage to invest, and I fear it may burn them (as it did to me in 2000, which turned me off from the stock market for almost a decade).
Understood. The only reason I point out that big mortgages make a bigger difference is because of the compounding nature of the equation.
If you have two mortgages, one for 100k and one for 500k (assuming both persons have a income "equal" to their mortgage, and are not over-consuming), both at 3.5% interest, and both at 30 years fixed- The bigger mortgage will save $3,687,696 vs $641,101 for the smaller mortgage. The compounding effect starts off with bigger dollars, sooner, and makes a bigger difference for the larger mortgages.
Personally, I think we need to stop getting into such expensive housing, BUT, considering those decisions are already made, its about helping people most effectively place their dollars. The difference can be years on a FIRE date.
If I understand correctly, your position is that the risks are so dissimilar as to be not even comparable, whereas I disagree with that assessment and consider the awareness of leverage very important for investors (even if it is low-risk).
And yes, housing is ridiculously expensive, but it is what people seem to be willing to spend money on (for a variety of reasons). To be honest, my house is probably face-punch worthy, but my wife enjoys it so I'm willing to work a few more years.
Well, I`ve definitely joined this club! Thanks @TexasRunner !
That was the whole problem with the "Pay Off The Mortgage Club"... Theyneverrarely ask for specifics to see if paying off the mortgage actually makes sense. And they rarely determine if the house/mortgage was a good financial choice anyway. To me, thats the underlying problem. This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE. Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.
This comment resonates with me.
That was the whole problem with the "Pay Off The Mortgage Club"... Theyneverrarely ask for specifics to see if paying off the mortgage actually makes sense. And they rarely determine if the house/mortgage was a good financial choice anyway. To me, thats the underlying problem. This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE. Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)Knock it off, @Boofinator. You don't get to argue the other side, even sarcastically, on this thread. If the DPYMC folk aren't allowed to inject reason into the POYM thread, you can't spew that crap here. Even if you're only joking, which must be the case.
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap?Like this, right?
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)
Hate on, Boof! The regression to the mean of interest rates is a pretty awesome thing that some hand waving around portfolio allocation isn't going to derail. BTW- and thanks for being my personal spell checker! What's the point of re-reading my messages when someone else will do the work for me ;)
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)Knock it off, @Boofinator. You don't get to argue the other side, even sarcastically, on this thread. If the DPYMC folk aren't allowed to inject reason into the POYM thread, you can't spew that crap here. Even if you're only joking, which must be the case.
I'd wager a vast majority of the posts here are ripping fellow forum members choosing a different path.How much would you like to wager and what is your definition of "vast majority"?
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.I don't think boof has a point... I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.
Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.
Oh, they ride their bikes to transit.
I noticed rates have been dropping. I think the flip house is at 4.75% too. We're not going to re-fi, but the downward drift of rates makes me hopeful that we can sell our house for more than the $1.1M the smaller house next door went for.Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.I don't think boof has a point... I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.
Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.
Oh, they ride their bikes to transit.
On a good note... We bought our house in summer of 2018 when rates were higher but we just locked in a refinance rate of 4.375 down from 4.75. No lender fees on the refi and enough lender credits that it will be a 0 cost refi other than us funding escrow. Hoping the refi goes smoothly!
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.
Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.
Oh, they ride their bikes to transit.
It's a Sixties-era tract home, 3+2, about 1800sf, and yes, they take BART into The City. Our house next door is 4+2.5 and about 2000sf. We're doing okay at sticking to our reno budget despite massive scope creep, and we're hoping to sell for the same price they paid. If the market dictates a higher price than that, we will be thrilled.Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.
Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.
Oh, they ride their bikes to transit.
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.
Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.
Oh, they ride their bikes to transit.
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap?Like this, right?
https://i.imgur.com/vjC7JeI.mp4
If you keep trying to time the market eventually you'll be right. But with all your money tied up in your house equity I don't see how you would really take advantage anyway. Available cashflow? Whoop de doo you can put in an extra thousand or so per month but the market will recover before that amounts to anything significant.
I'd wager a vast majority of the posts here are ripping fellow forum members choosing a different path.How much would you like to wager and what is your definition of "vast majority"?
I don't think boof has a point... I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.
I don't think boof has a point... I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.
Do you understand that the 4% rule that most of us rely on is based on "what if" scenarios? Like, what if the worst happens, will we make it through our retirement?
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.Yep.....
Well, it took us three years but we finally joined this club. We went from putting an additional $800/month on the principal to putting $200/month extra on the principal, and next month we will be down to zero extra. We'll be putting the $200/month into my Roth IRA VTSX admiral shares instead. The $600 got sucked into the additional daycare bill when we added our second child to the mix. But none of it is going to lifestyle inflation.
In case anybody is curious--it's a 30 year, fixed rate 3.75% mortgage. We're at $296k so far. The original mortgage was for $327k. Y'all talked us into seeing the mortgage in a different way.
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.
I've told this story before (maybe in this thread, I can't remember) but it is well worth repeating when the subject of risk comes up. A dear friend is an MD. I wouldn't say she's mustaschian, but she's frugal and hates debt. When she got done with med school, she stayed in her student apartment and crushed her student loans. She bought nice cars, but not fancy cars and mostly saved and invested. I will say that I've observed that most doctors are pretty bad with money, because they seem to think they will always have a gusher of money in the future, so they don't think much about investing and saving, except in investing in things that they think will be home runs. A broad brush, but I think fairly accurate, so she definitely was an outlier among her peers as far as savings and investing. She told me most of her peers still are paying on their student loans, for example.
She meets a great guy who is a civil servant who makes OK money, but will never be a huge earner. They fall in love, get married, have a kid, and buy their dream house together. And by dream house, I mean dream house. It is the coolest house that anyone I've personally known has owned. It isn't particularly big or fancy, but every element of the house just works. If you walked into it, you'd think this house is totally cool. Great school district, close to work and the grandparents. It is absolutely a forever house. It was very expensive, but they bought at the bottom of the market and put down a lot of money (mostly hers).
Her plan is they aggressively kill the mortgage (just like she did with her student loans) before the kid gets to college. Then they'll have income to put the kid through college. And then cut back hours and continue to save and retire on schedule but very comfortably in their dream house.
As it turns out, they are not in love anymore, can't work it out, and don't want to be married. However, the house has appreciated a lot and they live in a community property state, so separating means she would have to cut him an enormous check for his share in the equity in the house. So that means selling the dream house, and in turn that would mean moving farther away from work and the grandparents. So what they decided to do is both stay in the house as divorced parents. Neither of them want to do this, but they can't figure out how to make it work financially otherwise so they put up with a far less an ideal living arrangement. She feels like there is a financial Sword of Damocles hanging over her head. Her retirement plan, while not strictly mustashician, is still better than 95% of the populace, is dead.
If she hadn't been aggressively paying down the mortgage she could simply cut the ex-husband a check and be done. It would be a setback, but everyone would be better off. But because the money is tied up in the house, everyone is worse off. Most likely, neither one of them will wind up living in their forever house, and both will have to move farther from work, the good school district, and the grandparents.
Everyone who advocates paying down the mortgage says something along the lines of "It makes me feel better." And that's worth something, no question. But no one gets married thinking they might get divorced. No one thinks they will be the one who is laid off. No thinks they or a loved one will have an extended illness and can't work and will need expensive medical care. If the money is tied up in the house, it can be really hard, or maybe impossible to deal with those issues. Those are real risks, and they happen to real people. People who advocate paying down the mortgage without including those risks are making a mistake. A bird in the hand is worth two in the bush. And paying down the mortgage is more like one in the bush.
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.
I've told this story before (maybe in this thread, I can't remember) but it is well worth repeating when the subject of risk comes up. A dear friend is an MD. I wouldn't say she's mustaschian, but she's frugal and hates debt. When she got done with med school, she stayed in her student apartment and crushed her student loans. She bought nice cars, but not fancy cars and mostly saved and invested. I will say that I've observed that most doctors are pretty bad with money, because they seem to think they will always have a gusher of money in the future, so they don't think much about investing and saving, except in investing in things that they think will be home runs. A broad brush, but I think fairly accurate, so she definitely was an outlier among her peers as far as savings and investing. She told me most of her peers still are paying on their student loans, for example.
She meets a great guy who is a civil servant who makes OK money, but will never be a huge earner. They fall in love, get married, have a kid, and buy their dream house together. And by dream house, I mean dream house. It is the coolest house that anyone I've personally known has owned. It isn't particularly big or fancy, but every element of the house just works. If you walked into it, you'd think this house is totally cool. Great school district, close to work and the grandparents. It is absolutely a forever house. It was very expensive, but they bought at the bottom of the market and put down a lot of money (mostly hers).
Her plan is they aggressively kill the mortgage (just like she did with her student loans) before the kid gets to college. Then they'll have income to put the kid through college. And then cut back hours and continue to save and retire on schedule but very comfortably in their dream house.
As it turns out, they are not in love anymore, can't work it out, and don't want to be married. However, the house has appreciated a lot and they live in a community property state, so separating means she would have to cut him an enormous check for his share in the equity in the house. So that means selling the dream house, and in turn that would mean moving farther away from work and the grandparents. So what they decided to do is both stay in the house as divorced parents. Neither of them want to do this, but they can't figure out how to make it work financially otherwise so they put up with a far less an ideal living arrangement. She feels like there is a financial Sword of Damocles hanging over her head. Her retirement plan, while not strictly mustashician, is still better than 95% of the populace, is dead.
If she hadn't been aggressively paying down the mortgage she could simply cut the ex-husband a check and be done. It would be a setback, but everyone would be better off. But because the money is tied up in the house, everyone is worse off. Most likely, neither one of them will wind up living in their forever house, and both will have to move farther from work, the good school district, and the grandparents.
Everyone who advocates paying down the mortgage says something along the lines of "It makes me feel better." And that's worth something, no question. But no one gets married thinking they might get divorced. No one thinks they will be the one who is laid off. No thinks they or a loved one will have an extended illness and can't work and will need expensive medical care. If the money is tied up in the house, it can be really hard, or maybe impossible to deal with those issues. Those are real risks, and they happen to real people. People who advocate paying down the mortgage without including those risks are making a mistake. A bird in the hand is worth two in the bush. And paying down the mortgage is more like one in the bush.
This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State. How marriage laws in your State work is important to understand. And if you have a much larger income, REALLY understanding all of that. This story has almost nothing to do with whether it's a good idea to pay off the house or not. If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex. The money isn't "tied up in the house" in any way.
This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State. How marriage laws in your State work is important to understand. And if you have a much larger income, REALLY understanding all of that. This story has almost nothing to do with whether it's a good idea to pay off the house or not. If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex. The money isn't "tied up in the house" in any way.
This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State. How marriage laws in your State work is important to understand. And if you have a much larger income, REALLY understanding all of that. This story has almost nothing to do with whether it's a good idea to pay off the house or not. If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex. The money isn't "tied up in the house" in any way.
So WWYD question for the don't pay off members...
Mortgage 190k. 2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.
Currently paying 1.5k pcm of which 500 is an overpayment.
Income c.5k pcm. Other bills 1.1k. Total monthly out 2.6k. So stache about 2.5k pcm currently.
So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…
WWYD!!
So WWYD question for the don't pay off members...
Mortgage 190k. 2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.
Currently paying 1.5k pcm of which 500 is an overpayment.
Income c.5k pcm. Other bills 1.1k. Total monthly out 2.6k. So stache about 2.5k pcm currently.
So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…
WWYD!!
There is noooo wayy I would accelerate payoff on a loan that is secured at 2.79%. I would keep it as a pet, give it a good name, and try to make it last as long as possible.
Dang that's an insane rate. It's fixed for the entire term and not adjustable right?
I see you are in the UK, but my response is for a mortgage in the US (laws and tax implications vary from country to country)
I would not overpay a mortgage at 2.79%. I'd take the $500 over payment and invest it based on the investment order outlined by MDM.
With ~$60k in annual income the reduction in taxes alone would make funding tax-advantaged accounts far more valuable than the reduction in mortgage interest paid.
So WWYD question for the don't pay off members...
Mortgage 190k. 2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.
Currently paying 1.5k pcm of which 500 is an overpayment.
Income c.5k pcm. Other bills 1.1k. Total monthly out 2.6k. So stache about 2.5k pcm currently.
So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…
WWYD!!
There is noooo wayy I would accelerate payoff on a loan that is secured at 2.79%. I would keep it as a pet, give it a good name, and try to make it last as long as possible.
Dang that's an insane rate. It's fixed for the entire term and not adjustable right?
Its a fixed rate until end 2020. Then we will have to re-apply for another 5 year fix. The product I am on at the moment (5 year fix) is currently being offered at 1.97% so we are actually on quite a high rate.
OK So I have admitted before that my partner is in the DO pay off your mortgage club and I have learn't that the DON'T club is better.Not so sure about the bolded part. Contact your tax professional, as I am not one, because I think there are restrictions that could limit the effectiveness of your intended strategy.
I have been able to slow them down a bit, invested in my own retirement funds over the past 2.5 years, but alas, the mortgage is paid off. (I don't think I have ever said "alas", but that is the best word.)
Our mortgage is actually on a rental property that is self sufficient. Also, it is set up as a HELOC, so it's easy to take money in and out. I have really liked keeping a HELOC on this rental property and using it as a checking account for it. I have kept track of exactly how many extra payments we made. We matched each other dollar for dollar.
It is a relief to have the debt gone, but we BOTH need to catch up on our retirement.
My goal is to take out $20,000 at the start of this year and every year. Split it between the two of us to invest in our retirement funds. That is the amount of "debt" my partner is comfortable with. The rental property should be able to pay that back over the year. Rinse and repeat every year until the "extra payments" are paid off by the property itself. This way the rental property will continue to have some mortgage interest we can write off.
Over the year we will have more savings that we can now focus towards retirement as well.
Any comments?
Is this a really dumb idea?
Is this a great idea to keep debt in perpetuity?
Is it a good compromise considering my partner was set on paying off the mortgage?
OK So I have admitted before that my partner is in the DO pay off your mortgage club and I have learn't that the DON'T club is better.Not so sure about the bolded part. Contact your tax professional, as I am not one, because I think there are restrictions that could limit the effectiveness of your intended strategy.
I have been able to slow them down a bit, invested in my own retirement funds over the past 2.5 years, but alas, the mortgage is paid off. (I don't think I have ever said "alas", but that is the best word.)
Our mortgage is actually on a rental property that is self sufficient. Also, it is set up as a HELOC, so it's easy to take money in and out. I have really liked keeping a HELOC on this rental property and using it as a checking account for it. I have kept track of exactly how many extra payments we made. We matched each other dollar for dollar.
It is a relief to have the debt gone, but we BOTH need to catch up on our retirement.
My goal is to take out $20,000 at the start of this year and every year. Split it between the two of us to invest in our retirement funds. That is the amount of "debt" my partner is comfortable with. The rental property should be able to pay that back over the year. Rinse and repeat every year until the "extra payments" are paid off by the property itself. This way the rental property will continue to have some mortgage interest we can write off.
Over the year we will have more savings that we can now focus towards retirement as well.
Any comments?
Is this a really dumb idea?
Is this a great idea to keep debt in perpetuity?
Is it a good compromise considering my partner was set on paying off the mortgage?
In addition to tax considerations, you may want to pursue refinancing your home (i.e. cash-out refinancing) and compare that to your rates under a HELOC. While the former requires a bit more legwork you can often get more favorable terms.
I'm also confused what you mean by taking out $20k every year and then having the rental property pay that back (in full?) each year, then repeating. If you indeed intend to take out $20k in a HELOC every January and then pay it back by December you won't gain much of an advantage. Instead you could simply use all of the revenue generated by the rental to fund your retirement account. Or am I misunderstanding your strategy?
It's effectively investing the rent checks at the start of the year, then paying back over the course of the year. Not crazy, but a discussion could be had about whether half of your expected annual return was > the interest rate on the HELOC.
There is one argument for doing fewer investments during the year, and that's combining your investment with rebalancing,
It's effectively investing the rent checks at the start of the year, then paying back over the course of the year. Not crazy, but a discussion could be had about whether half of your expected annual return was > the interest rate on the HELOC.
I guess we could brag:Investments > Mortgage is great. I reached that around January of last year. My next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).
I invested $x,xxx last month instead of paying off my mortgage.
We all make choices.
Or when you reach the milestone
Investments > mortgage
It could be more fun than saying: my mortgage just dropped below $100K.
Can anyone with a substantial mortgage say:
Investments = 10xMortgage
Can anyone else think of bragging milestones for this club?
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.(https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcStQueAedo-VsCNP50IP_Ng2jgKP7iSc6mkKn34MxDbzvoVX6hMEA)
thats all.
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.(https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcStQueAedo-VsCNP50IP_Ng2jgKP7iSc6mkKn34MxDbzvoVX6hMEA)
thats all.
I guess we could brag:Investments > Mortgage is great. I reached that around January of last year. My next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).
I invested $x,xxx last month instead of paying off my mortgage.
We all make choices.
Or when you reach the milestone
Investments > mortgage
It could be more fun than saying: my mortgage just dropped below $100K.
Can anyone with a substantial mortgage say:
Investments = 10xMortgage
Can anyone else think of bragging milestones for this club?
Ha, I thought of your thread and was going to mention it here, because I think it's a great idea. Here's the link if you haven't seen it:I guess we could brag:Investments > Mortgage is great. I reached that around January of last year. My next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).
I invested $x,xxx last month instead of paying off my mortgage.
We all make choices.
Or when you reach the milestone
Investments > mortgage
It could be more fun than saying: my mortgage just dropped below $100K.
Can anyone with a substantial mortgage say:
Investments = 10xMortgage
Can anyone else think of bragging milestones for this club?
The Taxable Investments > Mortgage (actually debt) milestone is what people are tracking in the "Defeat the Net Debt" thread.
I find the "Defeat the Net Debt" thread boring with the various progress posts. I would love to regularly see post that celebrate investment milestones - even better if they include a comparison between result of investing and what mortgage balance would have been if the investments had been extra mortgage payments instead. Titles like "I saved $xxK by not paying off my mortgage" could show up in "Share Your Badassity" regularly.Ha, I thought of your thread and was going to mention it here, because I think it's a great idea. Here's the link if you haven't seen it:Investments > Mortgage is great. I reached that around January of last year. My next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).
The Taxable Investments > Mortgage (actually debt) milestone is what people are tracking in the "Defeat the Net Debt" thread.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/msg2293424/#new
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.(https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcStQueAedo-VsCNP50IP_Ng2jgKP7iSc6mkKn34MxDbzvoVX6hMEA)
thats all.
woohoo. I'm a winner baby!
I guess we could brag:
I invested $x,xxx last month instead of paying off my mortgage.
We all make choices.
Or when you reach the milestone
Investments > mortgage
It could be more fun than saying: my mortgage just dropped below $100K.
Can anyone with a substantial mortgage say:
Investments = 10xMortgage
Can anyone else think of bragging milestones for this club?
I'm in an interesting situation. Looking to refinance but property values have taken a dive in my area. So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.
Current rate is 4.75% and our rate lock is at 3.875%. According to the loan estimate, our pmi would drop as well. Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.
This seems like a no brainer to me but I wanted to get this groups opinion. Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)
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I'm in an interesting situation. Looking to refinance but property values have taken a dive in my area. So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.
Current rate is 4.75% and our rate lock is at 3.875%. According to the loan estimate, our pmi would drop as well. Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.
This seems like a no brainer to me but I wanted to get this groups opinion. Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)
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I want to look at these numbers again when I'm not suffering through yet another bout of insomnia, but my first thought is if you've considered challenging the appraised value. What comp properties did they use? Oh, and how much is your PMI?I'm in an interesting situation. Looking to refinance but property values have taken a dive in my area. So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.
Current rate is 4.75% and our rate lock is at 3.875%. According to the loan estimate, our pmi would drop as well. Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.
This seems like a no brainer to me but I wanted to get this groups opinion. Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)
Sent from my moto g(6) using Tapatalk
Purchased with 5% down at the peak of the market in the Seattle area in 2018. Sales at the time of purchase comped the house at 640-670k. We purchased the home for 640k.
Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further. Throwing the 50k at it would bring the principal balance down to 560k. The 50k would cover approx 43k of paydown and 7k in closing.
Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts. Gross yearly income is around 200k. No plans to leave anytime soon.
It's a shitty situation for sure... But hey... It's what we got lol.
Pay $50,000 in order to save $6,600/year in interest?
It's basically a VTSAX return with zero risk. I say go for it.
I'm pretty confident that the math is correct. We may try for a better appraisal but I am not confident it would change much with the recent home sales.Pay $50,000 in order to save $6,600/year in interest?
It's basically a VTSAX return with zero risk. I say go for it.
Assuming the math is right and you can't get a better appraisal, I agree.
Another month of minimum payments. About three years left on the car (1.69%) and twelve years left on the house (3.125%). Taxable brokerage account is at 116% of the mortgage balance.Doesn't that feel amazing? People talk about how good it will feel when they "kill" their mortgage. If only they could somehow know how much better it feels to be in your position. The most shockingly unexpected thing it gave me was a pure, unbridled sense of power. And oh, the possibilities...endless!
Another month of minimum payments. About three years left on the car (1.69%) and twelve years left on the house (3.125%). Taxable brokerage account is at 116% of the mortgage balance.Doesn't that feel amazing? People talk about how good it will feel when they "kill" their mortgage. If only they could somehow know how much better it feels to be in your position. The most shockingly unexpected thing it gave me was a pure, unbridled sense of power. And oh, the possibilities...endless!
3.125%? Wow!
I know little about luxury sports cars, so I decided to google reviews of the Acura NSX to see what it was all about. This one popped up from the late Warren Brown (car reviewer for WaPo)
Yep. It's crazy to think I could just go out and buy a brand new Acura NSX with cash and leave our retirement accounts untouched. Unfortunately I am a [mostly] sensible person...
"I was seeking solitary pleasure, the movement of bodies -- the car's and mine -- over distance and time at speed. But the NSX-T was too pretty. It called meddlesome attention to itself wherever it went, which meant it spent more time parked and guarded than on the highway. That left me with feelings I hadn't felt since Marguerite Poitier in the eighth grade. I took her to a party at Holy Redeemer School in New Orleans or, rather, she took me. Marguerite was so spectacularly beautiful, she attracted boys like ants to wet sugar on a summer sidewalk. I danced with her once and spent the remainder of the party wishing I had come with someone else.
...
Complaints: The NSX is too precious for its own good unless you're shopping for a museum piece instead of a car.
Praise: A Ferrari with manners; a Lamborghini with class. I love the car but can't live with it."
I know little about luxury sports cars, so I decided to google reviews of the Acura NSX to see what it was all about. This one popped up from the late Warren Brown (car reviewer for WaPo)
Yep. It's crazy to think I could just go out and buy a brand new Acura NSX with cash and leave our retirement accounts untouched. Unfortunately I am a [mostly] sensible person...Quote"I was seeking solitary pleasure, the movement of bodies -- the car's and mine -- over distance and time at speed. But the NSX-T was too pretty. It called meddlesome attention to itself wherever it went, which meant it spent more time parked and guarded than on the highway. That left me with feelings I hadn't felt since Marguerite Poitier in the eighth grade. I took her to a party at Holy Redeemer School in New Orleans or, rather, she took me. Marguerite was so spectacularly beautiful, she attracted boys like ants to wet sugar on a summer sidewalk. I danced with her once and spent the remainder of the party wishing I had come with someone else.
...
Complaints: The NSX is too precious for its own good unless you're shopping for a museum piece instead of a car.
Praise: A Ferrari with manners; a Lamborghini with class. I love the car but can't live with it."
ok! like I said, I know nothing about luxury sports cars. They do look pretty - I just don't like being the center of attention while driving. Or ever. I'm sure they are fun as hell though.
Not only are we not paying off our mortgage, we are buying a second place and not paying that off either! Lol
We currently own a small townhouse, which we will be renting out and buying an even smaller apartment to move into.
The townhouse is nearly fully mortgaged, but once it has a chunk of equity, we will likely refinance again to max the tax deduction from the interest.
That said, due to years of student debt repayment, it will be several years before we are able to max out our tax-advantaged account space because we've got a few hundred thousand in space to catch up on, so contemplating taxable vs mortgage pay off just isn't relevant any time soon.
Once we're at a point to contemplate taxable, we'll be at Lean-FIRE already and will drop down to coast-Fat-FIRE, so it may never be relevant.
Annually, our new mortgage is only 3.5% of our gross income, so it's pretty insignificant either way.
Not only are we not paying off our mortgage, we are buying a second place and not paying that off either! Lol
We currently own a small townhouse, which we will be renting out and buying an even smaller apartment to move into.
The townhouse is nearly fully mortgaged, but once it has a chunk of equity, we will likely refinance again to max the tax deduction from the interest.
That said, due to years of student debt repayment, it will be several years before we are able to max out our tax-advantaged account space because we've got a few hundred thousand in space to catch up on, so contemplating taxable vs mortgage pay off just isn't relevant any time soon.
Once we're at a point to contemplate taxable, we'll be at Lean-FIRE already and will drop down to coast-Fat-FIRE, so it may never be relevant.
Annually, our new mortgage is only 3.5% of our gross income, so it's pretty insignificant either way.
And depending where you are in catching up in your RRSP contributions and plan to sell one of the properties you can move that money into that space basically tax free. Obviously if you hold the properties long term you'll have your RRSPs maxed out by then.
Oh and hi! I haven't been active enough around here but have missed you at the other place.
@FIreDrill Are you refinancing into a 15 year? Otherwise 3.875% is a great rate for a 30 right now!! I'm currently at your same 4.75.Right now my rate lock is for a 30 year which is the best I've seen for a while. I'm just hoping everything goes smoothly on the refi. :)
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
My wife and I are contemplating a move within our city. Can I just say it is frustrating as hell to realize that we have $100,000 that is basically trapped in our current house? Thanks to saving, there is other money available; the thought of simultaneously moving money and stuff as part of the largest transaction of our lives sure makes me glad I am in this DNPYM club.I feel your pain/frustration.
We have several rentals in a 55+ community. One of our tenants owned their home outright, but needed cash to live on. They had to sell their house, then rent the same floor plan from us. I never, ever want to find myself in their position.My wife and I are contemplating a move within our city. Can I just say it is frustrating as hell to realize that we have $100,000 that is basically trapped in our current house? Thanks to saving, there is other money available; the thought of simultaneously moving money and stuff as part of the largest transaction of our lives sure makes me glad I am in this DNPYM club.I feel your pain/frustration.
We're currently moving while our previous home is on the market. Like you we have a similar amount tied up in its equity. I don't really want to sell investments to have 20% to put down on a new home, and I look forward to the day when we can take most of that equity from home#1 and plow it back into the market.
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I'm paying an extra ~$143 so the principal goes down $1000 a month. It's silly but it works for me. No stones cast from me!
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest. Will drop it to $1,400 in a few years.I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I'm paying an extra ~$143 so the principal goes down $1000 a month. It's silly but it works for me. No stones cast from me!
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest. Will drop it to $1,400 in a few years.I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I'm paying an extra ~$143 so the principal goes down $1000 a month. It's silly but it works for me. No stones cast from me!
@SwordGuy, you're killing it! You get a free pass and a shiny gold star from me! Maybe you could share how amazing it felt when your 'stache exceeded your mortgage balance.$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest. Will drop it to $1,400 in a few years.I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I'm paying an extra ~$143 so the principal goes down $1000 a month. It's silly but it works for me. No stones cast from me!
Yep, it is sub-optimal for retirement savings.
With non-stock passive income making up $72,000 of our projected $75,000 annual spend, that means I've got a 0.27% withdrawal rate from our portfolio in a normal year. Sometime in the next year or two I'll pick up another rental property and take our withdrawal rate down to 0%.
So, since I'm retired already, I'm more interested in optimizing that $143 for happiness and not for investment earnings. :)
@SwordGuy, you're killing it! You get a free pass and a shiny gold star from me! Maybe you could share how amazing it felt when your 'stache exceeded your mortgage balance.$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest. Will drop it to $1,400 in a few years.I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I'm paying an extra ~$143 so the principal goes down $1000 a month. It's silly but it works for me. No stones cast from me!
Yep, it is sub-optimal for retirement savings.
With non-stock passive income making up $72,000 of our projected $75,000 annual spend, that means I've got a 0.27% withdrawal rate from our portfolio in a normal year. Sometime in the next year or two I'll pick up another rental property and take our withdrawal rate down to 0%.
So, since I'm retired already, I'm more interested in optimizing that $143 for happiness and not for investment earnings. :)
15 year or 30 year? High income family. $650K house. We plan to be there 5-10 years before going condo/FIRE. Real estate wasn't a great investment between 2005-2018 for us either (essentially sold for what we paid), other than for the tax deductions. We have a "cheap" paid off FIRE house in a LCOL, as well as a "cheap" paid off 55+ retirement condo in a HCOL area once a parent kicks the bucket (so hopefully not for at least another 15-20 years).
With the $24K MFJ amount, I'm leaning towards a 30 year and the interest being tax deductible since we'd have over $24K of interest/state property/income tax deductions. All our charity deductions would "count" again - and I'd be more incented to give to charities.
$4K payment on a 15 year at 3.625%, $2.8K payment on a 30 year at 4.2%. I'm pretty sure you will all say take the 30 year $ and the mental breathing room that payment gives us. :-) It's still cheaper than renting a high-end apartment.
@TexasRunner , I agree, there's a time and a place for many different strategies. And for most people in the accumulation stage, with a low fixed rate mortgage, paying extra is not the best financial choice.@SwordGuy, you're killing it! You get a free pass and a shiny gold star from me! Maybe you could share how amazing it felt when your 'stache exceeded your mortgage balance.$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest. Will drop it to $1,400 in a few years.I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I'm paying an extra ~$143 so the principal goes down $1000 a month. It's silly but it works for me. No stones cast from me!
Yep, it is sub-optimal for retirement savings.
With non-stock passive income making up $72,000 of our projected $75,000 annual spend, that means I've got a 0.27% withdrawal rate from our portfolio in a normal year. Sometime in the next year or two I'll pick up another rental property and take our withdrawal rate down to 0%.
So, since I'm retired already, I'm more interested in optimizing that $143 for happiness and not for investment earnings. :)
@SwordGuy, If anybody gets a pass its you...! :)
The real point of this thread is paying a fixed-rate mortgage early in your earnings timeline, especially before tax-differed accounts, is the biggest deal. I myself have encouraged (some) to pay off their mortgage in the months reaching FIRE. It makes sense in some circumstances. However, when your 28 and making bank is not the time to skip 401k to knock out the mortgage. ;)
Overall, well done!
15 year or 30 year? High income family. $650K house. We plan to be there 5-10 years before going condo/FIRE. Real estate wasn't a great investment between 2005-2018 for us either (essentially sold for what we paid), other than for the tax deductions. We have a "cheap" paid off FIRE house in a LCOL, as well as a "cheap" paid off 55+ retirement condo in a HCOL area once a parent kicks the bucket (so hopefully not for at least another 15-20 years).
With the $24K MFJ amount, I'm leaning towards a 30 year and the interest being tax deductible since we'd have over $24K of interest/state property/income tax deductions. All our charity deductions would "count" again - and I'd be more incented to give to charities.
$4K payment on a 15 year at 3.625%, $2.8K payment on a 30 year at 4.2%. I'm pretty sure you will all say take the 30 year $ and the mental breathing room that payment gives us. :-) It's still cheaper than renting a high-end apartment.
More than the mortgage interest deduction, I suspect that additional $1.8k/month in cashflow from going with a 30y could be utilized toward reducing your taxable burden. That assumes such options are available to you (for example: 401(k) and/or HSA contributions). If you have access to those, and you are not already maxing them out, it's a very easy decision - take the 30y.
15 year or 30 year? High income family. $650K house. We plan to be there 5-10 years before going condo/FIRE. Real estate wasn't a great investment between 2005-2018 for us either (essentially sold for what we paid), other than for the tax deductions. We have a "cheap" paid off FIRE house in a LCOL, as well as a "cheap" paid off 55+ retirement condo in a HCOL area once a parent kicks the bucket (so hopefully not for at least another 15-20 years).
With the $24K MFJ amount, I'm leaning towards a 30 year and the interest being tax deductible since we'd have over $24K of interest/state property/income tax deductions. All our charity deductions would "count" again - and I'd be more incented to give to charities.
$4K payment on a 15 year at 3.625%, $2.8K payment on a 30 year at 4.2%. I'm pretty sure you will all say take the 30 year $ and the mental breathing room that payment gives us. :-) It's still cheaper than renting a high-end apartment.
More than the mortgage interest deduction, I suspect that additional $1.8k/month in cashflow from going with a 30y could be utilized toward reducing your taxable burden. That assumes such options are available to you (for example: 401(k) and/or HSA contributions). If you have access to those, and you are not already maxing them out, it's a very easy decision - take the 30y.
Those are already maxed out, but I think the cash flow wiggle will feel much better to my inner bag lady. I just need to work on DH to "invest" the difference of the 15 year vs spend the cash flow. There's one person on team couponvan that is a saver, and one that is a spender. Pay yourself first is the only way it has worked for us in the accumulation phase of FI. If he sees it, he spends it....he acknowledges that too BTW. I think I will propose that we can take the extra and put it in 529 plans for the state income tax deduction.
About to jump into a mortgage and it's killing me. I HATE seeing that money disappear from my accounts and vanish into (an albiet glorious) pile of wood and concrete.
Our taxable accounts have more than enough to buy the house in cash, but I'll keep it earning instead of locking it up in a thing. Still.. debt. It's a visceral fear. I figure in a few months I'll get over it, but it's going to be rough for a bit.
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest. Will drop it to $1,400 in a few years.I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I'm paying an extra ~$143 so the principal goes down $1000 a month. It's silly but it works for me. No stones cast from me!
Couponvan-
have you asked for a quote on a 5/1 ARM? If you can get a lower rate there than for the 30-year fixed (the spreads between these two often fluctuate), you might save money.
If you're concerned about the interest rate risk, you can get the 5/1 ARM, but pay what the 15-year fixed payments would have been so that you have a lower balance by the time the reset gets here.
It sounds like your plans involve only staying in this house for a few years, which is why I'm suggesting this.
Do you plan on renting it out after you move or is this strictly short term housing? If it short term housing I would suggest doing a rent/buy comparison. Depending on the spread renting may be a better option for you over the next 5 years.Couponvan-
have you asked for a quote on a 5/1 ARM? If you can get a lower rate there than for the 30-year fixed (the spreads between these two often fluctuate), you might save money.
If you're concerned about the interest rate risk, you can get the 5/1 ARM, but pay what the 15-year fixed payments would have been so that you have a lower balance by the time the reset gets here.
It sounds like your plans involve only staying in this house for a few years, which is why I'm suggesting this.
That's a definite possibility, but DH would not go for variable rates....even if we only plan on staying a few years.
Ok y'all convinced me. I have been paying an extra $50/month on my 4.5% fixed 30y since we signed the thing in 2015. It felt like a responsible move at the time. I will cancel that extra payment, and move that money into my 401(k) since I have not been maxing that out (just doing enough for the full ER contribution). The nice thing is I can boost my 401(k) by about $57/m since it's now pre-tax -- and it will feel the same. One small step!Woot!
About to jump into a mortgage and it's killing me. I HATE seeing that money disappear from my accounts and vanish into (an albiet glorious) pile of wood and concrete.
Our taxable accounts have more than enough to buy the house in cash, but I'll keep it earning instead of locking it up in a thing. Still.. debt. It's a visceral fear. I figure in a few months I'll get over it, but it's going to be rough for a bit.
The market is hot right now and seemingly past due for a hit. Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage? Then start dollar cost averaging back in to the market?
The market is hot right now and seemingly past due for a hit. Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage? Then start dollar cost averaging back in to the market?
I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.
If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge. What you are proposing is market timing followed by DCAing back into it. Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead.
For example, suppose you are paying $2k/month on a mortgage with $125k left. If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage. You might even get really, really, really lucky and sell right before a big drop. But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.
Time in the market is much more important than timing the market.
Good for you! You're doing it in the right order. Congratulations, @Formerly known as something.$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest. Will drop it to $1,400 in a few years.I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.
I'm paying an extra ~$143 so the principal goes down $1000 a month. It's silly but it works for me. No stones cast from me!
Dicey, in my case I am. I fully fund my TSP, a ROTH (conversion), my HSA and put a significant amount into a taxable account. I go back and forth on the extra $100 but it is less then I spend on my cats a month so it is a rounding error to me honestly.
The market is hot right now and seemingly past due for a hit. Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage? Then start dollar cost averaging back in to the market?
I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.
If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge. What you are proposing is market timing followed by DCAing back into it. Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead.
For example, suppose you are paying $2k/month on a mortgage with $125k left. If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage. You might even get really, really, really lucky and sell right before a big drop. But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.
Time in the market is much more important than timing the market.
The market is hot right now and seemingly past due for a hit.
Which market? Real Estate and the Stock Market don't necessarily move in tandem.The market is hot right now and seemingly past due for a hit.
Were you not paying attention? The market already took the hit back in December. It still hasn't even recovered to the peak from over a year ago (Jan 2018) and you're calling the market hot right now?
I believe they are referring to the total us stock market, or VTSAX.Which market? Real Estate and the Stock Market don't necessarily move in tandem.The market is hot right now and seemingly past due for a hit.
Were you not paying attention? The market already took the hit back in December. It still hasn't even recovered to the peak from over a year ago (Jan 2018) and you're calling the market hot right now?
The market is hot right now and seemingly past due for a hit. Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage? Then start dollar cost averaging back in to the market?
I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.
If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge. What you are proposing is market timing followed by DCAing back into it. Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead.
For example, suppose you are paying $2k/month on a mortgage with $125k left. If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage. You might even get really, really, really lucky and sell right before a big drop. But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.
Time in the market is much more important than timing the market.
The market is hot right now and seemingly past due for a hit. Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage? Then start dollar cost averaging back in to the market?
I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.
If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge. What you are proposing is market timing followed by DCAing back into it. Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead.
For example, suppose you are paying $2k/month on a mortgage with $125k left. If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage. You might even get really, really, really lucky and sell right before a big drop. But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.
Time in the market is much more important than timing the market.
A-fucken-men to that.
Plus, the less cash you have in your house, the easier it is to weather the economic crashes, possible job losses, provides more capital to jump on the many opportunities that crop up in crashes, etc, etc.
In a major crash, it's not like everything always just stays exactly the same and life chugs on like normal until recovery. The whole world gets all whacky and things can shift significantly in individual industries and regions. In a major crash, you want to be as flexible as possible in order to come out with the best outcome.
In fact, if everything did just stay the same and chug along until recovery, then leaving everything as-is is by far the best option.
Either way, if market timing was predictable, then we would have thousands of threads about all of the various approaches to market timing with countless of the local mathy-types posting endlessly about different statistical models, etc, etc.
Correct. EngagedToFIRE was talking about the stock market being overpriced as justification for selling equities to pay down the mortgage. So I pointed out the recent 20% correction in the SP500 as a counterpoint.I believe they are referring to the total us stock market, or VTSAX.Which market? Real Estate and the Stock Market don't necessarily move in tandem.The market is hot right now and seemingly past due for a hit.
Were you not paying attention? The market already took the hit back in December. It still hasn't even recovered to the peak from over a year ago (Jan 2018) and you're calling the market hot right now?
Couldn't you argue that not having a mortgage and substantially lower monthly bills also helps weather economic crashes? I'm not opposed to mortgages. I see the value in the uber low interest rates currently offered. I have a mortgage on one of my houses that I plan to keep. I'm just questioning a lump sum option. And I think it's more of a DCA question. Could you be better off in a bull market paying off the house then DCA back in?It's only better if you actually completely pay off your house and don't lose your job. If you have only partly paid off your house your mortgage payments don't get smaller. And if you lose your job you'll have no cushion to pay your bills. Having liquid assets is much more flexible.
Couldn't you argue that not having a mortgage and substantially lower monthly bills also helps weather economic crashes? I'm not opposed to mortgages. I see the value in the uber low interest rates currently offered. I have a mortgage on one of my houses that I plan to keep. I'm just questioning a lump sum option. And I think it's more of a DCA question. Could you be better off in a bull market paying off the house then DCA back in?
The market is hot right now and seemingly past due for a hit. Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage? Then start dollar cost averaging back in to the market?
I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.
If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge. What you are proposing is market timing followed by DCAing back into it. Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead.
For example, suppose you are paying $2k/month on a mortgage with $125k left. If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage. You might even get really, really, really lucky and sell right before a big drop. But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.
Time in the market is much more important than timing the market.
A-fucken-men to that.
Plus, the less cash you have in your house, the easier it is to weather the economic crashes, possible job losses, provides more capital to jump on the many opportunities that crop up in crashes, etc, etc.
In a major crash, it's not like everything always just stays exactly the same and life chugs on like normal until recovery. The whole world gets all whacky and things can shift significantly in individual industries and regions. In a major crash, you want to be as flexible as possible in order to come out with the best outcome.
In fact, if everything did just stay the same and chug along until recovery, then leaving everything as-is is by far the best option.
Either way, if market timing was predictable, then we would have thousands of threads about all of the various approaches to market timing with countless of the local mathy-types posting endlessly about different statistical models, etc, etc.
Couldn't you argue that not having a mortgage and substantially lower monthly bills also helps weather economic crashes? I'm not opposed to mortgages. I see the value in the uber low interest rates currently offered. I have a mortgage on one of my houses that I plan to keep. I'm just questioning a lump sum option. And I think it's more of a DCA question. Could you be better off in a bull market paying off the house then DCA back in?
What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.
Intersting. Are you certain this is the case?What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.
Just want to point out that downturns occur more frequently and with higher magnitude in the stock market than in real estate (so if a downturn did occur, you'd presumably be selling your investments at a huge loss). That's why sequence of returns risk usually favors paying off a mortgage at early retirement rather than keeping the mortgage and increasing your stash.
That being said, if you don't have any liquid holdings, you should avoid paying any extra on the mortgage for a number of reasons (as noted by Malkynn and many others).
I think fluctuation is perhaps the better term. The stock market fluctuates much more than Real Estate. RE cycles tend to take years. Even in your example, there was little fluctuation, just continuous downward spiral. I agree that one shouldn't bank on RE going up continuously, but it's far less volatile than the Stock Market. It's not a diversified asset, but if you're planted in an economically strong area, and the numbers make sense, why not?Intersting. Are you certain this is the case?What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.
Just want to point out that downturns occur more frequently and with higher magnitude in the stock market than in real estate (so if a downturn did occur, you'd presumably be selling your investments at a huge loss). That's why sequence of returns risk usually favors paying off a mortgage at early retirement rather than keeping the mortgage and increasing your stash.
That being said, if you don't have any liquid holdings, you should avoid paying any extra on the mortgage for a number of reasons (as noted by Malkynn and many others).
From what I see, your personal residence is an un-diversified asset. You cannot change where it is. I've also seen housing markets which have crashed and stayed depressed for generations - something that the broad market has not done. Smaller towns are infamous for this but it happens in large cities as well (example: Detroit), and with considerable frequency.
Regardless, the value of my home only matters to me when I intend to sell or refinance. So there is that.
Intersting. Are you certain this is the case?What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.
Just want to point out that downturns occur more frequently and with higher magnitude in the stock market than in real estate (so if a downturn did occur, you'd presumably be selling your investments at a huge loss). That's why sequence of returns risk usually favors paying off a mortgage at early retirement rather than keeping the mortgage and increasing your stash.
That being said, if you don't have any liquid holdings, you should avoid paying any extra on the mortgage for a number of reasons (as noted by Malkynn and many others).
From what I see, your personal residence is an un-diversified asset. You cannot change where it is. I've also seen housing markets which have crashed and stayed depressed for generations - something that the broad market has not done. Smaller towns are infamous for this but it happens in large cities as well (example: Detroit), and with considerable frequency.
Regardless, the value of my home only matters to me when I intend to sell or refinance. So there is that.
I think this does come down to a market timing question. If the markets are sky high and clearly on a bull run, taking in past volatility, is it a terrible idea to liquidate some of the gains, pay off the house IN FULL if able, and DCA back in to the market assuming, based on historical performance, that the market could very well have a large correction?
There are several misconceptions in your post, including one I see almost every day here. Namely, because the market is now highly valued, there must be a big crash around the corner.
...
There are several misconceptions in your post, including one I see almost every day here. Namely, because the market is now highly valued, there must be a big crash around the corner.
...
I'm just gonna point out that we had a 3.4% gain in less than a week... If you weren't in the market then you missed out on that.
Even if its overvalued but it goes up 35% more before the next 30% correction, then there is no "I told you so moment", you will have lost out anyways not even counting dividends...
Its strange to me how many pay-off-the-mortgage types are also willing to try (and fail) timing the market... :/
There are several misconceptions in your post, including one I see almost every day here. Namely, because the market is now highly valued, there must be a big crash around the corner.
...
I'm just gonna point out that we had a 3.4% gain in less than a week... If you weren't in the market then you missed out on that.
Even if its overvalued but it goes up 35% more before the next 30% correction, then there is no "I told you so moment", you will have lost out anyways not even counting dividends...
Its strange to me how many pay-off-the-mortgage types are also willing to try (and fail) timing the market... :/
I would like to point out that Dollar Cost Averaging is all about not timing the market. Everything I've read suggests dollar cost averaging is the way to go. Telecaster, you made a comment that DCA is almost always a bad strategy. We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?
I'm not a "pay off the mortgage" type, per se. I think finance is too dynamic for such rules. As I said, I do still hold a mortgage on a second property. It's not my plan to pay it off. My dilemma was that I had a ton of cash. I know, dilemma! I had 3 options, assuming my goal is to invest it. Invest it all at once in the market. Hold the cash and DCA slowly, thus having lots of cash on hand losing value or in bonds/low risk investments that are substantially less than my mortgage interest. Or third, pay off the house, then use the old mortgage payment to DCA in to the market.
All of my reading suggests DCA is a good idea. Some here are challenging that idea and it's intriguing as I thought DCA was a well accepted good practice. In my case, it seemed paying off the mortgage then making large monthly investments in to an index fund makes sense.
Whether the so called experts are right or wrong about us due a major crash, that's left to be seen. I think their commentary and reasoning is convincing. We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective. My comment ultimately is pretty simple. Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market? Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding. I like that and the insight is great.
I'll bookmark this page of the thread, it would be interesting to see how this ages.
I'm just gonna point out that we had a 3.4% gain in less than a week... If you weren't in the market then you missed out on that.
I'm just gonna point out that we had a 3.4% gain in less than a week... If you weren't in the market then you missed out on that.
I'm just going to point out that pointing out weekly blips in the stock market is not a way I would recommend to think about investing. (It's like pointing out minor weather fluctuations when discussing climate.)
I'm just gonna point out that we had a 3.4% gain in less than a week... If you weren't in the market then you missed out on that.
I'm just going to point out that pointing out weekly blips in the stock market is not a way I would recommend to think about investing. (It's like pointing out minor weather fluctuations when discussing climate.)
Except very short periods of time can have huge impacts on returns. The "Time in the market" argument is primarily focused on not missing out on the best days, as well as collecting dividends and riding the upward trend.
https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/ (https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/)
I would like to point out that Dollar Cost Averaging is all about not timing the market. Everything I've read suggests dollar cost averaging is the way to go. Telecaster, you made a comment that DCA is almost always a bad strategy. We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?
Whether the so called experts are right or wrong about us due a major crash, that's left to be seen. I think their commentary and reasoning is convincing. We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective. My comment ultimately is pretty simple. Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market? Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding. I like that and the insight is great.
There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term. If your remaining term is short, then maybe paying it off isn't a terrible idea. Otherwise it really doesn't make sense. Remember that 4% mortgage payment is hit by inflation every year. Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.
There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term. If your remaining term is short, then maybe paying it off isn't a terrible idea. Otherwise it really doesn't make sense. Remember that 4% mortgage payment is hit by inflation every year. Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.
Along this line of thinking, I just took advantage of CIT Banks savings account at 2.45% (with 25k+ in the account or at least a $100 deposit each month). Stacked with the average inflation rate of 2.0% across the last three years I'm getting 4.45% FDIC insured.... And MUCH more liquid in an emergency then equity in the house.
In other words, a low rate fixed mortgage is a terrible investment vehicle for mustachians (but good for non-savers as it forces some version of savings).
I would like to point out that Dollar Cost Averaging is all about not timing the market. Everything I've read suggests dollar cost averaging is the way to go. Telecaster, you made a comment that DCA is almost always a bad strategy. We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?
Sure, here's a paper from Vanguard:
https://personal.vanguard.com/pdf/ISGDCA.pdf
Here's the basic logic: The market goes up 2/3 and down 1/3 of the time. So if you DCA in a lump sum, you lose 2/3 of the time. And even if you DCA, eventually you will fully invested in the market anyway, right? You only avoid volatility for the DCA period and then only for the part of your investment that isn't invested.
Stocks of course are long term investments. So if you look at your portfolio 30 years from now, do you think it would matter to the final value if you were fully invested in 2019 or on DCA'ed into 2020?QuoteWhether the so called experts are right or wrong about us due a major crash, that's left to be seen. I think their commentary and reasoning is convincing. We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective. My comment ultimately is pretty simple. Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market? Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding. I like that and the insight is great.
There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term. If your remaining term is short, then maybe paying it off isn't a terrible idea. Otherwise it really doesn't make sense. Remember that 4% mortgage payment is hit by inflation every year. Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.
I would like to point out that Dollar Cost Averaging is all about not timing the market. Everything I've read suggests dollar cost averaging is the way to go. Telecaster, you made a comment that DCA is almost always a bad strategy. We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?
Sure, here's a paper from Vanguard:
https://personal.vanguard.com/pdf/ISGDCA.pdf
Here's the basic logic: The market goes up 2/3 and down 1/3 of the time. So if you DCA in a lump sum, you lose 2/3 of the time. And even if you DCA, eventually you will fully invested in the market anyway, right? You only avoid volatility for the DCA period and then only for the part of your investment that isn't invested.
Stocks of course are long term investments. So if you look at your portfolio 30 years from now, do you think it would matter to the final value if you were fully invested in 2019 or on DCA'ed into 2020?QuoteWhether the so called experts are right or wrong about us due a major crash, that's left to be seen. I think their commentary and reasoning is convincing. We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective. My comment ultimately is pretty simple. Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market? Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding. I like that and the insight is great.
There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term. If your remaining term is short, then maybe paying it off isn't a terrible idea. Otherwise it really doesn't make sense. Remember that 4% mortgage payment is hit by inflation every year. Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.
If the market outlook is about the same as my mortgage, then it seems I was probably reasonable in my approach of getting rid of the 4.5% mortgage. I'll continue investing every month, often several times per month. Maybe we'll get a big drop and cheaper prices, who knows. Time shall tell.
"Time shall tell", indeed. However, if I may get philosophical for a moment, hindsight confirmation is perhaps not the best way to view a decision-making process. You can make an optimal decision and come out behind most of the time. (Insurance is a good example of this.)
Imagine a hypothetical credit card with an APY of 10% and interest-only payments.'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?
Imagine a hypothetical credit card with an APY of 10% and interest-only payments.'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?
That 10% APR is being reduced by about 2% a year, so 8% real. So, if you know of an investment that will return greater than 8% after inflation, then you should put money to that investment instead of paying off your credit card.
I'm baffled why this is such a difficult concept for some.
If the market outlook is about the same as my mortgage, then it seems I was probably reasonable in my approach of getting rid of the 4.5% mortgage. I'll continue investing every month, often several times per month. Maybe we'll get a big drop and cheaper prices, who knows. Time shall tell.
I'd say it would be a reasonable approach, depending on your financial situation. If you consider market outlook and are close to FI, I think you've probably made the optimal investment; if you don't consider market outlook (and there is a very good case that can be made for this approach) and are close to FI, I think you've probably made a wise decision (one that does not result in the highest expected return, but it does provide a hedge against sequence of returns risk); and if you aren't close to FI, I would not recommend putting money into a mortgage at that rate, as you have a long time horizon and should be eager to take risk.
"Time shall tell", indeed. However, if I may get philosophical for a moment, hindsight confirmation is perhaps not the best way to view a decision-making process. You can make an optimal decision and come out behind most of the time. (Insurance is a good example of this.)
If the market outlook is about the same as my mortgage, then it seems I was probably reasonable in my approach of getting rid of the 4.5% mortgage. I'll continue investing every month, often several times per month. Maybe we'll get a big drop and cheaper prices, who knows. Time shall tell.
I'd say it would be a reasonable approach, depending on your financial situation. If you consider market outlook and are close to FI, I think you've probably made the optimal investment; if you don't consider market outlook (and there is a very good case that can be made for this approach) and are close to FI, I think you've probably made a wise decision (one that does not result in the highest expected return, but it does provide a hedge against sequence of returns risk); and if you aren't close to FI, I would not recommend putting money into a mortgage at that rate, as you have a long time horizon and should be eager to take risk.
"Time shall tell", indeed. However, if I may get philosophical for a moment, hindsight confirmation is perhaps not the best way to view a decision-making process. You can make an optimal decision and come out behind most of the time. (Insurance is a good example of this.)
I am already FI and semi RE. Business owner with a business that 98% runs itself. I am not sure I'll ever fully retire since I have almost all of the freedom one would want when retiring already.
My comment about "time shall tell" was more about curiosity than any sort of confirmation. It seems my financial decision was reasonable and made when there are multiple "correct" decisions that could be made. Time will tell which one comes out ahead.
Imagine a hypothetical credit card with an APY of 10% and interest-only payments.'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?
That 10% APR is being reduced by about 2% a year, so 8% real. So, if you know of an investment that will return greater than 8% after inflation, then you should put money to that investment instead of paying off your credit card.
I'm baffled why this is such a difficult concept for some.
US stocks have historically returned about 11% on average. What city do you live in? I'd be happy to fly out and meet you personally if you'd like a six-figure loan at 10%.
In all seriousness, you probably are aware that this would be a really bad investment (ignore for the moment that you could certainly get cheaper money). Why?
By the way, the concept of real versus nominal returns is not difficult at all. It is the application of that concept to investment decisions which seems to be difficult for some.
Imagine a hypothetical credit card with an APY of 10% and interest-only payments.'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?
That 10% APR is being reduced by about 2% a year, so 8% real. So, if you know of an investment that will return greater than 8% after inflation, then you should put money to that investment instead of paying off your credit card.
I'm baffled why this is such a difficult concept for some.
US stocks have historically returned about 11% on average. What city do you live in? I'd be happy to fly out and meet you personally if you'd like a six-figure loan at 10%.
In all seriousness, you probably are aware that this would be a really bad investment (ignore for the moment that you could certainly get cheaper money). Why?
By the way, the concept of real versus nominal returns is not difficult at all. It is the application of that concept to investment decisions which seems to be difficult for some.
You're right. It is totally foolish to consider the effects of inflation.
I cannot help but feel like item #6 should have been more like item #1., i.e. all of the other things involve minor decisions in life, but "maximizing investment returns" is really the only one that truly focuses on what the opportunity cost of those mortgage payments is.
Wow, for once Yahoo Finance picked up something interesting. Good food for thought.I didn't say it was a perfect list. However, it is a damn good one, considering the source. Amazing for them, actually. Anything that increases awareness and fosters learning is a win in my book. Just as there's no single path to FIRE, there's not an absolute one-size-fits-all answer to this question.
https://www.yahoo.com/finance/news/7-reasons-not-pay-off-165620088.html
7 Reasons Not to Pay Off Your Mortgage Before Retiring
Money Talks News Emmet Pierce,Money Talks News 2 hours 36 minutes ago
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Paying off a home mortgage before you retire is a common goal, but it isn’t always the best financial strategy.
It could end up costing you in the long run — such as by leaving you without cash savings to cover an unexpected expense or without the flexibility to take advantage of an opportunity to earn a better return on your money.
What follows are some financially shrewd reasons to carry your mortgage debt into retirement.
1. You plan to sell your home
Many people decide to downsize before or in retirement. They find that a smaller, less expensive home better fits their retirement lifestyle, as we detail in “7 Unexpected Benefits of Downsizing in Retirement.”
If you think you may be selling your home soon, think hard before you pay off the mortgage on your current home. That’s because selling your dwelling may give you the money you need to repay your home loan without having to deplete your savings.
2. You plan to rent out your home — or a room
Does your retirement plan include relocating and renting out your present home? There’s no pressing need to pay off your home loan if the tenants’ rent payments will cover your future mortgage costs.
You could avoid tapping into your savings to pay off the loan. You may even realize a profit after your mortgage bill is paid each month.
That could be true even if you remain in your home and simply rent out a spare room through a vacation rental site like Airbnb.
A 2018 analysis by Homes.com found that in some cities, a homeowner could make enough money by renting out a room just four or five nights per month to cover a monthly mortgage payment. We detailed the analysis findings in “Do This a Few Days Each Month and Watch Your Mortgage Disappear.”
3. It’s more important to repay debts with higher interest rates
Before you commit to paying off a mortgage, determine whether there are better ways to spend your money.
For example, if you’ve purchased or refinanced a home in the past decade, your home loan likely has a relatively low interest rate. And if that’s the case, you will be better off financially if you first repay debts with higher interest rates, such as credit cards debt.
Paying off the debt with the highest interest rate first will save you more money in interest payments over the life of your debt.
4. You’re still saving for retirement
Not everyone completes their career with enough money to enjoy a comfortable retirement. That’s why many Americans continue to work after age 65, the traditional retirement age.
If you’re contributing to a retirement account, such as an IRA or a 401(k), it may make more sense to use any extra money you have to build your retirement savings rather than to repay your mortgage ahead of schedule.
Retirement accounts are tax-advantaged. So, saving money in one will likely enable you to lower your taxable income now or avoid taxation when you withdraw funds from the account in retirement, depending on whether the account is Roth or traditional.
To learn more, check out “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple.”
5. You’re low on cash reserves
Maintaining an emergency fund is critical for financial stability. If paying off a mortgage will drain your cash reserves, it could leave you in a weakened position. No one can predict when an emergency will happen.
Corey Vandenberg, a mortgage banker in Lafayette, Indiana, says people who pay off their mortgages early often end up with lots of home equity but no money in the bank.
“This position is not financially healthy,” he tells Money Talks News. “You have to have an emergency fund for life’s unexpected events.”
6. You’d rather maximize your income through investments
If you pay off your mortgage, you will have less cash to invest. Much of your wealth will be tied up in the value of your home. The only way to get at it will be to sell the home or take out a loan against your home equity.
Without any liquid funds on hands, it will be more difficult to take advantage of an investment opportunity.
Watch the video of ‘7 Reasons Not to Pay Off Your Mortgage Before Retiring’ on MoneyTalksNews.com.
7. You want to deduct your mortgage interest
One of the benefits of being a homeowner is the ability to deduct the interest you pay on your home loan.
The Tax Cuts and Jobs Act of 2017 — the federal tax reform law — placed new limits on the deduction, but it’s still beneficial to homeowners, says Eric Tyson, co-author of “Mortgages for Dummies.”
For loans taken out after Dec. 15, 2017, most homeowners can deduct the interest they paid on up to $750,000 of qualified personal residence debt on a first and/or second home, Tyson tells Money Talks News. Married couples filing separate tax returns can deduct up to $375,000.
The previous limits were $1 million and, for married taxpayers filing separately, $500,000. If you took out your home loan before Dec. 16, 2017, you’ll be allowed to deduct interest under those old limits.
Mortgage interest is an itemized deduction, however. That means you can only take advantage of it if you itemize your deductions, as opposed to taking the standard deduction. And tax reform substantially increased the standard deduction — to as much as $24,000 for the 2018 tax year.
As a result, Congress’ Joint Committee on Taxation has estimated that far fewer taxpayers will opt to itemize deductions on their 2018 tax returns, since claiming the new standard deduction will gain them more money. That would mean far fewer homeowners stand to gain by itemizing deductions like mortgage interest.
This article was originally published on MoneyTalksNews.com as '7 Reasons Not to Pay Off Your Mortgage Before Retiring'.
I'm in an interesting situation. Looking to refinance but property values have taken a dive in my area. So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.
Current rate is 4.75% and our rate lock is at 3.875%. According to the loan estimate, our pmi would drop as well. Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.
This seems like a no brainer to me but I wanted to get this groups opinion. Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)
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Purchased with 5% down at the peak of the market in the Seattle area in 2018. Sales at the time of purchase comped the house at 640-670k. We purchased the home for 640k.
Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further. Throwing the 50k at it would bring the principal balance down to 560k. The 50k would cover approx 43k of paydown and 7k in closing.
Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts. Gross yearly income is around 200k. No plans to leave anytime soon.
It's a shitty situation for sure... But hey... It's what we got lol.
What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
I'd go with @talltexan's advice. At your income level, I'd set it and forget it (just ignore the PMI). Then I'd focus on salting as much away as possible in taxable and retirement accounts. Once your taxable accounts exceed your mortgage balance, you can revisit the topic. By then, you'll be in a much more balanced position.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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This thread is making me consider doing a taxable investment for "mortgage payoff" (as compared with a high interest savings).The worst that happens is that you acquire a shitload of money that has longer to compound. What's not to like?
Hm. Hmmm.
This thread is making me consider doing a taxable investment for "mortgage payoff" (as compared with a high interest savings).The worst that happens is that you acquire a shitload of money that has longer to compound. What's not to like?
Hm. Hmmm.
If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.
(disclosure: I am long $QYLD)
I'd go with @talltexan's advice. At your income level, I'd set it and forget it (just ignore the PMI). Then I'd focus on salting as much away as possible in taxable and retirement accounts. Once your taxable accounts exceed your mortgage balance, you can revisit the topic. By then, you'll be in a much more balanced position.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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BTW, thanks for asking! It's actually fun to help others figure this stuff out. You know, mustachian fun. Costs us nothing but a few moments of time, and hastens your trip to FIREland. Win-win.
What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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I'm in an interesting situation. Looking to refinance but property values have taken a dive in my area. So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.
Current rate is 4.75% and our rate lock is at 3.875%. According to the loan estimate, our pmi would drop as well. Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.
This seems like a no brainer to me but I wanted to get this groups opinion. Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)
Sent from my moto g(6) using Tapatalk
Purchased with 5% down at the peak of the market in the Seattle area in 2018. Sales at the time of purchase comped the house at 640-670k. We purchased the home for 640k.
Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further. Throwing the 50k at it would bring the principal balance down to 560k. The 50k would cover approx 43k of paydown and 7k in closing.
Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts. Gross yearly income is around 200k. No plans to leave anytime soon.
It's a shitty situation for sure... But hey... It's what we got lol.
Here is an update everyone. Looking for advice.
We ended up having to get a new appraisal because the old lender would not release the appraisal that fell through from the first refi attempt. New appraisal came back 50k higher and hit our original purchase price. So we could do 95% LTV and still drop our payment significantly or we could put some extra money down to get to 90% LTV which would drop our payment even further and lower our PMI by about 40/mo. Each scenario laid out below.
Current Mortage
Loan balance = 602k
Mortgage Payment = 3,903 (136 PMI)
9 months in on 30 year term
Refi Option 1
Loan balance = 608k
Mortgage Payment = 3,576 (122 PMI)
Cash to close = 7k(5k with be recouped from old escrow)
Refi Option 2
Loan balance = 576k
Mortgage Payment = 3,388 (84 PMI)
Cash to close = 39k (5k with be recouped from old escrow)
Putting an extra 32k into the mortgage would decrease the monthly payment by 188/mo or 2,256/yr which results in a guaranteed yearly return of 7.05% on that money.
I feel like both options are pretty good and I'm leaning towards option 2 but wanted to see what you all thought. See if I was missing anything obvious.
If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.
(disclosure: I am long $QYLD)
I try not to judge individuals' investment recommendations, but at least be forthcoming with the risks involved. Like in this case, for that 9% yield, somebody is paying you to take all of the downside but little of the upside. And that this stock is down 10% over the last 6 years (by comparison, the S&P 500 is up nearly double in that time period). And that it has a 0.6% expense ratio.
If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.
(disclosure: I am long $QYLD)
I try not to judge individuals' investment recommendations, but at least be forthcoming with the risks involved. Like in this case, for that 9% yield, somebody is paying you to take all of the downside but little of the upside. And that this stock is down 10% over the last 6 years (by comparison, the S&P 500 is up nearly double in that time period). And that it has a 0.6% expense ratio.
Agreed. QYLD is poor choice for total return, but the need for cash flow in this case is important. Someone who doesn't want to make this tradeoff would do better with the "lower payments" approach.
3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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Are these 5/1, 15 or 30? Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
Do you mind me asking which bank? Just thought I would check...3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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Are these 5/1, 15 or 30? Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
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If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.
(disclosure: I am long $QYLD)
I try not to judge individuals' investment recommendations, but at least be forthcoming with the risks involved. Like in this case, for that 9% yield, somebody is paying you to take all of the downside but little of the upside. And that this stock is down 10% over the last 6 years (by comparison, the S&P 500 is up nearly double in that time period). And that it has a 0.6% expense ratio.
Agreed. QYLD is poor choice for total return, but the need for cash flow in this case is important. Someone who doesn't want to make this tradeoff would do better with the "lower payments" approach.
Cash flow is important, unquestionably. In the OP's case, it will probably come from his $200k income, but in the event of job loss he has a taxable account he could pull from if necessary. So, in this specific case, I don't think that cash flow is an overriding factor.
In the hypothetical case where cash flow was an overriding factor, my advice would be to get a smaller house until you have a decent stash and can ensure cash flow in a downturn.
Sent you a PM.Do you mind me asking which bank? Just thought I would check...3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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Are these 5/1, 15 or 30? Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
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3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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Are these 5/1, 15 or 30? Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
Sent from my moto g(6) using Tapatalk
3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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Are these 5/1, 15 or 30? Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
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3.875%? Did you buy it down? I have great credit but the best I can get right now is 4.4%
3.875% is a 30 year? That's definitely interesting to me, I want to get some equity out.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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Yep, 30yr.3.875% is a 30 year? That's definitely interesting to me, I want to get some equity out.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.What are the interest rates?Interest rates on both refi options are the same at 3.875%. The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely. About 8 years of payments I believe.
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Are these 5/1, 15 or 30? Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
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3.875%? Did you buy it down? I have great credit but the best I can get right now is 4.4%
I am only seeing these 3.875% rates for a 15 year loan, not 30.
I read the news with glee for those of you that are in the process of buying a home or contemplating it. It also makes me hopeful that we won't lose our ass on our current flip due to rising mortgage interest rates. Okay, I know we won't lose our ass, but the more we make on this deal, the happier I'll be. It has consumed our nights and weekends for almost ten months. That's because we don't do lipstick-on-the-pig flips. We do work we're proud of, but it does take longer.
Thank you! We also have rentals, all in the same retirement community. Our rule is to only buy homes that we would be happy to live in. We keep buying, because we love our tenants and don't want to displace anyone when we finally move there. We buy, rehab and rent. Eventually, we will move in to them one by one as our tenants vacate, do the major rehab if/as needed, sell it off and then move on to the next house, until they're all gone. That's the plan anyway.I read the news with glee for those of you that are in the process of buying a home or contemplating it. It also makes me hopeful that we won't lose our ass on our current flip due to rising mortgage interest rates. Okay, I know we won't lose our ass, but the more we make on this deal, the happier I'll be. It has consumed our nights and weekends for almost ten months. That's because we don't do lipstick-on-the-pig flips. We do work we're proud of, but it does take longer.Good for you! We do the same thing with our rentals.
Now I want to know where Dicey's magic retirement community is....I'm from NCal too, and I can think of a few where I'd be happy to retire and would have old people houses that are of that age and price range. Although none of the retirement communities lean to iron doors that I am aware of. You must be in a more ritzy retirement land than me. Also, I'm more a retirement condo person than house person. No more lawn mowing for me.My great-great uncle and his wife lived in a community of duplexes with a HOA that maintained all the landscape except a small patio area for each unit. Of course the less landscaping to maintain per unit, the lower the costs should be.
Now I want to know where Dicey's magic retirement community is....I'm from NCal too, and I can think of a few where I'd be happy to retire and would have old people houses that are of that age and price range. Although none of the retirement communities lean to iron doors that I am aware of. You must be in a more ritzy retirement land than me. Also, I'm more a retirement condo person than house person. No more lawn mowing for me.Lol, let's see...the iron door is on the flip house, which is in NorCal. It should sell for $1.1-$1.2M, or $600/sf, so it gets a fancy door.
Now I want to know where Dicey's magic retirement community is....I'm from NCal too, and I can think of a few where I'd be happy to retire and would have old people houses that are of that age and price range. Although none of the retirement communities lean to iron doors that I am aware of. You must be in a more ritzy retirement land than me. Also, I'm more a retirement condo person than house person. No more lawn mowing for me.Lol, let's see...the iron door is on the flip house, which is in NorCal. It should sell for $1.1-$1.2M, or $600/sf, so it gets a fancy door.
The rentals are in a large retirement community in SoCal, where there is very little water. Our "buy" price there is $155-$160/sf, so no fancy iron doors, although there are big gates at all the community entrances. Oh, and everyone' has a gardener and very few have actual lawns.
Here we gooooooo!Sweet!
Payday! - 3/29/19
726 to 401k
269 to HSA
605 to Taxable
Investment Tracking
2/15/19 - $372,432
3/1/19 - $377,098
3/29/19 - $390,738
Refi should close today as well. Going from 4.75% 30yr to 3.875% 30yr. Will post more final numbers on that when it's official.
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UPDATE -- Getting a mortgage renewed while FIRED
...snip...
Great questions.
UPDATE -- Getting a mortgage renewed while FIRED
...snip...
I'm trying to wrap my head around the Canadian market, I know you guys have (basically) a 5/1 ARM as the standard mortgage- but even a ARM in the states doesn't require repetitive closing... You guys have to renegotiate and re-close every 5 years?... That just seems so- weird. But then the advantage si that you can shop around at "Re-up" time whereas US based 5/1 ARMs just have the bank say "here is your new interest amount, enjoy".
Previously when someone had an overseas mortgage I would say that the (DPOYMC) generally doesn't apply but if what you are going through is representative of everybody FIRE'd up there, there is no way you wouldn't want to kill the mortgage immediately before FIRE as the low income could be seen as risky to the lender and result in much higher rates. It really changes the equation at FIRE time.
Are fixed rate long term mortgages not an option at all? It seems if it were an option in the last year before FIRE you could roll into one of those with whatever mortgage amount you have and not risk getting surprised by the rate 5 years later.
Overall its just really different from us in the states, so the thinking has to change accordingly.
The whole point of this club is to use cash at hand to invest instead of taking it and putting it toward to mortgage... So technically didn't he do the right thing by rolling the refi costs into the new loan?Technically, yes, except origination costs are true bank fees that are added. In this case, about $7k larger debt to service fees.
@Goldielocks
That is a very good point you make, they are fees. So if you pay the interest of 3.875% for 30 years on that 7k wouldn't you still be better off rolling that 7k into the loan so that you could use your 7k to be invested for 30 years at an average of 7% a year?
I'm really interested in this scenario especially since I may be refinancing myself soon.
Wow... A lot of assumptions there lol. I'll try to get a detailed response together when I have time over the next day or two.@Goldielocks
That is a very good point you make, they are fees. So if you pay the interest of 3.875% for 30 years on that 7k wouldn't you still be better off rolling that 7k into the loan so that you could use your 7k to be invested for 30 years at an average of 7% a year?
I'm really interested in this scenario especially since I may be refinancing myself soon.
I am struggling to put a pin on the precise reason this move to refinance doesn't sit all that well with me as a "great move". The finances work out. Shedding 1% interest on a 30 year loan is a huge benefit.
I think that it is the practice of paying more origination fees to get a new mortgage, when the current one is less than a year old. I have a solid dislike for paying fees, especially when they are more than $1000.
If the point made above, that the new lower rate is a combination of dilligent paying off other debts, and a reduction in going rates. (which is fantastic), then why not wait to save up enough, or perhaps borrow enough (that you would quickly pay off) to get rid of the PMI before you refinance? Many people get about 5-8 years into their mortgage and work very hard to try to get the PMI removed... why not take the opportunity to remove it now?
$122 PMI x 360 payments = $43,920 (Is that right? that the PMI payment is only for the insurance, and not part principal)
Plus approx $7k origination fees.... which ok, are better invested, IF you can get 7% guaranteed returns, and IF you actually put another $7k into investments and could not save the cash.. but reupping the amount, especially for such a small amount, seems to be a bit of a lazy financial habit, rather than a diligent decision?
Contrast to:
Refiance at $601k -- > save $7k in origination fees, but lose 7k that could have gone to other investments. Yeah, I understand the math that this is better invested, except they are paying PMI on this $7k.
or
Refinance at $545k (Amount with no PMI, guess, approximate) --> save the $43,920 in PMI costs, Therefore the amount of borrowed money that PMI is needed for (I assume $60k) is actually borrowed at just under 7% interest, when you add the insurance cost to the mortgage rate.
There is only marginal value in not paying down the $60k of PMI versus investing at 7%, infact, I would say that you need to be getting 9% or better in your investments, over 30 years, to make it worth the risk differential to keep the PMI. AND, there is also the risk that arises with having very high mortgage payments and employment that is not guaranteed for 30 years at the current income levels.
So, if the goal is to keep yourself fully invested in the market, while reducing your mortgage rate to as low as possible, should not that also include getting rid of PMI as quickly as possible? Doesn't adding $7k of origination fees to one's mortgage work against that?
Why not instead..
Pay down the mortgage to 50% equity, and borrow at low (tax deductible) rates against the property to invest. Depends on the rate you can get, and your current income tax bracket, but is even more flexible than keeping all the borrowing as one fixed mortgage investment, because you could theoretically pay off the investment loan on a moment's notice by selling your investments if you lose your job. Many mortgages do not accept very large single year pay offs.
At the end of the day, all of the above is trumped by the significantly lower mortgage rate over 30 years.
I can't help thinking that the poster did not shop around for the best rate originally and now is making a solid good decision to fix that... but still being lazy by not taking the opportunity to pay it down a bit to accelerate PMI elimination.
Every time y'all post your current rates, I get happy thinking about our 2.75% rate for the next dozen years. :)
@Goldielocks
That is a very good point you make, they are fees. So if you pay the interest of 3.875% for 30 years on that 7k wouldn't you still be better off rolling that 7k into the loan so that you could use your 7k to be invested for 30 years at an average of 7% a year?
I'm really interested in this scenario especially since I may be refinancing myself soon.
I am struggling to put a pin on the precise reason this move to refinance doesn't sit all that well with me as a "great move". The finances work out. Shedding 1% interest on a 30 year loan is a huge benefit.
I think that it is the practice of paying more origination fees to get a new mortgage, when the current one is less than a year old. I have a solid dislike for paying fees, especially when they are more than $1000.
If the point made above, that the new lower rate is a combination of dilligent paying off other debts, and a reduction in going rates. (which is fantastic), then why not wait to save up enough, or perhaps borrow enough (that you would quickly pay off) to get rid of the PMI before you refinance? Many people get about 5-8 years into their mortgage and work very hard to try to get the PMI removed... why not take the opportunity to remove it now?
$122 PMI x 360 payments = $43,920 (Is that right? that the PMI payment is only for the insurance, and not part principal)
Plus approx $7k origination fees.... which ok, are better invested, IF you can get 7% guaranteed returns, and IF you actually put another $7k into investments and could not save the cash.. but reupping the amount, especially for such a small amount, seems to be a bit of a lazy financial habit, rather than a diligent decision?
Contrast to:
Refiance at $601k -- > save $7k in origination fees, but lose 7k that could have gone to other investments. Yeah, I understand the math that this is better invested, except they are paying PMI on this $7k.
Refinance at $545k (Amount with no PMI, guess, approximate) --> save the $43,920 in PMI costs, Therefore the amount of borrowed money that PMI is needed for (I assume $60k) is actually borrowed at just under 7% interest, when you add the insurance cost to the mortgage rate.
There is only marginal value in not paying down the $60k of PMI versus investing at 7%, infact, I would say that you need to be getting 9% or better in your investments, over 30 years, to make it worth the risk differential to keep the PMI. AND, there is also the risk that arises with having very high mortgage payments and employment that is not guaranteed for 30 years at the current income levels.
So, if the goal is to keep yourself fully invested in the market, while reducing your mortgage rate to as low as possible, should not that also include getting rid of PMI as quickly as possible? Doesn't adding $7k of origination fees to one's mortgage work against that?
Why not instead..
Pay down the mortgage to 50% equity, and borrow at low (tax deductible) rates against the property to invest. Depends on the rate you can get, and your current income tax bracket, but is even more flexible than keeping all the borrowing as one fixed mortgage investment, because you could theoretically pay off the investment loan on a moment's notice by selling your investments if you lose your job. Many mortgages do not accept very large single year pay offs.
At the end of the day, all of the above is trumped by the significantly lower mortgage rate over 30 years.
I can't help thinking that the poster did not shop around for the best rate originally and now is making a solid good decision to fix that... but still being lazy by not taking the opportunity to pay it down a bit to accelerate PMI elimination.
Hey, thanks for the detailed response. It is more than I was expecting and very complete. I can see now where some of my errors are, and that is because of the differences in how mortgages work in the USA versus Canada. Yep. This is despite having heavily shopped for a mortgage when I lived in California, so I know, in theory, how it works. But knowing something doesn't mean that it is instinct.Yeah I still don't fully understand Canadian mortgages but it's probably because I have no reason to research them at the moment. Lol
Three areas that I was completely off (and why).
1) We have no fee mortgages -- zero points to buy, ever. Sometimes legal fees are added, but often not. This means that the only times a person ups the mortgage amount owing is usually when they are taking money out of the property, which is a significantly bad habit, even for many money savvy people that intend to invest it (because often not all the money ends up getting invested).
Lenders write up the paperwork this way automatically to make your monthly mortgage look smaller than before so you need to be attentive to it, to ensure they retract it back out. (they make the mortgage out for more than you wanted them to).
My instinct was that upping a mortgage for $7k when the person clearly has the money is not great. That is not the case here.
2) We have sometimes HUGE penalties to break the mortgage -- because there are no upfront penalties. The bank ensures that it gets it money back over the 5 year mortgage contract before you renew with them or another lender. This means large penalties to prepay more than 10-20% of your mortgage.
Not the case with your mortgage.
3) PMI is not flat rate, here. You only pay it as long as you carry it, and can remove it with that 10% prepayment... it gets expensive, fast. I have never had PMI because it costs so damn much, although those california lenders were certainly pushing it. I do know that it can be hard to prove the LTV to your lender, based on increased home prices, and they can be slow to process the 80% point even on conventional mortgages, but YMMV.
4) There are a few other older threads that do the math on PMI versus investments. It is often a difficult one to justify keeping the PMI on conventional rates, not versus higher second mortgage or credit card rates.
One area that can still make sense, if you can get a loan at a decent rate, within 1-2% of your mortgage rate, and have a higher personal income tax rate, is using the "Smith Maneouver" to invest. Especially if you no longer get the extremely nice mortgage deduction because of tax law changes. We have never had a mortgage rate tax write off, so borrowing against home values to invest is actually the way to go when you intend to keep a high mortgage, and max out investments instead.
Smith Maneouver:
"The funds in the line of credit [money borrowed] are invested, presumably at a higher rate of return than the interest rate paid on the line of credit. However, the advantage here is that the interest payments on the line of credit are tax-deductible and should result in a tax refund when the borrower files taxes. This tax refund can be used to pay down the mortgage, thus accelerating the mortgage repayment schedule."
If you pay down $200k on your mortgage, and can borrow on a HELOC at 4%, and your mortgage rate is not tax deductible at 3%, and your marginal tax rate is 50% (all typical numbers here for someone at $200k/yr income),
Then you are borrowing at net 2% interest to earn your 7% return on the stock market.
That $200k would cost you $4k a year to borrow instead of $6k/yr for the mortgage; and generate net profit of $10k.
Keep saving that $10k/yr and then pay off your home in one lump instead of renewing the mortgage, and FIRE in 15 years (or whatever the magic number is).
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.
Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.
Savings: Currently investing $1650/month into 401k and Roth IRAs.
Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.
Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.
Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.
Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.
Savings: Currently investing $1650/month into 401k and Roth IRAs.
Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.
Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.
Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.
Having liquid assets is better than cash flow. If you needed to you could sell $650 per month from your liquid assets and the remaining balance will continue to compound.
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.
Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.
Savings: Currently investing $1650/month into 401k and Roth IRAs.
Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.
Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.
Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.
Having liquid assets is better than cash flow. If you needed to you could sell $650 per month from your liquid assets and the remaining balance will continue to compound.
If we were going to invest the difference though, it would be in tax-advantaged 401ks - which is not liquid until I'm 59 1/2, yeah?
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.
Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.
Savings: Currently investing $1650/month into 401k and Roth IRAs.
Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.
Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.
Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.
Having liquid assets is better than cash flow. If you needed to you could sell $650 per month from your liquid assets and the remaining balance will continue to compound.
If we were going to invest the difference though, it would be in tax-advantaged 401ks - which is not liquid until I'm 59 1/2, yeah?
You're comparing to tax-advantaged accounts? You really don't want to forgo maxing those out to pay extra on the mortgage, they are too valuable (and you only get so much space per year). Also, there are ways to access them before 59.5:
https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?
Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?
Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?
Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?
It does. But what you seem to be concerned with is that if you invest that money now you won't be able to invest as much in the future when your income is less. That's exactly backwards - you want to maximize both time in the market as well as the tax benefits.
You should always be able to just pay for something that 'comes up' (i.e. emergency expenses) - otherwise you are on too precarious a financial path.
Again you mentioned tax-advantaged accounts, but not taxable ones. What does that picture look like?
Outside of a 30 year mortgage (or I guess even a 15 year), is there any expense, both current or imagined future, for which you could have complete knowledge of what you'll pay, year in and year out? That's one of the reassurances that I get out of having a mortgage and keeping it as long as possible. Hell, I'd get an interest-only non-callable perpetual mortgage on my primary house if I could.
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?
Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?
I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.
Is there movement in increasing your income over the next few years as well?
I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.
Is there movement in increasing your income over the next few years as well?
Is it better to have a predictable expense or no expense at all?It's better to have sufficient liquid investments.
I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.
Is there movement in increasing your income over the next few years as well?
That's where I am confused here. For 2019 a couple can contribute $12,000k in IRAs and $19k for each 401(k). jps did not say whether they have one 401(k) or two... but even if its' just one there's $2583/month minimum in tax-advantaged space. If both spouses have work-sponsored retirement plans (and possibly an HSA) it would be over $4k.
I'm having a hard time imagining any scenario where over-paying the mortgage would make any sense.
ETA: jps responded by saying 'no taxable investments'. Ok, that (and an efund of sufficient size) should be addressed long before overpaying a mortgage.Is it better to have a predictable expense or no expense at all?It's better to have sufficient liquid investments.
I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.
Is there movement in increasing your income over the next few years as well?
That's where I am confused here. For 2019 a couple can contribute $12,000k in IRAs and $19k for each 401(k). jps did not say whether they have one 401(k) or two... but even if its' just one there's $2583/month minimum in tax-advantaged space. If both spouses have work-sponsored retirement plans (and possibly an HSA) it would be over $4k.
I'm having a hard time imagining any scenario where over-paying the mortgage would make any sense.
ETA: jps responded by saying 'no taxable investments'. Ok, that (and an efund of sufficient size) should be addressed long before overpaying a mortgage.Is it better to have a predictable expense or no expense at all?It's better to have sufficient liquid investments.
I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.
Is there movement in increasing your income over the next few years as well?
That's where I am confused here. For 2019 a couple can contribute $12,000k in IRAs and $19k for each 401(k). jps did not say whether they have one 401(k) or two... but even if its' just one there's $2583/month minimum in tax-advantaged space. If both spouses have work-sponsored retirement plans (and possibly an HSA) it would be over $4k.
I'm having a hard time imagining any scenario where over-paying the mortgage would make any sense.
ETA: jps responded by saying 'no taxable investments'. Ok, that (and an efund of sufficient size) should be addressed long before overpaying a mortgage.Is it better to have a predictable expense or no expense at all?It's better to have sufficient liquid investments.
Yup, I agree with nereo. Not sure I understand the need to pay off the mortgage over contributing to tax advantage accounts.
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.
Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.
Savings: Currently investing $1650/month into 401k and Roth IRAs.
Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.
Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.
Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.
Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.
Savings: Currently investing $1650/month into 401k and Roth IRAs.
Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.
Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.
Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.
@jps ,
12 months at $500 extra plus 24 months of $2500 extra comes to $66,000 in extra premium payments in 3 years. That, plus your regular payments will get you paid off in 3 to 4 years.
What will you have to show for all that sacrifice in 3-4 years?
A paid off house and lower expenses per month. Not $650 lower, because you said that was PITI, and paying off the mortgage only covers the PI of PITI.
That's it.
You might say, but I'll have less stress because the mortgage is gone! That might or might not be true.
What else could happen in LESS THAN 3-4 years?
You could get your income cut in half due to an injury, illness, or just bad luck in an economy that's gone sour. You would still have that mortgage payment so your expenses wouldn't be any lower. The house could be foreclosed on due to loss of income and medical expenses, for example. The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back. It probably won't help you at all.
What if you were investing that money instead of paying down the mortgage?
Well, in any of the above situations, you would have more assets to cover you thru the bad times. You would be less likely to lose the house to foreclosure, even if that same down economy cut stock prices by a bunch.
You could realize you need to move, either to help ill parents or just to get a job. You can't get at the money locked up in in an unpaid for house as easily as you can by selling investments. You might need to pay for two residences at the same time if your old one doesn't sell promptly.
Now, if the economy is doing decently when you've accumulated enough investments to pay off the mortgage early, you'll be able to do it in one big payment in 3-4 years time. If the economy is down for a bit, then you might wait another year for the market to recover.
Whatever you do, NEVER EVER confuse "the list of advantages I get by paying off my mortgage in full" with "I'm paying extra on my mortgage". That's because those advantages don't show up until it's completely paid off.
Personally I have always made it a priority to max all tax advantaged accounts in order to reduce my tax liability. I take the known guaranteed savings now. If you can live off of 40k and have a high income at 22% tax bracket then in some cases you are still better of maxing all pre tax accounts and then tapping 401ks if a prolonged emergency pops up.
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
Personally I have always made it a priority to max all tax advantaged accounts in order to reduce my tax liability. I take the known guaranteed savings now. If you can live off of 40k and have a high income at 22% tax bracket then in some cases you are still better of maxing all pre tax accounts and then tapping 401ks if a prolonged emergency pops up.
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
If you saved 22% in taxes on 40k in pre tax contribuions and then you have a year where you need to withdraw 40k in order to cover living expenses you would pay approx 20% in tax and penalties assuming no other income for that year. This is assuming standard deduction of 22k for married filing jointly with 10% early withdrawal penalty.
At the 22% bracket it is a "no brainer" to contribute pre tax until you are out of that bracket.
Replying from a phone so I'm sorry if this doesn't make much since. I'd like to get a more detailed example together but I don't have the time at the moment.
Sent from my moto g(6) using Tapatalk
Welcome to the club, jps :-)
In all seriousness - you are must vulnerable if the entire time you are overpaying a mortgage, unless you already have a considerable e-fund and investments in taxable accounts.
If I were in your shoes I would immediately stop paying down the mortgage and instead build up an e-fund equivalent to ~3-6 months expenses. Then I would open an 'after-tax' (aka 'normal') brokerage account and contribute money until I had ~$5-10k invested. Once I achieved that I would start piling more money into my tax advantaged (e.g. 401(k), IRA) accounts.
Personally I have always made it a priority to max all tax advantaged accounts in order to reduce my tax liability. I take the known guaranteed savings now. If you can live off of 40k and have a high income at 22% tax bracket then in some cases you are still better of maxing all pre tax accounts and then tapping 401ks if a prolonged emergency pops up.
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
If you saved 22% in taxes on 40k in pre tax contribuions and then you have a year where you need to withdraw 40k in order to cover living expenses you would pay approx 20% in tax and penalties assuming no other income for that year. This is assuming standard deduction of 22k for married filing jointly with 10% early withdrawal penalty.
At the 22% bracket it is a "no brainer" to contribute pre tax until you are out of that bracket.
Replying from a phone so I'm sorry if this doesn't make much since. I'd like to get a more detailed example together but I don't have the time at the moment.
Sent from my moto g(6) using Tapatalk
Exactly. How much depends on your risk tolerance and individual circumstances. The e-fund is typically cash-equivalent that won't fluctuate with a market downturn. The taxable account is invested (so it may drop during a market crash) but is useful for things like replacing a car unexpectedly. You *can* also use money in your Roth (principle can be withdrawn at any time) or your 401(k) (via a loan) but I prefer not to touch those unless absolutely necessary because htey are so valuable as tax-deferred vehicles.Welcome to the club, jps :-)
In all seriousness - you are must vulnerable if the entire time you are overpaying a mortgage, unless you already have a considerable e-fund and investments in taxable accounts.
If I were in your shoes I would immediately stop paying down the mortgage and instead build up an e-fund equivalent to ~3-6 months expenses. Then I would open an 'after-tax' (aka 'normal') brokerage account and contribute money until I had ~$5-10k invested. Once I achieved that I would start piling more money into my tax advantaged (e.g. 401(k), IRA) accounts.
We have a full e-fund. How come you would also put 5-10 in a brokerage before maxing the tax-advantaged accounts? Just as an extra layer of safety?
You are correct.Personally I have always made it a priority to max all tax advantaged accounts in order to reduce my tax liability. I take the known guaranteed savings now. If you can live off of 40k and have a high income at 22% tax bracket then in some cases you are still better of maxing all pre tax accounts and then tapping 401ks if a prolonged emergency pops up.
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
If you saved 22% in taxes on 40k in pre tax contribuions and then you have a year where you need to withdraw 40k in order to cover living expenses you would pay approx 20% in tax and penalties assuming no other income for that year. This is assuming standard deduction of 22k for married filing jointly with 10% early withdrawal penalty.
At the 22% bracket it is a "no brainer" to contribute pre tax until you are out of that bracket.
Replying from a phone so I'm sorry if this doesn't make much since. I'd like to get a more detailed example together but I don't have the time at the moment.
Sent from my moto g(6) using Tapatalk
To analyze FIreDrill's comment a little further, I don't think you'd even pay 20% in taxes should you need to take that money out of the 401k/IRA and pay the penalty. You will receive the $24k standard deduction in the year you pull it out, and then pay 10% on the rest. Adding in the 10% penalty, you'd only be looking at an effective tax rate of about 14%. And keep in mind, this is a low-probability event, in which you'd be saving 8% (22% minus 14%) plus investment returns (otherwise, you get 22% plus investment returns).
You *can* also use money in your Roth (principle can be withdrawn at any time) or your 401(k) (via a loan) but I prefer not to touch those unless absolutely necessary because they are so valuable as tax-deferred vehicles.I always like to point out that you are better off emergency fund money into a Roth IRA if you otherwise would not be able to maximize your tax advantaged space. My advice that if you haven't maxed IRA contributions by the time the contribution deadline is approaching, move emergency fund money into a Roth IRA Savings Account to fill up that space. If you later re-establish your emergency fund with taxable money after filling all your tax advantaged space, you can roll that Roth IRA Savings Account into a Roth IRA Investment Account.
Good point. It's unclear whether OP has maxed out available IRAs - though it seems plain that there is plenty of headspace in the 401(k).You *can* also use money in your Roth (principle can be withdrawn at any time) or your 401(k) (via a loan) but I prefer not to touch those unless absolutely necessary because they are so valuable as tax-deferred vehicles.I always like to point out that you are better off emergency fund money into a Roth IRA if you otherwise would not be able to maximize your tax advantaged space. My advice that if you haven't maxed IRA contributions by the time the contribution deadline is approaching, move emergency fund money into a Roth IRA Savings Account to fill up that space. If you later re-establish your emergency fund with taxable money after filling all your tax advantaged space, you can roll that Roth IRA Savings Account into a Roth IRA Investment Account.
Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.
The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth. As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.
We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.
I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?
I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?
Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?
Don't pay off your mortgage club -- new question!
I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies. Our cost for it is around $350/yr.
I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).
Does anyone else notice this? That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?
Don't pay off your mortgage club -- new question!I've kinda always veiwed life insurance as cash flow insurance for my spouse. Kinda assuming that it would need to be enough to cover the portion of expenses that my income covers.
I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies. Our cost for it is around $350/yr.
I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).
Does anyone else notice this? That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?
Welcome to the club, jps :-)
In all seriousness - you are must vulnerable if the entire time you are overpaying a mortgage, unless you already have a considerable e-fund and investments in taxable accounts.
If I were in your shoes I would immediately stop paying down the mortgage and instead build up an e-fund equivalent to ~3-6 months expenses. Then I would open an 'after-tax' (aka 'normal') brokerage account and contribute money until I had ~$5-10k invested. Once I achieved that I would start piling more money into my tax advantaged (e.g. 401(k), IRA) accounts.
We have a full e-fund. How come you would also put 5-10 in a brokerage before maxing the tax-advantaged accounts? Just as an extra layer of safety?
The house could be foreclosed on due to loss of income and medical expenses, for example. The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back. It probably won't help you at all.
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.
Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.
Savings: Currently investing $1650/month into 401k and Roth IRAs.
Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.
Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.
Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.
@jps ,
12 months at $500 extra plus 24 months of $2500 extra comes to $66,000 in extra premium payments in 3 years. That, plus your regular payments will get you paid off in 3 to 4 years.
What will you have to show for all that sacrifice in 3-4 years?
A paid off house and lower expenses per month. Not $650 lower, because you said that was PITI, and paying off the mortgage only covers the PI of PITI.
That's it.
You might say, but I'll have less stress because the mortgage is gone! That might or might not be true.
What else could happen in LESS THAN 3-4 years?
You could get your income cut in half due to an injury, illness, or just bad luck in an economy that's gone sour. You would still have that mortgage payment so your expenses wouldn't be any lower. The house could be foreclosed on due to loss of income and medical expenses, for example. The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back. It probably won't help you at all.
What if you were investing that money instead of paying down the mortgage?
Well, in any of the above situations, you would have more assets to cover you thru the bad times. You would be less likely to lose the house to foreclosure, even if that same down economy cut stock prices by a bunch.
You could realize you need to move, either to help ill parents or just to get a job. You can't get at the money locked up in in an unpaid for house as easily as you can by selling investments. You might need to pay for two residences at the same time if your old one doesn't sell promptly.
Now, if the economy is doing decently when you've accumulated enough investments to pay off the mortgage early, you'll be able to do it in one big payment in 3-4 years time. If the economy is down for a bit, then you might wait another year for the market to recover.
Whatever you do, NEVER EVER confuse "the list of advantages I get by paying off my mortgage in full" with "I'm paying extra on my mortgage". That's because those advantages don't show up until it's completely paid off.
My bad- PI itself is $650.
This totally makes sense. You are absolutely right about confusing the advantages of having a paid off mortgage with currently paying extra on the mortgage.
Don't pay off your mortgage club -- new question!
I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies. Our cost for it is around $350/yr.
I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).
Does anyone else notice this? That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?
The house could be foreclosed on due to loss of income and medical expenses, for example. The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back. It probably won't help you at all.
Who would ever let a house with substantial equity be foreclosed on? You would just sell the house...
Hello everyone, I am jumping in a little early here to keep my resolve firm! We are buying our first house, closing end of May. It took some long chats with DH to work through the math, but we are agreed not to pay any extra to the mortgage.Welcome!
We've thought about life insurance a bit differently than others in this thread. We are a dual income household and we live off one of our (roughly equal) income streams. It's never made much sense to us to pay the premiums for very large policies.
Instead, we carry policies on each of us that would cover ~5x our current annual expenses. The idea is that it would give the survivors a few years of breathing room and (at this point) push them much closer to being FI. Neither of us really want to be 'taken care of for life' by our deceased spouse any more than we want to inherit our retirement from our parents - it basically goes against our self-sufficient natures.
Hello everyone, I am jumping in a little early here to keep my resolve firm! We are buying our first house, closing end of May. It took some long chats with DH to work through the math, but we are agreed not to pay any extra to the mortgage.
Most people would just pay it off with their investments, I would think, before selling. That is what we considered as the backup.The house could be foreclosed on due to loss of income and medical expenses, for example. The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back. It probably won't help you at all.
Who would ever let a house with substantial equity be foreclosed on? You would just sell the house...
Don't pay off your mortgage club -- new question!
I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies. Our cost for it is around $350/yr.
I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).
Does anyone else notice this? That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?
Insurance is for catastrophes. For me, dying and leaving my wife and kids without my income is a total catastrophe. I carry a $1.5M term policy, along with our investments, paid off house, I know my family would be extremely well taken care of and its' worth every bit of the money I pay for it.
I'm not sure I thought much about the size of the mortgage payment when originally getting the term policy, though. It's an interesting thought.
The house could be foreclosed on due to loss of income and medical expenses, for example. The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back. It probably won't help you at all.
Who would ever let a house with substantial equity be foreclosed on? You would just sell the house...
Don't pay off your mortgage club -- new question!
I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies. Our cost for it is around $350/yr.
I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).
Does anyone else notice this? That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?
Hello everyone, I am jumping in a little early here to keep my resolve firm! We are buying our first house, closing end of May. It took some long chats with DH to work through the math, but we are agreed not to pay any extra to the mortgage.
Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?
Example: Buy a house for $300,000. Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.
Economy hits big recession. Major employer(s) in area go belly up or lay off thousands of people and you are one of them. House value drops to $230,000. You sell the house to avoid foreclosure and lose $50,000 for the privilege. Happy days are here again.
Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments. Housing values might go up again or you might find employment before that cushion runs out.
Does anyone else notice this? That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?
Who would ever let a house with substantial equity be foreclosed on? You would just sell the house...It happens all the time and it's always a sad story. Old people can't pay their taxes and lose their paid off house. They also didn't have enough cash to maintain it properly, so it sells for far less than decently maintained comps.
We've thought about life insurance a bit differently than others in this thread. We are a dual income household and we live off one of our (roughly equal) income streams. It's never made much sense to us to pay the premiums for very large policies.
Instead, we carry policies on each of us that would cover ~5x our current annual expenses. The idea is that it would give the survivors a few years of breathing room and (at this point) push them much closer to being FI. Neither of us really want to be 'taken care of for life' by our deceased spouse any more than we want to inherit our retirement from our parents - it basically goes against our self-sufficient natures.
This is just about exactly what we do, although we have more like 8x annual expenses in coverage. We pay something like $60/month for roughly equal coverage ($500k) on both of us and we'll probably stop paying for it once we're closer to FI. Rate is guaranteed for like 15 years but I think we'll stop paying for it much sooner than that.
By definition someone with substantial equity can get quite a bit more money from the sale of the house than the balance remaining on the mortgage. Equity is not based on your purchase price, it is based on current market value.Who would ever let a house with substantial equity be foreclosed on? You would just sell the house...
Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?
Example: Buy a house for $300,000. Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.
Economy hits big recession. Major employer(s) in area go belly up or lay off thousands of people and you are one of them. House value drops to $230,000. You sell the house to avoid foreclosure and lose $50,000 for the privilege. Happy days are here again.
Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments. Housing values might go up again or you might find employment before that cushion runs out.
By definition someone with substantial equity can get quite a bit more money from the sale of the house than the balance remaining on the mortgage. Equity is not based on your purchase price, it is based on current market value.Who would ever let a house with substantial equity be foreclosed on? You would just sell the house...
Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?
Example: Buy a house for $300,000. Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.
Economy hits big recession. Major employer(s) in area go belly up or lay off thousands of people and you are one of them. House value drops to $230,000. You sell the house to avoid foreclosure and lose $50,000 for the privilege. Happy days are here again.
Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments. Housing values might go up again or you might find employment before that cushion runs out.
Can you hold on a sec? I wanna make some popcorn. I love this conversation!By definition someone with substantial equity can get quite a bit more money from the sale of the house than the balance remaining on the mortgage. Equity is not based on your purchase price, it is based on current market value.Who would ever let a house with substantial equity be foreclosed on? You would just sell the house...
Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?
Example: Buy a house for $300,000. Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.
Economy hits big recession. Major employer(s) in area go belly up or lay off thousands of people and you are one of them. House value drops to $230,000. You sell the house to avoid foreclosure and lose $50,000 for the privilege. Happy days are here again.
Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments. Housing values might go up again or you might find employment before that cushion runs out.
A technically accurate niggle.
Not at all useful for the purpose at hand, to decide whether it's riskier to pay extra on a mortgage or invest in index funds.
Using the example I gave above, let's assume they pumped $100,000 extra into the mortgage instead of $50,000.
Now they have $50,000 of equity and they sell at the same market price. They still lost the same $50,000 I already pointed out they lost.
How are they better off than if they had that extra $100,000 in more liquid investments to weather the storm and then sell when the market price of the house had recovered?
Hey look, more money.... #PaydayThat's quite a milestone...congratulations!
4/12/19
726 to 401k
269 to HSA
605 to Espp (Minimum 15% discount. Profits will be taken right away at end of offering period)
462 to Taxable Brokerage
Investment Tracking
2/15/19 - $372,432
3/1/19 - $377,098
3/29/19 - $390,738
4/12/19 - $404,719
Been moving a lot of money around lately with rollovers and what not. Pretty excited to break the 400k invested mark though! :) ...
Thanks! Already have my sights set on 500k. Really depends on the market but I'm hoping to get there in 12-18 months. May have a couple big expenses during that time as well.. We will see.Hey look, more money.... #PaydayThat's quite a milestone...congratulations!
4/12/19
726 to 401k
269 to HSA
605 to Espp (Minimum 15% discount. Profits will be taken right away at end of offering period)
462 to Taxable Brokerage
Investment Tracking
2/15/19 - $372,432
3/1/19 - $377,098
3/29/19 - $390,738
4/12/19 - $404,719
Been moving a lot of money around lately with rollovers and what not. Pretty excited to break the 400k invested mark though! :) ...
Current Loan | Refinance | |
Balance | 310,588 | 314,766 |
Rate | 4.375% | 3.875% |
Remaining term | 350 months | 360 months |
P&I | 1,572.25 | 1,480.15 |
Got a call from my lender yesterday, suggesting using the VA interest rate reduction program. The program is legit, but I am trying to determine how much of a benefit I am going to get from a refinance (we only got the house a year ago).
Current Loan Refinance Balance 310,588 314,766 Rate 4.375% 3.875% Remaining term 350 months 360 months P&I 1,572.25 1,480.15
So, the closing costs would get rolled into the principal, which accounts for the increase in balance. I would be taking on $4,178 in closing costs to reduce my P&I by $92.10 and extend the loan by another 10 months. If I am doing the math right here, adding 10 extra P&I payments of $1,480.15 and $4,178 in closing costs adds $18,979.15 to the total cost of the house. Saving $92.10 on P&I means that it will take 206 months (17.2 years) to break even.
Half a percentage point sounds nice, but this looks like a terrible deal. Am I missing something?
Well looky here, something interesting on Yahoo Finance:
https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
Well looky here, something interesting on Yahoo Finance:
https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.
Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
Thinking about it more, it's not unlike my skeptical uncle, who holds almost his entire NW (6 figures easily) in a savings account, because he 'doesn't trust' the market. He can plot what his money will be worth in 1, 2, 5 years (minus inflationary effects) and that brings him comfort. The idea of not knowing what his portfolio would be worth in 5 years if he had it invested in, say, VFINX is too much for him.
I shudder to think what the opportunity cost of 40+ years of savings in his local bank ahve been.
Thinking about it more, it's not unlike my skeptical uncle, who holds almost his entire NW (6 figures easily) in a savings account, because he 'doesn't trust' the market. He can plot what his money will be worth in 1, 2, 5 years (minus inflationary effects) and that brings him comfort. The idea of not knowing what his portfolio would be worth in 5 years if he had it invested in, say, VFINX is too much for him.
I shudder to think what the opportunity cost of 40+ years of savings in his local bank ahve been.
I posted this article without details, because I wanted to let people form their own impressions. As usual, nereo, you've hit on the key point: fear of the unknown.Well looky here, something interesting on Yahoo Finance:
https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.
Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
I posted this article without details, because I wanted to let people form their own impressions. As usual, nereo, you've hit on the key point: fear of the unknown.Well looky here, something interesting on Yahoo Finance:
https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.
Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
I vividly remember that early in the investment stage, small losses were really hard to take and made me very fearful. I see it on this forum whenever there is a pullback in the market. (I used to see it on the thread that's the opposite of this one, but I don't go there any more.) As my investments grew, they developed a kind of buoyancy. When my stache started earning more than I did in a month, things got really exciting. Once it grew to several year's salary, I started to feel kind of giddy. When it exceeded my mortgage balance, I unexpectedly felt strong and mighty. When the markets tanked during the Great Recession, I increased my savings rate. When the markets recovered, I was suddenly FI. It made me feel bulletproof. I gave my employer the well-deserved middle finger and set out to enjoy the shit out of life. These days, I fear for nothing that money can cure. And having a shitload of money cures a LOT.
It wouldn't have happened as quickly if I was focusing on "killing" the mortgage. Had I just offed the mortgage, I'd have a paid-for house without the means to stop working. The glee one expects to feel when the house is paid off is fleeting, compared the the elation that comes from having more money than you ever dreamt possible.
If you're lucky enough to have some combination of high salary and moderate cost of living that you can max out all available savings options and still prepay your mortgage, then go for it! But the majority of zealous mortgage killers are unwittingly shooting themselves in the foot. For someone like me who was single, lived in a HCOLA, and never earned over 100k*, the fact that I'm now FIRE, with a stockpile of money is still a bit surreal. No, amazingly surreal. Every single freedom-filled** day.
I am forever grateful to the long-ago boyfriend who opened my steadfastly blind eyes to this concept. Wherever he is, I'm sure he hit FIRE long ago. Wherever he is, I thank him for helping me reach FIRE, too. I hang around here to help others do what he did for me. Just doin' my part to pay it forward.
*I have reported elsewhere on this forum that broke the $100k mark once in my career. A recent visit to the Social Security website has disproved that recollection. Which makes the size of my current stache even more unbelievable. This shit works, people!
** Those of you who have read my musings elsewhere (including my sorely-needs-an-update journal) may recall that my MIL has ALZ and lives with us. I still feel I live a freedom-filled life with many choices, because we have a big stache and so does she. We have the freedom to have her live with us (and pay cash for a clown house that suits our famiy's needs), because there is plenty of money. We make our choices based on what's best for our situation, not because it's all our finances will allow. That freedom is endlessly liberating. I want everyone to experience it.
Hmmm, how many years after you paid off the house did you continue to work?
I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades. It was a great feeling of accomplishment at the time. Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
Hmmm, how many years after you paid off the house did you continue to work?
I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades. It was a great feeling of accomplishment at the time. Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
I definitely see the advantage of paying off the mortgage before firing in order to get aca subsidies. I also can acknowledge that your rate was probably far higher than what most of us have today.
I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades. It was a great feeling of accomplishment at the time. Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
Well looky here, something interesting on Yahoo Finance:
https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.
Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate. Because you need to account for inflation. So 4%-2% = 2%. Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage. That's a pretty freaking low bar.
Sorry, my question wasn't specific enough. Are you FIRE? If so, for how long?Hmmm, how many years after you paid off the house did you continue to work?
I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades. It was a great feeling of accomplishment at the time. Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
15 since the last one, but the loan was pretty small to begin with because I put so much down. The interest rate was a lot higher than it is today.
Well looky here, something interesting on Yahoo Finance:
https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.
Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate. Because you need to account for inflation. So 4%-2% = 2%. Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage. That's a pretty freaking low bar.
In order to beat 4%, you need to get better than 4% returns in your alternative investment. Inflation has practically nothing to do with it.
Well looky here, something interesting on Yahoo Finance:
https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.
Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate. Because you need to account for inflation. So 4%-2% = 2%. Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage. That's a pretty freaking low bar.
In order to beat 4%, you need to get better than 4% returns in your alternative investment. Inflation has practically nothing to do with it.
Historically stocks with dividends reinvested will return about 9%. Then people say you must count for inflation and so they subtract 2 or 3 percent to get “real returns”. So if you do that for stock returns you need to do it for the mortgage interest too, so it’s a consistent comparison.
Or if you don’t want to include inflation in any of the calculations then 9% return for stocks really crushes 4% for paying the mortgage.
I'm not FIRE yet. Hopefully, in one year if all goes well. So at that point, my answer will be 16 years.Sorry, my question wasn't specific enough. Are you FIRE? If so, for how long?Hmmm, how many years after you paid off the house did you continue to work?
I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades. It was a great feeling of accomplishment at the time. Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
15 since the last one, but the loan was pretty small to begin with because I put so much down. The interest rate was a lot higher than it is today.
Well looky here, something interesting on Yahoo Finance:
https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.
Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate. Because you need to account for inflation. So 4%-2% = 2%. Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage. That's a pretty freaking low bar.
In order to beat 4%, you need to get better than 4% returns in your alternative investment. Inflation has practically nothing to do with it.
Historically stocks with dividends reinvested will return about 9%. Then people say you must count for inflation and so they subtract 2 or 3 percent to get “real returns”. So if you do that for stock returns you need to do it for the mortgage interest too, so it’s a consistent comparison.
Or if you don’t want to include inflation in any of the calculations then 9% return for stocks really crushes 4% for paying the mortgage.
True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.
-SNIP-
True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.
Is that true in this case? I'll admit that this one hurts my sleepy head.
If you are paying off your mortgage in the future with inflated dollars, you are getting an inflation benefit on the principal and the interest.
But if you pay it off with today's dollars, you aren't. It seems like I'm getting the benefit of inflation by paying it off later. Correspondingly, deflation would be a bitch.
-SNIP-
True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.
Is that true in this case? I'll admit that this one hurts my sleepy head.
If you are paying off your mortgage in the future with inflated dollars, you are getting an inflation benefit on the principal and the interest.
But if you pay it off with today's dollars, you aren't. It seems like I'm getting the benefit of inflation by paying it off later. Correspondingly, deflation would be a bitch.
I find it's illustrative sometimes to use extreme examples to try to show a point. Let's assume you have a mortgage with a 15% interest rate, and a crystal ball showing that inflation is going to be 15% (nobody else has access to this crystal ball, so to them inflation is going to be a future mystery). In this case, does it make sense to not pay off the mortgage because of the gonzo inflation? Well, we know historically that stocks do not correlate well with inflation*; in other words, there's no formula where expected stock returns equal x % plus (y times inflation %). So your expected returns on your money, even given the shitty level of inflation, is either going to be the expected returns from equity or the 15% return from your mortgage (assuming you have enough liquid assets to where you aren't going to lose your house and your job at the same time). Granted, if I had this crystal ball I'd probably load up on TIPS. :)
*A study was linked to in one of these threads that shows equities might have a delayed correlation with inflation over a long period of time (decade). A decade is also the amount of time where sequence of returns risk is very real, so I think "waiting it out" would not be a great option.
-SNIP-
True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.
Is that true in this case? I'll admit that this one hurts my sleepy head.
If you are paying off your mortgage in the future with inflated dollars, you are getting an inflation benefit on the principal and the interest.
But if you pay it off with today's dollars, you aren't. It seems like I'm getting the benefit of inflation by paying it off later. Correspondingly, deflation would be a bitch.
I find it's illustrative sometimes to use extreme examples to try to show a point. Let's assume you have a mortgage with a 15% interest rate, and a crystal ball showing that inflation is going to be 15% (nobody else has access to this crystal ball, so to them inflation is going to be a future mystery).
I finally get to participate in this thread. We've been paying down our mortgage pretty aggressively for two years, because we bought with a 10% down payment and I was eager to ditch the PMI. As we got close to the 20% threshold, I phoned the bank to ask about getting PMI removed and they informed me that my loan had mandatory PMI for 11 years, regardless of my equity (which is something that was never clarified for me during the mortgage-shopping process).Congratulations! Nice move and welcome to the club :)
So instead, I took advantage of the current low interest rates and re-financed. I was able to drop the interest rate modestly (4.25% to 4.125%), but better yet I was able to nix the PMI for the next 9 years at a savings of $2000/year. And since I recast the mortgage for 30 years, I now have a longer term for which to enjoy the benefits of massive inflation hedge :)
I think that you are assuming a much higher than historical inflation (and a mortgage rate that reflects a pretty accurate appraisal of future inflation) with only average expected equity returns. If 15% inflation materialized, equity securities would almost certainly have to re-price to discount inflation expectations and to provide a reasonable expectation of a positive real equity risk premium. Like in the late 70's and early 80's; so you would probably be looking at 15% mortgage versus stocks with earnings yields of like 20%.
But yeah if make the assumption of mortgage at 15% and you set the stock returns for the same period at the average over the prior 100 years you would come out ahead.
It's not really any different than assuming equity returns over the next 30 years are only 2% nominal so it is better to pay off my 4% mortgage with additional funds. Either way you are making a bet based on probabilities.
But if rates are low by historical standards to me the one-way option on rates and inflation makes the decision easy.
I finally get to participate in this thread. We've been paying down our mortgage pretty aggressively for two years, because we bought with a 10% down payment and I was eager to ditch the PMI. As we got close to the 20% threshold, I phoned the bank to ask about getting PMI removed and they informed me that my loan had mandatory PMI for 11 years, regardless of my equity (which is something thatFixed that for you.was never clarified for me during the mortgage-shopping processwhich I didn't know because l didn't read the document before I signed it).
So instead, I took advantage of the current low interest rates and re-financed. I was able to drop the interest rate modestly (4.25% to 4.125%), but better yet I was able to nix the PMI for the next 9 years at a savings of $2000/year. And since I recast the mortgage for 30 years, I now have a longer term for which to enjoy the benefits of massive inflation hedge :)
When we're investing, we should be looking at our investment alternatives. I agree that the mortgage value and payment would both diminish in value fairly quickly at 15% inflation. But in this case, if we received historical stock returns (let's use 10% for easy calculations), the purchasing power of that equity would be diminishing even faster.
[snip]
When we're investing, we should be looking at our investment alternatives. I agree that the mortgage value and payment would both diminish in value fairly quickly at 15% inflation. But in this case, if we received historical stock returns (let's use 10% for easy calculations), the purchasing power of that equity would be diminishing even faster.
[snip]
I have no idea what relevance such an example has on this discussion, or to the real world. Basically what you are saying is that if real returns are negative for 30 years and less than the mortgage rate a person should pay off their mortgage. Ok, sure. But what kind of assumptions are those? A thirty year recession? Banks lending at rates which perpetually lose money?
I don't see what point you are trying to make here.
The purpose of the hypothetical was to show that there is no mechanism by which high inflation might affect the decision of whether to pay off the mortgage or invest in equities (as seemed to be indicated by some posts). This seems to trip up some people because they think future mortgage payments will be cheaper in real terms (which is true), but the alternative investment in equities will be cheapened by a similar percentage, making inflation a wash. If I misread those posts and everybody understands that inflation is irrelevant to the question of whether to invest or pay off the mortgage, I apologize.
High inflation would affect the decision of whether to buy or rent, but that is a different question.
I've always thought that a fixed rate mortgage is an inflation hedge. As long as income will generally rise with inflation, the mortgage becomes cheaper to pay off with the inflated currency. A high inflation year, provided your income caught up, would only make the following year's payments even cheaper.
I've always thought that a fixed rate mortgage is an inflation hedge. As long as income will generally rise with inflation, the mortgage becomes cheaper to pay off with the inflated currency. A high inflation year, provided your income caught up, would only make the following year's payments even cheaper.
That's the way I view it as well. The dollar amount of the payment remains the same. So why use fully valued dollars to save tiny, inflated dollars in the future? Your wages are increasing with inflation (hopefully), so the payment is effectively becoming smaller and smaller on its own. Even with modest amounts of inflation that monster $1500 mortgage today will seem pretty darn tame in 20 years.
Works the same way in the withdrawal phase. The WR increases with inflation, but the mortgage payment doesn't. FIRECalc simulations confirm that holding a low interest, long term mortgage increases portfolio survivability. The reason is that inflation is portfolio killer. 1966 was bad year due to following years of stagnant stock values and high inflation. To survive periods like that you either need a higher initial portfolio value, and/or the ability to lower your WR. Holding a low interest, long term mortgage in inflationary times does just that.
Usual caveats which need to be repeated every page or so: Of course, it is possible to come up with a scenario where paying off a mortgage makes sense and every has different circumstances, financial situations, etc. etc. etc. And in this discussion we're talking long term, low interest mortgages, blah, blah, blah.
Regarding the bolded part: I think you misread a lot of what I posted. 1966 was probably one of the few years where it made sense (in retrospect) to pay off the entirety of your mortgage loan even at 30 years duration (though I'm not positive on mortgage interest rates (I can't locate great data going back that far), they seem by correlation to 10-year treasuries to be above the calculated breakeven point of 6%). Inflation doesn't matter, because stocks do not correlate well with inflation (in fact there's been a negative correlation with really high interest rates, increasing sequence of return risks).
And in this discussion we're talking long term, low interest mortgages, blah, blah, blah.
Anyway in the 1966 scenario, as I stated, I was talking about withdrawals, not accumulation like you used in your examples. I've fiddled with this extensively in cFIRESIM and what you find is that because you start with a higher portfolio value, and the mortgage payment is fixed (sometimes people forget to check the "fixed" box), the portfolio value success improves. That's just what happens. When I was looking at it, I was assuming I was partway into a 30-year fixed, and the decision would be to payoff the mortgage all at once with some long-ish period remaining on the mortgage vs. hold the mortgage in retirement. That's a pretty real world decision for a lot of people.
Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much too do but wait.
So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.
It will feel better, I promise.Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much too do but wait.
So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.
In 12 1/2 years when my 15 year fixed rate 2.75% mortgage runs it's course, I'm going over to the other thread and post "I paid off my mortgage!" Hell, why not? It will still feel just as great as if I did it today. :)
It took patience, but I eventually got my wife to sign on to my 5/1 ARM plan. It can be done.Only if she wants a more expensive house :-p
Of course, now I'm in the adjustable rate period, and wife wants to move. So maybe it's backfiring ;-)
Without wanting to derail the thread:I totally think it's relevant. And I was making joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.
Goals of our move are:
- reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
- improve the school situation
- Keep quality/size of house at least the same
We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.
Ha! Yes, but I did sign myself up for the dream stove.....I lovingly call bullshit, sister. You earned that sucker, and it will entice you to cook at home even more.
Ha! Yes, but I did sign myself up for the dream stove.....I lovingly call bullshit, sister. You earned that sucker, and it will entice you to cook at home even more.
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.
I happened to notice that mortgage rates have fallen substantially over the past year. Are any of you brave souls looking into refinancing?
can you really get a 15 yr mortgage when you buy a home ?
can you really get a 15 yr mortgage when you buy a home ?
Yes-yes you can.
10 year and 5 year mortgages are a thing, too, though the benefits you reap from holding a 30 year mortgage are largely non-existent with a 5 year mortgage.can you really get a 15 yr mortgage when you buy a home ?
Yes-yes you can.
Uh, yeah, of course you can. Was that a trick question? We got a 15-year loan at 3.125% when we bought our house. The 30 year option was also attractive (3.875%) but I don't expect to be here long enough to benefit from the longer term/lower payments.
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.
Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).
That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.
Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).
I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much to do but wait.Yep.. I'll peak over there every once in a while and the mindsets can be interesting. People congratulating others for not being a "Slave" to their mortgage anymore.
So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.
That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.
Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).
I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.
Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).
I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
got it-so my mortgage is 4.25/student loans are 4.125-which means by that standard I should be paying the minimum payment on both and throwing everything excess into taxable accounts?
That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.
Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).
I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
got it-so my mortgage is 4.25/student loans are 4.125-which means by that standard I should be paying the minimum payment on both and throwing everything excess into taxable accounts?
Minimum payment THAT REDUCES THE PRINCIPAL. I've read that some student loans have minimum payments that don't even cover all the interest.
I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%
All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior
If I make the minimum payment it's 10 years-$137/month=total of $3,061 in interest paid.
I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%
All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior
If I make the minimum payment it's 10 years-$137/month=total of $3,061 in interest paid.
Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.
A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?
I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%
All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior
If I make the minimum payment it's 10 years-$137/month=total of $3,061 in interest paid.
Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.
A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?
each one has different rates-one I mean total is like 4.2 or so If i don't pay either. If i pay the 5.05 one the 11k will be at like 3.9%.
Just got hired out of school 2 months ago. 22 Hourly 40 hours a week/w2 with no 401k or healthcare offered. In 4 months they will review and possibly direct hire me. Prior to this I was self employed. Puts me at like 45k/year although this year more like 38 due to start date.
I have 27k in my roth (vanguard target date 2060) with 3200 remaining cont. for 2019.
Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgageGreat link, thank you! The illustration cracked me up. We're coming to the end of a year-long flip project. I might print that out and frame it. I'll hang it in our office to look at
Without wanting to derail the thread:I totally think it's relevant. And I was making joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.
Goals of our move are:
- reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
- improve the school situation
- Keep quality/size of house at least the same
We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.
I come from a land where the goal of homeownership came at a cost of HALF of my take-home pay. But I believe in quality of life in the present day, as strongly as I believe in planning for the future. Real estate paved my path to FIRE; it worked out in the end. It sounds like your reasons are solid, so no criticism from this quarter.
Hmm, maybe it would be fair to say that not prepaying your mortgage will enable you make this move comfortably. That puts us all back on track now!
I went into a 5 BR house in which each of the kids' bedrooms had a private bath. I'm pretty bad at mustache-ing compared to some of you, but I can not imagine purchasing that degree of luxury for my own family; I think it would warp our 4-yo old forever. Asking price $580,000. I shudder to think about what that would buy in your area, Dicey.
I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%
All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior
If I make the minimum payment it's 10 years-$137/month=total of $3,061 in interest paid.
Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.
A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?
each one has different rates-one I mean total is like 4.2 or so If i don't pay either. If i pay the 5.05 one the 11k will be at like 3.9%.
Just got hired out of school 2 months ago. 22 Hourly 40 hours a week/w2 with no 401k or healthcare offered. In 4 months they will review and possibly direct hire me. Prior to this I was self employed. Puts me at like 45k/year although this year more like 38 due to start date.
I have 27k in my roth (vanguard target date 2060) with 3200 remaining cont. for 2019.
So the plus if you don't have a 401k option available from your employer is that you can contribute and deduct Traditional IRA without an income cap: https://www.irs.gov/retirement-plans/ira-deduction-limits (https://www.irs.gov/retirement-plans/ira-deduction-limits). However, in your case you look like you'll be in the 12% tax bracket, keeping in mind the 12k standard deduction for filing single: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2018 (https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2018). For the 12% tax bracket, I'm borderline in advising people to invest in Traditional or Roth IRA, since it is likely you'll be making much more money down the road and be in a higher tax bracket. If I was advising myself, I'd probably suggest Traditional rather than Roth, but wouldn't hold it against you if you chose Roth. Traditional is like getting stocks on sale at your combined federal and state income tax rates, so it works out to a pretty big deal.
Since it looks like you're maxing the available tax-advantaged space you have available (which is a very good thing), you can consider whether to put money into paying off the loans or into taxable. If you choose to pay off the loans, definitely pay highest interest rate first. Your highest loan is roughly 5%, which in my opinion is borderline for what I would want to pay off versus investing in a taxable account given the current state of affairs. So again, it's up to you. Keep in mind at your tax bracket dividends won't be taxed and you can still tax loss harvest if the stock market goes south (not to mention you'd establish some liquidity), so perhaps I'd lean toward a taxable account if I were in your shoes.
So to answer your original question: In your situation (low liquidity, relatively low loan interest rates, low tax bracket), I'd recommend paying the minimum payment on all your loans and investing any excess money in taxable (also research tax loss harvesting (TLH)). I would also consider changing from Roth to Traditional for your IRA. Finally, it sounds like you might be in a good position to look around for a higher paying job in the near future. Keep using Vanguard, but pick funds that are different from what you use in your IRA (necessary for TLH), and I'd recommend starting with a fund with a TLH good partner (for example S&P 500 and Total Stock Market make good TLH partners).
What is the downside of a roth? You can't contribute if you make x amount? I guess I'm wondering why switch from roth to traditional unless I know I'm going to be making the limit in the very near future (do you have to switch over in a time frame?)
Ok so the benifits of not having a employer 401k are no cap on how much I can contribute? Traditional Ira is benificial in that you are able to contribute more up front (pre tax) but the profits are taxed when withdrawing. Roth is post tax but is capped per year/no taxes on capital. What is the downside of a roth? You can't contribute if you make x amount? I guess I'm wondering why switch from roth to traditional unless I know I'm going to be making the limit in the very near future (do you have to switch over in a time frame?)
Ok so the benifits of not having a employer 401k are no cap on how much I can contribute?
I'm trying to figure out THL better (from what I'm reading you can sell for a loss, wait 30 days, then buy the same/similar investment and it saves you taxes as it's taken off your income as a loss?). Does it just count towards losses based on contributions that year or is it net?
Without wanting to derail the thread:I totally think it's relevant. And I was making joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.
Goals of our move are:
- reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
- improve the school situation
- Keep quality/size of house at least the same
We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.
I come from a land where the goal of homeownership came at a cost of HALF of my take-home pay. But I believe in quality of life in the present day, as strongly as I believe in planning for the future. Real estate paved my path to FIRE; it worked out in the end. It sounds like your reasons are solid, so no criticism from this quarter.
Hmm, maybe it would be fair to say that not prepaying your mortgage will enable you make this move comfortably. That puts us all back on track now!
I went into a 5 BR house in which each of the kids' bedrooms had a private bath. I'm pretty bad at mustache-ing compared to some of you, but I can not imagine purchasing that degree of luxury for my own family; I think it would warp our 4-yo old forever. Asking price $580,000. I shudder to think about what that would buy in your area, Dicey.
Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgageGreat link, thank you! The illustration cracked me up. We're coming to the end of a year-long flip project. I might print that out and frame it. I'll hang it in our office to look atifwhen we start hankering to do another.
And of course the flip has a mortgage. We bought it just as rates spiked. The interest rate is 5.1%, egads! <--- Don't worry, our credit's fine. That's a non-owner occ rate.
Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage
Question to the Brain Trust:
TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?
Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?
Question to the Brain Trust:How long are you planning on staying in the house? As solon points out, there is a cost - they're just rolling the usual fees into the balance. The longer you stay, the more it makes sense - saving .875% on the 300K balance will swamp the cost of the 6K + 3.75% eventually, but if you're going to sell in a year or 2, not a good move.
TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?
Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?
Is there a change in the term, too? I'm having trouble matching those numbers.
Question to the Brain Trust:How long are you planning on staying in the house? As solon points out, there is a cost - they're just rolling the usual fees into the balance. The longer you stay, the more it makes sense - saving .875% on the 300K balance will swamp the cost of the 6K + 3.75% eventually, but if you're going to sell in a year or 2, not a good move.
TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?
Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?
Question to the Brain Trust:
TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?
Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?
Second question: how certain are you that rates won't fall further?
Second question: how certain are you that rates won't fall further?
Question to the Brain Trust:
TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?
Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?
Two things:
1) Generally speaking the "monthly savings" number is misleading. Your refinance would have a new 30-year term and your current mortgage is something less then that. So you'd be paying less per month, for longer. Not particularly useful for deciding if it's a good decision unless the "less per month" is important because you need more cash now. In your case however you've only had this mortgage for 6 months, so the term extension is not that big of a difference.
2) You'd be paying $6k to lower your interest rate by 0.875%.
302000 * .04625 / 12 = 1163.96 interest you'd pay next month without a refinance
308000 * .0375 / 12 = 962.5 interest you'd pay next month with a refinance plus 6000 / 30 / 12 = $16.67 extra principle payment you'd have to make every month for the lifetime of the loan to adjust for the $6k cost = $979 interest + principal difference
So you're saving about $185 of interest in your first month, but that number will decrease over the lifetime of the loan as the principle decreases. But for the first few years it's close enough for an estimate. So you'd have to stay in your house with this mortgage for about 6000 / 185 = 32.4 months to break even.
I'd say go for it if you think you're going to stay in the house longer than 3 years, otherwise don't bother.
Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.
Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.
By the way generic advice when buying a home is that you're better off renting if you stay less than 5 years due solely to the transaction costs of buying/selling. I get that in this case you weren't expecting to be this uncertain. However it's something for you to think about for next time.
Maybe work like hell to get to FIRE, then move somewhere warmer? Or be a snowbirds between two low cost areas?Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.
By the way generic advice when buying a home is that you're better off renting if you stay less than 5 years due solely to the transaction costs of buying/selling. I get that in this case you weren't expecting to be this uncertain. However it's something for you to think about for next time.
If you talk to my husband, he would tell you he would die in this house, so yes, he would be here longer than 5 years. Uh, me, I am having a very hard period of adjustment. It's freaking cold up here, BTW.
Second question: how certain are you that rates won't fall further?
That's not much different from trying to time the stock market is it? Also, how much lower than 3.75% are you expecting 30-year rates to get? My rate is an astonishingly-low 2.5%, but that's the 10-year rate on a 10/1 ARM. At the time 30-year Fixed rates were about the same, 3.5% or so.
It all does come down to how long you're going to stay in the house though, or more specifically how long you're going to keep this mortgage with the house. If you're going to be refinancing every 6 months chasing lower rates then you'll never make up the cost.
Maybe work like hell to get to FIRE, then move somewhere warmer? Or be a snowbirds between two low cost areas?Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.
By the way generic advice when buying a home is that you're better off renting if you stay less than 5 years due solely to the transaction costs of buying/selling. I get that in this case you weren't expecting to be this uncertain. However it's something for you to think about for next time.
If you talk to my husband, he would tell you he would die in this house, so yes, he would be here longer than 5 years. Uh, me, I am having a very hard period of adjustment. It's freaking cold up here, BTW.
If you even think you might stay five years, then my vote is do it. If you move in less time, the "loss" won't be horribly significant.
Mortgage officially acquired! 30yr fixed rate, 4.25%, for $219,450. Monthly payment $1525.07 including PMI and escrow for tax and insurance. Here we go!
Now we just pay taxes and insurance out of cash flow when they're due.
The smart ones who feather their own nest before giving truckloads of moolah to the bank prematurely, that's who!Now we just pay taxes and insurance out of cash flow when they're due."Seriously you must jest! How can anyone possibly afford to pay for any housing costs out of pocket!?" - Mainstream Financial News
Mortgage officially acquired! 30yr fixed rate, 4.25%, for $219,450. Monthly payment $1525.07 including PMI and escrow for tax and insurance. Here we go!
Nice! You might consider dropping the escrow when you're able. The bank might make you wait until you get rid of PMI. I like having a stable, consistent payment to budget around. With escrow I found that the bank did not do a good job guesstimating and so our payment changed every year. Now we just pay taxes and insurance out of cash flow when they're due.
I'll give a +1 to the Don't payoff your taxes through escrow club. Just write the check, once a year. You're a mustachian, this should be no big problem for you.
If you need help, we can turn the posts here into a contest to see who's setting the most money aside in a savings account to pay their tax bill.
What about "both and"
Each month, as you pay toward your mortgage, borrow enough to offset principal on your HELOC, keeping your total loan balance steady during the next six years.
Put that extra into $VTI, then--six years later--you can withdraw the principal to slay your remaining balance.
I've always been in the "don't pay it off camp" but I'm having doubts and need a sanity check. I just realized that our mortgage balance is less than the amount available on our HELOC (which is also way less--6 figures--than our equity, so little chance of it being canceled). Our HELOC is about 2.8% interest vs. 4.25 for the mortgage. However, the HELOC only has about 6 years left on it (at which point it would need to be paid off in full, or perhaps rolled over into a newly issued HELOC, but surely with less favorable terms than we currently have) vs 12 for the mortgage, and it is adjustable. (We can also lock it, but I'm not sure what that rate is and when I called, they were little help because they said they couldn't tell me that unless I had a balance, which is weird, but whatever.) So if I paid off the mortgage with that money, I'd pay off the HELOC very aggressively.
What say you? Leave it alone or shave off about a point and a half in interest and take on the risk of an adjustable rate, which would necessitate an aggressive pay off?
If it matters, the place is currently a rental and it's doubtful we'd ever live in it again.
Because this doesn't seem like a good time to borrow extra money to invest...
I'd look at how adjustable the HELOC is. There is usually a limit how fast they can adjust upwards. I'd assume worst case scenario, and assume it will adjust upwards as fast as it can. That's really the risk in this scenario.
Speaking of worst case scenarios- most HELOCs are callable and quite a few people had their financial lives ruined in the great recession by HELOCs called due. Personally for that reason, I would give preference to a fixed rate, non-callable mortgage over a HELOC any day and consider the extra percentage or two money well spent.
What about "both and"
Each month, as you pay toward your mortgage, borrow enough to offset principal on your HELOC, keeping your total loan balance steady during the next six years.
Put that extra into $VTI, then--six years later--you can withdraw the principal to slay your remaining balance.
Huh??
Could you explain a bit more?
Because this doesn't seem like a good time to borrow extra money to invest...
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?
One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.
Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.
If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.
If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?
One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.
Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.
If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.
If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.
Has Ross heard of an equity line of credit?
And you are forgetting something very important, which is the human aspect. Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough." Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people. Don't underestimate how tempting a big pot of money is to many, many people (most people?).
Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."
Your advice doesn't make a lot of sense to me, to be honest. If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity? Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc. And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage? You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly. Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced. So they are getting a solid return IF THAT is their goal. The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.
I find it interesting how mortgage products differ between countries. Do you not have mortgage payment holidays or mortgage overpayment borrow back features in your mortgages? The former lets someone take a few months off from paying a mortgage, useful in a job loss scenario, where the latter keeps overpayments in a separate reserve that can be borrowed back if needed. This is also useful in a job loss scenario.
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?
One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.
Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.
If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.
If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.
Has Ross heard of an equity line of credit?
And you are forgetting something very important, which is the human aspect. Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough." Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people. Don't underestimate how tempting a big pot of money is to many, many people (most people?).
Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."
Your advice doesn't make a lot of sense to me, to be honest. If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity? Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc. And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage? You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly. Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced. So they are getting a solid return IF THAT is their goal. The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.
Ross represents the pay off your mortgage club, yes. He's the one I'm trying to convince to change sides (without him realizing I'm doing that). Mr. White represents one small step in the right direction. I just want him to see that the two scenarios are the same, except that one is better.
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?
One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.
Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.
If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.
If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.
Has Ross heard of an equity line of credit?
And you are forgetting something very important, which is the human aspect. Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough." Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people. Don't underestimate how tempting a big pot of money is to many, many people (most people?).
Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."
Your advice doesn't make a lot of sense to me, to be honest. If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity? Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc. And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage? You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly. Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced. So they are getting a solid return IF THAT is their goal. The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.
Ross represents the pay off your mortgage club, yes. He's the one I'm trying to convince to change sides (without him realizing I'm doing that). Mr. White represents one small step in the right direction. I just want him to see that the two scenarios are the same, except that one is better.
But your Mr. White is not better. It's bad advice. And both are squarely in the payoff your mortgage club, period. The don't pay off your mortgage club is about holding the mortgage as long as possible and seeking higher returns elsewhere. Your own advice suggests a safe investment with a similar interest rate as the mortgage, with the goal of paying it off in the same time frame. That's not good advice. Just put it towards the mortgage, as they appear to be doing, if that is the goal.
If you want to sell your friends on the "don't" pay off your mortgage club, then you need to sell them on keeping the mortgage for the duration, and that low cost index funds, over the same duration, are highly likely to produce a much higher return. But they really need to understand what that means, it's not the best solution for everyone.
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?
One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.
Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.
If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.
If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.
Has Ross heard of an equity line of credit?
And you are forgetting something very important, which is the human aspect. Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough." Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people. Don't underestimate how tempting a big pot of money is to many, many people (most people?).
Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."
Your advice doesn't make a lot of sense to me, to be honest. If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity? Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc. And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage? You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly. Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced. So they are getting a solid return IF THAT is their goal. The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.
Ross represents the pay off your mortgage club, yes. He's the one I'm trying to convince to change sides (without him realizing I'm doing that). Mr. White represents one small step in the right direction. I just want him to see that the two scenarios are the same, except that one is better.
But your Mr. White is not better. It's bad advice. And both are squarely in the payoff your mortgage club, period. The don't pay off your mortgage club is about holding the mortgage as long as possible and seeking higher returns elsewhere. Your own advice suggests a safe investment with a similar interest rate as the mortgage, with the goal of paying it off in the same time frame. That's not good advice. Just put it towards the mortgage, as they appear to be doing, if that is the goal.
If you want to sell your friends on the "don't" pay off your mortgage club, then you need to sell them on keeping the mortgage for the duration, and that low cost index funds, over the same duration, are highly likely to produce a much higher return. But they really need to understand what that means, it's not the best solution for everyone.
In the event of job loss, it's far better to be liquid than not.
He sort of has a point though. The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years. Also, maybe add in a meth den popping up next door. :-)
He sort of has a point though. The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years. Also, maybe add in a meth den popping up next door. :-)
Correct. The examples suggest liquidity but are not necessarily any more liquid. So the benefit is non existent. It just didn't make any sense. I'm not arguing at all about whether someone should pay off their mortgage, as both examples were literally "pay off your mortgage early in 8 years"...
He sort of has a point though. The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years. Also, maybe add in a meth den popping up next door. :-)
Correct. The examples suggest liquidity but are not necessarily any more liquid. So the benefit is non existent. It just didn't make any sense. I'm not arguing at all about whether someone should pay off their mortgage, as both examples were literally "pay off your mortgage early in 8 years"...
His hypothetical operated under the fictitious assumption that the mortgage interest rate is the same as the market interest rate. I believe the annualized market rate has been ~9%, whereas current mortgage rates are less than half that. If we include that in the scenario, then Mr. White's in a much better position.
To throw the numbers in, let's say they both currently owe $240k on their mortgage at 4% and have 20.5 years left on their mortgages (original principal balance of $300k).
Ross puts $1,500/month toward the mortgage and pays his house off in 8 years, 3 months, over 12 years faster than he would have with minimum payments.
Mr. White puts $1,500/month in the S&P 500. On the day that Ross paid off his mortgage, Mr. White still owes $168.6k on his, but has nearly $209.8k in that investment account. He could pay off the house in one fell swoop and have an extra $41k. Of course, we hope that Mr. White will see that the money can work harder for him in the stock market and will continue to make minimum payments on the mortgage while throwing more money into his investments.
He sort of has a point though. The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years. Also, maybe add in a meth den popping up next door. :-)
Correct. The examples suggest liquidity but are not necessarily any more liquid. So the benefit is non existent. It just didn't make any sense. I'm not arguing at all about whether someone should pay off their mortgage, as both examples were literally "pay off your mortgage early in 8 years"...
His hypothetical operated under the fictitious assumption that the mortgage interest rate is the same as the market interest rate. I believe the annualized market rate has been ~9%, whereas current mortgage rates are less than half that. If we include that in the scenario, then Mr. White's in a much better position.
To throw the numbers in, let's say they both currently owe $240k on their mortgage at 4% and have 20.5 years left on their mortgages (original principal balance of $300k).
Ross puts $1,500/month toward the mortgage and pays his house off in 8 years, 3 months, over 12 years faster than he would have with minimum payments.
Mr. White puts $1,500/month in the S&P 500. On the day that Ross paid off his mortgage, Mr. White still owes $168.6k on his, but has nearly $209.8k in that investment account. He could pay off the house in one fell swoop and have an extra $41k. Of course, we hope that Mr. White will see that the money can work harder for him in the stock market and will continue to make minimum payments on the mortgage while throwing more money into his investments.
Many people in the pay off your mortgage camp get nervous when you start talking about stock market returns. The stock market is something they don't understand well enough to have confidence in, I guess. You are correct, of course, that superior stock market returns over 30 years are a better return than the mortgage, but I'm having trouble convincing people (and Ross specifically) of that. Even if you show them the numbers, they just say, "Yeah, but that's not guaranteed!"
The original story was an attempt to leave returns off the table so we don't get stuck in the weeds. (Too many metaphors.) Right now, I only want to demonstrate that even if your goal is to eliminate your mortgage, you are still better off not sending the money to the mortgage company.
The don't pay off your mortgage club is about holding the mortgage as long as possible and seeking higher returns elsewhere. Your own advice suggests a safe investment with a similar interest rate as the mortgage, with the goal of paying it off in the same time frame. That's not good advice.While you are correct about the optimum, a key DPYM principle is that a mortgage that is paid down, but not paid off, is not as flexible as having the funds in a liquid investment so it does not provide the security that most in the Payoff Your Mortgage club seek. Paying down the mortgage is sub-optimal AND the emotional reason (security) people argue that they don't care that it is sub-optimal is an illusion.
Do you not have mortgage payment holidays or mortgage overpayment borrow back features in your mortgages? The former lets someone take a few months off from paying a mortgage, useful in a job loss scenario, where the latter keeps overpayments in a separate reserve that can be borrowed back if needed. This is also useful in a job loss scenario.Yes, if US mortgages had these features, paying the mortgage down early would provide the security many seek; however, I bet we wouldn't have low long term fixed rates if we did have those features. Imagine the investor holding a mortgage with a fixed rate below the current going rates that has 100k of extra principle payments made on it being required to allow the 100k to be borrowed back at the original fixed rates. HELOC is pretty much as close to this style of mortgage that we have. HELOC rates are generally not fixed and the lender can freeze the line of credit, preventing the borrower from borrowing more. Lenders are more likely to freeze a HELOC at the time when the borrower most needs financial flexibility.
Yeah I get it Salon. Makes sense if that is your goal/feature you are trying to highlight.
I also agree the HELOC is not an equivalent substitute for the liquid investments; if you've lost your job (or lending has dried up in a financial crisis, or your house won't appraise because the town factory shut down...thus you lost your job) you might not qualify for a HELOC.
Based on all the information I've gleaned via UK housing rental/slumlord shows on Netflix, I feel that your housing laws are in serious need of revision. haha.
But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year. I'll tell you what - all those "early payments" did NOT MATTER to the bank. They only cared about whether I could keep paying. When I couldn't they were very prepared to take possession of the property. Luckily I found work at the very last minute but it was pretty damn close.
Best to stay liquid, IME.
Whew, @tyort1, I am so glad you didn't lose your house! Some people join this club because they get the math, others, like me, learned because a smart person gently but persistently pounded it into their hard heads. Still others lived through an experience that was scary as hell. I'm glad your story doesn't have a sad ending. I'm even more glad that you were willing to share your real life experience and hard earned wisdom. Thank you.But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year. I'll tell you what - all those "early payments" did NOT MATTER to the bank. They only cared about whether I could keep paying. When I couldn't they were very prepared to take possession of the property. Luckily I found work at the very last minute but it was pretty damn close.
Best to stay liquid, IME.
All those extra payments just meant it was easier for the bank to get it's money back out of the deal. If they were short on cash your house would go to the top of the foreclosure list as it could be more quickly sold for way less than it was worth.
I agree with you completely!
Whew, @tyort1, I am so glad you didn't lose your house! Some people join this club because they get the math, others, like me, learned because a smart person gently but persistently pounded it into their hard heads. Still others lived through an experience that was scary as hell. I'm glad your story doesn't have a sad ending. I'm even more glad that you were willing to share your real life experience and hard earned wisdom. Thank you.But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year. I'll tell you what - all those "early payments" did NOT MATTER to the bank. They only cared about whether I could keep paying. When I couldn't they were very prepared to take possession of the property. Luckily I found work at the very last minute but it was pretty damn close.
Best to stay liquid, IME.
All those extra payments just meant it was easier for the bank to get it's money back out of the deal. If they were short on cash your house would go to the top of the foreclosure list as it could be more quickly sold for way less than it was worth.
I agree with you completely!
If you did the 30 year refi and invested that extra money at an annualized market rate of 9%, would the amount in that account be more than your mortgage balance after 15 years? I think that's the simplest way to answer it.
If the goal is paying off the mortgage in 8 years, an S&P 500 investment is hardly safe. That's trying to time the market over a relatively short period of time. If the goal is to invest in the S&P until both the market is up and you have enough to pay off the house, without a set time period, then it's probably good advice (and the advice I give, as well).
i would like people here to pull me from the dark side of POYMC.
outstanding 30 year loan amount of $304k. 25 years left. 3.325%. PI = $1525/mo.
we sold a rental property and have $185k in cash (in addition to other reserve funds) that is earmarked for investments.
we were going to purchase some additional rentals in higher cap areas, and calc'd that we'd get about 6% ROI after all expenses. some deals fell through, so here we are.
i looked into recasting our mortgage using the $185k as a one time payment. this would reduce PI to $575/mo, or a net increase in cash flow of $950/mo. this is a 6.1% rate of return, if i'm doing math right (12*950/185000).
we would mostly likely, but not certainly POM within a few years if some cards fall right at work. 401k and roths are maxed out. i like the idea of increased cash flow, even if long term return on stocks is possible to be higher. my market-timing-gut says that we're not seeing 7% returns for averaged over the next 5 years (all hail thorstache), so i the mortgage is killed off in 5 years, it seems like a win.
agree or disagree?
...the proper comparison timeline is 25 years (the amount remaining on your mortgage). Beating 3.325% over that time frame is as close to a sure thing as you will get in life.
...the proper comparison timeline is 25 years (the amount remaining on your mortgage). Beating 3.325% over that time frame is as close to a sure thing as you will get in life.
And as has been mentioned before, if you can't outpace 3.325% over the next 25 years from investing, you will have way bigger problems than a paid off mortgage (our economy would have been in the toilet for 2.5 decades).
I am still firmly in the camp of invest with an eye towards complete mortgage elimination once you have the funds. You lose all flexibility with a refi and cutting your mortgage balance in half
What if you lose you job and can't afford the $575/mo?
And if you answer "well I'm a talented bloke who could easily scratch together $525/mo" then I would respond that you'd probably be able to scratch together $1,525/month.
What if you lose you job and can't afford the $575/mo?
What if you lose you job and can't afford the $575/mo?
Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.
What if you lose you job and can't afford the $575/mo?
Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.
Is it the $185k you're thinking of putting into the house? If so, then the math is easy, from a "safety from liquidity" standpoint. You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k. That's 10 years of payments you can make even with zero income.
If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575. It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.
The principle works, no matter how much the mortgage is, that's why. RWD's example did not include any gains on the $185k. It would be reasonable for almost any investment to double in ten years time, so in actuality, the money would last far longer.What if you lose you job and can't afford the $575/mo?
Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.
Is it the $185k you're thinking of putting into the house? If so, then the math is easy, from a "safety from liquidity" standpoint. You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k. That's 10 years of payments you can make even with zero income.
If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575. It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.
$575 can be paid with any minimum wage job. That's hardly risky. And if someone is disabled and unable to work, $575 is well within average disability benefits as well. There is simply no reason why $575 would be risky. That's the type of monthly bill people dream of. It nearly eliminates the risk. You can do anything, work anywhere, and get by just fine.
I admit, I get a little skeevy when the thread that celebrates doing the less optimal thing crops up in my feed too often. Similarly, I don't (should that be "DONT"?) love it when this thread goes fallow for too long. I realize that doing something simple like making your regular old mortgage payment and socking the rest away in investments may not seem crow-worthy, but it's good to hear from folks who are making the wise decision to stay the course.Rates have a little further to go for us to refinance again. The no brainer refinpoint for us is 3.25 with no points and estimated 3k closing costs. With the expected fed rate cut, it may be possible which would have us doing a second refi this year. Break even on the numbers above would be 12mo. We are continuing to invest money and watch rates, if the right opportunity comes up to refi to 3.25 and drop some money to remove PMI we may do it. All depends on how the numbers play out though. It's great having a decent stache to have these different options :)
I'm making this post to drag our little thread back up to the surface, where it so rightly belongs. Mortgage rates have been dropping steadily of late. Is anyone thinking about doing a re-fi to lower their rate or to take cash out? Just curious. Maybe you're on a low information diet. Maybe you don't know rates are dropping. In which case, you're welcome.
That's all I've got for now. Hope y'all are enjoying your summer.
We're itching to buy a home, but we have to wait until some job prospects play out. Might not be for a year until we cna pull the trigger. It is frustrating to see rates so low and worry that you might not be able to take advantage of them.
I'm making this post to drag our little thread back up to the surface, where it so rightly belongs. Mortgage rates have been dropping steadily of late. Is anyone thinking about doing a re-fi to lower their rate or to take cash out? Just curious. Maybe you're on a low information diet. Maybe you don't know rates are dropping. In which case, you're welcome.
Off and on I've considered looking at a VAIRRL but also wavering on whether or not we'll stay in our current place beyond 1-2 years. If not, then probably end up selling the place, making the refi a loser.That's an important consideration. Wise move.
The principle works, no matter how much the mortgage is, that's why. RWD's example did not include any gains on the $185k. It would be reasonable for almost any investment to double in ten years time, so in actuality, the money would last far longer.What if you lose you job and can't afford the $575/mo?
Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.
Is it the $185k you're thinking of putting into the house? If so, then the math is easy, from a "safety from liquidity" standpoint. You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k. That's 10 years of payments you can make even with zero income.
If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575. It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.
$575 can be paid with any minimum wage job. That's hardly risky. And if someone is disabled and unable to work, $575 is well within average disability benefits as well. There is simply no reason why $575 would be risky. That's the type of monthly bill people dream of. It nearly eliminates the risk. You can do anything, work anywhere, and get by just fine.
As for EngagedToFIRE's sunny optimism, let's say the reason you can't work is because you are diagnosed with cancer. Let's say you have decent insurance, 80/20 perhaps, and a smallish deductible, let's call it $5k. And you're even lucky enough to qualify for disability benefits. Not having to worry about how you're going to pay for your treatment, keep the roof over your head, including taxes, insurance, food, gas, etc. is priceless. Far-fetched you say? Dunno, it happens every day. People get injured on the job. People have to quit their jobs to take care of ailing family members every day. It's not so far fetched as you might think. Oh, and those numbers I used? Mine, when it happened to me. Fortunately, I made a full recovery and managed to stay out of debt. Many are not so lucky.
I mentioned this over in a Race to thread. While the main reason I DPYMC is the opportunity cost of not having that money in the market, I also do it for the deduction.
As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US. Also as a single person, I think it is way more common to still itemize as the standard Deduction is only $12,000 where $10,000 of that can be State and Local Taxes.
So yes, I keep a mortgage for the tax destructibility. This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.
As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.
This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.
How were you doing a Roth with that income?
About to fix this major problem we have - a paid off house. Bank says so long as we take occupancy within 60 days of closing, they can do an owner-occupied loan, so we're looking to close in early August. Currently living a long way away from this house and renting it out but we're moving back in October. Question:Rates have been dropping, so shop around for a better rate than 4%. And absolutely take the 30. Still works in your favor if you keep investing, which you will, of course. Congratulations!
30 year at 4%
15 year at 3.125%
I'm thinking the 30 year because 4% is still very cheap and 15 extra years of compounding is a big deal. I recall that the breakeven is something like 7-8 years in the house. Does that seem right to y'all?
Definitely shop around. I'm seeing 0 point refi's in my area at 3.5.Lowest I'm seeing on bankrate for a 30 year is 3.75% - it is probably a smaller loan than most are thinking. Maybe $125K loan - will depend on the appraisal. Still a mid-6 figure difference in 30 years, with conservative assumptions.
Also, right now I would consider doing a 6 to 10 month dollar cost average into the market with a large sum like that. Just to mitigate some initial risk. Just my opinion though.
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I'm 3 years into a 30 year fixed 3.75% mortgage. Purchased with 95% LTV and $56 PMI. I can request PMI removal based on appreciation, paying $300 for a BPO that must show 75% LTV. Based on lowest algorithmic estimate I've found (bottom of a tight Zestimate range) I'm currently at 73% LTV. If BPO comes back short of what I need, I would have up to 120 days to reduce the balance to cancel PMI based on the valuation. I estimate that within that period we could reduce the balance by about 4%. I'm trying to decide when to pull the trigger and request the BPO. One reason to wait is that Habitat for Humanity may bring Rock the Block to our neighborhood in September - we've applied to have some front yard landscaping improvements which could improve curb appeal.
Curb appeal helps sell a properly valued house faster than one without it, but it doesn't typically add much (if any) to the value of the house. That's my take on it.If Curb appeal is unlikely to factor in to a BPO, then I agree, sooner is better. I'm confident that we could pay down the principal enough to get PMI removed if the valuation comes back 3% below our target (5% below Zestimate). While I don't want to pay PMI any longer than needed, the $2k I've paid thus far provided the opportunity to get into the market years earlier than I otherwise would have; so overall it has been worthwhile.
If you can easily handle any likely appraisal shortfall then the sooner the better. Paying for your own insurance isn't fun but at least you get some value out of it. PMI is just you paying for someone else's insurance and that sucks.
As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.
This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.
How were you doing a Roth with that income?
I don't think there are any income limits for contributing to a Roth 401k, only a Roth IRA.
I'm firmly in this club. But just before I really truly saw the light, I refinanced to a 15-year mortgage. It's got an unreal interest rate (2.75% fixed) so I don't regret the decision too much. I have about 12.5 years left on it. Balance is $243k.
Any thoughts about whether I should consider refinancing into a 30-year? What are the primary considerations in making that decision?
I'm firmly in this club. But just before I really truly saw the light, I refinanced to a 15-year mortgage. It's got an unreal interest rate (2.75% fixed) so I don't regret the decision too much. I have about 12.5 years left on it. Balance is $243k.
Any thoughts about whether I should consider refinancing into a 30-year? What are the primary considerations in making that decision?
Got that same 2.75% fixed, 15yr rate about the same time. Just sent a payment in today, we're down to 2 years. I'm paying about $140 a month extra just so I can see the balance go down $1000 a month. Helps me stay motivated not to pay it off faster because I can see progress each month. :)
1) Will you actually invest the difference between the payments? Because if you won't, the answer is "No, don't do it."
2) Will your investments provide a higher average return, such as the 10% average returns from the US stock market? Or less volatile returns like a 4% or higher fixed return? Or will they produce more income than you would save in interest payments?
3) Will you need the lower payments to do other things that you value much more than having the house paid off in 12.5 years?
4) Will having those lower house payments for another 30 years impact your FIRE plans in a bad way?
Got that same 2.75% fixed, 15yr rate about the same time. Just sent a payment in today, we're down to 2 years. I'm paying about $140 a month extra just so I can see the balance go down $1000 a month. Helps me stay motivated not to pay it off faster because I can see progress each month. :)
1) Will you actually invest the difference between the payments? Because if you won't, the answer is "No, don't do it."
2) Will your investments provide a higher average return, such as the 10% average returns from the US stock market? Or less volatile returns like a 4% or higher fixed return? Or will they produce more income than you would save in interest payments?
3) Will you need the lower payments to do other things that you value much more than having the house paid off in 12.5 years?
4) Will having those lower house payments for another 30 years impact your FIRE plans in a bad way?
Thanks, @SwordGuy and @Telecaster ! All good thoughts.
I currently pay only $568 in interest each month, and it looks like that would really balloon if I went to a 30-year right now.
I don't have any particular need for the lower payments, other than wanting to do more investing. But at this point we're doing $60,000/year in pre-tax investing, plus mortgage and student-loan paydown, so it's maybe not imperative to invest more.
On the timing, the 12.5 years remaining is actually very convenient as that almost matches the point when I'll be able to retire from government with full lifetime health benefits.
So I'm thinking that unless rates go down it's not worth refinancing.
thanks again!
MP
Keep the 2.75%!This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.
If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.
Keep the 2.75%!This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.
If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.
Keep the 2.75%!This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.
If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.
Thanks, @Dicey and @talltexan ! I think this is right. Currently it seems that I would be going up quite a bit on the rate.
So far, just shy of three years into DPOYM (and MMM) I've gone from $300k mortgage and about $50k invested to $243k mortgage and $250k invested. And those two numbers are diverging by about $6.5k per month. With every passing month the mortgage becomes less and less of a worry. Definitely feels like the right path!
There's something incredibly powerful when your investments grow past the balance of your mortgage. Looking at your investment balance and realizing "Hey, I could pay off my ENTIRE mortgage right now, if I wanted to". It's really cool.
There's something incredibly powerful when your investments grow past the balance of your mortgage. Looking at your investment balance and realizing "Hey, I could pay off my ENTIRE mortgage right now, if I wanted to". It's really cool.
It's even cooler when you realize you can do that AND still be FIRED. :)
Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)
Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!
If I were to attempt this, I would advise myself to select just one person to prosthelytize to. I'd spend the rest of my time teaching pigs to sing.Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)
Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!
Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
If I were to attempt this, I would advise myself to select just one person to prosthelytize to. I'd spend the rest of my time teaching pigs to sing.Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)
Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!
Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
Rhetorical question. Notice the first word, "If", lol!If I were to attempt this, I would advise myself to select just one person to prosthelytize to. I'd spend the rest of my time teaching pigs to sing.Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)
Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!
Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
Which do you think you can accomplish faster?
For the average person, paying off your mortgage is still a pretty good decision.You are 100% right about the bolded part, ender. I think it's clear that mustachians do things differently. It's understood here that this only works if you're socking as much as possible into investments. In fact, it's also understood that we don't just "save" money, we invest it. A parallel is the rent vs. buy conundrum. The renters are supposed to invest the difference they're saving by not owning, but there's not a lot of that going on in the general population, either.
Most folks on this forum can decide "$1k in investments or mortgage principle" but many people will take that instead to be "$1k in mortgage principle or random toys."
That's why I love these forums. Most folks here are way beyond "average". The optimal choice is clearly explained and then it's up to us to do what we decide with that information.The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.I don't agree that's true. There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more. Any more being the operative word. They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.I don't agree that's true. There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more. Any more being the operative word. They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."
Other than that, the entire forum is fair game for this message. I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.
What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one. So a nudge might be more appropriate than a face-punch. :)
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.
You got that right!
I **know** the math. I **like** the math. But I **love** not owing money to anyone.
This thread was started in February of 2017. How many folks have joined the forum and that thread since then? It's one of a very few places where balanced discussion is forbidden. "Here we can only celebrate this potentially sub-optimal thing." Now hold on, I completely agree that for some, it's not a sub-optimal decision, but imagine a thread celebrating your low mpg ICE vehicle.The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.I don't agree that's true. There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more. Any more being the operative word. They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."
Other than that, the entire forum is fair game for this message. I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.
What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one. So a nudge might be more appropriate than a face-punch. :)
This thread was started in February of 2017. How many folks have joined the forum and that thread since then? It's one of a very few places where balanced discussion is forbidden. "Here we can only celebrate this potentially sub-optimal thing." Now hold on, I completely agree that for some, it's not a sub-optimal decision, but imagine a thread celebrating your low mpg ICE vehicle.The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.I don't agree that's true. There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more. Any more being the operative word. They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."
Other than that, the entire forum is fair game for this message. I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.
What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one. So a nudge might be more appropriate than a face-punch. :)
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.
You got that right!
I **know** the math. I **like** the math. But I **love** not owing money to anyone.
I get how throwing money into an already large investment account can feel like tossing buckets of water into a small lake. But here's the thing about owing money - our society runs on debt, and you literally cannot escape it, nor should we want to.
There's the obvious -- even after paying off your mortgage you still owe taxes in perpetuity. But that money in your investment account is shares owed to you, which (hopefully) are invested in companies who owe a debt to your investment fund tied to their future profits. If you still work your company owes you money until ever pay period, and they owe money to teh bank, and the bank to their investors. Every transaction you make involves debt, often across multiple parties. Further, other people want you to owe money to them, and they also want to owe money to you. All within reason, of course - too much or too high a rate and it can become parasitic, but on level it's what makes our system run
SwordGuy, you remember we have no mortgage on our primary clown house, right? I differ a bit from B42's position in that I believe one doesn't have to keep rolling a mortgage into perpetuity. We did something along the lines of what you just described. In your case, I 100% agree that paying that sucker off is a very reasonable option, primarily because you followed the Order of Investment and did all the things right. Or enough of the things right to get you to where you are. You have hit your number first, then paid off (or could pay off) the mortgage. You're a textbook case of why the Order of Investment works. Congratulations on your success!Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.
You got that right!
I **know** the math. I **like** the math. But I **love** not owing money to anyone.
Our current mortgage is a 15 year fixed 2.75% rate. We have 12 years to go.
Before finding this thread, it was our plan to buy our current house, sell our old paid-off house, and then pay off our current house.
I've sold 2 houses, each of which netted enough to pay off the mortgage. I inherited enough to pay off the mortgage. So far, I've managed to invest instead of pay it off.
I sold a 3rd house using owner financing and the buyer is expected to refinance to a cheaper rate this month. (Good bye to the 6% interest I'm earning. :( ) That one will be enough to pay off our mortgage.
I really want to pay off the mortgage and not have it anymore. But I know it's silly to do that from a financial point of view. We'll see what we end up doing.
Lots of people celebrate travel on this forum and many folks cheer them on because it makes them happy to travel. Other people get happy by paying down their mortgage. At least the folks paying down their mortgage are making a better financial choice than the travellers are... :)
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.
You got that right!
I **know** the math. I **like** the math. But I **love** not owing money to anyone.
I get how throwing money into an already large investment account can feel like tossing buckets of water into a small lake. But here's the thing about owing money - our society runs on debt, and you literally cannot escape it, nor should we want to.
There's the obvious -- even after paying off your mortgage you still owe taxes in perpetuity. But that money in your investment account is shares owed to you, which (hopefully) are invested in companies who owe a debt to your investment fund tied to their future profits. If you still work your company owes you money until ever pay period, and they owe money to teh bank, and the bank to their investors. Every transaction you make involves debt, often across multiple parties. Further, other people want you to owe money to them, and they also want to owe money to you. All within reason, of course - too much or too high a rate and it can become parasitic, but on level it's what makes our system run
I think it's because for decades putting money in broker accounts is so abstract -- there are no stock certificates to hold in one's hands -- but writing a mortgage payment check is a visceral thing that seems more real.
I think it's because for decades putting money in broker accounts is so abstract -- there are no stock certificates to hold in one's hands -- but writing a mortgage payment check is a visceral thing that seems more real.
Interesting. I suppose it is for many. Only I've never written an actual mortgage payment check. Not once.
If you owe $800 a month for your mortgage, that means you need $240,000 to cover the mortgage post-FIRE (assuming you are working with the 4% SWR). If that 240k is more than what is left to pay off your mortgage, you could very well come out ahead switching to focus on paying down the mortgage. The math could be close in many places depending on what you think market returns will be. But for me, the tipping point will be when I can comfortably cover my non-mortgage costs.
Maybe this is not a new idea and has been addressed in the thread already, haha. But it only recently occurred to me!
If you owe $800 a month for your mortgage, that means you need $240,000 to cover the mortgage post-FIRE (assuming you are working with the 4% SWR). If that 240k is more than what is left to pay off your mortgage, you could very well come out ahead switching to focus on paying down the mortgage. The math could be close in many places depending on what you think market returns will be. But for me, the tipping point will be when I can comfortably cover my non-mortgage costs.
Maybe this is not a new idea and has been addressed in the thread already, haha. But it only recently occurred to me!
This assumption is erroneous; even paying the minimum, your mortgage will disappear eventually, and absent refinancing it will be gone in less than 30 years. The original trinity study examined withdraw rates over 30 year periods, with withdraws pegged to inflation (maintaining purchasing power). To put it simply, if you have only 10 or 15 years you can use a much greater WR to cover the mortgage than 4%; sol did a meta-analysis earlier in this thread, but a quick run through FireCalc shows you could use a 11% WR to support 10 years remaining on your mortgage and have an even higher chance of success than 4% over 30 years. To use your example if your mortgage was $800/mo you would need just $87k to support mortgage payments for the next decade, plus whatever you need for living expenses going forward.
There are two reasons why such a high WR will work - 1) the timeframe is much shorter (here 10 years instead of 30) and 2) your mortgage payment does not increase, so your WR for this portion of your expenses (the PI of your mortgage) will not increase with inflation.
Of course money is fungible, so this segregating of accounts is more for mental comprehension than anything. If you want $40k/year in living expenses plus enough to cover an $800 mortgage for another 10 years and are comfortable with the level of risk in a 'normal' 4% WR strategy you will need a total investment portfolio of $1.087MM, not $1.24MM. Further, historically over 93% of periods would have had a sizeable amount left in this 'mortgage sinking fund' after the final payment, in roughly half the portfolio would have at least $50k remaining - hardly chump change.
Hmm, interesting reply. I wish I was more savvy with firecalc.
Once my mortgage is paid off, I’d only need around $22,000 a year to support my lifestyle comfortably. That means $550,000 at a 4% SWR.
But my mortgage is $993. I only recently bought property once it occurred to me that I need a place to live post-FIRE as the perpetual travel thing doesn’t appeal to me as a forever solution, haha. For simplicity’s sake, lets assume I get no more raises or changes to my savings rate, etc...in the coming years and we just have a steady 7% return and no changes to my income or savings rate.
I would hit FI on my non-mortgage needs in just a bit over four years (4 years 2 months based on the Mad Fientist’s calculator). But I’d still have about 25.5 years left on my mortgage, haha. To include the $993 mortgage payment, I’d be at 7 years countdown to FIRE. 34 months difference (4 years 2 months versus 7 years) is not a huge difference if I am liking my job alright, but how do I figure the splitting of the difference like you are talking about since that mortgage expense would only be for 25 years and not forever and maybe trim some time off to hit full FIRE?
edit: typos
If you owe $800 a month for your mortgage, that means you need $240,000 to cover the mortgage post-FIRE (assuming you are working with the 4% SWR). If that 240k is more than what is left to pay off your mortgage, you could very well come out ahead switching to focus on paying down the mortgage. The math could be close in many places depending on what you think market returns will be. But for me, the tipping point will be when I can comfortably cover my non-mortgage costs.
Maybe this is not a new idea and has been addressed in the thread already, haha. But it only recently occurred to me!
This assumption is erroneous; even paying the minimum, your mortgage will disappear eventually, and absent refinancing it will be gone in less than 30 years. The original trinity study examined withdraw rates over 30 year periods, with withdraws pegged to inflation (maintaining purchasing power). To put it simply, if you have only 10 or 15 years you can use a much greater WR to cover the mortgage than 4%; sol did a meta-analysis earlier in this thread, but a quick run through FireCalc shows you could use a 11% WR to support 10 years remaining on your mortgage and have an even higher chance of success than 4% over 30 years. To use your example if your mortgage was $800/mo you would need just $87k to support mortgage payments for the next decade, plus whatever you need for living expenses going forward.
There are two reasons why such a high WR will work - 1) the timeframe is much shorter (here 10 years instead of 30) and 2) your mortgage payment does not increase, so your WR for this portion of your expenses (the PI of your mortgage) will not increase with inflation.
Of course money is fungible, so this segregating of accounts is more for mental comprehension than anything. If you want $40k/year in living expenses plus enough to cover an $800 mortgage for another 10 years and are comfortable with the level of risk in a 'normal' 4% WR strategy you will need a total investment portfolio of $1.087MM, not $1.24MM. Further, historically over 93% of periods would have had a sizeable amount left in this 'mortgage sinking fund' after the final payment, in roughly half the portfolio would have at least $50k remaining - hardly chump change.
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.I don't agree that's true. There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more. Any more being the operative word. They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."
Other than that, the entire forum is fair game for this message. I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.
What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one. So a nudge might be more appropriate than a face-punch. :)
Haha, yeah. I made a few mentions of the idea this weekend. The responses were that they just feel better paying extra. :)Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)
Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!
Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
Once my mortgage is paid off, I’d only need around $22,000 a year to support my lifestyle comfortably. That means $550,000 at a 4% SWR.So in 4 years 2 months (give or take whatever volatility contributes) you will be FI except for your mortgage. At that point you could just keep saving the same way you have been until you reach $550,000 + your current mortgage balance. Assuming your current mortgage is at 4% interest (lower rates would mean slightly higher balance) that balance should be about $190,300 with 25.5 years to go - far less that the $297,900 needed to pay $993/mo at a 4% SWR.
But my mortgage is $993. I only recently bought property once it occurred to me that I need a place to live post-FIRE as the perpetual travel thing doesn’t appeal to me as a forever solution, haha. For simplicity’s sake, lets assume I get no more raises or changes to my savings rate, etc...in the coming years and we just have a steady 7% return and no changes to my income or savings rate.
I would hit FI on my non-mortgage needs in just a bit over four years (4 years 2 months based on the Mad Fientist’s calculator). But I’d still have about 25.5 years left on my mortgage, haha. To include the $993 mortgage payment, I’d be at 7 years countdown to FIRE. 34 months difference (4 years 2 months versus 7 years) is not a huge difference if I am liking my job alright, but how do I figure the splitting of the difference like you are talking about since that mortgage expense would only be for 25 years and not forever and maybe trim some time off to hit full FIRE?
edit: typos
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.May be in the wrong thread - what you should do is cash-out refinance to the max you can get on a 30 year term at the still low rates . . . and invest the 90K or so you'll then have available to you.
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
God I hope you are joking.....
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
Don't get me wrong, I think Dave is great for getting people out of total financial illiteracy. But you can't take his advice blindly. A lot of it is sub-optimal when comparing to the FI related paths. Dave focuses on embracing the emotion behind financial decisions and making a path based off those emotions while I think you should overcome the emotion in order to make the most optimal path. I think a huge part of this thread is overcoming emotion based financial decisions for mathimatical based decisions. It's a place where we can encourage overcoming emotions while the other thread leans into the emotions.My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
God I hope you are joking.....
He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
Don't get me wrong, I think Dave is great for getting people out of total financial illiteracy. But you can't take his advice blindly. A lot of it is sub-optimal when comparing to the FI related paths. Dave focuses on embracing the emotion behind financial decisions and making a path based off those emotions while I think you should overcome the emotion in order to make the most optimal path. I think a huge part of this thread is overcoming emotion based financial decisions for mathimatical based decisions. It's a place where we can encourage overcoming emotions while the other thread leans into the emotions.My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
God I hope you are joking.....
He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
The main thing that bothers me is when people blindly follow his advice without questioning anything. I don't know if AnxietyFly does follow him blindly but regardless, it should never be done in any situation regarding finance or life.
Still not sure why AnxietyFly felt the need to drop that post in this thread. Unless they really just want to pick a fight.
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Don't get me wrong, I think Dave is great for getting people out of total financial illiteracy. But you can't take his advice blindly. A lot of it is sub-optimal when comparing to the FI related paths. Dave focuses on embracing the emotion behind financial decisions and making a path based off those emotions while I think you should overcome the emotion in order to make the most optimal path. I think a huge part of this thread is overcoming emotion based financial decisions for mathimatical based decisions. It's a place where we can encourage overcoming emotions while the other thread leans into the emotions.My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
God I hope you are joking.....
He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
The main thing that bothers me is when people blindly follow his advice without questioning anything. I don't know if AnxietyFly does follow him blindly but regardless, it should never be done in any situation regarding finance or life.
Still not sure why AnxietyFly felt the need to drop that post in this thread. Unless they really just want to pick a fight.
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I sometimes think Dave may be more "correct" in focusing on the emotional aspect. People are emotional beings. The more I talk to others about MMM type strategies, the more I realize that so many people really need the emotional version more than the mathematical version. Some people "get it" like those here, but dang, so many are straight up emotional. I can think of several friends off the top of my head. They tell me they want to save and be FI, etc. We'll talk about very specific things they are doing wrong, nothing crazy - going out to lunch every day, for example. They'll totally get it, they'll read MMM.... and then every single day they still go out to eat and they continue to have this "well, it's just $5" attitude about it. The math doesn't sink in no matter what you say. At the same time, I'll hear about paying off credit cards and being more mindful of that. So they seem capable of the Ramsey approach (they've never even heard of Ramsey, funny enough) but totally incapable of following the MMM approach, which to us, is incredibly common sense. It's weird.
Ramsey may be on to something with his approach. We all know people who just never seem to "get it" the MMM way.
Don't get me wrong, I think Dave is great for getting people out of total financial illiteracy. But you can't take his advice blindly. A lot of it is sub-optimal when comparing to the FI related paths. Dave focuses on embracing the emotion behind financial decisions and making a path based off those emotions while I think you should overcome the emotion in order to make the most optimal path. I think a huge part of this thread is overcoming emotion based financial decisions for mathimatical based decisions. It's a place where we can encourage overcoming emotions while the other thread leans into the emotions.My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
God I hope you are joking.....
He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
The main thing that bothers me is when people blindly follow his advice without questioning anything. I don't know if AnxietyFly does follow him blindly but regardless, it should never be done in any situation regarding finance or life.
Still not sure why AnxietyFly felt the need to drop that post in this thread. Unless they really just want to pick a fight.
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I sometimes think Dave may be more "correct" in focusing on the emotional aspect. People are emotional beings. The more I talk to others about MMM type strategies, the more I realize that so many people really need the emotional version more than the mathematical version. Some people "get it" like those here, but dang, so many are straight up emotional. I can think of several friends off the top of my head. They tell me they want to save and be FI, etc. We'll talk about very specific things they are doing wrong, nothing crazy - going out to lunch every day, for example. They'll totally get it, they'll read MMM.... and then every single day they still go out to eat and they continue to have this "well, it's just $5" attitude about it. The math doesn't sink in no matter what you say. At the same time, I'll hear about paying off credit cards and being more mindful of that. So they seem capable of the Ramsey approach (they've never even heard of Ramsey, funny enough) but totally incapable of following the MMM approach, which to us, is incredibly common sense. It's weird.
Ramsey may be on to something with his approach. We all know people who just never seem to "get it" the MMM way.
When I was young I thought Woody Allen films were really funny. They had all these crazy, neurotic, over-emotional people in them. Crazy funny!
Then I grew up and went out into the world of work and discovered that people like that are not only a real thing, there are gobs of them out there.
Emotional decision making appears to be the norm, not an aberration.
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
Why would you post this in a thread titles "DONT Payoff your Mortgage Club"? You apparently have no intention of being part of the club.
Dunno, it could turn out to be quite a fortuitous accident. Feel free to hang out here, read through the thread and ask questions. It just might change your financial future for the better.My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
Why would you post this in a thread titles "DONT Payoff your Mortgage Club"? You apparently have no intention of being part of the club.
It was a bad decision to reply in this thread.
Hahaha.My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
Why would you post this in a thread titles "DONT Payoff your Mortgage Club"? You apparently have no intention of being part of the club.
It was a bad decision to reply in this thread.
Hahaha.My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
Why would you post this in a thread titles "DONT Payoff your Mortgage Club"? You apparently have no intention of being part of the club.
It was a bad decision to reply in this thread.
Just cash out refinance, invest, and everything will be ok. ;)
Run some numbers and mess around with cfiresim to project different scenarios. I am curious though... Do you have much in investments and have you been investing for any significant length of time? Are you confident in the market and the 4% rule for long term withdrawals? I could totally see how someone that is not familiar with index investing would not feel comfortable doing a strategy like this. At that point its more about getting into the market and building confidence in your investment plan. Then come to the dark side and invest your home equity... Buahaha :)
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Sure. As long as your net worth isn't in Bitcoin and blow.
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Sure. As long as your net worth isn't in Bitcoin and blow.
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Three fund strategy. 20% bonds, 20% intl, and 60% s&p. I use index funds mostly through my 401k.
Sure. As long as your net worth isn't in Bitcoin and blow.
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We can't neglect the shopping club investment grade coins. With 15 micro grams of real 24K gold! (I worked out the value to be about a nickle, I think). But hey! It's real gold!
Three fund strategy. 20% bonds, 20% intl, and 60% s&p. I use index funds mostly through my 401k.
Don't listen to FIreDrill. The appropriate investment allocation is 40% Bitcoin, 40% blow, and 20% beanie babies.
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.
We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.
Maybe that's because you haven't read through this thread.@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.
We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.
Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.
We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.
Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
I guess what people on this thread are trying to say, AnxietyFly, is that if you want to be gazelle intense, you should not pay off the mortgage. You should drag the mortgage out as long as possible, and aggressively invest every spare penny.
Do the math for yourself and see how it works out. If you have any questions about how to do the math, I know people here will be happy to help you.
Maybe that's because you haven't read through this thread.@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.
We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.
Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
I get it that you invested first and now you want to pay off the house. I'm cool with that, now that you have shared this additional information. What you may not realize is that the thread that celebrates mortgage payoff focuses mainly on that goal, to the exclusion of all others, in many cases. Further, they will tolerate no discussion of other points of view, hence the formation of this thread. If we can't go there, why are you here? We've been pretty tolerant of your comments in this thread, but I'm very curious why you remain, if your mind is made up. It's fine if your goal is to pay off your house, but you have come to the place that is least likely to celebrate and support your decision. Why is that?I guess what people on this thread are trying to say, AnxietyFly, is that if you want to be gazelle intense, you should not pay off the mortgage. You should drag the mortgage out as long as possible, and aggressively invest every spare penny.
Do the math for yourself and see how it works out. If you have any questions about how to do the math, I know people here will be happy to help you.
Solon, I have been gazelle intense on investing the last 22 years. For example, my net worth has increased about 120k per year the last few years. I'm still investing but also paying off the house now. I really don't need to spare every penny because I have compound interest doing the heavy lifting. Would it be better mathematically invest instead of payoff the house, maybe but my goal is to pay off the house.
I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.If that's not you, again, why are you here? Surely you are not trolling us? Some of us are willing to "accept debt" in order to shorten the number of days until FIRE. If you want to have to work longer and use more of your own dollars instead of compound interest, you are free to do so. But coming here with snide remarks will not produce the result you desire. It could result in you being identified as a troll. Typically, trolls are not kindly regarded on this site.
I guess what people on this thread are trying to say, AnxietyFly, is that if you want to be gazelle intense, you should not pay off the mortgage. You should drag the mortgage out as long as possible, and aggressively invest every spare penny.
Do the math for yourself and see how it works out. If you have any questions about how to do the math, I know people here will be happy to help you.
Solon, I have been gazelle intense on investing the last 22 years. For example, my net worth has increased about 120k per year the last few years. I'm still investing but also paying off the house now. I really don't need to spare every penny because I have compound interest doing the heavy lifting. Would it be better mathematically invest instead of payoff the house, maybe but my goal is to pay off the house.
Maybe that's because you haven't read through this thread.@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.
We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.
Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.
❤❤❤❤❤❤ @nereo, you're a badass rockstar. Awesome explanation!Maybe that's because you haven't read through this thread.@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.
I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.
you are accepting debt by owning a house. You will have to pay that debt - in the form of taxes and obligatory insurance - in perpetuity regardless of whether you pay off your mortgage or not. What you are really considering with regard to paying off a mortgage is whether you would rather have less debt with less money, or more debt with more money. That and what proportion of your net worth do you feel comfortable with being tied to your home.
Traditionally these are referred to as assets and liabilities. It is a mistake to believe that your housing liabilities will disappear once you have paid off your mortgage. Likewise not all assets are equal in their volatility and appreciation potential.
I was raised with the concept that you should never have debt. Mortgage debt, while acceptable, was something one tried to pay down as quickly as possible. Many years ago when I bought my first home, if you found an interest rate of 10% on a mortgage, you were lucky. Of course you wanted to pay that off as quickly as possible because the interest was so high. But that was a different time and things have changed. It took me a very long time to adjust my thinking to realize that the credit market has changed dramatically since I was young.
We are in the middle of a 15-year mortgage at 2.5%. We even committed the cardinal sin of mortgages -- we have one in retirement. Although we don't bring in a lot of money monthly, we still manage to continue saving while having a great life. And I haven't even tapped into Social Security yet.
We have no credit card debt, but I would not hesitate to use one of the balance transfer offers with very low rates should we need to make a major purchase. I prefer it to taking from savings and always pay it off in full before the 0% ends. So far we've put on a new roof, replaced the heat pump, paid for doggie operations, and replaced the fence this way. The savings/investment accounts remain untouched and continue to grow.
I can certainly understand why paying off a mortgage early is the goal of many. I also understand why some might feel particularly uneasy having a mortgage while in retirement. All I can say is that having a very low rate mortgage has worked well for us in retirement. Once I got over the "can't have any debt" thing, I learned how to use the extremely low interest rates to our advantage. With such a low rate, the only way we'll pay off our mortgage early will be if we move.
I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.
not poking a bear here, but is there anything similar to SORR with the DPOYMC mentality? like, someone could kill their mortgage off, in say 5 years, and during that 5 year period stocks were flat or down? would you come out ahead long term?
not poking a bear here, but is there anything similar to SORR with the DPOYMC mentality? like, someone could kill their mortgage off, in say 5 years, and during that 5 year period stocks were flat or down? would you come out ahead long term?
But isn't the best time to buy stocks when they are down?
Then, when they go back up, you own way more shares than you otherwise would.
In a perfect stock investing world for me, stocks would stay low all thru my accumulation phase and then catch up to the historical average rate of return right before I retire. I would be way richer that way because I would own lots more shares.
how about: now, in 2019, after historic bull run. let's say stocks go flat for 2 years, then plunge come reelection of a (D) (everyone's theory, i guess), and don't recover to 2019 levels until 2027. IOW - TOP IS IN?
not poking a bear here, but is there anything similar to SORR with the DPOYMC mentality? like, someone could kill their mortgage off, in say 5 years, and during that 5 year period stocks were flat or down? would you come out ahead long term?
I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.
It's very short-sighted not to accept debt. Using certain kinds of debt can make you wealthier than if you become completely debt-free.
In other words, what's a more important goal to you? Minimizing debt or maximizing wealth? Because that's what this discussion boils down to. Me, I'd prefer to maximize my wealth.
Do the members of the no early pay-off club have an orthodox opinion on when refinancing makes sense?
I am at 3.75% right now and could go slightly sower, but we are talking to around 3.625%, so it doesn't seem worth the transaction cost.
Is there generally a "rule" or "guideline" on this like there is for everything else? Only if you can lower .5% or 1% or something? Or is it just a matter of looking at the break-even point for the transaction cost and going from there?
edit: typos
how about: now, in 2019, after historic bull run. let's say stocks go flat for 2 years, then plunge come reelection of a (D) (everyone's theory, i guess), and don't recover to 2019 levels until 2027. IOW - TOP IS IN?
I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.
It's very short-sighted not to accept debt. Using certain kinds of debt can make you wealthier than if you become completely debt-free.
In other words, what's a more important goal to you? Minimizing debt or maximizing wealth? Because that's what this discussion boils down to. Me, I'd prefer to maximize my wealth.
Yes Debt is a "risk" but so is doing something like becoming an entrepreneur and building a business. Those who become truly wealthy and stay wealthy do so by taking risks. They are all calculated risks but risks none the less.
I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.
It's very short-sighted not to accept debt. Using certain kinds of debt can make you wealthier than if you become completely debt-free.
In other words, what's a more important goal to you? Minimizing debt or maximizing wealth? Because that's what this discussion boils down to. Me, I'd prefer to maximize my wealth.
Yes Debt is a "risk" but so is doing something like becoming an entrepreneur and building a business. Those who become truly wealthy and stay wealthy do so by taking risks. They are all calculated risks but risks none the less.
Not sure if you're agreeing with me or disagreeing.
Mortgage debt is about as low-risk as it gets. Hurrying to pay off a 2.5 to 3.5% mortgage isn't lowering your risk, if anything it is increasing it.
Do the members of the no early pay-off club have an orthodox opinion on when refinancing makes sense?
I am at 3.75% right now and could go slightly sower, but we are talking to around 3.625%, so it doesn't seem worth the transaction cost.
Is there generally a "rule" or "guideline" on this like there is for everything else? Only if you can lower .5% or 1% or something? Or is it just a matter of looking at the break-even point for the transaction cost and going from there?
edit: typos
In addition to looking at the payment difference, important to look at any cash you could take out. Lower interest rate is a positive. Additional money to invest today is a positive as well.Do the members of the no early pay-off club have an orthodox opinion on when refinancing makes sense?
I am at 3.75% right now and could go slightly sower, but we are talking to around 3.625%, so it doesn't seem worth the transaction cost.
Is there generally a "rule" or "guideline" on this like there is for everything else? Only if you can lower .5% or 1% or something? Or is it just a matter of looking at the break-even point for the transaction cost and going from there?
edit: typos
Looking at the breakeven point is probably the smartest way.
My basic rule of thumb is if I can save $100/month in interest it is worth it to refinance.
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.OMG, I'm so sorry this happened to you. Now I'm dying to know the rest of the story. What happened next?
If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.
However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.
It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.
Folks, don't pay off your mortgage.
Eventually the condo was completely paid off, and we lived there for another year or so without a mortgage payment before moving into a rental that we actually fit in (lots of kids). Eventually we sold it. Having it paid off made it no hurry to clean it out and put it on the market, which also probably cost us a shit-ton of money, but was very low stress. Still in a rental now, hopefully someday my kids will feel like leaving home, and then we might be looking at buying again, but a reasonably sized place.I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.OMG, I'm so sorry this happened to you. Now I'm dying to know the rest of the story. What happened next?
If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.
However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.
It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.
Folks, don't pay off your mortgage.
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.
If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.
However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.
It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.
Folks, don't pay off your mortgage.
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.
If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.
However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.
It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.
Folks, don't pay off your mortgage.
This is always house hindsight works. The good bet, historically, is don't pay off your mortgage. But you couldn't possibly know the future at the time. All sorts of scenarios are possible where it was better for you to pay off your mortgage, though obviously less likely.
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.
If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.
However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.
It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.
Folks, don't pay off your mortgage.
This is always house hindsight works. The good bet, historically, is don't pay off your mortgage. But you couldn't possibly know the future at the time. All sorts of scenarios are possible where it was better for you to pay off your mortgage, though obviously less likely.
There are serious advantages to "having a paid off mortgage". That is a very different situation than "having a mortgage and working to pay it off early."
Having a paid off mortgage provides financial safety by lowering your fixed monthly expenses.
Putting extra money into your mortgage early (but not paying it off) decreases financial safety because one still has the same fixed monthly living expenses and has fewer financial reserves to deal with serious financial problems. It does, however, make the company who holds your mortgage safer as the less you owe on it, the easier it will be for them to get their money back in a foreclosure sale.
Now, an interest rate of 9.375% like my first mortgage is so high that it's worth the risk to pump lots of money into it.
An interest rate of 2.75% like my current mortgage is so low that it's not.
It really just depends on the rate of the mortgage, the rate of other long term investments, how much of a financial cushion one has and the stability of one's income. (Never overestimate the latter. Stuff happens.)
This is always house hindsight works. The good bet, historically, is don't pay off your mortgage. But you couldn't possibly know the future at the time. All sorts of scenarios are possible where it was better for you to pay off your mortgage, though obviously less likely.I would call it hindsight if the less likely outcome occurred.
HOW TO CALCULATE THE SAVINGS BY NOT PAYING DOWN YOUR MORTGAGE (using the previous post as an example)
Let
B = Mortgage balance [$160,000]
P = Mortgage payment (should be principle and interest only, exclude property taxes, property insurance, PMI, or anything else in escrow) [1,645]
N = number of payments remaining [120 = 10 x 12]
IM = EFFECTIVE Interest rate on your mortgage [.0433]
II = Interest rate on investments [Assuming .07 per year]
Calculate M= Monthly Investment Interest rate = (1+II)^(1/12) = 1.07^.0833333 = 1.0056541
If you don't know P, you can either go to a calculator on the internet or in Excel Type in =-PMT(0.0433/12,120,160000) to get the answer.
Deciding between a payoff assumes you have $160,000 lying around to extinguish the mortgage. The question is what is the difference at the end of 10 years between:
1) Leaving the $160,000 invested and regular making mortgage payments.
2) Paying off the $160,000 and immediately investing the newfound $1,645 each month at the investment rate.
Option 1 is easy to calculate. At the end of 10 years you have 160,000 x 1.07^10 = $314,744.
Option 2 is more convoluted. The first $1,645 payment grows by 1.07^10. The second $1,645 payment grows by 1.07^9.917, etc. The total is $282,973.
Here's how you calculate it: P x M x (M^N - 1) / (M - 1)
= 1,645 x 1.0056541 x (1.0056541^120 - 1) / (1.0056541 - 1)
= 1,654.30 x (1.96714 - 1) / 0.0056541
= 1,654.30 x 0.96714 / 0.0056541 (bit of rounding error)
The difference here is $31,771. Lower than other people's situations because (1) it's only a ten year mortgage, and (2) the interest rate is closer to 7% than many other people's mortgages. But for some people that could be easily be a year's worth of expenses, so prepaying your mortgage could delay your FIRE date by a year in this instance.
One other thing you should take into account is the effective interest rate of your mortgage. For those of us in the US that can deduct the interest rate on our mortgages (not everyone necessarily gets a benefit from this, you should check), that interest probably lowers your state and federal taxes. This calculation isn't so simple because we automatically qualify for a standard deduction, so if you aren't already filing a Schedule A you might not see a full benefit.
Hope that helps. If you can't be bothered to do the calculation, post your information here and I will try to help. People with (1) longer mortgages and (2) lower interest rates and going to find more benefit in not paying down early. I did this calculation for someone else on the forum and the difference was nearly TWO HUNDRED THOUSAND DOLLARS!
7% is the investment figure MMM has thrown around on the site, but you are welcome to tweak it depending on your age and risk tolerance. Any mustachian this involved in making their finances go longer sooner owes it to themselves to do this calculation before paying down their mortgage.
Can you run my hypothetical numbers? I don't have a mortgage, but am someone who had a family member drowning in debt their whole life and I therefore have made it my goal to pay off any kind of debt lightning fast. I'm seeing this logic though and am willing to change my mindset.Since you don't have a mortgage or (it sounds like) extra money to either invest or put towards your mortgage, this kind of calculation really doesn't apply to you.
I also stay home with the baby right now and we live on 1 low income. We wouldn't get a house until my early to mid forties, after a few other goals are met. I'm also finding that apartment living works well for us right now in that we're still not settled down and appreciate not having to come up with the costs related to home ownership (maintenance, for example). Having a 30 year mortgage that's not paid off early would mean we'd pay it off 10 years after traditional retirement age, though (we will likely not RE, which I'm fine with). Does this logic still stand for our situation?
Our rough numbers may be: between $200,000-$250,000 house; 20% down, monthly principle/interest payment $765-$955, 4% interest rate, depending on what 30% my husband's income ends up being at that time (to cover principle, interest, taxes, and insurance- and preferably closing costs and maintenance, but that's unlikely).
Can you run my hypothetical numbers? I don't have a mortgage, but am someone who had a family member drowning in debt their whole life and I therefore have made it my goal to pay off any kind of debt lightning fast. I'm seeing this logic though and am willing to change my mindset.Since you don't have a mortgage or (it sounds like) extra money to either invest or put towards your mortgage, this kind of calculation really doesn't apply to you.
I also stay home with the baby right now and we live on 1 low income. We wouldn't get a house until my early to mid forties, after a few other goals are met. I'm also finding that apartment living works well for us right now in that we're still not settled down and appreciate not having to come up with the costs related to home ownership (maintenance, for example). Having a 30 year mortgage that's not paid off early would mean we'd pay it off 10 years after traditional retirement age, though (we will likely not RE, which I'm fine with). Does this logic still stand for our situation?
Our rough numbers may be: between $200,000-$250,000 house; 20% down, monthly principle/interest payment $765-$955, 4% interest rate, depending on what 30% my husband's income ends up being at that time (to cover principle, interest, taxes, and insurance- and preferably closing costs and maintenance, but that's unlikely).
If you get to the place where you do have a mortgage and have some extra money, you would be much better off following the Investment Order thread, and maximize contributions to tax-advantaged accounts before putting money toward a low interest rate mortgage.
I'm getting some snooty vibes from this club! Just let me in, already!Nah, we're passionate, but not snooty-tooty. I'm actually the one who suggested starting this thread to the late, great boarder42, and...wait for it...we (my husband and I, not b42) paid cash for our house, so I don't even have a mortgage.* But we wouldn't have been able to do this if we hadn't started out with houses and mortgages that we didn't pay off early, at the expense of other savings and investing. I just want people to understand the math before they decide how to manage their mortgage. It seems a simple thing, but it's surprisingly contentious. There is no perfect answer, however the better answer (IMO) is not the sound bite that "debt is bad" or "kill the mortgage" are. It's more nuanced, and requires a little higher level of financial understanding. Nothing a good mustachian can't handle. Plus, that's what this thread is for. Helping people make the most optimal decision, one mortgage at a time. So, welcome, Luz!
Can you run my hypothetical numbers? I don't have a mortgage, but am someone who had a family member drowning in debt their whole life and I therefore have made it my goal to pay off any kind of debt lightning fast. I'm seeing this logic though and am willing to change my mindset.Since you don't have a mortgage or (it sounds like) extra money to either invest or put towards your mortgage, this kind of calculation really doesn't apply to you.
I also stay home with the baby right now and we live on 1 low income. We wouldn't get a house until my early to mid forties, after a few other goals are met. I'm also finding that apartment living works well for us right now in that we're still not settled down and appreciate not having to come up with the costs related to home ownership (maintenance, for example). Having a 30 year mortgage that's not paid off early would mean we'd pay it off 10 years after traditional retirement age, though (we will likely not RE, which I'm fine with). Does this logic still stand for our situation?
Our rough numbers may be: between $200,000-$250,000 house; 20% down, monthly principle/interest payment $765-$955, 4% interest rate, depending on what 30% my husband's income ends up being at that time (to cover principle, interest, taxes, and insurance- and preferably closing costs and maintenance, but that's unlikely).
If you get to the place where you do have a mortgage and have some extra money, you would be much better off following the Investment Order thread, and maximize contributions to tax-advantaged accounts before putting money toward a low interest rate mortgage.
We have $6,000 extra a year (for now while husband is in school and before I go back to work) and are working on the Investment Order.
Are you saying that everyone who bought their homes in this thread did so after they filled all the Investment Order buckets every year? Or just that's what they should have done (house purchase comes after ER, 401K Match, HSA/ROTH/401K Max and 529 contribution)?
So once we exceed $55,000 savings per year, we should put further savings toward a house down-payment? And rather than paying off the house early, we should use the excess of $55,000 to then invest in regular, non-tax advantaged accounts?
If I'm understanding this correctly, I'd still love to see the calculation of not paying off that hypothetical house early. To see if there'd be a big difference in our case.
I don't see why the calculation wouldn't apply, unless you've already made up your mind that it's out of our reach. And by the way... I think you meant to say "WHEN you get to the place...". I'm getting some snooty vibes from this club! Just let me in, already!
Of course not everyone waited to buy a house until after filling all other buckets. What priority you place on saving for a downpayment will depend on your situation - what is the rent vs buy calculation in your area? How much do you value ownership? Are you willing/able to DIY house projects or do you need to save extra for hiring things done? Or do you have enough spare cashflow to do those things without impacting savings? Etc.
The reason it's difficult to do a calculation before you actually have a mortgage, is you don't know what the inputs will be - what interest rate will you have? How much will you need to borrow? What's the required monthly payment, and how much is Principle vs interest (not counting taxes/insurance)? Will you be paying PMI? How much extra will you have to either pay off or invest each month? Once you are actually facing the choice of pay the mortgage on schedule vs pay the mortgage early (rather than get a mortgage or not get a mortgage, very different question), it is much easier to show the math on the two alternatives.
However, note that the calculation you quoted is for the difference between paying off all at once vs investing, i.e. it is assuming you have a chunk of money lying around that is equal to the remaining balance on your mortgage. In your hypothetical example, that's not the case, so the math would be different.
I just want people to understand the math before they decide how to manage their mortgage.
So part of this conversation is really rent v buy and if someone is better off completely filling the investment buckets before purchasing a house (math-wise, and not taking the emotional value considerations into account)? I've often heard that a house is an expense, not an investment so I'm curious about where in the Investment Order lineup FI'er's calculate when this purchase would be a wise move.
I'm getting some snooty vibes from this club! Just let me in, already!Nah, we're passionate, but not snooty-tooty. I'm actually the one who suggested starting this thread to the late, great boarder42, and...wait for it...we (my husband and I, not b42) paid cash for our house, so I don't even have a mortgage.* But we wouldn't have been able to do this if we hadn't started out with houses and mortgages that we didn't pay off early, at the expense of other savings and investing. I just want people to understand the math before they decide how to manage their mortgage. It seems a simple thing, but it's surprisingly contentious. There is no perfect answer, however the better answer (IMO) is not the sound bite that "debt is bad" or "kill the mortgage" are. It's more nuanced, and requires a little higher level of financial understanding. Nothing a good mustachian can't handle. Plus, that's what this thread is for. Helping people make the most optimal decision, one mortgage at a time. So, welcome, Luz!
*I am not against mortgages. In fact, my name is on four of them, just not on our primary home.
If rates revert back to the historical average, we could board up this thread.Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right? Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest
If rates revert back to the historical average, we could board up this thread.Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right? Well shortly after getting their mortgage you could by CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest
If rates revert back to the historical average, we could board up this thread.
When I was saving the down payment for my first house, I put it in CD's. I think the best rate I got was 15.8%. I also remember being elated to get a mortgage on another property for (only) 7%! That was in about 1996.If rates revert back to the historical average, we could board up this thread.Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right? Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest
If rates revert back to the historical average, we could board up this thread.Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right? Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest
A big part of this play is dependent in access to these magical 15 or 30 year fixed noncallable yet refinancable if rates drop, nominal loans in US$.Even if the rate is only fixed for 10 years, that's plenty of time to be worth investing. I've recently heard of a 1.9% 10 year fixed in the UK (and a 1.5% rate fixed for 2 years on a 30 year amortization schedule - as long as rates stay low shopping the loan every few years isn't bad, but you do take on the risk that rates increase).
In most other countries these don't exist. And not at like sub4% rates.
When I was saving the down payment for my first house, I put it in CD's. I think the best rate I got was 15.8%. I also remember being elated to get a mortgage on another property for (only) 7%! That was in about 1996.High interest rates in the 80's and 90's were part of what motivated me to be a saver.
Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???That's in the ballpark of my PI payment on a 2/1 in a less affluent area of Sacramento. Borrowed about $167k on a 30 year fixed at 3.75%. Could easily see that on a 3/2 in a LCOL area.
Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???That's in the ballpark of my PI payment on a 2/1 in a less affluent area of Sacramento. Borrowed about $167k on a 30 year fixed at 3.75%. Could easily see that on a 3/2 in a LCOL area.
Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???That's in the ballpark of my PI payment on a 2/1 in a less affluent area of Sacramento. Borrowed about $167k on a 30 year fixed at 3.75%. Could easily see that on a 3/2 in a LCOL area.
This sounds a lot like our second home location. You can definitely find 3/2's in that price range still. But you aren't going to be finding a 6 figure job, locally. Only if you can work remotely would it be a great option. Even $15/hr is probably a bit rich for that area. We struggle with the idea of moving our business there sometimes just to take advantage of the super LCOL and even cheaper workforce, which would massively accelerate our savings.
And by the way... I think you meant to say "WHEN you get to the place...". I'm getting some snooty vibes from this club! Just let me in, already!Sorry, I was thinking that living on one low income meant there wasn’t a lot of room for extra savings. Glad to be corrected, good on you!
Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.
Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.
Sure, if they're done optimally.Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.
Can't all debt payoffs and investments be celebrated? Does VTSAX have exclusive rights to celebrations?
If rates revert back to the historical average, we could board up this thread.Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???
We're those people. We live in a Midwestern city of 250,000+ and we own a 1955 3 bed/3 bath ranch that, when we had a mortgage on it cost us $584 per month as a 30 year mortgage. We paid it off in 5 years & 4 months.
@Luz
I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.
The decision of IF to purchase a house is totally separate from the decision to pay early or not. I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly
After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)
After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72
If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator). Not necessarily the best ones, but the first ones I found :P
Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.
Hope that helps.
ETA: Fixed typos.
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.
It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
@Luz
I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.
The decision of IF to purchase a house is totally separate from the decision to pay early or not. I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly
After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)
After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72
If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator). Not necessarily the best ones, but the first ones I found :P
Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.
Hope that helps.
ETA: Fixed typos.
I guess this answers how much is it worth to have the peace of mind of having a paid off mortgage - about $900k in this case.
@Luz
I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.
The decision of IF to purchase a house is totally separate from the decision to pay early or not. I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly
After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)
After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72
If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator). Not necessarily the best ones, but the first ones I found :P
Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.
Hope that helps.
ETA: Fixed typos.
I guess this answers how much is it worth to have the peace of mind of having a paid off mortgage - about $900k in this case.
You don't know that. You can't see the future. That's based on projected, possible, maybe, probably, but not sure market returns. It's almost certainly assuming average returns over that first 10 years. But who knows? Look at the NIKKEI over the last 30 years.... You just never know.
Yesterday we went out to a restaurant to eat ramen (!) and paid $34 (!!) for two bowls and a noodle refill including tip (!!!). I just did the math, and I could get better results by eating at the ramen restaurant 19 times per month for 10 years straight as I would by paying off my 150k mortgage balance. Also eating ramen is less risky than paying off the mortgage because I could get hit by a big ass truck ;) tomorrow and have enjoyed all the ramen before I went, whereas paying off a mortgage would be delayed gratification that depends on a long string of being alive.Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.
Can't all debt payoffs and investments be celebrated? Does VTSAX have exclusive rights to celebrations?
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.
It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.
It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.
You don't know that. You can't see the future. That's based on projected, possible, maybe, probably, but not sure market returns. It's almost certainly assuming average returns over that first 10 years. But who knows? Look at the NIKKEI over the last 30 years.... You just never know.
You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.
It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.
"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.
Doesn't sound like a facepunch to me. In fact, it's very much celebrated on this site. If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok. Just own it yourself because YOU think it's sub-optimal.
Th nikkei argument is bullshit - especially when talking about mortgages. Even if it wasn't who the hell is investing only in japan and getting a 30 year US mortgage?
Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years". Which is, of course, a variation of market timing, and we all know how bad that is.
Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit. Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure. In fact it's the opposite. Paying extra toward the mortgage is actually very, very risky.
A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID.
Keep following that strategy until you are fully FI. Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"? If you don't, then pay it off. If you do, then keep the extra $$ invested. Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.
I see they got your smarts.Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years". Which is, of course, a variation of market timing, and we all know how bad that is.
Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit. Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure. In fact it's the opposite. Paying extra toward the mortgage is actually very, very risky.
A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID.
Keep following that strategy until you are fully FI. Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"? If you don't, then pay it off. If you do, then keep the extra $$ invested. Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.
I think this is a good plan. I do wonder how many people who have a 'home sinking fund' decide to eliminate their mortgage after becoming fully FI for two reasons; 1) a decade or so into a fixed-rate mortgage that payment looks pretty insignificant after inflation and increases in property taxes, and 2) once you've got a hefty six-figures in an VTSAX account it can be tough to watch that evaporate into a home you've lived in for years and already consider 'yours'.
My parents started a home sinking fund decades ago with the intent to follow this plan. Now that account has enough money in it that the dividends alone are paying the mortgage (they did a couple of cash-Refis for lower rates, and plugged the money back into the account). In another decade the mortgage will be gone and they should have an account with well over $1MM in it, which has been segregated from their comfy retirement portfolio.
You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.
It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.
"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.
Doesn't sound like a facepunch to me. In fact, it's very much celebrated on this site. If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok. Just own it yourself because YOU think it's sub-optimal.
There is a colossal difference between paying off a mortgage AFTER achieving FI, when one can do it in one lump sum, (or just pay cash up front), and throwing everything at the mortgage before funding every tax-favored retirement vehicle that's available to you. If you are FI, and don't want to have a mortgage, that's your decision. You do know we paid cash for our primary home, right? And that we have four other properties with mortgages? And we're FI & FIRE? Yeah, totally not hiding.
More importantly, this thread exists to thoroughly discuss this topic so that one can made the most optimal decision for their situation. You are not required to post contrarian views. There are plenty of other threads for that. Instead of snarking at me, you could shorten the number of years you have to work and the number of dollars you have to earn to attain your freedom by studying the Investment Order and following it to the best of your ability. While you're at it, be sure to bone up on the Forum Rules, especially Rule #1.
If rates revert back to the historical average, we could board up this thread.Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right? Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest
My parents love to tell me that they were such industrious workers that they could count on receiving 3-4% raises every year.
If you stretch to buy a house, but lock in fixed payments, having 10% more income to make those payments (two years later) is a really good thing.
Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???
If I had used a mortgage instead of cash on the last 3/2 house I bought, my mortgage would have been $280 for P&I, had it been for personal use.If rates revert back to the historical average, we could board up this thread.Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right? Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest
My parents love to tell me that they were such industrious workers that they could count on receiving 3-4% raises every year.
If you stretch to buy a house, but lock in fixed payments, having 10% more income to make those payments (two years later) is a really good thing.
Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???
Quick look, if I were to refinance my current balance (about $165,000) my mortgage payment would be about $720 on a 30 year loan. For a 3/2 house.
Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years". Which is, of course, a variation of market timing, and we all know how bad that is.
Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit. Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure. In fact it's the opposite. Paying extra toward the mortgage is actually very, very risky.
A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID.
Keep following that strategy until you are fully FI. Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"? If you don't, then pay it off. If you do, then keep the extra $$ invested. Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.
You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.
It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.
"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.
Doesn't sound like a facepunch to me. In fact, it's very much celebrated on this site. If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok. Just own it yourself because YOU think it's sub-optimal.
There is a colossal difference between paying off a mortgage AFTER achieving FI, when one can do it in one lump sum, (or just pay cash up front), and throwing everything at the mortgage before funding every tax-favored retirement vehicle that's available to you. If you are FI, and don't want to have a mortgage, that's your decision. You do know we paid cash for our primary home, right? And that we have four other properties with mortgages? And we're FI & FIRE? Yeah, totally not hiding.
More importantly, this thread exists to thoroughly discuss this topic so that one can made the most optimal decision for their situation. You are not required to post contrarian views. There are plenty of other threads for that. Instead of snarking at me, you could shorten the number of years you have to work and the number of dollars you have to earn to attain your freedom by studying the Investment Order and following it to the best of your ability. While you're at it, be sure to bone up on the Forum Rules, especially Rule #1.
I'll probably get banned from this "payoff" thread after this comment:
[urlhttps://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968][/url]
I'll probably get banned from this "payoff" thread after this comment:
fixed link (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968)
I'll probably get banned from this "payoff" thread after this comment:
[urlhttps://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968][/url]
Ok... my thought is that this thread and the other thread are both motivational "clubs" organized for a specific purpose. I'd be happy to see more from over there come and join us, but it's probably not the best thread to throw stones in.
That's called being a troll, and it's not something you should brag about. They've made it very clear that they don't want to hear the DPOYM side of the argument in that thread.
A few sincere questions:
Now that state and local taxes are only federally deductible up to 10K, if you can't itemize and deduct your mortgage interest, has anybody changed their minds about hanging on to a mortage?
Also, along the lines of all the admittedly great arguments for not paying off the mortgage, would you recommend to increase your mortgage? Basically leverage your house to reinvest in stocks. This is just borrowing money at a low interest rate to invest it for a higher return--you pay back the loan and keep the difference, like cc churning. Would you take out a personal loan at a lower rate than you think the market will return?I believe that - when done systematically and intelligently, refinancing your home and using the proceeds for investments is a great use of your assets. What worries me a great deal is when someone's NW is >>50% primary residence. There is so much that can go wrong there, and so little that can be done when things go south. Personally I strive to have < 25% of my total NW in my home, and as I pay down my mortgage it's easy for that to get skewed.
Rates are dropping again. Ten-year yield down in the 1.6-range. What a time to be alive!
Rates are dropping again. Ten-year yield down in the 1.6-range. What a time to be alive!
wrote a parallel thread about it, but we're house hunting right now and going through the process of getting a verified mortgage. So far we've gotten a 30y fixed at 3.625%. Oddly, the rates for 15y aren't substantially better (I think the lowest we were quoted was 3.4% - not something we're interested in). 5/1 ARMs are considerably higher than 30y fixed, if that makes any sense at all.
The yield on the 30 day is better than on the 10 year. bonkers.
What a time to be alive indeed.
Looking forward to paying off this mortgage as slooooooowly as humanly possible.
Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?
We just refinanced through Accelin Loans and it was a pretty good experience. I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate. 3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?
What rate did you get? When we've tried to shop rates, it's been a fucking nightmare.We just refinanced through Accelin Loans and it was a pretty good experience. I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate. 3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?
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We paid "some" points and got 3.875 earlier this year. Breakeven on the refinance is 18 months so there is a high likelihood that it will pay off. I usually shop via bankrate website, get a couple quotes, and then see if any of the lenders can beat the best quote. We were somewhat limited because pmi is apart of our payment so getting a great rate with low pmi can be a challenge. I think Accelin is offering 3.875 with no points right now and 3.5 with.5 points. I've seen some lenders advertised 3.5 with 0 points over the last couple days so it may be possible to get that rate in the comings weeks. This also depends on the area and loan amount though.What rate did you get? When we've tried to shop rates, it's been a fucking nightmare.We just refinanced through Accelin Loans and it was a pretty good experience. I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate. 3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?
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I'm seeing 3.875 for a cashout refi in Texas, which tends to raise the rates a bit over other states and a non-cashout refi due to our overbearing legislature making all these silly restrictions...I'm not sure how they categorize a new first on a paid for house, because I've never had a paid for house before we bought this one. I'm not sure it's treated as favorably as an acquisition loan. In a way it is a cash-out loan, but not in the typical sense. Anybody have any experience getting a mortgage on a free & clear house? Where is boarder42 when you need him?*
I'm seeing 3.875 for a cashout refi in Texas, which tends to raise the rates a bit over other states and a non-cashout refi due to our overbearing legislature making all these silly restrictions...I'm not sure how they categorize a new first on a paid for house, because I've never had a paid for house before we bought this one. I'm not sure it's treated as favorably as an acquisition loan. In a way it is a cash-out loan, but not in the typical sense. Anybody have any experience getting a mortgage on a free & clear house? Where is boarder42 when you need him?*
*Rhetorical question. I hope he's out on his boat, in front of his lake-front house, enjoying a beer. Cheers, b42!
So I'm thinking fairly seriously about refinancing.
I'm in year 3 of a 15-year fixed @ 2.75%.
Just got quoted a 30-year fixed @ 3.5%.
Making this switch would reduce monthly payment by about $840.
I would apply some of the difference (about $300/month) to fully maxing out pre-tax retirement savings (401a, 457, and solo 401k) at over $60k per year. The rest would go to paying down some medium-interest student-loan debt (5.4%).
Seems like a decent idea to me but am very interested to hear thoughts from the hive mind!
I think it's a pretty solid move assuming the entire 840/mo savings goes towards investments or high interest debt payoff. How large is the student loan debt and how much money do you have available in non tax advantaged accounts? It may be a good idea to start building your taxable brokerage investment accounts as well in order to give you more flexibility in the event of a downturn.
I'm weird though and would rather have 50k debt at 4% interest while also holding a 50k taxable portfolio versus having no debt and no taxable portfolio. Having a large amount of money available at anytime really makes me feel more secure compared to having no money and no debt. All of this being said assuming debt interest rate is sub 5% and the monthly payments are easily manageable.
I think it's a pretty solid move assuming the entire 840/mo savings goes towards investments or high interest debt payoff. How large is the student loan debt and how much money do you have available in non tax advantaged accounts? It may be a good idea to start building your taxable brokerage investment accounts as well in order to give you more flexibility in the event of a downturn.
I'm weird though and would rather have 50k debt at 4% interest while also holding a 50k taxable portfolio versus having no debt and no taxable portfolio. Having a large amount of money available at anytime really makes me feel more secure compared to having no money and no debt. All of this being said assuming debt interest rate is sub 5% and the monthly payments are easily manageable.
The student loan is only $7300. We currently have $0 in non-tax-advantaged accounts. I would happily start building those up as well. All monthly debt payments are easily manageable, since we are already putting about $60k into pre-tax investments every year.
I now have another house. and another mortgage. thats 3 mortgages and I'm not overpaying on any of them. Thats how I win right?I've been following that story and just commented on the topic over in your shiny new journal. I figured that was your plan. Once the mortgage has been vanquished, is The X required to take over payment of the taxes and insurance? If so, I'm with you: I'd kill that sucker asap. If the T&I are tied in to spousal or offspring support, I might arrange the flight pattern so they all end at about the same time. Bigger jolt upon landing for The X seems like a good thing, but maybe I'm just being petty ;-)
oh expect I hope to pay the lowest interest one off in full this year...!!!
Its a long story...
I now have another house. and another mortgage. thats 3 mortgages and I'm not overpaying on any of them. Thats how I win right?I've been following that story and just commented on the topic over in your shiny new journal. I figured that was your plan. Once the mortgage has been vanquished, is The X required to take over payment of the taxes and insurance? If so, I'm with you: I'd kill that sucker asap. If the T&I are tied in to spousal or offspring support, I might arrange the flight pattern so they all end at about the same time. Bigger jolt upon landing for The X seems like a good thing, but maybe I'm just being petty ;-)
oh expect I hope to pay the lowest interest one off in full this year...!!!
Its a long story...
Looks like I'll be signing a 30y fixed at 3.65% next week. Looking forward to not paying that sucker off any faster than absolutely necessary.
I have a buddy that I talk finances with a lot. We have been keeping an eye on mortgage rates and I found what appeared to be a crazy good rate for a streamlined VA 30 yr refi. He just locked in at 3.25% with 1800 credit towards closing. His break even will be 6.5 months with 1100 in closing costs.Wow!
I'm just slightly jealous he will have a better rate than me now ;)
If you are VA eligible AimLoan has some crazy good rates. 30yr at 2.75% if you want to pay some points up front and 3.125% with no points.
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Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.
I just looked into it but I really dislike the amount of information you need to give them so they can pass it on to their "partners". I'm a much bigger fan of Zillow and Aimloans.com who will give you a rate quote based on your cursory information and not require your contact info unless you want to move forward. I once signed up through lending tree and was amazed at the flood of mortgage solicitors on the phone and email and I suspect that Credible is the same. Aimloans has the best rates I have seen outside of some USAA products.
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.
I just looked into it but I really dislike the amount of information you need to give them so they can pass it on to their "partners". I'm a much bigger fan of Zillow and Aimloans.com who will give you a rate quote based on your cursory information and not require your contact info unless you want to move forward. I once signed up through lending tree and was amazed at the flood of mortgage solicitors on the phone and email and I suspect that Credible is the same. Aimloans has the best rates I have seen outside of some USAA products.
Isn't the whole draw for credible that they DON'T pass it on to partners? They import the lending formulas and keep it all in house. I haven't used it, but that's the impression I got from MMM's description of the service.
Isn't the whole draw for credible that they DON'T pass it on to partners? They import the lending formulas and keep it all in house. I haven't used it, but that's the impression I got from MMM's description of the service.
Here is what their terms and conditions say. I didn’t see the MMM tweet but this seems no different than the other lending brokers to me unless I’m missing something (entirely possible).
1) By using our Service you agree to receive calls and SMS messages from us and our Providers, including telemarketing calls, auto-dialed calls and texts and pre-recorded voice messages
5) Your contact information will be shared with Providers
I did all the Creditable info and have not had any solicitations--just an email maybe two or three times from Creditble asking if I still wanted to refi. I went to the point of getting all the quotes and now have to decide which to go with and apply. No calls or texts and no emails from anyone else. I agree about Lending Tree--that was awful.Isn't the whole draw for credible that they DON'T pass it on to partners? They import the lending formulas and keep it all in house. I haven't used it, but that's the impression I got from MMM's description of the service.
Here is what their terms and conditions say. I didn’t see the MMM tweet but this seems no different than the other lending brokers to me unless I’m missing something (entirely possible).
1) By using our Service you agree to receive calls and SMS messages from us and our Providers, including telemarketing calls, auto-dialed calls and texts and pre-recorded voice messages
5) Your contact information will be shared with Providers
Right, that means they'll give 3rd parties your email address / phone number so that they can contact you. The supposed difference is that the "other guys" also give out all the financial info you provide.
Watchful readers may have noticed I also mentioned this company on Twitter recently. After a few months of skepticism that the world needed yet another financial company, I was convinced by some conversations with the people running it and a Zoom video of the customer experience from a senior employee, with some very candid commentary on their design choices.
I like it because they import the lending models from their large supply of hooked-up finance companies, then run the rate comparisons on their own server rather than farming out your personal information to each separate lender. It saves you from filling out multiple applications when collecting rates, and also saves you from getting on everyone’s spam list (they don’t sell your contact information, which is a rare thing among loan search engines).
It was a hard model for them to get going, because the banks naturally want to have your information so they can spam you. But now that they have a growing presence in the market, lenders are forced to come through Credible to get access to this pool of qualified people. After enough testing with people I knew, I found the experience is worth recommending.
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage. So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.
Still bugs me to have it. I don't think that emotional side of it will ever change.
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage. So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.
Still bugs me to have it. I don't think that emotional side of it will ever change.
Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage. So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.
Still bugs me to have it. I don't think that emotional side of it will ever change.
Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.
I'm not going to rehash too deeply here, but it is more than just emotional: Once you reach FI, and would like to RE, it often makes financial sense to pay off the mortgage (though at 2.75%, I'm not sure I could part with such a gift). Reducing expenses at retirement often reduces SORR, even if it also reduces expected return.
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage. So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.
Still bugs me to have it. I don't think that emotional side of it will ever change.
Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.
I'm not going to rehash too deeply here, but it is more than just emotional: Once you reach FI, and would like to RE, it often makes financial sense to pay off the mortgage (though at 2.75%, I'm not sure I could part with such a gift). Reducing expenses at retirement often reduces SORR, even if it also reduces expected return.
That's quite right.
Not in my case, but it's very good general advice.
We have essentially zero sequence of returns risk from the market. If we stay on budget we only need to pull $10,000 (total) out of the market over the next two years. By then our rental income will fill in the gap and we'll have a 0% SWR. Or, we could just spend down non-stock/bond assets instead for a 0% withdrawal rate now.
I expect to have a negative SWR rate by 2022 at the latest. We retired about 15 months ago.
I over-engineered our FIRE. We have a mentally handicapped daughter who can't recover from any mistake we make in setting her up financially after we pass on, so I make no apologies for doing so.
Given the current interest rates, I've considered refinancing (I even went through the process with Navy Federal but it seems my agent sucks and won't respond to me). That being said, I think there's a not-insignificant probability I may leave this house in the not-too-distant future, which means I have a strong desire to minimize fees at the expense of a possibly higher interest rate. Has anyone gotten or is aware of companies that offer low fees in this manner*?
*If it isn't clear, rolling in fees wouldn't be helpful in this situation, even if it gives the illusion of low fees.
Given the current interest rates, I've considered refinancing (I even went through the process with Navy Federal but it seems my agent sucks and won't respond to me). That being said, I think there's a not-insignificant probability I may leave this house in the not-too-distant future, which means I have a strong desire to minimize fees at the expense of a possibly higher interest rate. Has anyone gotten or is aware of companies that offer low fees in this manner*?
*If it isn't clear, rolling in fees wouldn't be helpful in this situation, even if it gives the illusion of low fees.
Joining the club. We just took off our extra mortgage payment and are now going to devote that money to a 457 account. We are far enough down on our amortization table that we will have the mortgage paid off the same year we plan to retire. We would prefer to not have a mortgage at retirement, but want to have more of our cash flow now going to investments.Welcome!
Joining the club. We just took off our extra mortgage payment and are now going to devote that money to a 457 account. We are far enough down on our amortization table that we will have the mortgage paid off the same year we plan to retire. We would prefer to not have a mortgage at retirement, but want to have more of our cash flow now going to investments.
I know all the math but I'm struggling with not paying off my mortgage early. It just bugs me to have it. I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with. But it's getting harder each time.The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)
I feel like I'm at an AA meeting,
"Hi, I'm SwordGuy and I'm debt averse."
I know all the math but I'm struggling with not paying off my mortgage early. It just bugs me to have it. I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with. But it's getting harder each time.
I feel like I'm at an AA meeting,
"Hi, I'm SwordGuy and I'm debt averse."
I feel like I'm at an AA meeting,
"Hi, I'm SwordGuy and I'm debt averse."
I feel like I'm at an AA meeting,
"Hi, I'm SwordGuy and I'm debt averse."
We should hijack that moniker:
"For today's Asset Allocation meeting, we'll discuss with SwordGuy the pros and cons of paying off his mortgage versus investing it in tax-deferred equities. Step one: Admitting that the instinct to pay off debt is a healthy one, though being able to use intellect to overcome instinct when circumstances favor debt is the path to wisdom."
I just don't conceptualize my mortgage as debt, I look at it as rent-control. I may choose to wipe it out by retirement, I may not, I'll decide that in the future, but at this point, I really just accept it as a housing expense, like my condo fees and property taxes. For this place, all of those monthly costs are less than rent would be, so even if I never built any equity, I would still come out way ahead.
If I were you, I would examine the emotional reasons behind why it bothers you, and why you are struggling to be okay with math you trust. There's no such thing as just being "debt-averse", there has to be some emotional basis for that aversion, so determine what that basis is and why it bothers you.
I know all the math but I'm struggling with not paying off my mortgage early. It just bugs me to have it. I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with. But it's getting harder each time.
I know all the math but I'm struggling with not paying off my mortgage early. It just bugs me to have it. I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with. But it's getting harder each time.
I feel like I'm at an AA meeting,
"Hi, I'm SwordGuy and I'm debt averse."
I know all the math but I'm struggling with not paying off my mortgage early. It just bugs me to have it. I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with. But it's getting harder each time.The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)
I feel like I'm at an AA meeting,
"Hi, I'm SwordGuy and I'm debt averse."
If you tend to be a worrier you're always going to find something to worry about. If it's not the taxes, it's the utilities, or the insurance or the roof in winter or the HVAC in August. Having more money than you ever imagined possible eases far more worries than killing off the mortgage will.
HOWEVER, if you've already hit your number and you have enough beyond that to erase the mortgage, it's harder to justify keeping it. I get that. Paying off the mortgage isn't the worst decision, provided that you make it at the right time. In your situation, I wouldn't necessarily disagree with paying it off. Shocker, I know.
I know all the math but I'm struggling with not paying off my mortgage early. It just bugs me to have it. I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with. But it's getting harder each time.The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)
I feel like I'm at an AA meeting,
"Hi, I'm SwordGuy and I'm debt averse."
If you tend to be a worrier you're always going to find something to worry about. If it's not the taxes, it's the utilities, or the insurance or the roof in winter or the HVAC in August. Having more money than you ever imagined possible eases far more worries than killing off the mortgage will.
HOWEVER, if you've already hit your number and you have enough beyond that to erase the mortgage, it's harder to justify keeping it. I get that. Paying off the mortgage isn't the worst decision, provided that you make it at the right time. In your situation, I wouldn't necessarily disagree with paying it off. Shocker, I know.
Everyone has had great points, as expected!
We FIRED 17 months ago. We have multiple sources of passive income (rental houses, rental farm land and social security) as well as our stock and bond stash. This year we needed a 0.34% WR from our stash to cover our budgeted expenses. Next year it will drop to 0% as the income from our last two rental houses kicks in and I go on SS. We'll actually have a significant budget surplus not counting any RMDs or any other stock/bond withdrawals.
So there's no burning financial need to pay it off early before I retire or to lower our WR to a safe level. But there's also no burning financial need to amass more wealth either.
We used to be very poor and it was sometimes a real struggle to have the cash to pay bills when we needed it. That was decades ago but some things stick with you.
The other thing is that stocks are, in some ways, just funny money, not real money. It's this abstract thing I buy and hold and do very little with otherwise. But writing that mortgage check is very real, each and every month. I know that's silly but feelings are what they are.
Part of it is that I've felt constrained with our current budget the last year because we've had a lot of one-off or occasional expenses all showing up (broken leg, injured ankle and knee, wife and I got really sick, replaced my 19 year old car, etc. So that mortgage check coming out of our checkbook each month was even more noticeable. I would have cash-flowed more of tthat rather than draw down on savings.
Staying the course and paying the minimum pays off the mortgage in 11 years and 10 months.
Putting our budget surplus to work on it pays it off in 4 years.
Putting our budget surplus and the RMDs on it pays it off in 2 1/2 years.
Actually making a 4% stash withdrawal two years in a row (as opposed to 0% otherwise) plus the budget surplus pays it off in 14 payments. That would only be done if stocks stayed at or above their current levels.
And if stocks went on sale at 30% off, I would be buying stocks instead of paying off the mortgage early, with no qualms whatsoever!
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!
I was going to ask if your monthly mortgage payment amount is enough to crunch your cash flow in tough times, and it sounds like it is. This can really motivate the urge to be rid of it. See, our mortgage payment is only about 5% of our after tax income, so we don't even really notice it. My income is variable and it varies per month more than our mortgage.
Your issue is that although the math favours investing, you would probably rather gnaw your own arm off rather than cash in some of those investments in tough times if it came to that, hence why paying off the mortgage *feels* like such a better option, because not paying it off, if the payment is large enough, could necessitate actually using some of your capital....*GASP*!!!
If they aren't...then what is fueling the dissonance, because that means you are somehow in conflict with your own motivations and risk tolerances, and that's actually a serious issue that you should internally address, because that means your compass is fucked up.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!
This is....not true.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!
This is....not true.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!
This is....not true.
And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.
I never even open that thread any more. Much as I think it's nuts to promote such a one-sided perspective, I was asked to leave it alone and I have. I find it hilarious that someone over there is paying attention to our page count. It does give me hope. Thanks for sharing that, @DadJokes.Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!
This is....not true.
And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.
Dicey may have been a bit harsh in her tone, but you're the one who brought up the subject in a way that implied that your method was optimal.
[MOD NOTE: No, the OP didn't. The OP was criticising the ignorant "mortgage-hold" people in his circle of friends who blew their money. The OP did not criticise the "mortgage-holders" in general or either of you in particular. And while this isn't a journal entry, you've made your point and we can let it be from here on.
Thank you.]People who will go to their grave telling me that it's mathematically stupid to pay off my mortgageHis words sound like implication that it's optimal to pay off the mortgage to me. I agree that the point has been made. I don't think anything in any of my posts comes off as an attack on the OP. I agree that nothing he posted was an attack on me or Dicey.Ok, I took the incorrect path to FIRE and if I had optimized I could have accomplished this 1-2 years earlier. Cool. I'm not going to lose much sleep over it.You cruised to FIRE so fast that I'm sure it wasn't a big difference (probably no more than a year). For those of us like Dicey (past) and I (present) working towards FIRE on more modest income, the difference can be quite a bit larger.
Your time might be better spent educating those who are not already FIRE.
Not everyone who reads this thread has reached FIRE.
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? I’m asking since I we have a pretty high interest rate by today’s standards, looked into refinancing and it’ll be 4 years to break even. We will be moving in 4ish years.
Living in Mississippi this might not matter, but in NJ you may also cosider the effect of state taxes only being federally tax deductible to 10K. My income tax and property tax are well over that amount but if I can only deduct to 10K, then my interest isn't going to be deductable, so I'm still getting the same 24K deduction that I would get without the house. Might not be a huge effect but that used to be a selling point, that the interest was tax deductible and now basically it's not.Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? I’m asking since I we have a pretty high interest rate by today’s standards, looked into refinancing and it’ll be 4 years to break even. We will be moving in 4ish years.
I follow the Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153)
Based on the current 10-year treasury note yield at 4.688% and above I will pay down a loan instead of investing in a taxable brokerage account. At 6.688% and above I will forgo even investing in tax-advantaged accounts to pay extra on the loan.
I'm OK with asking us not to rain on the parade of people who are celebrating achieving a worthy (though sub-optimal) goal. I was less OK with @FrugalToque intervention as a moderator in another recent thread:I find the mods to be mostly pretty damn remarkable. This time, I didn't fully agree with FT's interpretation of what FD said, but I didn't think FD was worth any additional effort on my part, so I deliberately avoided further comment. Haters gonna hate. I'd rather help people that are interested in learning.Dicey may have been a bit harsh in her tone, but you're the one who brought up the subject in a way that implied that your method was optimal.
[MOD NOTE: No, the OP didn't. The OP was criticising the ignorant "mortgage-hold" people in his circle of friends who blew their money. The OP did not criticise the "mortgage-holders" in general or either of you in particular. And while this isn't a journal entry, you've made your point and we can let it be from here on.
Thank you.]People who will go to their grave telling me that it's mathematically stupid to pay off my mortgageHis words sound like implication that it's optimal to pay off the mortgage to me. I agree that the point has been made. I don't think anything in any of my posts comes off as an attack on the OP. I agree that nothing he posted was an attack on me or Dicey.Ok, I took the incorrect path to FIRE and if I had optimized I could have accomplished this 1-2 years earlier. Cool. I'm not going to lose much sleep over it.You cruised to FIRE so fast that I'm sure it wasn't a big difference (probably no more than a year). For those of us like Dicey (past) and I (present) working towards FIRE on more modest income, the difference can be quite a bit larger.
Your time might be better spent educating those who are not already FIRE.
Not everyone who reads this thread has reached FIRE.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!
This is....not true.
And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.You misunderstood me.
Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!THIS part is NOT true. Discussion was always allowed and encouraged. All perspectives had been thrashed about thoroughly.
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? I’m asking since I we have a pretty high interest rate by today’s standards, looked into refinancing and it’ll be 4 years to break even. We will be moving in 4ish years.
Sounds like a lot of reframing from BlueHouse here...
This would require a major sell off in long-term bonds, but I wouldn't mind buying a bond with a higher yield than the mortgage in lieu of paying off the mortgage.
What do you guys think about 5.125%? That’s what mine is, which is more than the 10yr treasury+3%. And interestingly enough, the other day when I threw some cash into VTSAX I looked at my return so far, it was 5.1%.
Maybe a hedge strategy for a while?
What do you guys think about 5.125%? That’s what mine is, which is more than the 10yr treasury+3%. And interestingly enough, the other day when I threw some cash into VTSAX I looked at my return so far, it was 5.1%.
Maybe a hedge strategy for a while?
We looked into refinancing, not worth it. It’ll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but I’m leaning towards POYM at the 5.125% rate.
We looked into refinancing, not worth it. It’ll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but I’m leaning towards POYM at the 5.125% rate.Having readily available cash made the move to this house so much less stressful than what I see other people go through (including my co-worker currently) - we just bought the new house, put down 10%, did a 10% second mortgage/80% conventional, moved everything, got the other house ready to sell (mostly painting, replaced the remaining original outlets, plus new bedroom carpets). Once it sold, we paid off the second mortgage.
We looked into refinancing, not worth it. It’ll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but I’m leaning towards POYM at the 5.125% rate.Having readily available cash made the move to this house so much less stressful than what I see other people go through (including my co-worker currently) - we just bought the new house, put down 10%, did a 10% second mortgage/80% conventional, moved everything, got the other house ready to sell (mostly painting, replaced the remaining original outlets, plus new bedroom carpets). Once it sold, we paid off the second mortgage.
Sure the rate on the second was "high" - but we didn't have it long.
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.
These numbers don't sound like US numbers?
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.
These numbers don't sound like US numbers?
No, they are swedish.
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.
These numbers don't sound like US numbers?
No, they are swedish.
I have not encountered a 40-year mortgage before. When living in Canada we had a 25year - which is typical for that country.
If I had your loan I would love it like a cute kitten. Someone (the bank) gave you a crap-ton of money and wants very little in return.
Plina, how often will the rate reset? How much is it allowed to move at each reset date? Is there an overall cap rate?
On the recasting note, it makes zero sense if you've been accelerating principal on your existing mortgage and are a few years into it. It makes more sense if you're only a year or two in and haven't been paying it down IMHO.
On the recasting note, it makes zero sense if you've been accelerating principal on your existing mortgage and are a few years into it. It makes more sense if you're only a year or two in and haven't been paying it down IMHO.
Did you mean refinancing instead of recasting? The benefit of the recast (amortizing a reduced principal over the remaining term, resulting in lower monthly P&I) is proportional to the amount you've paid down the principal ahead of the original amortization schedule. For someone who has paid down the principal aggressively and/or over several years or more, recasting could reduce the monthly P&I payment to a small fraction of the original amount.
If you haven't paid extra toward the principal, then recasting is a null operation no matter how long you've had your mortgage. In fact the mortgage company won't let you recast unless you have paid extra, since it's pointless.
@Bird In Hand - we looked at recasting the 4.125% last year and it made no sense for us. 7 years into the 30 year mortgage our payment term had been cut from 360 months to 315 months due to extra principal payments over those 7 years. If we had recast, it would have taken us out to our original loan payoff date in 2042 instead of the year 2038 we were on track for. That's probably why Wells Fargo sent a "consider this option very carefully" letter.....but didn't explain why.
Thanks. All I know is that it gives us $800 a month over the next 9 years to (1) improve cash flow, (2) invest elsewhere with hopefully a better RoI than 3.38%. I'm aware that this refi will increase our mortgage balance in 2028 compared to the prior mortgage, and I'm not too concerned about giving up the post-2029 borrowing rate security because we both want to be out of the house and area and on a beach somewhere by then.Works for me! In fact, anything works for me as long as you 've done the math and have a plan. Ding, ding, we have a winner! Welcome aboard the good ship DPOYM, Mako52.
Again, we haven't planned on staying in the house beyond 2038 or 2042 so we never would have paid off the original loan anyway :-)
Don't compare your payment to imputed rent.
Compare the interest portion of your payment to imputed rent. Principal stays yours.
You also have to consider the interest the principle would be earning if it wasn't in your house but in a financial instrument. But maybe that's canceled out by equity build up?Don't compare your payment to imputed rent.
Compare the interest portion of your payment to imputed rent. Principal stays yours.
I'd say compare interest & taxes plus maintenance to imputed rent. Still a much more honest comparison than mortgage to imputed rent.
Interest-only loan?Wash, rinse repeat - it is a 30 year. Not at the level of doing a 5 or 10 year arm.
Or just wash, rinse, repeat. We cash out refinanced in 2015, I actually immediately regretted it a little, as the markets had a small slide and the portion that we had invested (about 1/3 of the cash out, the other 2/3 paid off student loans) didn't recover value until nearly 18 months later. But now looking back, that period is a pretty small blip, and I've started to feel the itch to do it again.
In general I follow the Investment Order.
However, it's important to note that mortgage rates don't operate in a vacuum. In the early 1980s 30y mortgages could be 10% or even higher. So you'd think it would be a no brainer to pay that off ASAP, right? well coinciding with those astronomically high rates were bonds that were returning 12-15%.
Point is you need to look at the whole macroeconomic picture. One reason why the Investment Order doesn't give an absolute %, but is tied to the 10year treasury note.
What is the outlook of 15 v 30 after FIRE? I will likely quit megacorp next year and do odd jobs for a few years. I wouldn't be saving the difference, rather I wouldn't be withdrawing the difference.Many people prefer to remove the mortgage from the SORR altogether by paying it off altogether at FIRE. If you've reached FIRE, then it shouldn't matter that you could accumulate more by carrying a low interest mortgage; you already have enough. Also if you do get hit with a poor sequence of returns, you can leverage your equity as part of the plan to build your portfolio back up.
I'm sure this post is on one of the prior 37 pages, but I may want to lock in a rate before I have a chance to read them all. I'd be grateful for a pointer to the appropriate posts.
What is the outlook of 15 v 30 after FIRE? I will likely quit megacorp next year and do odd jobs for a few years. I wouldn't be saving the difference, rather I wouldn't be withdrawing the difference.
options:
(1) stay in 2.9% mortgage for another 12 years
(2) refi to 3.7% 30 year, reducing monthly cash required by $800
My spreadsheet seems too simple to be accurate.
* start with 250k
* either pay 30k/year for 12 years and end with 0 or pay 18k per year for 30 years and end up with ~80k based on 7%.
Am I oversimplifying? A lower withdrawl in the first 12 years will reduce SORR, is that right?
Thanks for helping this newb! I've been all about the saving and am just now looking at optimizing cash flow and withdrawl strategies.
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.Yeah, it's a total pain in the ass. I was a huge fan of Liar's Loans, because I was a commission-only manufacturer's rep, a category that the mortgage world completely fails to comprehend. Eventually, LL's were simply a sanity saver.
This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.
This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.
This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.
At closing on the refinance Friday the attorney asked what we were doing with the dough, and we were honest - "we're going to fund the 401K and IRAs for 2019 and 2020 - basically invest all of it within the next 2 months". The guy called it a "power move" - perhaps a member of this club? 2 more days until the money shows up from our power move.
We're already moving things into the new house, but I got a nice letter about the ARM on my old house. Rate indexed to LIBOR is being revised down from 5.0% back to 4.25%. Thank you, UK voters!
The experience of having so much money trapped in one house while buying another has reinforced for me that DNPYM club is the club for me!I like the way you think!
Once we get the old house sold, we can watch bond rates continue to fall and refinance the shit out of the new house.
@Dicey , the sum of our two mortgages together is only $550K, which wouldn't even provoke a deep breath in the markets where you own real estate.Hmm.. the sum of our two mortgages is about half that at present. Even if we considered the starting balance of both we were well under $400k combined (and the mortgages were taken out 8 years apart).
@Dicey , the sum of our two mortgages together is only $550K, which wouldn't even provoke a deep breath in the markets where you own real estate.Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.
Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.You make it sound like a north/south issue. Sure, Bay Area is crazy but there are some crazy areas in SoCal too.
Not at all. There was a big, fat hint there. Most "fancy senior communities" aren't located in Metro LA. And believe it or not, I live in a comparatively "affordable" part of the Bay Area. Insane, but cheap-ish compared to the Peninsula or The City.Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.You make it sound like a north/south issue. Sure, Bay Area is crazy but there are some crazy areas in SoCal too.
Not at all. There was a big, fat hint there. Most "fancy senior communities" aren't located in Metro LA. And believe it or not, I live in a comparatively "affordable" part of the Bay Area. Insane, but cheap-ish compared to the Peninsula or The City.Yeah, at $1000+/sq. ft. those places are crazy (4-6 times as expensive as central valley cities). I guess the biggest difference about the Bay Area vs. SoCal is that the commercial centers aren't the most expensive places to live in SoCal. SoCal's most desirable beach communities compete with The City and Peninsula for crazy housing prices, but they aren't thought of as jobs centers of the region.
god, I've always hated the phrase "The City" when people were talking about SF. And I used to live just south of the Bay Area.The late, great, Herb Caen is credited for that designation. He was still alive when I moved to the Bay Area and I loved his columns. My first landing place in NorCal was Noe Valley. There was definitely an "otherness" about San Francisco that made the moniker seem utterly appropriate, so I don't mind it at all. Now, "Cali" for California drives me nuts.
Want to make someone from San Francisco mad? Just start calling it "San Fran". :-P
Cashout refi approved. Total cost of $32, rate is 3.95% Credit union calls it a Home Equity Loan, so whatever. Going to put a chunk of it in the market via Chase this time with their low cost brokerage, because they're going to pay me $1k for setting up a Sapphire Checking and putting $75k in (investments count, just not retirement accounts)Curious how the cost was so low. Same bank?
(Cashouts in Texas are about 0.25% above elsewhere because of dumb onerous state laws)
Cashout refi approved. Total cost of $32, rate is 3.95% Credit union calls it a Home Equity Loan, so whatever. Going to put a chunk of it in the market via Chase this time with their low cost brokerage, because they're going to pay me $1k for setting up a Sapphire Checking and putting $75k in (investments count, just not retirement accounts)Curious how the cost was so low. Same bank?
(Cashouts in Texas are about 0.25% above elsewhere because of dumb onerous state laws)
Need some advice...Wait! Did you just say you put way over 50% down on the home and that's the best rate they could offer you? Something's missing here.
Remaining mortgage = ~$47k @ 5.25%
All other debt = $0
Investments = $300k
House = $190k
40 Years old with retire date of ~50y/o.
Currently maxing out my 401K and Roth IRA limits.
House payment = ~$432/mo, currently paying $1500/mo to kill it.
With an interest rate as high as 5.25% is it a bit more grey area to decide to reduce my house payment to just drop in VTSAX or something? Or is it still very worth reducing my extra payments and investing it? Should I split the extra payments a bit or just go the full amount?
I assume I know your answer but just wanted you guys to see my numbers before assuming the answer. The rate is high as I just bought the home and didn't pay extra points as I was going to kill the principle in a few years anyway.
Need some advice...Wait! Did you just say you put way over 50% down on the home and that's the best rate they could offer you? Something's missing here.
Remaining mortgage = ~$47k @ 5.25%
All other debt = $0
Investments = $300k
House = $190k
40 Years old with retire date of ~50y/o.
Currently maxing out my 401K and Roth IRA limits.
House payment = ~$432/mo, currently paying $1500/mo to kill it.
With an interest rate as high as 5.25% is it a bit more grey area to decide to reduce my house payment to just drop in VTSAX or something? Or is it still very worth reducing my extra payments and investing it? Should I split the extra payments a bit or just go the full amount?
I assume I know your answer but just wanted you guys to see my numbers before assuming the answer. The rate is high as I just bought the home and didn't pay extra points as I was going to kill the principle in a few years anyway.
Also, will you be eligible for any kind of pension or anything that you haven't mentioned? What did you cash out to put so much down on the house?
So I guess the question still stands though, reduce all extra payments or a portion to invest?
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.
Recognize that by doing that you would be increasing your monthly expenses -- and this isn't the beginning of a long market climb.
You have to balance potential greater returns with the potentially greater losses.
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.
Recognize that by doing that you would be increasing your monthly expenses -- and this isn't the beginning of a long market climb.
You have to balance potential greater returns with the potentially greater losses.
Good point!
Except s/he wouldn’t. The current rate is so high that monthly expenses could be reduced while transferring a lot of cash out of home equity.
Just squeaked in below 380k and about 192 payments left @ 3.125%. May end up paying it off lump sum towards the end as we reach FI since it'll knock off 30k/year in expenses, but more than likely will ride it out til maturity.
Haven't done the actual math yet since it's like 15+ years down the road. Thinking mostly to just reduce the amount needed yearly and looking at it from a tax perspective, but no idea what taxes will look like in 15 years,Just squeaked in below 380k and about 192 payments left @ 3.125%. May end up paying it off lump sum towards the end as we reach FI since it'll knock off 30k/year in expenses, but more than likely will ride it out til maturity.
What would be the reason(s) for paying off a rate so low?
Will lower monthly expenses offset the less money you have in investments?
@Kierun what's your timetable to reach FI?Guesstimating 2032 for stretch goal but maybe closer to 2035. Quite a bit aways still. So nothing's really solid, semper gumby and all that.
Paid off one mortgage because we sold ;)Not really.
Long story, not the intended plan, but shit happens.
We only put 5% down on the new place, I'm in Canada, different system and more down didn't make sense. Once we have 20% equity though, I'll consider switching it to an LOC mortgage.
Do you guys have those in the US?
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.
Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.
On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.
That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
I'm thinking along the same train of thought as my PI is >$2500/mo so knocking off $30k/yr would go a long way for required income post FI.So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.
Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.
On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.
That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
It also makes sense to look at your income level post retirement and keep it as low as possible for things like health insurance subsidies. For example, my mortgage payment is $2200 per month. That's $26,400 per year. If I need an additional $40k per year to cover all expenses, that means I have to take out $66,400 per year to cover all costs. However, if I pay off my mortgage when I retire, then I only have to take out $40k per year to cover all expenses. I'm not sure what the cutoffs will be when I retire, but it seems likely that $40k is more likely to qualify for a subsidy than $66k.
That said, I agree with you - it makes zero sense to pay off the mortgage during accumulation phase.
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.
Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.
On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.
That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.
Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.
On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.
That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.
Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.
On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.
That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.
Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.
On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.
That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.
Investments do not include the home in which the student’s parents live, the value of life insurance, ABLE accounts, retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.) or cash, savings, and checking accounts already reported in question 88.
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.
Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.
On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.
That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.
From the FAFSA website:QuoteInvestments do not include the home in which the student’s parents live, the value of life insurance, ABLE accounts, retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.) or cash, savings, and checking accounts already reported in question 88.
Some schools may use calculations other than FAFSA that do a better job of determining a family's ability to pay. If that ends up being the case (we're talking 18+ years from now), we'll be fine. We'll probably provide some aid, depending on the cost of attendance, but I had planned on him being able to pay his own way through school as his parents did.
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.
Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.
On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.
That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.
From the FAFSA website:QuoteInvestments do not include the home in which the student’s parents live, the value of life insurance, ABLE accounts, retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.) or cash, savings, and checking accounts already reported in question 88.
Some schools may use calculations other than FAFSA that do a better job of determining a family's ability to pay. If that ends up being the case (we're talking 18+ years from now), we'll be fine. We'll probably provide some aid, depending on the cost of attendance, but I had planned on him being able to pay his own way through school as his parents did.
This is off topic, but don't forget about the value of an HSA if you are looking to do the college and early retirement FAFSA gaming....it's double blind for FAFSA for now. You can put in $7K/year for a couple, then save up the receipts and not actually take the money out until Jr. is in college....the FAFSA doesn't count that reimbursement of your expenses as income, and you can still have some extra spending $ during the college years. I think this method works best with only children.
Looks like we're in the wrong club! https://www.forbes.com/sites/kotlikoff/2019/11/18/prepaying-your-mortgage-is-a-huge-financial-winner/#5adb26005bf3
I then entered an alternative profile in which the couple follows Uncle Jim’s advice and a) borrows $360,000 for 30 years on their house at the then-prevailing 4.15 percent mortgage rate and b) invest the proceeds in 30-year Treasuries yielding the then prevailing 30-year bond rate of 2.45 percent.
Looks like we're in the wrong club! https://www.forbes.com/sites/kotlikoff/2019/11/18/prepaying-your-mortgage-is-a-huge-financial-winner/#5adb26005bf3
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I'm about to make the first P&I payment on my brand new mortgage. That will cost me $579 2019 dollars. Fast forward 30 years when I make my last payment. It will cost me $579 2049 dollars. 2049 dollars, barring an economic calamity in the interim, will be worth less than 2019 dollars. I can come up with that without too much trouble working for minimum wage today - should be even easier in 2049.Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
DingDingDing! We have a winner. That is exactly what i meant. Thanks for elaborating, @dandarc.I'm about to make the first P&I payment on my brand new mortgage. That will cost me $579 2019 dollars. Fast forward 30 years when I make my last payment. It will cost me $579 2049 dollars. 2049 dollars, barring an economic calamity in the interim, will be worth less than 2019 dollars. I can come up with that without too much trouble working for minimum wage today - should be even easier in 2049.Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
That is what Dicey's point is. Sure, the interest is likely to be more than the inflation, but I also have $121,000 2019 dollars I can invest right now - I'm not trying to beat inflation with the loan interest, I'm trying to beat the loan interest with investment returns.
I've mentioned this before, but thought I'd repeat...Apple, meet tree. Smart strategies certainly do bear repeating. Thanks for sharing.
My retired parents like to joke that they are 41 years into a 30 year mortgage, and only have about ten years left before it's paid off. Currently the taxes on their home are about 2x the Principle + Interest portion of their payments... because: inflation and appreciation.
They did two big cash ReFis along the way, both of which lowered their rate and boosted their savings while keeping their payment basically the same (only the term was extended). In 1978 when they took out the mortgage it was roughly 1/3 of my father's salary. His income steadily increased over the next 3 decades (both as COLA raises and through promotions) while the payment stayed locked.
...I wonder if they will have a 'mortgage payoff celebration' and burn their mortgage when it's finally eliminated - 15+ years after they retired.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I will be very surprised if we don't see inflation tick above 3% for at least several quarters (if not consecutive years) over the next three decades.
We've had ultra-low inflation for so long that there's an entire generation of adults who have never really experienced it. Memories are short.
The Federal Reserve targets an average of 2%/year. Long term, I wouldn't expect much variance from that. 2009-2016 averaged quite a bit less, so I'm sure they'd be fine with 2.5% or more for a while to make up for low inflation in those years; and of course there is the possibility that the Federal Reserve is unable to maintain inflation targets and accomplish other monetary policy goals.I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I will be very surprised if we don't see inflation tick above 3% for at least several quarters (if not consecutive years) over the next three decades.
We've had ultra-low inflation for so long that there's an entire generation of adults who have never really experienced it. Memories are short.
You're right. It's very difficult for me to comprehend a world where inflation is higher than 2%. I just kind of feel like the Fed can manipulate rates to keep it low indefinitely at this point, but I'm probably wrong there.
Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.
Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.
I think it's only eight now.Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.
Only 9 posts away, you say?
I studiously avoid that thread, but I just looked it up. They have almost a four year head start on us. Very impressive!I think it's only eight now.Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.
Only 9 posts away, you say?
I studiously avoid that thread, but I just looked it up. They have almost a four year head start on us. Very impressive!I think it's only eight now.Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.
Only 9 posts away, you say?
Seven.
To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...
To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...
While I agree with this statement if you don't have enough saved up to pay off your mortgage in one shot, once you do then the two options are quite comparable in difficulty.
Not sure what the relevance of this undisputed truth is. No one's verifying anything that's being reported on either thread.To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...
While I agree with this statement if you don't have enough saved up to pay off your mortgage in one shot, once you do then the two options are quite comparable in difficulty.
Doesn't require a penny of savings to write this in a forum thread entry, "Don't pay off your mortgage early."
But it takes a lot of money to actually pay off a mortgage, early or not.
Not sure what the relevance of this undisputed truth is. No one's verifying anything that's being reported on either thread.To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...
While I agree with this statement if you don't have enough saved up to pay off your mortgage in one shot, once you do then the two options are quite comparable in difficulty.
Doesn't require a penny of savings to write this in a forum thread entry, "Don't pay off your mortgage early."
But it takes a lot of money to actually pay off a mortgage, early or not.
Frankly, my goal is only for people to make the most informed decision possible. It's damn hard to find information on this topic, and a lot of what's out there is just plain wrong.
For example, there is nothing inherently wrong with keeping a mortgage in retirement. As mustachians, by the time we get to FIRE, we typically have enough to smite the mortgage many times over. So much of the standard advice is biased toward the people who can't find a way to save anything. Obviously not the case in our this minority (but mighty) crowd.
Since we refinanced 6 months ago to a 10-year $450k ARM at 3.375%, I thought I'd pose the question here.
We plan to be out of this house (and HCOL area) in 2028.
If closing costs are going to be around $1,000, should we switch to a 20-year fixed at 3.25%? Main advantage is the security of knowing we're locked in 2029 and beyond if we stay here.
Since we refinanced 6 months ago to a 10-year $450k ARM at 3.375%, I thought I'd pose the question here.
We plan to be out of this house (and HCOL area) in 2028.
If closing costs are going to be around $1,000, should we switch to a 20-year fixed at 3.25%? Main advantage is the security of knowing we're locked in 2029 and beyond if we stay here.
The interest isn't tax deductible anymore now that my income and property tax are 2 or 3 times the allowable tax deductable limit of 10K.Do you mean that your total deductibles are less than the standard deduction now that SALT deduction is capped at 10k? Mortgage interest is not subject to that cap (there is a limit on how much mortgage principle qualifies for tax deductible interest).
Well, I'm happy to report that I have now basically removed all of my extra payments on the house and have made the min initial $3k investment into VBTLX to up my bond %. I'm now up to about a 46% savings rate!!! I was adding about $1067 extra a month on my mortgage and now it's all going to be dumped into VG.
My new mortgage got sold to a buyer.My new mortgage was sold THREE TIMES before I made the FIRST PAYMENT!!
Brand new 30 year mortgage signed, funds should hit the account by Friday. Credit union is keeping it inhouse. :DCongratulations!
First payment is January.
Loan hasn't been sold yet, but the lender wants me to sign "amended closing documents" at a higher rate than they sent me 3 days before closing and I signed at closing. Granted, the rate they sent me 4 days before closing is this higher rate, but I figured "must have ticked down".I saw this on another thread. No way would I agree to this. Don't sign anything. Find the contact info for the top execs, threaten to use it and/or actually do so. Someone's trying to pull a fast one. Who knows how many others they've done this to? You have the strength and resources to make that shit stop.
Whole thing has me thinking hard about changing banks. Been working with this bank for over 10 years, and our prior 2 mortgages were very easy, but since this bank was acquired by a larger regional bank a couple of years ago, things have gone to shit.
Deal changed on this mortgage I don't know how many times between the first inquiry (mostly the timing of when they could do an owner-occupied loan - wound up closing over 2 months later than when I was originally told we could), and now they want to change the interest rate a month after closing on the loan.
My wife pointed out that it could be a simple typo. 3.875% vs. 3.75%. Still, what is the point of all of the stupid waiting periods around closing if you can just change the interest rate on the loan after the fact.
You must have a nicer house than we doOr he lives in an area where houses are much more expensive. Plenty of places where a modest single family home might have a ~700k mortgage.
BLUF: Same guy from last article, this time stating why it's better to prepay the mortgage vs contribute to your 401k, not worth your time to read if you already know he's full of something.
https://www.forbes.com/sites/kotlikoff/2019/11/25/does-prepaying-your-mortgage-beat-contributing-to-your-401k/#25c4adcf63bc
*insert cartoon meme of head exploding*
Yes, I know that most of us aren't investing our 401(k) (or similar retirement-account assets) just in Treasury bonds that have an equal maturity to that of our mortgage. But we still need to compare pre-paying our mortgage with investing our 401(k) money in precisely such Treasury bonds. The reason is that such bonds have the same risk characteristics as our mortgages.
Yes, with 10k for salt I’d need more than 14k in deductions and my mortgage interest and any other deductions aren’t that much. But my salt are about 20-25 k alone so adding in interest would have been well over the standard for mfjThe interest isn't tax deductible anymore now that my income and property tax are 2 or 3 times the allowable tax deductable limit of 10K.Do you mean that your total deductibles are less than the standard deduction now that SALT deduction is capped at 10k? Mortgage interest is not subject to that cap (there is a limit on how much mortgage principle qualifies for tax deductible interest).
Basically ppl without a mortgage are getting the same standard deduction as me so I don’t have lower taxes by I pay mortgage interest
I can't pay off my mortgage with pre-tax dollars. But I CAN invest in my 401k with pretax dollars. That alone is a no brainer for the $18k that I can into a 401k every year. The fact that I get an employer match for another $6k to get to $24k per year makes it a double no brainer.@Tyson, this is perhaps the most succinct explanation of DPOYM I've ever seen. Brilliant! If I could make a sticky of a single post, this one would get my vote. I think I'll post it over on the "Best Post" thread, because it deserves to be read and understood far and wide. Thank you!
Add to that the fact that my investments yield an average of 8% return over the long term and paying the mortgage only nets me 3.9% and it's a triple no brainer!
Need some input from this group. I currently have a 5/1 arm at 2.5% that is going to adjust in just over a year to 2.00% above 12mo libor rates. My original plan was to pay it off before it adjusted but now I’m starting to drink the koolaid and see the value in securing a low rate and paying it off as slowly as possible. My current note is 163k on 300k house.
The best loans I can find right now are
3.5% 30yr with 2600 closing costs
3% 15yr with 2200 closing costs
Alternatively I could just let it ride and pay a 4% rate but not need to pay closing costs.
Or I could pay it off.
What would you do?
Need some input from this group. I currently have a 5/1 arm at 2.5% that is going to adjust in just over a year to 2.00% above 12mo libor rates. My original plan was to pay it off before it adjusted but now I’m starting to drink the koolaid and see the value in securing a low rate and paying it off as slowly as possible. My current note is 163k on 300k house.I agree with @TomTX. Keep shopping.
The best loans I can find right now are
3.5% 30yr with 2600 closing costs
3% 15yr with 2200 closing costs
Alternatively I could just let it ride and pay a 4% rate but not need to pay closing costs.
Or I could pay it off.
What would you do?
By adjusting the points I can get a zero closing cost 30yr loan for 3.875% or a 15 for 3.5%That's just moving the pea under another shell. Keep shopping, there should be better deals out there.
I can't pay off my mortgage with pre-tax dollars. But I CAN invest in my 401k with pretax dollars. That alone is a no brainer for the $18k that I can into a 401k every year. The fact that I get an employer match for another $6k to get to $24k per year makes it a double no brainer.@Tyson, this is perhaps the most succinct explanation of DPOYM I've ever seen. Brilliant! If I could make a sticky of a single post, this one would get my vote. I think I'll post it over on the "Best Post" thread, because it deserves to be read and understood far and wide. Thank you!
Add to that the fact that my investments yield an average of 8% return over the long term and paying the mortgage only nets me 3.9% and it's a triple no brainer!
They're in trouble now - my wife is pissed off. The latest issue - I tried to make our first payment via the bill pay at the same bank. Loan officer happened to email me the day that the bill pay was withdrawn from our account, so I asked. Response was approximately "should be fine - might take a week to post." response. That payment appears to have been rejected, but of course not until they are closed for the holiday weekend. So I'll probably go in person to the bank tomorrow and write a physical check because apparently it is 1993. Appears they cannot accept a payment through their own website for a loan at the very same bank.Loan hasn't been sold yet, but the lender wants me to sign "amended closing documents" at a higher rate than they sent me 3 days before closing and I signed at closing. Granted, the rate they sent me 4 days before closing is this higher rate, but I figured "must have ticked down".I saw this on another thread. No way would I agree to this. Don't sign anything. Find the contact info for the top execs, threaten to use it and/or actually do so. Someone's trying to pull a fast one. Who knows how many others they've done this to? You have the strength and resources to make that shit stop.
Whole thing has me thinking hard about changing banks. Been working with this bank for over 10 years, and our prior 2 mortgages were very easy, but since this bank was acquired by a larger regional bank a couple of years ago, things have gone to shit.
Deal changed on this mortgage I don't know how many times between the first inquiry (mostly the timing of when they could do an owner-occupied loan - wound up closing over 2 months later than when I was originally told we could), and now they want to change the interest rate a month after closing on the loan.
As an update, funds hit the account Friday - so I set up an ACH pull from Chase (getting that sweet Sapphire Banking $1,000 bonus by using their discount brokerage) - and stupid Chase flags it as fraud. Not only do I have to discuss it with Chase, identify myself thoroughly and let them know that yes, I did initiate the ACH - they insisted on getting my CU on a 3-way call to make sure the money was in the account. Because apparently they don't trust me to transfer money INTO their bank.There are so many mustachian warm fuzzies here. $1300 is a pretty good hourly wage for the bullshit they're putting you through.
I'm now super happy that I'll be gouging Chase for that $1k. Plus a $300 savings account signup bonus.
You must have a nicer house than we doOr he lives in an area where houses are much more expensive. Plenty of places where a modest single family home might have a ~700k mortgage.
That alone is a no brainer for the $18k that I can into a 401k every year.19k in 2019 and 19,500 in 2020. Don't forget to up your contributions to match the new limits each year (18k was the 2017 limit).
Thanks for the reminder, @robartsd! I noticed that, too, but let it pass. We're significantly older; a different number applies. I always make a mental adjustment when someone quotes another figure. It's good to remind people to double check their withholding, especially now, while there's still time to correct before year end.That alone is a no brainer for the $18k that I can into a 401k every year.19k in 2019 and 19,500 in 2020. Don't forget to up your contributions to match the new limits each year (18k was the 2017 limit).
When you look at the numbers, signing up for our ARM in 2013 was the absolute right decision.Congratulations! I had an ARM way back when. It was tied to a great index, but still, it was adjustable and conventional wisdom said fixed rate was better. I refied into a fixed rate loan when rates dropped for the supposed "security". With the advantage of hindsight, it was a huge mistake. It was one of those loans that would have been far cheaper to keep. Whoda thunk? Fortunately, the road to FIRE has considerable margin for error, and I finally managed to get there, but hanging onto that loan would have led to some serious bragging rights.
There was an irrational part of me that felt like a total idiot and couldn't sleep the night I got the letter with our new rate in late 2018. The numbers hold up, though!
Hey! We hit the mainstream. Fidelity article cautiously points out not paying off the mortgage might be a good idea:I just wish the subtitle read: Paying off the mortgage early doesn't make financial sense for
https://www.fidelity.com/viewpoints/personal-finance/extra-mortgage-payment
Hey! We hit the mainstream. Fidelity article cautiously points out not paying off the mortgage might be a good idea:Overall, I love this article. The biggest flaw is using the example of a person who is nearing retirement. The younger you are, the more impact saving and investing first is going to have.
https://www.fidelity.com/viewpoints/personal-finance/extra-mortgage-payment
As such, my swr portfolio may be nearly 20% smaller at the point of debt payoff versus waiting to hit the cashflow to cover the debt.
By adjusting the points I can get a zero closing cost 30yr loan for 3.875% or a 15 for 3.5%
A compelling reason to pay off the mortgage (and student loan) early
Note that right now, with children in our lives, our full fat FIRE number is a tad high through choice.
With that shameful glance aside
Full Fat Fire including Cashflow to cover P&I&Fees: $1,194,159
Full Fat Fire including Debt Balance, sans Debt Cashflow: $967,507
Full Fat Fire sans debt payments: $729,462
As such, my swr portfolio may be nearly 20% smaller at the point of debt payoff versus waiting to hit the cashflow to cover the debt.
So it may make sense to pay off the mortgage early - only if it is being paid in a lump sum at the time of Full-FIRE
:P
Here's a philosophical question:
I'm a big fan of the the 30 year fixed, for the simple reason...it's fixed for 30 years.
But I'm looking at an investment property and the mortgage broker suggested a 5/1 interest only ARM. A product I had never really thought about it much depth before.
Obviously, the cash flow is much better through the first five years. And isn't it interest only sort of the ultimate never pay off your mortgage? Obviously, there is a potential time bomb out there where you may have to refinance. Aside from that, what are the other downsides?
Here's a philosophical question:
I'm a big fan of the the 30 year fixed, for the simple reason...it's fixed for 30 years.
But I'm looking at an investment property and the mortgage broker suggested a 5/1 interest only ARM. A product I had never really thought about it much depth before.
Obviously, the cash flow is much better through the first five years. And isn't it interest only sort of the ultimate never pay off your mortgage? Obviously, there is a potential time bomb out there where you may have to refinance. Aside from that, what are the other downsides?
I have not invested in property, only ever owned my own home.
When I was buying my previous house, the 5/1 ARM was a very compelling product, as it came with a 3.0% APR, versus 4 1/8 for the 30-year fixed. Are you able to get a much lower rate for this 5/1 arm?
I think of it as being compensated up-front in order to bear more risk beginning with that 61st payment. So--when evaluating this investment--determine the maximum risk (i.e. loan balance) you're willing to bear at a higher interest rate, and then plan accordingly.
I went with a 7/1 ARM on my last house, it was the difference between a 2.875% rate or a 3.75% rate on a 30 year. The ARM also could only go up by 2% per 7 year reset. Under my worse case scenario, I would pay 4.875% for years 8-14 on a much lower loan balance. The breakeven under the worse case scenario said I wouldn't be better off with the 30 year until something around year 11.I thought a 7/1 ARM adjusts annually after the first 7 years. I think you did it right in your analysis: adjusting up 2% every 7 years I get a break even in terms of total interest paid early in year 15.
That and most people don't live in a house for 30 years.
I get the 5/1 vs. 30 fixed arguments. As I mentioned, I'm on the side of the 30-year fixed for residential. My question/thought is how to properly think about the 5/1 interest only for investment. Interest only is sort of the ultimate DPYM, right? It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.
In my neck of the woods, lenders require 25% down on investment properties and charge at least 50 basis points more than the owner occupied rate. We purchase investment properties with the same buy-and-hold approach that we use for equities. At current rates, a 5/1 (or any other ARM) just isn't worth the risk.I get the 5/1 vs. 30 fixed arguments. As I mentioned, I'm on the side of the 30-year fixed for residential. My question/thought is how to properly think about the 5/1 interest only for investment. Interest only is sort of the ultimate DPYM, right? It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.
A 5/1 would enable an investor to build up a repair fund for a buy-and-hold faster by putting more money in their pocket sooner.
With the potential time-bomb of rising interest rates later, of course.
Or to put in less money for a property being bought for appreciation with the intent to sell within 5 years (or thereabouts).
I get the 5/1 vs. 30 fixed arguments. As I mentioned, I'm on the side of the 30-year fixed for residential. My question/thought is how to properly think about the 5/1 interest only for investment. Interest only is sort of the ultimate DPYM, right? It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.
A 5/1 would enable an investor to build up a repair fund for a buy-and-hold faster by putting more money in their pocket sooner.
With the potential time-bomb of rising interest rates later, of course.
Or to put in less money for a property being bought for appreciation with the intent to sell within 5 years (or thereabouts).
"Power move" completed today - front-loaded 2020 IRAs and 2020 SoloK with funds remaining from the refinance. Probably would have been better to go taxable back in October, but this way comes with the benefit of zero-stress on getting these accounts funded in time for 2020.
Had another thought on a source of cheap money. Chase has had 0% interest for ~14 months balance transfer offers ever since I've had any cards with them - 5+ years at this point. 4% one time fee. Bank of america seems to have had the same deal going since I've had one of their cards last year, except a lower fee of 3%.
My thought is I could get $20K in funds pretty easily - $10K from Chase, $10K from BofA. Set to auto-pay minimum payment. Then when around 14 months comes closer, pay the accounts off with a balance transfer to the other one. Rinse and repeat. Borrowing at ~3-4% annually until those offers stop coming in. Could do even more money if I can get BofA to increase credit limit - key is to have another bank to pay off via balance transfer with. If I could get them all the way up to the combined chase limits, that's around $120K total. Would be more complicated due to limits on amount of each balance transfer, so would likely be spread out over several months.
Think I need to think through the issues on this - maybe will try it in a few months.
It's all good times until the bill comes due and something has gotten in the way of repaying it...Right. While I'd be trying to keep the debt outstanding indefinitely, it really is a ~1 year loan that I'm just hoping to roll over annually at low cost.
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.
Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.
Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
Hmmm, still doesn't seem like something for which you need to seek absolution ;-). Just seems smart to me, which is exactly what's making me wonder what I'm missing.Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.
Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
Indeed the option to re-invest the gains into the mutual funds was available. I'm opting to pay down the loan balance instead.
But that loan does not share some of the most favorable characteristics of a 30-year fixed rate mortgage.
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.
Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm 3+ years into juggling about $50k in 0% credit card debt. I was savagely mocked here for doing this but it's been hugely beneficial to my financial health.
Obviously, if you miss a payment or otherwise screw up, it could be very costly. But we're smarter than that here in MMM-land.
@Pizzabrewer I think I remember your other thread (DON'T Payoff your Credit Cards).
It sounds like things have worked out for you, which is great. It doesn't mean we were wrong and that there was not risk, but it sounds like you've managed it. I borrowed money against a taxable investment account as a substitute for selling investments, and--so far--it's worked out for me, too. But no one is pretending those loans have the desirable features of a 30-year fixed rate mortgage.
Hi,I can't answer your question, sorry. Just posting to say I'm impressed with how reasonable your system looks. Wow.
New Dutch home-owner checking in.
Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.
The interest rate will drop according to the following schedule:
>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%
As our mortgage payments drop slightly every month, we want to invest the freed up cash. I've tried to visualize our options in the attachment. I've calculated that after 227 months our remaining mortgage would be equal to the invested amount (green line meets purple line). The other options include investing the mortgage deductible (hypotheekrenteaftrek, HRA).
Do you guys know any online calculators where I can check my predictions?
Hi,
New Dutch home-owner checking in.
Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.
The interest rate will drop according to the following schedule:
>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%
As our mortgage payments drop slightly every month, we want to invest the freed up cash. I've tried to visualize our options in the attachment. I've calculated that after 227 months our remaining mortgage would be equal to the invested amount (green line meets purple line). The other options include investing the mortgage deductible (hypotheekrenteaftrek, HRA).
Do you guys know any online calculators where I can check my predictions?
The interest rate will drop according to the following schedule:I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.
>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%
I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.
I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.
Some Dutch lenders may require professional evaluation, but most will likely accept WOZ-value. This is the value of property determined by the municipality and used to calculate property tax and such. It is usually a bit lower than real market value though (10-20%).
My guess is that most lenders will probably only take remaining principal into account when calculating LTMV. In that case, you should contact them if WOZ-value has risen enough to lower your interest rate. In addition, if market value rises fast, a professional evaluation may pay for itself in no time.
However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.
Awesome job! + 3% is very impressive! Good for you for grabbing it and holding on to it as long as possible.
However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.
Keep it up! As the loan becomes smaller (both through normal amortization and through inflation) your taxable accounts will continue to grow. Once you hit the halfway point it doesn’t take much longer for the mortgage to be “much smaller” than investments. ...and then you can consider a cash-ReFi :-)
However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.
Keep it up! As the loan becomes smaller (both through normal amortization and through inflation) your taxable accounts will continue to grow. Once you hit the halfway point it doesn’t take much longer for the mortgage to be “much smaller” than investments. ...and then you can consider a cash-ReFi :-)
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.
In another part of my life, the shit totally hit the fan today. You have no idea how much your kind words are appreciated. Thanks @terrifictim, @BECABECA , and all the other cool cats who keep this thread active and relevant for people who want to learn about how to use mortgages to supercharge their paths to FIRE. I love all of youse, as my dear old dad used to say.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.
Another post to show the power of this approach. When I first joined this club (Oct 2017) I had $202k in loan remaining and a NW of $309k. Since then my loan has only dropped to $190k, but my NW has jumped to $680k, and my asset allocation between real estate and investment is much closer to 50%. And I have a great deal of confidence now knowing that I have more than $300k in liquid + liquidish accounts that I could turn to if it hits the fan. Thanks @B42 and @Dicey and all others who are enthusiastic about this.
Lately I've become something of a "financial priest" at work, with several people coming to me for advice with the refinances. I have the toughest time telling them whether to go for 15-year or 30-year. The spread in rates they're being quoted is 0.75%, but I'm also experiencing acutely how hard it is to get your principal back out of a property.IMO, the best answer is the 30 gives you the most flexibility. You can always double up on payments, but paying only half makes the big ol' bank a wee bit cranky...
After 5 years of not paying extra on my mortgage, my stash has now comfortably surpassed my mortgage balance. When we started MMM stash was about $240k less than the mortgage. Come to think of it, stash now surpasses (mortgage + student loans) too. Feels pretty darn amazing!!Hot damn! Congratulations!
Thank you, @Dicey and others (@boarder42 RIP) who keep this thread alive!
I'm sure some minds are being changed whether they speak up or not.
Are there many of you in this camp that are paying a mortgage in FIRE?
I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.
Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage. The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.
Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework. Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.
Are there many of you in this camp that are paying a mortgage in FIRE?
I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.
Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage. The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.
Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework. Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it: the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter. Over a 30 year loan lifetime you should realize something close to the historical average.As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home. By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house). Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0. Until that point I won’t fall into the trap that so many do - being house rich and cash poor.
This is assuming you actually do invest the money rather than spend it or sock it into cash.
Until that point I won’t fall into the trap that so many do - being house rich and cash poor.
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it: the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter. Over a 30 year loan lifetime you should realize something close to the historical average.As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home. By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house). Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0. Until that point I won’t fall into the trap that so many do - being house rich and cash poor.
This is assuming you actually do invest the money rather than spend it or sock it into cash.
Are there many of you in this camp that are paying a mortgage in FIRE?
I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.
Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage. The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.
Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework. Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.
Bought a house about 15 months ago. 30 yr mortgage at 4.875%. Recently refinanced to another 30 year mortgage but at 3.5%. Never paying it off early!
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it: the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter. Over a 30 year loan lifetime you should realize something close to the historical average.As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home. By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house). Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0. Until that point I won’t fall into the trap that so many do - being house rich and cash poor.
This is assuming you actually do invest the money rather than spend it or sock it into cash.
I would argue that a plan to avoid this includes building up skills to enable rapid selling of a home or establishing a LoC with minimal hassle and stress.
At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.
Regardless, my take-home has been to avoid having my home be a substantial part of my net worth, and to never assume selling a home can be done quickly and/or at whatever the current market rates are going for.
While I can certainly appreciate the psychological benefits of having a paid off mortgage, is it really more convenient? As it is, my mortgage is in direct deposit with taxes and insurance being paid through an escrow account. With a paid off mortgage, I'll have to pay the insurance and taxes myself. Admittedly, it will only be a few checks per year, but it's still more than I'm writing now.
At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.
While I can certainly appreciate the psychological benefits of having a paid off mortgage, is it really more convenient? As it is, my mortgage is in direct deposit with taxes and insurance being paid through an escrow account. With a paid off mortgage, I'll have to pay the insurance and taxes myself. Admittedly, it will only be a few checks per year, but it's still more than I'm writing now.
Are there many of you in this camp that are paying a mortgage in FIRE?
I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.
Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage. The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.
Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework. Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.
At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.
I'm currently planning to keep my mortgage in FIRE. Then again, my mortgage is more in the $7500 range per year, so it's not a huge burden. If at any point it makes sense to pay it off, I'd be fine with that as well. I don't think it will make a huge difference for me either way. I'll also be young enough that I'm planning to get private insurance the first several years of FIRE since the cost will still be reasonable. This will allow me to convert more Traditional money to Roth and harvest some cap gains. I do have a hard time wrapping my head around how to optimize income to reduce taxes and keep ACA subsidies in early retirement. I plan to have enough of a buffer that I don't need ACA subsidies at least in the early years.Are there many of you in this camp that are paying a mortgage in FIRE?
I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.
Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage. The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.
Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework. Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.
At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.
If only 2-3 years, I'm sure I'd do the same. If we do 30 year mortgage- we'll still have 15+ to go when we FIRE, so the tax burden even at reduced LTCG rates would be significant.
Our family is now on the sell-side, these low rates are hopefully going to make a lot of buyers think they can suddenly afford to pay more for our house.Hope you get a bidding war on your home. Sadly, we’ve struggled to sell our previous residence, despite the uber-low rates. Reminds me of the RE addage: all real-estate is local.
Be careful - "no closing costs" often means "closing costs are added to your loan balance". Although the math often still works, just something to be aware of.
I really don't want to make my wife sit through the paperwork process again, however, I did find the following offer on Bankrate: 3.25%, reduces payment by $120 per month, and no closing costs.
I was just wondering about this thread.
Mortgage rates are hitting the bottom again in US. I am seeing 3% for 30 year fixed and 2.5% for 15 fixed.
Anyone wondering about cash out refinance to invest in market or elsewhere?
I have 100k equity in 15 year fixed mortgage. I am considering 30 year fixed cash out refinance to increase cashflow and put the equity(50k) to work. Anyone care to chime in on my logic. Thank you!
I believe 30 year fixed refi at a low interest rate is the only way to go - it frees up cashflow that can instead be invested.
If you believe over the next 30 years your investments are going to average more than 3% (assuming thats what you snag)
And if the cash-out does not negatively impact your financials from a cashflow standpoint (going from 15 to 30 even with cash-out your flows may improve)
And if you can stomach investing 50K - and then sitting through a correction at some point without worry & without locking in unrealized losses
Then yes, this is IMHO a great use of capital via converting a non-productive asset into a productive one.
I did this in 2009, 2012, and again in 2019 all on the same home.
I check the maths on this at regular intervals vs the lump sum payoff impact to FI numbers & In some cases paying off in lump sum can accelerate FI.
My top threshold is that any cash-out refi must have cashflows that allow for me to turn the home into a rental with $100/m cashflow after all expenses (ignoring deprecation & appreciation at point in time)
Frustrates me that we got a 3.7% rate 6 months ago on our new (to us) property. Rates will have to drop quite a bit further for it to be worth it to refinance, and frankly I’m skeptical they will go that low. Happy to be proven wrong, though.
Frustrates me that we got a 3.7% rate 6 months ago on our new (to us) property. Rates will have to drop quite a bit further for it to be worth it to refinance, and frankly I’m skeptical they will go that low. Happy to be proven wrong, though.
I just refinanced a 3.7% 30-year loan down to 3.25% with a payback period of under 18 months. Are you sure it's not worth while? Yes, it's annoying that you refi-ed six months ago, but please don't let sunk costs impact your decision.
@Kem, your story is one of the reasons I'm surprised that interest-only loans haven't become more popular. As mustachians, getting something like 40% down should be within reach, and we could just sit at that position in perpetuity.
https://www.washingtonpost.com/business/2020/03/03/economy-coronavirus-rate-cuts/They have in the past. Others are seeing rates down to 3.25% already. IIRC five or six years ago one could get a 30y for 3.1% in my area, and 2.49% in Canada (where we previously lived).
Wow. Half a percent!!!
I can't wait to see what that does for mortgage rates. A drop to the low 3%'s for a 30 year refinance would be amazing. Can rates get down that low?
@Kem, your story is one of the reasons I'm surprised that interest-only loans haven't become more popular. As mustachians, getting something like 40% down should be within reach, and we could just sit at that position in perpetuity.
@Kem, your story is one of the reasons I'm surprised that interest-only loans haven't become more popular. As mustachians, getting something like 40% down should be within reach, and we could just sit at that position in perpetuity.
I've considered it a number of times - however I could only find 5-7 year terms and with rates so low it has been... emotionally... hard to give up a 30 year lock reset. If I could find a 30 year interest only loan below 4% interest - I would pounce.
Instead, I've looked to optimize the home's capital and leave the asset in my control as a potential rental (not so much for cashflow, but for tax efficiency( deprecation ) & principal paydown opening the door for cheap future leverage). Everytime I've run the numbers - so long as the property cashflows $150/month after expenses including a long term maintenance sinking fund (ignoring depreciation & appreciation) then the reward over vacancy/bad tennants/etc is in my favour.
My view is that I never own the home anyway as the gov via taxation or eminent domain will always be the #1 lien holder - they sure like to give an illusion of home 'ownership'.
Hmm... maybe I should re-think? Wasn't a re-fi; this was the mortgage on our new place.
One factor working against us is that our mortgage overall is small ($140k) given the LCOL area. So payments are already pretty low. Going from 3.7% to 3.2% saves < $40/mo. Not sure what our re-financing costs would be but given the fees on our origional morgage I'm guestimating about $2,900. Which would be a payback period of 6.2 years.
I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.
Not what I meant. The landlords still owned the property.I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.
Some of those mid 1920 NYC apartment dwellers found out --- they simply never moved --- and their landlords let the properties rot around them.
I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.The Disney Vacation Club actually works that way. Timeshare, so not so much "at much lower levels", but if you read the contract, it is actually a ~50 year lease. But "renting on a very long term to inhabit a property" is exactly what "owners" are doing in that program. So I guess this idea works at a very small, niche scale at least.
It turns out best mortgage rates i have seen so far are 3.25% for cash-out refi vs 3% for just refi for 30 year fixed. Still a good rate.
It improves cash-flow by $200/m and 55K cash out.
That. Is a fantastic rate. Takes my breath away. A full $300/month less than what I would pay.It probably does depend on the state.
What state do you live in? perhaps that rate is not available to every state.
We just locked in 3.25% for a 30 year fixed refinance yesterday. Down from 4%. We don't have a large mortgage but still saves us $110/month. Closing cost is only $700. Used a local broker that was highly recommended by multiple people. Thought about cash out refi but our goal was to lower our monthly payment. We also plan to move in about 8 years.
i'm surprised rates aren't lower.
i locked in 3.375% for 30 years in jan 2015. i think 10-year rate was at 1.68 or somewhere thereabouts.
i'm surprised rates aren't lower.
i locked in 3.375% for 30 years in jan 2015. i think 10-year rate was at 1.68 or somewhere thereabouts.
https://www.washingtonpost.com/business/2020/03/03/economy-coronavirus-rate-cuts/I would totally do it. Just don't let the scope of the kitchen reno creep with all that new money!
Wow. Half a percent!!! I can't wait to see what that does for mortgage rates.
Which brings me to a dilemma. I'm getting my kitchen redone, so I could refinance not only the mortgage principle but also the renovation costs. I had planned to pay cash, but...a refi would let me sink that cash into the market instead, probably during/just after a correction. Should I do it??? My mortgage is currently 3.875% for an amount that's ~35-40% of my home value (I'd been paying it down aggressively).
So the question is when to start the refi process? I can drop about 3/4 of a percent depending. I’m thinking of waiting at least a week, but should it be 2or three weeks at this point.
So the question is when to start the refi process? I can drop about 3/4 of a percent depending. I’m thinking of waiting at least a week, but should it be 2or three weeks at this point.
There is always risk in waiting. I'm not sure anyone can give you a definitive answer.
It turns out best mortgage rates i have seen so far are 3.25% for cash-out refi vs 3% for just refi for 30 year fixed. Still a good rate.
It improves cash-flow by $200/m and 55K cash out.
I tried and failed to convince DW that cash-out refi was a good idea. So we are moving forward with 30 year fixed refinance instead.
Just locked in 2.875% for 30 year fixed refi - a reference interest rate if you are in same boat. Good luck!
Our mortgage payment will be down by 40%. Now I have a good problem of how to automate this freed up cash-flow to investments.
Please post the following information when referencing a particular refi deal:
Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not
Leaseholds seem to work in the UK.I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.The Disney Vacation Club actually works that way. Timeshare, so not so much "at much lower levels", but if you read the contract, it is actually a ~50 year lease. But "renting on a very long term to inhabit a property" is exactly what "owners" are doing in that program. So I guess this idea works at a very small, niche scale at least.
Please post the following information when referencing a particular refi deal:
Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700
+ refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Would you mind sharing who your lender is? I'm also in the midwest and this seems like an awesome deal with a really good rate and low closing costs. I've done just a little searching online and I'm not finding anything quite this good. Congrats to you!
Please post the following information when referencing a particular refi deal:
Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700
+ refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Leaseholds seem to work in the UK.
https://www.rbfcu.org/rates
Click on the promo Refinance.... you can get an 11 year for 2.45%.... FYI closing cost will be about $1100 as long as you have at least 10% equity.... You're Welcome!!
Thank you. this is a great rate.
I don't seem to be able to join online as they won't even accept my zip code (in CT) as a valid one.
I'll make a call tomorrow and see what they say.
Call them they can do a mortgage any where. They are the largest credit union in Texas and are awesome to deal with. I've had 3 mortgages with them no issues at all.
Would you mind sharing who your lender is? I'm also in the midwest and this seems like an awesome deal with a really good rate and low closing costs. I've done just a little searching online and I'm not finding anything quite this good. Congrats to you!
Please post the following information when referencing a particular refi deal:
Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700
+ refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Would you mind sharing who your lender is? I'm also in the midwest and this seems like an awesome deal with a really good rate and low closing costs. I've done just a little searching online and I'm not finding anything quite this good. Congrats to you!
Please post the following information when referencing a particular refi deal:
Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700
+ refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Sorry, I went with small regional player, very close to home. I want to keep it private. Luckily was able to lock in when interest rates hit 2.875 30 year fixed very briefly. Now they are back in range between 3% - 3.25%. Seems like they can change multiple times in a day.
Totally understand. Great job on securing such a low rate. I guess mortgage rates are just as volatile as the market these days.Would you mind sharing who your lender is? I'm also in the midwest and this seems like an awesome deal with a really good rate and low closing costs. I've done just a little searching online and I'm not finding anything quite this good. Congrats to you!
Please post the following information when referencing a particular refi deal:
Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700
+ refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Sorry, I went with small regional player, very close to home. I want to keep it private. Luckily was able to lock in when interest rates hit 2.875 30 year fixed very briefly. Now they are back in range between 3% - 3.25%. Seems like they can change multiple times in a day.
I wend with a small regional player with a branch a mile from my home.Hey, there's nothing wrong with California![snirt]
What happened? Before I made the *first payment* they sold my loan to another bank, who sold it to a third player. Now I'm with some company in California (opposite coast). Go figure.
Don't assume that just because you go with a local bank it will stay that way.
I wend with a small regional player with a branch a mile from my home.Hey, there's nothing wrong with California![snirt]
What happened? Before I made the *first payment* they sold my loan to another bank, who sold it to a third player. Now I'm with some company in California (opposite coast). Go figure.
Don't assume that just because you go with a local bank it will stay that way.
Not to rub it in, but for the benefit of others, be sure to ask that question during or even before you begin the loanapplication process.
FWIW, all but one of our loans are with a local lender who doesn't resell. We have one with Chase. They just sold it, but they're still going to be servicing the loan, so nothing's changed. Go figure.
Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.
Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.
DH adamantly prefers this. Therefore, when taxes are due on four properties, it is a huge chunk of change. It hurts to write those checks, even though we're savers and always have plenty of cash. Just for grins, our tax bill is in excess of $26k per year. Yay for California high-priced real estate.Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.
This is actually why we're considering not escrowing this time around, just to avoid dealing with the pain that might be.
Our broker gave us the option of not escrowing without any additional fees. I have never done that before but since our last mortgage company kept screwing it up, I am choosing to pay everything myself this time around. Just have to remember to put that money to the side.DH adamantly prefers this. Therefore, when taxes are due on four properties, it is a huge chunk of change. It hurts to write those checks, even though we're savers and always have plenty of cash. Just for grins, our tax bill is in excess of $26k per year. Yay for California high-priced real estate.Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.
This is actually why we're considering not escrowing this time around, just to avoid dealing with the pain that might be.
Our broker gave us the option of not escrowing without any additional fees. I have never done that before but since our last mortgage company kept screwing it up, I am choosing to pay everything myself this time around. Just have to remember to put that money to the side.DH adamantly prefers this. Therefore, when taxes are due on four properties, it is a huge chunk of change. It hurts to write those checks, even though we're savers and always have plenty of cash. Just for grins, our tax bill is in excess of $26k per year. Yay for California high-priced real estate.Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.
This is actually why we're considering not escrowing this time around, just to avoid dealing with the pain that might be.
We're considering going for a refinance to take advantage of the lower rates - just debating if it's worth the hassle when we're already busy chasing down the roofer, getting some electrical work scheduled, and rushing to get the garden ready by last frost. We only bought last June, so our rate isn't awful, and we wouldn't be extending our term by much, but dealing with the bank was a massive hassle originally, so I'm waffling on if we want to deal with all that again when we're already busy.
If you're busy now, I have a feeling rates will stay low for a little while. The pressure is on FRB to cut, not raise. Bond market has fallen far below the yields that were supporting mortgage rates in the mid 3's (ten-year treasury yield was 0.43% at one point this morning). I'd feel secure letting mortgage rates catch up to these conditions.
We're considering going for a refinance to take advantage of the lower rates - just debating if it's worth the hassle when we're already busy chasing down the roofer, getting some electrical work scheduled, and rushing to get the garden ready by last frost. We only bought last June, so our rate isn't awful, and we wouldn't be extending our term by much, but dealing with the bank was a massive hassle originally, so I'm waffling on if we want to deal with all that again when we're already busy.
+1We're considering going for a refinance to take advantage of the lower rates - just debating if it's worth the hassle when we're already busy chasing down the roofer, getting some electrical work scheduled, and rushing to get the garden ready by last frost. We only bought last June, so our rate isn't awful, and we wouldn't be extending our term by much, but dealing with the bank was a massive hassle originally, so I'm waffling on if we want to deal with all that again when we're already busy.
From my experiences, refi-ing tends to be a lot less of a hassle than getting the original loan to buy the property. The biggest hassle for me so far has been getting all the documentation needed. I'd say I've spent 4-6 hours on the process to hopefully save $100 a month.
I'm in. We just locked in our refi at . . . {drum roll} . . . 2.5%.
10 year fixed.oh. Well that's a horse of a different colour.
Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.What are the closing costs? I'd be real tempted to lock it in if it's ~3% with low/no closing costs. Also, how much would you be saving going to 2.99%? If it's a big drop in your rate and you'll save a lot per month, it's probably worth going ahead with it now to ensure an awesome rate. Even if it goes lower, you really can't complain about 2.99% for 30 years!! Obviously, the risk in waiting is that it jumps back up. But with the way things are looking now, it seems like rates are being kept a little higher due to the massive demand and the suddenness of all this. I'm thinking we may see things go slightly lower once this latest batch of refinances has been processed (at least weeks, maybe months?). Then again, the market may be doing better by that time and maybe rates will head back up.
You guys and your rates are killing me! We don't have a mortgage on our primary home*. I am dying to pull cash out of it, but if you have no mortgage and you want to get one, it's considered a cash-out re-fi and typically they cost a bit more. Definitely a MPP, but it's yet another reason to always carry a big, fat mortgage and never prepay it!!!Do it!! Then you can truly belong in the DPOYM club! :) JK. You always belong and I appreciate your championing for mortgages even when you don't have one yourself (on your primary home).
Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.What are the closing costs? I'd be real tempted to lock it in if it's ~3% with low/no closing costs. Also, how much would you be saving going to 2.99%? If it's a big drop in your rate and you'll save a lot per month, it's probably worth going ahead with it now to ensure an awesome rate. Even if it goes lower, you really can't complain about 2.99% for 30 years!! Obviously, the risk in waiting is that it jumps back up. But with the way things are looking now, it seems like rates are being kept a little higher due to the massive demand and the suddenness of all this. I'm thinking we may see things go slightly lower once this latest batch of refinances has been processed (at least weeks, maybe months?). Then again, the market may be doing better by that time and maybe rates will head back up.
Or in other words: ¯\_(ツ)_/¯
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all. So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy. Anyone know if this fear is plausible?
Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.What are the closing costs? I'd be real tempted to lock it in if it's ~3% with low/no closing costs. Also, how much would you be saving going to 2.99%? If it's a big drop in your rate and you'll save a lot per month, it's probably worth going ahead with it now to ensure an awesome rate. Even if it goes lower, you really can't complain about 2.99% for 30 years!! Obviously, the risk in waiting is that it jumps back up. But with the way things are looking now, it seems like rates are being kept a little higher due to the massive demand and the suddenness of all this. I'm thinking we may see things go slightly lower once this latest batch of refinances has been processed (at least weeks, maybe months?). Then again, the market may be doing better by that time and maybe rates will head back up.
Or in other words: ¯\_(ツ)_/¯
Total closing costs came out to $1,700, and my payment will drop by $200/month. I went ahead and locked it in.
That sounds like a pretty good deal. I probably would've locked that in too. I mean, you can't really go wrong with a mortgage rate less than 3%. I had a 5 year CD that ended last year that was paying 3%. 30 years is a really long time and I'm sure we'll get there again where CDs/bonds/savings are yielding higher. It's pretty awesome that we can lock in such low rates for a long-ass time.Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.What are the closing costs? I'd be real tempted to lock it in if it's ~3% with low/no closing costs. Also, how much would you be saving going to 2.99%? If it's a big drop in your rate and you'll save a lot per month, it's probably worth going ahead with it now to ensure an awesome rate. Even if it goes lower, you really can't complain about 2.99% for 30 years!! Obviously, the risk in waiting is that it jumps back up. But with the way things are looking now, it seems like rates are being kept a little higher due to the massive demand and the suddenness of all this. I'm thinking we may see things go slightly lower once this latest batch of refinances has been processed (at least weeks, maybe months?). Then again, the market may be doing better by that time and maybe rates will head back up.
Or in other words: ¯\_(ツ)_/¯
Total closing costs came out to $1,700, and my payment will drop by $200/month. I went ahead and locked it in.
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all. So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy. Anyone know if this fear is plausible?I don't have any first-hand experience, but from what I've been reading, that kind of seems to be the case right now. I think lenders have been so flooded over the last 3 weeks with so many re-finances that they're keeping rates higher. I saw PenFed go from ~3% last week to 2.875% briefly yesterday all the way up to 3.5% today. That's a big spread. I thought about jumping on it when it was 2.875% but missed it by the time I got home. So I think I'll just wait until things settle down a little. That may not end up being the right approach, but my rate is pretty good as it is so I won't be heartbroken if I miss out.
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all. So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy. Anyone know if this fear is plausible?I don't have any first-hand experience, but from what I've been reading, that kind of seems to be the case right now. I think lenders have been so flooded over the last 3 weeks with so many re-finances that they're keeping rates higher. I saw PenFed go from ~3% last week to 2.875% briefly yesterday all the way up to 3.5% today. That's a big spread. I thought about jumping on it when it was 2.875% but missed it by the time I got home. So I think I'll just wait until things settle down a little. That may not end up being the right approach, but my rate is pretty good as it is so I won't be heartbroken if I miss out.
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all. So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy. Anyone know if this fear is plausible?I don't have any first-hand experience, but from what I've been reading, that kind of seems to be the case right now. I think lenders have been so flooded over the last 3 weeks with so many re-finances that they're keeping rates higher. I saw PenFed go from ~3% last week to 2.875% briefly yesterday all the way up to 3.5% today. That's a big spread. I thought about jumping on it when it was 2.875% but missed it by the time I got home. So I think I'll just wait until things settle down a little. That may not end up being the right approach, but my rate is pretty good as it is so I won't be heartbroken if I miss out.
I wend with a small regional player with a branch a mile from my home.Mortgages get sold all the time. Larger originators might retain the servicing of the loan which makes the sale of the mortgage far less visible to the borrower, but the loan itself is still very likely sold.
What happened? Before I made the *first payment* they sold my loan to another bank, who sold it to a third player. Now I'm with some company in California (opposite coast). Go figure.
Don't assume that just because you go with a local bank it will stay that way.
yep, the rbfcu.org 11 year refi rate actually went up today to 2.55. hoping the rates drop in the near future.
Banks are raising rates because they can't handle all the business. I hope that after the initial log jam gets sorted out rates will come back down. No guarantee on that of course.
Type ---> RefinanceInterestingly I found out that there is no appraisal required for my home because fannie mae accepted home value we gave on the application. Likely saves few hundred bucks.
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700
+ refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Banks are raising rates because they can't handle all the business. I hope that after the initial log jam gets sorted out rates will come back down. No guarantee on that of course.
yeah, heard that as well... was almost ready to pull the trigger
Banks are raising rates because they can't handle all the business. I hope that after the initial log jam gets sorted out rates will come back down. No guarantee on that of course.
yeah, heard that as well... was almost ready to pull the trigger
I have some acquaintances high up in banking. They say that they have been seeing 4x-10x normal daily volumes for mortgages.
Banks are raising rates because they can't handle all the business. I hope that after the initial log jam gets sorted out rates will come back down. No guarantee on that of course.
yeah, heard that as well... was almost ready to pull the trigger
I have some acquaintances high up in banking. They say that they have been seeing 4x-10x normal daily volumes for mortgages.
When too many people apply for loans all at once, the labor becomes the constraint. There just aren't enough PEOPLE to process these loans, so the price goes up.
Banks are raising rates because they can't handle all the business. I hope that after the initial log jam gets sorted out rates will come back down. No guarantee on that of course.
yeah, heard that as well... was almost ready to pull the trigger
I have some acquaintances high up in banking. They say that they have been seeing 4x-10x normal daily volumes for mortgages.
When too many people apply for loans all at once, the labor becomes the constraint. There just aren't enough PEOPLE to process these loans, so the price goes up.
PenFed is back down to 3.625% today from 4% Friday. So maybe things will start to head lower again. Obviously the coronavirus might have an impact on lenders' ability to give out loans, so that's another unknown here. With all the craziness going on, refinancing isn't at the top of my priority list. If rates get back to ~3%, I'll start taking a look again. If we don't get there because the virus quickly stops spreading and the economy is great again, well I'll call that a win :)
So you signed up last Monday when rates were low and still haven't heard back? Wow, I guess they really are swamped. Let me know when you hear back. I'm curious if they offer you a better rate than listed because you applied so long ago when rates were much lower. Also curious what their closing fees are, if you or anyone else has an idea. Does anyone know if they do no-cost refinancing for a higher interest rate? They seem to have some of the lowest rates, but wondering if the closing costs make it a no-go. Then again, that's only if they respond to you in the first place!!PenFed is back down to 3.625% today from 4% Friday. So maybe things will start to head lower again. Obviously the coronavirus might have an impact on lenders' ability to give out loans, so that's another unknown here. With all the craziness going on, refinancing isn't at the top of my priority list. If rates get back to ~3%, I'll start taking a look again. If we don't get there because the virus quickly stops spreading and the economy is great again, well I'll call that a win :)
I tried to get one of their sub-2.8% rates but didn't contact them quickly enough. They were swamped and still haven't responded.
So you signed up last Monday when rates were low and still haven't heard back? Wow, I guess they really are swamped. Let me know when you hear back. I'm curious if they offer you a better rate than listed because you applied so long ago when rates were much lower. Also curious what their closing fees are, if you or anyone else has an idea. Does anyone know if they do no-cost refinancing for a higher interest rate? They seem to have some of the lowest rates, but wondering if the closing costs make it a no-go. Then again, that's only if they respond to you in the first place!!PenFed is back down to 3.625% today from 4% Friday. So maybe things will start to head lower again. Obviously the coronavirus might have an impact on lenders' ability to give out loans, so that's another unknown here. With all the craziness going on, refinancing isn't at the top of my priority list. If rates get back to ~3%, I'll start taking a look again. If we don't get there because the virus quickly stops spreading and the economy is great again, well I'll call that a win :)
I tried to get one of their sub-2.8% rates but didn't contact them quickly enough. They were swamped and still haven't responded.
For now, I'll just use them as a gauge for rates overall, since at least they post it and have some of the lowest rates I've seen. I guess when they get to around 3.25% apply and maybe I'll hit sub 3% by the time they get back to me? Is mortgage refinance timing as bad as market timing?
In times like these, I wake up every day thankful that I have $150,000 cash instead of an extra $600 per month.Amen, Radagast! I started a thread in praise of a big, fat EF, and of course someone posted that they were happy their house was paid off. I refrained from asking if they had done it before or after reaching FI, because I didn't want to derail the thread.
We refinanced with Loan Depot spring 2019 into a 3.375 10/1 ARM. The opportunity to refi to a 30yr fixed at 3.375 with a few hundred bucks back to us happened early last month. Uploaded all the required info immediately, have not heard anything. I am sure they are completely swamped.
I am REALLY glad we didn't pay off the mortgage in this environment. People who think having no mortgage will save them fail to account for all the other ongoing cash expenses of life. Personal property tax is one of our biggest monthly expenses.
Is it worth re-examining the fundamentals of the DNPYM club now that we're in a bear market?
I could imagine my wife opening up our investment account statements, pointing out that we've lost (on paper) more money than the balance on our mortgage, and me having to explain that actually staying in this much debt to own more of the assets that are sinking is the right course.
I don’t think that’s a fair judgement. I read both threads and see that both groups believe in and have decent EFs. The difference is one group uses the low interest rate to invest while the other pays off the mortgage.If you do read both threads, you will know that I'm not against paying off mortgages. You will also know that on the Mortgage Payoff thread, the focus is merely on doing/celebrating it. Discussion about whether it's the most effective way to reach FI is not allowed, hence the formation of the DPOYM thread.
As of know, it seems that we will be in for some hurting for a while. After this panic, the reality of slower business or even worse will set in.
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I don’t think that’s a fair judgement. I read both threads and see that both groups believe in and have decent EFs. The difference is one group uses the low interest rate to invest while the other pays off the mortgage.If you do read both threads, you will know that I'm not against paying off mortgages. You will also know that on the Mortgage Payoff thread, the focus is merely on doing/celebrating it. Discussion about whether it's the most effective way to reach FI is not allowed, hence the formation of the DPOYM thread.
As of know, it seems that we will be in for some hurting for a while. After this panic, the reality of slower business or even worse will set in.
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And yes, a shocking number of people "killing the mortgage" do not understand the tradeoff(s) they're making. Putting retirement savings after paying off the mortgage is far less efficient. And MMM is all about efficiency. Killing the mortgage, but not getting your employer's full match? Not maxing out your 401k/Roth/HSA (if eligible)? Don't understand the magic of compound interest? Then you're probably leaving a lot of money on the table. Want to learn more before you make your mortgage payoff decision? You won't find that conversation on the Payoff thread, because it's not allowed.
Thank you for your candor, @Fire2025
Was this impasse on the handling of the mortgage part of why you have not joined finances with your SO?
A shocking number of people throwing all available cash into paying off the mortgage early "for safety" don't realize that they don't get the safety UNTIL the mortgage is paid off. They start basking in that "SAFETY" feeling the moment they start paying it down fast and hard.
Awww, I love you guys! Thanks for staying and sharing the message.A shocking number of people throwing all available cash into paying off the mortgage early "for safety" don't realize that they don't get the safety UNTIL the mortgage is paid off. They start basking in that "SAFETY" feeling the moment they start paying it down fast and hard.
i would argue that true "SAFETY" doesn't come for these people until several years after they mortgage has been paid down and they have had a chance to plow the improved cash-flow into more liquid investments. Even then (as has been hammered home in 40+ pages of this thread) it is exceedingly unlikely that they will ever match those that prioritized tax-advantaged savings over throwing all available resources at a mortgage.
FWIW, I'm not against someone paying down their mortgage - prudently. There are even circumstances when it can be beneficial (i.e. to improve cash-flow close to retirement when tax-advantaged space is no longer available). I'm against the emotional reaction to not holding a mortgage, which I think it at best misguided and more likely completely counterproductive.
Is it worth re-examining the fundamentals of the DNPYM club now that we're in a bear market?
I could imagine my wife opening up our investment account statements, pointing out that we've lost (on paper) more money than the balance on our mortgage, and me having to explain that actually staying in this much debt to own more of the assets that are sinking is the right course.
Hey @SwordGuy did you ever hear back from PenFed? Looks like their rates have been getting lower again but they were also over 4% recently as well. They're really all over the place. Just curious if it's really taking over 2 weeks for them to get back to people and what kind of rates they're offering to those who applied weeks ago. Thanks!
Dang that sucks. I knew they were busy, but I'd think they'd at least have had time to talk to you by now. Have you checked with any other lenders? I wonder if it's just PenFed not answering or if all lenders are just too busy right now for new applicants. With the current state of the country, I guess I can understand that things have slowed down, along with the rush of applications before things got so bad. Hopefully things get better soon on all fronts and mortgage rates stay low. Thanks for the update.Hey @SwordGuy did you ever hear back from PenFed? Looks like their rates have been getting lower again but they were also over 4% recently as well. They're really all over the place. Just curious if it's really taking over 2 weeks for them to get back to people and what kind of rates they're offering to those who applied weeks ago. Thanks!
Haven't heard a damn thing from them. Tried a couple of times and I just get shunted a queue.
7/1 ARMs still had a great rate on the first 7 years, which is more than I need to pay it off. :(
Dang that sucks. I knew they were busy, but I'd think they'd at least have had time to talk to you by now. Have you checked with any other lenders? I wonder if it's just PenFed not answering or if all lenders are just too busy right now for new applicants. With the current state of the country, I guess I can understand that things have slowed down, along with the rush of applications before things got so bad. Hopefully things get better soon on all fronts and mortgage rates stay low. Thanks for the update.Hey @SwordGuy did you ever hear back from PenFed? Looks like their rates have been getting lower again but they were also over 4% recently as well. They're really all over the place. Just curious if it's really taking over 2 weeks for them to get back to people and what kind of rates they're offering to those who applied weeks ago. Thanks!
Haven't heard a damn thing from them. Tried a couple of times and I just get shunted a queue.
7/1 ARMs still had a great rate on the first 7 years, which is more than I need to pay it off. :(
All set to close on the sale of our old house this Friday (barring a catastrophe, and, tbh, this seems like the week a catastrophe could happen).What a rough time to be making a transition. Fingers (and everything else) crossed that it goes through!
Proceeds from the house will mostly pay back a margin loan, leaving us at 78% LTV on the new house and no other debt. Current rate 3 7/8. Hoping to be able to refinance and improve that late this year.
Update: dropped off signed, notarized, papers at closing office.
Filled out wiring instructions form. God, I hope I got those numbers right.
I'm listening to a podcast about Iran-Contra (called "Fiasco"; it's fabulous), and the host made the claim that the Sultan of Brunei agreed to donate something like $20 million to the Contra cause. Reagan's secretary transposed two digits in the wire transfer, so the money went to the wrong Swiss bank account, and was beyond the reach of Brunei, the US, and the contras forever.um... how does this connect to the thread? I missed the link somewhere...
um... how does this connect to the thread? I missed the link somewhere...I'm listening to a podcast about Iran-Contra (called "Fiasco"; it's fabulous), and the host made the claim that the Sultan of Brunei agreed to donate something like $20 million to the Contra cause. Reagan's secretary transposed two digits in the wire transfer, so the money went to the wrong Swiss bank account, and was beyond the reach of Brunei, the US, and the contras forever.Update: dropped off signed, notarized, papers at closing office.
Filled out wiring instructions form. God, I hope I got those numbers right.
lol, I hear ya, I am buying a house tomorrow and just did the wire transfer too xD
@sherr if you connect several posts of mine, you'll see that I've been super leveraged during a period from October until (hopefully) tomorrow while owning two houses. At our peak, my wife and I were carrying debt of about 320% of our annual income. It's possible our HCOL posters don't think this is extreme, but we are anxious to get back down to one house and simplify our lives and finances, while slowly paying down the remaining mortgage.
Also, my wife works for a major producer of aircraft engines, so--if she loses her job--that % might move the other way.
Despite the explanation below, I didn't get it either, so it's not just nereo.I'm listening to a podcast about Iran-Contra (called "Fiasco"; it's fabulous), and the host made the claim that the Sultan of Brunei agreed to donate something like $20 million to the Contra cause. Reagan's secretary transposed two digits in the wire transfer, so the money went to the wrong Swiss bank account, and was beyond the reach of Brunei, the US, and the contras forever.um... how does this connect to the thread? I missed the link somewhere...
@sherr if you connect several posts of mine, you'll see that I've been super leveraged during a period from October until (hopefully) tomorrow while owning two houses. At our peak, my wife and I were carrying debt of about 320% of our annual income. It's possible our HCOL posters don't think this is extreme, but we are anxious to get back down to one house and simplify our lives and finances, while slowly paying down the remaining mortgage.
Also, my wife works for a major producer of aircraft engines, so--if she loses her job--that % might move the other way.
I know, I was disagreeing with @nereo that this was off topic. The specific tangent about transposed wire transfer numbers was a tangent, but like I said, nothing to get bent out of shape about.
sending Bitcoin to pay off the mortgage would actually be kinda normal compared to other things. Stock market gaining 5% while Bitcoin stays basically the same is kinda disorienting.But if you send it to the wrong wallet, it is gone with no recourse. One of the features of bitcoin is the permanence of the transaction and another one is the anonymity.
sending Bitcoin to pay off the mortgage would actually be kinda normal compared to other things. Stock market gaining 5% while Bitcoin stays basically the same is kinda disorienting.But if you send it to the wrong wallet, it is gone with no recourse. One of the features of bitcoin is the permanence of the transaction and another one is the anonymity.
I wasn’t getting bent out of shape. I just wasn’t following the train of thought, and was hoping someone could connect the Dots for me. Didn’t seem to be an odd request
I'm wondering if any of you are planning on taking advantage of the mortgage abeyance plans that are being rolled out? One of our rentals was financed as a second home (the bank insisted on doing it that way, despite full disclosure), so I suppose technically we could, but we have no plans to. All of our tenants are fine, so we expect no interruptions or turnover, plus we have ample reserves. I don't want to start a new thread, so I'm asking our little group, because I know most of you still have mortgages :-)
I totally agree. In fact, I'm not too happy about the stimulus check that's on its way. Don't need it, don't want it, not even sure what would happen if we didn't cash it...I'm wondering if any of you are planning on taking advantage of the mortgage abeyance plans that are being rolled out? One of our rentals was financed as a second home (the bank insisted on doing it that way, despite full disclosure), so I suppose technically we could, but we have no plans to. All of our tenants are fine, so we expect no interruptions or turnover, plus we have ample reserves. I don't want to start a new thread, so I'm asking our little group, because I know most of you still have mortgages :-)
I believe that keeping one's word when one is (a) able to and (b) it will not impoverish one's family is the right thing to do. And when it comes to (b), it's the right thing to do what one can to make amends to the other party.
We're donating our stimulus check, and probably more, to some local charities. +1 to "don't need it". Only reason we qualify is I'm good at math and have organized our lives to be very tax-efficient.
I totally agree. In fact, I'm not too happy about the stimulus check that's on its way. Don't need it, don't want it, not even sure what would happen if we didn't cash it...I'm wondering if any of you are planning on taking advantage of the mortgage abeyance plans that are being rolled out? One of our rentals was financed as a second home (the bank insisted on doing it that way, despite full disclosure), so I suppose technically we could, but we have no plans to. All of our tenants are fine, so we expect no interruptions or turnover, plus we have ample reserves. I don't want to start a new thread, so I'm asking our little group, because I know most of you still have mortgages :-)
I believe that keeping one's word when one is (a) able to and (b) it will not impoverish one's family is the right thing to do. And when it comes to (b), it's the right thing to do what one can to make amends to the other party.
OTOH, the mortgage abeyance, as I understand it, is not forgiveness, it just lets you push back any missed payments to the end of the mortgage. The drawback would be that you are paying less interest in the current year. If I'm incorrect, please feel free to advise me gently.
I don't think this has anything to do with keeping one's word.
I'd say you read incompletely. They created a new refundable tax credit for this - so for the vast majority of people, while what you wrote is technically true, next year's taxes are reduced by the amount of the payment, so at the end of the day the net result is you have $1200 or $2400 or more if you have kids in your pocket.We're donating our stimulus check, and probably more, to some local charities. +1 to "don't need it". Only reason we qualify is I'm good at math and have organized our lives to be very tax-efficient.
I have read that the stimulus check is really just and advance on next year’s taxes the way it is written, so don’t get too excited when it comes....
Back on topic - my "power move" from October isn't looking so great right now. Still having $70-100K more liquidity is helpful at calming the nerves, even though I have a <$600 payment that wasn't there before I did that.Wait! 70,000 divided by 600/month is nearly ten years of mortgage payments, not counting even minimal interest. Where is the problem?
We finally managed to close on the sale of our old home.Congratulations to you and to @TexasRunner!
112 K in proceeds, but we have almost that much in small loans (that got us through the two mortgage period) to pay off.
Back on topic - my "power move" from October isn't looking so great right now. Still having $70-100K more liquidity is helpful at calming the nerves, even though I have a <$600 payment that wasn't there before I did that.Conversely, I'm happy we did our (moderate) cashout refi at the end of November - I locked up the cash for a few months getting $1,300 in signup bonuses from Chase and never got around to investing it. Mortgage is back out to a 30 year term, total costs were under $50 IIRC, monthly payment dropped from >$900 to <$600.
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700
+ refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
@achvfi that is a nice rate. Do you have an extensive relationship with that bank?
We refinanced with Loan Depot spring 2019 into a 3.375 10/1 ARM. The opportunity to refi to a 30yr fixed at 3.375 with a few hundred bucks back to us happened early last month. Uploaded all the required info immediately, have not heard anything. I am sure they are completely swamped.Congratulations!
I am REALLY glad we didn't pay off the mortgage in this environment. People who think having no mortgage will save them fail to account for all the other ongoing cash expenses of life. Personal property tax is one of our biggest monthly expenses.
ETA 4/16/20: We closed on the 30yr 3.25 fixed on 4/13. (same late negotiation got us an extra 1/8) If you look at historic 30-year mortgages, that's pretty low, especially considering we didn't have out-of-pocket closing costs. Only a handful of times have 30 years been below 3.5%. http://www.freddiemac.com/pmms/pmms30.html (http://www.freddiemac.com/pmms/pmms30.html)
I suppose this fits here but I hadn't thought about it til now.i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.
My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.
Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.
It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.
If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.I suppose this fits here but I hadn't thought about it til now.i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.
My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.
Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.
It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.
If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.because on this very thread, there are many people getting praise for refinancing into a new 30 year long, reducing their monthly payments, but extending the life of the loan considerably in some cases.
@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.I suppose this fits here but I hadn't thought about it til now.i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.
My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.
Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.
It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.
If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.
I sincerely hope you can see the difference. Make your decision knowing your personal circumstances, with full knowledge of what it's going to cost you. It's not about ethics at all, it's about m-o-n-e-y. @dreadmoose clearly understands that.
Gee, you make it sound like that's a bad thing ;-) Please remember which thread you're commenting on. It's quite generally agreed in this club that following the Investment Order is the most expedient way to FIRE, not killing the mortgage at the expense of everything else. Drawing out the cheap, fixed-rate, tax-deductible mortgage and investing every penny of the difference is totally different than avoiding regularly scheduled mortgage payments that you could otherwise afford to make.The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.because on this very thread, there are many people getting praise for refinancing into a new 30 year long, reducing their monthly payments, but extending the life of the loan considerably in some cases.
It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.Um, why are you doing escrow? You should still be able to get out of it.
It almost doesn't feel worth it.
It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.Um, why are you doing escrow? You should still be able to get out of it.
It almost doesn't feel worth it.
It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.Um, why are you doing escrow? You should still be able to get out of it.
It almost doesn't feel worth it.
Not with my current servicer or the company I'm using to refinance - I asked.
After 11 years escrow-free, I finally found a loan-servicer that basically bribed me to set up an escrow account, and it coincided with moving the property tax office to a location much farther away from my work. It's been really freeing so far. I don't miss setting aside those monthly amounts writing the big check. It just feels like two more things I don't have to do.
Hopefully your escrow payment will be right sized by next year when new loan servicer recalculates it.I'd write to the servicer pointing out that the costs the escrow account is expected to pay have decreased and asking the to do a new escrow analysis to adjust the payment. I can't find anything indicating that they have to perform a new analysis upon request rather than wait until the next scheduled annual analysis, but it couldn't hurt to ask.
And sometimes you can time your payments for tax purposes by making a payment due in the spring before the end of December (SALT deduction cap has reduced the usefulness of this strategy).After 11 years escrow-free, I finally found a loan-servicer that basically bribed me to set up an escrow account, and it coincided with moving the property tax office to a location much farther away from my work. It's been really freeing so far. I don't miss setting aside those monthly amounts writing the big check. It just feels like two more things I don't have to do.
Every year we use the property tax payment for some easy CC signup bonuses, clearing at least $500 a year. Sure, there's a fee to the county tax office - but it's swallowed by the bonus.
Six payments made.
Three hundred fifty-four payments to go.
You guys are rock stars!Six payments made.
Three hundred fifty-four payments to go.
Nine payments on our current mortgage (3.7%). Thanking my lucky stars we didn't dump more money in given where rates and the economy are right now.
Eh, my rate is 3 7/8.
I think I'm more in "local guy who plays guitar for free at restaurant" territory than rock star territory, @Dicey .
@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.I suppose this fits here but I hadn't thought about it til now.i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.
My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.
Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.
It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.
If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.
I sincerely hope you can see the difference. Make your decision knowing your personal circumstances, with full knowledge of what it's going to cost you. It's not about ethics at all, it's about m-o-n-e-y. @dreadmoose clearly understands that.
I believe any type of misinformation provided to say that COVID has caused us financial distress would be unethical as it currently has not. I would not apply for benefits that require me to say that.
This is not the Government mandated mortgage deferral system but something put out by MCAP over a month ago saying they were simply waiving the $90 fee for mortgage payment skips that have always been available on my mortgage.
There was nothing required to qualify and neither the Gov't (taxpayers) or the bank are losing any money off this transaction.
I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.
Plina's rate sounds like it's from a country outside US, but I must admit I'm starting to see rates that make me think it's time to explore what a refi could do. Gearing up for payment #7 out of 360.I'm a fan of re-fis when rates are falling, but don't you already have a pretty good rate?
We're sitting at 3 7/8 on the house we bought last fall (this is a 30-year term). We recently learned someone filed a fraudulent tax return for us, so I'm suddenly a little gun-shy about taking on another project where there will be documents flying around all over the place.
But lowering that to 3.0 will save us $200/month in interest, which is worth considering.
[Snip]I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.
Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.
Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.[Snip]I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.
Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.
As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.[Snip]I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.
Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.
As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Wow, our loans are a lot simpler than yours are. Something to be grateful for. Thanks for the clarification. Typically, the bigger your stache is, the less this kind of minutiae (tiny details) actually matters. The real killer is when people who are just starting out become determined to pay off the mortgage at all costs, and at the expense of all other savings. That doesn't sound like your situation at all.Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.[Snip]I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.
Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.
As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Sorry, the text was not clear. The iPad changes words as it is set on swedish. It does not extend the length of the mortgage. The end date is the same. It is a 40-year term so when it is in the end I am close to 80 years. Considering that I don’t plan to live in this apartment that long I am not that worried about interest rates in years 2058-2059. I might have made a different decision if I saw this as a forever apartment. Also there is no way to predict interes trates a couple of years in to the future. I look at them once a year and decide if I want to keep a variable rate that can change every three months or if I want to lock them for a time period. I have had the interest rate locked one year during the last five years.
@rmorris50 , welcome to the DNPYM club, and welcome to Charlotte.
During "Business as Usual" times, I was embarrassed to call what we have here traffic, I think you will be surprised at how wonderful it is here. May I ask what part of the city you're building? Our family chose Huntersville (just north of the city) for access to kids' activities and schools.
Wow, our loans are a lot simpler than yours are. Something to be grateful for. Thanks for the clarification. Typically, the bigger your stache is, the less this kind of minutiae (tiny details) actually matters. The real killer is when people who are just starting out become determined to pay off the mortgage at all costs, and at the expense of all other savings. That doesn't sound like your situation at all.Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.[Snip]I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.
Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.
As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Sorry, the text was not clear. The iPad changes words as it is set on swedish. It does not extend the length of the mortgage. The end date is the same. It is a 40-year term so when it is in the end I am close to 80 years. Considering that I don’t plan to live in this apartment that long I am not that worried about interest rates in years 2058-2059. I might have made a different decision if I saw this as a forever apartment. Also there is no way to predict interes trates a couple of years in to the future. I look at them once a year and decide if I want to keep a variable rate that can change every three months or if I want to lock them for a time period. I have had the interest rate locked one year during the last five years.
They don't seem to be simpler to me. :) I could probably pay of my mortgage in ten years but I really don't want to put all my savings in an apartment. Especially because I know that I don't want to stay in forever. I have realized during the years that I value more the flexibility to have cash or investments that can be turned to cash. You can also add the fact that I am not dependent of my work if I don't have everything tied to an apartment.I take it that if you have locked your rate and sell during your lock period, you pay a penalty based on the difference in interest rates. Does this mean you pay extra to sell during your lock period if rates have lowered since your lock (but not if they are the same or higher)?
They don't seem to be simpler to me. :) I could probably pay of my mortgage in ten years but I really don't want to put all my savings in an apartment. Especially because I know that I don't want to stay in forever. I have realized during the years that I value more the flexibility to have cash or investments that can be turned to cash. You can also add the fact that I am not dependent of my work if I don't have everything tied to an apartment.I take it that if you have locked your rate and sell during your lock period, you pay a penalty based on the difference in interest rates. Does this mean you pay extra to sell during your lock period if rates have lowered since your lock (but not if they are the same or higher)?
While some of our mortgages do have a penalty for paying off the balance in the first few years, the penalty is not dependent on the rates at the time you pay off the loan. Overall, the decision to lock rates or not does not sound all that different from deciding if it is a good idea to refinance to one of our adjustable rate loans (which typically have rates locked for the first few years then adjusted annually thereafter).
Your refinacing process seems to be a real paper battle. If I don’t change mortgage provider I get a paper home every year that asks If I want to lock the rate or not. If I want to lock the rate I can send in the paper or do it in one minut through their website and it is done. If I don’t want to lock it, I don’t need to do anything.Agree that refinancing is a paper battle. Also often comes with up-front costs (sometimes these costs are rolled into the loan balance; sometimes they are absorbed by the lenders in exchange for a higher interest rate, usually coupled with early payoff penalties).
That sounds amazing, @habaneroNorway !
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.That is my plan, we’re on 5-year fixed deals. Due to sort another next year. Not over-paying. When the remaining mortgage balance is less significant, we’ll go to an adjustable rate (called a Tracker in the UK) and just let it run. For now, I take a lot of comfort in knowing what I am on the hook for each month.
what are the 2700 bucks in closing costs?
Woah, who is your lender? I live in WA and I'm not seeing rates like that. But I don't owe a lot, so perhaps that makes my loan less attractive.
Woah, who is your lender? I live in WA and I'm not seeing rates like that. But I don't owe a lot, so perhaps that makes my loan less attractive.
I'm not seeing rates like this on bankrate for my balance either but if you find the right lender or two it seems you can get some crazy good offers and some competition going.
The first lender is Caliber and the second is LoanDepot.
So far LoanDepot has been a better customer experience so I may just go with them if Caliber gives me any issues.
Just emailed my credit union requesting they adjust my mortgage to current rates. Let's see what they do!
Unfortunately in Texas, I can't refi again until around Thanksgiving.
I just want to make sure I'm not missing something obvious:
I would like to pay off the mortgage before I stop working. The cash flow difference of not having a mortgage payment reduces risk more than having that extra money in the market when I actually stop working (but not a day prior). The reduced expenses should also make college financial aid & ACA subsidies easier to acquire. The common advice seems to be to take a lump sum out of a taxable brokerage and pay it off in one fell swoop.
However, our household income is not high enough that we are maxing out all tax-advantaged retirement accounts. We are currently filling ~$49,000 out of $77,600 available space. As such, we would have to reduce investing in a combination of 401(k)s & Roth IRAs by about $11k/yr to have enough in a taxable brokerage by the time we are FI to pay off the remaining mortgage at that time (12 years, $220k FV, 8% gains).
Alternatively, we could continue as we are, and once we are 2-3 years from FI, stop all retirement investing and put everything toward the mortgage. We would probably still invest enough to keep taxes reasonable, extending our timeline by a year or so, but that's it. Since my wife (currently) likes her job, she may continue working for a couple years anyway, which would allow for more maneuvering.
What are everyone's thoughts on these two options, and is there another option I'm missing?
What are everyone's thoughts on these two options, and is there another option I'm missing?
What are everyone's thoughts on these two options, and is there another option I'm missing?
Do I read that correctly, that you're still 12 years away from FIRE? That's a long enough timeframe where it makes no sense to me for you to start saving in a taxable account for the eventual mortgage payoff. Do the optimal thing for now and keep on putting the extra money in your 401k.
Who knows, maybe 5 years from now you'll be making enough to max out your tax-advantaged accounts *and* save for the mortgage payoff. The worst case is that you'll pause your tax-advantaged investing for a few years to pay the mortgage off, like you outline, which is not really that bad, but by forgoing the tax-advantaged investing now you'd merely be choosing to lock in the worst case.
I just want to make sure I'm not missing something obvious:I think there's a little secret here. The common advice is that you could pay it off in one fell swoop, but you probably won't. (Shhhh!) Reasons: in 12 years, your income will likely rise, your assets will be earning assets of their own, and your mortgage payment will have stayed the same. It will be a smaller chunk of your budget than it is now. It will most likely not be as much a percentage of your net worth either. So, while you could pay it off, chances are pretty good that you'll like the big investment account way more than you mind your dwindling mortgage balance. Seems crazy and backwards, but it really does happen.
I would like to pay off the mortgage before I stop working. The cash flow difference of not having a mortgage payment reduces risk more than having that extra money in the market when I actually stop working (but not a day prior). The reduced expenses should also make college financial aid & ACA subsidies easier to acquire. The common advice seems to be to take a lump sum out of a taxable brokerage and pay it off in one fell swoop.
Also, you want as much of your money to be accruing compound interest as long as possible, so @sherr's idea of accelerating pay down at the very end, basically just as you get to FI, is definitely worth further consideration.
I just want to make sure I'm not missing something obvious:Another way to improve cash flow when you reach FIRE is to refinance to a new 30 year mortgage just before you stop working (assuming rates are favorable at the time). Get your payments as low as you can then pay as scheduled until you have a tax efficient way to pay off the balance. Could always hold extra bonds roughly equivalent to the mortgage in your tax advantaged accounts to provide a similar sequence of returns mitigation as paying off the mortgage would provide. Not quite as effective at reducing realized income during retirement, but nearly as effective at reducing sequence of returns risk.
I would like to pay off the mortgage before I stop working. The cash flow difference of not having a mortgage payment reduces risk more than having that extra money in the market when I actually stop working (but not a day prior). The reduced expenses should also make college financial aid & ACA subsidies easier to acquire. The common advice seems to be to take a lump sum out of a taxable brokerage and pay it off in one fell swoop.
However, our household income is not high enough that we are maxing out all tax-advantaged retirement accounts. We are currently filling ~$49,000 out of $77,600 available space. As such, we would have to reduce investing in a combination of 401(k)s & Roth IRAs by about $11k/yr to have enough in a taxable brokerage by the time we are FI to pay off the remaining mortgage at that time (12 years, $220k FV, 8% gains).
Alternatively, we could continue as we are, and once we are 2-3 years from FI, stop all retirement investing and put everything toward the mortgage. We would probably still invest enough to keep taxes reasonable, extending our timeline by a year or so, but that's it. Since my wife (currently) likes her job, she may continue working for a couple years anyway, which would allow for more maneuvering.
What are everyone's thoughts on these two options, and is there another option I'm missing?
It didn't. They won't modify until the 12 month refi restriction from the state is gone.Just emailed my credit union requesting they adjust my mortgage to current rates. Let's see what they do!
Unfortunately in Texas, I can't refi again until around Thanksgiving.
That's one of those things that should totally work but probably won't.
I suppose it all depends on how firm that 4-year time table is, right? If 4 could become seven, you have a different best course than if 4 could become nine months.
I must confess, I might “pay off” my mortgage next year. I’m considering moving to San Francisco next year for about 4 years. If I do I will sell my house (no cost to me with a work relocation package). I’ll rent in SF because I don’t see myself living there long term but it sounds fun for the short turn. What’s worse than not paying off your mortgage renting am I right?If you're going to sell it, why sink the cash into paying off the mortgage? Or do you mean that selling the property will "pay off" the mortgage?
I must confess, I might “pay off” my mortgage next year. I’m considering moving to San Francisco next year for about 4 years. If I do I will sell my house (no cost to me with a work relocation package). I’ll rent in SF because I don’t see myself living there long term but it sounds fun for the short turn. What’s worse than not paying off your mortgage renting am I right?If you're going to sell it, why sink the cash into paying off the mortgage? Or do you mean that selling the property will "pay off" the mortgage?
BTW, just read that rents are down over 10% in SF and parts of Silly Valley, as workers figure out they can get more space for less elsewhere. With no commute, they're finding that more space is needed when working from home. While that stat may not be completely accurate, it could mean that finding a place to live in The City may become slightly easier, if not cheaper.
It seems like refinance rates are higher than purchase rates right now. Is this common?Yup. Just one more thing to consider if/when you're rushing to pay off a mortgage.
It seems like refinance rates are higher than purchase rates right now. Is this common?
It seems like refinance rates are higher than purchase rates right now. Is this common?
It seems like refinance rates are higher than purchase rates right now. Is this common?
In Texas? Always. Thanks to the nanny state of Texas making refi such a PITA beyond what the Feds require.
It seems like refinance rates are higher than purchase rates right now. Is this common?
In Texas? Always. Thanks to the nanny state of Texas making refi such a PITA beyond what the Feds require.
Love Texans describing Texas as a "nanny state".
Question for the DPOYM folks. P&I of our 30yr mortgage is roughly 20% of our expenses (not including state and Federal taxes, as they fluctuate every year due to variable income). After mortgage and food expenses, property tax on the home is the biggest expense. If we pay off our mortgage we lock up a large amount of capital but still have a ton of other expenses that don't go away.
Do you consider how much your mortgage payment is compared to your income when you consider whether to pay it off?
It seems like refinance rates are higher than purchase rates right now. Is this common?
In Texas? Always. Thanks to the nanny state of Texas making refi such a PITA beyond what the Feds require.
Love Texans describing Texas as a "nanny state".
You would think that they would have started to figure out that a whole lot of Texans need a public health nanny, but I guess it will take five or ten or fifty times as many sick and dead Texans before they take the clue. So much winning.
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K
We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.
I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.
Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.
Note, my wife just got laid off, so i also don't mind having a lower monthly payment.
What do you think?
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K
We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.
I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.
Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.
Note, my wife just got laid off, so i also don't mind having a lower monthly payment.
What do you think?
Have you shopped around to multiple lenders? I think you may be able to get a slightly lower rate. LoanDepot will usually best any estimate by at least 500.
Im a fan of lowering monthly debt obligations and increasing available assets that are fairly liquid like investments in a taxable brokerage account so I would def go for it. I try to stay away from paying closing costs because if rates continue to tank then that is a sunk cost. You can always refi again in 6 months if rates are substantially lower.
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K
We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.
I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.
Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.
Note, my wife just got laid off, so i also don't mind having a lower monthly payment.
What do you think?
Have you shopped around to multiple lenders? I think you may be able to get a slightly lower rate. LoanDepot will usually best any estimate by at least 500.
Im a fan of lowering monthly debt obligations and increasing available assets that are fairly liquid like investments in a taxable brokerage account so I would def go for it. I try to stay away from paying closing costs because if rates continue to tank then that is a sunk cost. You can always refi again in 6 months if rates are substantially lower.
wow no i didn't...i'm surprised as these rates seemed pretty good. I'll try Loan Depot though, thank you!
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K
We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.
I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.
Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.
Note, my wife just got laid off, so i also don't mind having a lower monthly payment.
What do you think?
Have you shopped around to multiple lenders? I think you may be able to get a slightly lower rate. LoanDepot will usually best any estimate by at least 500.
Im a fan of lowering monthly debt obligations and increasing available assets that are fairly liquid like investments in a taxable brokerage account so I would def go for it. I try to stay away from paying closing costs because if rates continue to tank then that is a sunk cost. You can always refi again in 6 months if rates are substantially lower.
wow no i didn't...i'm surprised as these rates seemed pretty good. I'll try Loan Depot though, thank you!
They are def competitive rates but you never know. I am locked into a no cost refi at 2.75 right now for a 30yr conventional. I think I got around 3500 in lender credits for this rate which will cover lender fees and even part of my escrow.
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.
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It’s with Fairway. I’ve always used Chase before so I don’t much about Fairway reputationally.I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.
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Amazing! @ender I know you were looking for this rate to see who the lender was.
At that rate, who cares? This is particularly true if you don't do an impound account. @UnleashHell, come in please..It’s with Fairway. I’ve always used Chase before so I don’t much about Fairway reputationally.I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.
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Amazing! @ender I know you were looking for this rate to see who the lender was.
I am putting down 20%. Is it common for lenders to drop the impound if asked? I’ve never thought to do this. What are pros and cons? No escrow then and not worry about lender messing up paying? But them it’s not nice one pmt. but i like the idea of no impound if possible, I think....At that rate, who cares? This is particularly true if you don't do an impound account. @UnleashHell, come in please..It’s with Fairway. I’ve always used Chase before so I don’t much about Fairway reputationally.I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.
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Amazing! @ender I know you were looking for this rate to see who the lender was.
BTW, under the circumstances, UH, those were not "your" mortgages, so I again I offer my heartiest Ccongratulations! For anyone who might be confused by this, I highly recommend Unleash Hell's always-interesting journal.
So with rates dropping I shopped around some more and got another competing offer for the following.
596k
30yr
2.75%
0 points
0 lender fees
Appraisal waiver
566 lender credit towards escrow.
Washington state
So essentially they will pay me 566 to refinance from 3.5% to 2.75%. I told them I am shopping around but we locked the rate. I'll be taking this offer to the other lender and asking them to beat it and the new lender was totally fine knowing I was using them as a bargaining chip.
It's getting crazy out there....
.25% up front charge if I don’t want to have an escrow account. UGH doesn’t seem worth it.
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I am putting down 20%. Is it common for lenders to drop the impound if asked? I’ve never thought to do this. What are pros and cons? No escrow then and not worry about lender messing up paying? But them it’s not nice one pmt. but i like the idea of no impound if possible, I think....
I’ll close with an escrow and look to drop in the future. Between the cost and the making the close smoother with the lender, seems the better way to go.I am putting down 20%. Is it common for lenders to drop the impound if asked? I’ve never thought to do this. What are pros and cons? No escrow then and not worry about lender messing up paying? But them it’s not nice one pmt. but i like the idea of no impound if possible, I think....
Pro: Mortgage payment never changes.
Pro: More direct control/oversight on taxes/insurance getting paid
Pro: Excellent method of spend for getting signup bonuses on premium credit cards.
.25% up front charge if I don’t want to have an escrow account. UGH doesn’t seem worth it.That's 100% bullshit. I'd want to get up in someone's bidness to get a straight answer on that one. What? I'm doing something that's LESS work for you and you want to charge me more? I'd at least call around to a few other lenders.
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While I with ya in spirit, I have so much other stuff going on in my life and I am not so anti-escrow that I’ll let this slide. Maybe if the bank were to call in an “impound” account instead I’d throw a fit ;-).25% up front charge if I don’t want to have an escrow account. UGH doesn’t seem worth it.That's 100% bullshit. I'd want to get up in someone's bidness to get a straight answer on that one. What? I'm doing something that's LESS work for you and you want to charge me more? I'd at least call around to a few other lenders.
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So with rates dropping I shopped around some more and got another competing offer for the following.
596k
30yr
2.75%
0 points
0 lender fees
Appraisal waiver
566 lender credit towards escrow.
Washington state
So essentially they will pay me 566 to refinance from 3.5% to 2.75%. I told them I am shopping around but we locked the rate. I'll be taking this offer to the other lender and asking them to beat it and the new lender was totally fine knowing I was using them as a bargaining chip.
It's getting crazy out there....
Just signed the paperwork on this refi yesterday. Funds should be distributed early next week.
Congrats to everyone taking advantage of these low rates! Our next refinance threshold will be 2-2.5% for a 30yr.
We bought our house a little over two years ago and our mortgage payment has dropped by 20% since then which is crazy and lucky for us since we live in a HCOL area. Just gives us more money to dump into the market!
Happy Friday all!
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.
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My wife said some mortgage rule change went into effect over the weekend and rates popped back up. Can any of you confirm this?
Fairway, locked on 8/14I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.
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Where from ??
My wife said some mortgage rule change went into effect over the weekend and rates popped back up. Can any of you confirm this?My broker alluded to this last Friday, she locked me in at 2.5 30yr fixed and said market popped back up very shortly thereafter
My wife said some mortgage rule change went into effect over the weekend and rates popped back up. Can any of you confirm this?
So with rates dropping I shopped around some more and got another competing offer for the following.
596k
30yr
2.75%
0 points
0 lender fees
Appraisal waiver
566 lender credit towards escrow.
Washington state
So essentially they will pay me 566 to refinance from 3.5% to 2.75%. I told them I am shopping around but we locked the rate. I'll be taking this offer to the other lender and asking them to beat it and the new lender was totally fine knowing I was using them as a bargaining chip.
It's getting crazy out there....
Just signed the paperwork on this refi yesterday. Funds should be distributed early next week.
Congrats to everyone taking advantage of these low rates! Our next refinance threshold will be 2-2.5% for a 30yr.
We bought our house a little over two years ago and our mortgage payment has dropped by 20% since then which is crazy and lucky for us since we live in a HCOL area. Just gives us more money to dump into the market!
Happy Friday all!
I've got rate FOMO. Pulled the trigger too early... but now it's too late. Congrats to those who got the magic window.
I am playing with fire the other direction, @dragoncar. Received quotes today, but Mrs. TallTexan just feeling so overwhelmed by the joint demands of work and kids' school that she doesn't want to make a move right now (No disagreement with me). Of course part of me is worried that our window will close, but the logical part of me knows these are not decisions that you rush.
Hey, rates could go lower. You never know!
I am playing with fire the other direction, @dragoncar. Received quotes today, but Mrs. TallTexan just feeling so overwhelmed by the joint demands of work and kids' school that she doesn't want to make a move right now (No disagreement with me). Of course part of me is worried that our window will close, but the logical part of me knows these are not decisions that you rush.Hey, rates could go lower. You never know!
I don't know why, but my gut says rates will stay low/lower over the next year. My refinancing process was relatively simple but still a pain. It's just not a pleasant thing to be constantly responding to document requests. That's like... a job. I can understand why you wouldn't want to deal with it.
Funds are distributed and I officially have a 2.75% 30yr mortgage!
Quick question for the DPOYM brain trust:
I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month, so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?
Quick question for the DPOYM brain trust:
I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month, so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?
I am not sure that is normal, and I think is bad advise. Do not skip any payments. You will get back any excess payments back including interest, principle and escrow. Usually new loan is calculated based on payoff statement you get from previous lender.
You probably already know this, but looks like the rate you are signing up seems little high for current rates we are seeing. I understand YMMV.
Quick question for the DPOYM brain trust:
I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month, so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?
I am not sure that is normal, and I think is bad advise. Do not skip any payments. You will get back any excess payments back including interest, principle and escrow. Usually new loan is calculated based on payoff statement you get from previous lender.
You probably already know this, but looks like the rate you are signing up seems little high for current rates we are seeing. I understand YMMV.
Quick question for the DPOYM brain trust:
I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month, so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?
I am not sure that is normal, and I think is bad advise. Do not skip any payments. You will get back any excess payments back including interest, principle and escrow. Usually new loan is calculated based on payoff statement you get from previous lender.
You probably already know this, but looks like the rate you are signing up seems little high for current rates we are seeing. I understand YMMV.
Agree. Do not cancel your payments until you see a 0.00 balance on the mortgage that you are refinancing away from. Worst case you overpay and get it back eventually. If you cancel, the worst case is a missed payment and then messing up your credit for years to come potentially.
I wouldn’t skip a payment entirely, but most mortgages have a 15 day grace period where you aren’t considered to have missed the payment. I might not pay on the 1st, and make sure the loan is paid off before the 15th. If on the 10th or so you’ve run into closing issues make the payment electronically. That’s just me though
The point being, if the mortgage is paid off on September 5th, the bank will treat the incoming funds first as a payment for September and then apply the remaining funds to the mortgage balance. You won’t have actually missed the payment, it will just have come from the title company, and within the grace period
FYI, the rate look high because it is a typo, it will be a 2.875 =DAwesome!
If you had about $900k equity in your house, and could get 2.6% interest on a new loan, would you refinance and take some cash out? Our home equity is almost 50% of our net worth.I'd have to know a lot more about your finances to determine if you should pull cash out, but you should probably refi your existing mortgage asap. Is this a 15 or 30 year loan? What's your current rate?
I've always been in the pay of the mortgage asap and stay mortgage-free group, but with rates this low, we're very tempted. We're also a little nervous to have so much $ tied up in the house.
Bat signal to @Dicey !
Is it possible to get a mortgage in the US than cannot be refinanced? Is that a product which exists at all?
Federal law restricts prepayment penalties. Some loans aren't allowed them at all. Those that can have them are limited to 2% of the loan amount in the first two years and 1% of the loan amount in the third year. After three years, no US home mortgage can have a prepayment penalty. Lenders are also required to provide an option without prepayment penalty along side the offer with prepayment penalty. Of course many states impose further restrictions.Is it possible to get a mortgage in the US than cannot be refinanced? Is that a product which exists at all?
Sort of. In some circumstances a loan can have a pre-payment penalty. You can still refinance, but there can be substantial fees associated with that. Those are pretty rare and not legal in every state.
@Dicey - Here is the full picture: our house is actually paid off, a refi cash-out is the option to tap into the equity. House value appx. $975k, maybe up to $1m. We're thinking taking out $500k at 2.6% on a 30-yr fixed loan.If you had about $900k equity in your house, and could get 2.6% interest on a new loan, would you refinance and take some cash out? Our home equity is almost 50% of our net worth.I'd have to know a lot more about your finances to determine if you should pull cash out, but you should probably refi your existing mortgage asap. Is this a 15 or 30 year loan? What's your current rate?
I've always been in the pay of the mortgage asap and stay mortgage-free group, but with rates this low, we're very tempted. We're also a little nervous to have so much $ tied up in the house.
Bat signal to @Dicey !
We would like to relocate to a different state for dh's work in the next couple of years and we would like to buy a house there (3 dogs, like to have our own place, etc.) The plan would be to get a mortgage on this house to have cash on hand to buy a house when we move. This house would become a rental and the rent would be more than enough to cover all costs, including mortgage payment. We do not want to sell this house at this time. After reading some of the posts on here I'm even thinking that when we buy the other house we try to get a loan there as well if the rates are good. Then we could invest some of the cash. We have no debt at this time.
What do you think? Smart, or stupid, idea? :)
@Dicey - Here is the full picture: our house is actually paid off, a refi cash-out is the option to tap into the equity. House value appx. $975k, maybe up to $1m. We're thinking taking out $500k at 2.6% on a 30-yr fixed loan.If you had about $900k equity in your house, and could get 2.6% interest on a new loan, would you refinance and take some cash out? Our home equity is almost 50% of our net worth.I'd have to know a lot more about your finances to determine if you should pull cash out, but you should probably refi your existing mortgage asap. Is this a 15 or 30 year loan? What's your current rate?
I've always been in the pay of the mortgage asap and stay mortgage-free group, but with rates this low, we're very tempted. We're also a little nervous to have so much $ tied up in the house.
Bat signal to @Dicey !
We would like to relocate to a different state for dh's work in the next couple of years and we would like to buy a house there (3 dogs, like to have our own place, etc.) The plan would be to get a mortgage on this house to have cash on hand to buy a house when we move. This house would become a rental and the rent would be more than enough to cover all costs, including mortgage payment. We do not want to sell this house at this time. After reading some of the posts on here I'm even thinking that when we buy the other house we try to get a loan there as well if the rates are good. Then we could invest some of the cash. We have no debt at this time.
What do you think? Smart, or stupid, idea? :)
It sounds like you're proposing going into debt for a goal that may be a few years away. Given the mortgage you're describing, you're probably a very high ($300K+) income household. I can understand the hope to qualify for a mortgage while you still have that income and the property is still a primary residence, if you plan to retire before the end of the economic cycle.
An alternative that may simplify your life would be just to prepare with a home equity line of credit (to be kept at near $0 balance until your move), and pair that with some aggressive saving out of that large income you have.
Do you believe you're behind on saving for retirement and need to catch up with some more skin in the market? People believe rates would shoot up in 2013, yet we're back today just as low.
@talltexan - thank you for your reply. I've been mulling this over. We are not a high-income household. In fact, relative to where we live, we would be considered a low-income household. Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area. We are okay on retirement savings. The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.
I've been mulling this over. We are not a high-income household. In fact, relative to where we live, we would be considered a low-income household. Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area. We are okay on retirement savings. The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.
I've been mulling this over. We are not a high-income household. In fact, relative to where we live, we would be considered a low-income household. Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area. We are okay on retirement savings. The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.
I've been mulling this over. We are not a high-income household. In fact, relative to where we live, we would be considered a low-income household. Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area. We are okay on retirement savings. The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.
That's interesting. If that's the case, it would solve a lot of our concerns.
I've been mulling this over. We are not a high-income household. In fact, relative to where we live, we would be considered a low-income household. Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area. We are okay on retirement savings. The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.
That's interesting. If that's the case, it would solve a lot of our concerns.
Having been through this recently (see above), what the banks seem to care about is whether you've been employed, not the number of times you have changed jobs. If you have 5+ years where you can show on your taxes that you have earned above whatever threshold they want for a loan of a particular size, that's what matters. It can be one job for 5 solid years or 10 different jobs over 5 years that collectively earned you a decent annual income.
Our problem was that, of the previous 5 years, we only had US taxable income in the most recent two. We had foreign income and even tried to show that on our US taxes (Foreign Taxble Income Exemption) but that didn't fit their boxes.
I wouldn’t skip a payment entirely, but most mortgages have a 15 day grace period where you aren’t considered to have missed the payment. I might not pay on the 1st, and make sure the loan is paid off before the 15th. If on the 10th or so you’ve run into closing issues make the payment electronically. That’s just me though
The point being, if the mortgage is paid off on September 5th, the bank will treat the incoming funds first as a payment for September and then apply the remaining funds to the mortgage balance. You won’t have actually missed the payment, it will just have come from the title company, and within the grace period
Hmm, so I looked into this and I do have the 15 day grace period. I checked my account and compared to the closing disclosure and it would seem you're correct, the projected payoff amount for my loan is equal to my Sept payment + the remaining balance, so it would seem that the Sept payment is rolled into the refi. Interesting.
I've been mulling this over. We are not a high-income household. In fact, relative to where we live, we would be considered a low-income household. Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area. We are okay on retirement savings. The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.
That's interesting. If that's the case, it would solve a lot of our concerns.
Having been through this recently (see above), what the banks seem to care about is whether you've been employed, not the number of times you have changed jobs. If you have 5+ years where you can show on your taxes that you have earned above whatever threshold they want for a loan of a particular size, that's what matters. It can be one job for 5 solid years or 10 different jobs over 5 years that collectively earned you a decent annual income.
Our problem was that, of the previous 5 years, we only had US taxable income in the most recent two. We had foreign income and even tried to show that on our US taxes (Foreign Taxble Income Exemption) but that didn't fit their boxes.
This is excellent news! Thank you, guys. I've confirmed with a realtor that it's the case. Huge relief. So since we don't need to have cash on hand for that, it might not be wise to take out the loan. Since no one said it's a good idea, I'm guessing people are just to polite to say it's a stupid idea. I never knew mustachians to be so polite! :)
DSD and her family are in escrow on a new home. They are using the same lender they currently have. The person who is buying their old place is also using the same lender. DSD got a better job offer the same field in the middle of escrow! She checked with the lender and they're not concerned, so job change has been completed.I've been mulling this over. We are not a high-income household. In fact, relative to where we live, we would be considered a low-income household. Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area. We are okay on retirement savings. The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.
2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow. Good, or should I try for lower? It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).Holy shit, I'd grab that sucker with both hands!
Yep, that’s fantastic. Make sure they are not adding any points or costs into the loan.2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow. Good, or should I try for lower? It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).Holy shit, I'd grab that sucker with both hands!
2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow. Good, or should I try for lower? It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).Holy shit, I'd grab that sucker with both hands!
WooO-HoOO!!! I recommending spending the refund on yourself. You earned it, you badass!2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow. Good, or should I try for lower? It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).Holy shit, I'd grab that sucker with both hands!
Grabbed. It actually ended up being a $470 refund from the lender because of no appraisal required (old appraisal less than one year old in an appreciating area - house is now valued at $710K minimum). We'll see how long it takes to close, but I am one happy cookie.
Well, there are origination fees et al, but the discount points make the fee total -$470. When we close, our payments will go down $387/month, and no more escrow! Win.
I didn't think lenders could offer a refund paid by negative points (they could refund an application fee intended to pay for an appraisal though).Grabbed. It actually ended up being a $470 refund from the lender because of no appraisal required (old appraisal less than one year old in an appreciating area - house is now valued at $710K minimum). We'll see how long it takes to close, but I am one happy cookie.WooO-HoOO!!! I recommending spending the refund on yourself. You earned it, you badass!
Well, there are origination fees et al, but the discount points make the fee total -$470. When we close, our payments will go down $387/month, and no more escrow! Win.
They refunded the appraisal fee because I provided our prior within one year old appraisal.I didn't think lenders could offer a refund paid by negative points (they could refund an application fee intended to pay for an appraisal though).Grabbed. It actually ended up being a $470 refund from the lender because of no appraisal required (old appraisal less than one year old in an appreciating area - house is now valued at $710K minimum). We'll see how long it takes to close, but I am one happy cookie.WooO-HoOO!!! I recommending spending the refund on yourself. You earned it, you badass!
Well, there are origination fees et al, but the discount points make the fee total -$470. When we close, our payments will go down $387/month, and no more escrow! Win.
All these crazy low refits make me jealous. I’m likely to sell and move in the next 12 months so it doesn’t make sense foe me to look. I console myself that at 3.75% my rate is still low, just not crazy low.
Eight years ago rates got really low, and--contemplating what the immediate future looked like--what started as a project to refinance resulted in me realizing that I would need to move. And a smart, strategic move is one of the few projects that rocket you forward faster than a refi-.Did you actually gain net worth or move your asset from real estate to cash?
The two years after that move saw the TallTexan HH gain $300,000 in net worth.
Someone explain to me the payoff or don't pay off the mortgage.
Someone explain to me the payoff or don't pay off the mortgage.
Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
Someone explain to me the payoff or don't pay off the mortgage.
Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
Agree with SwordGuy - you can learn a lot about the various (and substantial!) reasons by skimming over this thread from page 1.
As for Dave Ramsey (DR) - his approach is centered on emotional and behavioral attitudes towards money, with a hefty dose of a very specific variety of Christian morality. That can be helpful to people who are otherwise very poor with their money, and for people who believe in his version of Jesus. But from a strictly financial view, his advice is often sub-optimal, and at times downright contrary to a person's best financial interests (again, provided they already have some financial self control).
If you wrack up debt and spend every penny, his approach is not a bad one to follow. For those of us that want to optimize every dollar we earn, his is not the path to follow.
Someone explain to me the payoff or don't pay off the mortgage.The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.
Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
Someone explain to me the payoff or don't pay off the mortgage.The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.
Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
Someone explain to me the payoff or don't pay off the mortgage.The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.
Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
Thanks. I'm not that smart nor make enough to figure any of this out. We do want to move however, so, I'll probably just pay this thing until the day I die.
If you need more convincing that the best place to put whatever surplus you have is not extra mortgage payments, read this thread.Someone explain to me the payoff or don't pay off the mortgage.The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.
Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
Thanks. I'm not that smart nor make enough to figure any of this out. We do want to move however, so, I'll probably just pay this thing until the day I die.
Nothing wrong with keeping a low fixed rate mortgage until you die, plenty of people here plan to do that even though they know they don't have to.
If you need more convincing that the best place to put whatever surplus you have is not extra mortgage payments, read this thread.Someone explain to me the payoff or don't pay off the mortgage.The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.
Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
Thanks. I'm not that smart nor make enough to figure any of this out. We do want to move however, so, I'll probably just pay this thing until the day I die.
Otherwise, it's more important to learn what do do with your money instead. MDM's investment order thread is a great place to start learning what types of accounts to use. If you're a long way from FI, then you can just purchase a low cost total stock market index fund (or large cap index fund or target date fund) once you convince yourself that you are best off holding this investment even when it is going down (because you can't afford to not be holding it when it is going up). Later you can learn more about asset allocation strategies to preserve the wealth that you've accumulated (potentially adding bond funds, international funds, etc. to your investment mix).
Nothing wrong with keeping a low fixed rate mortgage until you die, plenty of people here plan to do that even though they know they don't have to.
For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.
Hello! long time lurker have an important question. Please help!
I would like to refinance my mortgage- 5 years into the loan, 25 years left- currently is $122,000 balance 4% . total pmt $1023.00.
Bank offer 2.75% 15 yrs at $862 a month
3.00% 20 yrs at $704 a month
Closing cost is $3,000 and they said it can be rollover into the mortgage, making it $125,000. is this a good deal?
thank you in advance for your help!
Hello! long time lurker have an important question. Please help!
I would like to refinance my mortgage- 5 years into the loan, 25 years left- currently is $122,000 balance 4% . total pmt $1023.00.
Bank offer 2.75% 15 yrs at $862 a month
3.00% 20 yrs at $704 a month
Closing cost is $3,000 and they said it can be rollover into the mortgage, making it $125,000. is this a good deal?
thank you in advance for your help!
A couple questions for you:
1) why are you not considering 30 year fixed rate mortgages?
2) will you plan on staying in your home for at least 18 months to recoup the $3k in closing costs?
3) Have you gotten multiple offers from different lenders?
Both of those scenarios have you paying LESS each month for a shorter term. So it's a no brainer that either are much better than your current mortgage provided that you will be in your home through 2021.
But is it the BEST deal out there? Probably not. I've seen 15 year fixed rates with no points and less closing costs for around 2.5%. 30 year terms are currently available for ~3.0% (the PI portion of your loan would be $527). Given that you calculated $704/mo at 20 years it seems you aren't putting taxes and insurance into your monthjly figures.
Thank you for your reply!
I did consider 30 years also- its 3.125 % at $544 P&I
We plan on renting this home out next year and buy our forever home.
Which option is the best you think?
this is my second quote and I don't think I want anymore hard inquiries on my credit score...
Thank you for your reply!
I did consider 30 years also- its 3.125 % at $544 P&I
We plan on renting this home out next year and buy our forever home.
Which option is the best you think?
this is my second quote and I don't think I want anymore hard inquiries on my credit score...
I would recommend taking 30 year option for flexibility it gives you with cashflow, if you have discipline to put savings on monthly cashflow to better use, like investments that may provide better returns.
Get as many quotes as you like, any number of quotes for mortgage finance within 15 days will be considered as just one inquiry.
We plan on renting this home out next year and buy our forever home.
Agree with nereo.QuoteWe plan on renting this home out next year and buy our forever home.
Just saw this. BE CAREFUL.
Many primary residence mortgages come with clauses that you will (duh) reside in the home and not use it as a rental for a fixed period of time (often at least 2 years, or 2/5 years). Real estate mortgages tend to be as much as 0.5% higher because they carry more risk to the bank.
Now... you might be thinking "how will the bank know"... and they probably won't. UNTIL you apply for another mortage for your 'forever home' - in which case they won't like seeing two SFH as primary residences.
Now one way to approach this is to just take out a normal mortgage since you intend to use it for a while as your primary residence, and then in a year or two ask the bank to adjust the contract to make it a rental property. There's a reasonable chance they might not make a change to your interest rate if you have enough equity stored up... or it will just be a slight bump.
Either way... read the fine print.
Agree with nereo.QuoteWe plan on renting this home out next year and buy our forever home.
Just saw this. BE CAREFUL.
Many primary residence mortgages come with clauses that you will (duh) reside in the home and not use it as a rental for a fixed period of time (often at least 2 years, or 2/5 years). Real estate mortgages tend to be as much as 0.5% higher because they carry more risk to the bank.
Now... you might be thinking "how will the bank know"... and they probably won't. UNTIL you apply for another mortage for your 'forever home' - in which case they won't like seeing two SFH as primary residences.
Now one way to approach this is to just take out a normal mortgage since you intend to use it for a while as your primary residence, and then in a year or two ask the bank to adjust the contract to make it a rental property. There's a reasonable chance they might not make a change to your interest rate if you have enough equity stored up... or it will just be a slight bump.
Either way... read the fine print.
They will find out via your insurance company if you have an impound account, yet another reason not to have one.
If you're going to rent it out long term, I agree a 30 year loan makes sense.
For latest loan news, paging @couponvan.
For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.
Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here. In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.
For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.
Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here. In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.
Well excuse me. I was following the Dave Ramsey Baby steps.
For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.
Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here. In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.
Well excuse me. I was following the Dave Ramsey Baby steps.
No, you weren't. :)
You got the order wrong for Dave Ramsey's baby steps method.
This stuff isn't hard, but it's "particular". Details matter.
https://www.daveramsey.com/dave-ramsey-7-baby-steps
(https://www.daveramsey.com/dave-ramsey-7-baby-steps)
For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.
Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here. In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.
Well excuse me. I was following the Dave Ramsey Baby steps.
No, you weren't. :)
You got the order wrong for Dave Ramsey's baby steps method.
This stuff isn't hard, but it's "particular". Details matter.
https://www.daveramsey.com/dave-ramsey-7-baby-steps
(https://www.daveramsey.com/dave-ramsey-7-baby-steps)
I know what the steps are. I have $1k+ in the bank. And have been diligent with paying debt down, $14k since March.
What did I miss?
For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.
Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here. In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.
Well excuse me. I was following the Dave Ramsey Baby steps.
No, you weren't. :)
You got the order wrong for Dave Ramsey's baby steps method.
This stuff isn't hard, but it's "particular". Details matter.
https://www.daveramsey.com/dave-ramsey-7-baby-steps
(https://www.daveramsey.com/dave-ramsey-7-baby-steps)
I know what the steps are. I have $1k+ in the bank. And have been diligent with paying debt down, $14k since March.
What did I miss?
"All debt" includes a mortgage, which we've assumed you have since you're on this thread. The Baby Steps put paying off the mortgage as step #6 of 7. 3-6 months emergency fund is #3 of 7. Details matter.
Hey I was wondering.... can anyone tell me? Do details matter or not?Hey all, meet dragoncar, the funniest creature on this forum. He's also very smart and breathes FIRE. Don't fuck with him. As long as you're nice to him, no one will get hurt. Maybe.
What matters with mortgages is whether you are using it as agreed on the note. It doesn’t matter if you split who holds each loan. If you aren’t living there r have rented it out, that could be a problem. Check first, or risk penalties.
4. Also you mentioned DR, you know he would be yelling at you for considering that you are considering buying a second home with a mortgage while still in other debt right?Fortunately, this is the Don't Pay Off Your Mortgage thread on the Mister Money Mustache Forum. We do things to optimize the path to FIRE. Here, we tend to yell at Dave Ramsey for the crappy investment advice he peddles.
What matters with mortgages is whether you are using it as agreed on the note. It doesn’t matter if you split who holds each loan. If you aren’t living there r have rented it out, that could be a problem. Check first, or risk penalties.
Thank you for your feedback and opinions...this was more complicated than I thought, unfortunately :(
What would YOU do if this was your situation? Now, I think I just got confused. Refinance but maybe unable to rent it out in the future or keep original mortgage and can rent it out since notes allow after 3 years...
You're right, we're all in this together and trying to help and learn from one another and I really appreciated your time and comment.
thank you.
9/17/20.......Just closed on a 2.625/30yr with Lenderfi. If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350. Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
9/17/20.......Just closed on a 2.625/30yr with Lenderfi. If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350. Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
9/17/20.......Just closed on a 2.625/30yr with Lenderfi. If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350. Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
I'm not sure what you are asking here because the $1,035 monthly could mean anything. We are using Loan Depot right now for a no cost 2.5% 30 year fixed refi (VA, excellent credit). I've never used Lenderfi, but I have heard of it. Your rates are going to depend on your credit, loan amount, loan-to-value ratio, employment history, and income. The insurance inclusion payment amounts are usually just an estimate. Your own insurance and taxes will vary by location.9/17/20.......Just closed on a 2.625/30yr with Lenderfi. If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350. Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
How legitemate is this, I went to their site and they saying $1035/monthly, including insurance.
I see some discussion above about Dave Ramsey and the baby-steps.
If you are reading this and committed to bringing order to your finances through the Dave Ramsey baby steps, please follow through at least to baby step #3 (full emergency fund). Bond yields will stay low for long enough for you to kill your non-mortgage debt.
Then come back to this thread. For planning your next ten years after you're out of debt, we think we're on to something.
What matters with mortgages is whether you are using it as agreed on the note. It doesn’t matter if you split who holds each loan. If you aren’t living there r have rented it out, that could be a problem. Check first, or risk penalties.
Thank you for your feedback and opinions...this was more complicated than I thought, unfortunately :(
What would YOU do if this was your situation? Now, I think I just got confused. Refinance but maybe unable to rent it out in the future or keep original mortgage and can rent it out since notes allow after 3 years...
You're right, we're all in this together and trying to help and learn from one another and I really appreciated your time and comment.
thank you.
There are several questions I’d ask in addition to refinance questions. As I don’t know if you should rent out your house.
1. Do I want to be a landlord and why?
2. Do I want to be a hands on landlord, if not do the numbers work if I hire a property manager.
3. Do the numbers work as a rental on your current. I don’t mean can I rent it for the PITI, but also factoring in vacancies and Maintence. (Does it meet the 1% rule, property rents for at least 1% of the purchase price ie a 100k house rents for $1,000 a month).
4. Also you mentioned DR, you know he would be yelling at you for considering that you are considering buying a second home with a mortgage while still in other debt right? Especially when you don’t have a 3-6 month emergency fund. Where are you getting you down payment let alone affording a new roof on your “new rental”
ten-year treasury bills yielding 0.6% right now, not sure how low they can go. Will the 2.625% rate get you enough movement that you're happy?
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front. Are the renters responsible for caring for the yard or do we hire someone to care for it twice a week and roll the cost into the rental?
2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working. Do we have to replace The stove completely?
3). The flooring in the kitchen needs to be replace. Fortunately, we have family members that can assist us. What kind of flooring you recommend for rentals that are long lasting and water proof?
What liabilities come into mind that we should be careful and aware of?Ignorance.
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front. Are the renters responsible for caring for the yard or do we hire someone to care for it twice a week and roll the cost into the rental?
Yes. Or you mow it yourself. In other words, it's how you want to offer it and whether the renter wants it that way.2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working. Do we have to replace The stove completely?
Yes or no. Have you tried getting it repaired?
Unless you specifically advertise it has a stove with only 3 of 4 burners working and that's how it's going to stay or you don't provide a stove at all, then yes, you are expected to provide a working stove. Local laws might require the stove to be fully working regardless.
Frankly, if you provide a stove and it doesn't work properly, you're going to limit your potential renter pool. And skew it to the worst of the worst, too. Frankly, I wouldn't rent from a landlord who was too cheap to fix the stove unless I had no other choice. And if I had no other choice, it's probably because I'm broke and desperate, neither of which are good renter material.3). The flooring in the kitchen needs to be replace. Fortunately, we have family members that can assist us. What kind of flooring you recommend for rentals that are long lasting and water proof?
Nothing is water proof, you can only get water resitant. Water will find it's own way given time. :(
Linoleum is cheap and easy to install. Tile is another option depending on the subflooring.
Partly it depends on the type of house and the neighborhood. Sometimes you need to go more upscale.What liabilities come into mind that we should be careful and aware of?Ignorance.
Ignorance on the financials of how to calculate whether you're making a profit.
Ignorance on landlording laws in your state and locality.
Have you read some (hopefully many) of the resources listed on the RE sub-forum?
Hey everyone!
Quick update- I did locked in 2.75% 30 yrs with low closing cost/fee! :) Congratulations!
I have been thinking about future rental for the property- not sure if this thread is the right Thread to ask or if it should be in real estate investing instead... but here it goes:
We’re trying to get gather as much information As possible on how to prep the house for it to be rental ready.
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front. Are the renters responsible for caring for the yard or do we hire someone to care for it twice aweekmonthand roll the cost into the rental? You are responsible. Pay a gardener or DIY, your choice. Yes, it should be included in your rent calculation, except the amount of rent you can get is based on the market, not your gardening bills.
2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working. Do we have to replace The stove completely? Try You Tube and see if you can fix it yourself. Otherwise, Craigslist is your friend. Yes, everything must be in good working order.
3). The flooring in the kitchen needs to be replace. Fortunately, we have family members that can assist us. What kind of flooring you recommend for rentals that are long lasting and water proof? LVP, LVP, LVP. Nothing else holds a candle to it for cost/value/longevity, plus it's relatively easy to install. It is sold as "waterproof", but given enough water and time, nothing is completely waterproof. Make sure you install it correctly. Again, You Tube is your friend. Don't buy the cheapest stuff out there, unless it's cheap because it's on sale. Quality counts.
What liabilities come into mind that we should be careful and aware of? Buy a Landlord Policy and Umbrella Insurance. Consider creating an LLC and/or a Trust. Screen the shit out of every prospective tenant. Use the internet and if there's any possible way, figure out where they're living now and put your eyeballs on it if you can. Find out why they're moving. Check all references. Ask for more if you think they're all set-ups. Don't take pets if you can help it. Don't take any pet without a substantial pet deposit and limiting the size/breed/number of dogs allowed. Insist on meeting the pet first. Make sure all of this is spelled out in the lease.
Thanks in advance!
Hey everyone!
Quick update- I did locked in 2.75% 30 yrs with low closing cost/fee! :) Congratulations!
I have been thinking about future rental for the property- not sure if this thread is the right Thread to ask or if it should be in real estate investing instead... but here it goes:
We’re trying to get gather as much information As possible on how to prep the house for it to be rental ready.
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front. Are the renters responsible for caring for the yard or do we hire someone to care for it twice aweekmonthand roll the cost into the rental? You are responsible. Pay a gardener or DIY, your choice. Yes, it should be included in your rent calculation, except the amount of rent you can get is based on the market, not your gardening bills.
2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working. Do we have to replace The stove completely? Try You Tube and see if you can fix it yourself. Otherwise, Craigslist is your friend. Yes, everything must be in good working order.
3). The flooring in the kitchen needs to be replace. Fortunately, we have family members that can assist us. What kind of flooring you recommend for rentals that are long lasting and water proof? LVP, LVP, LVP. Nothing else holds a candle to it for cost/value/longevity, plus it's relatively easy to install. It is sold as "waterproof", but given enough water and time, nothing is completely waterproof. Make sure you install it correctly. Again, You Tube is your friend. Don't buy the cheapest stuff out there, unless it's cheap because it's on sale. Quality counts.
What liabilities come into mind that we should be careful and aware of? Buy a Landlord Policy and Umbrella Insurance. Consider creating an LLC and/or a Trust. Screen the shit out of every prospective tenant. Use the internet and if there's any possible way, figure out where they're living now and put your eyeballs on it if you can. Find out why they're moving. Check all references. Ask for more if you think they're all set-ups. Don't take pets if you can help it. Don't take any pet without a substantial pet deposit and limiting the size/breed/number of dogs allowed. Insist on meeting the pet first. Make sure all of this is spelled out in the lease.
Thanks in advance!
It's cheap insurance to replace the water supply lines on the toilets and check all the connections under every sink and the dishwasher.
If you're taking the W/D, buy a nice used set and install them in the house. It will make your listing stand out. Nobody wants to go to a laundromat.
Once you have a tenant, be the best landlord ever. Insist they notify you immediately if anything breaks (put it in the lease) and then respond as soon as is humanly possible. The more you respond to their needs, the better care they take care of the place, in my experience. Assuming, of course, you've selected good tenants.
In addition, do whatever SwordGuy says.
Around here, I commonly see stoves listed as fully working for around $100. Not all of the stoves, of course - but they commonly appear.
1. When we have a house for rent, we say "gardener included" in the listing. It's not specifically mentioned in the lease. But then, our rentals are in a Senior Community and nobody expects the tenants to maintain the landscaping...Hey everyone!
Quick update- I did locked in 2.75% 30 yrs with low closing cost/fee! :) Congratulations!
I have been thinking about future rental for the property- not sure if this thread is the right Thread to ask or if it should be in real estate investing instead... but here it goes:
We’re trying to get gather as much information As possible on how to prep the house for it to be rental ready.
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front. Are the renters responsible for caring for the yard or do we hire someone to care for it twice aweekmonthand roll the cost into the rental? You are responsible. Pay a gardener or DIY, your choice. Yes, it should be included in your rent calculation, except the amount of rent you can get is based on the market, not your gardening bills.
2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working. Do we have to replace The stove completely? Try You Tube and see if you can fix it yourself. Otherwise, Craigslist is your friend. Yes, everything must be in good working order.
3). The flooring in the kitchen needs to be replace. Fortunately, we have family members that can assist us. What kind of flooring you recommend for rentals that are long lasting and water proof? LVP, LVP, LVP. Nothing else holds a candle to it for cost/value/longevity, plus it's relatively easy to install. It is sold as "waterproof", but given enough water and time, nothing is completely waterproof. Make sure you install it correctly. Again, You Tube is your friend. Don't buy the cheapest stuff out there, unless it's cheap because it's on sale. Quality counts.
What liabilities come into mind that we should be careful and aware of? Buy a Landlord Policy and Umbrella Insurance. Consider creating an LLC and/or a Trust. Screen the shit out of every prospective tenant. Use the internet and if there's any possible way, figure out where they're living now and put your eyeballs on it if you can. Find out why they're moving. Check all references. Ask for more if you think they're all set-ups. Don't take pets if you can help it. Don't take any pet without a substantial pet deposit and limiting the size/breed/number of dogs allowed. Insist on meeting the pet first. Make sure all of this is spelled out in the lease.
Thanks in advance!
It's cheap insurance to replace the water supply lines on the toilets and check all the connections under every sink and the dishwasher.
If you're taking the W/D, buy a nice used set and install them in the house. It will make your listing stand out. Nobody wants to go to a laundromat.
Once you have a tenant, be the best landlord ever. Insist they notify you immediately if anything breaks (put it in the lease) and then respond as soon as is humanly possible. The more you respond to their needs, the better care they take care of the place, in my experience. Assuming, of course, you've selected good tenants.
In addition, do whatever SwordGuy says.
Thanks Dicey!
1). Ok. Yes we’re probably leaning towards paying someone and that should be written in the lease agreement, correct?
2) Hub said he might can fix it- if not yes Craigslist seems to have a lot I agree
3) LVP sounds like a great option! Thanks! I originally wanted tile but it takes too much time to install and can crack as I’ve seen In homes.
The water supply line is a separate insurance that we need to purchase?
We’re not taking the L&D
Thanks.
We are refinancing and I thought I'd show how my wife’s thinking on the DPOYM has done a 180 over time. Back story, we bought our first house right before turning 30 with a 30-year mortgage (and PMI). My wife said at that time that we had to have the mortgage paid off before retiring but since everyone retires after 65 this wasn’t an issue. (I’m sure she learned this from her parents).Great story!
Fast forward through a couple of moves, we bought our current house ten years ago when we were 47/46. Again, she mentioned no mortgage in retirement. At this time, I thought we could retire at 60, so negotiated that we would pay the house off in the years between working and taking social security to take advantage of tax brackets. This was acceptable.
In March/April 2020, her company’s 401K provider offered webinars to employees divided into different categories. She took part of one for women nearing retirement. I’m not sure if it was from the presenter or other employees but after, she told me that she learned that the mortgage didn’t need to be paid off, that it was just another debt.
Two weeks ago, I told her the best refinance rate I found was 2.75% for 30 years. She asked me what was the maximum we could borrow at that rate so we could invest the difference! So, we’ve taken out cash to invest and will use all 30 years to repay.
We are refinancing and I thought I'd show how my wife’s thinking on the DPOYM has done a 180 over time. Back story, we bought our first house right before turning 30 with a 30-year mortgage (and PMI). My wife said at that time that we had to have the mortgage paid off before retiring but since everyone retires after 65 this wasn’t an issue. (I’m sure she learned this from her parents).Good story, so long as she didn't get too much advice on HOW to invest it from the webinars.
Fast forward through a couple of moves, we bought our current house ten years ago when we were 47/46. Again, she mentioned no mortgage in retirement. At this time, I thought we could retire at 60, so negotiated that we would pay the house off in the years between working and taking social security to take advantage of tax brackets. This was acceptable.
In March/April 2020, her company’s 401K provider offered webinars to employees divided into different categories. She took part of one for women nearing retirement. I’m not sure if it was from the presenter or other employees but after, she told me that she learned that the mortgage didn’t need to be paid off, that it was just another debt.
Two weeks ago, I told her the best refinance rate I found was 2.75% for 30 years. She asked me what was the maximum we could borrow at that rate so we could invest the difference! So, we’ve taken out cash to invest and will use all 30 years to repay.
Two weeks ago, I told her the best refinance rate I found was 2.75% for 30 years. She asked me what was the maximum we could borrow at that rate so we could invest the difference! So, we’ve taken out cash to invest and will use all 30 years to repay.Good story, so long as she didn't get too much advice on HOW to invest it from the webinars.
@Dicey - which brands of LVP have you used? I'm considering for kitchen. Costco has Mohawk and Golden Arowana, any experience with either of those?
Thanks!
@Dicey - which brands of LVP have you used? I'm considering for kitchen. Costco has Mohawk and Golden Arowana, any experience with either of those?One of those companies, I've never heard of, the other may have been printed on my paycheck for a number of years. Remember I've been FIRE for almost eight years, so only recognizing one name is possibly understandable. It slso means I left the industry before LVP really caught on.
Thanks!
@Dicey - which brands of LVP have you used? I'm considering for kitchen. Costco has Mohawk and Golden Arowana, any experience with either of those?One of those companies, I've never heard of, the other may have been printed on my paycheck for a number of years. Remember I've been FIRE for almost eight years, so only recognizing one name is possibly understandable. It slso means I left the industry before LVP really caught on.
Thanks!
The first time we installed LVP was about four years ago. It was a product from Lumber Liquidators to redo DSD's entire condo, and she chose it. We were skeptical but we fell in love. The most recent big job was last year. We wanted flooring with a sound deadening effect, so we went with Down's H20 from Flooring America, which is a cork-backed product made by Shaw. PM me if you want to see pictures.
IMO, a critical feature of LVP is edge quality. Every damn time I see LVP at Costco, I check it out. It's almost always a Mohawk product. The edges typically look brittle and there is usually visible damage already, which totally sucks, IMO. Usually the color selection isn't great either.
Brittle edges mean the durability will be compromised, as well as any waterproofing properties the product is purported to have. It also means more waste, which drives up the cost and the frustration when installing.
Other things to keep in mind: I hear from still-working friends that backorders are really high right now, and everyone's having price increases. Of course, those two issues are at play with all flooring options.
See also: @NotBadForADad's cross post, lol.
Sorry about the hit to your income, @FragglesRock666 , in what industry do you work?
Hi,
New Dutch home-owner checking in.
Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.
The interest rate will drop according to the following schedule:
>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%
Dutch mortgages sound awesome!Swe-e-e-et!
Here in NC, just went yesterday and signed all the paperwork for our shiny, new 2.75% mortgage. First payment is due Dec. 1. Last payment will be due Nov. 1, 2050.
I've been following your progress all along and loved reading this recap.
Holding mortgages for many years enabled us to sell two homes and pay cash for our current one seven years ago, when we needed a larger, single-story home. Every time mortgage rates fall to new lows, I still pine for some of that sweet, cheap money. Alas, cash out re-fis typically cost more and have fewer tax advantages. I usually console myself by checking the investment account balances. Sometimes it works. MPP for sure.
ten-year treasury bills yielding 0.6% right now, not sure how low they can go. Will the 2.625% rate get you enough movement that you're happy?
Thanks. I did end up locking yesterday (30 day lock) for a 30 year FRM @ 2.5% with a small lender credit.
Good job! We're amassing paperwork to start the re-fi process on all three of our rentals. Three at once has to be easier, right?ten-year treasury bills yielding 0.6% right now, not sure how low they can go. Will the 2.625% rate get you enough movement that you're happy?
Thanks. I did end up locking yesterday (30 day lock) for a 30 year FRM @ 2.5% with a small lender credit.
Closed on the refi last week 30 year at 2.5%. Now I need to change my monthly contribution amount for the Vanguard Taxable account. Feels good to have done this.
I've been considering refinancing since March when rates started to plummet. I got serious contacting several lenders in June but couldn't make the numbers work. I keep hearing about people getting great rates, but I think my mortgage amount is too low and many of the good discount lenders don't have a license in my state. So I'm quite jealous of all these people getting good deals like 30 years in the 2.5% or less range!!
I had basically given up, but continued to occasionally check online lenders that actually show rate and pricing info. And I finally found a deal that at least makes sense for me, despite being terrible in comparison to what others are getting. I owe around $110k currently at 3.5% with ~22 years left. I locked in with LenderFI for 3.25% with no closing costs. While the interest rate reduction isn't that great, it is no cost and resets me back to 30 years. So my payment will be around $125 cheaper. I'll be under $500 a month which will be sweet!
LenderFI is nice because they'll show you exactly how much lender credit you'll get at each rate and how much the total closing costs will be without having to login/apply/share contact info. They had really terrible rates when I checked earlier (March-June) but started to make sense recently and yesterday was the best I'd seen so I jumped on it. After I applied, I got the rate they advertised and they waived the appraisal (LTV easily <50%) which I was assuming they'd do. It's all online so pretty easy but did talk to someone on the phone to lock. They say they'll close within 30 days. I'm still considering some other options to see if anyone can beat it. We'll see if PenFed ever contacts me and I applied with a local broker as well. If not, I'll be happy with what I got. Gotta keep that low rate mortgage as long as I can!!
I had basically given up, but continued to occasionally check online lenders that actually show rate and pricing info. And I finally found a deal that at least makes sense for me, despite being terrible in comparison to what others are getting. I owe around $110k currently at 3.5% with ~22 years left. I locked in with LenderFI for 3.25% with no closing costs. While the interest rate reduction isn't that great, it is no cost and resets me back to 30 years. So my payment will be around $125 cheaper. I'll be under $500 a month which will be sweet!
LenderFI is nice because they'll show you exactly how much lender credit you'll get at each rate and how much the total closing costs will be without having to login/apply/share contact info. They had really terrible rates when I checked earlier (March-June) but started to make sense recently and yesterday was the best I'd seen so I jumped on it. After I applied, I got the rate they advertised and they waived the appraisal (LTV easily <50%) which I was assuming they'd do. It's all online so pretty easy but did talk to someone on the phone to lock. They say they'll close within 30 days. I'm still considering some other options to see if anyone can beat it. We'll see if PenFed ever contacts me and I applied with a local broker as well. If not, I'll be happy with what I got. Gotta keep that low rate mortgage as long as I can!!
Hm, looks like they're offering me 3% flat with $0 closing costs based on the website.
Can they do the closing entirely online too?
Good job! We're amassing paperwork to start the re-fi process on all three of our rentals. Three at once has to be easier, right?
I just closed on a refi with LenderFI- 3.0% 30 years no closing costs. No issues with them, electronically signed all the documents leading up to the actual and then a notary came to my house. Took about an hour. They sold my loan to Amerihome. Overall happy with the experience.
I just closed on a refi with LenderFI- 3.0% 30 years no closing costs. No issues with them, electronically signed all the documents leading up to the actual and then a notary came to my house. Took about an hour. They sold my loan to Amerihome. Overall happy with the experience.
Good to hear! Glad it went smoothly with them. How long did it take from lock to close? Less than 30 days? Any issues with Amerihome? My biggest worry is it being a pain to service my new loan. As long as I can set up automatic payment from my checking account, I'll be happy. I got out of escrow so at least don't have to worry about them screwing up that!
Today worked out well for me. I got a call from PenFed this morning. They were offering a rate of 2.875% for no points/no credit. Cost ~$1300 with appraisal waived. Basically just title fees and taxes. Then there's an option of $1150 lender credit for 0.25% higher or 3.125%. So this basically brings it to no cost (well $150 but not bad). Looked pretty good to me so I moved forward. Had to apply on the phone which was annoying. I didn't see an online option. At least I'm a member already so that made it easier. After ~30min on the phone, finally got locked in. They said it could take 90 days to close! I can still decide if I want 2.875% with the higher closing cost or 3.125% for basically no closing cost. The breakeven would be around 4 years just from the interest difference. Seems like too long to pay an extra $1150 up front for. I like the no cost option since I'm ahead right away. I'll have to think about it some more. I'd come out ahead if I keep it long enough, but not sure that I'm that committed to this house.
So I'm assuming I'm going to go forward with PenFed and thinking about sending something to LenderFI to see if they can lower my 3.25% rate. When not 30 minutes later, I get an e-mail from them saying my rate is locked at 3.125% at no closing costs! Sweet! I guess I wasn't really locked on Friday. It was pretty late when I talked to them and never did receive any documentation but he told me I was locked. Oh well. At least it ended up working to my advantage. I think I'll go with LenderFI since they can close earlier. You can't refinance for 6 months after going with them, but they also have a nice deal where if rates drop 0.25% or more after that 6 months, they'll automatically reach out to you to refinance at zero cost. It sounded like it was an ongoing thing too. So that's a nice perk. My lock is set to expire on Nov 20, so we'll see if they can actually meet that date. If anything goes wrong, PenFed is slow enough that they'll be my backup.
Hope everyone else looking finds some good deals out there too!
Mine was slightly over 30 days (7/10 locked to 8/24 signed final papers and 8/28 officially closed). Did not do escrow either. Overall happy with the process. No issues so far with Amerihome - they allow free automatic payments from checking account so doesn't appear to be an issue. They also play nicely with Mint and Personal Capital if you're using a financial aggregator.Thanks for sharing! I have my doubts they can really close by 11/20, but I assume they'll extend the lock if it's their fault. I uploaded all my docs immediately, so nothing should be held up on my end. I guess we'll see how things go. Thanks for the info on Amerihome too. I don't know if my loan will end up there, but good to know you've had a decent experience with them so far.
We just refinanced last October, but this Lender-Fi has me wondering if it isn't time again. Their closing quote is great - has stamp taxes and everything.Why are you cashing out $10k? Seems like that's not really enough to be worth it. Rates are quite a bit higher on cash outs from what I understand, so unless you're cashing out quite a bit ($50k maybe?), it doesn't seem worth it. I didn't think LenderFI was doing cash out right now anyway. That's what I heard and it never came up with any quotes for me when I tried quoting cash out.
Seems like we can go from 3.75% to 3.25%, and cash out $10K after about $2K in closing costs (that 8th of a point that takes it from "pay points" to "lender credit" is the big jump in the list of > $1,000.
I don't think we're quite to where this makes clear and obvious sense - save about $600 / year on the current loan balance, and the expected return less the interest on the additional $10K might be $500.
Maybe if the house appraises higher so we could cash out more it would be a better deal.
We just refinanced last October, but this Lender-Fi has me wondering if it isn't time again. Their closing quote is great - has stamp taxes and everything.Why are you cashing out $10k? Seems like that's not really enough to be worth it. Rates are quite a bit higher on cash outs from what I understand, so unless you're cashing out quite a bit ($50k maybe?), it doesn't seem worth it. I didn't think LenderFI was doing cash out right now anyway. That's what I heard and it never came up with any quotes for me when I tried quoting cash out.
Seems like we can go from 3.75% to 3.25%, and cash out $10K after about $2K in closing costs (that 8th of a point that takes it from "pay points" to "lender credit" is the big jump in the list of > $1,000.
I don't think we're quite to where this makes clear and obvious sense - save about $600 / year on the current loan balance, and the expected return less the interest on the additional $10K might be $500.
Maybe if the house appraises higher so we could cash out more it would be a better deal.
If you only have enough equity to cash out $10k, personally I wouldn't bother. I'd check their regular rates and see what it'd be without the cash out. I'd guess you can do better than 3.75% with no costs. If you can get lower than your current rate at no cost, you don't really have anything to lose. Unless you really do want to cash out or look at refinancing somewhere else in the next 6 months.
We just refinanced last October, but this Lender-Fi has me wondering if it isn't time again. Their closing quote is great - has stamp taxes and everything.Why are you cashing out $10k? Seems like that's not really enough to be worth it. Rates are quite a bit higher on cash outs from what I understand, so unless you're cashing out quite a bit ($50k maybe?), it doesn't seem worth it. I didn't think LenderFI was doing cash out right now anyway. That's what I heard and it never came up with any quotes for me when I tried quoting cash out.
Seems like we can go from 3.75% to 3.25%, and cash out $10K after about $2K in closing costs (that 8th of a point that takes it from "pay points" to "lender credit" is the big jump in the list of > $1,000.
I don't think we're quite to where this makes clear and obvious sense - save about $600 / year on the current loan balance, and the expected return less the interest on the additional $10K might be $500.
Maybe if the house appraises higher so we could cash out more it would be a better deal.
If you only have enough equity to cash out $10k, personally I wouldn't bother. I'd check their regular rates and see what it'd be without the cash out. I'd guess you can do better than 3.75% with no costs. If you can get lower than your current rate at no cost, you don't really have anything to lose. Unless you really do want to cash out or look at refinancing somewhere else in the next 6 months.
It could be a limited cash out, which doesn't increase the rate. I did like $10k in "cash out" but it wasn't really cash. It paid for escrow deposit, insurance prepayments, etc. So it's more like financing your next property tax payment than a pure cash out. I already got that money back in cash from my insurance company, though, and will probably get the escrow deposit back as soon as I'm able to cancel escrow. Or if you already have an escrow account you will get it back from your current lender quickly.
Consistent with this thread's premise - if I'm refinancing, I want as large a loan as they will give me at a low, fixed rate for 30 years (I'd say longer, but that doesn't seem to be available). Right now, that looks like loan balance + about $10K. Suppose I won't know particulars until I try more thoroughly.
I've just been plugging in balance amounts up to 80% LTV into LenderFi - maybe their quote engine lacks the nuance for what I actually want to do.
Ah - if you click "modify search", there is a cash-out option is available. Except it says "no loans avialable - try again". Was just excited to see a better quote tool - the closing costs seem to include filing fees, which are significant here relative to loan size.
From Norway.. here is our plan.
We have $7500 after tax income each month.
We have a $290.000 fixed loan with 2.46% for 20 years (20 years is max fixed loan in Norway)
+ optional 10 years variable or fixed rate at the end.. (not sure until year 20)
We are planning on paying just the interest for the first 10 years, then if the bank allows another 10 years of just paying the interest.
We are investing everything else, which is around $3500 a month
01-10y : $580 pr month
10-20y : $580 or $1500
Year 20: Pay of entirely with invested funds..
20-30y : or refinance, or another fixed loan depending on interest at the time.
How does it sound?
Just paying of the interest for as long as possible, hopefully for 20 years, while inflation works in our favor, while investing as much as possible.
.
Sit down and do the math if the market drops 40% and stays that way for a couple of years right when the money is due in year 20.
Sit down and do the math if the market drops 40% and stays that way for a couple of years right when the money is due in year 20.
Then the most obvious action would be to refinance the loan into another 20 or 30 years which is easy over here. As long as you have eligible collateral in form of a home with a value higher than the mortgage it is very hard to envision a scenario in which you have to pay down large amounts if you don't want to. The loan is probably gonna be pretty small compared to the value of the house due to inflation working for 20 years, unless something really bad happens to the housing market of course.
A lot can change between now and then of course, so the strategy is not without risk. The biggest is probably if realationship ends long before year 20 and they have to sell during a bad time in the housing market and are underwater on the mortgage. Mortgage interest is tax-deductible in Norway as well so the after-tax rate of the mortgage is 1.92%.
I would not do it myself. As mentioned earlier I only pay the interest on my mortgange now but 1) my mortgage is small relative to house value and income + I have enough safe assets to pretty much pay down the loan at any time if I want to as I am able to deposit money in FIDC-insured accounts at a higher interest rate than my mortgage rate.
But seeking_north has in a way been more prudent than most - taking a fixed rate mortgage is very unusual here, most banks only offer it up to 10 years and those few who lock in the interest rate generally does it for 3 years which is really pointless in my opinion.
If you sell before the end date of your fixed time period, dont you need to pay the interest difference if you can’t transfer the loan to your new house? At least in Sweden, that works as a deterrent for longer term fixed rates. My loans are all variable due to this reason. There is no real incentive in the difference in interest rates either. I have a rate of 1,63% and a after taxe rate after deductions of 1,14 %.
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700
+ refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
If you sell before the end date of your fixed time period, dont you need to pay the interest difference if you can’t transfer the loan to your new house? At least in Sweden, that works as a deterrent for longer term fixed rates. My loans are all variable due to this reason. There is no real incentive in the difference in interest rates either. I have a rate of 1,63% and a after taxe rate after deductions of 1,14 %.
Yes, the fixed rate loan will have to be closed out at market value, so you have to pay if remaining market rate is lower and opposite you are paid the value if remaining rate is higher than market rate.
Your last point is a very common mistake to make (not saying you make it...) - the point of having a fixed rate is not to have a rate higher or lower than the prevailing floating rate, it is having predictable cashflows on the mortgage for a long time. In my opinion a lot more people here should have fixed rate loans, even if it is rather likely to loose money in the long run. The weirdest misconception out here is that you are doomed to loose as you are "betting against the bank". A bank giving fixed rate mortgages has no opinion on the future direction of interest rate as it is irrelevant, the risk is easy for the bank to hedge out so it does not matter at all.
Also, closing out the loan at market rate, moving and entering into a new fixed rate at new market rate vs moving loan to another house does not really make any difference. Bar a few token fees the value of the two operations is the same.
Just to clarify, this thread mostly applies to US based mortgages. In places where long-ass, fixed rate mortgages are not the norm, the decision is much less clear-cut.Out of curiosity - can you even get a truly floating-rate mortage in the US or is that an oddity so rare it doesn't really exist? Mine over here is very standard per local customs which means 30 years, floating rate, bank can adjust mortgage raye at any time for any reason but has to give me 6 weeks notice (this requirement is by law). In real life the rate fluctuates with the central bank rate and by extension short-term money market rates. but there is no direct link.
Just to clarify, this thread mostly applies to US based mortgages. In places where long-ass, fixed rate mortgages are not the norm, the decision is much less clear-cut.Out of curiosity - can you even get a truly floating-rate mortage in the US or is that an oddity so rare it doesn't really exist? Mine over here is very standard per local customs which means 30 years, floating rate, bank can adjust mortgage raye at any time for any reason but has to give me 6 weeks notice (this requirement is by law). In real life the rate fluctuates with the central bank rate and by extension short-term money market rates. but there is no direct link.
Not sure what “truly” floating rate is. You can get very short lock in periods here but things still only adjust once per year, and they probably will still have limits on how much they adjust. It’s not like you get charged daily interest at the prevailing rate
Out of curiosity - can you even get a truly floating-rate mortage in the US or is that an oddity so rare it doesn't really exist? Mine over here is very standard per local customs which means 30 years, floating rate, bank can adjust mortgage raye at any time for any reason but has to give me 6 weeks notice (this requirement is by law). In real life the rate fluctuates with the central bank rate and by extension short-term money market rates. but there is no direct link.
Has anyone refi'd with loanDepot lately? We were supposed to close yesterday, and it didn't happen. Our rate lock of 2.5% 30 year expired yesterday - we told them they needed to extend it for free to us, but haven't heard back yet whether that will happen. They have literally had EVERYTHING they asked for since day 1. Yesterday they asked for 5 more items and had all of them within 1.5 hours of their request (updated bank statements (2) , tax docs (3)). The initial part of the process was fine. Getting in touch with someone after has been a PITA. I've been following up for the past month because we planned to have solar installed before the end of the year and cannot proceed until our refi is finished. They said Monday for closing. It better still be 2.5% or lower.
holy forking shirtballs - 2.625% fixed for 30 years !?Right?! And that was with no points. This should be long term home for us so I'm more than happy to just let that sucker ride other than maybe getting rid of the PMI
holy forking shirtballs - 2.625% fixed for 30 years !?Right?! And that was with no points. This should be long term home for us so I'm more than happy to just let that sucker ride other than maybe getting rid of the PMI
Off topic but... this is my first time with escrow (due to refi!). How early do your services usually pay property taxes? Like right before the due date? I just don’t trust these guys and starting to get anxious. Plan to drop this escrow BS ASAP
Off topic but... this is my first time with escrow (due to refi!). How early do your services usually pay property taxes? Like right before the due date? I just don’t trust these guys and starting to get anxious. Plan to drop this escrow BS ASAP
Depends on your mortgage company, but yeah Due Date, or I've even had one wait longer and pay right before the "pay by this day or else you'll incur a penalty" date (which is different). Yes it is annoying.
Why not enjoy the escrow and not having to think about something for once?
I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.
It's frustrating having them hold my money, but I gave myself permission to not think about it.
Depends on your mortgage company, but yeah Due Date, or I've even had one wait longer and pay right before the "pay by this day or else you'll incur a penalty" date (which is different). Yes it is annoying.
Hmm.. we are already past the technical due date. But not the penalty date
Depends on your mortgage company, but yeah Due Date, or I've even had one wait longer and pay right before the "pay by this day or else you'll incur a penalty" date (which is different). Yes it is annoying.
Hmm.. we are already past the technical due date. But not the penalty date
Wells Fargo?
Why not enjoy the escrow and not having to think about something for once?
I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.
It's frustrating having them hold my money, but I gave myself permission to not think about it.
I prefer not because our tax bill is due between 11/1 and 1/31 for no penalty. This lets me get 2 tax payments into one calendar year to maximize SALT deductions. I can't ensure it will work that way with escrow. Plus, we have no fee online payment with our county office, so I could care less where they are located.I wish I didn't have an escrow account when the deduction rules changed a few years back. I had plenty in my escrow account and the next major bill due from it was the April installment of my property taxes, but I couldn't get them to pay it early. Penalty date for the first installment on my property taxes is 12/10 so best I could do is 1.5 years of property tax in one tax year. If I also put two years of charitable giving into a tax year, I certainly could exceed the new standard deduction.
Why not enjoy the escrow and not having to think about something for once?
I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.
It's frustrating having them hold my money, but I gave myself permission to not think about it.
I prefer not because our tax bill is due between 11/1 and 1/31 for no penalty. This lets me get 2 tax payments into one calendar year to maximize SALT deductions. I can't ensure it will work that way with escrow. Plus, we have no fee online payment with our county office, so I could care less where they are located.
Why not enjoy the escrow and not having to think about something for once?
I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.
It's frustrating having them hold my money, but I gave myself permission to not think about it.
I prefer not because our tax bill is due between 11/1 and 1/31 for no penalty. This lets me get 2 tax payments into one calendar year to maximize SALT deductions. I can't ensure it will work that way with escrow. Plus, we have no fee online payment with our county office, so I could care less where they are located.
This is a fantastic response! When the TCJA was passed in 2017, I figured out how to "pre-pay" several years' of church giving for the same reason.
I did this too. But is there really a problem prepaying your property tax bill outside of escrow if it helps your taxes? Yes you will have to figure out how to get a refund, but usually the tax advantage is worth giving up even a years worth of returns (if you have to wait that long for an escrow reassessment)I suppose could have paid the property tax myself, but instead I made donations to my church early like talltexan (only 5 months worth in my case - my reserves were a bit lower than typical due to paying a sewer line replacement in August and burying my Dad in September that year). On January 1st, 2018, my bank accounts had barely enough to cover the bills scheduled to be paid a few days later. I could have been a bit more aggressive - I knew I had a paycheck sufficient to cover the bills that would be added to my account on the first business day of 2018.
has anyone done a cash-out refi recently? if so, what rate and terms and with which lender? thanks!
I refinanced again, this time I pulled some cash out, leveraging up back to 75%. This time it cost me about $2000@kenmoremmm, I closed couple weeks back. Lender is mutual of Omaha.
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875
Closing costs ---> 450 appraisal + ~$1100 Title + ~$500 Misc fees + fund escrow for a year
State/location ---> Midwest
Cashout? ---> yes
has anyone done a cash-out refi recently? if so, what rate and terms and with which lender? thanks!
Dropped payment 1/360 into the mail today on our shiny, new 2.75% loan. I have a co-worker who's at 2 7/8, Imma call him and flex on his pitiful ass.Crazy, my dad still 'brags' about the 8.5% he got before it went to 11% in the late 70s. On the flip side I am jealous of that 12% 5 year CD he got in 80 or so.....whole different math now
Hey guys, good news! Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail. So I can go back to worrying about when it will be paid.Not positive, but I think postmark before due date qualifies as "on time" payment.
Hey guys, good news! Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail. So I can go back to worrying about when it will be paid.Not positive, but I think postmark before due date qualifies as "on time" payment.
However, the stress they're causing you is bullshit. Why does a dragon have an impound account?Hey guys, good news! Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail. So I can go back to worrying about when it will be paid.Not positive, but I think postmark before due date qualifies as "on time" payment.
This is true, as long as it actually arrives and has a postmark.
However, the stress they're causing you is bullshit. Why does a dragon have an impound account?Hey guys, good news! Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail. So I can go back to worrying about when it will be paid.Not positive, but I think postmark before due date qualifies as "on time" payment.
This is true, as long as it actually arrives and has a postmark.
Still waiting for closing on our loanDepot no cost refi at 2.5% 30 year...worst post signing customer service I have ever had. Crickets from anyone. They aren’t on my recommendation list. Fingers crossed we actually do finalize this Monday. We have wired $5,800 to them already. Sigh.Annnd-payoff! IDK what was wrong with the loan processor at the back end, but it’s done and they are sending us $450 for our hassles. Sweet, although not a great return for the stress. On to adding Tesla solar panels to the roof. No more escrow=no more wondering if they are paying the taxes and bills on time. We have lumpy income, so the $900 less per month is going to feel even better. $1,700 escrow refund is due by the 13th.
That escrow refund sounds small enough that you can deposit it through your banking app, well done!
That stinks on the rates and fees for investment properties. At least all of the interest on those is deductible too.Funny, one lender suggested we take a loan out on our primary residence, which is mortgage-free. She helpfully suggested we could use that money to pay off all three rentals. I politely asked, "Why would I want to do that?" "It would be easier", said she. "For whom?" was my response, followed by, "You really don't know how taxes work, do you?"
Was reading some responses in the MPP thread today, one included someone putting 70% down for a property with the idea of paying it off ASAP. As I’ve mentioned, I could have bought my home in cash, I choose to take out just slightly lower than 80% in a mortgage (round loan number) in 2017 and invest the difference. Went and looked at my Vanguard account today, with the crazy market it has a performance gain of 3.5 times more than the amount of mortgage payments I have made in 39 months. Now I have added more than the difference of mortgage v non mortgage but choosing a mortgage is responsible for at least half of the gain.Woot! Congratulations and thanks for the report!
Closing on our LenderFi refi tomorrow, 41 days after initiation.Who's paying for the title insurance?
Loan: $499k (70% LTV, only put down 20% at closing in June- new construction)
Term: 30 fixed
Rate: 2.5%
Appraisal: $495
Cash to close: $250
Excited to hit the reset button already, savings will go to taxable. Plan to FIRE in 12-15y, will decide then to payoff or keep loan- might relocate anyway.
Not paying off our prior mortgage early was a great decision for us. Paying off our last mortgage over a 10 month period was another great decision for us. It improved our quality of life and made us more financially secure, plus it simplified our life a goodly bit.Thanks for Sharing. Another great story for this club in US. There is no one way to do personal finance.
Seems like an appropriate place to ask this question.... and I have not read every post in this very long thread so I apologize if this scenario has been covered. Would you do this refinance?This is 100% NOT silly thinking.
Current loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.
With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.
Would you bring almost 38K to save $446 per month? If I did this, I’d let this loan ride for the long term and put the extra into investments. Or is this silly thinking? I have a bunch of cash piled up, waiting to buy an investment property, so the 40K wouldn’t hurt.
Best guess is that I am 8-10 years away from FIRE.
Seems like an appropriate place to ask this question.... and I have not read every post in this very long thread so I apologize if this scenario has been covered. Would you do this refinance?To me it seems like a no brainer.
Current loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.
With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.
Would you bring almost 38K to save $446 per month? If I did this, I’d let this loan ride for the long term and put the extra into investments. Or is this silly thinking? I have a bunch of cash piled up, waiting to buy an investment property, so the 40K wouldn’t hurt.
Best guess is that I am 8-10 years away from FIRE.
Current interest: about $1582/moCurrent loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.I'd be tempted to wait until the current administration changes. I expect Biden will get rid of that stupid .5% refinance fee that just kicked in.
With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.
We're working on refis for a couple of rental properties and the fees we're being quoted are stupidly high right now. We're not sure what to do, but we're going to be pissed if we jump the gun. If we spend $4k per property that we ultimately don't have to, it's not going to feel good.
In your case, saving $446 a month is still pretty tempting, fees and all.
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.
I just closed a cash out refi with AimLoan. The application and documentation gathering process was very easy since you just upload everything to their website.
THE CLOSING WAS HORRIBLE. The Title Closing company sent a notary to my house to sign all the final paperwork. It took them 8 days to receive and review the paperwork. They kept "missing" documents even though we signed them all and kept asking us to re-sign and send to them. Aim blamed everything on the title closing company and the title company blamed Aim. They kept "switching" who my main contact was so I really had no idea who was running point.
Funding of the refi and paying off the old lender took 3 days. I had to call and email constantly to get status updates.
Overall ok especially since I did not pay any closing fees including appraisal, title insurance, attorney etc. I also received a $760 credit from Aim. All in, I only paid transfer title, recording fee, taxes and insurance which you would have to pay anyway. A+B+C=382
Lenderfi is now showing me no-cost rates that would drop my payment by about $150/mo. Unfortunately I just loaded up my credit cards for points so it’s not a great time. I was under the impression the FNMA adverse market fee would drive rates up, not down.We pay property taxes in two counties. One cashed/recorded fairly quickly. It's been over two weeks and the other county hasn't cashed our check or acknowledged receipt of payment on their website. Kind of nerve wracking and we know we paid the bill. All of their epay options include hefty fees, so that option is out for us. Conclusion: paying property taxes sucks, no matter how it's done.
To follow up on my escrow saga, the county did finally report receipt of the payment two days before it was due. Like two weeks after it was sent. I tend to blame the county for this, since they probably did receive it a while back and just didn’t process it quickly. I always used to epay so it would report quickly. Still annoying though
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.
I just closed a cash out refi with AimLoan. The application and documentation gathering process was very easy since you just upload everything to their website.
THE CLOSING WAS HORRIBLE. The Title Closing company sent a notary to my house to sign all the final paperwork. It took them 8 days to receive and review the paperwork. They kept "missing" documents even though we signed them all and kept asking us to re-sign and send to them. Aim blamed everything on the title closing company and the title company blamed Aim. They kept "switching" who my main contact was so I really had no idea who was running point.
Funding of the refi and paying off the old lender took 3 days. I had to call and email constantly to get status updates.
Overall ok especially since I did not pay any closing fees including appraisal, title insurance, attorney etc. I also received a $760 credit from Aim. All in, I only paid transfer title, recording fee, taxes and insurance which you would have to pay anyway. A+B+C=382
IMO if you used the title company selected by the lender, it’s their reputation on the line either way. They shouldn’t default to using a title company that sucks
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.
What were the terms and fees for a non-owner occ loan?anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.
I just closed with them on my refi with a cash-out on rental. It was fine. They had to extend the lock twice at no cost to me. They also agreed to reduce the rate because of the delay. Good communication.
What were the terms and fees for a non-owner occ loan?anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.
I just closed with them on my refi with a cash-out on rental. It was fine. They had to extend the lock twice at no cost to me. They also agreed to reduce the rate because of the delay. Good communication.
Dicey wants to know about the terms of a refinance on a non-owner occupied (rental) home. She owns several rental properties and was looking into refinancing them recently, but the fees were high enough that she decided to hold off on the refinance.What were the terms and fees for a non-owner occ loan?
I'm not sure I understand the question. I did a cash-out so I have had to pay for more points. I think it was like .5 points. My principal was too low for other refi. For example, AIM was the only one who was giving me a refi. My principal was $135K at 5%. If I would just take regular refi, the AIM rate was 3.625% with about $5k for closing cost. I refied $235K at 3% same 15 years with closing something $7k included in the loan. Also paid an extra $300 for not having an escrow account. Now wondering if I should pay off the primary as it is only $93K and nobody wants to refi it reasonably.
Ok. Anybody can try it for themselves? https://www.aimloan.com/programs/get-rates?autorun=true&qid=1104774
This thread is a little quiet, because not paying off the mortgage eventually becomes kind of boring, at least in contrast to watching your investment balances explode.
Thought I'd check in to say we still haven't pulled the trigger on the rental re-fis. The interest rates are good, but the fees are insane! The payback time is far too long. So we wait and watch. The Aim website linked above is very useful.
Happy New Year to all you DPOYM-ers!
Beginning when the Democrats won the Georgia Senate seats last week ten-year yields have risen 20 basis points. The window may quickly close to get these remarkable rates.aw man! We couldn't refinance because we are in the process of selling, and we won't be ready to buy again for several months.
If you're already under contract, your selling price was higher because of the low rates.the housing market is most definitely not as dynamic as the daily interest rate changes.
Roof replacements are simply much less disruptive to the family routine than a kitchen renovation.
Especially during COVID, I cannot contemplate having to work around no access to food storage or appliances for even a week.
My old mortgage has just worked out that we are underpaying the escrow by about 150 a month and want us to increase payments by nearly 200 a month.
How about we get a new mortgage, get the escrow amount right, drop the rate and pay less per month than when we were underfunding it.
done and signed this morning - new 30 year mortgage.
I'm ok with this outcome.
Have lived in my current house coming up on 3 years and have refinanced twice (4.625 -> 3.750 -> 2.875). I am guessing I will be keeping this mortgage for awhile. 2 payments down, 358 to go and in no hurry to speed up the process!Slow and steady wins the race...
@Vapour I really like your thinking about the mortgage and how it doesn't go up with inflation.
I definitely think many retirees underestimate the amount of repairs and the cost of repairs for their homes. My grandmother (95) bought a brand new house with a 50 year terra cotta tile roof in 1985 when they retired. They assumed they'd NEVER have to replace the roof. Well, guess what? 50 year roofs really only last about 35 years. She's been patching it here and there, but she's going to need a new roof. Her kitchen is 1985 come to call. Her carpet is blue, and she still loves it. But as the appliances die, it's hard to find replacements that fit 1985 cabinetry. Luckily she's got plenty of cash to pay for her roof and grandchildren that would help her out. BUT, a kitchen renovation is not something many retirees have in their budgets - which is why grandma's houses generally look like time warp photos.
Have lived in my current house coming up on 3 years and have refinanced twice (4.625 -> 3.750 -> 2.875). I am guessing I will be keeping this mortgage for awhile. 2 payments down, 358 to go and in no hurry to speed up the process!
I had a nice phone call with a college friend. He was remarkably open about his finances (considering that we talk twice a year) and told me about his refinance (on a house that he'd bought in 2010).
Basically, he compared his payments to what he thought would be the rental revenue on the house if they were to move. I suppose this isn't novel, and probably carries downside risk if your forecast of rental values under-performs because of the same bad economy that's forcing you to move.
He's in the Austin area, so there's been nice appreciation as well. I'm sure he'll be fine.
Have lived in my current house coming up on 3 years and have refinanced twice (4.625 -> 3.750 -> 2.875). I am guessing I will be keeping this mortgage for awhile. 2 payments down, 358 to go and in no hurry to speed up the process!
We are in the process of refinancing from 3.75% to 2.25%. Honestly, I didn't do any research into this other than what I've read on here. My co-worker told me he did it and our loans are about the same so I just called his guy and have done, I think, everything so far except for actually closing. Soon, I hope to have exact #s. Looks like our principal and interest is going to decrease from $1069 to $816.
Our monthly payment now, including escrow for insurance and taxes, is $1350.
We were a little over 3 years into this loan and have no plans on moving any time soon. It hurt a little bit to see the loan increase from $210,500 to $213,562 with the closing costs and fees, but I know that it makes sense in the long term (or I hope it does anyway).
The one part I really didn't understand was the payoff amount, I just assumed it would be the $210,500, but it was actually this:
Principal Balance: $210,500.00
Interest Due As Of 02/15/2021 $960.58
Recording Fees: $28.00
Release Costs: $22.50
I had already paid January's payment in December. I'm not sure when the first payment on the new loan will be. My co-worker ended up deferring 2 payments, so am guessing we will be told we can also.
Feb is my first mortgage payment, closed right before christmas, so I am joining this group as well. my rate is 2.75% and I remember being happy at one point with a 7.75% rate. 90's.
Will be 83 when this is paid off, and I don't plan on getting another mortgage likely ever.
Not sure how I will plan on this? Either as a perma-payment in my fire number, or more likely as a lump sum equal to the mortgage balance as a separate bucket in my numbers and see how that plays out. Would love to have a separate account so I could watch that go up while balance goes down. Is anyone doing something like that?
Thanks @Vapour for that additional information. Yes, it is a 30 year loan. I didn't make the February payment because I just got paid todayDon't spend it yet, but most likely yes, somewhere in that ballpark. Typically during a re-fi, interest collected is for the next month's payment, allowing you to "skip" one. Be sure to clarify at closing. Surprise! Try not to spend that either, lol.
and we signed this ppw on the 27th.
Closing Date 02/01/2021
Disbursement Date 02/05/2021
It looks like we are closing very soon and I didn't want to have the ppw need to be adjusted again. Like I said this is my first time doing this and I've done everything through texting and e-mail, so I'm just kind of going with it.
The way you explained the interest makes sense. The #s changed little since I first posted. The loan is still $213,562.
Closing Costs went from $2121 to $1789 and payoff $211,511 to $211, 403.
Cash to Close From Borrower box was checked for $70 and now To Borrower box is checked for $370.
Does that mean we will get $370?
Thanks @Vapour for that additional information. Yes, it is a 30 year loan. I didn't make the February payment because I just got paid today
and we signed this ppw on the 27th.
Closing Date 02/01/2021
Disbursement Date 02/05/2021
It looks like we are closing very soon and I didn't want to have the ppw need to be adjusted again. Like I said this is my first time doing this and I've done everything through texting and e-mail, so I'm just kind of going with it.
The way you explained the interest makes sense. The #s changed little since I first posted. The loan is still $213,562.
Closing Costs went from $2121 to $1789 and payoff $211,511 to $211, 403.
Cash to Close From Borrower box was checked for $70 and now To Borrower box is checked for $370.
Does that mean we will get $370?
He's in the Austin area, so there's been nice appreciation as well. I'm sure he'll be fine.
A 20 minute call to my credit union, and they're going to knock down the rate on my existing HEL by 0.7%, no closing costs - just some DocuSign next week. I could go lower, but that would require a full refi and some version of in-person signing.
A 20 minute call to my credit union, and they're going to knock down the rate on my existing HEL by 0.7%, no closing costs - just some DocuSign next week. I could go lower, but that would require a full refi and some version of in-person signing.Yippee!
DocuSign completed, along with a note that they will float down the rate (upon request) if it drops between now and when it's finished being processed - no more than 10 days.A 20 minute call to my credit union, and they're going to knock down the rate on my existing HEL by 0.7%, no closing costs - just some DocuSign next week. I could go lower, but that would require a full refi and some version of in-person signing.Yippee!
In related news, we seem to have found a compromise between rate and fees, so we're getting things rolling on the rental re-fis. Fingers crossed.
Just locked my cash out refi pulling about 100k of equity out at 2.75% with $1700 closing costs. Excited to put this money to work!
Man, cashing out is nice, but is it 63 basis points nice? That'd be a difficult call for me.
So I am starting to feel a little crazy because we keep on refinancing... I think this is our 4th refi in 2.5 years now. Details on the rate we just locked in below.
585k
30yr
2.5%
0 points
0 lender fees
Appraisal waiver
Washington state
Current payment - 3170 - 30yr 2.75%
New payment - 2960
Fees not covered by lender - 1600
Break even - 8 months
What made this refinance really worth it was the appraisal waiver we received which put us across the 80% ltv threshold in order to drop PMI. Next step 2%? Lol
@BlueHouse ,Thanks @SwordGuy !
Well, investing instead of paying off a low interest, fixed rate mortgage will get you to FIRE sooner. But you're already FIRED so that doesn't matter.
You'll still end up with more wealth over the next several decades if you invest instead of pay off the mortgage. But you're FIRED with an obviously high margin of safety (all that cash just loafing around), so you already have enough.
If you were planning to stay in the house "forever" instead of maybe just 3 years, I wouldn't question doing it at all.
In 3 years you could find yourself needing a down payment for another house plus moving expenses before you've sold the old house. Then again, the cash savings of $2200 a month ($26,400 annually) lets you build up a down payment in a year, assuming that's not including taxes and insurance. Plus you'll still have cash reserves to draw on.
It's not the choice that will most likely lead to more wealth over the next few decades. But that's not the biggest concern unless you're doing a leanFIRE.
So unless your total stash is small enough that you're really stretching to make FIRE work, I wouldn't think you're crazy to just pay the damn thing off. Did the same thing myself. :)
@BlueHouse ,Thanks @SwordGuy !
Well, investing instead of paying off a low interest, fixed rate mortgage will get you to FIRE sooner. But you're already FIRED so that doesn't matter.
You'll still end up with more wealth over the next several decades if you invest instead of pay off the mortgage. But you're FIRED with an obviously high margin of safety (all that cash just loafing around), so you already have enough.
If you were planning to stay in the house "forever" instead of maybe just 3 years, I wouldn't question doing it at all.
In 3 years you could find yourself needing a down payment for another house plus moving expenses before you've sold the old house. Then again, the cash savings of $2200 a month ($26,400 annually) lets you build up a down payment in a year, assuming that's not including taxes and insurance. Plus you'll still have cash reserves to draw on.
It's not the choice that will most likely lead to more wealth over the next few decades. But that's not the biggest concern unless you're doing a leanFIRE.
So unless your total stash is small enough that you're really stretching to make FIRE work, I wouldn't think you're crazy to just pay the damn thing off. Did the same thing myself. :)
Yeah, making a downpayment on another house was the one thing I hadn't considered, but I think I'm okay along those lines. Right now, I'm not sure I'd want to own another house after this one. I'll probably rent for a while until I figure out where my next location will be. And of that, I have NO IDEA except, not here. So really really glad for the feedback. I'll write that one down to make sure I don't overlook it in case it becomes an issue later.
I usually agree that not pre-paying the mortgage the right path for most. But now I'm seriously considering paying off my mortgage and I want to know if there's a good reason NOT to pay it off at this point and under my circumstances:
1. I just quit my job and don't plan on going back. I guess I'm FIREd
2. I have $170K in a savings account that I could use to pay for my next 2 years of living expenses.
3. Or I could use $140k of that to pay off the mortgage on my loan and reduce cash flow needs by $2200 each month.
4. I plan to stay in this home for 3-10 more years.
5. I also have $70K in my investment accounts that are not invested. They're just in cash. So if I need more than the $30k in cash over the next year, I can start using the cash in the taxable investment account.
6. It is unlikely that I will actually invest any of the $170K that is sitting in savings unless the market crashes and I see a great opportunity for "on sale" equities.
7. My mortgage rate is 3.875%
Should I just pay this off and save 300-400/month on interest charges for the next few years?
Why should I keep the mortgage?
I have a basic question for you experienced refinancers.
I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees. That was a trivially easy process, considering that they already held my mortgage.
I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently.
- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)
LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA.
Seems LenderFi, for me at least, is way high. I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.
I have a basic question for you experienced refinancers.
I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees. That was a trivially easy process, considering that they already held my mortgage.
I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently.
- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)
LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA.
Seems LenderFi, for me at least, is way high. I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.
Don't know if anyone else caught this episode of RPF about using ratios to make financial decisions, where Joshua give us a clue to his own personal view on how much wealth you should have tied up in your home: "I don't want more than 10% of my wealth tied up in my home":Thanks for that, I look forward to listening to it. Sometimes, when one lives in a HCOLA, for example, it's impossible to buy a home for 10% of your net worth. That's why long, low-rate, fixed mortgages are such a lovely, lovely thing.
RPF - The Psychological Freedom of Ratios (https://podcasts.google.com/feed/aHR0cDovL3JhZGljYWxwZXJzb25hbGZpbmFuY2UubGlic3luLmNvbS9yc3M/episode/M2U5MWJiYjQtZjk5Ni00YzBmLTk4YmYtNzJjNzE5YmJiOTUx?hl=en-GB&ved=2ahUKEwj30df86f_uAhUMXMAKHXAqBaoQieUEegQICBAF&ep=6)
I have a basic question for you experienced refinancers.
I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees. That was a trivially easy process, considering that they already held my mortgage.
I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently.
- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)
LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA.
Seems LenderFi, for me at least, is way high. I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.
I have a basic question for you experienced refinancers.
I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees. That was a trivially easy process, considering that they already held my mortgage.
I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently.
- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)
LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA.
Seems LenderFi, for me at least, is way high. I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.
Are you sure you're comparing apples to apples? I don't see how an interest rate of 2.875 could have an APR of 2.6 or even 2.85.
The difference between the interest rate and the APR basically is accounting for the fees involved in the transaction.
I just looked at Lender FI (I still have the app on my phone) and for me at least the 15 year rate of 2.875 has a corresponding APR of 3.031.
The closer the APR is to the interest rate, the lower the fees you are paying.
I found the best deal for me was through the online vendors (Lender FI) in my case. I refinanced at three percent, with a lender credit of $1200 that didn't quite pay all the lender fees, so actual cost was approx $900. 30 year payback. My credit union offered that rate but with costs approx $4000. (costs do not include the tax and insurance escrow pre pays).
B of A was my previous mortgage holder, their offer was similar to my CU.
Also, I think in most cases you will get a better rate if you don't do a cash out, but if your balance is really low you might get a better rate if you do a cash out.
SUBSCRIBED!I was going to mention this on your other thread, but $100K in excess home equity today costs you around $500K at the end of a 30 year fixed rate mortgage. You'll get plenty of folks face-punching the spending stuff, which is important, but if you own your home, having it paid off when you can easily get a <4% fixed rate mortgage for 3 decades is an incredibly expensive luxury. This also goes contrary to conventional wisdom, where the alternative to paying down the mortgage is the metaphorical "hookers and blow" and not "investments".
Wow I have some reading to do.
SUBSCRIBED!I was going to mention this on your other thread, but $100K in excess home equity today costs you around $500K at the end of a 30 year fixed rate mortgage. You'll get plenty of folks face-punching the spending stuff, which is important, but if you own your home, having it paid off when you can easily get a <4% fixed rate mortgage for 3 decades is an incredibly expensive luxury. This also goes contrary to conventional wisdom, where the alternative to paying down the mortgage is the metaphorical "hookers and blow" and not "investments".
Wow I have some reading to do.
You can probably cash-out refinance roughly $100K from the numbers presented on the other thread without getting into PMI or what have you.
@dandarc , yeah, you learned the lesson (that's important!), but don't beat yourself up about it.I'm still accumulating, though it will soon be slower with a new 24 hour per week Coast-FIRE job - I want the market to crash.
You didn't do something stupid, you did something less than optimal. There's a world of difference.
And in 3 years, if the market crashes, don't beat yourself up about so-called losses. The market will recover and you'll still have been earning dividends about what the new mortgage interest is, so it's no big deal. In 10 years you'll be ahead.
Excellent post, @dandarc. I may or may not have been one of the screamers way back when. Ahem.
Two more points:
Money for the purchase of a property is the cheapest money you can get. Anything you do afterwards is considered a cash-out re-fi and typically costs more.
Tax deductibility comes into play here, too. IIRC, only $100k will be deductible on your taxes. This may have changed, or I may not be stating it clearly, so I'm paging @seattlecyclone for an assist.
I've often pondered an "every other year" approach to charitable giving.
It probably makes life tougher for the charities, though.
It's always stressful at the end of the year to try to arrange all these last-minute gifts. I can see the argument for just "setting and forgetting" a monthly contribution.You can do that with a DAF, too.
Someone convince me to dump it all in on black and let it ride.If your own stories aren't enough, I don't know what would be. I'm not familiar with investing or purchasing a home in Canada, but I certainly wouldn't want to pass up on the low mortgage rates for a purchase in the US. I could see possibly using a wholly owned investment entity make the intimal purchase with cash, then personally purchasing from the investment entity using a traditional mortgage. as discussed a bit in this thread (https://forum.mrmoneymustache.com/investor-alley/investment-line-of-credit-a-clever-way-to-finance-buying-real-estate/) (with or without the use of a line of credit secured by paper investments to raise the cash). I have no idea what the additional transaction costs of doing this would be.
Crap. I dun messed up and paid off my mortgage (sale).Having no house at all frees up all the money for investments!
I’ll throw myself out.
Jealous of all of you holding cheap money...
Crap. I dun messed up and paid off my mortgage (sale).Having no house at all frees up all the money for investments!
I’ll throw myself out.
Jealous of all of you holding cheap money...
Crap. I dun messed up and paid off my mortgage (sale).Having no house at all frees up all the money for investments!
I’ll throw myself out.
Jealous of all of you holding cheap money...
Hmm.... That would be great, if not for the monthly rent payment. Oh well, c’est la vie.
Next quarter, my dividends from my taxable investment account, which is larger because I didn’t pay off my mortgage will likely surpass my mortgage payment. I have a $14 difference now, next goal would have been to be able to pay taxes and insurance as well but I’m likely to be moving so it’ll be reset.
Well the refi has been completed and the cash has been put to work.
30yr 2.75% $1,700 total closing costs
Cashed out 90k in equity and tossed it in a VTSAX in a separate account so we can easily track its progress vs the 2.75% loan.
Dumped it all lump sum style into vanguard at an all time market high but the ISP says to do so. Feels good!
We're getting a tax refund for 2020, I'm feeling particularly sub-optimal, since that money could have been going into the market instead of the Federal government this whole time. Will try to adjust that with-holding.Not the worst problem in the world. In the long run, it's only a small amount of money out of the market for six-ish months on average. Another advantage of FIRE is you'll have more control over your withholdings.
Question for the group: We are 6 years into a 10/1 ARM home loan at 3.5%, and are looking to refinance now that the possible move we were considering in late 2020/early 2021 isn't going to happen. Started working with a mortgage broker recommended in the Dallas ChooseFI FB group, and their offer is Quicken loans, 3.125%.
However, there are a few snaps.
First this is a jumbo loan, remaining balance 705k.
Second, current loan is with BoA, and it's the result of a previous cash-out refinance in 2015; despite TX subsequently changing refinance rules to allow traditional refinances of previous cash-outs, BoA still has an internal rule in TX limiting their own refinance options to only "cash-out" type, so they essentially offered the same terms as what we now have with around 1% closing costs even with no actual cash-out; no bueno.
Third, DW has had a stable 10y job that accounts for <25% of our income, however I left my job 2 years ago to try self-employed that didn't work, ending 12/2020, and since 8/2020 I've been back at my old employer, but part time 50% and hourly (both I and my employer are very happy with this arrangement). However, the broker has said the underwriters won't consider this part time income since I've been doing it for less than 2 years, despite it being around $200k per year. Also, apparently assets don't factor in, since our retirement and investment accounts dwarf this loan.
None of this would be a problem, the broker initially said that DW's income was just enough to qualify for a 700k refinance amount, but now the underwriters calculated a max amount of 650k, which would mean brining 50k to the table, and defeating the entire purpose, which for us is to direct as little cash flow to the mortgage as possible, while not tapping into our bank and retirement accounts and letting them grow.
So question: do the broker/underwriter objections seem reasonable, or are we dealing with unusually stringent rules and should just try someone else out? If not, anyone see any way to get around this? I've asked why assets and my income can't at least play a role. Also, DW is taking on an additional 20%-time job running a course for the medical school, which will increase her income about 35% on May 1st, however this will be a new separate paycheck from the medical school rather than a raise from her main employer, so I'm guessing we'd run into the same underwriting problem of ignoring part-time work of <2years.
While I respect FIreDrill's opinion, I do not agree in this case. I think they're being crazy unreasonable.Question for the group: We are 6 years into a 10/1 ARM home loan at 3.5%, and are looking to refinance now that the possible move we were considering in late 2020/early 2021 isn't going to happen. Started working with a mortgage broker recommended in the Dallas ChooseFI FB group, and their offer is Quicken loans, 3.125%.
However, there are a few snaps.
First this is a jumbo loan, remaining balance 705k.
Second, current loan is with BoA, and it's the result of a previous cash-out refinance in 2015; despite TX subsequently changing refinance rules to allow traditional refinances of previous cash-outs, BoA still has an internal rule in TX limiting their own refinance options to only "cash-out" type, so they essentially offered the same terms as what we now have with around 1% closing costs even with no actual cash-out; no bueno.
Third, DW has had a stable 10y job that accounts for <25% of our income, however I left my job 2 years ago to try self-employed that didn't work, ending 12/2020, and since 8/2020 I've been back at my old employer, but part time 50% and hourly (both I and my employer are very happy with this arrangement). However, the broker has said the underwriters won't consider this part time income since I've been doing it for less than 2 years, despite it being around $200k per year. Also, apparently assets don't factor in, since our retirement and investment accounts dwarf this loan.
None of this would be a problem, the broker initially said that DW's income was just enough to qualify for a 700k refinance amount, but now the underwriters calculated a max amount of 650k, which would mean brining 50k to the table, and defeating the entire purpose, which for us is to direct as little cash flow to the mortgage as possible, while not tapping into our bank and retirement accounts and letting them grow.
So question: do the broker/underwriter objections seem reasonable, or are we dealing with unusually stringent rules and should just try someone else out? If not, anyone see any way to get around this? I've asked why assets and my income can't at least play a role. Also, DW is taking on an additional 20%-time job running a course for the medical school, which will increase her income about 35% on May 1st, however this will be a new separate paycheck from the medical school rather than a raise from her main employer, so I'm guessing we'd run into the same underwriting problem of ignoring part-time work of <2years.
I don't think they are being unreasonable. All of this sounds pretty standard for Jumbo loans and, in an ideal situation, I would personally try to pay enough down in order to take this loan out of the Jumbo category because you will get way better access to good rates & loan terms.
If you are sitting on a lot of taxable investments(1-2M+). I would look into using Interactive brokers to source some capital on a margin loan at their 1.57% rate and then get the mortgage down to non-Jumbo territory. Then pay off the margin over the coming months with the extra income. The benefit of this is that you are not liquidating any assets so you will not have any taxable sales of stocks or index funds, assuming you are up a bunch on them. You are just being charged the 1.57% margin loan rate and as long as you keep your margin reasonably low then the risk of getting a margin call on broad market index funds is really low. MMM recently did something similar to this and this situation was one of the reasons I switched all of my investments over to Interactive Brokers in 2019. It's just a little more creative flexibility if the situation arises and is needed, assuming you are comfortable with structuring something like this though...
I would never plan to go over 20% margin for an extended period of time and ideally keep it to 10-15% margin for something like this assuming the assets are held in total market index funds.
Take all this info with a grain of salt.. Doing something like this comes with risks and is not for everyone but it's just one example of having some extreme flexibility if you are sitting on a large taxable brokerage account and need a good chunk of money to bridge a purchase and then repaying it without being subject to capital gains tax.
MMM Blog going over this: https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/
Alright, taking my creative thinking hat off now...
Thanks FIreDrill, definitely something to think about. We've only got 840k spread out over Vanguard, Fidelity, and Merrill Edge accounts, I'm guessing that your suggestion would be to do an in-kind transfer to IB, and then do 80-120k margin loan, correct? Probably not for us, at least for the refi, especially as we are ~190k away from the conforming limits, but we are also considering a major remodel in the near future; in 16 months my income will factor in, but your idea would be a potential superior way of financing rather than a HELOC, which seems out of our reach before 16 months time; will give this some serious thought.
Heard back from the broker, the income issue is a 45% loan-to-income ratio, and DW's income puts it right at 46.5% with the 700k, so no amount of assets changes that math, and got confirmation that the expected new income source for DW is still problematic.
<snip> receiving a decent amount of dividend/interest income in your taxable accounts that can usually be used to help qualify for a mortgage since it's re-occurring income <snip>
<snip> receiving a decent amount of dividend/interest income in your taxable accounts that can usually be used to help qualify for a mortgage since it's re-occurring income <snip>
FYI this worked!
I don't know the particulars, but mortgage interest on cash-out refinances is currently not deductible - and in HCOL, that is probably relevant to you. Whereas mortgage interest on a purchase loan still is.
It is possible there is some kind of "if you refinance within XX days of purchase, it would be considered a purchase loan for this deduction", but I don't know if and what those details would be.
Fill out the case study spreadsheet with various options and find out for yourself.
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.
Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.
Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?
You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.
So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer. Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.
We won the bidding war on our second home despite being the LOWEST bid among three bids. Why? Because our finances were rock solid and the other two bidders were a bit iffy. The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer. We were a sure thing and they took the deal we offered.
This just happened to my brother. The original buyer ghosted everyone the day before closing, so the house went on the market again. There were three more offers, but my brother's finances were the most solid, and his was the offer the seller accepted. Curiously, another bidder's offer said if they couldn't secure financing in 30 days, they'd pay cash. I thought that was pretty creative, but the once-burned seller thought it meant they weren't sure of their ability to qualify and chose my brother, who already has his financing lined up.Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.
Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?
You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.
So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer. Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.
We won the bidding war on our second home despite being the LOWEST bid among three bids. Why? Because our finances were rock solid and the other two bidders were a bit iffy. The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer. We were a sure thing and they took the deal we offered.
I have a basic question for you experienced refinancers.
I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees. That was a trivially easy process, considering that they already held my mortgage.
I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently.
- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)
LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA.
Seems LenderFi, for me at least, is way high. I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.
Are you sure you're comparing apples to apples? I don't see how an interest rate of 2.875 could have an APR of 2.6 or even 2.85.
The difference between the interest rate and the APR basically is accounting for the fees involved in the transaction.
I just looked at Lender FI (I still have the app on my phone) and for me at least the 15 year rate of 2.875 has a corresponding APR of 3.031.
The closer the APR is to the interest rate, the lower the fees you are paying.
I found the best deal for me was through the online vendors (Lender FI) in my case. I refinanced at three percent, with a lender credit of $1200 that didn't quite pay all the lender fees, so actual cost was approx $900. 30 year payback. My credit union offered that rate but with costs approx $4000. (costs do not include the tax and insurance escrow pre pays).
B of A was my previous mortgage holder, their offer was similar to my CU.
Also, I think in most cases you will get a better rate if you don't do a cash out, but if your balance is really low you might get a better rate if you do a cash out.
I hope I’m comparing like with like, hence the APR, which as you say accounts for the costs of the refinance. Thats why i was surprised to see the LenderFi numbers so much higher than the other two.
I have a low balance ~94k on my property valued around 300k, so perhaps that just doesn't get me very good rates.
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.
Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.
Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?
You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.
So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer. Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.
We won the bidding war on our second home despite being the LOWEST bid among three bids. Why? Because our finances were rock solid and the other two bidders were a bit iffy. The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer. We were a sure thing and they took the deal we offered.
This just happened to my brother. The original buyer ghosted everyone the day before closing, so the house went on the market again. There were three more offers, but my brother's finances were the most solid, and his was the offer the seller accepted. Curiously, another bidder's offer said if they couldn't secure financing in 30 days, they'd pay cash. I thought that was pretty creative, but the once-burned seller thought it meant they weren't sure of their ability to qualify and chose my brother, who already has his financing lined up.Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.
Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?
You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.
So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer. Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.
We won the bidding war on our second home despite being the LOWEST bid among three bids. Why? Because our finances were rock solid and the other two bidders were a bit iffy. The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer. We were a sure thing and they took the deal we offered.
We have 14 years left (15 year mortgage) at 3.125%. Too good of a rate to pay down faster. Principal balance is about $178k right now.Another month, another minimum payment. $133k and 10 years remaining. $24.6k in cumulative interest paid over the last 5 years. That's 13.2% of the initial loan amount.
@RWD , I have a co-worker who is trying to decide between a 15-year and 30-year loan. Would you be willing to offer 1-2 reasons why you opted for the 15-year term that I can pass on to her? She is about 35 years old, recently engaged, and more of a Bogleheads than Mustachian mindset.Sure. It mostly has to do with our time frame. Our plan when we bought the house was that we would stay here for less than 10 years and would not keep the house as a rental afterwards. That makes the lower interest rate (in our case 3.125% vs 3.875%) worthwhile. If the plan were to stay longer than 10 years then having the higher cash flow for investing can make more sense. We were also buying a house that was only ~1.5x our gross income so the higher payments of a 15-year mortgage are barely noticeable and will still be affordable even on half our income (e.g. one of us loses our job).
@RWD , I have a co-worker who is trying to decide between a 15-year and 30-year loan. Would you be willing to offer 1-2 reasons why you opted for the 15-year term that I can pass on to her? She is about 35 years old, recently engaged, and more of a Bogleheads than Mustachian mindset.I was 35 when I bought my house and took 15.
On my 14th year of 15 Year Mortgage. :)Time to cash-out refinance!
Mortgage Balance: $13K
@RWD , I have a co-worker who is trying to decide between a 15-year and 30-year loan. Would you be willing to offer 1-2 reasons why you opted for the 15-year term that I can pass on to her? She is about 35 years old, recently engaged, and more of a Bogleheads than Mustachian mindset.I was 35 when I bought my house and took 15.
Reason 1: I want to fully pay it by the time I am 50.
Reason 2: I can opt to make that house the family's ancestral house and I can go for another house for another 15 years and finish it by 65. Having an ancestral house would be a nice gift to my future generations as they can live there for sometime while they save for their DP for their own house.
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.
https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)
Yeah - 12 years in prison is not quite the interest-free loan implied.Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.
https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)
I appreciate you sharing this post--and indeed I did happen to watch this episode sometime in the 1990s--but, dang, it seems like quite a risk to endure certain prison-time in exhange for that. Maybe prison was just a metaphor?
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.Love, love, love it!
https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)
But he kept his spending rate way down while in prison.Yeah - 12 years in prison is not quite the interest-free loan implied.Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.
https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)
I appreciate you sharing this post--and indeed I did happen to watch this episode sometime in the 1990s--but, dang, it seems like quite a risk to endure certain prison-time in exhange for that. Maybe prison was just a metaphor?
While I'm sympathetic to the idea of giving adult children a break on housing, I'm also cautious about a plan like this because I cannot predict that the "ancestral house" will be anywhere near the best work opportunities for those adult children. I suppose you could make a case for that if you're in a city that has historically offered durable economic opportunity--say a world class city like NY or San Francisco--or a city that has a very obvious path to join them like Raleigh or Austin.
But he kept his spending rate way down while in prison.
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.
https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:
https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)
(I did glance at the same page for Austin, and it's even faster)
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:
https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)
(I did glance at the same page for Austin, and it's even faster)
My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.
I've known a couple of people who did that. Stretched like crazy in hopes of selling for lots more money in a few years. It worked out for some, but another lost it all in the housing crash. I may be perfectly comfortable in a house with a mortgaged roof over my head, but I sure don't want to gamble that way.I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:
https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)
(I did glance at the same page for Austin, and it's even faster)
My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.
Part of me wishes we bought a bigger house and stretched further while we had a high combined income. Of course we made the right decision at the time, when housing could either skyrocket or crash, but Just imagine if we bought a house at the maximum the bank was willing to lend and the. Downsize
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:
https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)
(I did glance at the same page for Austin, and it's even faster)
My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.
Gotta say, that's one of the beauties of home ownership in sunny California. They can't do that shit. Plenty of other problems, but your tax increases are miniscule and completely predictable.I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:
https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)
(I did glance at the same page for Austin, and it's even faster)
My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.
Our house is in a Nashville suburb. We just got our new property assessment: it went from $259k to $369k.
Appreciation comes with a cost when you don't plan on moving anytime soon...
Gotta say, that's one of the beauties of home ownership in sunny California. They can't do that shit. Plenty of other problems, but your tax increases are miniscule and completely predictable.I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:
https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)
(I did glance at the same page for Austin, and it's even faster)
My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.
Our house is in a Nashville suburb. We just got our new property assessment: it went from $259k to $369k.
Appreciation comes with a cost when you don't plan on moving anytime soon...
But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
There’s a new revision to prop 13 that will likely cause much higher taxes “eventually” as you can only inherit basis if you actually love in at as your primary residence. Tricky tricky CA.But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
I'm all for that. One of the side effects of the Inheritance thing is kids inherit and have no means to maintain the property. The house goes to shit and impacts the whole neighborhood. On our walks, we point them out and say, " Prop 13 house."There’s a new revision to prop 13 that will likely cause much higher taxes “eventually” as you can only inherit basis if you actually love in at as your primary residence. Tricky tricky CA.But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
I'm all for that. One of the side effects of the Inheritance thing is kids inherit and have no means to maintain the property. The house goes to shit and impacts the whole neighborhood. On our walks, we point them out and say, " Prop 13 house."There’s a new revision to prop 13 that will likely cause much higher taxes “eventually” as you can only inherit basis if you actually love in at as your primary residence. Tricky tricky CA.But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
Recent example: the owner of a house I've been eyeing for years is on hospice. If his kids keep the house when he passes, they will continue to pay $720/year on a house that would sell in the $1.1-$1.2M range. If they sell, the new buyers would get an annual tax bill of at least $12,000/year. How is that equitable?
But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
Seems like an appropriate place to ask this question.... and I have not read every post in this very long thread so I apologize if this scenario has been covered. Would you do this refinance?
Current loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.
With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.
Would you bring almost 38K to save $446 per month? If I did this, I’d let this loan ride for the long term and put the extra into investments. Or is this silly thinking? I have a bunch of cash piled up, waiting to buy an investment property, so the 40K wouldn’t hurt.
Best guess is that I am 8-10 years away from FIRE.
But then they moved the office out of foot (or scooter) distance for me, and my newest mortgage didn't allow it anyway, so I'm sending $00's a month to some bank to do it for me now. Sigh.
Still hate escrowing. My processing was transferred to Flagstar and their online capabilities are kinda trash w/ no app. Now they want me to make an extra escrow payment of like $1k to cover a supposed deficiency, but there is no deficiency they just want to max out their legally allowed buffer/slush fund. At least they have to pay me 2% interest which ain't to shabby RN.Crikey!
I'm going to request removal of escrow as soon as my refi hits 365 days. I don't know if they will allow it but worth a shot. They might also require 12 months of actual payments (so more like 14 months from closing date) or 12 months from when the loan was transferred (which would be almost another year)
At least in my state they aren't allowed to charge a fee for this (in most other states they charge 0.25% of the principal balance (!!!)
2% interest on escrowed funds when your mortgage rate is 2.625% seems...not very strategic.
Hi everyone! I'm thinking about joining the club!!! I just refinanced in Nov. 2020 (before I discovered MMM or FI). I'm new to this and I'm a single mom. My mortgage is at $167,000, 20 years at 3.125%. I'm thinking about going back to a 30-year (hopefully better interest rate- I think my credit rating has improved) and putting the lower payment difference into my Roth.
I also have a 403b and will be eligible for a pension in 10 years.
Am I on the right track? Is there a tool somewhere I can use to see if this is the way to go? I have the Case Study Spreadsheet from someone on this forum but it's a little over my head. I also know I have to take fees into account, but I'm not sure exactly how.
HelloWelcome!
We are joining the don't pay off your mortgage club. We are very comfortable with low levels of manageable debt and will simply allow our loans to be paid down over the coming 20 or so years. We hold roughly 18x our annual spending in debt, most of this is held against our rental property investments. Our personal mortgage is small, at about 0.75x our annual spending.
Why?
- I really like the forced savings that come from mortgages (it helps with our cash control, anti splurge discipline)
- The investment return is sooo much higher than the interest cost at the moment
- With debt inflation is a friend, rather than than stealth tax. Inflation decreases the real costs of the loan.
- We are very comfortable with relatively high debt loads having been real estate investors for our whole adult lives and have the cash management strategies which evolved our the challenges which have come along over the years.
I like the really simple Bankrate amortization schedule calculator, you can plug in any combination of interest rate, mortgage amount, and length of term to see your payment amount, and also see what your remaining balance would be in five years, ten years, etc.I’m a big fan of the Payment function in Excel (=PMT I think) for calculating any principal, any rate, any time frame. From there it is super easy to create a simple formula and drag it down to create your own amortization schedule.
If you did a "no cost" at 2.875% 30 year on a loan balance of $167,000 your payment would be $693.
Just started a re-finance with Lender-Fi. Half a percent lower to 3.25% and unlocking about $18,000 in equity to buy investments with. Closing costs always seem ridiculous to me, but should be a bit under $4K (seriously how are y'all getting these sub-$2,000 cost mortgages? Just the recording fees are over $1,000 and and our loan is small). Less than two years since we corrected our big mistake of having a paid-off house, but rates continued lower and house has increased in value as well, so why not. With the expected return on the newly available $18K, plus saving 0.5% on the outstanding $121K balance, should recoup the closing cost in less than 2 years.
On the one hand our small house is great - relatively easy maintenance, inexpensive, pretty awesome location in many ways. But I'm a little jealous of the lower rates I see in this thread at times. Still, 3.25% is very cheap money.
Anyway, time to upload documents.
This thread has a way of worming itself into your brain.
I am a pay off your mortgage early person, we pay extra every month (refied to a 15 year not that long ago and just kept on paying what we had been paying previously, which is now extra).
But - we have an extra chunk of cash outside of our set budget and it just seems to keep growing lately. DH asked if I wanted to throw it at the mortgage, but I thought about how it doesn't get me that much closer to paying it off. Into investments it went - it is more flexible there for the long term!
I'm still probably going to pay off early - I have a deep need for security and come from a family of people who have always paid off houses early. It is part of my financial DNA. But I just threw a double digit chunk into investments instead, which is the biggest chunk I've ever done at one time!
This thread has a way of worming itself into your brain.
I am a pay off your mortgage early person, we pay extra every month (refied to a 15 year not that long ago and just kept on paying what we had been paying previously, which is now extra).
But - we have an extra chunk of cash outside of our set budget and it just seems to keep growing lately. DH asked if I wanted to throw it at the mortgage, but I thought about how it doesn't get me that much closer to paying it off. Into investments it went - it is more flexible there for the long term!
I'm still probably going to pay off early - I have a deep need for security and come from a family of people who have always paid off houses early. It is part of my financial DNA. But I just threw a double digit chunk into investments instead, which is the biggest chunk I've ever done at one time!
I'm big on security too, and it was B42 who showed me how I was much more secure not paying off my mortgage, and how splitting money between extra payments and investments was by far the least secure option.
If I planned to pay off my mortgage, I would definitely only do it in one large lump sum now that I've wrapper my mind around how extra mortgage payments actually maximize your risk.
Some random thoughts:This thread has a way of worming itself into your brain.
I am a pay off your mortgage early person, we pay extra every month (refied to a 15 year not that long ago and just kept on paying what we had been paying previously, which is now extra).
But - we have an extra chunk of cash outside of our set budget and it just seems to keep growing lately. DH asked if I wanted to throw it at the mortgage, but I thought about how it doesn't get me that much closer to paying it off. Into investments it went - it is more flexible there for the long term!
I'm still probably going to pay off early - I have a deep need for security and come from a family of people who have always paid off houses early. It is part of my financial DNA. But I just threw a double digit chunk into investments instead, which is the biggest chunk I've ever done at one time!
I'm big on security too, and it was B42 who showed me how I was much more secure not paying off my mortgage, and how splitting money between extra payments and investments was by far the least secure option.
If I planned to pay off my mortgage, I would definitely only do it in one large lump sum now that I've wrapper my mind around how extra mortgage payments actually maximize your risk.
I’ve got to credit B42 (and a few others) as well for shifting my focus and making me realizes that extra mortgage payments actually maximizes risk during the entire payoff period. For me, security comes from having the most amount of cash (invested according to my AA, of course). Paying down a mortgage is choosing to have less cash in exchange for more equity in your home.
The mortgage crisis (and subsequent ‘great recession’) also made me very wary of having a very high percentage of our NW tied to a home. They are not ‘secure investments’ - no matter what the National Realtors Association says.
So i was going over the last month's expenses, and I completely forgot to send in my mortgage payment. I was wondering how the checking balance had gotten so high. Do I get extra credit in this club?Extra credit granted.
Will have to call the lender today and figure out how bad the fees will be to get current again. Sigh.
I'll just go ahead and assume whatever analysis was done there is deeply flawed. Although you'd think a guy who believes only 0.5% withdrawal rate or less is safe would be strongly anti-debt.
LenderFi sucks. 2 weeks ago said "we'll fund the loan in two weeks". Today "your business has inadequate history". Even though I put the whole deal on the application and explained every time I sent it in "I just started this up - expect $10,000 / month per my contract but first month was May". Aggravating - if I was a regular state employee making 1/3 to 1/2 this much, would be no problem rubber stamping it. But 10 years of self-employed history isn't enough because I did something stupid and took a regular job for 10 months and formed an LLC for this new deal this year.
Whatever, don't need the money, and maybe rates will stay low while the house continues to go up.
On the plus side, with no mortgage application pending, I've opened 5 credit cards to scare up some miles today. Our 10th anniversary is next year - I have something somewhat ridiculous in mind to celebrate, and this will help mitigate the cost big time.LenderFi sucks. 2 weeks ago said "we'll fund the loan in two weeks". Today "your business has inadequate history". Even though I put the whole deal on the application and explained every time I sent it in "I just started this up - expect $10,000 / month per my contract but first month was May". Aggravating - if I was a regular state employee making 1/3 to 1/2 this much, would be no problem rubber stamping it. But 10 years of self-employed history isn't enough because I did something stupid and took a regular job for 10 months and formed an LLC for this new deal this year.
Whatever, don't need the money, and maybe rates will stay low while the house continues to go up.
Yeah, mortgage underwriting and self-employed income does not mix well.
I was very cautious with Lenderfi. They've ordered up appraisals and then backed out, similar to what you experienced. They told us that it was "no problem" qualifying for a re-fi with dividends, withdrawals, and a little SE income. It turns out that it was a problem.
We own four properties and three mortgages. The unmortgaged property is worth more than the others combined. The threat of inflation* has me seriously considering taking out a mortgage on our primary. However, DH isn't really on board, because we don't really need the money (MPP for sure).
The other three mortgages are at okay rates, but they are at 50% LTV. We have looked into refinancing, but the fees were so high, we couldn't pull the trigger. Our existing rates are good enough, but the process made us pine for those sweet, rock-bottom re-fis.
You're joking, right?We own four properties and three mortgages. The unmortgaged property is worth more than the others combined. The threat of inflation* has me seriously considering taking out a mortgage on our primary. However, DH isn't really on board, because we don't really need the money (MPP for sure).
The other three mortgages are at okay rates, but they are at 50% LTV. We have looked into refinancing, but the fees were so high, we couldn't pull the trigger. Our existing rates are good enough, but the process made us pine for those sweet, rock-bottom re-fis.
Take out a low-rate mortgage on the primary, use the proceeds to pay off the other higher rate mortgages.
The name of this thread amuses me so much. Love it!
I have posted about this before and no one has really given me a good answer, maybe you all can since you guys have spent a lot of time thinking about this.
Are you planning on having your mortgage payment x 25 (4% swr) for retirement so you can keep paying your mortgage? How are you planning on paying your actual mortgage payment in retirement?
For example, if you have 200k balance, refinance today at 4.125% for 30 years is just around a payment of 1,000 per month (for math simplicity). Will you just save the 200k or save for the 12k * 25 = 300k for your retirement in order to keep making those payments? It is easy to have a mortgage while working but what are actual plans for making payments when you are actually retired? I am reading many saying they will have lower balances or have paid off house when they retire, so I am interested in the 30 yr mortgage crowd.
Thanks in advance.
It been talked about, including in this thread (I am 99% sure, been a while). We are more split on that one. Many say carry the mortgage all the way to the end. Others may pay it off at retirement to protect against sequence of returns risk.The name of this thread amuses me so much. Love it!
I have posted about this before and no one has really given me a good answer, maybe you all can since you guys have spent a lot of time thinking about this.
Are you planning on having your mortgage payment x 25 (4% swr) for retirement so you can keep paying your mortgage? How are you planning on paying your actual mortgage payment in retirement?
For example, if you have 200k balance, refinance today at 4.125% for 30 years is just around a payment of 1,000 per month (for math simplicity). Will you just save the 200k or save for the 12k * 25 = 300k for your retirement in order to keep making those payments? It is easy to have a mortgage while working but what are actual plans for making payments when you are actually retired? I am reading many saying they will have lower balances or have paid off house when they retire, so I am interested in the 30 yr mortgage crowd.
Thanks in advance.
I haven't heard anyone talk about this either. Maybe most don't relate mortgage payments to the safe withdrawal rate, but to me they are very similar and deserve the same considerations.
One difference though is that you don't need mortgage payment x 25. The study that came up with the 4% swr adjusts withdrawals for inflation, but mortgage payments are fixed. Thus you can support a mortgage with a smaller portfolio.
It been talked about, including in this thread (I am 99% sure, been a while). We are more split on that one. Many say carry the mortgage all the way to the end. Others may pay it off at retirement to protect against sequence of returns risk.The name of this thread amuses me so much. Love it!
I have posted about this before and no one has really given me a good answer, maybe you all can since you guys have spent a lot of time thinking about this.
Are you planning on having your mortgage payment x 25 (4% swr) for retirement so you can keep paying your mortgage? How are you planning on paying your actual mortgage payment in retirement?
For example, if you have 200k balance, refinance today at 4.125% for 30 years is just around a payment of 1,000 per month (for math simplicity). Will you just save the 200k or save for the 12k * 25 = 300k for your retirement in order to keep making those payments? It is easy to have a mortgage while working but what are actual plans for making payments when you are actually retired? I am reading many saying they will have lower balances or have paid off house when they retire, so I am interested in the 30 yr mortgage crowd.
Thanks in advance.
I haven't heard anyone talk about this either. Maybe most don't relate mortgage payments to the safe withdrawal rate, but to me they are very similar and deserve the same considerations.
One difference though is that you don't need mortgage payment x 25. The study that came up with the 4% swr adjusts withdrawals for inflation, but mortgage payments are fixed. Thus you can support a mortgage with a smaller portfolio.
The name of this thread amuses me so much. Love it!
I have posted about this before and no one has really given me a good answer, maybe you all can since you guys have spent a lot of time thinking about this.
Are you planning on having your mortgage payment x 25 (4% swr) for retirement so you can keep paying your mortgage? How are you planning on paying your actual mortgage payment in retirement?
For example, if you have 200k balance, refinance today at 4.125% for 30 years is just around a payment of 1,000 per month (for math simplicity). Will you just save the 200k or save for the 12k * 25 = 300k for your retirement in order to keep making those payments? It is easy to have a mortgage while working but what are actual plans for making payments when you are actually retired? I am reading many saying they will have lower balances or have paid off house when they retire, so I am interested in the 30 yr mortgage crowd.
Thanks in advance.
I haven't heard anyone talk about this either. Maybe most don't relate mortgage payments to the safe withdrawal rate, but to me they are very similar and deserve the same considerations.
One difference though is that you don't need mortgage payment x 25. The study that came up with the 4% swr adjusts withdrawals for inflation, but mortgage payments are fixed. Thus you can support a mortgage with a smaller portfolio.
[Snip]Ain't it grand? Congratulations!!!
Meanwhile, those mortgage payments ain't gone up one dime!!!!!!!!! We are making bank by not paying off our mortgages, and thanks to our rapidly growing assets are safer than ever. We are many streets ahead of where we would be if we were paying off the mortgages. Another five years of this and those mortgages will seem very inconsequential. Theory, meet Reality.
I overheard a couple of my mindlessly partisan coworkers complaining about government debt and the devaluation of the dollar the other day. IMO devaluation is beneficial to the economy and has been overly slow. Either way, if you can't beat em join em![Snip]Ain't it grand? Congratulations!!!
Meanwhile, those mortgage payments ain't gone up one dime!!!!!!!!! We are making bank by not paying off our mortgages, and thanks to our rapidly growing assets are safer than ever. We are many streets ahead of where we would be if we were paying off the mortgages. Another five years of this and those mortgages will seem very inconsequential. Theory, meet Reality.
[Snip]Ain't it grand? Congratulations!!!
Meanwhile, those mortgage payments ain't gone up one dime!!!!!!!!! We are making bank by not paying off our mortgages, and thanks to our rapidly growing assets are safer than ever. We are many streets ahead of where we would be if we were paying off the mortgages. Another five years of this and those mortgages will seem very inconsequential. Theory, meet Reality.
We are many streets ahead of where we would be if we were paying off the mortgages.
August 1 will be my last mortgage payment. Because I’m selling and renting. I don’t think the mortgage people would congratulate me. I’m moving out by Dicey. I’m not real thrilled with the options in my price range that would tie up so much equity and still have a big mortgage so I’ll rent, then I can spend the dividends from my old house equity on fun stuff (or not and grow it).
August 1 will be my last mortgage payment. Because I’m selling and renting. I don’t think the mortgage people would congratulate me. I’m moving out by Dicey. I’m not real thrilled with the options in my price range that would tie up so much equity and still have a big mortgage so I’ll rent, then I can spend the dividends from my old house equity on fun stuff (or not and grow it).
Recently got into the same boat as you, formerly-something. I’m a bit bitter at not being able to find a sane place for us to buy and hold these ridiculously, stupid-low fixed mortgages through term. But that’s FWP I suppose.
I imagine you have family or other motivations for moving where you are?
You did this without having a plan for investing the proceeds first?Have plan to invest it according to AA but hard to pull the trigger with lump sum... I've read all the books and know to just do it, but..
How much would the house appraise for today?
How big is this lump sum relative to your portfolio (both now and in the future)? Thinking along those lines has helped me kind of reduce the size of the money in my mind.You did this without having a plan for investing the proceeds first?Have plan to invest it according to AA but hard to pull the trigger with lump sum... I've read all the books and know to just do it, but..
How big is this lump sum relative to your portfolio (both now and in the future)? Thinking along those lines has helped me kind of reduce the size of the money in my mind.You did this without having a plan for investing the proceeds first?Have plan to invest it according to AA but hard to pull the trigger with lump sum... I've read all the books and know to just do it, but..
Hypothetical example - $100K probably seems like a whole lot initially, but if you already have another $400K and in 10 years it will likely be $2 million, how of a big of deal is getting the timing right on that $100K really?
and... done.. don't pay off your mortgage, so I cash-out refi'd a rental property. Now what to do with the lump of cash that I paid 2.99% to borrow for 30 years? I really want to feel ok by getting >3% ROI.. put half in VTI and half in REIT? Or throw it all on black at the casino? Looking to buy another rental property now that I have 3x down payments, but hard to find a deal.. CDs are junk.. I'm feeling the cash drag of selling a house and now adding a cash out refi..
Amex is running a promo with Better for $2000 statement credit with a successful re fi also, more free money.
DW got a larger than expected raise. Curiously, the mortgage payment didn't go up. Don't bankers index these things to inflation?!?!?Oh god, I'm so jealous. Not of the raise, but that sexy interest rate.
I'd love to refinance but its hard to beat 2.75% :(
If you refinanced in the last year you might want to look again.
Locked last night with Better, 30 yr 2.75 with approx $500 in credit (yes, they are paying me to borrow money at 2.75). Lender credit at that rate is in the thousands, the $500 surplus is whats left after loan costs.
Or switch to 2.875 (my current rate) with a few thousand in credit, decisions, decisions...
Amex is running a promo with Better for $2000 statement credit with a successful re fi also, more free money.
Better has a well done web portal that will show you their rates, but not their best rates.
If you sign up with Bankrate you will see an even better rate for Better. Screenshot it and send it to the LO and they will re set your rate table.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I don't think anyone studying the problem thinks we can sustain this rate of inflation over the remaining 29.3 years of my mortgage, thoDepends on what you mean by "this rate." From 1967 to 1985, inflation didn't drop below 3.0% on an annual basis, a rate people are getting these days on mortgages. If we were to exclude the 1.9% in 1986, we could make it to 1993 (almost the full 30 years) without inflation dropping below 3.0% on an annual basis.
All y’all talking about rates made me curious, so I went and looked at better’s site, and we could refinance to a 20-year at 2.375. We would get a 500 credit and pay 251 more a month (we currently pay ~3000/mo with taxes, etc on a 30 year fixed, we are 5 years in with no plans to move). I’m curious how y’all would evaluate something like that?
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.Uhhh...
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.Based on the numbers you've provided it looks like you have about $500k in principal.
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.Uhhh...
What rate can you get off you refinance to a new 30 year term?
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.Based on the numbers you've provided it looks like you have about $500k in principal.
Even though the actual number of dollars of interest saved by going to the 20 year rate may be $100k, with 2% inflation, the value of the money paid back is only $50k more (in today's dollars). At 3% inflation, the value difference drops to $35k.
What rate can you get off you refinance to a new 30 year term?
Great question. FWIW I am not interested in paying off my mortgage early, exactly. I was just trying to compare options. My husband has an interest in our mortgage being paid off before he retires, so I was interested in the 20 year because it scratches his itch there.
If we refinance to a 30 year, we could get a rate of 2.25 with a break even period of 2 years, 9 months. Given that we have zero plans to move, this may be a better option. If we wanted not to pay points, we could get a $300 credit on a 2.625 rate.
What rate can you get off you refinance to a new 30 year term?
What rate can you get off you refinance to a new 30 year term?
Great question. FWIW I am not interested in paying off my mortgage early, exactly. I was just trying to compare options. My husband has an interest in our mortgage being paid off before he retires, so I was interested in the 20 year because it scratches his itch there.
If we refinance to a 30 year, we could get a rate of 2.25 with a break even period of 2 years, 9 months. Given that we have zero plans to move, this may be a better option. If we wanted not to pay points, we could get a $300 credit on a 2.625 rate.
Amex is running a promo with Better for $2000 statement credit with a successful re fi also, more free money.I've been looking into this, and ever since Fidelity's rewards card went from Amex to Visa I have not had an Amex card. So, if I need to get an Amex card, the question is now what is the best card that qualifies for the $2000 statement? Ideally it would be something with no annual fee and some sort of reward program or other signup incentive (e.g., 60,000 frequent flier miles).
What rate can you get off you refinance to a new 30 year term?
Great question. FWIW I am not interested in paying off my mortgage early, exactly. I was just trying to compare options. My husband has an interest in our mortgage being paid off before he retires, so I was interested in the 20 year because it scratches his itch there.
If we refinance to a 30 year, we could get a rate of 2.25 with a break even period of 2 years, 9 months. Given that we have zero plans to move, this may be a better option. If we wanted not to pay points, we could get a $300 credit on a 2.625 rate.
Under those circumstances, here's what I'd do. If you are confident you won't move in the next 2 years, take the 2.25% refi (if not, the 2.625 is still better than your existing). Then, to satisfy your husband's "itch" to have a paid off mortgage, set up a "house sinking fund" invested based on your AA (I'd do a simple index fund). Plug the $280(ish) you 'save' each month by having a lower rate into your sinking fund and forget about it. In 20 years there should be well over $100k in there. If you still feel like it, you can pay off the remainder of your mortgage once the balance in your sinking fund exceeds your remaining mortgage. If you are like my parents, after 20 years of inflation and pay raises the monthly PI payment will seem so inconsequential and the six-figures in your 'sinking fund' so substantial that you'll just laugh and keep the mortgage, and the money.
I don't have time today, alas. Maybe someone else will jump in and explain there's a better way to approach this. You wouldn't be "saving" anything if you took that same amount of money and invested it instead. For now, I'll just say I would strongly encourage you to take @nereo's suggestion. Grab the low rate and figure out the details later.Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.Uhhh...
Can you explain what you mean there?
Fair enough. I just wanted to make sure I wasn’t making a obviously dumb mistake, something that should’ve been incredibly obvious. I will admit that part of me was worried that I was a butt of a joke here.I don't have time today, alas. Maybe someone else will jump in and explain there's a better way to approach this. You wouldn't be "saving" anything if you took that same amount of money and invested it instead. For now, I'll just say I would strongly encourage you to take @nereo's suggestion. Grab the low rate and figure out the details later.Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.Uhhh...
Can you explain what you mean there?
Amex is running a promo with Better for $2000 statement credit with a successful re fi also, more free money.I've been looking into this, and ever since Fidelity's rewards card went from Amex to Visa I have not had an Amex card. So, if I need to get an Amex card, the question is now what is the best card that qualifies for the $2000 statement? Ideally it would be something with no annual fee and some sort of reward program or other signup incentive (e.g., 60,000 frequent flier miles).
Amex is running a promo with Better for $2000 statement credit with a successful re fi also, more free money.I've been looking into this, and ever since Fidelity's rewards card went from Amex to Visa I have not had an Amex card. So, if I need to get an Amex card, the question is now what is the best card that qualifies for the $2000 statement? Ideally it would be something with no annual fee and some sort of reward program or other signup incentive (e.g., 60,000 frequent flier miles).
I picked the "Cash Magnet" amex for all those reasons. They have a lot of different cards.
I got pre-approved but I'm waiting until I'm farther along in the refi before I apply. I wouldn't get the card if it weren't for the promo.
The Better loan officer said I can get the card any time up to closing.
Also I will check with amex when applying to make sure it qualifies for the offer.
To answer your question, you do not need to start a new application, once you have locked your Rate Table in your Better Mortgage Platform our system will ask you to enter in your AMEX card number. You will need to provide this information prior to closing in order to receive the statement credit.
We not have restrictions as to whether you can apply for an AMEX credit card, and you can call the 1-800 number on the back of your card to check whether this card is eligible for the promotion. Please be mindful that opening a new credit card may potentially impact your credit score, which may affect loan qualification.
Who has the best rates/terms these days? Will start some quotes now with costco, loandepot etc.
how much more can U improve on 2.75% if you stick with 30-year?
how much more can U improve on 2.75% if you stick with 30-year?
Good question. Maybe not much at all? But if I can also cash out refi the 135k to maximize cheap leverage AND interest tax deduction etc, it may still be worth it, even at the same 2.75% rate?
I sort of want as much cheap leverage as absolutely possible..
I always forget about Costco.We Love Costco, but have checked them repeatedly for re-fi and homeowner's insurance and they've never been even remotely competitive, alas.
I always forget about Costco.We Love Costco, but have checked them repeatedly for re-fi and homeowner's insurance and they've never been even remotely competitive, alas.
Hello, was recommended to post in this thread to learn from the experts!I would do it. My younger brother ignored ignored my advice (surprise, right?) and re-fied to a 15 year loan. A few years later, they decided to buy a bigger house and keep the current one. It was a huge scramble to re-fi back to a 30 year loan. He shoulda listened to his big sister...
Curious about if we should do a cash out refi back to 30yrs & invest the $$$ from the refi. Here are some details
Us - 30yr old teachers with 2 kids under 3 (hope to have more in the future). No debt other than house. Have $60k in savings currently & about $200k in investments. Living in one of the fastest growing counties in OH
House - Purchased in 2018 for $167,500. Refinanced in March 2020 to 15yr at 2.75%. Current balance on the loan is about $97k. Due to crazy housing market, home would currently appraise for $225-250k based on similar homes selling in our neighborhood. Paying $1,100/month with insurance & taxes
Will likely move within the next 2-5yrs. Will either sell the house or keep it as our first rental property. Similar homes are renting for $1,600/month with some up to $2k due to limited options.
So, knowing we will likely move in the next few years, does it make sense to refinance & do a cash out to have more money to invest or do we just keep doing what we are doing?
Thanks for any insights & have a great day!
@dandarc & @Dicey thanks so much for the input & advice!I can't tell you what to do with it*. A lot would depend on the way your other $200k is invested**, but I can give you something that might be more valuable. Check with Rate Plus. DH was very favorably impressed with their rates and fee schedule, until they found out we were looking to re-fi our rentals, whomp, whomp. I'm not sure you can get 80% LTV on a re-fi, but if you are good with money and have the nerves to ride through a market downturn without freaking out, I'd take as much as I could get.
Assuming we do the refinance, would you suggest doing a pure refinance or doing the cash out refi? If doing the cash out refi would you suggest going all the way back to 80% LTV? If doing so, it would be best to invest all the money correct?
Thank you again for your help!
What’s the sweet spot for a cash out refi?
70% LTV or up to jumbo limits?
Just saw a few folks on WCI lock a 2.375% 30 year, wild !
Wow! What were the fees? Did you have to pay any points?What’s the sweet spot for a cash out refi?
70% LTV or up to jumbo limits?
Just saw a few folks on WCI lock a 2.375% 30 year, wild !
We locked a 2.25% 30 year last week.
What’s the sweet spot for a cash out refi?
70% LTV or up to jumbo limits?
Just saw a few folks on WCI lock a 2.375% 30 year, wild !
We locked a 2.25% 30 year last week.
What’s the sweet spot for a cash out refi?
70% LTV or up to jumbo limits?
Just saw a few folks on WCI lock a 2.375% 30 year, wild !
i could have gotten 2.00% but it was ~$17k in lender pointsSeventeen grand! How big is the loan?
My 2.875%, where i locked, had ~$2600 in lender credits
So, we locked a 2.25 30 year last week. We did have to pay a point, but we have no plans to move at any point, and the payoff on point is a little over a year. In return our monthly goes down significantly, which will allow us to dollar cost average more on a rolling basis into the market. We have the cash to be able to pay the point without taking anything out of the market, so we felt this was more than worth it.I'd probably do the same under the circumstances. Congratulations!
Loandepot is quoting 2.75%, 68% LTV @ 14K in points, to maximize loan amount to the conforming limits (750k).Can you please explain what isn't great about that?
If my appraisal can bring us to 60% LTV, could save another ~$3k in costs. (unlikely)
3.125% with no points with the 135k cash out. Eek not great.
i could have gotten 2.00% but it was ~$17k in lender pointsSeventeen grand! How big is the loan?
My 2.875%, where i locked, had ~$2600 in lender credits
Loandepot is quoting 2.75%, 68% LTV @ 14K in points, to maximize loan amount to the conforming limits (750k).Can you please explain what isn't great about that?
If my appraisal can bring us to 60% LTV (1.25M), could save another ~$3k in costs. (unlikely)
3.125% with no points with the 135k cash out. Eek not great.
I notice I can likely do a cash out of $100k+ at either my current rate of 2.75% or maybe even 2.625%. The goal would to be maximize the "conforming loan" limit, and then I would be free to pursue lower interest rates exclusively for a few years. But I would probably restrain any future refinances to the greater of 70% and the conforming limit unless something amazing popped up. I ran it by the wife, who says "I don't know much about investing. Did you ask that mustache?" Consider yourselves asked :).
The money would probably go to 60% VEA 40% VWALX*, giving a total taxable split 1/3 RZV, 1/3 VEA, 1/3 VWALX. Doing my best to backtest that allocation, it gives a pleasant combo of better returns than all but a 100% VTI stock allocation, but better worse case scenarios that most "guru" allocations. Also, a mixture of VEA and VWALX distributes a yield of about 2.625%, similar to the mortgage rate. Monthly mortgage payments are higher because of principal, but the investments (stocks anyhow) are likely to grow dividends over time.
Of course we could just try for a rate reduction. Nothing wrong with a lower monthly payment by a few dozen dollars either.
*unless I try to get a $500 brokerage bonus from etrade or somewhere.
Because I'm much older than you are. I remember having excellent credit and being elated to get an "only" 7% rate mortgage on a new purchase. The difference between 2.75 and 3.125% is negligible, especially with so much cash out. Don't let the perfect be the enemy of the good.
Because I'm much older than you are. I remember having excellent credit and being elated to get an "only" 7% rate mortgage on a new purchase. The difference between 2.75 and 3.125% is negligible, especially with so much cash out. Don't let the perfect be the enemy of the good.
Sometimes I kick my past self for not investing in equities sooner. Then I remember that I was buying CD's that were paying up to 16% for as long as 60 months. That became the down payment on my first house when mortgage rates finally started coming down. Ah yes, the olden days, lol. I don't remember what the rate was, but it was obviously more than the 7% I was happy to get on the next property.Because I'm much older than you are. I remember having excellent credit and being elated to get an "only" 7% rate mortgage on a new purchase. The difference between 2.75 and 3.125% is negligible, especially with so much cash out. Don't let the perfect be the enemy of the good.
I was talking to my parents about our mortgage refinance recently, and my dad reminded me that when they bought their land in the 80s in NorCal, they were stuck with a mortgage with a rate that was nearly 18% *(they had excellent credit, too).
Rather than increasing rate on whole loan, you might see if you can get a 30 year fixed-rate home equity loan at a "good enough" interest rate just for the cash out. Depends on the details, but keeping existing balance at 2.75% and only paying a higher rate on the cash-out might work out better than 3.125% on the whole amount.
Sebonic is the one I am leaning toward (of the few I did more than a few seconds research on). As of this morning they said 2.75%, with a small lender points credit. Better doesn't serve my type, so they were never an option here.I notice I can likely do a cash out of $100k+ at either my current rate of 2.75% or maybe even 2.625%. The goal would to be maximize the "conforming loan" limit, and then I would be free to pursue lower interest rates exclusively for a few years. But I would probably restrain any future refinances to the greater of 70% and the conforming limit unless something amazing popped up. I ran it by the wife, who says "I don't know much about investing. Did you ask that mustache?" Consider yourselves asked :).
The money would probably go to 60% VEA 40% VWALX*, giving a total taxable split 1/3 RZV, 1/3 VEA, 1/3 VWALX. Doing my best to backtest that allocation, it gives a pleasant combo of better returns than all but a 100% VTI stock allocation, but better worse case scenarios that most "guru" allocations. Also, a mixture of VEA and VWALX distributes a yield of about 2.625%, similar to the mortgage rate. Monthly mortgage payments are higher because of principal, but the investments (stocks anyhow) are likely to grow dividends over time.
Of course we could just try for a rate reduction. Nothing wrong with a lower monthly payment by a few dozen dollars either.
*unless I try to get a $500 brokerage bonus from etrade or somewhere.
Which lender?
Planning to do exactly the same.
Confirming limit where I live is $752,350. Will cash out refi up to that amount to maximize leverage. That would put us at ~63% LTV.
The lender I spoke to today expects a massive increase to the confirming limit for next year (jan1). So assuming rates stay low, and housing keeps appreciating, could likely redo this again. And then even one final time a few months later to lock in a low (non cash out) rate. :)
Rates seem to be a bit higher for cash-outs.
Folks on bogleheads are all using better.com to match rates and then receive a $2000 AMEX statement upon close. Will look into this.
Just closed with Better on a thirty year at 2.75, cash back at closing $1996.00, loan amount $220,749 (tweaked slightly from $220,348 payoff amount for maximum cash back)
Applied for the Cash Magnet (spend $2000 in six months for a $200 bonus) card from Amex before closing for an additional $2,000 statement credit.
19 days from rate lock to closing.
Signed docs with mobile notary on my front porch, done in thirty minutes.
It is very easy to refi right now.
@firelight we wish you the utmost success with this new property!
Here at the DNPYM club, we celebrate the flexibility that responsible use of mortgage debt can give you over the life of the loan. At its most basic, that means taking the extra money (you made it sound like you have some that you're considering for extra principal payments toward the mortgage), and instead investing it according to your investor policy statement.
In my own case, keeping liquid investments set aside--and that's the key, it's critical to save the extra--from my primary residence for 2013-2019 gave me the flexibility to move our household on our own time-table two years ago, as we bought the new property before selling the old one, and didn't need to go through the routine of living in a property while showing it. At the moment, we don't have a mortgage with anything like the low rates you're describing, but our payments are low enough that we're benefitting from the flexibility to set aside additional money for college planning for the kids and health care costs.
@firelight we wish you the utmost success with this new property!
Here at the DNPYM club, we celebrate the flexibility that responsible use of mortgage debt can give you over the life of the loan. At its most basic, that means taking the extra money (you made it sound like you have some that you're considering for extra principal payments toward the mortgage), and instead investing it according to your investor policy statement.
In my own case, keeping liquid investments set aside--and that's the key, it's critical to save the extra--from my primary residence for 2013-2019 gave me the flexibility to move our household on our own time-table two years ago, as we bought the new property before selling the old one, and didn't need to go through the routine of living in a property while showing it. At the moment, we don't have a mortgage with anything like the low rates you're describing, but our payments are low enough that we're benefitting from the flexibility to set aside additional money for college planning for the kids and health care costs.
Echoing talltexan - we were uprooted due to COVID and job reassignments. I was amazed at how much of a benefit being able to purchase a new home without it being contingent on the sale of an existing home had in this hot housing market. It instantly put us right behind the 'cash buyers' and ahead of everyone else (especially since we could bring more cash to the table in the form of earnest money and a larger down payment).
@firelight we wish you the utmost success with this new property!
Here at the DNPYM club, we celebrate the flexibility that responsible use of mortgage debt can give you over the life of the loan. At its most basic, that means taking the extra money (you made it sound like you have some that you're considering for extra principal payments toward the mortgage), and instead investing it according to your investor policy statement.
In my own case, keeping liquid investments set aside--and that's the key, it's critical to save the extra--from my primary residence for 2013-2019 gave me the flexibility to move our household on our own time-table two years ago, as we bought the new property before selling the old one, and didn't need to go through the routine of living in a property while showing it. At the moment, we don't have a mortgage with anything like the low rates you're describing, but our payments are low enough that we're benefitting from the flexibility to set aside additional money for college planning for the kids and health care costs.
Echoing talltexan - we were uprooted due to COVID and job reassignments. I was amazed at how much of a benefit being able to purchase a new home without it being contingent on the sale of an existing home had in this hot housing market. It instantly put us right behind the 'cash buyers' and ahead of everyone else (especially since we could bring more cash to the table in the form of earnest money and a larger down payment).
OMG yes, I would never ever buy and sell at the same time. That's just nuts.
I totally agree on keeping the money working in stock market vs early payoff of mortgage at such low rates.Nope, never does :) pay it off all at once, or not at all, aka the bare minimum. Especially at 1.75%. Inflation will destroy that. 90% of a house is the worst amount to own, because you have all of the payments and none of the cash.
I'm only wondering if there is a time/scenario where it makes sense to do early payments. I've not found any so far (except for peace of mind, of course). So, I'm curious what I'm missing. I'd love to know your thoughts.
3) Is there any way to reduce the APR of the property? This is from Wells Fargo and they already gave their best for interest rate. I'm wondering if APR is just a formula result or is there any leeway in reducing it?That is a crazy high APR difference. You must be paying a boat load of points for that, or else fees extraordinaire. Probably not a good idea. Your APR should be within, like, 0.1% of the rate for example 1.75% --> 1.85% APR. Shop around. Even if you need WF to make closing, absolutely do not pay extra points or fees, make those go away. You can refinance later, but you can't get back the overpaid fees and points. Better to get a higher rate and lower upfront costs.
@dandarc & @Dicey thanks so much for the input & advice!I can't tell you what to do with it*. A lot would depend on the way your other $200k is invested**, but I can give you something that might be more valuable. Check with Rate Plus. DH was very favorably impressed with their rates and fee schedule, until they found out we were looking to re-fi our rentals, whomp, whomp. I'm not sure you can get 80% LTV on a re-fi, but if you are good with money and have the nerves to ride through a market downturn without freaking out, I'd take as much as I could get.
Assuming we do the refinance, would you suggest doing a pure refinance or doing the cash out refi? If doing the cash out refi would you suggest going all the way back to 80% LTV? If doing so, it would be best to invest all the money correct?
Thank you again for your help!
*Well, I sort of can: Always, always read JLCollinsNH for investment strategies and use Vanguard.
**I'm huge a fan of big, fat emergency funds, but if that's the $60k "savings" you also listed, I'd be tempted to put some of that to work. In your circumstances, I think it's way too much. I think 6 months of net pay (not gross earnings) is sufficient, and it looks like you're well beyond that. Having so much idle cash is really a drag on your growth.
Calculate interest paid and principal paid over the ‘lost’ period.
1. The total interest paid over the life of the loan actually will go down x$.
2. I am converting x$ of interest and x$ of principal in a non-productive asset into a productive asset tax free.
3. 50K in VTI will likely grow to a total return of at least 660K at the end of the 30 year period. On the low end it could be 475K, on the upper end it could be 1.2M.
4. The only cost being the $2,000 now, the x$ of converted interest, plus the x$* years of remaining P&I payment.
5. The opportunity cost is $26K (based on the $2K now) + the (additional $ noted above) reduced by 1.5x due to inflation adjustments.
6. The increased productive liquidity actually reduces our financial risk.
7. That 660K pool will then provide 26K/year until our end of days.
Edit: these are shoot from the hip off the top of my head numbers.... Please run actual return scenarios that you're comfortable with.
Hey all,
I have a question. I'm doing a refi with a 50,000 cash out, going from 3.75/ 30yrs to 2.7/ 30yrs, 2000 in fees. Total loan 280K, 31% of house value. Payment stays the same. Original loan 273K in 2017.
Cash out will go into the market in keeping with my current AA.
My partner, who is extremely debt averse, said I'm flushing the interest I've paid in the last 4 years down the toilet, with the refi. And asked when the lower interest rate would cover that loss?
Sorry if I'm asking a stupid question. But, what is the answer to the question of "what about the interest you've already paid when you refi"?
Hey all,
I have a question. I'm doing a refi with a 50,000 cash out, going from 3.75/ 30yrs to 2.7/ 30yrs, 2000 in fees. Total loan 280K, 31% of house value. Payment stays the same. Original loan 273K in 2017.
Cash out will go into the market in keeping with my current AA.
My partner, who is extremely debt averse, said I'm flushing the interest I've paid in the last 4 years down the toilet, with the refi. And asked when the lower interest rate would cover that loss?
Sorry if I'm asking a stupid question. But, what is the answer to the question of "what about the interest you've already paid when you refi"?
Interest is what you pay each month to keep the loan. Every month you choose to either repay the loan entirely or pay interest. Each month you “flush the interest down the toilet”…. It’s gone when you pay it. Is it worth it? To most here, yes, because flushing the interest allows us to turn on the fire hose of investment returns.
But refinancing doesn’t re-flush the previously paid interest. As already discussed it’s long gone. Like you said, sunk cost fallacy.
An analogy. Tell your partner you found a cheaper wireless carrier — you could even get an extra line for the same price if you wanted to — but don’t want to flush all your previous bill payments down the drain. See if it feels the same.
I’m back baby!You must have read my mind! I was wondering how you were doing today and was going to ping you. Does this mean there's a journal update in the offing, too? Hope so and hope there's good news.
I’m back baby!You must have read my mind! I was wondering how you were doing today and was going to ping you. Does this mean there's a journal update in the offing, too? Hope so and hope there's good news.
Hell, yes! Wait! You can, as long as you promise to keep shoveling all that sweet, saved money into low-cost equities or the like, lol. What a great deal! You have been through several trying years. I hope this new location, job and home are harbingers of good things to come for you and your family. Way to go, nereo!
Hell, yes! Wait! You can, as long as you promise to keep shoveling all that sweet, saved money into low-cost equities or the like, lol. What a great deal! You have been through several trying years. I hope this new location, job and home are harbingers of good things to come for you and your family. Way to go, nereo!
Wait, what? I have to invest the savings responsibly?? That sounds less fun.
Can’t I use some of the savings on hookers and booze? What if I use the same justifications that the “pay off your mortgage ASAP” crowd does:
“[hookers and booze] make me feel better”
or
“[hookers and booze] let me sleep at night”
or
“I like the certainty of [hookers and booze], even if the return isn’t that great”
or
“I want to know that no one can take my [hookers and booze] away from me if the SHTF”.
Better or worse than hookers and blow? Asking for a friend.Hell, yes! Wait! You can, as long as you promise to keep shoveling all that sweet, saved money into low-cost equities or the like, lol. What a great deal! You have been through several trying years. I hope this new location, job and home are harbingers of good things to come for you and your family. Way to go, nereo!
Wait, what? I have to invest the savings responsibly?? That sounds less fun.
Can’t I use some of the savings on hookers and booze? What if I use the same justifications that the “pay off your mortgage ASAP” crowd does:
“[hookers and booze] make me feel better”
or
“[hookers and booze] let me sleep at night”
or
“I like the certainty of [hookers and booze], even if the return isn’t that great”
or
“I want to know that no one can take my [hookers and booze] away from me if the SHTF”.
Hookers and booze are mathematically optimal though
QuoteHookers and booze are mathematically optimal thoughBetter or worse than hookers and blow? Asking for a friend.
So is nereo calling the top?QuoteHookers and booze are mathematically optimal thoughBetter or worse than hookers and blow? Asking for a friend.
Blow is better in an up market, but booze wins during a recession.
So is nereo calling the top?QuoteHookers and booze are mathematically optimal thoughBetter or worse than hookers and blow? Asking for a friend.
Blow is better in an up market, but booze wins during a recession.
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.
@nereo, this is not directed at you personally, just a general observation. It always cracks me up when people talk about drinking on this forum and don't getbooze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.
hmm... so my logic is flawed then. Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.
Anyone doing cash out refinances recently?
Zillow's appraisal (different than zestimate) pegs our house value high enough that if we wanted to we could keep 20% equity and withdraw almost $50k.
Did you end up yoinking? We did.Sebonic is the one I am leaning toward (of the few I did more than a few seconds research on). As of this morning they said 2.75%, with a small lender points credit. Better doesn't serve my type, so they were never an option here.I notice I can likely do a cash out of $100k+ at either my current rate of 2.75% or maybe even 2.625%. The goal would to be maximize the "conforming loan" limit, and then I would be free to pursue lower interest rates exclusively for a few years. But I would probably restrain any future refinances to the greater of 70% and the conforming limit unless something amazing popped up. I ran it by the wife, who says "I don't know much about investing. Did you ask that mustache?" Consider yourselves asked :).
The money would probably go to 60% VEA 40% VWALX*, giving a total taxable split 1/3 RZV, 1/3 VEA, 1/3 VWALX. Doing my best to backtest that allocation, it gives a pleasant combo of better returns than all but a 100% VTI stock allocation, but better worse case scenarios that most "guru" allocations. Also, a mixture of VEA and VWALX distributes a yield of about 2.625%, similar to the mortgage rate. Monthly mortgage payments are higher because of principal, but the investments (stocks anyhow) are likely to grow dividends over time.
Of course we could just try for a rate reduction. Nothing wrong with a lower monthly payment by a few dozen dollars either.
*unless I try to get a $500 brokerage bonus from etrade or somewhere.
Which lender?
Planning to do exactly the same.
Confirming limit where I live is $752,350. Will cash out refi up to that amount to maximize leverage. That would put us at ~63% LTV.
The lender I spoke to today expects a massive increase to the confirming limit for next year (jan1). So assuming rates stay low, and housing keeps appreciating, could likely redo this again. And then even one final time a few months later to lock in a low (non cash out) rate. :)
Rates seem to be a bit higher for cash-outs.
Folks on bogleheads are all using better.com to match rates and then receive a $2000 AMEX statement upon close. Will look into this.
In the mean time I am triple checking my assumptions before I yoink $100,000+. But, even investing in the S&P500 from the Y2K top, starting with $100,000 would have given much better results ($57,051) at the 2009 market bottom than DCA $408 per month* after starting with a $3,000 saved lender cost would have ($34,876). And if it was better at the bottom, it was definitely better after. And other asset allocations better yet.
*monthly payment on a $100,000 mortgage at 2.75%
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=4&endYear=2009&lastMonth=2&calendarAligned=true&includeYTD=false&initialAmount=3000&annualOperation=1&annualAdjustment=408&inflationAdjusted=false&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VFINX&allocation1_1=100
Did you end up yoinking? We did.Yup! We are locked for 30-year 2.75% with no points either way, plus a couple thousand lost in closing costs and appraisal. The house appraised for $690,000, which is exactly what we needed for the $548,250 maximum conforming loan and 80% LTV. Worst case, we are cashing out exactly enough to pay off our 3% investment property mortgage :D.
My thought process was after refi'ing to drop interest rate, I was like I love this skipped mortgage payment I can invest this month's payment. Then I was like why not cash out, it could be a bad time if this is the top of a pre cash and takes forever or never to recover. Or it could be fine as we won't need this $ for at least 10 years. worst case scenario we keep working another year or two to keep a roof over our heads.
That's great. Isn't it amazing when the numbers work out magically perfect?Did you end up yoinking? We did.Yup! We are locked for 30-year 2.75% with no points either way, plus a couple thousand lost in closing costs and appraisal. The house appraised for $690,000, which is exactly what we needed for the $548,250 maximum conforming loan and 80% LTV. Worst case, we are cashing out exactly enough to pay off our 3% investment property mortgage :D.
My thought process was after refi'ing to drop interest rate, I was like I love this skipped mortgage payment I can invest this month's payment. Then I was like why not cash out, it could be a bad time if this is the top of a pre cash and takes forever or never to recover. Or it could be fine as we won't need this $ for at least 10 years. worst case scenario we keep working another year or two to keep a roof over our heads.
I am probably actually going to split between VEA, SCHX, and VWALX. I admit to being concerned about US stock prices, but I decided to include SCHX just to tell myself not to be too sure. Also that will keep my overall stock allocation 50/50 US/International, which I am pretty happy with.
In the mean time, we are diligently and vigorously not paying of our mortgages!
@nereo, this is not directed at you personally, just a general observation. It always cracks me up when people talk about drinking on this forum and don't getbooze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.
hmm... so my logic is flawed then. Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.facepunchedcalled out on it. Booze is expensive and is totally optional, like cable TV or Amazon Prime.
@nereo, this is not directed at you personally, just a general observation. It always cracks me up when people talk about drinking on this forum and don't getbooze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.
hmm... so my logic is flawed then. Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.facepunchedcalled out on it. Booze is expensive and is totally optional, like cable TV or Amazon Prime.
Even Pete comments on the insane expense of alcohol, but it seems to be a bit of a sacred cow for a lot of people.
@nereo, this is not directed at you personally, just a general observation. It always cracks me up when people talk about drinking on this forum and don't getbooze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.
hmm... so my logic is flawed then. Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.facepunchedcalled out on it. Booze is expensive and is totally optional, like cable TV or Amazon Prime.
Even Pete comments on the insane expense of alcohol, but it seems to be a bit of a sacred cow for a lot of people.
I agree that alcohol is expensive and for whatever reason many treat it like some sacred cow. Perhaps that’s why I make such jokes (in poor taste). Compared to what seems to be the median consumption we are light and occasional drinkers. I can’t remember the last time we had more than two drinks in a day and most days we don’t have zero.
It also fascinates me how competitively expensive booze is in restaurants compared to the grocery store - particularly with the effort involved in prep and serving. I can get behind a well- crafted $26 main course but not an $8 beer or a $16 “craft cocktail”.
But if you don't pay off your mortgage you'll have plenty of extra money available for alcohol right?
It's good to have goals...Especially if you keep moving the 30 yr goal.
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust. Investing in VT/VTI. Mentally you have to just keep telling yourself its the right decision and the math works?
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust. Investing in VT/VTI. Mentally you have to just keep telling yourself its the right decision and the math works?
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust. Investing in VT/VTI. Mentally you have to just keep telling yourself its the right decision and the math works?Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust. Investing in VT/VTI. Mentally you have to just keep telling yourself its the right decision and the math works?Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10
But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10
Personally I'd choose the red line.
No reason really. The two portfolios with S&P500 were by Bernstein and Buffet and were supposed to be very simple, easily accessible, with common appeal so they said S&P500 (which pretty much any 401K has). In fact the S&P500 is probably the weakest of the large/total market funds, but only by a few basis points.I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust. Investing in VT/VTI. Mentally you have to just keep telling yourself its the right decision and the math works?Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10
But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10
Personally I'd choose the red line.
Probably a simple question, but why the s&p 500 over VTSAX? Is it for the large cap/small cap mix to cut out mid caps?
I also need to do more reading/research into intermediate term vs long term treasuries.
No reason really. The two portfolios with S&P500 were by Bernstein and Buffet and were supposed to be very simple, easily accessible, with common appeal so they said S&P500 (which pretty much any 401K has). In fact the S&P500 is probably the weakest of the large/total market funds, but only by a few basis points.I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust. Investing in VT/VTI. Mentally you have to just keep telling yourself its the right decision and the math works?Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10
But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10
Personally I'd choose the red line.
Probably a simple question, but why the s&p 500 over VTSAX? Is it for the large cap/small cap mix to cut out mid caps?
I also need to do more reading/research into intermediate term vs long term treasuries.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=SCHB&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=SCHX&allocation1_1=100&symbol2=VFIAX&allocation2_2=100&symbol3=VTI&allocation3_3=100
All the linked portfolios I posted above used total market, intermediate, or short term bonds. It would not be tax efficient to use long term bonds in a taxable account and long term muni bonds are callable, so not really long term. I do use long term in my tax advantaged accounts.
Your preferred red line in the second period comes from a portfolio with intermediate term bonds. Me saying that was me going"i need to figure out why he prefers that lineup as is there something special with intermediate term".maybe there's nothing special about which set of bonds but just to include them.It was mostly just because I tweaked the portfolio to match what Bernstein actually preaches, which is no credit risk in bonds, so I switched it from total bond to intermediate treasury. Probably it is important just to include bonds, but I do think there is a nice benefit to intermediate or long term bonds because duration risk is a separate risk from credit/stock risk, plus that after a few years intermediate will always return more money. However Bernstein, also dumps on duration risk, saying bonds should be riskless and therefore only short term government bonds need apply. But in this case there is close to a 100% chance that short term bonds will be a detriment to a portfolio which is trying to outrun a mortgage. Both terms give a chance at rebalancing, but intermediate bonds might plausibly go up a little during a rebalancing event.
With the short time frame, I'm thinking "eh either way". If you knew for sure you'd keep it for a long time, either living in it or eventually rent it out, then seems like a no-brainer to me to do the refinance. If you might sell in 2 years, that reduces the certainty the market will do better than your interest rate vs. just getting a larger check when you close on the sale.
Have you gotten detailed quotes on refinancing? What terms are available to you?
With the short time frame, I'm thinking "eh either way". If you knew for sure you'd keep it for a long time, either living in it or eventually rent it out, then seems like a no-brainer to me to do the refinance. If you might sell in 2 years, that reduces the certainty the market will do better than your interest rate vs. just getting a larger check when you close on the sale.
Have you gotten detailed quotes on refinancing? What terms are available to you?
Just an update. I have yet to find anyone offering no closing costs but have found some under $300 for closing costs. Also was quoted today the following rates
30yrs - 2.875%
15yrs - 2.125%
10yrs - 1.99%
But that was for $2k closing costs
Kind of unsure what to do at this time!
No reason really. The two portfolios with S&P500 were by Bernstein and Buffet and were supposed to be very simple, easily accessible, with common appeal so they said S&P500 (which pretty much any 401K has). In fact the S&P500 is probably the weakest of the large/total market funds, but only by a few basis points.I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust. Investing in VT/VTI. Mentally you have to just keep telling yourself its the right decision and the math works?Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10
But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10
Personally I'd choose the red line.
Probably a simple question, but why the s&p 500 over VTSAX? Is it for the large cap/small cap mix to cut out mid caps?
I also need to do more reading/research into intermediate term vs long term treasuries.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=SCHB&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=SCHX&allocation1_1=100&symbol2=VFIAX&allocation2_2=100&symbol3=VTI&allocation3_3=100
All the linked portfolios I posted above used total market, intermediate, or short term bonds. It would not be tax efficient to use long term bonds in a taxable account and long term muni bonds are callable, so not really long term. I do use long term in my tax advantaged accounts.
Your preferred red line in the second period comes from a portfolio with intermediate term bonds. Me saying that was me going"i need to figure out why he prefers that lineup as is there something special with intermediate term".maybe there's nothing special about which set of bonds but just to include them.
From the quotes above the principal & interest payments would be as follows. This was based on a cash out of $20k (the lender just used this as an example) for a loan amount of $115k
30yr - $477 PI
15yr - $746 PI
10yr - $1,058 PI
We are currently paying $712 PI. Based on the quotes above we could make it work for all of those options.
We could do a larger cash out amount (especially if doing the 30yr option) & likely would put the majority of the money into VTSAX which is where all of our money goes in the stock market after we max out our Roth IRAs.
Closing costs for all of the above options would be $2k. Rates would be the same if we didn't do the cash out option & just went straight refi.
Any thoughts or suggestions?
Just signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years. I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September. IDK, I couldn't help myself?! Here to try to keep myself on the mathematically smarter track, I guess?!
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years. I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September. IDK, I couldn't help myself?! Here to try to keep myself on the mathematically smarter track, I guess?!
Just signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Just signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years. I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September. IDK, I couldn't help myself?! Here to try to keep myself on the mathematically smarter track, I guess?!
@catccc , Now that you've enjoyed the adrenaline rush of accelerating your paydown by several months, we're asking you to recommit to our DNPYM way of living by making a sacrifice. Scour your couch cushions for whatever you can find and entrust it to Vanguard like this week! Only by enlarging the investment account can the DNPYM traditions be fully honored.
I'd do it myself, but payday isn't until Thursday, and my mortgage payments have to be sent by mail.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I prefer DNPYM (do not pay your mortgage) Because it saves me a ton of money every month!0You forgot the "off" part. Missing mortgage payments (assuming you're smarter than me and still have one) can be very expensive.
You forgot the "off" part. Missing mortgage payments (assuming you're smarter than me and still have one) can be very expensive.
To further confuse this mess I got carte blanche last year during the first 9 months of the pandemic to postpone all mortgage payments no questions asked (made very sure there were no qualifiers before signing up).I almost added a disclaimer that my input only applied to the good old US of A. As with so very, very many things, other countries do it better than we do. Sigh.
This would put me squarely in the DNPYM camp, though only for a short while before rejoining the DPOYM team.
I also am trying to sell my only property and rent... meaning I'll be in the DNEGAM corner soon.
Do Not Even Get A Mortgage
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.nutsso jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.
You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!
Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
No Hookers and BlowI see what you did there ;-)
Sad to say I only did
Transfers to VGRO
Sorry to make you feel jelly, but hopefully others learn from your jelliness and my awesome sauce low rate.Ha! Making it easier for others to reach their goals faster, with a lot less effort, is one of the main reasons I've hung around this place so long after FIRE.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.nutsso jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.
You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!
Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
Yeah chasing the bottom can often feel like trying to sell at the top (did somebody say top is in?), but stepping back you get a really good idea about where things are if you don't fixate on the here and now.
Sorry to make you feel jelly, but hopefully others learn from your jelliness and my awesome sauce low rate.
For the record, this is the "DONT Payoff your Mortgage Club" [stet], started by our Forum Friend B42. The terms of his parole do not allow him to post in this thread, but his legacy continues. The established acronym is DPOYM.
It's difficult enough to get some folks to see the wisdom of DPOYM, let's not confuse them with multiple acronyms, please.
We welcome all who wish to learn and partake of this magical force with open arms. Safely socially distanced, of course.
Woot! Got a message saying my docs were approved and funds would be dispersed within 24 hours. Not the waiting type, I checked anyhow. +131 large in the bank at 2.75% (and like 2.779% APY)! Haven't had this much cash since I was trying to buy the place.Noooooooo! on the bolded part. Don't shoot yourself in the foot.
I have to remind myself that this isn't quite as amazing as $130k cash. After all, we need to pay $6,400 per year on this. Even just the interest will be a sizable monthly payment at first. It is really only effectively half as effective as a real$130,000.
Still, it feels like a big win. Worst case, if we hate having a liquid hundred G's making money, the amount is nearly exactly what we have left on the rental unit mortgage at 3%, we could just pay that off.
Just kidding! I might be a bit dull, but I'm not obtuse enough to pay off a 3% loan with inflation running near 6% :DWoot! Got a message saying my docs were approved and funds would be dispersed within 24 hours. Not the waiting type, I checked anyhow. +131 large in the bank at 2.75% (and like 2.779% APY)! Haven't had this much cash since I was trying to buy the place.Noooooooo! on the bolded part. Don't shoot yourself in the foot.
I have to remind myself that this isn't quite as amazing as $130k cash. After all, we need to pay $6,400 per year on this. Even just the interest will be a sizable monthly payment at first. It is really only effectively half as effective as a real$130,000.
Still, it feels like a big win. Worst case, if we hate having a liquid hundred G's making money, the amount is nearly exactly what we have left on the rental unit mortgage at 3%, we could just pay that off.
Who did you go with for the re-fi?
You did a good job pulling @Radagast back from the brink, but I imagine many of our DPOYM fellows are looking at the stock market's recent pullback and having second thoughts about diving in.Radagast was only joking. Are you calling the top?
Here's a thought experiment: suppose you buy a conservative ETF like Vanguard Wellington, which is roughly 3/8 stocks and the rest bonds. You have a lot less downside in times like this, AND you still have a good chance of lapping your mortgage long term if your rate is <3%. You can make one more commitment, which is that--in one year--you'll check your statement, and 100% of any gains on the Wellington you move over to $VTI.
The point of the mortgage is to allow greater market exposure.
We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)
We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.nutsso jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.
You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!
Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.nutsso jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.
You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!
Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
Bought a house with a 30y mortgage at 4.25% in late 2018.
Refinanced in late 2019 to a 15y mortgage at 3.25% at a cost of ~$3,000. Payoff on that investment was to occur in about 2.5 years.
Thought I was smart. Thought "this HAS to be near the bottom".
Today, 15y rates are 2.6%, and were as low as 2.25% a couple of weeks ago.
If I refinanced for a second time in as many years, the $3k investment would break even in 6y.
But OTOH, I only have 13 years remaining on the mortgage, so not a long runway to benefit after breakeven.
And am I going to end up chucking down yet another $3k when 15y rates go down to 1.25%? How many times do I pay these people?
THIS is some deep-ass FOMO/Regret.
We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)
I believe your deduction may be limited to the amount going towards the original loan if you didn't use the cashout to make qualified improvements to the home. We did a cashout refi in 2015, and have never been able to deduct the full interest payments, in part because for the first few years after we fell under the AMT which eliminated deductions for home equity, and more recently because we ultimately used the money to pay off student loans with the rest going into Vanguard; we did use $7.5k to replace and stain our fence, but it was clear to me that it qualified, and even then I would only have been able to add that part of the new mortgage back into the deduction calculation starting in 2018 and decided it wasn't worth being possibly wrong on including it.
Quote from: bryan995 link=topic=69225.msg2909059#msg2909059
We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)
Wait, we can deduct montage interest now? Think of all the skills I could learn, the workouts I could finish. =)
You did a good job pulling @Radagast back from the brink, but I imagine many of our DPOYM fellows are looking at the stock market's recent pullback and having second thoughts about diving in.As per earlier in the thread, I'm planning to put most of it in VEA (Vanguard International Developed) and either SCHX (Schwab US Large Company) or MGC (Vanguard US Megacap). The rest goes to VWALX (Vanguard High Yield Tax Exempt Bond). I also have a lot of RZV already (S&P600 Pure Small-Cap Value). I will then have a roughly even split in taxable: VEA, SCHX, VWALX, RZV. I'm not sure if that is conservative!
Here's a thought experiment: suppose you buy a conservative ETF like Vanguard Wellington, which is roughly 3/8 stocks and the rest bonds. You have a lot less downside in times like this, AND you still have a good chance of lapping your mortgage long term if your rate is <3%. You can make one more commitment, which is that--in one year--you'll check your statement, and 100% of any gains on the Wellington you move over to $VTI.
The point of the mortgage is to allow greater market exposure.
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years. I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September. IDK, I couldn't help myself?! Here to try to keep myself on the mathematically smarter track, I guess?!
You recognize that there’s a strong mathematical advantage towards not paying down your fixed very low interest loans early. Fantastic - you are well ahead of most. What’s prompting you to make early payments is emotional, and as every economist will tell you, one shouldn’t let emotion dictate your finances.
Now you can reflect on why you feel compelled to do something you realize is not in your best interests, and find ways to address that. For me it was the realization that it was always “either/or” - I could have less mortgage or more money to deploy whenever and however was needed. If I spent the money on the mortgage it couldn’t (easily) be used for anything else, and ultimately it became apparent there were *many* more productive places for that money for me.
Others (like my sister) feel compelled to follow the herd advice. It’s social pressure. So she set up a home sinking fund and to the outside world pretends that her mortgage balance is whatever it is minus the sinking fund. Social pressure managed.
Many others just want “the good feeling” of no mortgage payment. Strategies there can be broad - one I’ve seen as effective is to ask what excites more: a $450K home with ‘only monthly T&I payments (still substantial), or an investment account with $600,000+ in it.
Up to you to find out what works, but good that you recognize it’s not a rational desire.
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years. I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September. IDK, I couldn't help myself?! Here to try to keep myself on the mathematically smarter track, I guess?!
You recognize that there’s a strong mathematical advantage towards not paying down your fixed very low interest loans early. Fantastic - you are well ahead of most. What’s prompting you to make early payments is emotional, and as every economist will tell you, one shouldn’t let emotion dictate your finances.
Now you can reflect on why you feel compelled to do something you realize is not in your best interests, and find ways to address that. For me it was the realization that it was always “either/or” - I could have less mortgage or more money to deploy whenever and however was needed. If I spent the money on the mortgage it couldn’t (easily) be used for anything else, and ultimately it became apparent there were *many* more productive places for that money for me.
Others (like my sister) feel compelled to follow the herd advice. It’s social pressure. So she set up a home sinking fund and to the outside world pretends that her mortgage balance is whatever it is minus the sinking fund. Social pressure managed.
Many others just want “the good feeling” of no mortgage payment. Strategies there can be broad - one I’ve seen as effective is to ask what excites more: a $450K home with ‘only monthly T&I payments (still substantial), or an investment account with $600,000+ in it.
Up to you to find out what works, but good that you recognize it’s not a rational desire.
Yes to all your points! I already feel like my mortgage was a smart financial decision we made, since the seller made us prove we could pay cash for it (this market) before agreeing to accept our offer that didn't have a financing contingency. And at these rates in the current inflation environment, it seemed like a mortgage was clearly the right move. I definitely tell myself that the $410K mortgage is our choice, especially since we sit on a 1.8M portfolio (that excludes home equity, too).
The only actual advantage I can pinpoint would be a lower drawdown in retirement (and the tax mitigation that can come with it.) But until we are in the drawdown phase, that's not really worth thinking about.
Speaking of desires, I was recently introduced to the idea of mimetic desires via a Paula Pant podcast. Almost everything we want is based on a model of desire, with the exception of biological wants/needs. It makes you think hard about whether you really want what you think you want, or you think you want it because you've seen others model that desire.
350 @2.625 for 14 more years. Thinking about jumping on the NOT PAYING IT OFF EARLY wagon🤔What’s holding you back?
350 @2.625 for 14 more years. Thinking about jumping on the NOT PAYING IT OFF EARLY wagon🤔Refi @ 30 years and invest the difference. That's the wagon to jump on
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.nutsso jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.
You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!
Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.You can contest an appraisal, fyi.
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Yes, but that’ll be hard to close the gap between Zillow and the appraisal. The market is so hot here in Charlotte that prices have risen 30% in the past year, but nothing has sold in the past six months in my neighborhood, that’s how tight supply is. Older homes are still getting cash offers off market and being torn down and rebuilt.So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.You can contest an appraisal, fyi.
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I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.nutsso jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.
You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!
Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
Here's a twist. I cashed out and refi'd. My plan was to refi later to drop the rates because cash out rates were higher.
I started paperwork last night and discovered I don't qualify to refi because my income isn't high enough because I went to 3/4 time last month. DW is self employed currently and I'm not ready to dive into that headache. If she ever goes back to FT W2 work
My reaction last night? Oh well. I got a sweet mortgage rate anyway.
So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.
Dang, that's too bad. Temporarily go back full-time to qualify? Or work some 'extra time' for a few weeks to boost on-paper income?
Dang, that's too bad. Temporarily go back full-time to qualify? Or work some 'extra time' for a few weeks to boost on-paper income?
That is soooooo not worth ~100 hours of my time 😊
Dang, that's too bad. Temporarily go back full-time to qualify? Or work some 'extra time' for a few weeks to boost on-paper income?
That is soooooo not worth ~100 hours of my time 😊
The FED just signaled that they will not taper anytime soon. What if we hit 2.25%, 30yr? Surely a fresh cash out + reset of the clock is worth 100 hours :)
Yes, but that’ll be hard to close the gap between Zillow and the appraisal. The market is so hot here in Charlotte that prices have risen 30% in the past year, but nothing has sold in the past six months in my neighborhood, that’s how tight supply is. Older homes are still getting cash offers off market and being torn down and rebuilt.So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.You can contest an appraisal, fyi.
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Also I’m not trading in my 2.5% for a 3% rate unless I can get a large amount of money out.
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Interestingly Trulia is extremely close to Zillow.Yes, but that’ll be hard to close the gap between Zillow and the appraisal. The market is so hot here in Charlotte that prices have risen 30% in the past year, but nothing has sold in the past six months in my neighborhood, that’s how tight supply is. Older homes are still getting cash offers off market and being torn down and rebuilt.So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.You can contest an appraisal, fyi.
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Also I’m not trading in my 2.5% for a 3% rate unless I can get a large amount of money out.
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I also live in Charlotte, and I became very skeptical of Zillow's estimates, particularly in the Northern half of the area.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.nutsso jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.
You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!
Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
Here's a twist. I cashed out and refi'd. My plan was to refi later to drop the rates because cash out rates were higher.
I started paperwork last night and discovered I don't qualify to refi because my income isn't high enough because I went to 3/4 time last month. DW is self employed currently and I'm not ready to dive into that headache. If she ever goes back to FT W2 work
My reaction last night? Oh well. I got a sweet mortgage rate anyway.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make meJust signed the paperwork for our cash out refi. 2.99% 30yr w/ $126k out. Looking at investment properties now. Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
~3 months ago, we had tesla solar+powerwalls w/ financing added to the home. Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser. Luckily that has not yet happened yet, so we were able to complete this refi without any issue. Solar loan is at 0.99% APR so it was a no brainer.
Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
Yes, purchase (via financing), would never lease ... yuck!
And good to know - it came up often enough during that closing that it made me wonder. Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!
Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion... Assuming of course we stay at ~60% LTV and rates stay sub 3%. gulp.
I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.nutsso jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.
You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!
Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
Here's a twist. I cashed out and refi'd. My plan was to refi later to drop the rates because cash out rates were higher.
I started paperwork last night and discovered I don't qualify to refi because my income isn't high enough because I went to 3/4 time last month. DW is self employed currently and I'm not ready to dive into that headache. If she ever goes back to FT W2 work
My reaction last night? Oh well. I got a sweet mortgage rate anyway.
I did three in the last year as self employed, two with lender fi, one with Better. All they wanted was a previous three months profit and loss statement (which was done by me, not an accountant, not notarized), three months of bank statements, two years taxes.
That was pretty much it. They each took less than a month, start to finish. One was cash out, two were rate/term.
I did three in the last year as self employed, two with lender fi, one with Better. All they wanted was a previous three months profit and loss statement (which was done by me, not an accountant, not notarized), three months of bank statements, two years taxes.
That was pretty much it. They each took less than a month, start to finish. One was cash out, two were rate/term.
Yeah, I had 9 years self employed, then 10 months W2, then tried to refinance ~1 month after going back to self employed. Lender Fi scuttled the deal. Moral of this story is never work as an employee for anyone ever.
I did three in the last year as self employed, two with lender fi, one with Better. All they wanted was a previous three months profit and loss statement (which was done by me, not an accountant, not notarized), three months of bank statements, two years taxes.
That was pretty much it. They each took less than a month, start to finish. One was cash out, two were rate/term.
Good news bad news. Bad news, DW has been self employed for 6 months and doesn't qualify for a co borrower. Good news? My refi showed up twice on the credit report, with both the original bank and then the one it was sold to. They were able to get me qualified by removing the first one that has been sold.
Yeah, I had 9 years self employed, then 10 months W2, then tried to refinance ~1 month after going back to self employed. Lender Fi scuttled the deal. Moral of this story is never work as an employee for anyone ever.
I also formed a new LLC for this latest iteration, so maybe that was it? I just wish they would have told me before the "gather all your paperwork" part - I thought I went out of my way to explain the whole situation.Yeah, I had 9 years self employed, then 10 months W2, then tried to refinance ~1 month after going back to self employed. Lender Fi scuttled the deal. Moral of this story is never work as an employee for anyone ever.
That's a bummer. Usually they don't care unless you change industries.
Would anyone NOT do this refi?
Currently a year into a 2.625 / 30yr with Lenderfi. 443k balance.
Looking at a 1.75 7yr ARM with Loan Depot. (30 year amortization schedule) Total costs are ~2k so balance will become 445k. Total interest savings over next 7 years are 25k. We plan to move/downsize/retire at that time.
Sometimes things go in the opposite direction. I remember one time where the deep thinking about whether we wanted to refinance ultimately led us to realize we just needed to move.I did that too. I said "if I'm trying to save $ with a refi, why wouldn't I also move out of this house that's too big and expensive?"
Sometimes things go in the opposite direction. I remember one time where the deep thinking about whether we wanted to refinance ultimately led us to realize we just needed to move.We always planned to sell our clown house and downsize. The market's crazy escalation since we bought in 2013 means a smaller house will now cost just as much or more, and the property taxes will be at least as high.
Sometimes things go in the opposite direction. I remember one time where the deep thinking about whether we wanted to refinance ultimately led us to realize we just needed to move.We always planned to sell our clown house and downsize. The market's crazy escalation since we bought in 2013 means a smaller house will now cost just as much or more, and the property taxes will be at least as high.
Hmm - $2K would put a serious dent in the "recording fees". Looks like the offer goes through September next year - gotta remember this in roughly May when my new-ish LLC will be more seasoned.
Anyone know if Amex refunds excess credit balances? I have a card or two from them that we don't use much - I could fairly easily direct spend there, but I'd rather just have them cut me the check and not have to think about that.
The offer page says this:Hmm - $2K would put a serious dent in the "recording fees". Looks like the offer goes through September next year - gotta remember this in roughly May when my new-ish LLC will be more seasoned.
Anyone know if Amex refunds excess credit balances? I have a card or two from them that we don't use much - I could fairly easily direct spend there, but I'd rather just have them cut me the check and not have to think about that.
I believe you can get a check for excess credit balances. I just requested a check by following this link: https://www.americanexpress.com/us/customer-service/faq.credit-balance-refund.html (https://www.americanexpress.com/us/customer-service/faq.credit-balance-refund.html). There was also an option to transfer to another Amex account, but I just wanted the check. Seems like it should work but will have to wait and see.
I thought the Better Amex deal was up this Sept, didn't realize it went until next Sept! It's almost tempting to do another one. The $2k certainly helps with the closing costs that usually make a refi harder to justify. It looks like it's only once per 6 months though. Who knows what rates will be like then. And more importantly, that's around when I plan to FIRE so not sure I want to delay that to prove I have income. I guess we'll see.
The offer page says this:Yes, I did see that you were correct on it going through Sept 2022. I didn't mean to imply that you were wrong! I did the offer at the end of August. I remember seeing a Sept. date at the time and thought it was this year and the offer was about to end. Either this is a new offer/they extended it or I misread it earlier which could very well be the case. So thanks for pointing out that it goes until next year. I could potentially benefit again. It's definitely a great deal if Better is available in your state. Their initial rate/quote was pretty crappy for me though so I'd recommend having them match another lender. Getting them to match was super easy.
Access the offer by:
i. Prior to 9/13/22 (the “Lock Rate-By Date”), create an account with Better Mortgage by either: clicking the “I’m purchasing” or “I’m refinancing” link on better.com/amex; or
ii. If you have already created an account with Better Mortgage, contact your Better Mortgage Loan consultant or call (877-688-3252) to request the offer prior to your loan closing; and
b. Lock your rate on a Better Mortgage loan application by the “Lock Rate-by-Date”, at which point an appraisal fee is charged; and
c. Qualify for and successfully close your mortgage loan with Better Mortgage by 12/17/22 (the “Close-by-Date”).
I might have to get kicked out of this club though. I set up my autopay to do an extra $1.85 principal payment so my total payment would be an even $600. If I keep it for 30 years, I'll pay it off a whole month or two early! Blasphemy for this club! But then again, I reset to a 30 year and owe slightly more than when I bought my house 9 years ago, so maybe I can stay :)
@dandarc - Since you asked about Amex refunds, thought I'd follow up that I did get my Amex check this week. So it didn't take too long (less than a week I think) and was super easy.
My Better mortgage got transferred to Mr. Cooper which seems to be pretty common. The website seems decent and it was easy to set up autopay so should be fine. I don't escrow which is the main place I think they could screw things up. I might have to get kicked out of this club though. I set up my autopay to do an extra $1.85 principal payment so my total payment would be an even $600. If I keep it for 30 years, I'll pay it off a whole month or two early! Blasphemy for this club! But then again, I reset to a 30 year and owe slightly more than when I bought my house 9 years ago, so maybe I can stay :)
Ha, yeah I love my cheap payment. I generally live on under $2k/mo so it's crazy for me to think of paying that for a mortgage alone. I was down under $500 for my last re-fi but took out some cash this time. I'm not even in a super LCOL area, just bought at the right time just after the housing crash. It's a decent place to live, in the suburbs with 2 large cities nearby. Summers are great and winters are long. Family is nearby which is the main thing keeping me here at this point. I bought for around $175k and I don't think there's really any SFHs available in the metro area under $300k now. House appreciation and stocks have treated me well over the last decade. I could have cashed out a lot more, but with FIRE around the corner, I put priority on keeping my payment lower. This way I have enough Roth contributions to pay my mortgage until I'm 59.5. Then I can keep the rest of my spending to ~$25k and receive very cheap healthcare. And probably donate quite a bit since I planned for worst case of no subsidies.@dandarc - Since you asked about Amex refunds, thought I'd follow up that I did get my Amex check this week. So it didn't take too long (less than a week I think) and was super easy.
My Better mortgage got transferred to Mr. Cooper which seems to be pretty common. The website seems decent and it was easy to set up autopay so should be fine. I don't escrow which is the main place I think they could screw things up. I might have to get kicked out of this club though. I set up my autopay to do an extra $1.85 principal payment so my total payment would be an even $600. If I keep it for 30 years, I'll pay it off a whole month or two early! Blasphemy for this club! But then again, I reset to a 30 year and owe slightly more than when I bought my house 9 years ago, so maybe I can stay :)
I really need to move. My mortgage (PI) is ~$2k/mo.
Man. But I love the city.
My wife suggested that we might wish to pay a little extra.
I'm not ready to follow this DPYM club all the way to where I'm claiming divorce isn't as expensive as trapping a few extra bucks in your home equity.
So has anyone re-financed after their cash-out-refi to get an even lower rate? How long must we wait? :)
So has anyone re-financed after their cash-out-refi to get an even lower rate? How long must we wait? :)
I am going to refi in a couple weeks after a cash out a few months ago. I emailed better and asked what their wait period was and they said for a no cash out refi there is no waiting time.
3.125 with cash out 2.75 no cash out. These are with ~$2k creditsSo has anyone re-financed after their cash-out-refi to get an even lower rate? How long must we wait? :)
I am going to refi in a couple weeks after a cash out a few months ago. I emailed better and asked what their wait period was and they said for a no cash out refi there is no waiting time.
Sweet! Are you finding lower rates?
I had a 2.99% with the cash out. Would love to get back down into the 2.6-2.7 range ;)
Pretty quiet around here lately. I guess not paying off the mortgage gets to be a non-event.
To stir things up: we finally refi'd two of our rentals after at least 18 months of searching. Went with AimLoans.com. Got 3.375% with relatively reasonable fees. Lowered the rates by 87.5 basis points on each one. I just received the final numbers on the first one and the second one closed yesterday. I'll post them later.
Aim was easy to work with, but each loan was a completely different experience. More deets to follow.
Oh, and the rental I've owned the longest (2003) is now mortgaged until 2051. Yay!
SUPER UPDATECAN’T WAIT!!!!!!!!!!!!!
this month I also didn’t pay off my mortgage
STAY TUNED FOR NEXT MONTHS AMAZING EPISODE OF… DONT PAY OFF YOUR MORTGAGE AND ALWAYS TYPE IN CAPS
I think I have something in my eye...SUPER UPDATECAN’T WAIT!!!!!!!!!!!!!
this month I also didn’t pay off my mortgage
STAY TUNED FOR NEXT MONTHS AMAZING EPISODE OF… DONT PAY OFF YOUR MORTGAGE AND ALWAYS TYPE IN CAPS
Meanwhile…. My spouse said to me the other day “I’m even more stoked we have a mortgage now that inflation is back”
I shed a little tear of joy.
Meanwhile…. My spouse said to me the other day “I’m even more stoked we have a mortgage now that inflation is back”
I shed a little tear of joy.
Yeah, paying extra on a 3% mortgage in a 2% inflationary world never made much sense to me. Paying extra on a 3% mortgage in a 5% inflationary world is the opposite of sense. If I wanted to waste money that badly I'd hang out at a casino slot machine so I could get free drinks while I was at it.SUPER UPDATECAN’T WAIT!!!!!!!!!!!!!
this month I also didn’t pay off my mortgage
STAY TUNED FOR NEXT MONTHS AMAZING EPISODE OF… DONT PAY OFF YOUR MORTGAGE AND ALWAYS TYPE IN CAPS
Meanwhile…. My spouse said to me the other day “I’m even more stoked we have a mortgage now that inflation is back”
I shed a little tear of joy.
Pretty quiet around here lately. I guess not paying off the mortgage gets to be a non-event.
To stir things up: we finally refi'd two of our rentals after at least 18 months of searching. Went with AimLoans.com. Got 3.375% with relatively reasonable fees. Lowered the rates by 87.5 basis points on each one. I just received the final numbers on the first one and the second one closed yesterday. I'll post them later.
Aim was easy to work with, but each loan was a completely different experience. More deets to follow.
Oh, and the rental I've owned the longest (2003) is now mortgaged until 2051. Yay!
Pretty quiet around here lately. I guess not paying off the mortgage gets to be a non-event.
To stir things up: we finally refi'd two of our rentals after at least 18 months of searching. Went with AimLoans.com. Got 3.375% with relatively reasonable fees. Lowered the rates by 87.5 basis points on each one. I just received the final numbers on the first one and the second one closed yesterday. I'll post them later.
Aim was easy to work with, but each loan was a completely different experience. More deets to follow.
Oh, and the rental I've owned the longest (2003) is now mortgaged until 2051. Yay!
I'm just waiting for six months to be up so I can do another Better re-fi for the $2k Amex credit. That offer is valid through Dec of '22.
I had another re-fi lined up a few weeks ago but I didn't do it: 2.875 with approx $400 credit.
<broken record> Getting a 30-year fixed rate loan at or below the historical rate of inflation is the deal of a lifetime </broken record>
<broken record> Getting a 30-year fixed rate loan at or below the historical rate of inflation is the deal of a lifetime </broken record>
I am struggling with how far to take this...
You don't want to purposely overpay on a home, but then you also want to account for the role inflation and low-interest-rates will play over the 30 years.
At some point it may be far better to buy now for more, than to wait for prices to drop as rates increase...
I doubt rents will ever decrease substantially?
If one can find properties that at a minimum breaks-even, why now leverage up to the T!T$ and buy as many properties as the bank will allow.
Who cares what happens to the value of the home, let the rent flow in and offset your fixed expenses. #guarenteedtowork #profitin30? #2008alloveragain?
Hi, my name is UltraStache, and I love paying off debt. I don't have a problem though. I'm only here because Dicey told me to come check out the thread. Maybe she steered me here because I was thinking about paying off my mortgage as fast as possible!!If you pay off your debt as slowly as possible you'll be able to do what you love for longer. And bonus you'll probably be richer at the end too.
Hi, my name is UltraStache, and I love paying off debt. I don't have a problem though. I'm only here because Dicey told me to come check out the thread. Maybe she steered me here because I was thinking about paying off my mortgage as fast as possible!!
I became consumer debt free this year. Recently found the FIRE movement and this site. My plan going into next year was to max all retirement savings, then aggressively pay down my mortgage as fast as possible. I got a number of suggestions to consider investing instead, while paying the mortgage slowly. I'll admit, I'm open to that option now although I'm still tempted to take out a 15 year fixed on the new home we buy next year after moving, rather than a 30 year.Stick around, you'll be singing the praises of 30 year mortgages in no time!
Hi, my name is UltraStache, and I love paying off debt. I don't have a problem though. I'm only here because Dicey told me to come check out the thread. Maybe she steered me here because I was thinking about paying off my mortgage as fast as possible!!
P.S…UltraStache has nothing to do with having an ultra-money mustache.……or being the Apex of Mustachianism. It's more like, I couldn't think of a username….I'm an ultrasound tech…..working on my stache….maybe I can grow into the name!
I don’t fully belong here, but posting anyway. We have not had a mortgage for about five years. Paid one off, then moved (corporate relo) and simply used the sale proceeds to pay for the new one, and put the leftover $15k into VTSAX. We moved again, but this time the timing didn’t work out, and we ended up in a more expensive place (mostly due to COL in new area, house is about an even trade). So we have a mortgage. However, once we got the old place sold, we made a large payment and had the loan recalculated for free. The remainder will be going into VTSAX this week. Waiting on some other payments from the relo company so one big buy.
So we sort of belong here, but mostly don’t. Especially when I add that we have a 5/1 ARM at 2.0% and likely will move again within seven years. Perfect for not paying…..
Maybe this was asked somewhere on pages 1-60, but do any of you in the DPYM secret society set aside your mortgage balance in relatively low-risk investments in order to both earn a higher yield than the mortgage and simultaneously avoid Sequence of Returns Risk (SORR) at the same time?
Example: I owe about $108k on my house, at 3.25%. Relatively low-volatility preferred stock funds like PGF yield 4.8%. I could keep $108k in PGF and $-108k on my mortgage and arbitrage the 1.55% difference for $1,674 per year.
Of course, the arbitrage game is getting harder as yields compress across the duration and risk curves, so I suspect most of you are putting it all in VTI/VTSAX. But because the mortgage payment increases one's monthly withdraw from stocks, it makes SORR from a 2-5 year -50% bear market a bigger concern. Do you dial down the AA risk in exchange for holding the mortgage, and how does that work as the available yields from bond funds drop?
VCIT yields 2.27%, which is less than my mortgage, AND it has significant risk when rates increase next year. So if that was my risk tolerance, I'd prefer to pay off my mortgage. I could go out on a limb with junk bonds - JNK yields 4.47% - but is the additional risk really worth the 1.22% spread over an absolutely risk-free investment? IDK. How do you approach this?
I personally just invest according to stated asset allocation, which means I'm losing a bit on ~20% of the portfolio (rebalance day I actually remembered this year), while gaining quite a lot on the other 80% or so - prefer that expected 5-7% spread vs. a known 2% spread. I might feel differently about it if I was in a much more expensive house where the cash-flow draw was more significant.IMO, that's just shooting yourself in the foot. You want the market, based on historical returns, to beat the interest rate on the mortgage by as much as is reasonably and safely possible, for as long as possible. Investing the money so conservatively also dampens the mortgage's inflation shielding superpower. If the market stumbles, you just keep going about your business, making your steady, affordable mortgage payments while the market recovers, which it always does.
With a $108K mortgage, since I could make that payment working at any number of jobs I wouldn't sweat the cash-flow need on that. I'm actually pretty close to that number as it is - my mortgage sits at $121K currently, and an under $600 payment is not something I'm losing any sleep over.
I'm also on more of a coast-fire path, if all cash flow was truly being covered out of portfolio I might have more concern over SORR, but at this point even that 50% downswing wouldn't have me concerned with the mortgage specifically - it is a mere drop in our un-mustachian bucket of outflow these days. Goal for next year is to dial that back in to more respectable levels.
I don’t fully belong here, but posting anyway. We have not had a mortgage for about five years. Paid one off, then moved (corporate relo) and simply used the sale proceeds to pay for the new one, and put the leftover $15k into VTSAX. We moved again, but this time the timing didn’t work out, and we ended up in a more expensive place (mostly due to COL in new area, house is about an even trade). So we have a mortgage. However, once we got the old place sold, we made a large payment and had the loan recalculated for free. The remainder will be going into VTSAX this week. Waiting on some other payments from the relo company so one big buy.
So we sort of belong here, but mostly don’t. Especially when I add that we have a 5/1 ARM at 2.0% and likely will move again within seven years. Perfect for not paying…..
I don’t really understand… do you want to hold on to your mortgage or not? If not, why not?
I don’t fully belong here, but posting anyway. We have not had a mortgage for about five years. Paid one off, then moved (corporate relo) and simply used the sale proceeds to pay for the new one, and put the leftover $15k into VTSAX. We moved again, but this time the timing didn’t work out, and we ended up in a more expensive place (mostly due to COL in new area, house is about an even trade). So we have a mortgage. However, once we got the old place sold, we made a large payment and had the loan recalculated for free. The remainder will be going into VTSAX this week. Waiting on some other payments from the relo company so one big buy.
So we sort of belong here, but mostly don’t. Especially when I add that we have a 5/1 ARM at 2.0% and likely will move again within seven years. Perfect for not paying…..
I don’t really understand… do you want to hold on to your mortgage or not? If not, why not?
Yeah, exactly…
Really got used to and enjoyed the flexibility not having a mortgage gave us (real or perceived.) However, I get the math of holding one.
So this time we are meeting in the middle, well shaded towards not having one, but still not at one extreme.
Not paying off your mortgage early is now getting mainstream attention!It's paywalled, but nice to know...
https://www.wsj.com/articles/four-ways-to-manage-personal-finances-11640645156
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Summary:Not paying off your mortgage early is now getting mainstream attention!It's paywalled, but nice to know...
https://www.wsj.com/articles/four-ways-to-manage-personal-finances-11640645156
Sent from my iPhone using Tapatalk
3. Don’t track your spending - save first, spend the rest
Hi all! Just commenting to say I'm joining the club. About to close on a big ol' house with a fatty 30 year mortgage at 2.625%. Bring on the inflation, I'm ready.Great attitude. Welcome!
29 years left on a beautiful 2.75% rate. Happy to be here!
There is a bit of click bait at the end, but man, I do not like DR, so I'm sharing it here.
https://www.fool.com/the-ascent/mortgages/articles/heres-why-warren-buffett-is-right-and-dave-ramsey-is-wrong-about-mortgages/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
29 years left on a beautiful 2.75% rate. Happy to be here!
Are you my twin? Same rate and we have 355 payments to go.
Edited; number typo.
If we have to accept Warren Buffet into our DPYM club, I won't complain.Well, had he bought a house 10x more expensive, his story might have changed in that instead of calling his gas station a $6 billion dollar mistake, he might have called his house that.
Warren Buffet had something like 1% of his eventual Net Worth at the time he bought that house. He could have bought a house 10X as expensive, and it wouldn't have impacted his story.
If we have to accept Warren Buffet into our DPYM club, I won't complain.Well, had he bought a house 10x more expensive, his story might have changed in that instead of calling his gas station a $6 billion dollar mistake, he might have called his house that.
Warren Buffet had something like 1% of his eventual Net Worth at the time he bought that house. He could have bought a house 10X as expensive, and it wouldn't have impacted his story.
https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx (https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx)
EDIT: So it looks like he bought his house in 1958 for $31,500 and didn't become a millionaire until 1962. Just as an assumption, let's say in 1958 he was worth $500k. Buying a 10x house ($315k) would require about a $63k down payment (roughly 12% of his net worth). Applying that percentage to today, buying a much nicer house would have been about a $14 billion dollar mistake for Buffet.
I always think the same thing when the subject of his "modest" house comes up.If we have to accept Warren Buffet into our DPYM club, I won't complain.Well, had he bought a house 10x more expensive, his story might have changed in that instead of calling his gas station a $6 billion dollar mistake, he might have called his house that.
Warren Buffet had something like 1% of his eventual Net Worth at the time he bought that house. He could have bought a house 10X as expensive, and it wouldn't have impacted his story.
https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx (https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx)
EDIT: So it looks like he bought his house in 1958 for $31,500 and didn't become a millionaire until 1962. Just as an assumption, let's say in 1958 he was worth $500k. Buying a 10x house ($315k) would require about a $63k down payment (roughly 12% of his net worth). Applying that percentage to today, buying a much nicer house would have been about a $14 billion dollar mistake for Buffet.
Given that this is already a pretty absurd hypothetical...
... simply finding a home that was worth 10x as much in Omaha in 1958 would have been a challenge, unless it was an opulent custom home. Buffett's home is pretty darn nice by local standards, and it always amuses me that the press keeps referring to it as "modest". It's 6,000 square feet in a really nice neighborhood. It's not like Star Island Florida where there's home after home of the rich and famous. It's Omaha - sleepy small city in the heartland with a (well) below average household income (then and now).
I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?How much is the PMI? What's your total payment? FHA financing? That's such a good interest rate on so little money that you might be just fine letting it ride and investing everything else you can save into equities. PMI isn't the worst thing in the world, as long as it isn't costing you a fortune.
I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?
Given that this is already a pretty absurd hypothetical...... simply finding a home that was worth 10x as much in Omaha in 1958 would have been a challenge, unless it was an opulent custom home...It's Omaha - sleepy small city in the heartland with a (well) below average household income (then and now).So you're saying that the hypothetical requires Buffett to move from Omaha to a more expensive location in 1958. Considering people do that all the time, I'm not sure how that qualifies as an absurd hypothetical.
Given that this is already a pretty absurd hypothetical...... simply finding a home that was worth 10x as much in Omaha in 1958 would have been a challenge, unless it was an opulent custom home...It's Omaha - sleepy small city in the heartland with a (well) below average household income (then and now).So you're saying that the hypothetical requires Buffett to move from Omaha to a more expensive location in 1958. Considering people do that all the time, I'm not sure how that qualifies as an absurd hypothetical.
I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?
I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?
On page one of this thread, runewell has a great formula for determining the mortgage vs invest question. A great formula, usually eye-popping in most scenarios.
The question I have is about the assumption. It assumes you have a pile of money equal to your principle balance, and you are trying to decide if you should pay off the mortgage all at once, or invest it. But that's not the situation I'm in, and I think many people are with me. I don't have a big pile of cash, I have $1,000 a month from my paycheck.
Is there a formula that helps you decide what to do with an extra $1,000 a month? Is it the same as runewell's formula, just at a smaller scope?
It can't be much money on such a small loan. I'd however try and get passed PMI. You never know when you'd like to sell and having a bit more equity could help.
It can't be much money on such a small loan. I'd however try and get passed PMI. You never know when you'd like to sell and having a bit more equity could help.
Unless I'm reading my statement breakdown wrong, it's $31 a month.
I don't plan on ever selling this house. If I did want to move, I'd rent it out before selling -- it's in a great rental market (near a large hospital and a college) and I could easily get almost twice the mortgage payment in rent. I think I may be firmly in the DPOYM club now.
I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?
I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?
How much did the appraisal cost?I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?
I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?
Do you have any idea if the house has appreciated?
We also bought a house with PMI in 2020. I was able to get the PMI removed last month with a reappraisal. It should pay off in a year.
We needed it to go up 12%. The appraisal came back 27% increase over what we paid for it. To be fair, we have already put on a new roof and did some updating of a bathroom.
But maybe check your neighborhood sales and Zestimate.
Do you have any idea if the house has appreciated?
We also bought a house with PMI in 2020. I was able to get the PMI removed last month with a reappraisal. It should pay off in a year.
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.
Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.
Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.
Of course, those investments could have a year in which they decline by 35%. It's happened recently...
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.
Of course, those investments could have a year in which they decline by 35%. It's happened recently...
Checks Markets
Perhaps I shouldn't have been bragging about that taxable investment account just yet.
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.
Of course, those investments could have a year in which they decline by 35%. It's happened recently...
Checks Markets
Perhaps I shouldn't have been bragging about that taxable investment account just yet.
Check the market again
:-P
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.
Of course, those investments could have a year in which they decline by 35%. It's happened recently...
Checks Markets
Perhaps I shouldn't have been bragging about that taxable investment account just yet.
Check the market again
:-P
I’m on a horse
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.
Of course, those investments could have a year in which they decline by 35%. It's happened recently...
Checks Markets
Perhaps I shouldn't have been bragging about that taxable investment account just yet.
Check the market again
:-P
I’m on a horse
Huh?
The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!
Divorce sounds rough, including financially. I have been seriously thinking that a married couple of two should not call themselves fully financially independent (in the FIRE sense) on a 4% withdrawal rate, unless they can also support themselves separately, which is more likely a 3% or 2.5% rate together. It seems that independence which depends on marriage is not fully so.The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!
Very nice. I too still have a very low % rate mortgage. It's actually a little lower than the last time I posted in this thread - I had to refinance when my ex-wife left me. Overall I lost some income when she left and to keep the house I had to give her all the $$ from the savings and retirement accounts. But I've doubled down on savings/investing since then and just paying the minimum to my mortgage.
Net result? I now have a house valued at over $900k, a mortgage of $330k, and savings/investments at $225k. One of my big goals before the divorce was to have enough $$ saved up to pay off the mortgage in full, if I ever needed to. We'd 'just' achieved that prior to the divorce, but of course all assets get split down the middle here in CO. Honestly I'm a bit shocked how fast the investments have rocketed up. Once it hits $350k I'll actually breath a huge sigh of relief.
Divorce sounds rough, including financially. I have been seriously thinking that a married couple of two should not call themselves fully financially independent (in the FIRE sense) on a 4% withdrawal rate, unless they can also support themselves separately, which is more likely a 3% or 2.5% rate together. It seems that independence which depends on marriage is not fully so.The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!
Very nice. I too still have a very low % rate mortgage. It's actually a little lower than the last time I posted in this thread - I had to refinance when my ex-wife left me. Overall I lost some income when she left and to keep the house I had to give her all the $$ from the savings and retirement accounts. But I've doubled down on savings/investing since then and just paying the minimum to my mortgage.
Net result? I now have a house valued at over $900k, a mortgage of $330k, and savings/investments at $225k. One of my big goals before the divorce was to have enough $$ saved up to pay off the mortgage in full, if I ever needed to. We'd 'just' achieved that prior to the divorce, but of course all assets get split down the middle here in CO. Honestly I'm a bit shocked how fast the investments have rocketed up. Once it hits $350k I'll actually breath a huge sigh of relief.
Divorce sounds rough, including financially. I have been seriously thinking that a married couple of two should not call themselves fully financially independent (in the FIRE sense) on a 4% withdrawal rate, unless they can also support themselves separately, which is more likely a 3% or 2.5% rate together. It seems that independence which depends on marriage is not fully so.The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!
Very nice. I too still have a very low % rate mortgage. It's actually a little lower than the last time I posted in this thread - I had to refinance when my ex-wife left me. Overall I lost some income when she left and to keep the house I had to give her all the $$ from the savings and retirement accounts. But I've doubled down on savings/investing since then and just paying the minimum to my mortgage.
Net result? I now have a house valued at over $900k, a mortgage of $330k, and savings/investments at $225k. One of my big goals before the divorce was to have enough $$ saved up to pay off the mortgage in full, if I ever needed to. We'd 'just' achieved that prior to the divorce, but of course all assets get split down the middle here in CO. Honestly I'm a bit shocked how fast the investments have rocketed up. Once it hits $350k I'll actually breath a huge sigh of relief.
I never thought it would happen to me, until it did. It was quite the shock. Especially after 23 years of what I thought was a pretty good marriage. And an 11 year old daughter caught in the middle.
I'm still a little raw about the whole thing. But on the other hand, it was better that it happened 3.5 years ago and not today because the financial hit would be even greater now. At least I still have some time to triage and recover.
And this was a person that I trusted completely. So yes, I agree with you - if you are planning FIRE, have a contingency plan for divorce. The divorce stats are breathtakingly bad. You have a FAR better chance of FIRE failing from divorce than just about any other cause, at least as far as I can see.
I'm sorry about your divorce, man, they suck so much. If it helps, I am in a MUCH better position financially AFTER my divorce than I was before. It does take some time to recover after the initial shock, and part of my problems before had to do with his spending habits that I don't have to worry about anymore. But things get caught up and stabilized after a while.
I think of this thread and everyone who has participated in it when I peruse all the OMG Inflation! threads that are popping up. Again when I note that mortgage rates are on the rise.
Keep on keeping those lovely, lovely mortgages!
Also, I'm giving the side-eye someone who is active here *and* on one of the mortgage payoff threads. WTH? You know who you are.
Not unless you're from Texas...I think of this thread and everyone who has participated in it when I peruse all the OMG Inflation! threads that are popping up. Again when I note that mortgage rates are on the rise.
Keep on keeping those lovely, lovely mortgages!
Also, I'm giving the side-eye someone who is active here *and* on one of the mortgage payoff threads. WTH? You know who you are.
WTH? Is it me? I have no idea what I have done. I have plenty of mortgages. LOL. Even a 75% LOC on the FIRE house that hasn't been tapped but is signed at 3.75% for 10 years that we are ready to consider accessing. Have you mortgaged your current home yet? It might be a decent idea for retirement....
Ok I gotta hear about the bonus kid… is there a thread on it? Did you get it with credit card miles?Alas, not a particularly interesting story. BK came with the husband. There might be some details in my journal, but Dog knows where. Absolutely no CC miles, but DH package included many other benefits, most of which are far superior. BK is 29 and having him around is no hassle really, he just isn't going to launch if he isn't shoved.
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."
Hahaha! Our PG&E bill was $715 in January and we keep our heat at 65.I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."
PG&E?
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."
Oh, you are so right, nereo!
I keep hearing bullshit ads about how inflation is going to destroy your nest egg. Well, sure it will if you're a dumbass and don't keep your money invested. For those of us who have followed mustachian principles and continue to, there is no need to fear. We're in far more danger from the likes of Putin than inflation.
Oh, you are so right, nereo!
I keep hearing bullshit ads about how inflation is going to destroy your nest egg. Well, sure it will if you're a dumbass and don't keep your money invested. For those of us who have followed mustachian principles and continue to, there is no need to fear. We're in far more danger from the likes of Putin than inflation.
The biggest downside to inflation with taxable invested FIRE assets is that you pay taxes on phantom gains (so if inflation continues to run 7% PA, and you sell your stocks for a 100% inflation gain 10 years later, your effective investment return will be reduced by 10-20% long term capital gains). I might have messed up those exact numbers but you get the idea
Yes, having a fixed mortgage probably offsets this downside
Oh, you are so right, nereo!
I keep hearing bullshit ads about how inflation is going to destroy your nest egg. Well, sure it will if you're a dumbass and don't keep your money invested. For those of us who have followed mustachian principles and continue to, there is no need to fear. We're in far more danger from the likes of Putin than inflation.
The biggest downside to inflation with taxable invested FIRE assets is that you pay taxes on phantom gains (so if inflation continues to run 7% PA, and you sell your stocks for a 100% inflation gain 10 years later, your effective investment return will be reduced by 10-20% long term capital gains). I might have messed up those exact numbers but you get the idea
Yes, having a fixed mortgage probably offsets this downside
Good point. For us the mortgage exclusion ($500k on gains for married filing jointly) on primary residences (2 of previous 5 years occupancy) will more than cover any “phantom gains”. Our entire home is well under the $500k cap. But for others in HCOL regions (like my sister in the SF Bay Area) they can easily exceed the exemption after a decade or two of living there.
Note, though that it doesn’t change if you pay off your mortgage early or not. Appreciation are gains which occur regardless of whether it’s your money invested or the banks. Given the choice I have, I’m going to invest the banks money.
Wait, seriously?!? For just your own single family house? That seems ridiculously high. That really is more than my mortgage. In the highest month, my combined electric/gas costs were around $175. And that's to heat up a house and myself in the frozen tundra. Natural gas costs are up around 33% for me this year, but my electric rates are pretty much steady. I honestly can't fathom a $700 electric bill.Hahaha! Our PG&E bill was $715 in January and we keep our heat at 65.I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."
PG&E?
Neither can we. Our house is energy efficient, built in 2006. Energy efficient windows, additional insulation, blah x3. We also have a higher Tier 1 Baseline allotment than average, due to the use of c-paps. Oh, and it's about 2600sf, so large, but not a McMansion.Wait, seriously?!? For just your own single family house? That seems ridiculously high. That really is more than my mortgage. In the highest month, my combined electric/gas costs were around $175. And that's to heat up a house and myself in the frozen tundra. Natural gas costs are up around 33% for me this year, but my electric rates are pretty much steady. I honestly can't fathom a $700 electric bill.Hahaha! Our PG&E bill was $715 in January and we keep our heat at 65.I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."
PG&E?
Neither can we. Our house is energy efficient, built in 2006. Energy efficient windows, additional insulation, blah x3. We also have a higher Tier 1 Baseline allotment than average, due to the use of c-paps. Oh, and it's about 2600sf, so large, but not a McMansion.Has this year been an anomaly or is this a normal winter electric bill for you? I mean I knew CA was expensive, but this seems ridiculous! If this is mostly for heating, have you considered other ways to heat? How do you heat now? I hear good things about heat pumps. I think your climate would be warm enough for them to work well. I mean at $700, it might be cheaper to literally light dollar bills on fire for heat :)
The following month it dropped to "only" about $450. Gah! Fortunately, the same damn redwoods that prevent us from being good candidates for solar have allowed us to use the A/C for an average of only five days per year since we've owned the house. So we breeze through the summer months, but get killed during the winter. Imagine if it was actually cold here in NorCal.
We have no mortgage, so it's definitely higher, which is why I posted. People think their costs will vanish when they "kill" their mortgage. Others of us know (ouch) that it ain't necessarily so.
LOL, but no. In reality, inflation will need to be much higher than 7% for it to happen in 6 years.I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."
PG&E?
This year has been colder than normal in the Bay Area, but gas prices are also like 40% higher. Combine the two and many people have doubled their billsYup.
Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.I have definitely noticed that those in a rush to pay off their mortgage are mostly those who complain about inflation. Which is a self consistent world view I guess. But if the world doesn't match your world view, it seems better to change your actions to match the world, instead of complaining while you act in a way which makes you worse off. But also, the same crowd seems to have a harder time changing world views in general even contrary to all evidence and at times to their own detriment.
The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.I have definitely noticed that those in a rush to pay off their mortgage are mostly those who complain about inflation. Which is a self consistent world view I guess. But if the world doesn't match your world view, it seems better to change your actions to match the world, instead of complaining while you act in a way which makes you worse off. But also, the same crowd seems to have a harder time changing world views in general even contrary to all evidence and at times to their own detriment.
The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
Not being prepared for financial events in advance is something I see as a general weakness for many people. If something financially crazy happens and you aren't prepared for it in advance, it's already too late. That goes for personal finances as well as investing in markets.
I'm investing in 50/50 US and international stocks. International does not have high P/E ratios :). I also have a small bond allocation. Particularly, savings bonds yield 7+% and there is zero chance they lose to a 2.75% mortgage, so I would and do buy as many of those as I could the past few months.Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.I have definitely noticed that those in a rush to pay off their mortgage are mostly those who complain about inflation. Which is a self consistent world view I guess. But if the world doesn't match your world view, it seems better to change your actions to match the world, instead of complaining while you act in a way which makes you worse off. But also, the same crowd seems to have a harder time changing world views in general even contrary to all evidence and at times to their own detriment.
The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
Not being prepared for financial events in advance is something I see as a general weakness for many people. If something financially crazy happens and you aren't prepared for it in advance, it's already too late. That goes for personal finances as well as investing in markets.
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
And even within US equity if P/E ratios are a sticking point you could look at small and mid-cap funds.I'm investing in 50/50 US and international stocks. International does not have high P/E ratios :). I also have a small bond allocation. Particularly, savings bonds yield 7+% and there is zero chance they lose to a 2.75% mortgage, so I would and do buy as many of those as I could the past few months.Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.I have definitely noticed that those in a rush to pay off their mortgage are mostly those who complain about inflation. Which is a self consistent world view I guess. But if the world doesn't match your world view, it seems better to change your actions to match the world, instead of complaining while you act in a way which makes you worse off. But also, the same crowd seems to have a harder time changing world views in general even contrary to all evidence and at times to their own detriment.
The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
Not being prepared for financial events in advance is something I see as a general weakness for many people. If something financially crazy happens and you aren't prepared for it in advance, it's already too late. That goes for personal finances as well as investing in markets.
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...
The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...
The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...
The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.
Yes, this is where we brag on low rates and long payoffs.
I'm at 2.75% with "only" 354 monthly payments to go, fixing my monthly payment @$901 (sans tax and insurance). That's a good feeling.
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...
The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.
To be precise, carrying a cheap, affordable mortgage WHILE SENSIBLY INVESTING THE EXTRA YOU WOULD HAVE USED TO PAY IT OFF EARLY is a smarter move than ever.
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...
The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.
Yes, this is where we brag on low rates and long payoffs.
I'm at 2.75% with "only" 354 monthly payments to go, fixing my monthly payment @$901 (sans tax and insurance). That's a good feeling.
Same here. Locked in 2.25% last year, and I can't imagine ever paying it off early.
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...
The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.
I'm not about to put it into a stock market with how inflated it is currently.
I'm not about to put it into a stock market with how inflated it is currently.
Okay. And how will you know when it's not inflated anymore?
@RWD are you the one who keeps that list of years of posts exactly like this?
I'm not about to put it into a stock market with how inflated it is currently.
Okay. And how will you know when it's not inflated anymore?
@RWD are you the one who keeps that list of years of posts exactly like this?
When it doesn't look like this: (I'm older though at 50, so that plays into my decision more than it perhaps would for someone who say is 30.)
(http://drive.google.com/uc?export=view&id=1hmQ9fg8j4aNxOgw0OloFZq8EU80mBKv8)
I see everyone celebrating that our mortgages protect us from inflation. I'll sign on to that, but we have to experience the increase in nominal income alongside the increse in costs for it to really work. So go get that 7% raise while you keep making those minimum payments.
I'm not about to put it into a stock market with how inflated it is currently.
Okay. And how will you know when it's not inflated anymore?
@RWD are you the one who keeps that list of years of posts exactly like this?
When it doesn't look like this: (I'm older though at 50, so that plays into my decision more than it perhaps would for someone who say is 30.)
(http://drive.google.com/uc?export=view&id=1hmQ9fg8j4aNxOgw0OloFZq8EU80mBKv8)
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense. That's less than inflation even. I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.Why not do a ReFi to a lower rate? Multiple people here have done so and gotten no closing costs to make the switch. If you aren't planning on moving you would be the perfect candidate.
I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly. I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now. And plus I'm like 50 and I dunno if I'll even live another 15 years.
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense. That's less than inflation even. I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.Why not do a ReFi to a lower rate? Multiple people here have done so and gotten no closing costs to make the switch. If you aren't planning on moving you would be the perfect candidate.
I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly. I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now. And plus I'm like 50 and I dunno if I'll even live another 15 years.
I'm not about to put it into a stock market with how inflated it is currently.
Okay. And how will you know when it's not inflated anymore?
@RWD are you the one who keeps that list of years of posts exactly like this?
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense. That's less than inflation even. I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.Why not do a ReFi to a lower rate? Multiple people here have done so and gotten no closing costs to make the switch. If you aren't planning on moving you would be the perfect candidate.
I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly. I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now. And plus I'm like 50 and I dunno if I'll even live another 15 years.
At this point I only owe $40,700. Just gonna finish it. The original loan amount was only for $76k.
Surprised you can get a refinance without closign costs. My credit union is great and if I recall they even wanted like $3k for the refinance.
Additionally I recall reading a blog post MMM put out regarding the Schiller P/E ratio. He was concerned then and it's worse now. If I recall correctly, he suggested perhaps putting some more money towards mortage payment; especially you were more near retirement age.
MMM is where I first heard about Schiller P/E ratio btw.
I'm not quite sure why you are posting in this thread then.
With $40k left and a rate of 4.63% some back-of-the-envelop math shows you're going to pay about $4k more in interest than if you refinanced. Your credit union is not a great deal if they still want to charge $3k for a ReFi in this current market. Even if you accept the $3k refinancing charge you are ultimately going to pay more to keep your current mortgage.
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense. That's less than inflation even. I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.Why not do a ReFi to a lower rate? Multiple people here have done so and gotten no closing costs to make the switch. If you aren't planning on moving you would be the perfect candidate.
I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly. I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now. And plus I'm like 50 and I dunno if I'll even live another 15 years.
At this point I only owe $40,700. Just gonna finish it. The original loan amount was only for $76k.
Surprised you can get a refinance without closign costs. My credit union is great and if I recall they even wanted like $3k for the refinance.
I'm not quite sure why you are posting in this thread then.
With $40k left and a rate of 4.63% some back-of-the-envelop math shows you're going to pay about $4k more in interest than if you refinanced. Your credit union is not a great deal if they still want to charge $3k for a ReFi in this current market. Even if you accept the $3k refinancing charge you are ultimately going to pay more to keep your current mortgage.
If nothing else you could use the lower monthly payments to accelerate your payoff schedule without increasing how much you contribute each month, hitting your "paid-off" date even earlier.
Of course what many (myself included) here would to do a cash-out ReFi which would likely both lower your payments and result in several $k to divest.
I'm not about to put it into a stock market with how inflated it is currently.
Okay. And how will you know when it's not inflated anymore?
@RWD are you the one who keeps that list of years of posts exactly like this?
I am. It's the last link in my signature.
T-e-r-r-i-FI-e-d is how I figured it. I was just using humor to make a point gently. To reiterate, this is not the thread where we debate or abet accelerated mortgage payoff. This is the single MMM Forum thread where we share and celebrate the magical power of smart mortgages, when used judiciously. [Dicey waves to @SwordGuy.] To be more blunt still, DPOYM believers are not allowed to post anythingI'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...
The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.
I applaud you in your ability to decipher a typo; I'm actually trying to think of another word of could of been and none come to mind. It could be argued the letters missing were "if" not "fi", but regardless, no it wasn't intentional.
I was replying to a comment and explaining inflation had nothing to do with my reasoning for paying off my mortage debt. I don't want my money sitting in bank account doing nothing and I'm not about to put it into a stock market with how inflated it is currently.
T-e-r-r-i-FI-e-d is how I figured it. I was just using humor to make a point gently. To reiterate, this is not the thread where we debate or abet accelerated mortgage payoff. This is the single MMM Forum thread where we share and celebrate the magical power of smart mortgages, when used judiciously. [Dicey waves to @SwordGuy.] To be more blunt still, DPOYM believers are not allowed to post anythingI'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...
The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.
I applaud you in your ability to decipher a typo; I'm actually trying to think of another word of could of been and none come to mind. It could be argued the letters missing were "if" not "fi", but regardless, no it wasn't intentional.
I was replying to a comment and explaining inflation had nothing to do with my reasoning for paying off my mortage debt. I don't want my money sitting in bank account doing nothing and I'm not about to put it into a stock market with how inflated it is currently.educationalcontrarian on any of the many mortgage payoff threads. It's okay to ask others to give this space the same courtesy.
I'm not quite sure why you are posting in this thread then.
With $40k left and a rate of 4.63% some back-of-the-envelop math shows you're going to pay about $4k more in interest than if you refinanced. Your credit union is not a great deal if they still want to charge $3k for a ReFi in this current market. Even if you accept the $3k refinancing charge you are ultimately going to pay more to keep your current mortgage.
Banks don't like to deal with re-fi's less than about $150K. Your options go down quickly below that amount.
Like I said I won't post here anymore. I respect the thread. I don't like upsetting people.
I see everyone celebrating that our mortgages protect us from inflation. I'll sign on to that, but we have to experience the increase in nominal income alongside the increse in costs for it to really work. So go get that 7% raise while you keep making those minimum payments.
It's so sad, my brother who is a machinist programmer, didn't get a dime increase in wage this year.
I see everyone celebrating that our mortgages protect us from inflation. I'll sign on to that, but we have to experience the increase in nominal income alongside the increse in costs for it to really work. So go get that 7% raise while you keep making those minimum payments.
It's so sad, my brother who is a machinist programmer, didn't get a dime increase in wage this year.
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.
Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)
Totally makes sense to recast in your situation.
Well I shall soon be rejoining this bandwagon with a new big fat mortgage. It looks like rates “kind of suck” now so I’m likely going to land somewhere around 4%.It's not much comfort, but that's still a historically low rate. I remember being elated to get 7% on a condo I bought on a short sale in 1996.
A 4% nominal rate still satisfies the DPYM club, welcome!
When you were rate shopping, what did they quote you for the ARM?
I was refinancing in late 2020, and the ARM rates were actually above the thirty-year-fixed rates. The bank wanted me to pay them for the right to bear risk. Perhaps it's different now?
From elsewhere on the forum:
"My husband and I (late 20's) just paid off our mortgage and even though it was a financially stupid idea with our 1.80% interest rate, it just feels so good to have no debt. We keep our finances private so I had no one else to share the excitement with."
Is it okay if I weep for the loss of all that lovely, lovely 1.8% money?
If you want to comment, please do it here. I don't want to rain on anyone's parade.
From elsewhere on the forum:
"My husband and I (late 20's) just paid off our mortgage and even though it was a financially stupid idea with our 1.80% interest rate, it just feels so good to have no debt. We keep our finances private so I had no one else to share the excitement with."
Is it okay if I weep for the loss of all that lovely, lovely 1.8% money?
If you want to comment, please do it here. I don't want to rain on anyone's parade.
Lol I was about to comment the same thing. 1.80% GOODNESS. That poor poor mortgage. Borderline criminal to pay off such a loan IMO :)
Sad to say, I think I'm leaving the club.Selling and not buying something else is the ultimate DPOYM move in my mind. Granted, not a mortgage, but the whole idea is to keep your money working for you - not sinking a chunk into the next home means you have maximum money to invest.
We are planning to list our rental property (the only home we own) for sale in a few months. Unless the markets shifts between now and then, we will make a boatload of money, even after owning through the 2008 crash. But one thing I'm sad about is losing my low-interest loan, just when interest rates start to rise.
I will happy not to deal with being long distance landlord though.
From elsewhere on the forum:Some bank was made very happy too.
"My husband and I (late 20's) just paid off our mortgage and even though it was a financially stupid idea with our 1.80% interest rate, it just feels so good to have no debt. We keep our finances private so I had no one else to share the excitement with."
Is it okay if I weep for the loss of all that lovely, lovely 1.8% money?
If you want to comment, please do it here. I don't want to rain on anyone's parade.
How easy would it be to keep the primary mortgage, and do a HELOC on the extra equity you want to access? That would mean paying a higher rate, but only on a tranche of the funds.
If you compare Option A) investing $1200 a month and Option B) invest a $115k lump sum both assuming a 7% interest, Option B or the $115k is a better deal for ~13-14 years at around which time the saving balance for Option A or saving $1200 a month has a higher balance. Seems like an interesting conversation
Anyone thinking of doing a cash out refi right now? We have a 2.875% 30 year with about 348 payments to go. My thought was if we cashout refi we could clear ~$115k due to the crazy price increases of late, but at the expense of starting over on the mortgage and an increase in monthly payment of ~$1200 a month due to added principal and higher rates of ~4.5%.I'd think long and hard before giving up that sweet 2.875% 30 year rate. You might never get a rate that low again. You're looking at a pretty huge rate jump. I agree that you should at least look into a HELOC to access the equity. I think HELOC rates are higher, but at least you get to keep the existing low rate on the main mortgage. I personally wouldn't do it, but I'm not one to fully leverage my house either. I could've done a much bigger cash-out when I refinanced last fall. I only did $30k and that was only to get a better deal. I found that I got used to my low mortgage payment and wasn't too keen on the idea of a much larger payment with FIRE on the horizon. May have been a bit suboptimal, but no regrets. I still turned my 30 year mortgage into a 39 year mortgage, pulled out $30k, and my payment is still less than my original payment. So I could've done worse.
If you compare Option A) investing $1200 a month and Option B) invest a $115k lump sum both assuming a 7% interest, Option B or the $115k is a better deal for ~13-14 years at around which time the saving balance for Option A or saving $1200 a month has a higher balance. Seems like an interesting conversation
But i believe DW would never agree, she is debt averseAnd this is another good reason not to do it!
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.
Thanks to this thread for reinforcing the strategy.
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!
Thanks to this thread for reinforcing the strategy.
But i believe DW would never agree, she is debt averseAnd this is another good reason not to do it!
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!
Thanks to this thread for reinforcing the strategy.
On another recent thread, someone called us "haters" which is very um, impolite, IMO. In a way, they might have a point, because we don't love seeing people choose sub-optimal financial options. Cheers to everyone who has embraced their long, lean mortgages.
who's calling us "haters"?
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!
Thanks to this thread for reinforcing the strategy.
On another recent thread, someone called us "haters" which is very um, impolite, IMO. In a way, they might have a point, because we don't love seeing people choose sub-optimal financial options. Cheers to everyone who has embraced their long, lean mortgages.
who's calling us "haters"?
Some posters have been, uh, a little evangelical about promoting the DPYM Club. Perhaps a bit too strong at times.
One thing to keep in mind, is the that PYM Club always talks about the feeling of not having a mortgage. You can't rationalize with someone about how they feel. At least not forcefully. It will just cause them to retreat and dig in. That might be the reason for the "hater" comment.
However, with the perspective of hindsight and nearing the end of my accumulation journey, I can see the power of compounding taking over. The hundred dollars I didn't pay on my mortgage 20 years ago is worth something like $550 today. In not very many years, it will be $1000. But in the early years that $100 would be come $108. Big whoop. Hard to see much benefit.
Some posters have been, uh, a little evangelical about promoting the DPYM Club. Perhaps a bit too strong at times.What people who kill the mortgage first don't understand is the power of compound interest. When I was just starting out, the mortgage payoff seemed almost insurmountable. Never would I have imagined that my investments would grow to the heights they have. I could smite that mortgage many times over these days. You want to talk about an amazing feeling, wowza!
One thing to keep in mind, is the that PYM Club always talks about the feeling of not having a mortgage. You can't rationalize with someone about how they feel. At least not forcefully. It will just cause them to retreat and dig in. That might be the reason for the "hater" comment.
However, with the perspective of hindsight and nearing the end of my accumulation journey, I can see the power of compounding taking over. The hundred dollars I didn't pay on my mortgage 20 years ago is worth something like $550 today. In not very many years, it will be $1000. But in the early years that $100 would be come $108. Big whoop. Hard to see much benefit.
Some posters have been, uh, a little evangelical about promoting the DPYM Club. Perhaps a bit too strong at times.Hmmm, I think you've got the sequence a little mixed up. When the payoff threads started, some people didn't realize that they were unlike almost any other thread on the forum. They were exclusively for celebration, not discussion. Zero discussion. The mere idea that it was not up for examination was unfathomable to those of us who came to MMM when facepunches were the order of the day, and all expenditures were analyzed for maximum effectiveness.
What people who kill the mortgage first don't understand is the power of compound interest. When I was just starting out, the mortgage payoff seemed almost insurmountable. Never would I have imagined that my investments would grow to the heights they have. I could smite that mortgage many times over these days. You want to talk about an amazing feeling, wowza!I was wondering about current higher inflation conditions, buying a house in general and even better having a fixed low interest mortgage is such a great inflation hedge.
I was wondering about current higher inflation conditions, buying a house in general and even better having a fixed low interest mortgage is such a great inflation hedge.
10 years ago I was renting a small place and same house now rents for more than double the price if you can find one.
Savings are now so big and if we can invest it for long term in securities that can beat inflation now we are adding power of compounding to the mix.
We keep the housing costs low while compounding the assets and cashflows from it. An efficient way to work towards completing financial independence pie.
However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.
I guess that others have similar reactions and trade offs. But I’m never going to say that everything I have done was optimal, and I’m fairly sure that we all have suboptimal performance in some area of our finances. Part of that is to ensure that we (and our partners) feel comfortable with what we’re doing. It’s not optimal to have a divorce either.
However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.
I guess that others have similar reactions and trade offs. But I’m never going to say that everything I have done was optimal, and I’m fairly sure that we all have suboptimal performance in some area of our finances. Part of that is to ensure that we (and our partners) feel comfortable with what we’re doing. It’s not optimal to have a divorce either.
Totally agree. In the MMM community in general and the DPYM Club in particular, I think we get a little too fixated on optimization. Having a good feeling is worth something. If you understand the costs of paying off the mortgage early, and still want that feeling, then go for it.
However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.
I guess that others have similar reactions and trade offs. But I’m never going to say that everything I have done was optimal, and I’m fairly sure that we all have suboptimal performance in some area of our finances. Part of that is to ensure that we (and our partners) feel comfortable with what we’re doing. It’s not optimal to have a divorce either.
Totally agree. In the MMM community in general and the DPYM Club in particular, I think we get a little too fixated on optimization. Having a good feeling is worth something. If you understand the costs of paying off the mortgage early, and still want that feeling, then go for it.
However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.
Did you not see that I didn’t get a great feeling when I paid mine off in 2016. To the point that when I moved 1.5 years later I got a mortgage?
Sorry, I completely disagree. Mastering your "feelings" is the whole damn point of mustachianism.Did you not see that I didn’t get a great feeling when I paid mine off in 2016. To the point that when I moved 1.5 years later I got a mortgage?
You didn't. And I don't. And the most of the people here don't. But some people do. And neither you nor I are in a position to place a price tag on their feelings. The best and most we can do is make sure people undersand the implications of paying down the mortgage. Which sadly, many people don't.
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.Feelings lie. Ever been scared to do something that turned out just fine?
Speaking of feelings, I'd like to dive back into our shared purpose:
my wife has a taxable investment account (it's really her money, from a deceased relative) with Edward Jones. I've succeeded in prying some cash lose from investments in the forms of dividends/capital gains. So now the chance is here to live out our values...transferring that money away from the rabid wolves of EJ and into productive investments.
First phone call has unlocked $3,500...more to come!
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.Feelings lie. Ever been scared to do something that turned out just fine?
The list wasn't designed to be anything more than a top-of-mind sampling.
[...] most of these people's finances were in fine order at the time of purchase until one of the above happened.But obviously not in fine enough order to have paid off the house.
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.Feelings lie. Ever been scared to do something that turned out just fine?
The list wasn't designed to be anything more than a top-of-mind sampling.
Not for nothing, but my day job has shown me over the years, that sh1t does happen. I work for a non performing note fund, (defaulted mortgages). We buy loans from the big banks when borrowers stop making their payments. Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real. Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened. You know what we have never foreclosed on? A paid off home. That paid off home would feel pretty good if one of the above's happen.
Not for nothing, but my day job has shown me over the years, that sh1t does happen. I work for a non performing note fund, (defaulted mortgages). We buy loans from the big banks when borrowers stop making their payments. Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real. Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened. You know what we have never foreclosed on? A paid off home. That paid off home would feel pretty good if one of the above's happen.
Not for nothing, but my day job has shown me over the years, that sh1t does happen. I work for a non performing note fund, (defaulted mortgages). We buy loans from the big banks when borrowers stop making their payments. Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real. Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened. You know what we have never foreclosed on? A paid off home. That paid off home would feel pretty good if one of the above's happen.
I'm going to push back on this one. Remember, we're talking about a cohort of savers, people who save either by paying down the mortgage or by investing. The reasons you mention are the same reasons I recommend not paying down the mortgage. Unexpected stuff happened. Specifically, paying down the mortgage provides no protection from foreclosure until the mortgage is completely retired. If you are unable to make payments as agreed, the bank will foreclose and it doesn't matter how many extra payments you've made. So there is no benefit at all to paying down the mortgage until far in the future.
On the flip side, in the event of an unexpected financial situation having liquid assets might be enough to keep making mortgage payments for years in some cases. At this point in the discussion someone usually says something to the effect of that you should of course have substantial liquid assets before putting extra into the mortgage. But that just highlights the risky nature of paying down the mortgage in the first place. Don't even think about it unless you have lots of money stashed away already. It is a high risk, low reward proposition.
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.Feelings lie. Ever been scared to do something that turned out just fine?
The list wasn't designed to be anything more than a top-of-mind sampling.
Not for nothing, but my day job has shown me over the years, that sh1t does happen. I work for a non performing note fund, (defaulted mortgages). We buy loans from the big banks when borrowers stop making their payments. Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real. Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened. You know what we have never foreclosed on? A paid off home. That paid off home would feel pretty good if one of the above's happen.
I wasn't taking a side there. I was just pointing out that life doesn't always work out. So be careful with debt and leverage.Others would argue for lots of leverage,
FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though). Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job. As we approach fire (I'm close so very close), we are looking to make our lives as easy as possible its not about maximizing money its about maximizing time and ease of life.
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.Feelings lie. Ever been scared to do something that turned out just fine?
The list wasn't designed to be anything more than a top-of-mind sampling.
Not for nothing, but my day job has shown me over the years, that sh1t does happen. I work for a non performing note fund, (defaulted mortgages). We buy loans from the big banks when borrowers stop making their payments. Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real. Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened. You know what we have never foreclosed on? A paid off home. That paid off home would feel pretty good if one of the above's happen.
See: https://en.m.wikipedia.org/wiki/Tax_sale
FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though). Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.
FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though). Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.
Are we really having this conversation here?
Where do you think we, a cohort of savers (thank you, telecaster!), put that money that would've gone to pay off a mortgage? Hint: it doesn't have wheels and fit in a garage.
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.Feelings lie. Ever been scared to do something that turned out just fine?
The list wasn't designed to be anything more than a top-of-mind sampling.
Not for nothing, but my day job has shown me over the years, that sh1t does happen. I work for a non performing note fund, (defaulted mortgages). We buy loans from the big banks when borrowers stop making their payments. Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real. Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened. You know what we have never foreclosed on? A paid off home. That paid off home would feel pretty good if one of the above's happen.
See: https://en.m.wikipedia.org/wiki/Tax_sale
Come on man, If you can't pay your taxes you are in a very rough financial place.
Principal increases while interest decreases.
I know this question was asked earlier in the thread, but what are you investing in with your low-interest-rate mortgage money? Stated another way, what investments do you own that you wouldn't have owned if you didn't have your mortgage, and what is the spread between their expected returns and your mortgage rate?Me:
It took a while for the thread to pop up again. Maybe the best approach is not to activate a thread that's not getting much play. Apparently the mods don't find this comment objectionable.With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!
Thanks to this thread for reinforcing the strategy.
On another recent thread, someone called us "haters" which is very um, impolite, IMO. In a way, they might have a point, because we don't love seeing people choose sub-optimal financial options. Cheers to everyone who has embraced their long, lean mortgages.
who's calling us "haters"?
We paid off our primary mortgage in 2020 and it's been so liberating. I don't answer to anybody (other than the county tax man) and it's awesome going to bed at night knowing the bank doesn't own our home.ETA: I prefer to think of us as kind people who are willing to share our hard-earned knowledge, teachers, if you will, certainly not haters. The math is absolutely not random.
We just bought a couple hundred acres on a mountain and paid cash, and again, it's awesome knowing the bank doesn't own any of that shit.
Well done, don't listen to the haters. The bank owns their real estate no matter what random math rationale they might come up with.
I know this question was asked earlier in the thread, but what are you investing in with your low-interest-rate mortgage money? Stated another way, what investments do you own that you wouldn't have owned if you didn't have your mortgage, and what is the spread between their expected returns and your mortgage rate?
Question for you (or anybody) about recasting.So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.
Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)
Totally makes sense to recast in your situation.
Wanted to follow up on this. Went through with the recast. Painless and no fees through Chase. Required payment drops by a little over $100! I'll definitely be investing the difference
Series I bonds are appealing right now.
However, we will see that rate go down, and you're not able to withdraw money penalty free until it's been in those bonds for a year or more. With 10-year treasuries yielding 2.9%, what reason do you have to suspect that long-term inflation will continue in excess of 3%?
That's the thing. There's no way to look at the yield curve and conclude anything else than that the market expects a profound collapse in inflation, and expects the Fed to only return us to neutral 2.25%-2.5% rates. If that happens, the Ibonds everyone are so excited about today will turn into low-yielding treasuries that you can't get your money out of for five years!You can get your money out of I bonds before 5 years. It's only the first year you can't cash out. For 1-5 years there is a 3 month penalty. So if inflation rates drop, I figure worst case I make $854 in the next 15 months off of $10k, an annualized rate of 6.8%, though today was the last day to do that. It seems unlikely to me that the inflation rate will drop to 0 in the next 6 months. No other rates are anywhere close, so it seems like a no brainer to me. I'm in for $30k in the last 6 months. And I'll likely keep them as part of my bond allocation since I'm seeing how useful they can be in times of high inflation. I don't love locking in 0% real in the long term, but at least they're not losing money like all my bond funds. If the fixed rates go up and I don't have new money to invest (semi FIREing next week) and inflation is down again, I'll probably break some current I bonds and buy in at the higher fixed rate. In any case I'll re-evaluate once inflation settles down.
Someone posted I bonds are at 7% today, which is a 4.5% guaranteed return vs my 2.5% fixed 30 year. I haven’t purchased any, but it is kind of tempting.Starting May 1, it'll be up to 9.62%. If only we could lock that in for 30 years along with the low mortgage rates, we'd be set!
I do feel bad for people looking for housing right now, including my brother. House prices are still way up and now mortgage rates are getting up there too. Rents have sky-rocketed as well. I'm glad to be a Mustachian these days...
Starting May 1, it'll be up to 9.62%. If only we could lock that in for 30 years along with the low mortgage rates, we'd be set!
Well I set up my Autopay for my first payment in June. Since I like rounder numbers in my budget, I am paying an additional $19.23 a month. It will save me 6 months on a 30 year mortgage.Be sure it's being applied to the principle. It isn't always automatic.
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.
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!
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?Well I set up my Autopay for my first payment in June. Since I like rounder numbers in my budget, I am paying an additional $19.23 a month. It will save me 6 months on a 30 year mortgage.Be sure it's being applied to the principle. It isn't always automatic.
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?Well I set up my Autopay for my first payment in June. Since I like rounder numbers in my budget, I am paying an additional $19.23 a month. It will save me 6 months on a 30 year mortgage.Be sure it's being applied to the principle. It isn't always automatic.
Yup.The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?Well I set up my Autopay for my first payment in June. Since I like rounder numbers in my budget, I am paying an additional $19.23 a month. It will save me 6 months on a 30 year mortgage.Be sure it's being applied to the principle. It isn't always automatic.
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...
That's the thing. There's no way to look at the yield curve and conclude anything else than that the market expects a profound collapse in inflation, and expects the Fed to only return us to neutral 2.25%-2.5% rates. If that happens, the Ibonds everyone are so excited about today will turn into low-yielding treasuries that you can't get your money out of for five years!
Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd - I wouldn't have guessed that extra payments could work that way.Yup.The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?Well I set up my Autopay for my first payment in June. Since I like rounder numbers in my budget, I am paying an additional $19.23 a month. It will save me 6 months on a 30 year mortgage.Be sure it's being applied to the principle. It isn't always automatic.
Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd - I wouldn't have guessed that extra payments could work that way.Yup.The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?Well I set up my Autopay for my first payment in June. Since I like rounder numbers in my budget, I am paying an additional $19.23 a month. It will save me 6 months on a 30 year mortgage.Be sure it's being applied to the principle. It isn't always automatic.
Yup.Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd - I wouldn't have guessed that extra payments could work that way.Yup.The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?Well I set up my Autopay for my first payment in June. Since I like rounder numbers in my budget, I am paying an additional $19.23 a month. It will save me 6 months on a 30 year mortgage.Be sure it's being applied to the principle. It isn't always automatic.
Mortgages are a money-making business. Left to ambiguity your lender will do what is most profitable to them. They also have zero problems putting their clients into foreclosure after multiple missed payments, regardless of how many previous early or oversized payments you may have made.
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?Not really - not high enough yet (see investment order post - 3% above 10 year t-note yield is recommended line for this decision). 30 years at 5-6% still works, just not quite as well as 30 years at 3-4%. If / when rates come down far enough again you can refinance then as well.
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?
@Dicey , I was catching up on another forum and noticed you disclosing having paid cash for a property recently. Is everything going okay? You still love us here, right?Lol, we also re-fi'd two of the rentals in the last 12 months (Can't remember exactly when - DH did all the heavy lifting.) Reset the clock to 30 years and got great rates. No cash out, though.
I haven't checked rates recently, but I know they're higher now, so that may be affecting the cost/benefit of playing through on carrying a mortgage for many of us here.
Thanks for checking in, @Dicey , best of luck with the reno-! That losing bidder is probably sitting around resolving to find more cash for the next time they get in the arena.
Thanks for checking in, @Dicey , best of luck with the reno-! That losing bidder is probably sitting around resolving to find more cash for the next time they get in the arena.
Having been the 'looser' on at least eight other properties we bid on while offering anything from 20% to 40% cash, a large earnest-money deposit and near-flawless credit score and pre-approval, blah-blah-blah... it's frustrating as hell. Bonkers is a good way of describing some local markets right now.
Does a seller really care if you are 20 or 40% cash? Any mortgage is a closing risk. Obviously someone super pushing their monthly payment is a different kind of risk but I don’t think I’d distinguish between finances offers over a few percent down payment (especially since a low down payment buyer may easily be in a better position to close than a high down payment buyer who is upping their down payment because they can’t get approved for a larger mortgage)
In a hot market, prices escalate faster than data and appraisals tend to lag. If a person has say, 40% down, the deal won't fall apart if the property doesn't appraise. And yes, that's another thing buyers are routinely waiving (along with inspections, shudder) to get their offers approved.Does a seller really care if you are 20 or 40% cash? Any mortgage is a closing risk. Obviously someone super pushing their monthly payment is a different kind of risk but I don’t think I’d distinguish between finances offers over a few percent down payment (especially since a low down payment buyer may easily be in a better position to close than a high down payment buyer who is upping their down payment because they can’t get approved for a larger mortgage)
Apparently they do, though I don't fully understand why. Our agent said >20% down shows that you've got sufficient cash reserves the bank is less likely to drop you at the last second (apparently "pre-approved" is contractually meaningless), and that if there's a major issue discovered you've got the means to deal with it.
As they say, 'cash is king'.
Sadly the era of sub-4% mortgages has ended, for the time being at least. But some good news for everyone who obtained a sub-4% mortgage in the last few years and didn't pay it off: Inflation has returned. Why is that good news? Because your mortgage payment is fixed at a much lower rate than current inflation. That means your total expenses are also rising a lower rate than inflation.It is definitely good to under-spend inflation, but...
In retirement, that means your WR is decreasing!...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.
In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER.I'm getting a 3.5% raise this evaluation season, when the national average is 5.5%, and when inflation is 8.6%. So this isn't a guaranteed thing. For people like myself who have maxxed out in their company or profession, there aren't as many arbitrage options. I've heard that wage gains are disproportionately going to low-skill, low-wage workers - which is good for them because they've fallen behind for decades.
In retirement, that means your WR is decreasing!...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.
QuoteIn retirement, that means your WR is decreasing!...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.
The SWR is based on your initial portfolio value. If you are doing it right, your WR increases because of inflation, not because of portfolio value. If we go back to 1980 when inflation in the US was at its modern peak, over the next 30 years (length of typical mortgage) stocks returned a robust 7.6% after inflation.
In fact, there has been no 30-year period when the S&P 500 returned less than 4%. Yes, it is possible it could happen, but very unlikely. Of course, you couldn't get a 3.5% mortgage in 1980. Mortgages were more like 15%. But that hammers home a point I've made in this thread and elsewhere many times over the years: A sub-4% mortgage was the deal of a lifetime. The long term inflation rate is about 3.5%. That means you would likely get to use the money for free. But if inflation goes higher--which it did--that means the bank is paying you to use their money.
…and yet there are people on this forum passionately arguing that a person cannot beat or even mitigate the impacts of inflation.
Psychologically, I feel that debt = bad. And my rate *feels* high, even though historically it isn't. There is a large part of me that just wants the mortgage gone.
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.
Those stresses aren't nearly as big as the money lost when stocks go down. I think that people that once focus on how future purchases are getting cheaper are deluding themselves. It's not untrue, but it's a lopsided way of looking at the issue. I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale. That argument works best for a noob with next to nothing in the market and a 50-yr investing window.
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.
Those stresses aren't nearly as big as the money lost when stocks go down. I think that people that once focus on how future purchases are getting cheaper are deluding themselves. It's not untrue, but it's a lopsided way of looking at the issue. I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale. That argument works best for a noob with next to nothing in the market and a 50-yr investing window.
In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER.
In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER.
Still waiting on that annual raise that seems to be MIA to help counter inflation.
I know I promised @Shuchong we don't bite, so please read this with a very gentle tone: The stock market goes up and the stock market goes down in the short term. Over time, the stock market always goes UP. For proof, one only has to look at the history of the stock market. Therefore, what anyone believes doesn't really matter. It's the facts that count.Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.
Those stresses aren't nearly as big as the money lost when stocks go down. I think that people that once focus on how future purchases are getting cheaper are deluding themselves. It's not untrue, but it's a lopsided way of looking at the issue. I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale. That argument works best for a noob with next to nothing in the market and a 50-yr investing window.
But do you believe stocks will go up long term? If no, then you should not be buying equities at any price. If yes, then equities you buy today are a good deal, and the equities you bought last year, while depressed now, will also be a good deal later.
Watch out for the sunk cost fallacy.
I am down quite a bit more than $150,000, but so what? It’s done. My fate on the VTSAX I bought in December was sealed as soon as the purchase cleared. But I have doubt those shares will be worth holding for the next ten+ years (not counting the TLH I did, but I made a round trip by now) and will be valuable to exchange for money needed to live on.
Actually, it's future returns that count. We are fallible humans, who can select excellent investments, but still find ways to mess up the returns we experience.Do you mean by doing something like panic selling when the market drops? If not that, could you please elaborate?
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.
Why would anyone on MMM ever panic sell? Isn't one of the main points of this forum to teach people to not do that?
I heard word from my old work that one fellow nearing retirement sold it all and pumped it into a triple negative leveraged ETF just a few weeks ago, which proceed to lose over 20% in a week when the cat corpse bounced a little last week. Going back a ways he had tales of previously sinking his money in a hedge fund that lost a fair bit while the market had been up like 30% (he got very quiet about it once the S&P started whipping its performance). Folks like that can’t be saved from themselves. I feel for the guy, but seeing his engineering skills (or lack there of), it does not surprise me, just a walking dumpster fire of poor numbers comprehension on many fronts.The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.
Why would anyone on MMM ever panic sell? Isn't one of the main points of this forum to teach people to not do that?
It can be tough for some people, especially the first time they see a little blip, let alone a major blip. We can only hope they post here in a panic and can be talked back from the cliff.
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.
Why would anyone on MMM ever panic sell? Isn't one of the main points of this forum to teach people to not do that?
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.
Why would anyone on MMM ever panic sell? Isn't one of the main points of this forum to teach people to not do that?
I can understand why people might feel trapped by a mortgage. And that's a strong motivator to pay it off early. I used to be one of those people. But I found myself in a situation where I'd paid extra to my mortgage instead of building up my savings/investments and then suffered a 9 month job loss and holy crap that was awful.
I almost lost my house because I wasn't able to make payments, because I'd sent in all my extra cash as 'early payments' to drive down the mortgage.
Nowadays I just pay the minimum of $1900 every month and shove all my spare cash into savings/investing and I have a nice cushion, pretty soon I'll have enough saved/invested that I could pay off my mortgage in full, if I wanted to (which I don't).
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D
Not sure either, but hopefully not too many of them are giving away pieces of their mind. I know I cannot afford to lose even a single functioning brain cell. ;-)I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D
I think you've come to the right place, @Psychstache . Not sure what all these other jokers are doing ;-)
Not sure either, but hopefully not too many of them are giving away pieces of their mind. I know I cannot afford to lose even a single functioning brain cell. ;-)I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D
I think you've come to the right place, @Psychstache . Not sure what all these other jokers are doing ;-)
How do folks in this group feel about 15-year vs 30-year mortgages? I'm assuming you'd vote for the latter. And I think you're probably right... the flexibility of extra liquidity, and you put the extra savings into the market, and today's money is worth more than tomorrow's money. But just to run some numbers at today's rates... Say you're looking at a 520k mortgage. You'd pay 1000 more per month to have a 15 year payoff, vs still owing about 350k in 15 years if you had a 30-year. To match that by putting the monthly 1000 in VTI, you'd need a consistent 9 percent return. But maybe that's close enough to what you'd actually get to still make the 30 year preferable given the advantage of liquidity. How would you think about this?
I remember what it was to agonize over this decision when I went through it.Lol, Dicey Brother consulted her about refinancing their starter home from a 30 to a 15. Y'all know what Dicey advised, but Dicey Brother didn't listen to big sister. About a year later they decided to upgrade, keeping the starter home as a rental. Whereupon, Dicey Brother refinanced again, back to a 30 year loan. Fifteen years later, the rental, with fifteen years left on the mortgage, is paying for Dicey Brother's Daughter's college education.
But we built this club to celebrate responsible use of leverage. Why would you deny the chance at inexpensive leverage to yourself in 2037?
Psychologically, I feel that debt = bad. And my rate *feels* high, even though historically it isn't. There is a large part of me that just wants the mortgage gone.
Psychologically I’ve found it helpful to realize that: money > debt.
In almost every situation I’ve encounterd, having a lot more money is preferable to having no debt.
The attractive difference is the rate, though, not the speed of paydown. There's appears to be as much as a 1.2% spread.
"What if in four years rates are low again and refinancing becomes a no-brainer?"
This seems like an ideal scenario, really? Since that scenario would see us refinancing regardless of what choice we make now. I would be totally comfortable paying a higher monthly cost for 4 years, lowering the principal in a meaningful way vs just paying mostly interest, then refinancing into a lower rate 30 year, which would feel like an actually good deal, for flexibility and liquidity.
I remember what it was to agonize over this decision when I went through it.Lol, Dicey Brother consulted her about refinancing their starter home from a 30 to a 15. Y'all know what Dicey advised, but Dicey Brother didn't listen to big sister. About a year later they decided to upgrade, keeping the starter home as a rental. Whereupon, Dicey Brother refinanced again, back to a 30 year loan. Fifteen years later, the rental, with fifteen years left on the mortgage, is paying for Dicey Brother's Daughter's college education.
But we built this club to celebrate responsible use of leverage. Why would you deny the chance at inexpensive leverage to yourself in 2037?
Psychologically, I feel that debt = bad. And my rate *feels* high, even though historically it isn't. There is a large part of me that just wants the mortgage gone.
Psychologically I’ve found it helpful to realize that: money > debt.
In almost every situation I’ve encounterd, having a lot more money is preferable to having no debt.
Still diligently working every day to avoid paying off our mortgage!
I'm grateful for my low rate. From what I hear, those sub-4 rates (And I've been 3.0 or lower for much of the last ten years) are now a thing of the past. Ten year treasury yield is 3.2% currently.
I'm grateful for my low rate. From what I hear, those sub-4 rates (And I've been 3.0 or lower for much of the last ten years) are now a thing of the past. Ten year treasury yield is 3.2% currently.
Yeah, at 2.7% I can’t justify paying down my mortgage aggressively, even with windfalls and rising incomes. At this point it would be deliberately increasing our risk and decreasing our return, which is just a strange scenario.
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.
Why would anyone on MMM ever panic sell? Isn't one of the main points of this forum to teach people to not do that?
I can understand why people might feel trapped by a mortgage. And that's a strong motivator to pay it off early. I used to be one of those people. But I found myself in a situation where I'd paid extra to my mortgage instead of building up my savings/investments and then suffered a 9 month job loss and holy crap that was awful.
I almost lost my house because I wasn't able to make payments, because I'd sent in all my extra cash as 'early payments' to drive down the mortgage.
Nowadays I just pay the minimum of $1900 every month and shove all my spare cash into savings/investing and I have a nice cushion, pretty soon I'll have enough saved/invested that I could pay off my mortgage in full, if I wanted to (which I don't).
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.Hmmm, do you mean it's less attractive for a new mortgage than one initiated a year ago? Because maintaining a mortgage at a sub 4 rate is even more attractive than it was a year ago, considering inflation.
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.Hmmm, do you mean it's less attractive for a new mortgage than one initiated a year ago? Because maintaining a mortgage at a sub 4 rate is even more attractive than it was a year ago, considering inflation.
How does "intellectual honesty" relate to simply understanding of the math?
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.I mean a little less sure, but 5% or 6% is still low enough to work (our investment order post would not advise paying down at current treasury bond yields). If the value of our home goes up to where I can free up $100K or more and get <6% for 20+ years, I'm gonna try and make that move and buy more index funds. Should be easier in May once I have the coveted 2 continuous years of self-employment officially on the books.
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.Thanks for that, although I think I'd say the mortgages are lapping inflation, because the lapper is the one in the position of strength, no?
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.Thanks for that, although I think I'd say the mortgages are lapping inflation, because the lapper is the one in the position of strength, no?
The math still works, especially in light of the insane inflation we're experiencing right now. Hopefully, both will stabilize sooner rather than later.
A long time ago, when I was getting the DPOYM lesson pounded into my head (long before MMM was born), I remember being thrilled to buy a new place and get a 7% mortgage, and I had stellar credit. Mortgages are still historically cheap.
The math still works, it just isn't quite as blindingly obvious.
Kudos to all who scored cheap mortgages while they lasted. And long may they last for each of you.
You say the total return of 2019-2021 was "lucky".
I think that deserves more analysis:
- How did the 3-year return compare to other 3-year periods?
- How bizarre was it that markets responded so strongly to the utterly unprecedented set of events during the 2020 calendar year?
The math still works, especially in light of the insane inflation we're experiencing right now. Hopefully, both will stabilize sooner rather than later.
A long time ago, when I was getting the DPOYM lesson pounded into my head (long before MMM was born), I remember being thrilled to buy a new place and get a 7% mortgage, and I had stellar credit. Mortgages are still historically cheap.
The math still works, it just isn't quite as blindingly obvious.
With mortgages you have the option to pay them off or refinance when the rate of inflation drops back below your interest rate - i.e. after the next recession. That option value makes RE seem like a win-win to a lot of people.
You say the total return of 2019-2021 was "lucky".
I think that deserves more analysis:
- How did the 3-year return compare to other 3-year periods?
- How bizarre was it that markets responded so strongly to the utterly unprecedented set of events during the 2020 calendar year?
In that case, one option might be to set up autopay and forget about it. If you have an impound account, check once or twice a year to be assured that your insurances and taxes are being paid properly and to adjust your payment amount as the economy pushes those T& I numbers inexorably upward. Then go out and have fun living your best life!With mortgages you have the option to pay them off or refinance when the rate of inflation drops back below your interest rate - i.e. after the next recession. That option value makes RE seem like a win-win to a lot of people.
Yeah, this is a big thing for me. I just bought a house, with a 30 year mortgage at a 5.375% rate. I'm not paying extra on it even though that's my natural inclination, and one of the reasons is that the option to refinance somewhere in that 30 years is worth something to me. I wish I had a mathematical way to value that option, but alas, I'm neither math-y enough nor clairvoyant enough to come up with a formula.
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.
Sad day indeed! I hope you made good chunk on the equity while the market is hot.
What are your next housing plans?
Paula Pant had a nice discussion on her podcast late August about why she rents where she lives (while owning more than half a dozen rental properties to generate income). Depending on your plans in this VHCOL area, you may find being a long-term renter has some benefit.
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.
I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.
I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
This one was in Saratoga. It had nice yard front and back and you can see some red woods near by. Beautiful home for a family.It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.
I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Where was this unicorn of which you speak?
Hmmm, what I remember of Saratoga is that it was considered the "most affordable" pocket of the Silicon Valley. But hey, who doesn't love a little Real Estate Porn?This one was in Saratoga. It had nice yard front and back and you can see some red woods near by. Beautiful home for a family.It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.
I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Where was this unicorn of which you speak?
I'm kind of late to the party (5 years), but I finally decided to chime in. I have recently become more passionate about "not paying off my mortgage" because my current rates are crazy low and I have Dave Ramsey whispers in society telling me that I need to get rid of all debt asap.
I have 28.3 years left on a 30 year mortgage at 2.875% with an original balance of 227K. House is worth 375K to 400K. I have 3 rental properties with mortgages at 3.5%, 4.5% and 4.875%. The total equity (after transaction costs) across the 3 rentals is around 1 million. The Dave Ramsey crowd says, "sell the rentals and pay off the mortgage on your primary, so you can feel free. Wouldn't that feel awesome."
Actually, I don't think it would feel like anything to me. My P & I is $950/month. This last August, I raised the rent by $1,000/month across the 3 rentals and I'm still not at market value. I will probably raise it another $500-$1,000/month next August as well. The P & I on my primary is only $950/month. It's already taken care of. I don't feel the weight of anything when I have my rentals paying for it. Not selling the rentals.
The "Debt-free feeling" is ephemeral. Having more money in your stache than you ever imagined was possible is a whole order of magnitude more amazing. For an average wage earner, you can't save enough "after" accelerating the mortgage payoff to get there early enough to call it FIRE. <---I know that's convoluted, but it's crazy how it grows, lol!I'm kind of late to the party (5 years), but I finally decided to chime in. I have recently become more passionate about "not paying off my mortgage" because my current rates are crazy low and I have Dave Ramsey whispers in society telling me that I need to get rid of all debt asap.
I have 28.3 years left on a 30 year mortgage at 2.875% with an original balance of 227K. House is worth 375K to 400K. I have 3 rental properties with mortgages at 3.5%, 4.5% and 4.875%. The total equity (after transaction costs) across the 3 rentals is around 1 million. The Dave Ramsey crowd says, "sell the rentals and pay off the mortgage on your primary, so you can feel free. Wouldn't that feel awesome."
Actually, I don't think it would feel like anything to me. My P & I is $950/month. This last August, I raised the rent by $1,000/month across the 3 rentals and I'm still not at market value. I will probably raise it another $500-$1,000/month next August as well. The P & I on my primary is only $950/month. It's already taken care of. I don't feel the weight of anything when I have my rentals paying for it. Not selling the rentals.
"The debt-free feeling!" is one area I've never been to reconcile with the DR crowd. At various times I've held debt (but always responsibly - ie low rates and amounts within reason of income), and I've paid it off to be debt free (like when we sold our last home, or when we paid off very low SL). Having no debt has never felt better to me than holding debt. Further, I strongly believe that one shouldn't allow their feelings to rule their financial decisions. So the whole "do it for how it feels" strikes me as the wrong thing to follow.
Ironically, what does make me "feel better" is having a very large number in my investment account. I still don't allow that to dictate my financial decisions, but to me that's a much better security blanket than no monthly mortgage PI payments.
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.Woo-hoo! Go, Fru-Gal, go!
But anyway I just have to say this thread really made it possible for me to fire this year. And yes my P&I is $950 a month as well at 2.75% interest for 30 years.
I’ve done all the different permutations you can do with a mortgage (and 2nd) in the quarter century plus that I’ve lived in this house and I think this is the best one in the end lol. In FIRE cash flow is king.
(Granted if I hadn’t cashed out a bunch of times then we would almost have paid off the house by now for what is now a very small amount of money. But the equity we have now is enormous.)
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.
What? Tithing isn't enough? /sCame across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.
Seriously, though, if you have a thing you're passionate about--like religion--why wouldn't you be willing to make choices in other parts of your life to fit in with that? You should be willing to leave some $$ on the table to better align with religious practice.
If anything, I'd argue that your next door neighbor having a lower mortgage balance is either neutral or good from your perspective.
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.
Oh boy - the intersection of debt-free and religion… there’s a sticky subject. There’s a whole torrent of religious judgement (and judgement by religious people…not the same thing) on both sides of the debt ledger. Edicts about money-changers, prohibitions on certain days and lofty ideals about “honoring” your debt. Making certain financial actions sinful, while making debt payoff some sort of redemption.
Many years ago I got dog-piled (to the point of harassment and threats) on the DR forums for not toeing the line about paying off some zero-interest subsidized student loans, particularly since I had far better uses for that money (e.g. funding my IRA). It grew frustrated with posters who wouldn’t acknowledge that I literally wound up with my money by lowering my tax burden, but the real hate came from some posters who flat-out called what I was doing reprehensible. Their argument seemed to be that I had sinned by taking out loans for college I could clearly afford, and then I was compounding that sin by not suffering deeply to pay off that debt. One vivid poster even told me that “the debt was on my soul, not just on my monthly statement”. Others professed moral outrage that I should fund my IRA while still holding debt, thereby making “hard working tax-payers” give me money for exploiting such a “loophole” (I was cheating the system!… somehow… by following some clearly laid-out rules I guess…).
People have a limited ability to tithe/donate when they are servicing debt. For example, if I net $5k/month and pay a $2k mortgage P&I, I have $3k for everything else plus my religious organization. When I pay off my mortgage, however, suddenly I have $5k available for everything else plus my religious organization. I'm more likely to pay a bigger amount to my religious group when I don't have debt payments.What? Tithing isn't enough? /sCame across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.
Seriously, though, if you have a thing you're passionate about--like religion--why wouldn't you be willing to make choices in other parts of your life to fit in with that? You should be willing to leave some $$ on the table to better align with religious practice.
If anything, I'd argue that your next door neighbor having a lower mortgage balance is either neutral or good from your perspective.
I added a poll.
How high would your mortgage rate have to be to persuade you to make early payments toward principal?
https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/ (https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/)
I added a poll.
How high would your mortgage rate have to be to persuade you to make early payments toward principal?
https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/ (https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/)
Not to quibble with the poll choices (but quibbling anyway...)
It depends immensely on yields of my alternatives. For example, there's no way I'd pay off mortgage debt at even 9% with iBonds paying 9.62% right now.
Hmmm, what I remember of Saratoga is that it was considered the "most affordable" pocket of the Silicon Valley. But hey, who doesn't love a little Real Estate Porn?This one was in Saratoga. It had nice yard front and back and you can see some red woods near by. Beautiful home for a family.It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.
I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Where was this unicorn of which you speak?
I realize there are more places to shop for rentals than Zillow, but the to-do list needs to get to-done today, so I pushed the Easy Button.
Cheapest SFH in Saratoga - $3995 1232sf 3+1.5: https://www.zillow.com/homedetails/12931-Quito-Rd-Saratoga-CA-95070/19654331_zpid/? (Curiously, it's had two price drops since 9/9/22 - Huge lot, plenty of parking. Possible scam meter alert.)
Most expensive SFH - $15,000 5700sf 7+4: https://www.zillow.com/homedetails/Saratoga-CA-95070/19657952_zpid/
Closest to the pin SFH - $4750 1616sf 4+3: https://www.zillow.com/homedetails/12122-Covina-Ct-Saratoga-CA-95070/19652902_zpid/(Check out the kitchen!)
Just for fun - $3250 450sf 1+1: https://www.zillow.com/homedetails/Saratoga-CA-95070/2061493328_zpid/
Occasionally, DH and I will play a Real Estate game: We choose a city and a budget and then search for the house we'd buy That Day. Free, frugal RE fun!
I tithe regularly to my religion
(https://i.imgur.com/SsO8FIn_d.webp?maxwidth=640&shape=thumb&fidelity=medium)
Hey all, just checking in. Was walking around with my sig other when I remembered the homo economicuses on this thread. How are you all doing? Are you still economicuses, making economically optimal decisions?
Has some of your identity become, “I am someone who does not pay off their mortgage,” as opposed to, “I am someone who makes optimal decisions based on the math.”?
Is there a crossover point when one becomes mere Homo sapiens?
It may come across as snarky, but that’s just my resting bitch face. Hope you are well.
Hey all, just checking in. Was walking around with my sig other when I remembered the homo economicuses on this thread. How are you all doing? Are you still economicuses, making economically optimal decisions?Hmmm, I have a 30 year mortgage on each of three houses at the moment. Two of them are very recent and I'm over 60. I own one house that never had a mortgage. I sold two mortgaged properties to buy it. I have never paid off a mortgage prior to sale in my life. I am also FIRE,
Has some of your identity become, “I am someone who does not pay off their mortgage,” as opposed to, “I am someone who makes optimal decisions based on the math.”?
Is there a crossover point when one becomes mere Homo sapiens?
It may come across as snarky, but that’s just my resting bitch face. Hope you are well.
Hey all, just checking in. Was walking around with my sig other when I remembered the homo economicuses on this thread. How are you all doing? Are you still economicuses, making economically optimal decisions?
Has some of your identity become, “I am someone who does not pay off their mortgage,” as opposed to, “I am someone who makes optimal decisions based on the math.”?
Is there a crossover point when one becomes mere Homo sapiens?
It may come across as snarky, but that’s just my resting bitch face. Hope you are well.
HOW TO CALCULATE THE SAVINGS BY NOT PAYING DOWN YOUR MORTGAGE (using the previous post as an example)
Let
B = Mortgage balance [$160,000]
P = Mortgage payment (should be principle and interest only, exclude property taxes, property insurance, PMI, or anything else in escrow) [1,645]
N = number of payments remaining [120 = 10 x 12]
IM = EFFECTIVE Interest rate on your mortgage [.0433]
II = Interest rate on investments [Assuming .07 per year]
Calculate M= Monthly Investment Interest rate = (1+II)^(1/12) = 1.07^.0833333 = 1.0056541
If you don't know P, you can either go to a calculator on the internet or in Excel Type in =-PMT(0.0433/12,120,160000) to get the answer.
Deciding between a payoff assumes you have $160,000 lying around to extinguish the mortgage. The question is what is the difference at the end of 10 years between:
1) Leaving the $160,000 invested and regular making mortgage payments.
2) Paying off the $160,000 and immediately investing the newfound $1,645 each month at the investment rate.
Option 1 is easy to calculate. At the end of 10 years you have 160,000 x 1.07^10 = $314,744.
Option 2 is more convoluted. The first $1,645 payment grows by 1.07^10. The second $1,645 payment grows by 1.07^9.917, etc. The total is $282,973.
Here's how you calculate it: P x M x (M^N - 1) / (M - 1)
= 1,645 x 1.0056541 x (1.0056541^120 - 1) / (1.0056541 - 1)
= 1,654.30 x (1.96714 - 1) / 0.0056541
= 1,654.30 x 0.96714 / 0.0056541 (bit of rounding error)
The difference here is $31,771. Lower than other people's situations because (1) it's only a ten year mortgage, and (2) the interest rate is closer to 7% than many other people's mortgages. But for some people that could be easily be a year's worth of expenses, so prepaying your mortgage could delay your FIRE date by a year in this instance.
One other thing you should take into account is the effective interest rate of your mortgage. For those of us in the US that can deduct the interest rate on our mortgages (not everyone necessarily gets a benefit from this, you should check), that interest probably lowers your state and federal taxes. This calculation isn't so simple because we automatically qualify for a standard deduction, so if you aren't already filing a Schedule A you might not see a full benefit.
Hope that helps. If you can't be bothered to do the calculation, post your information here and I will try to help. People with (1) longer mortgages and (2) lower interest rates and going to find more benefit in not paying down early. I did this calculation for someone else on the forum and the difference was nearly TWO HUNDRED THOUSAND DOLLARS!
7% is the investment figure MMM has thrown around on the site, but you are welcome to tweak it depending on your age and risk tolerance. Any mustachian this involved in making their finances go longer sooner owes it to themselves to do this calculation before paying down their mortgage.
Would you mind helping with my calculation? Balance is $312k. 30 years. Rate is 3.75. Have 354 payments left. Thank you for any help!A batsignal might help, though I'm not sure if @runewell is still in the building...HOW TO CALCULATE THE SAVINGS BY NOT PAYING DOWN YOUR MORTGAGE (using the previous post as an example)
Let
B = Mortgage balance [$160,000]
P = Mortgage payment (should be principle and interest only, exclude property taxes, property insurance, PMI, or anything else in escrow) [1,645]
N = number of payments remaining [120 = 10 x 12]
IM = EFFECTIVE Interest rate on your mortgage [.0433]
II = Interest rate on investments [Assuming .07 per year]
Calculate M= Monthly Investment Interest rate = (1+II)^(1/12) = 1.07^.0833333 = 1.0056541
If you don't know P, you can either go to a calculator on the internet or in Excel Type in =-PMT(0.0433/12,120,160000) to get the answer.
Deciding between a payoff assumes you have $160,000 lying around to extinguish the mortgage. The question is what is the difference at the end of 10 years between:
1) Leaving the $160,000 invested and regular making mortgage payments.
2) Paying off the $160,000 and immediately investing the newfound $1,645 each month at the investment rate.
Option 1 is easy to calculate. At the end of 10 years you have 160,000 x 1.07^10 = $314,744.
Option 2 is more convoluted. The first $1,645 payment grows by 1.07^10. The second $1,645 payment grows by 1.07^9.917, etc. The total is $282,973.
Here's how you calculate it: P x M x (M^N - 1) / (M - 1)
= 1,645 x 1.0056541 x (1.0056541^120 - 1) / (1.0056541 - 1)
= 1,654.30 x (1.96714 - 1) / 0.0056541
= 1,654.30 x 0.96714 / 0.0056541 (bit of rounding error)
The difference here is $31,771. Lower than other people's situations because (1) it's only a ten year mortgage, and (2) the interest rate is closer to 7% than many other people's mortgages. But for some people that could be easily be a year's worth of expenses, so prepaying your mortgage could delay your FIRE date by a year in this instance.
One other thing you should take into account is the effective interest rate of your mortgage. For those of us in the US that can deduct the interest rate on our mortgages (not everyone necessarily gets a benefit from this, you should check), that interest probably lowers your state and federal taxes. This calculation isn't so simple because we automatically qualify for a standard deduction, so if you aren't already filing a Schedule A you might not see a full benefit.
Hope that helps. If you can't be bothered to do the calculation, post your information here and I will try to help. People with (1) longer mortgages and (2) lower interest rates and going to find more benefit in not paying down early. I did this calculation for someone else on the forum and the difference was nearly TWO HUNDRED THOUSAND DOLLARS!
7% is the investment figure MMM has thrown around on the site, but you are welcome to tweak it depending on your age and risk tolerance. Any mustachian this involved in making their finances go longer sooner owes it to themselves to do this calculation before paying down their mortgage.
Agreed that accounting for the purchasing power of money matters.
This is a community of people who make decisions around early retirement. The assumption that income will be higher ten years from now (let alone 30) may not hold.
Question is: how to deploy that cash?
Some background info: DINK couple low-to-mid 50s with reasonably stable jobs (but who knows). Currently able to max all tax deferred/tax advantaged accounts even with the higher mortgage payments. Asset allocation is 65/35 stocks/bonds. Golden handcuffs about 7-8 years away. Jobs are enjoyable at the moment but again management can change at any time ;)
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!Ha! That could be me! I am sitting at 2.6%, but feeling like I should stay because we have the great rate. I’m even looking at rental options, although this isn’t a good rental house I have built!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
To me, that's an odd way of thinking about it. Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase. Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
Mildly curious what you would propose as a solution to this "problem".Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
To me, that's an odd way of thinking about it. Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase. Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.
To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.
This is how one misses out on promotions for the next 5-10 years.
Mildly curious what you would propose as a solution to this "problem".Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
To me, that's an odd way of thinking about it. Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase. Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.
To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.
This is how one misses out on promotions for the next 5-10 years.
There is no solution. The trapped person can either miss out on the promotion because they can't afford to relocate, or they can bite the bullet, come up with more down payment money, and struggle with higher payments for an equivalent house.Mildly curious what you would propose as a solution to this "problem".Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
To me, that's an odd way of thinking about it. Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase. Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.
To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.
This is how one misses out on promotions for the next 5-10 years.
There is no solution. The trapped person can either miss out on the promotion because they can't afford to relocate, or they can bite the bullet, come up with more down payment money, and struggle with higher payments for an equivalent house.Mildly curious what you would propose as a solution to this "problem".Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
To me, that's an odd way of thinking about it. Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase. Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.
To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.
This is how one misses out on promotions for the next 5-10 years.
If layoffs force them to relocate, homeowners will have to bite the bullet, which may negate all the savings from the low rate they were chasing when they bought their house or refinanced. People's reluctance to relocate might result in longer periods of unemployment, longer average commutes, slower post-recession recoveries, more difficulties for businesses to hire workers, a shift of businesses toward denser urban areas, and fewer homes on the market. Between the financial disincentives for moving and the work-from-home movement, the future does not look bright for RE agents or mortgage originators.
It's the RE parallel to the "golden handcuffs" problem faced by FI people with pension and stock vesting.
There's "sell and rent". I know not many homeowners view renting as a viable option and it would be a tough pill to swallow with the equity, but you don't need the big down payment when renting usually. Depending on the market, rent can be cheaper than mortgage on similar places too, although that varies wildly.There is no solution. The trapped person can either miss out on the promotion because they can't afford to relocate, or they can bite the bullet, come up with more down payment money, and struggle with higher payments for an equivalent house.Mildly curious what you would propose as a solution to this "problem".Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
To me, that's an odd way of thinking about it. Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase. Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.
To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.
This is how one misses out on promotions for the next 5-10 years.
If layoffs force them to relocate, homeowners will have to bite the bullet, which may negate all the savings from the low rate they were chasing when they bought their house or refinanced. People's reluctance to relocate might result in longer periods of unemployment, longer average commutes, slower post-recession recoveries, more difficulties for businesses to hire workers, a shift of businesses toward denser urban areas, and fewer homes on the market. Between the financial disincentives for moving and the work-from-home movement, the future does not look bright for RE agents or mortgage originators.
It's the RE parallel to the "golden handcuffs" problem faced by FI people with pension and stock vesting.
Sounds like it's the same as it ever was. The historic low interest rates on the last decade gave people opportunities that never existed before, but everything else on your list is familiar.There is no solution. The trapped person can either miss out on the promotion because they can't afford to relocate, or they can bite the bullet, come up with more down payment money, and struggle with higher payments for an equivalent house.Mildly curious what you would propose as a solution to this "problem".Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
To me, that's an odd way of thinking about it. Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase. Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.
To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.
This is how one misses out on promotions for the next 5-10 years.
If layoffs force them to relocate, homeowners will have to bite the bullet, which may negate all the savings from the low rate they were chasing when they bought their house or refinanced. People's reluctance to relocate might result in longer periods of unemployment, longer average commutes, slower post-recession recoveries, more difficulties for businesses to hire workers, a shift of businesses toward denser urban areas, and fewer homes on the market. Between the financial disincentives for moving and the work-from-home movement, the future does not look bright for RE agents or mortgage originators.
It's the RE parallel to the "golden handcuffs" problem faced by FI people with pension and stock vesting.
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!
Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.
2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
Interesting replies. Thanks -- @talltexan @nereo @Dicey others...
After reading through the exchange, it looks like having enough liquidity is really important.
Let's assume that my retirement living expenses will be $48,000/year. I need $1,200,000 for FI with 4% withdrawal. This $48,000 includes a $300,000 mortgage @4.375% with principal and interest payment of $1600/month or $19,200/year.As @dandarc points out, what do you expect $300K will return over the long term?
@UltraStache - how did you arrive at the $1.2 million figure? Likely being excessively conservative.
Another way to look at it - you need enough to cover "all other expenses" ($720,000) + enough to payoff the mortgage in full ($300,000), so you actually only need to $1,020,000 on your FIRE date. Because then - at any point once you have that amount in hand - you can support your lifestyle and choose to pay off the mortgage or not. Of course, once you get there, what you should do, in all probability, is not pay off the mortgage because 4.375% is still plenty low enough that you'd expect your portfolio to out-perform that by a wide margin.
How far out is FI?
From @UltraStache 's other thread:QuoteLet's assume that my retirement living expenses will be $48,000/year. I need $1,200,000 for FI with 4% withdrawal. This $48,000 includes a $300,000 mortgage @4.375% with principal and interest payment of $1600/month or $19,200/year.As @dandarc points out, what do you expect $300K will return over the long term?
Yearly living expenses including the mortgage = $48,000/year. Normal, 4% SWR requires $1.2m for $48,000 year. If I have a mortgage payment, it has to be paid. So I need $1.2m to retire with a mortgage.
Yearly living expenses without a mortgage are $29,000/year, which requires $720,000 for a 4% SWR, i.e. the same for either scenario. Plus the $300,000 I would need to pay off the mortgage(if I saved until I have enough to pay the mortgage to zero).
FI is about 5-7 years out.
$1,020,000 does not allow me to fire while holding the $300,000 mortgage with a 4% SWR.
The math says that paying off the mortgage is superior to keeping my mortgage for FIRE.
From @UltraStache 's other thread:QuoteLet's assume that my retirement living expenses will be $48,000/year. I need $1,200,000 for FI with 4% withdrawal. This $48,000 includes a $300,000 mortgage @4.375% with principal and interest payment of $1600/month or $19,200/year.As @dandarc points out, what do you expect $300K will return over the long term?
If I keep the 300k invested, withdrawing 4% of that 300k does not pay the mortgage. So I would have to postpone retirement by the length of time necessary to save/invest an additional $180,000 if it was important to me to keep making a mortgage payment.
I popped over to the "pay off your mortgage" celebration thread, and people there are talking about how they need to have a HELOC in case they run into "liquidity problems" before they finish paying it off. It's like they're just. so. close. to figuring it out!
I had the same thought what I saw that. I started to respond and then remembered that we DPOYMers are not supposed to say anything that would be considered negative on that thread. It's exclusively for celebrating mortgage payoff, sigh.I popped over to the "pay off your mortgage" celebration thread, and people there are talking about how they need to have a HELOC in case they run into "liquidity problems" before they finish paying it off. It's like they're just. so. close. to figuring it out!
Frankly, the reliance on HELOCs for liquidity problems scares me a little. HELOCs can be revoked at any time by your lender - indeed in 2008 most canceled them outright, and IIRC most recessions have resulted in a drastic tightening.
Indeed I remain committed to our cause. I follow the other thread because I think it's important to keep track of those beliefs that challenge my own. I suppose it's possible some of the mortgage payers are silently following us here, and I can only hope that our thoughtful discussion makes them wonder if we aren't slightly less crazy than they supposed.Well put, sir!
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.
I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)
Winning!I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.
I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)
Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.
I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)
Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).
Winning!
Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
Well, yes. But, in days gone by one the pay-off-your-mortgage arguments was that a paid off mortgage gave you a guaranteed return on your money, and that the risk associated with investing was not properly considered by those keeping their mortgages. That's why I find today's FDIC insured rates so notable.Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).Winning! Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
I know the conventional wisdom is "pay yourself first", but I always did both. Invest automatically, then challenge yourself to spend the rest as wisely as possible. I think this works for a lot of mustachians. I also worked on commission, so I kept a fat EF and lived on last month's income. I also have a fondness for Real Estate, so I'm comfortable with larger sums of money on standby for deployment.I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.
I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)
Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).
Winning!
Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
Usually, though I've let it build up a bit now (~$50k) because I expect to move next year and want it a bit more stable for the potential down payment. Still have $300k+ in equities in a taxable account though.
Funny, we met with our Financial Planner recently. On the topic of when to start collecting Social Security, they said, "Where are you going to get a guaranteed 8% these days?"Well, yes. But, in days gone by one the pay-off-your-mortgage arguments was that a paid off mortgage gave you a guaranteed return on your money, and that the risk associated with investing was not properly considered by those keeping their mortgages. That's why I find today's FDIC insured rates so notable.Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).Winning! Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
Guarantees that aren't in any way guaranteed. Gotta make it quite a few years for that 8% increase in SS for waiting to approach being the same thing as an 8% return.Funny, we met with our Financial Planner recently. On the topic of when to start collecting Social Security, they said, "Where are you going to get a guaranteed 8% these days?"Well, yes. But, in days gone by one the pay-off-your-mortgage arguments was that a paid off mortgage gave you a guaranteed return on your money, and that the risk associated with investing was not properly considered by those keeping their mortgages. That's why I find today's FDIC insured rates so notable.Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).Winning! Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
Guarantees that aren't in any way guaranteed. Gotta make it quite a few years for that 8% increase in SS for waiting to approach being the same thing as an 8% return.From what I recall, the annual increases in SS are more or less set up so that the average person will receive the same total amount regardless of when they start collecting.
From what I recall, the annual increases in SS are more or less set up so that the average person will receive the same total amount regardless of when they start collecting.
Yeah - breakeven is something like 84 the way SSA does the math. But if you can invest social security, and you don't want to work much, taking at 62 is best with typical market returns (obviously not guaranteed) Full retirement age the "reduce benefits if you work too much" goes away.Guarantees that aren't in any way guaranteed. Gotta make it quite a few years for that 8% increase in SS for waiting to approach being the same thing as an 8% return.From what I recall, the annual increases in SS are more or less set up so that the average person will receive the same total amount regardless of when they start collecting.
Yeah - breakeven is something like 84 the way SSA does the math. But if you can invest social security, and you don't want to work much, taking at 62 is best with typical market returns (obviously not guaranteed) Full retirement age the "reduce benefits if you work too much" goes away.
Of course looking at it as longevity insurance the wait till 70 move makes more sense, but insurance does typically cost you money - can certainly be worth it depending on individual circumstances..
Even better are t-bills. The official rates today were 3.84% for 4 weeks, up to 4.62% for 52 weeks. Or just use VUSXX treasury money market at Vanguard if t-bills are too much work for you. VUSXX has a 7 day SEC yield of 3.86% and continues to go up. If you live in a state with income tax, it's an even better deal since t-bills are exempt from state/local taxes. I calculate my tax equivalent yield to be 4.14% for VUSXX. I finally moved away from Ally savings when I realized how big the gap was getting. Definitely no reason to pay extra on my 3% mortgage!I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.
I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)
Exactly this.Yeah - breakeven is something like 84 the way SSA does the math. But if you can invest social security, and you don't want to work much, taking at 62 is best with typical market returns (obviously not guaranteed) Full retirement age the "reduce benefits if you work too much" goes away.
Of course looking at it as longevity insurance the wait till 70 move makes more sense, but insurance does typically cost you money - can certainly be worth it depending on individual circumstances..
But the guarantee is the kicker. You get automatic step up plus inflation. The market returns 10% on average as well all know. So why is the 4% rule not the 10% rule? Because there is no guarantee. If I could get ~8% plus inflation guaranteed I wouldn't have dime in the stock market. That's what you get by delaying SS.
Back to the club. Just got a 7/1 ARM at 4.625%. Let's hope rates drop for a refi.Wonder if anyone does a 2nd mortgage on similar terms - theoretically have $70-100k in equity languishing in my house right now. Not quite as good as fixed for 30 years, but that rate is more friendly looking than what's available for the longer-term fixed rates and 7 years is still likely to work out, particularly if rates come down and can refinance it.
At one point, I was more Pay off my Mortgage. In fact, I had a paid off mortgage. But then I decided I’d rather have a fat brokerage account, so when I moved, I got a modest mortgage. I pre paid it a bit with disposable income I didn’t need. Then I moved again, to the Bay Area. I have a rather large (for me) Mortgage now which I’m happy with. It is mentally a cost I’m willing to put up with and pay for years. I do add an extra $19.37 to get to an even $2850 each month. I could add more, I still have some disposable income, but I have other priorities at this time. Maybe in 10 years or something (but not likely).
Do you ever lie awake at night thinking "I wish I owed JP Morgan money still and had tens more shares of VTSAX?"
Do you ever lie awake at night thinking "I wish I owed JP Morgan money still and had tens more shares of VTSAX?"
Funny from our rival thread:QuoteDo you ever lie awake at night thinking "I wish I owed JP Morgan money still and had tens more shares of VTSAX?"
Well no, but you might be kept up at night if you find yourself needing liquidity!
Thanks for your heartfelt concern! I'm a real full adult who fully understands my own finances. I don't need liquidity with the funds I am using to prepay my mortgage.Hi @grantmeaname! On those mortgage payoff threads, no discussion is allowed, which is how this thread (aka The DPOYM Club) came to be. I saw your post and said nothing there, but suspected it would get a response in this safe pace. You may indeed fully understand your own finances, but there are other factors, such as inflation, and compound interest to consider.
Yeah, I know that this has been contentious in the past and those other guys run a no-fun-allowed thread.
I have LONG been a DPOYM partisan and I'm sure one of us could find a post from 2012 where I argue to that effect.
Here's my logic. The earnings yield of the S&P500 is almost exactly 6%, and that's before tax because my marginal dollar would be saved into a taxable account. I have a new mortgage at late 2022 rates, not one of those incredible 2.3% unicorns that you lucky folk have. So I'm comparing a riskless 4.99% mortgage paydown to a risky 4.5-5% posttax S&P earnings yield and to a ~4% safe withdrawal rate. Under those circumstances, my circumstances, killing this mortgage fast is the overwhelming best choice.
I think I have spent many years paying myself first. Spending the last 30% of a 12-14 year career paying off the mortgage after a long time accumulating financial assets is almost exactly the path you describe. I've got a bigole pile of VTSAX (well, FZROX) and I should be able to just fill the tax advantaged space for two years and let it coast me to my Fire.
The 5% growth in "yield"--I'm actually wondering if you didn't mean "earnings" for SP500I meant what I said... I'm wondering if you're confusing earnings yield and earnings growth? I didn't say anything about earnings growth or "growth in yield".
The safe withdrawal rate of 4%That's just a rule of thumb in this context, although for me I think it will be pretty close to appropriate in the end. To my thinking the 4% safe withdrawal rate is also kind of like a hurdle rate or opportunity cost.
One other one I'd offer as an alternative is some consideration of your baseline savings rate.Not sure what this has to do with anything? Can you expand what you mean here?
Historically only one-in-ten 30-year periods have had a nominal annual return of less than 6.4% (S&P 500). So there's something like only a 5% chance for paying down a 4.99% mortgage to be better than investing. And don't forget that your mortgage interest might be tax-deductible and there's always a chance you could refinance the debt to a lower interest rate in the future.Perhaps its because most of my professional life has focused on probabilities, but I have always struggled to understand why some people favor a 'guaranteed return' over the far, far more likely outcome. Behavioral studies suggest we feel financial loss 3x greater than a similar sized gain - even accounting for this it's hard for me to comprehend why some will favor a path that is less optimal 19/20 and only marginally better the 20th time.
The 4% rule is designed to survive inflation while your E/P ratio is in today's dollarsI wasn't comparing the 4% rule to today's earnings yield. They're both worse than my mortgage rate and both suggest paying down the mortgage.
Why all of a sudden do you want to pay off the mortgageAll of a sudden I have a mortgage - I wasn't carrying a mortgage all this time and then woke up in November and decided to kill it. I've always been a renter in HCOL or VHCOL areas until lately.
the whole damn stock market is on saleI disagree. The market has pulled back from objectively very expensive to its long term typical valuation - the market costs about what it should, and is not a screaming deal. If anything, it's a bit overpriced as we're staring down a recession, but I'm not a market timer and don't let my feelings make that decision for me. What I am doing is letting the earnings yield of the market tell me what my hurdle rate for other projects is (mortgage paydown and energy efficiency work)
I'd like to throw out one more reference figure (for mortgage rate comparison purposes): the long-term 10% average total nominal return of the SP500.I don't think that's a bad one in general, but it's unconditional and the earnings yield is conditional. The expected return on stocks is lower when P/E is higher. There's two reasons for this - first, you're buying less earnings and actual economic value of businesses per dollar when the valuations are expensive, and second, unless P/Es are permanently higher from now on, valuations are mean reverting over some time period so you have a rubber band effect.
I recognize that some premium on safety should exist, so a risk-free return shouldn't have to be 10% to compete for my marginal dollar.
your mortgage interest might be tax-deductibleI'm MFJ, and the mortgage interest (4.99%*372k) is $18.5k or not even 2/3s of enough to get me to the starting line vs the standard deduction. Even if I had $10-15k of other itemized deductions, which I don't, it would only be a tiny bit of the borrowing that effectively benefits.
there's always a chance you could refinance the debt to a lower interest rate in the future.I don't forego this option. I can still do that if someone offers me a 2011-style 2.2% mortgage after the house is paid off.
By the way, the stickied investment order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) suggests that it is better to invest in taxable accounts than it is to pay off debt at a ~6.6% (or lower) interest rate. ~8.6% if comparing to tax-advantaged accounts. Based on the current treasury yield.I'm not a fan of rules of thumb as substitutes for actual thinking, and this one makes very little sense to me. But regardless, I am all the way at the bottom of the list - no other debt paydown, and completely filling all my tax-advantaged space every year.
This is an unfair straw man and your example does not capture the facts of my situation. My mortgage paydown return is equal to or better than the market return despite the market return's uncertainty.Historically only one-in-ten 30-year periods have had a nominal annual return of less than 6.4% (S&P 500). So there's something like only a 5% chance for paying down a 4.99% mortgage to be better than investing. And don't forget that your mortgage interest might be tax-deductible and there's always a chance you could refinance the debt to a lower interest rate in the future.Perhaps its because most of my professional life has focused on probabilities, but I have always struggled to understand why some people favor a 'guaranteed return' over the far, far more likely outcome. Behavioral studies suggest we feel financial loss 3x greater than a similar sized gain - even accounting for this it's hard for me to comprehend why some will favor a path that is less optimal 19/20 and only marginally better the 20th time.
It's not that different* from being on a gameshow where you had the opportunity to roll a set of dice and get paid 100x that amount (e.g. rolling a 7 = $700) - or just take $300 without rolling. Why would you choose the $300? The worst-case scenario is pretty decent, and the likely outcome is much, much better.
This is an unfair straw man and your example does not capture the facts of my situation. My mortgage paydown return is equal to or better than the market return despite the market return's uncertainty.
I've always been a renter in HCOL or VHCOL areas until lately.
4.99% 15-year mortgage (locked in September, closed in November)
This is an unfair straw man and your example does not capture the facts of my situation. My mortgage paydown return is equal to or better than the market return despite the market return's uncertainty.Historically only one-in-ten 30-year periods have had a nominal annual return of less than 6.4% (S&P 500). So there's something like only a 5% chance for paying down a 4.99% mortgage to be better than investing. And don't forget that your mortgage interest might be tax-deductible and there's always a chance you could refinance the debt to a lower interest rate in the future.Perhaps its because most of my professional life has focused on probabilities, but I have always struggled to understand why some people favor a 'guaranteed return' over the far, far more likely outcome. Behavioral studies suggest we feel financial loss 3x greater than a similar sized gain - even accounting for this it's hard for me to comprehend why some will favor a path that is less optimal 19/20 and only marginally better the 20th time.
It's not that different* from being on a gameshow where you had the opportunity to roll a set of dice and get paid 100x that amount (e.g. rolling a 7 = $700) - or just take $300 without rolling. Why would you choose the $300? The worst-case scenario is pretty decent, and the likely outcome is much, much better.
It's great that your mortgage paydown return has been better than the market, but you've only had a mortgage for a month or two. On that time frame, investing in the market is only slightly better than casino gambling. I would be leery to draw any long term conclusions.That's not what I said at all. Did you read my post?
Got it. Sorry.
I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path
your mortgage interest might be tax-deductibleI'm MFJ, and the mortgage interest (4.99%*372k) is $18.5k or not even 2/3s of enough to get me to the starting line vs the standard deduction. Even if I had $10-15k of other itemized deductions, which I don't, it would only be a tiny bit of the borrowing that effectively benefits.
Often the discussions aren't that nuanced, or include [misleading/non-universal] mantras like "____ will make you sleep better at night" or "no one can take your home from you".We are 100% in agreement there.
Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .
Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .Sometimes it is. Keep your eyes peeled.
Every household’s finances are different. For my household for many years we shoved money into all kinds of accounts, retirement, prepaying the mortgage, deferring comp/bonuses, etc. after tax cash was kept low. But I was dumb and young and thought I’d always have a job and work a long time.Got it. Sorry.
I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path
Sounds like we are in broad agreement.
My main takeaway from literally years of discussion and analysis is that it's particularly risky to POYM if it means foregoing tax-advantaged accounts, when it results in a very large (~>30%) of your NW being tied to your home, and when the rate on a fixed mortgage is very low (≤ 4%). There are times when paying off your mortgage is essentially no different (e.g. very large savings) and a few when in which it can be beneficial (e.g. when guarding against SORR is your primary goal, or to keep spending below certain thresholds for subsidies).
Often the discussions aren't that nuanced, or include [misleading/non-universal] mantras like "____ will make you sleep better at night" or "no one can take your home from you".
Got it. Sorry.
I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path
I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.Would you get a different answer if you adjust your mortgage rate downward or alternative invest return upward for a liquidity premium. Liquidity is worth something.
The SEC yield of the Vanguard corporate bond index is 3.14%, or the US 10Y Treasury yields 3.52% - one of those is probably a better comparison point.
Agree with the broader point that a sub-3% mortgage and a bond portfolio with a better yield could make a lot of sense, and that's pretty much the analysis I did in my introduction post above. As someone with a 5% mortgage, the bond market and stock market are not close to appealing enough for my marginal dollar.
Saw one that claimed to offer rates as low as 2.83%, but as soon as I entered that 0 for amount owed "sorry we can't help you". Only like $10Kish, so I'm not that worried about it.Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .Sometimes it is. Keep your eyes peeled.
Sure. If you put an arbitrarily large bonus on a smaller number you can make it bigger than a number that used to be bigger than it. I'm not sure why that's interesting or relevant?I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.Would you get a different answer if you adjust your mortgage rate downward or alternative invest return upward for a liquidity premium. Liquidity is worth something.
The SEC yield of the Vanguard corporate bond index is 3.14%, or the US 10Y Treasury yields 3.52% - one of those is probably a better comparison point.
Agree with the broader point that a sub-3% mortgage and a bond portfolio with a better yield could make a lot of sense, and that's pretty much the analysis I did in my introduction post above. As someone with a 5% mortgage, the bond market and stock market are not close to appealing enough for my marginal dollar.
I bonds are variable rate, and they're not bondsThey are called "bonds", and they literally say "BOND" at the top, and the issuer makes the rules, so I am going to say they are bonds...
Trying to say you might want include the value of liquidity in your analysis of whether to prepay the mortgage or not. Finance types do that via a liquidity premium. Of course most people on this thread don’t do that, they just qualitatively decide whether they want their money tied up, or decide based on a cash flow analysis, another type of analysis that can help determine which option might be best. You seem focused strictly on return and volatility. For me cash flow and liquidity have significant value. Meaning my mortgage rate would prob need to be at LEAST 100bps higher than my alternative investment for me to prepay it. Maybe even 150bps. And I’d be looking constantly in the meantime to refi to a lower rate.Sure. If you put an arbitrarily large bonus on a smaller number you can make it bigger than a number that used to be bigger than it. I'm not sure why that's interesting or relevant?I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.Would you get a different answer if you adjust your mortgage rate downward or alternative invest return upward for a liquidity premium. Liquidity is worth something.
The SEC yield of the Vanguard corporate bond index is 3.14%, or the US 10Y Treasury yields 3.52% - one of those is probably a better comparison point.
Agree with the broader point that a sub-3% mortgage and a bond portfolio with a better yield could make a lot of sense, and that's pretty much the analysis I did in my introduction post above. As someone with a 5% mortgage, the bond market and stock market are not close to appealing enough for my marginal dollar.
You're a bit of an outlier. All may not be lost. Unless it's online only, it's worth a phone call. You could also try entering the amount you'd like to borrow and see what happens.Saw one that claimed to offer rates as low as 2.83%, but as soon as I entered that 0 for amount owed "sorry we can't help you". Only like $10Kish, so I'm not that worried about it.Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .Sometimes it is. Keep your eyes peeled.
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.But if you could save money by refinancing a car loan why wouldn't you?
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.
Trying to say you might want include the value of liquidity in your analysis of whether to prepay the mortgage or not. Finance types do that via a liquidity premium. Of course most people on this thread don’t do that, they just qualitatively decide whether they want their money tied up, or decide based on a cash flow analysis, another type of analysis that can help determine which option might be best. You seem focused strictly on return and volatility. For me cash flow and liquidity have significant value. Meaning my mortgage rate would prob need to be at LEAST 100bps higher than my alternative investment for me to prepay it. Maybe even 150bps. And I’d be looking constantly in the meantime to refi to a lower rate.I work in finance, and I get the concept, but I just don't see how it's really relevant here. Over 80% of my net worth today is liquid, and at FIRE time that will have decreased to 'only' 60% (but a larger dollar amount), with an additional portion conditionally accessible by a HELOC. I will be swimming in liquidity relative to my needs and don't see why I should accept a 100-150bp lower return to get additional liquidity I should have no reasonable need for.
I would make that argument, too. When offered "free money" I say yes, please 🙂.You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.
You could follow a similar argument with churning credit cards for points and bonuses. Plenty here do this to get a $200 signup bonus or 30,000 free miles (heck, MMM even promotes a few of these via ads and his blog) but unless you take it to extremes it's going to be fraction of a percent of most people's NW, and maybe 1-2% of annual gross salary.
I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.
When offered "free money" I say yes, please 🙂.
I'll restrict my comments to primary mortgage loan versus these other ways of finding a few $$:
- A primary mortgage is the largest line item in many household budgets, and it has a lot of characteristics (non-callable, lengthy term, fixed rate) not associated with most other loan products;
- The threshold for having your life together (set up one automatic payment/month) is so much lower if all you want to do is stay current on one payment; than for the credit card churning/manufactured spending route
- it really feels like optimizing on the mortgage is one of those ways where you can get a lot of results for minimal amount of effort places.
Got it. Sorry.
I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path, even thought it has a lower average final wealth after 30-50 years. If your goal is to retire early as safely as possible, and not just to be as rich as possible at 80, it better fits that goal.
It's a bond.I Bonds are not negotiable and bonds must be negotiable by definition, so I Bonds are not bonds despite their name. (The second sentence the wikipedia definition of a financial security (https://en.wikipedia.org/wiki/Security_(finance)) says that the word "security" is used vernacularly to refer to any financial instrument even if that instrument is not technically a security, and it works just the same with bonds.) If you don't want to own a T bond anymore, you can sell it to someone. If you don't want to own an I Bond anymore, then just like a nonnegotiable CD you have to put it back to the issuer at terms they decide, using a formula that cares nothing for 'market value'.
I guess you could also say the rate is fixed for 6 months. For the last three 6 month periods, the rate has been over 6.89%, so that's 18 months of DPOYM, according to ERN. And depending on your mortgage rate, the period before that could also have been a good time to not POYM.If you buy a fixed rate bond (or another fixed rate instrument like a CD) you know you are getting the yield to maturity until the instrument's maturity. Look at three instruments with very similar risk profiles and identical maturities: the fact that the 30 year TIPS trades at 1.5% (https://www.cnbc.com/quotes/US30YTIP), the 30 year treasury bond trades at 3.7% (https://www.cnbc.com/quotes/US30Y), and the I Bond has a 6% current yield (but no meaningful yield to maturity), should tell you all you need to know about inflation expectations for the second, third, and fourth six month windows on that I Bond.
Bonds aside... I think DPOYM or POYM based on SORR risk should be assessed along with time from FIRE. If SORR risk is the main concern, in most cases, DPOYM until you are very near FIRE, then POYM. I wouldn't tell a 20 year old that plans to FIRE at 40 that they should POYM to mitigate SORR.I would say that sequence of returns risk is always the primary concern. That's why we have the 4% rule and not the 7% rule or the 10% rule.
With a 5% mortgage and bond rates marching higher. It might be smarter to hang onto those extra payments is Vanguard or Fidelity MMA where you are paying a 50-100bps spread and play the wait and see game with interest rates.Doesn't a 4.22% money market yield vs a 3.74% 30 year treasury yield tell you that rates are marching lower, not higher?
Is that 80 percent all post tax? My household only has 5% of our NW in after tax accounts. RE equity is about 10% and the rest is pre-tax. our NW is just shy of $3m .I view the pre-tax as illiquid even tho yes I know I can break those golden eggs early if I want to.Trying to say you might want include the value of liquidity in your analysis of whether to prepay the mortgage or not. Finance types do that via a liquidity premium. Of course most people on this thread don’t do that, they just qualitatively decide whether they want their money tied up, or decide based on a cash flow analysis, another type of analysis that can help determine which option might be best. You seem focused strictly on return and volatility. For me cash flow and liquidity have significant value. Meaning my mortgage rate would prob need to be at LEAST 100bps higher than my alternative investment for me to prepay it. Maybe even 150bps. And I’d be looking constantly in the meantime to refi to a lower rate.I work in finance, and I get the concept, but I just don't see how it's really relevant here. Over 80% of my net worth today is liquid, and at FIRE time that will have decreased to 'only' 60% (but a larger dollar amount), with an additional portion conditionally accessible by a HELOC. I will be swimming in liquidity relative to my needs and don't see why I should accept a 100-150bp lower return to get additional liquidity I should have no reasonable need for.
Is that 80 percent all post tax? My household only has 5% of our NW in after tax accounts. RE equity is about 10% and the rest is pre-tax. our NW is just shy of $3m .I view the pre-tax as illiquid even tho yes I know I can break those golden eggs early if I want to.You could make the argument that pretax/trad money is liquid too once you're retired since you can Roth convert, but I think I am in your boat and I would really only consider taxable and Roth money accessible. I am very lucky in that my 401k has a mega backdoor option, so I only have a tiny bit (~15% each) in pretax and taxable, and a ton in post-tax. And thankfully since the market has thrown up all over my hopes and dreams, I have no gains in my Roth - it's all contributions. Yay?
the liquidity premium is relevant to this thread in the sense it should be considered, you’re just valuing that premium at zero. Where as someone like me is putting a high value on it. Others reading this thread might find this concept useful.Agreed. There are times a liquidity premium makes sense. But I think most early retirees are awash in more liquidity than they know what to do with. The most expensive thing I've ever bought, excluding my house, is $6200, and I have ~10x that available tomorrow in E fund and taxable accounts.
With a 5% mortgage and bond rates marching higher. It might be smarter to hang onto those extra payments is Vanguard or Fidelity MMA where you are paying a 50-100bps spread and play the wait and see game with interest rates.Doesn't a 4.22% money market yield vs a 3.74% 30 year treasury yield tell you that rates are marching lower, not higher?
bonds must be negotiable by definition,
The SEC (https://www.investor.gov/introduction-investing/investing-basics/glossary/bonds), FINRA (https://www.finra.org/investors/investing/investment-products/bonds), the CFAI (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/fixed-income-securities-defining-elements), SIPC (https://www.sipc.org/for-investors/what-sipc-protects), and Wikipedia (https://en.wikipedia.org/wiki/Bond_(finance)) disagree. Die on that hill if you like, but regardless the point remains that a mortgage prepayment or a fixed rate bond held to maturity gives you a knowable and unchanging return, and an I bond does not and so is an inapt comparison.
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
Completely agree. I have one open that I purposely keep a small balance on, like $1000. Just to keep the line functioning in the banks eyes I guess. But it really is just a “oh crap” line of credit. The rate is also high on it.Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage. As you said, if you rely to heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines.
If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
Completely agree. I have one open that I purposely keep a small balance on, like $1000. Just to keep the line functioning in the banks eyes I guess. But it really is just a “oh crap” line of credit. The rate is also high on it.Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage. As you said, if you rely to heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines.
If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
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you can calculate to the penny what a fixed rate bond will pay out 10 years from now, but not what that bond will be worth.That's right, and a good point. But comparing a TIPS to a mortgage paydown does not fix this problem.
I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage. As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).
If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage. As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).
If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I was going to use it to buy another fixer in the downturn.
I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage. As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).
If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I was going to use it to buy another fixer in the downturn.
Possible, I’d have to read the fine print. Maybe carrying a small balance doesn’t mean anything in the end. Maybe it’s more for my own sake, knowing it works. I assume at the end of the day the bank can just shut it down for whatever reason it wants.I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage. As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).
If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I was going to use it to buy another fixer in the downturn.
Would the lender not issue a letter saying something like, you may continue to pay down the balance owed on the HELOC, but you may not borrow additional principal during a financial crisis? Or is that covered under the terms of the line of credit?
I believe they can call them at any time, but in my case there was $0 balance and they just shut it down. That was the (temporary) end of easy credit.Possible, I’d have to read the fine print. Maybe carrying a small balance doesn’t mean anything in the end. Maybe it’s more for my own sake, knowing it works. I assume at the end of the day the bank can just shut it down for whatever reason it wants.I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage. As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).
If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I was going to use it to buy another fixer in the downturn.
Would the lender not issue a letter saying something like, you may continue to pay down the balance owed on the HELOC, but you may not borrow additional principal during a financial crisis? Or is that covered under the terms of the line of credit?
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The SEC (https://www.investor.gov/introduction-investing/investing-basics/glossary/bonds), FINRA (https://www.finra.org/investors/investing/investment-products/bonds), the CFAI (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/fixed-income-securities-defining-elements), SIPC (https://www.sipc.org/for-investors/what-sipc-protects), and Wikipedia (https://en.wikipedia.org/wiki/Bond_(finance)) disagree. Die on that hill if you like, but regardless the point remains that a mortgage prepayment or a fixed rate bond held to maturity gives you a knowable and unchanging return, and an I bond does not and so is an inapt comparison.
Are you with IBKR? That's the only place I've seen even somewhat decent margin loan terms, and even there with only megabucks account, but I'd love to hear other options...
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
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Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.Well, if I was underwater on my mortgage then I would definitely not prepay anything. On the flip side, if I was paying PMI and the value had gone up enough so I was just on the cusp of getting the PMI removed, then I would certainly consider prepaying a bit.
My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.OMG, this hurts just to read.
My husband has a ridiculous Disney wrist band collection. Prob a few thousand worth .My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.OMG, this hurts just to read.
A what…? Like the wristbands for park entry? They are worth money…?My husband has a ridiculous Disney wrist band collection. Prob a few thousand worth .My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.OMG, this hurts just to read.
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I have a single ornament that goes for $200+, and I have probably 5-10 more that are over $100 each. Somehow certain brands of ornaments become collectible over time. I am also not selling them. I’m sure my kids will once I am gone. LOLMy wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.OMG, this hurts just to read.
Yeah, but you have earned an asterisk, IMO. You're a little bit fancy and a lotta bit mustachian. I freely confer this status upon you because I have come to understand that living with your DH is a constant (or near-constant) source of spending pressure. Also, you mentioned what they go for, not what you actually paid for them. Very clever.I have a single ornament that goes for $200+, and I have probably 5-10 more that are over $100 each. Somehow certain brands of ornaments become collectible over time. I am also not selling them. I’m sure my kids will once I am gone. LOLMy wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.OMG, this hurts just to read.
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
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You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.
I usually drop comprehensive/collision once the value of my car becomes non-catastrophic. Dealing with the hassle of a lien title and insurance requirements definitely puts a damper on the reward of cash-out refinancing a car.
@sonofsven , my argument is more about size than about saving money (in fact, yesterday, I only filled up my tank a fraction of the way towards full because I thought the per gallon price was too high). You sound like you saved $600-ish from your refinance--and I will take that if it's in front of me on a table--but I imagine your target net worth is probably 1,500x of that or more.Gotcha. Sometimes I go all in to save money as i'm of fairly modest income, but my blind spot is that I should often instead make more money. But I do like the simplicity of staying home and puttering around more as I get older, instead of the $$ hustle.
@sonofsven , my argument is more about size than about saving money (in fact, yesterday, I only filled up my tank a fraction of the way towards full because I thought the per gallon price was too high). You sound like you saved $600-ish from your refinance--and I will take that if it's in front of me on a table--but I imagine your target net worth is probably 1,500x of that or more.
Back on topic: still not paying extra on my 2.75% fixed mortgage.
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
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
I'm not. Ha. (I started the other thread) I want the peace of mind of having no debt whatsoever. To me that's worth any nickel and diming of interest rates.
Not really. I just thought it was neat that someone created a thread based on the opposite of my thread from 10 years ago. I haven't been on this site for over 5 years so I never saw the post. Not trying to start a confrontation. To each their own in how they want to handle their mortgage.Except it isn't really the opposite. Those other threads are for the sole purpose of celebrating a decision that others consider sub-optimal. No discussion is allowed there, only celebration. This thread was created for people who wanted to learn and understand before making a decision. HUGE difference. We are a very tolerant group, but your comments aren't really helpful, primarily because this thread isn't what you think it is. However, you are welcome to stay and learn. Who knows? Maybe you'll get a mortgage on your next property. Either way, you'll gain a greater understanding of why "killing the mortgage" comes at a cost that many don't even realize they're paying until it's too late.
No discussion is allowed there, only celebration.
No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
I have a theory that most of us who got in on the ground floor, so to speak, have discovered that this shit works, and does so far beyond our original expectations oe even our wildest ones, in many cases. Now our priorities have shifted.I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
I’m familiar and generally appreciate your approach on this forum. Doesn’t change the fact that the overall tone has changed dramatically over the last decade
@Dicey , I think by "this shit" you have the larger Mustachian movement in mind. We DPYM'ers rightly recognize we are a subgroup within the larger, anti-consumerist mustachian movement, however.Yes indeed, I was referring to the larger Mustachian movement, as you call it, because that's where a lot of these so-called changes are most apparent. This thread has been pretty consistent, IMO.
I think we are at a moment in time when market conditions have changed, and these may well change the DPYM strategy for people who have not yet secured a property. Anti-consumerism will certainly age well. I think you've experienced this with your current property you're renovating for sale, haven't you?
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
Yes but think about all the things our prodigal mustachian poster has missed.
The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache
It has been quite a journey.
Yes but think about all the things our prodigal mustachian poster has missed.I am honored to have made this list. =)
The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache
It has been quite a journey.
Awesome recap, but you missed the most germane one: The legend who started this thread, boarder42, who got his badass self banned, reinstated, then banned again. I miss that dude, but I have it on good authority that he is enjoying his post-FIRE, post-MMM life very much. We have our fingers crossed that he will make it to the next Moab Meetup.I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
Yes but think about all the things our prodigal mustachian poster has missed.
The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache
It has been quite a journey.
Your lists are legendary. You deserve to be on that list.Yes but think about all the things our prodigal mustachian poster has missed.I am honored to have made this list. =)
The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache
It has been quite a journey.
Awesome recap, but you missed the most germane one: The legend who started this thread, boarder42, who got his badass self banned, reinstated, then banned again. I miss that dude, but I have it on good authority that he is enjoying his post-FIRE, post-MMM life very much. We have our fingers crossed that he will make it to the next Moab Meetup.I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
Yes but think about all the things our prodigal mustachian poster has missed.
The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache
It has been quite a journey.
And just because I like throwing matches, I recently bought a Vitamix on sale at Costco for $299. It's still in the box, because is Bonus Kid is about to move out and he's taking the Ninja with him. Once that happens, I will be free to open the Vitamix box, which I'm staring at as I type. Do you think it will make my friends think better of me? Hahaha...my friends don't care. They're more likely to ask if I scored it at the thrift shop where I volunteer. I wish.
I like your Dad.Awesome recap, but you missed the most germane one: The legend who started this thread, boarder42, who got his badass self banned, reinstated, then banned again. I miss that dude, but I have it on good authority that he is enjoying his post-FIRE, post-MMM life very much. We have our fingers crossed that he will make it to the next Moab Meetup.I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
Yes but think about all the things our prodigal mustachian poster has missed.
The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache
It has been quite a journey.
And just because I like throwing matches, I recently bought a Vitamix on sale at Costco for $299. It's still in the box, because is Bonus Kid is about to move out and he's taking the Ninja with him. Once that happens, I will be free to open the Vitamix box, which I'm staring at as I type. Do you think it will make my friends think better of me? Hahaha...my friends don't care. They're more likely to ask if I scored it at the thrift shop where I volunteer. I wish.
Dicey, I have a vitamix as well. My Dad likes to buy his kids expensive kitchen or shop gadgets for Christmas. This year he bought me a good drill since he hated my cheap black and decker one.
Awesome recap, but you missed the most germane one: The legend who started this thread, boarder42, who got his badass self banned, reinstated, then banned again. I miss that dude, but I have it on good authority that he is enjoying his post-FIRE, post-MMM life very much. We have our fingers crossed that he will make it to the next Moab Meetup.I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Yup, as has this forum.
Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
Yes but think about all the things our prodigal mustachian poster has missed.
The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache
It has been quite a journey.
And just because I like throwing matches, I recently bought a Vitamix on sale at Costco for $299. It's still in the box, because is Bonus Kid is about to move out and he's taking the Ninja with him. Once that happens, I will be free to open the Vitamix box, which I'm staring at as I type. Do you think it will make my friends think better of me? Hahaha...my friends don't care. They're more likely to ask if I scored it at the thrift shop where I volunteer. I wish.
Dicey, I have a vitamix as well. My Dad likes to buy his kids expensive kitchen or shop gadgets for Christmas. This year he bought me a good drill since he hated my cheap black and decker one.
Yes but think about all the things our prodigal mustachian poster has missed.
The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache
It has been quite a journey.
Who is the poster who has/had weird, controlling, relationships with his girlfriends and women in general? He posted in Off Topic fairly recently.zoochadookdook?
Who is the poster who has/had weird, controlling, relationships with his girlfriends and women in general? He posted in Off Topic fairly recently.zoochadookdook?
Yeah, most of us probably don't want to be known by the mistakes we're making in our romantic relationships.Especially when we continue to make them and post about it.
Easy, there, I have a journal that is exclusively focused on my crypto-currency purchases.
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.
If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.
We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).
This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.
If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.
We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).
This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
I like the plan too, so long as it all happens relatively quickly once make that first move to pay off the mortgage. The risk would be that something happens and after you've paid off current house, plans change and you're looking at several years or more with that extra $100K languishing as home equity and maybe refinancing is difficult and if available seems pretty likely to be at worse terms than you had before. So if you do this this way, be sure to get it all done in a matter of a few months.I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.
If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.
We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).
This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
i like the plan of paying off the existing mortgage, which frees up DTI space for the new mortgage. i also like the idea of you not being held ransom by having to sell your existing place to buy the new place, which is a tricky situation when buying properties. With $100k left on the existing mortgage and $300k available to you it all seems like a good plan.
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.
If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.
We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).
This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
Thanks for weighing in, both of you. I agree that this is pretty committal so I need to be sure we're moving first. On that front the potential move would be to an entirely different state, so it's not like we're just thinking of moving to a bigger house or nicer part of town. If this is happening it will be quite definitive with a definitive timeline.I like the plan too, so long as it all happens relatively quickly once make that first move to pay off the mortgage. The risk would be that something happens and after you've paid off current house, plans change and you're looking at several years or more with that extra $100K languishing as home equity and maybe refinancing is difficult and if available seems pretty likely to be at worse terms than you had before. So if you do this this way, be sure to get it all done in a matter of a few months.I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.
If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.
We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).
This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
i like the plan of paying off the existing mortgage, which frees up DTI space for the new mortgage. i also like the idea of you not being held ransom by having to sell your existing place to buy the new place, which is a tricky situation when buying properties. With $100k left on the existing mortgage and $300k available to you it all seems like a good plan.
Sorry I missed your post @RWD I'd pose that question directly to your lender. As I understand it, the old mortgage will be counted as part of your DTI, BUT your liquid assets also figure into the qualification process. I'm not sure how that formula works, and it is probably lender specific. Might be sixes, not sure. In any event, the power of DPYM comes in the long term, so it probably won't matter much either way.No problem, I know the forum can sometimes be a little wonky about actually jumping to the correct unread post in a thread. And then this thread went off on a tangent immediately after I posted.
three years ago I went through a move, and we wound up just submitting a written statement that we were planning to sell the prior house soon. You may wish to talk with your mortgage broker before you commit to a plan that would pay off the loan balance in case it doesn't actually matter. Having liquid cash during a move sure helped us.Thanks, that's very helpful. That would definitely be ideal. I am quite happy to not have all our capital tied up in house equity right now. So much more flexibility with not paying extra on the mortgage.
Now this is funny…
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Where did you find a photo of us, @rmorris50 ?You know, on the internets…
Now this is funny…Oh Snap...*
(https://uploads.tapatalk-cdn.com/20230131/801876681516a37f8afa5740148c92f7.jpg)
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I suppose the real question is why a Vampire would ever not be 100% stocks?On a long enough time period, black swan events become a serious risk. Since stocks are publicly known there's a much higher chance of them being nationalized relative to a pile of gold hidden in an underground lair protected by an army of the undead.
I suppose the real question is why a Vampire would ever not be 100% stocks?On a long enough time period, black swan events become a serious risk. Since stocks are publicly known there's a much higher chance of them being nationalized relative to a pile of gold hidden in an underground lair protected by an army of the undead.
I suppose the real question is why a Vampire would ever not be 100% stocks?On a long enough time period, black swan events become a serious risk. Since stocks are publicly known there's a much higher chance of them being nationalized relative to a pile of gold hidden in an underground lair protected by an army of the undead.
but what is the opportunity cost of forming and maintaining an army of the undead?
I'm on board with DPYMC, but thinking about how the strategy works with early retirements, specifically ACA subsidies.Depends on the structure of your portfolio to an extent. If all the money can come out of Roth contributions (or qualified after 59.5), that's no ACA subsidy impact I believe. Opposite if traditional. If you're taking money out of a taxable account, then some of it is income and some of it is return of basis.
Right now my mortgage is $2000/mo, 28 years left at 2.5%- so if I kept things as is that's an extra $24k I'd need to withdraw in retirement
An ACA silver plan will be 8.5% of AGI (just for premium), so essentially a penalty of $8.5 per $1000 withdrawn.
Would I be better off paying off in full at time or retirement, or maybe a lump sum payment and recast to lower payment (say $1k/mo)?
Any advice welcome- thanks.
I'm on board with DPYMC, but thinking about how the strategy works with early retirements, specifically ACA subsidies.It almost always makes sense to stuff everything you can into tax deferred accounts, then Roths (if eligible) then taxable investment accounts, etc. Get as many soldiers working for you as fast as possible. Eventually, you will get to a point where you can easily decide to pay the aging mortgage off, or, more likely, continue to have fun watching your investments earn more than you ever did on your best day working.
Right now my mortgage is $2000/mo, 28 years left at 2.5%- so if I kept things as is that's an extra $24k I'd need to withdraw in retirement
An ACA silver plan will be 8.5% of AGI (just for premium), so essentially a penalty of $8.5 per $1000 withdrawn.
Would I be better off paying off in full at time or retirement, or maybe a lump sum payment and recast to lower payment (say $1k/mo)?
Any advice welcome- thanks.
I'm on board with DPYMC, but thinking about how the strategy works with early retirements, specifically ACA subsidies.So the penalty means you need to withdrawal about $26k instead of $24k. What interest rate would your mortgage have to be to require a $26k annual withdrawal? 3%? You prob would still choose to not prepay a 3% mortgage? That’s how I would think about it.
Right now my mortgage is $2000/mo, 28 years left at 2.5%- so if I kept things as is that's an extra $24k I'd need to withdraw in retirement
An ACA silver plan will be 8.5% of AGI (just for premium), so essentially a penalty of $8.5 per $1000 withdrawn.
Would I be better off paying off in full at time or retirement, or maybe a lump sum payment and recast to lower payment (say $1k/mo)?
Any advice welcome- thanks.
Hmmm... If those thread denizens were made aware how far they strayed from the original intent of the thread with their "celebrations only" demands - that could be pretty funny.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
I had temporarily forgotten about Mr Orange. Man, that got weird.Hm, never saw that one.
I had temporarily forgotten about Mr Orange. Man, that got weird.Hm, never saw that one.
Not gonna lie, for a moment I was tempted to share that gem with the mods, but some of us were sternly warned to keep out of the "discussion" or risk being banned. Not worth it to me. Let 'em celebrate all they want. However, when people say this forum has changed, I always think it started with those threads.Hmmm... If those thread denizens were made aware how far they strayed from the original intent of the thread with their "celebrations only" demands - that could be pretty funny.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Can't disagree with that. Face punches blocked in favor of creating a "safe space" - which apparently wasn't even the intent of the originator of the discussion.Not gonna lie, for a moment I was tempted to share that gem with the mods, but some of us were sternly warned to keep out of the "discussion" or risk being banned. Not worth it to me. Let 'em celebrate all they want. However, when people say this forum has changed, I always think it started with those threads.Hmmm... If those thread denizens were made aware how far they strayed from the original intent of the thread with their "celebrations only" demands - that could be pretty funny.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
I have 111k left on a 15 year mortgage at 2.75% that'll mature in 2031.
Posting here to hold myself accountable not to curtail or payoff the balance -- as sometimes I question a bit my DPYMC faith.
How about this:Can't disagree with that. Face punches blocked in favor of creating a "safe space" - which apparently wasn't even the intent of the originator of the discussion.Not gonna lie, for a moment I was tempted to share that gem with the mods, but some of us were sternly warned to keep out of the "discussion" or risk being banned. Not worth it to me. Let 'em celebrate all they want. However, when people say this forum has changed, I always think it started with those threads.Hmmm... If those thread denizens were made aware how far they strayed from the original intent of the thread with their "celebrations only" demands - that could be pretty funny.No discussion is allowed there, only celebration.
Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
I have 111k left on a 15 year mortgage at 2.75% that'll mature in 2031.
Posting here to hold myself accountable not to curtail or payoff the balance -- as sometimes I question a bit my DPYMC faith.
Curious, what would tempt you to pay something like that off? Just trying to understand the motivation…
How about this:Uh, you must have a very short view into "the past"...
If you have a 3.5% mortgage, you belong in the DPOYM club.
If you have a 6.5% mortgage, you belong in the POYM club.
If you're in between, there's no clear answer.
In the world of the past, there were only cheap mortgages and anyone with a pulse refinanced every few years. In today's world, there are people with vastly different mortgage realities. It doesn't make sense to tell the 3.5% person to pay off their mortgage, and it also doesn't make sense to tell the 6.5% person NOT to pay off their mortgage if they will still have good liquidity afterward. It's not so much that it's rude or insensitive to give each type of person bad advice, it's just that the advice is often bad if the interest rate is not taken into account.
This is the place where discussion is encouraged. You are absolutely in the right place!I have 111k left on a 15 year mortgage at 2.75% that'll mature in 2031.
Posting here to hold myself accountable not to curtail or payoff the balance -- as sometimes I question a bit my DPYMC faith.
Curious, what would tempt you to pay something like that off? Just trying to understand the motivation…
It would lower my fixed costs by 44%. I'd have to re-model it, but I think it would actually move up a "technically I'm capable to FIRE" tipping point.
Just answering a question here! If this isn't the place to ponder it -- no problem :]
How about this:Uh, you must have a very short view into "the past"...
If you have a 3.5% mortgage, you belong in the DPOYM club.
If you have a 6.5% mortgage, you belong in the POYM club.
If you're in between, there's no clear answer.
In the world of the past, there were only cheap mortgages and anyone with a pulse refinanced every few years. In today's world, there are people with vastly different mortgage realities. It doesn't make sense to tell the 3.5% person to pay off their mortgage, and it also doesn't make sense to tell the 6.5% person NOT to pay off their mortgage if they will still have good liquidity afterward. It's not so much that it's rude or insensitive to give each type of person bad advice, it's just that the advice is often bad if the interest rate is not taken into account.
How about this:
Even at 6.5%, the answer isn't quite so clear. If you're not saving enough to get your employer's full match or saving less pre-tax that what's allowed in your situation, or skipping Roth IRAs (if eligible), then you have no business paying extra on your mortgage. Even if you're doing all these things, there is still the time value of money to consider and the mighty, mighty hedge against inflation a fixed mortgage generously provides.
Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?How about this:Uh, you must have a very short view into "the past"...
If you have a 3.5% mortgage, you belong in the DPOYM club.
If you have a 6.5% mortgage, you belong in the POYM club.
If you're in between, there's no clear answer.
In the world of the past, there were only cheap mortgages and anyone with a pulse refinanced every few years. In today's world, there are people with vastly different mortgage realities. It doesn't make sense to tell the 3.5% person to pay off their mortgage, and it also doesn't make sense to tell the 6.5% person NOT to pay off their mortgage if they will still have good liquidity afterward. It's not so much that it's rude or insensitive to give each type of person bad advice, it's just that the advice is often bad if the interest rate is not taken into account.
How about this:
Even at 6.5%, the answer isn't quite so clear. If you're not saving enough to get your employer's full match or saving less pre-tax that what's allowed in your situation, or skipping Roth IRAs (if eligible), then you have no business paying extra on your mortgage. Even if you're doing all these things, there is still the time value of money to consider and the mighty, mighty hedge against inflation a fixed mortgage generously provides.
You also don't know what the next few years will hold. Rates could drop again, and a refinance of original purchase loan is going to get better terms than a cash-out (tax and rate) after you've totally paid off your mortgage
That kind of goes with the theme that keeping your mortgage is just more flexible. You might end up paying more for that flexibility
Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
I'm thinking there is a cap on how much of the interest on the new loan would be tax deductible, though possibly tax code changes implemented by a certain former US president changed that.Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
You're probably thinking about the $10k SALT cap which the certain former president pushed through. There used to be no cap: https://taxfoundation.org/tax-basics/salt-deduction/I'm thinking there is a cap on how much of the interest on the new loan would be tax deductible, though possibly tax code changes implemented by a certain former US president changed that.Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
Hi folks, I’m new to the idea of NOT paying off your mortgage as a fire strategy. But I’m curious about several things. I am about 6 years from FIRE and I planned to use the last couple of years before retiring to completely pay down the mortgage. Are folks in this camp not planning to pay down the mortgage early at all and just let them ride for the full length of the mortgage (carrying the mortgage payment into retirement), or is it that they’re planning to do exactly what I said I was planning to do which investing now and then paying down the mortgage just before retirement. I hope this is making sense. I’m just wondering if I’ve been missing something and should reevaluate my need to pay down the mortgage before FIRE.
For what it’s worth, we have a $180,000 30-year mortgage (2021), 2.75% interest rate, $1069 payment. According to my calculations, in order to retire without paying it off would require an extra $300k invested to cover the $1069 monthly payment OR, I could spend a couple extra years just before fire paying down the $150k-ish remaining principal instead of investing(but also while letting my investments grow) and be done with it.
Am I missing something here? I’d love to hear your thoughts.
Thanks for your reply. I think where I’m confused is that it’ll take, at least for me, about the same length of time to pay down the mortgage as it would to have enough extra invested to cover a mortgage payment into retirement. I understand that my invested money would outperform a 2.75% mortgage rate, so I was just wondering if there was more to it, like tax implications, that I might be missing.
Thanks for your reply. I think where I’m confused is that it’ll take, at least for me, about the same length of time to pay down the mortgage as it would to have enough extra invested to cover a mortgage payment into retirement. I understand that my invested money would outperform a 2.75% mortgage rate, so I was just wondering if there was more to it, like tax implications, that I might be missing.
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow? Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments? Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.Don’t over think it.
For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow? Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments? Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.
For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow? Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments? Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.
For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow? Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments? Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.
For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.
The mechanics of making the payments is the easy part. Organizing the rest of your life such that you're saving 25% or more of the remaining income takes discipline.
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha
Let’s revisit in a couple decades and see. I’ll bet 55 cents it was a very poor place to put that money.Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha
Good thing the market is so overpriced, it makes that prepayment very wise.
Let’s revisit in a couple decades and see. I’ll bet 55 cents it was a very poor place to put that money.Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha
Good thing the market is so overpriced, it makes that prepayment very wise.
I'm thinking there is a cap on how much of the interest on the new loan would be tax deductible, though possibly tax code changes implemented by a certain former US president changed that.Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
I was reflecting on my current mortgage that I’m in no hurry to pay off. I realized that it’s more important not to pay ahead now living an CA as a non recourse state. If things go to heck, I can just walk away losing only what is already in my home. I could then go live cheaply in BFE and be perfectly ok with my liquid assets.
I was reflecting on my current mortgage that I’m in no hurry to pay off. I realized that it’s more important not to pay ahead now living an CA as a non recourse state. If things go to heck, I can just walk away losing only what is already in my home. I could then go live cheaply in BFE and be perfectly ok with my liquid assets.
It's really satisfying to have I-bonds yielding well over 2x what my mortgage rate is...(https://uploads.tapatalk-cdn.com/20230315/76e3dabb5ac577b57841c84576439e84.jpg)
Homeowners who held onto a 3% mortgage rate are becoming ‘accidental landlords’
"The era of lower-than-ever mortgage rates is long gone, and it’s been replaced with rates hovering around 7%. But homeowners who locked in lower rates before or during the Pandemic Housing Boom aren’t selling. In fact, some of them are becoming “accidental landlords,” simply because they don’t want to lose their low rates of the past. That being said, the so-called lock-in effect is putting pressure on both sides of the market. There aren’t as many buyers looking for new digs and not as many sellers looking to move up or downsize, if they’ll get stuck with a mortgage rate more than twice as high as their old one."
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/
Homeowners who held onto a 3% mortgage rate are becoming ‘accidental landlords’
"The era of lower-than-ever mortgage rates is long gone, and it’s been replaced with rates hovering around 7%. But homeowners who locked in lower rates before or during the Pandemic Housing Boom aren’t selling. In fact, some of them are becoming “accidental landlords,” simply because they don’t want to lose their low rates of the past. That being said, the so-called lock-in effect is putting pressure on both sides of the market. There aren’t as many buyers looking for new digs and not as many sellers looking to move up or downsize, if they’ll get stuck with a mortgage rate more than twice as high as their old one."
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/
I get what they are saying, but I’m not keen on the egative phrasing. People [should] keep their previous home as a rental if it’s better than selling. The option to sell remains. Homeowners with low rates aren’t “locked in” to anything and they certainly do not “accidentally” become landlords. They decide to mov3 and realize that with their mortgage so low they can do better then selling.
It’s a blessing not a curse - both when they bought and when they move.
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.What's the 10/6 rate with no points?
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I tend to agree with this POV.We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
I wasn't quoted but I estimate around 6% (0.4 points was a 5.75% rate)We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.What's the 10/6 rate with no points?
For the ARM comparing to itself, going from 0.4 -> 1 point pays for itself in 20 months. The extra 1 point from 1 to 2 points takes 33 months to pay for itself. Comparing to 30-year fixed no points, 1 point ARM pays for itself in 19 months. The full 2 points cost pays for itself in 24 months. We have no plans to move in the foreseeable future (15+ years is plausible).I tend to agree with this POV.We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
How would you feel if you paid the points and then rates drifted downward over the course of the next year or so?
Option 1 sounds good to me!
I wasn't quoted but I estimate around 6% (0.4 points was a 5.75% rate)We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.What's the 10/6 rate with no points?For the ARM comparing to itself, going from 0.4 -> 1 point pays for itself in 20 months. The extra 1 point from 1 to 2 points takes 33 months to pay for itself. Comparing to 30-year fixed no points, 1 point ARM pays for itself in 19 months. The full 2 points cost pays for itself in 24 months. We have no plans to move in the foreseeable future (15+ years is plausible).I tend to agree with this POV.We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
How would you feel if you paid the points and then rates drifted downward over the course of the next year or so?
Option 1 sounds good to me!
If rates come down to ~4.5% in under 2 years I'll be a bit surprised but wouldn't mind losing a bit of those points for the chance that it takes 3 years or longer. The main risk is that rates never come down and actually go up and after 10 years we're stuck with a ridiculous rate.
When I was evaluating this for my own re-fi's I looked at real numbers. So your 33 month break even (almost 3 years), how much will you save monthly/ yearly after reaching 33 months? If you invest the savings how much would you make in five, ten, fifteen years? (I don't expect you to answer, these were just examples I used myself).
I plan on never leaving my house (well, someday...) but in my case I decided the savings/potential investment income was minimal at best and it wasn't worth it to pay points.
Also, your fixed mortgage payment is an inflation hedge in the future regardless of if you pay points now.
And if you're paying points by adding it to your loan balance you need to account for that, too. Or if paying with cash, how else can you optimize that cash now and what will it be worth in the future?
I was really tempted because at one point a few years ago I could have gotten a sub 2% 30 year fixed by paying points. Bragging rights.
Once you consider all the angles I'm sure you'll make the right decision for you; there really is no right answer. You're guessing on what rates will do. An educated guess is still half guess ;-)
I am currently in the process of getting 2 mortgages to buy my first house. I have followed this threat for a while, understanding the math behind it all. But I must say, that making this step, it does feel like a big looming thing to take on, the mortgage. So for the first time I understand the emotional choice people in the other thread make.Buying a house is a Huge Commitment. It's scary as hell. I remember having an entire sleepless night when I bought my first house, and buying a home was a milestone goal for me. Further, all of the people you interact with during the process have their hand in your pocket. It's hard to find unbiased help.
But I got you guys to keep me on the straight and narrow XD
I expect an effective (after tax incentives) mortgage rate of 2.6%. I can get more on a savings account than that.
Sorry I have too much time on my hands, but thought it might make some laugh:
(http://drive.google.com/uc?export=view&id=1_pxpwbM4E82XTW6G3XX9iLbelCgJyyLW)
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.Sorry I have too much time on my hands, but thought it might make some laugh:
(http://drive.google.com/uc?export=view&id=1_pxpwbM4E82XTW6G3XX9iLbelCgJyyLW)
Man, that joke was silent and deadly….
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.
I really am starting to think we will never move again.
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.
I really am starting to think we will never move again.
Sent from my iPhone using Tapatalk
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?Probably yes. But some years back I was paying my 15 year mortgage aggressively then bam , I lost my job and all sudden I wished I had that cash in savings instead of my house. I do think in our society liquidity risk gets overlooked or underestimated, generally speaking. If I was gonna pay my mortgage off early now I’d do the “sinking fund” approach and pay off the house all at once once I have enough money and feel comfortable. A paid off house only helps once it’s completely paid off. Until that point there is definitely risk in putting too much savings into your house.
We have a <3% 30 year now, so obviously not in this case :)
But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.
It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the USThe Netherlands has a government guarantee on mortgages, so they are basically risk free for lenders. This has also caused the Netherlands to be in the interesting situation of being the most unequal country in the world in terms of wealth inequality. https://youtu.be/Ot4qdCs54ZE?t=378 (https://youtu.be/Ot4qdCs54ZE?t=378)
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the USThe Netherlands has a government guarantee on mortgages, so they are basically risk free for lenders. This has also caused the Netherlands to be in the interesting situation of being the most unequal country in the world in terms of wealth inequality. https://youtu.be/Ot4qdCs54ZE?t=378 (https://youtu.be/Ot4qdCs54ZE?t=378)
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?
I asked this question as a poll back in September 2022 and got the following responses:
https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/msg3063627/#msg3063627 (https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/msg3063627/#msg3063627)
It would be interesting to re-run the poll. Presumably, any deviation from the pattern 7 months ago might reflect shifting risk tolerance, changing cultural norms, or different alternatives for investment rather than a logic that applies in all times and circumstances.
I wonder if the people who would require 7-10% interest rates before they'd make a prepayment have moderated their demands now that the Fed has raised rates a lot higher, a couple of banks have failed, and the yield curve is the most inverted since the early 80's? Do those risk-free rates of return look better now?
18% of respondents said they would prepay a mortgage no matter how low the interest rate. Another 8% of respondents would prepay a 4% mortgage. I wonder if these combined 26% of respondents have discovered 5% CDs or 6.89% iBonds since then?
Three respondents said they'd never prepay a mortgage, no matter how high the interest rate. Another 11% would only consider prepayment if the rate was somewhere in the range of 8-10%. Assuming they understood the question, I wonder if they're still investing in things they expect to have a risk-free return at these levels, and what those things are?
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?
We have a <3% 30 year now, so obviously not in this case :)
But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.
It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?
We have a <3% 30 year now, so obviously not in this case :)
But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.
It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.
I'm looking at a 2nd mortgage to fund new roof/solar. Rates are high and fluctuating so I'm not even sure I'll do it. On the one hand, I can deduct the interest and the rates beat other financing options by far. On the other hand, I could just sell some stonks to pay for it.
What do you think? When I first started looking I could get 10 year at 6%. I was re-reading the investment order thread and it suggested something like taking the 10-year treasury rate (3.6%) and adding 2-3%. If it's within that, prefer 401k and even consider individual investments. So if I choose NOT to take the loan, that's effectively the same as taking the loan and then "POYM".
But to me, that's still cutting it pretty close. Not a slam dunk like my current 3%
And the dollar value is relatively low anyway. And the company (DCU) is kinda being a pain about it. They were like "your DTI is too high, what if you pay off this 3% loan and then we can lend you even MORE money at 6%." Uh... no thanks?
(Also rates edged up to around 6.25% since I applied, I didn’t lock yet because I thought perhaps they would actually come down a bit but now I’m just hoping they go back to 6. Also my appraisal came in massively undervalued which doesn’t actually change much but I want to ask the appraiser WTF he is thinking since my neighbor with basically the same house bought for 44% higher 6.1 months ago and he claims values are stable over the last 6 mo., and though I take them with a grain of salt Redfin Zillow and corelogic are way higher as we)
On paying off a mortgage. It’s not just about the rate. CA being a non recourse state, I’d rather put extra into investments. Worst case scenario I can just walk away from my home losing only what principle if things get bad.
Being penalized for a good credit score?
https://finance.yahoo.com/news/mortgages-homebuyers-good-credit-cost-135954525.html
https://www.mortgagenewsdaily.com/markets/mortgage-rates-04212023(https://a.mortgagenewsdaily.com/assets/644982a8897b350cb57eaadf/644982a8897b350cb57eaadf.png)
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...
Congratulations, first off!
At 6.4% you could conceivably make an argument for paying it down early I think. This is the first time in this boards (shortish) history that it MIGHT be mathematically OK to do so. Even if the market beats it, 6.4% is a decent return.
I had a 4% $450k note from 2019 that got refi'ed TWICE during 2020-2021 pandemic down to 3.25% and again to 2.75%. I'm feeling pretty fortunate on the timing of the whole thing, considering the house shot from 500k(ish) to a bit over 700k in value with the payment being under 3k yet. (still, about 2x higher than I realistically wanted, but what are you going to do?)
Where is a decent heart emoji when you need one?Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...
Congratulations, first off!
At 6.4% you could conceivably make an argument for paying it down early I think. This is the first time in this boards (shortish) history that it MIGHT be mathematically OK to do so. Even if the market beats it, 6.4% is a decent return.
I had a 4% $450k note from 2019 that got refi'ed TWICE during 2020-2021 pandemic down to 3.25% and again to 2.75%. I'm feeling pretty fortunate on the timing of the whole thing, considering the house shot from 500k(ish) to a bit over 700k in value with the payment being under 3k yet. (still, about 2x higher than I realistically wanted, but what are you going to do?)
Even if the market doesn't beat it I would rather have the flexibility of liquid investments than locked up in home equity. Paying off this mortgage would more than halve our invested assets. Not acceptable. And of course, if we do get to refinance in the future the more debt remaining the better.
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...
5.5% is not as good as 2.875% obviously, but is still in the range where the move is probably hold the loan for the duration (and refinance if rates come down).Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...
We are trading a 2.875% rate for a 5.5% rate, the new home is purchased and the old one should close mid July. I am also incredibly sad to lose that rate. Given our hopeful timeline we may consider some early payoff unless rates drop and we can refi at a lower rate
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...
Thinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this).
It's not a HELOCThinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this).
A HELOC is a callable loan so it doesn't have the long term advantages of a mortgage. Short term for your tax advantages I could see it being worthwhile, but you should have a plan in place to pay it off rapidly if needed.
HELOC rates are typically variable as well. As always, be sure to read the fine print before you sign.Thinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this).
A HELOC is a callable loan so it doesn't have the long term advantages of a mortgage. Short term for your tax advantages I could see it being worthwhile, but you should have a plan in place to pay it off rapidly if needed.
I'd post more but I feel like it is gloating. If we look back to the heyday of this board when interest rates were ~3.0% and compare them to today, we've now seen CPI core inflation has risen to over 6% and boring old 10 year treasuries are over 4%. And over the last five years the S&P 500 is up over 50%. Keeping your money out of the house may or may not have made you rich, but it for sure made you a nice big pile of money. Plus in the event of an emergency or amazing financial opportunity, you now have a big stack of liquid assets you can access at anytime, as opposed to having your money tied up in an illiquid asset that is expensive and time consuming to access. That's the key to sleeping well at night.
If that weren't good enough, thanks to inflation your future obligations are withering away. What once seemed like an enormous debt has now been cut off at the knees. All by doing nothing. Which, by the way, is how I like doing things.
Back in the day, we were banging on the DPYM drum pretty awful damn hard. Maybe too hard (RIP @boarder42). Point is, the ability to borrow hundreds of thousands of dollars, at a fixed rate, long term, non-callable, tax-advantaged loan at ~3% was the deal of a lifetime. We weren't able to convince everyone we were staring the golden goose in the face, but we convinced a few. I'm really happy with that.
I'd post more but I feel like it is gloating. If we look back to the heyday of this board when interest rates were ~3.0% and compare them to today, we've now seen CPI core inflation has risen to over 6% and boring old 10 year treasuries are over 4%. And over the last five years the S&P 500 is up over 50%. Keeping your money out of the house may or may not have made you rich, but it for sure made you a nice big pile of money. Plus in the event of an emergency or amazing financial opportunity, you now have a big stack of liquid assets you can access at anytime, as opposed to having your money tied up in an illiquid asset that is expensive and time consuming to access. That's the key to sleeping well at night.
If that weren't good enough, thanks to inflation your future obligations are withering away. What once seemed like an enormous debt has now been cut off at the knees. All by doing nothing. Which, by the way, is how I like doing things.
Back in the day, we were banging on the DPYM drum pretty awful damn hard. Maybe too hard (RIP @boarder42). Point is, the ability to borrow hundreds of thousands of dollars, at a fixed rate, long term, non-callable, tax-advantaged loan at ~3% was the deal of a lifetime. We weren't able to convince everyone we were staring the golden goose in the face, but we convinced a few. I'm really happy with that.
Thanks for the link, @midweststache. Interesting read.
Calling it pure luck, or worse, pure dumb luck, is inaccurate, IMO.
“Luck Is What Happens When Preparation Meets Opportunity" -Seneca
These mortgages didn't completely fall into their hands. They still had to complete all the steps it took to get them. Lenders weren't passing them out like candy, even if it was easier to qualify with super low rates.
There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.
I predict there will be a huge upsurge in additions, ADU's and general remodeling, as homeowners do everything they can to hang on to their super mortgage low rates.
I was responding to Mr. Barker's quote, "Best financial decision of my life was pure luck. It’s just that simple.”Thanks for the link, @midweststache. Interesting read.
Calling it pure luck, or worse, pure dumb luck, is inaccurate, IMO.
“Luck Is What Happens When Preparation Meets Opportunity" -Seneca
These mortgages didn't completely fall into their hands. They still had to complete all the steps it took to get them. Lenders weren't passing them out like candy, even if it was easier to qualify with super low rates.
There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.
I predict there will be a huge upsurge in additions, ADU's and general remodeling, as homeowners do everything they can to hang on to their super mortgage low rates.
But they said "more about timing luck than anything", which is reasonably fair. I had to work hard to put myself in position to be a homeowner with good credit, but that wouldn't have meant diddly squat if it became a homeowner in 1979 instead of 2013.
Overall, you are more likely to be able to take advantage of your luck if you have worked hard to prepare. Doesn't mean you will get lucky, just that you are ready your number comes up.
It's not a HELOCThinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this).
A HELOC is a callable loan so it doesn't have the long term advantages of a mortgage. Short term for your tax advantages I could see it being worthwhile, but you should have a plan in place to pay it off rapidly if needed.
By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.
By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.
Don't forget doing the work to be born to a family in place where getting enough education is an even an option. Oh, wait, that's truly pure luck.
Thanks for the link, @midweststache. Interesting read.
Calling it pure luck, or worse, pure dumb luck, is inaccurate, IMO.
“Luck Is What Happens When Preparation Meets Opportunity" -Seneca
These mortgages didn't completely fall into their hands. They still had to complete all the steps it took to get them. Lenders weren't passing them out like candy, even if it was easier to qualify with super low rates.
There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.
I predict there will be a huge upsurge in additions, ADU's and general remodeling, as homeowners do everything they can to hang on to their super mortgage low rates.
We have 14 years left (15 year mortgage) at 3.125%. Too good of a rate to pay down faster. Principal balance is about $178k right now.Today I say goodbye to our 3.125% mortgage. Too bad we couldn't keep it forever. I'll be making minimum payments on our new mortgage (30-years at 6.375%), but it just isn't going to be as lucrative.
For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk). Cry my a river I know!Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
Makes me wonder if the property bubble will be a boon to localities with property taxes. If the politicians weren't siphoning funds away to their charter school donors, public schools would be flush.For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk). Cry my a river I know!Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
Citation, please?Makes me wonder if the property bubble will be a boon to localities with property taxes. If the politicians weren't siphoning funds away to their charter school donors, public schools would be flush.For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk). Cry my a river I know!Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.
https://www.washingtonpost.com/business/2022/05/05/property-taxes-us-homes-rose-328-billion-2021-report-finds/ (https://www.washingtonpost.com/business/2022/05/05/property-taxes-us-homes-rose-328-billion-2021-report-finds/)Citation, please?Makes me wonder if the property bubble will be a boon to localities with property taxes. If the politicians weren't siphoning funds away to their charter school donors, public schools would be flush.For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk). Cry my a river I know!Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
Thank you. I have no children; this issue has not been on my radar. I'll dig in.https://www.washingtonpost.com/business/2022/05/05/property-taxes-us-homes-rose-328-billion-2021-report-finds/ (https://www.washingtonpost.com/business/2022/05/05/property-taxes-us-homes-rose-328-billion-2021-report-finds/)Citation, please?Makes me wonder if the property bubble will be a boon to localities with property taxes. If the politicians weren't siphoning funds away to their charter school donors, public schools would be flush.For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk). Cry my a river I know!Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
https://www.arkansasonline.com/news/2023/mar/10/what-you-need-to-know-about-arkansas-learns/ (https://www.arkansasonline.com/news/2023/mar/10/what-you-need-to-know-about-arkansas-learns/)
https://thejournal.com/articles/2018/01/30/yes-charters-do-hurt-public-school-funding.aspx (https://thejournal.com/articles/2018/01/30/yes-charters-do-hurt-public-school-funding.aspx)
https://www.washingtonpost.com/education/2021/12/01/bloomberg-donates-750billion-charter-schools/ (https://www.washingtonpost.com/education/2021/12/01/bloomberg-donates-750billion-charter-schools/)
https://www.mediamatters.org/daily-caller/here-are-corporations-and-right-wing-funders-backing-education-reform-movement (https://www.mediamatters.org/daily-caller/here-are-corporations-and-right-wing-funders-backing-education-reform-movement)
There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.
Eh, as someone in this boat (the DPYMC as well as wanting to move, but having a sub 3% 30 year) I get it.
Moving even laterally would be a meaningfully higher cost. Moving "up" in house, or in our case to move to an acerage, means we'd be buying a more expensive house plus having nearly a 3x mortgage rate.
It's not "trapped" but it's sure as hell a ton more expensive relative to our current place in basically every regard - housing on the whole went up, rates went way up, and we'd be moving to a more expensive place compared to our current house.
All three of those factors add cost. Only one is in our control - the last one.
Disclaimer: I don't like popular threads so I tend to avoid them or delete my posts a day or two after contributing because I'm tired of seeing it pop up in my unread list!
By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.
Don't forget doing the work to be born to a family in place where getting enough education is an even an option. Oh, wait, that's truly pure luck.
I know the sentiment you are trying to convey, but my immigrant grandparents would furiously object that it was “pure luck” that their children were born in a place where a good education was readily available for their children.
Blah blah blah clipped.
Yes, some people make it out of bad situations. That doesn’t mean everyone can.
TLDR pull yourself up by your bootstraps
Blah blah blah clipped.
Yes, some people make it out of bad situations. That doesn’t mean everyone can.
Doesn’t mean everyone can’t either. Losers make excuses, winners make it happen. We can all tell stories all day about the privileged kid who spends their time in rehab, and about that dirt poor kid from the rough side of town who is a community or business leader.
I don’t see the benefit of claiming luck, either good or bad had the first fucking thing to do with where someone sits today. What matters to me is what are you going to do with this day and the ones after it. Nereo's grandparents said “what we are going to do is work to get our families in a better situation. Starting right now.” They created the luck for their families. They created that privilege. Everyone should assess their situation and take appropriate action to create their own luck. We try to guide folks on this board to do must that. This thread is trying to help people see that some types of debt is OK when used properly. We (you specifically provide lots of great comments) try to work with people within their means to reach their goals.
I'm thrilled (certainly not crying!) with the rate on our current mortgage and am not looking to change where we live on a medium term horizon unless we really need to. We have a 2 BR/1BA brick house that serves the needs of two adults quite well, even with one of them working from home in a permanent office space upstairs. The upstairs is more like an attic (there are 2 rooms with barely enough space for a human to fit through the windows but I'm not calling them bedrooms) and would need major HVAC work plus maybe conversion to a 1/2 bath of one of the corridor closets if we have more than 1 child and for a human to be comfortable enough to sleep. It's all tiny violin types of problems, I would like to always have a guest room (that can double as many things) and if mortgages were still low and even if we never had children or just 1, we would still want to move for a few reasons. The sub-3% mortgage relative to current rates changes our calculus somewhat. It's a good problem to have, i.e. staying perhaps longer than intended in your affordable first starter house to save $.
There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.
Eh, as someone in this boat (the DPYMC as well as wanting to move, but having a sub 3% 30 year) I get it.
Moving even laterally would be a meaningfully higher cost. Moving "up" in house, or in our case to move to an acerage, means we'd be buying a more expensive house plus having nearly a 3x mortgage rate.
It's not "trapped" but it's sure as hell a ton more expensive relative to our current place in basically every regard - housing on the whole went up, rates went way up, and we'd be moving to a more expensive place compared to our current house.
All three of those factors add cost. Only one is in our control - the last one.
By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.
Don't forget doing the work to be born to a family in place where getting enough education is an even an option. Oh, wait, that's truly pure luck.
I know the sentiment you are trying to convey, but my immigrant grandparents would furiously object that it was “pure luck” that their children were born in a place where a good education was readily available for their children.
I’m first generation American born. It was MY pure luck that I was born to my parents here in the US rather than to another set of parents in a 3rd world country. It is also due to baller audacity and vision that my parents ended up here, and for that I’m very grateful. If my parents want to take credit for my excellent financial standing, I will happily have that, they deserve it and so much more. (It’s also my parents pure luck that they were both born into families that could afford good schools so they would have the educations and resources needed to move to and excel in the US. Idk how far back you want to take this, it could go for a long time…).
Your grandparents may toot their horns all they like for leaving wherever they came from.
I take issue when people toot their own without acknowledging privilege. Or tout bootstrap shit like anyone can do it. Yes, some people make it out of bad situations. That doesn’t mean everyone can.
Doesn’t mean everyone can’t either. Losers make excuses, winners make it happen. We can all tell stories all day about the privileged kid who spends their time in rehab, and about that dirt poor kid from the rough side of town who is a community or business leader.
I don’t see the benefit of claiming luck, either good or bad had the first fucking thing to do with where someone sits today. What matters to me is what are you going to do with this day and the ones after it. Nereo's grandparents said “what we are going to do is work to get our families in a better situation. Starting right now.” They created the luck for their families. They created that privilege. Everyone should assess their situation and take appropriate action to create their own luck. We try to guide folks on this board to do must that. This thread is trying to help people see that some types of debt is OK when used properly. We (you specifically provide lots of great comments) try to work with people within their means to reach their goals.
There's a ton of value in understanding other people's situations.
For example, do you vote? Likely your vote in some way is related to this entire question.
People's experiences and backgrounds also determine how likely they are to be able to take action based on their luck. Or how powerful their luck making machine is.
You are rather writing off the aspect of luck, or if you like privilege, as it applies to people. Yes, people should consider their actions they do to create more luck. But not understanding and recognizing the underlying factors results in a bias.
Basically, if you can't understand this, your thought process will be totally based on survivorship bias. "Oh, well Nereo's family pulled themselves up by their bootstraps. Not sure why everyone just doesn't do it, if they don't must be their fault."
Yes, it's their "fault" if they do not pull themselves up by their bootstraps and just decide "you know what I want to win today." But that fault is a combination of circumstances as well as their actions. Ignoring either is problematic.
It's kind of like being 6'8 in high school wanting to play basketball professionally. Are you guaranteed to be awesome at it? Does being above average height mean you're going pro NBA? Of course not. You only get to do that if you actually play. But are you more likely to be good at basketball if you are above average height? Is it easier for you to pursue basketball professionally than someone who is 5'2? Yes, of course.
https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/
;)
Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%. Debatable move, but I'm comfortable with it.That still seems like a good rate. What are your plans for the $$, if you don't mind my asking.
Nevermind, I found your new thread.Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%. Debatable move, but I'm comfortable with it.That still seems like a good rate. What are your plans for the $$, if you don't mind my asking.
Cliffs notes version, I was suggesting that current numbers may indicate paying off mortgages with rates in the 6%, 7%, or higher range could be a better move than investing. People with sub 5% rates should not be in a hurry to pay them off.https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/
;)
Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%. Debatable move, but I'm comfortable with it.
Nevermind, I found your new thread.Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%. Debatable move, but I'm comfortable with it.That still seems like a good rate. What are your plans for the $$, if you don't mind my asking.
Cliffs notes version, I was suggesting that current numbers may indicate paying off mortgages with rates in the 6%, 7%, or higher range could be a better move than investing. People with sub 5% rates should not be in a hurry to pay them off.https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/
;)
Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%. Debatable move, but I'm comfortable with it.
Also, our mortgage rate is 2.875%, average 2023 inflation will probably come in around 4%. So the real value of our debt decreased more than $2500!
That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)
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Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.
That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)
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Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.
If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost? (Serious question).
In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?
That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)
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Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.
If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost? (Serious question).
In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?
This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.
For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.
10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.
Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.
That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)
-----------------------
Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.
If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost? (Serious question).
In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?
This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.
For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.
10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.
Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.
I’m certainly not trying to say your choice would be “wrong” either way, and agree that it’s subjective and personal. I ask because I’m interested in each persons decision.
FWIW, my parents set up a “sinking fund” for their mortgage that was invested in mutual funds circa 1980. By the time that fund had more in it than the remaining balance on the mortgage (including two cash out ReFis) in the mid 1990s, my parents decided they much preferred having those investments over having no mortgage. No doubt that has shaped my outlook. They joke it took them 42 years to pay off a 30 year mortgage, and now their mortgage sinking fund has morphed into a sizeable chunk of their NW
That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)
-----------------------
Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.
If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost? (Serious question).
In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?
This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.
For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.
10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.
Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.
I’m certainly not trying to say your choice would be “wrong” either way, and agree that it’s subjective and personal. I ask because I’m interested in each persons decision.
FWIW, my parents set up a “sinking fund” for their mortgage that was invested in mutual funds circa 1980. By the time that fund had more in it than the remaining balance on the mortgage (including two cash out ReFis) in the mid 1990s, my parents decided they much preferred having those investments over having no mortgage. No doubt that has shaped my outlook. They joke it took them 42 years to pay off a 30 year mortgage, and now their mortgage sinking fund has morphed into a sizeable chunk of their NW
FFS, I've been meaning to follow up on this, but I'm doing a "forum lite" week, as we're on a trip. The response above is so off the mark that apparently now is the time to elaborate.
As I mentioned upthread, I believe this topic is less of a concern for this group. Frankly, though some believe one should always have a mortgage, I do not fully subscribe to that theory, particularly for the folks racing from $2M to $4M...and Beyond!
The reason to hold a long, low, fixed-rate rate mortgage on an affordable home, in a country where mortgages are tax-advantaged, is that it allows you to invest in equities which will compound, resulting in a higher net worth faster than paying off the mortgage before maxing out every other investment option first.
The average shlub is assumed to be an idiot who will blow every spendable cent. (See: Dave Ramsey or Suze Orman for endless examples.) These people may never have the means to retire, let alone early. For them, the goal of paying off the mortgage is not unreasonable. At least they'll have something.
Mustachians aresmartermore financially literate than that and know how to save and invest.
Since the goal of MMM, and by extension this forum, is to retire early, holding on to a mortgage (with the caveats listed above) is a smart strategy. Mortgages, if managed correctly, are a powerful tool for building wealth. The sooner you start investing, the faster compound interest will begin to do the heavy lifting. Waiting to invest until the mortgage is paid off simply means it's going to take longer, and you'll have to earn more money (i.e. work longer) to reach FIRE.
If you're on this forum, you're here to strategize so that you can at least reach FI efficiently. Ignoring the leverage a good mortgage creates over the imagined way it's going to "feel" to "kill the mortgage" before filling every other investment option makes so little sense that the blowback continues to surprise me.
Again, I don't believe this discussion is necessary in this group, but the recent scorn that's been directed my way is ironic, given that it's happening on this forum.
For the love of Dog, can we send this discussion back to the DPOYM thread, where both sides of the question are addressed?
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?
At the end of last year, there was a convo over at the "... and Beyond" thread. I've been meaning to post my thoughts here. Quoting the whole thing is a bit confusing, but I didn't want to edit it. The most pertinent parts are in bold below. For more of the discussion, you can check out that thread.FFS, I've been meaning to follow up on this, but I'm doing a "forum lite" week, as we're on a trip. The response above is so off the mark that apparently now is the time to elaborate.
As I mentioned upthread, I believe this topic is less of a concern for this group. Frankly, though some believe one should always have a mortgage, I do not fully subscribe to that theory, particularly for the folks racing from $2M to $4M...and Beyond!
The reason to hold a long, low, fixed-rate rate mortgage on an affordable home, in a country where mortgages are tax-advantaged, is that it allows you to invest in equities which will compound, resulting in a higher net worth faster than paying off the mortgage before maxing out every other investment option first.
The average shlub is assumed to be an idiot who will blow every spendable cent. (See: Dave Ramsey or Suze Orman for endless examples.) These people may never have the means to retire, let alone early. For them, the goal of paying off the mortgage is not unreasonable. At least they'll have something.
Mustachians aresmartermore financially literate than that and know how to save and invest.
Since the goal of MMM, and by extension this forum, is to retire early, holding on to a mortgage (with the caveats listed above) is a smart strategy. Mortgages, if managed correctly, are a powerful tool for building wealth. The sooner you start investing, the faster compound interest will begin to do the heavy lifting. Waiting to invest until the mortgage is paid off simply means it's going to take longer, and you'll have to earn more money (i.e. work longer) to reach FIRE.
If you're on this forum, you're here to strategize so that you can at least reach FI efficiently. Ignoring the leverage a good mortgage creates over the imagined way it's going to "feel" to "kill the mortgage" before filling every other investment option makes so little sense that the blowback continues to surprise me.
Again, I don't believe this discussion is necessary in this group, but the recent scorn that's been directed my way is ironic, given that it's happening on this forum.
For the love of Dog, can we send this discussion back to the DPOYM thread, where both sides of the question are addressed?
In my mortgage market, fixed rates are hardly ever offered. If they are, it’s actually not a true fixed-rate but rather an ARM with a max 10-year initial rate. As they are rare, they are also not priced attractively.
So everyone just has a variable rate mortgage. I guess when everyone does, it’s normal to sit on a time bomb?
Through dumb luck, we refinanced into a 2.25% 30 year on our home.
We are in no hurry to pay that off for sure!
Our only problem is that though we are FIRE, this is not our forever home, so we'd like to downsize at some point, but it will probably be a while. We have enough deductions to itemize, so there isn't really a downside to us keeping the mortgage.
After years of being dedicated DPYMC member for years, I've decided this is for the birds. Going to pay off the 3.75% mortgage no later than early-to-mid 2025.Spoiler: show
Oh, not argue as in ”have an argument” but rather “make the argument that”.
In my mortgage market, fixed rates are hardly ever offered. If they are, it’s actually not a true fixed-rate but rather an ARM with a max 10-year initial rate. As they are rare, they are also not priced attractively.
So everyone just has a variable rate mortgage. I guess when everyone does, it’s normal to sit on a time bomb? Banks are required to calculate whether you could handle rates up to 6%, which felt silly a couple of years ago when rates were negative, but doesn’t feel silly anymore. People spend a lot of time and brain power thinking about which base rate to tie their mortgage to: 3m, 12m, etc. The differences are peanuts, but people basically don’t seem to like to be “surprised” by their mortgage payments changing more than once a year. (Although with the amount of space given to rates in the news, I don’t see how anyone can be surprised when it does change.)
We have two mortgages at the moment since we’re in the process of moving house, and both are adjustable rate at about 4.5% (adjusting at different moments). Although they’ve gone up a lot from the 0.4-something, I’m always thinking that for them to go up to something that’s unaffordable to *us* (our housing choices are not cheap, but certainly not extravagant) a whole lot of other people would already have been in trouble a long time ago. So I’m kind or trusting that the Mustachianism of our housing choices and savings will put a big damper on the time bomb.
Oh hi! My new mortgage is 30 year fixed 5.95%.
What say you?
I think that's a no brainer payoff decision, but reasonable people can differ.Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion, only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?
Some important variables -
How much is the balance, and do you itemize deductions?
Do you own any bonds, and are they in a taxable or tax free account if so?
Do you think rates are going to drop from here?
Oh hi! My new mortgage is 30 year fixed 5.95%.Our kids just purchased a new home. The loan started at 7%, then dropped to 6%, so they locked in. The lender required a simultaneous closing of the house they were selling and the one they were buying. The loan closed a few weeks ago and they're renting back for a month or two. Loan rates have already increased since then. Good timing for both of you!
What say you?
Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion, only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?I did not create the other thread, nor did I ask that criticism be excluded from it, because I did not have a mortgage for the first ten years that thread existed. I stumbled into the thread late in its history, long after the blowups. I can't speak to what the POYM folks wanted, what the DPOYM folks wanted, or mods chose to do years before I clicked on the thread for the first time. Nor have I reported you to the mods for any reason, ever.
Thanks again for popping in and giving me the chance to welcome you, and everyone who wants to learn more. All friendly discourse is helpful, no matter how anyone chooses to purchase their home.
Funny, I said "some people" because they have, in fact, complained.Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion, only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?I did not create the other thread, nor did I ask that criticism be excluded from it, because I did not have a mortgage for the first ten years that thread existed. I stumbled into the thread late in its history, long after the blowups. I can't speak to what the POYM folks wanted, what the DPOYM folks wanted, or mods chose to do years before I clicked on the thread for the first time. Nor have I reported you to the mods for any reason, ever.
Thanks again for popping in and giving me the chance to welcome you, and everyone who wants to learn more. All friendly discourse is helpful, no matter how anyone chooses to purchase their home.
I am in favor of more speech, more disagreement on the merits of the arguments, and that way getting to a better understanding. I've learned a lot from the active traders on this site, who I disagree with, and I've learned from the DPOYM squad too.
What I criticized was not you making your arguments, it was your parade around the site exclaiming that you are being cancelled for your views, bringing up how unreasonably you were treated in the POYM thread. Even when I did that, it was a post addressed to you, not the mods. I don't think that post is something that doesn't belong on the site like an ad hominem, I just disagreed with it, so I wrote a post about why.
I posted here on the substance of the conversation, whether Neo should pay down his mortage and the factors that influence that decision, which you say you welcome. All else I can say is that I haven't asked the mods to limit your speech in any way, nor asked you not to contribute on the substance of the discussion here or in any other thread. I've appreciated, and learned from, your posts relating to the substance of the mortgage payoff decision.Based on his posting history and long time participation on this thread and forum, I'm pretty sure @Neo was joking.
Based on his posting history and long time participation on this thread and forum, I'm pretty sure @Neo was joking.Welp. I knew this and forgot it today. And then went and stuck my foot in my mouth.
Some important variables -
How much is the balance, and do you itemize deductions?
Do you own any bonds, and are they in a taxable or tax free account if so?
Do you think rates are going to drop from here?
Is your after tax bond yield (or gross bond yield if it's all in retirement accounts) higher than your after tax mortgage rate?
don't think it's 100% a case of "never pay off any mortgage no matter what" no matter which thread you post on :)Unlike some who espouse always having a mortgage, I completely agree with you, and always have. My point continues to be that one gets to FIRE faster by paying yourself first. Then, if you still desire to do so, pay the loan off in one fell swoop. Or, sell your highly appreciated (still mortgaged) home and buy another one for cash, which is what we did. Don't worry, we still have mortgages on our rentals ;-)
Yes - I think current MFJ Standard is now $29k but our mortgage interest from the two mortgages plus state tax should push us comfortably into itemizing for 2024. After a couple years, it'll likely dip right back below the standard deduction though!
Per IRS pub 936 for 2023 - "You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017."
Or, sell your highly appreciated (still mortgaged) home and buy another one for cash, which is what we did. Don't worry, we still have mortgages on our rentals ;-)
The monthly budget is such a deeply embedded psychological game, I think, SunnyDays. It's probably why it's so tempting to pay down the mortgage, even though that makes no sense mathematically in our case. Two years ago, when we bought, we could have recast the mortgage after we sold the condo. It would have brought down our monthly payment by at least $600. But with a mortgage rate of 2.99%, that plan didn't make much sense. We experienced the pain of having too much of our money tied up in the house with the condo--we used to put $800/month extra on our mortgage every month, and we had a 20 year mortgage. So then, when we wanted to buy the townhouse, it was harder to come up with the down payment.Thanks, @englishteacheralex!
So we have a tighter monthly budget but we also have a huge pile of money in accessible investments. Come to think of it, we really made all the right moves. We didn't put the extra money into the mortgage, where it would be less efficient and also inaccessible, but we also didn't spend it, which is why the more conservative money folk a la Dave Ramsey encourage paying down the mortgage as a money goal--the concern is that if you don't pay down the mortgage, you'll just waste the money. Having the pile of money gives us a lot more flexibility in terms of big life adjustments. If I had to stop working, for example, we could pay the monthly mortgage payment out of our savings for years...whereas, if we had recast the mortgage, the bank would still want the (lower) monthly payment, but we wouldn't have the money to pay it. Good job, us!
But yes, we do have the psychological burden of a tighter monthly budget. This actually is probably not a bad thing. It makes me less likely to buy unnecessary stuff.
Sometimes doing nothing gets pretty boring. This past few days has been unexpectedly...not boring. All civilized conversation on this topic is good conversation, right?
I've been singing the DPOYM song for a long time, and nothing makes me happier than reading something like the quote below. As this was posted in eta's journal, it is quoted with her permission.The monthly budget is such a deeply embedded psychological game, I think, SunnyDays. It's probably why it's so tempting to pay down the mortgage, even though that makes no sense mathematically in our case. Two years ago, when we bought, we could have recast the mortgage after we sold the condo. It would have brought down our monthly payment by at least $600. But with a mortgage rate of 2.99%, that plan didn't make much sense. We experienced the pain of having too much of our money tied up in the house with the condo--we used to put $800/month extra on our mortgage every month, and we had a 20 year mortgage. So then, when we wanted to buy the townhouse, it was harder to come up with the down payment.Thanks, @englishteacheralex!
So we have a tighter monthly budget but we also have a huge pile of money in accessible investments. Come to think of it, we really made all the right moves. We didn't put the extra money into the mortgage, where it would be less efficient and also inaccessible, but we also didn't spend it, which is why the more conservative money folk a la Dave Ramsey encourage paying down the mortgage as a money goal--the concern is that if you don't pay down the mortgage, you'll just waste the money. Having the pile of money gives us a lot more flexibility in terms of big life adjustments. If I had to stop working, for example, we could pay the monthly mortgage payment out of our savings for years...whereas, if we had recast the mortgage, the bank would still want the (lower) monthly payment, but we wouldn't have the money to pay it. Good job, us!
But yes, we do have the psychological burden of a tighter monthly budget. This actually is probably not a bad thing. It makes me less likely to buy unnecessary stuff.
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position, I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.
So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.
I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position, I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.
So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.
I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!
So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.
I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position, I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.
So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.
I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position, I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.
To clarify, it was a hair over 1% of the monthly payment. Pissed me off every damn month. I literally couldn't get rid of it until I sold the place, four years later. At least I made a good return on it. IIRC, I was thrilled to get a 7% mortgage when I originally bought it.Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.
1% of the (original) loan amount... per month?
That would be shocking! My PMI is $61 on a $567k mortgage (@5.95%). Which calculates out to 0.0108%. or 0.1291% annually.
On the flip side, maybe you just meant... payment? $61 on a $4000 payment is 1.53%.