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General Discussion => Throw Down the Gauntlet => Topic started by: boarder42 on February 27, 2017, 07:17:57 AM

Title: DONT Payoff your Mortgage Club
Post by: boarder42 on February 27, 2017, 07:17:57 AM
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

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

3.25% fixed for 30 years
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on February 27, 2017, 07:39:17 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 27, 2017, 07:40:37 AM
I've got a 5/1 ARM at 3% (through the 12/1/2018 payment), currently $187,000 loan balance. It really makes me nervous watching that balance go down so much, don't know how I'm going to deal with it if I have to start taking standard deduction on my income tax.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 27, 2017, 07:42:00 AM
Welcome.

I figure this thread will also come in handy during some rough market times which will hit sometime we wont know when... to help keep people on this path.
Title: Re: DONT Payoff your Mortgage Club
Post by: swick on February 27, 2017, 08:49:40 AM
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?

We are in Canada so no PMI and no tax benefit to keeping the mortgage.
160,000 left at 4.33% 10-year fixed. We max out our RRSP contributions but do have some room accumulated in our TFSA accounts.

For our investments, we are mostly invested in VXC, with a little bit in VCN, VAB, and ZRE.

Does anyone have/use a spreadsheet that they can plug in their numbers to and model the different options? Or if we were to make one, what data should we be considering? 

Thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 27, 2017, 09:45:21 AM
i dont have a spreadsheet. 

10 years vs 30 years is a huge difference.  Its really easy for me to say returns avg 7%+ after inflation over 30 years so unless my mortgage is over 7% i dont really need to be paying it down.  but my rate is so incredibly low at 3.25% i've never bothered to dig into this that much.  i wouldnt even consider looking into it personally until it hit 6%
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on February 27, 2017, 09:55:28 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on February 27, 2017, 10:02:55 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: moof on February 27, 2017, 10:07:22 AM
14 years out of a 15 year left.  ~260k at 3.0%.  It was worth it to refi down from 4.75%.   In retrospect I should have done the 30 year, but whatever.  Will have just over 100k left at FIRE in 8 years.

I'm sticking with the plan that shows a the best outcome, which is to keep shoveling all the money I can into the market and letting it ride as long as possible.  Tax return went into the wife's IRA today, nearly maxing it out for the year.

Beating down the mortgage before FIRE would result in about a 10% worse safe withdrawal rate, even accounting for extra taxes on increased withdrawals for the first few years while I finish off the mortgage.

Edit:
Took the necessary payments to pay off my mortgage at FIRE ($1250 bigger payments for 8 years), ran the future value of that delta at my FIRE date.  Got $158k future value.  If I take that $158k and subtract off my ongoing monthly interest and principal of $1850 while growing the remainder at 7% I end up $71.4k ahead in 14 years.

I've done the same scenarios in in tools like cfiresim, and end up with about a 10% higher safe withdrawal rate.  I also pay few taxes now due to itemized deductions, which is a little harder to account for.  That itemization advantage vs. standard deductions is shrinking and will become null and void pretty soon, but it is nice in the meanwhile.
Title: Re: DONT Payoff your Mortgage Club
Post by: swick on February 27, 2017, 10:14:34 AM

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: the_fixer on February 27, 2017, 10:28:15 AM
Property valued at 365k
Loan 169K @ 2.875% APR with 14 years remaining of a 15 year loan.

Not in a hurry to pay it off since it will be paid off prior to our "real" retirement following the normal schedule.

However I have to admit that it does make me feel better knowing that I will not have to worry about a house payment in retirement.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 27, 2017, 10:31:52 AM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on February 27, 2017, 10:32:36 AM

Thanks, Runewell. Does the 7% rate of return for investments include dividends? We haven't been sure how to include those in the calculations.


The 7% is just the total return you are getting so assume that number includes dividends and any taxes you may have to pay along the way.  Once the mortgage is paid off, that frees up an income stream that has been post-tax.
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on February 27, 2017, 10:33:48 AM
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

Right thanks for the catch, I would have gotten a standard deduction anyway, so the benefit is only what is in excess of that.  I knew that, I just forgot it.  But I'd better change my post.
Title: Re: DONT Payoff your Mortgage Club
Post by: Friar on February 27, 2017, 10:51:37 AM
Not only am I not paying off my mortgage early, I'm considering extending the term this year.

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. Currently I am 14 months into a 25 year mortgage, 2 year fix, with 15% down, at the rate of 2.49%. A 5 year fix with the same parameters would be around 2.9-3.0%.

After this period ends you revert to the standard variable rate (SRV) that can be whatever the provider wants it to be; currently 3.69%. As the name alludes to this rate can be changed at the whim of the lender. So if interest rates hike up the lender can choose to boost their returns as well.

Although switching mortgage providers during the fix generally incurs a penalty, as soon as the fix is over you are free to move fee free. So what tends to happen is that, after their fix, customers move lenders to one with preferential terms.

It comes down to a gamble between a shorter fix with a lower interest rate and the hope that interest rates don't rise before you remortgage, or a longer fix with a higher interest rate to mitigate against the same scenario. The longer fix also gives you payment stability which isn't to be sniffed at.

All that as a preface to why I'm remortgaging after such a short period of time.
What I'm planning to do when I remortgage in a few months is to extend the term from 25 years to 30, or 35 years and a slightly longer fix of 5 years at around 2.9%. Still with the same amount down, or perhaps 20% rather than the 15% based on the equity I've built up and the valuation of the house, this would reduce my monthly payments by about 20-25%.

If I pick a provider that allows unlimited fee-free over payments, as my current lender does, this allows two key features:

1) I can choose to "overpay" to the tune of my current payment but with the flexibility of scaling back if the situation calls for it.
2) I can choose to funnel the savings into investments or high interest savings accounts (many banks in the UK are offering 4-5% risk free cash savings in the UK) and profit from the difference between interest rates.

*Based on my friends and relatives
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on February 27, 2017, 10:53:15 AM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on February 27, 2017, 11:16:26 AM
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?

You are most welcome!

This "3rd case" is simply having the $160K invested ($314,744 10 yrs from now) minus the future value of the payments ($282,973).  It will still come out to $31,771.  To be fair that $31,771 is a future value.  Assuming 2.5% inflation that's only about $25K today (if you wanted that savings in today's dollars at some safer discounted rate)
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on February 27, 2017, 11:34:54 AM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on February 27, 2017, 11:59:14 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on February 27, 2017, 12:31:39 PM
Yes, 7% is an after-inflation number.  Pre-inflation I'd assume would be 10% to 11%.
Title: Re: DONT Payoff your Mortgage Club
Post by: Pylortes on February 27, 2017, 01:35:08 PM
I'm in (as you probably saw in the other thread)!   If you believe inflation will be higher in the future (as I do) paying off a mortgage slowly over time and leaving the balance invested in stocks will even further juice returns.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 27, 2017, 01:37:31 PM
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.

since mortgage payments dont increase with inflation i would think post inflation numbers would be more usefull right?  this is the one case where adding in inflation and talking future dollars makes more sense.
Title: Re: DONT Payoff your Mortgage Club
Post by: bluewater on February 27, 2017, 02:36:41 PM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 27, 2017, 02:53:26 PM
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?

the home stead part varies by state.  very few states are full homestead states.  Texas is maybe florida is as well.  The federal reserve keeps a pretty close watch to make sure we have inflation.  the reigns are pretty tight there.  long term deflation fear is like not investing in the market and siting 2008 and 2000 etc as your examples of why it is bad and volatile. 

you may as well say but what if our markets fall into a state like japan's ... well then FIRE fails for 95% of us anyways.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on February 27, 2017, 06:06:00 PM
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
Sorry it took so long for me to join ;)

Just refinanced my home.  203,000 mortgage at 4.125 with a 30 year term.  Purchased 2.75 years ago and in that time I have increased my tax advantaged investments from 24k to 225k.

Bring on 300k invested!

I have actually considered refinancing right before FIRE (if I have enough equity) and using that money for my 5 year Roth IRA conversion ladder.  We'll see!

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 27, 2017, 06:25:03 PM
Round numbers are fun. We're going to tip 500k here in a month or so.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on February 27, 2017, 06:34:18 PM
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.

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: nottoolatetostart on February 28, 2017, 04:16:18 AM
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.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 28, 2017, 04:31:16 AM
I am so in. Full disclosure: our primary home was purchased with cash in 2013. We sold two mortgaged and appreciated homes to buy it. We are FI, I am RE. We still hate that we don't have a big, fat mortgage. However, being mortgage free has enabled us to acquire two more single family homes as rentals, for a total of three SFH rentals, all with mortgages. Our goal is five, so having no mortgage on our primary has helped us to qualify for these loans, which we would not have otherwise.

Tl;dr: We have 3 properties with mortgages.

Here's an example of why we are real estate + mortgage fans. When we were shopping for our primary home in late 2012/early 2013, this foreclosure was on the market:

https://www.coldwellbankerhomes.com/ca/walnut-creek/2612-buena-vista-ave/pid_16656361/

It closed in May of 2013 for about $585k. It is just on the market again for $845k. The agent said they will be accepting offers later this week and expect it to go for well over asking. (It will. There's very little under $1M inventory available that isn't a total fixer.) In three and a half years, the homeowners installed new HVAC, a tankless water heater, gutters and some French Drains. That's it. No other landscaping, no paint, no other interior renos.

Assuming 20% down and a 4% loan, their mortgage outlay has been about $255k. (Disclaimer: This is insomnia powered, back-of-the-napkin math. Rough number does not include any tax deductions on the mortgage interest, because...insomnia and too many variables.) Rough guess is they will make about $225-250k on this deal, maybe more. Tax Free. Plus, they freaking lived in the house!

In that time, Google-fu says the S&P 500 has averaged 10.27% (annualized, dividends reinvested, adjusted for inflation, YMMV). An S&P 500 account opened in May of 2013, with $117,000 initial investment (20% down payment) plus $3,000 added per month (PITI) since then would be worth roughly $335,000, for a gain of roughly $80k. Nowhere near as good a result and that's not including that taxes will be owed on the gains. And you can't live inside the S&P 500.

This is just a rough estimate, using a real-life example in my HCOLA. Per disclaimer above, I'm just entertaining myself until the caffeine I accidently ingested today wears off and I can fall asleep. I am no spreadsheet jockey, but one of you experts might want to play around with this data. I will add details of the final selling price once the deal closes.
Title: Re: DONT Payoff your Mortgage Club
Post by: Laura33 on February 28, 2017, 04:48:12 AM
Ok, I'm in.  Convert here -- i prepaid all mortgages until this one.  Then again, my first mortgage was 8 7/8%, so that was a somewhat different world.

Currently about 12 years remaining on 15-yr at 2 7/8%, which was low enough to give even pessimistic me zero desire to prepay.  I figure if the markets don't do better than that over the next decade, I have much bigger problems.  Will probably pay it off when we pull the plug,  it who knows?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 28, 2017, 05:40:42 AM
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.

my current plan is to just have my mortgage balance as extra.  i know this increases risk a bit with sequence of returns but that is currently my plan, we have 5-7 years til FIRE and will obviously re-evaluate at that point.  The other issue is i cant quit mid year (i can but i get a huge bonus that makes me stick around til the end of the year)  so we'll likely reach our goal mid year and then have a gravy cushion building
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on February 28, 2017, 06:28:04 AM
As we get older, we probably accept less return in exchange for less risk.  My 15-yr mortgage will be paid off in 2028 when I am 56.  At that point I will probably be happy to have no mortgage and will probably be settling for a lower rate of return.  Plus, mortgage rates may not be quite so low then either.  I do think there comes a point in one's life where taking on a 3-4% loan to try and get 7% becomes unnecessary risk, but I'm not convinced the people on this site prepaying their mortgages are in that situation.

Another thing you hear of is the Dave Ramsey debt snowball.  People pay off small loans and when those debts are paid off there is more money per month available to discharge other loans.  People talk about the psychological benefit of paying something off.  But mathematically you should always throw your money at the highest interest rate unless you have serious cash flow issues.  This is another example where lack of discipline causes people to unnecessarily throw money away.
Title: Re: DONT Payoff your Mortgage Club
Post by: Stachetastic on February 28, 2017, 06:59:10 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 28, 2017, 07:14:16 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Stachetastic on February 28, 2017, 07:51:48 AM
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.


Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 28, 2017, 08:21:42 AM
I really like Runewell's calculation, but I do think it's incomplete.

Servicing a mortgage is about balancing cash flow in the present versus the progress on the balance sheet in the long-term. That cash flow is measured in a world in which the monthly mortgage payment is weighed against an income from work (or investments) that is increasing, and part of that income--for followers of the mustache--is what is being set aside to "pre-pay" future expenses for FIRE.

The rate of inflation and income growth should be part of an optimal payoff calculation, with mortgage balances above that amount implying paying the mortgage down.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on February 28, 2017, 08:26:33 AM
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. 

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: nottoolatetostart on February 28, 2017, 08:47:05 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on February 28, 2017, 08:52:22 AM
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. 

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.
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.....

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 28, 2017, 11:34:46 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: ToTheMoon on February 28, 2017, 11:48:25 AM
Posting to follow - some great info in here to ponder when I have more time!
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on February 28, 2017, 12:16:11 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: MasterStache on February 28, 2017, 12:24:05 PM
I'm in. Our mortgage balance is a measly 118K. Bought a nice fixer upper (near foreclosure) for less than 150K with 20% down to avoid PMI. Rate is 4.00% with 28 years left.

Our house is appraised at around 220K now and we have more than 3 times invested than our mortgage balance. But no way am I paying it off.   
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 28, 2017, 12:36:20 PM
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!

well we have really high incomes to go along with the high mortgage.  we save over 100k per year so its not a long shot to jump from 500k to 650k give or take by this time next year.  i mean the market must cooperate.  though i'd rather it just goes flat for the next 5 years til i retire. 
Title: Re: DONT Payoff your Mortgage Club
Post by: DirtDiva on February 28, 2017, 05:23:39 PM
I request consideration for membership to the DPOYM club.

28.5 years left on a 30 year loan @ 3.8%.  332k balance.

We have about 91k in taxable savings now.  I just opened our first taxable investment account to invest in index funds, instead of adding extra $ to the mortgage payment.  It's going to take me a while to grow this account large enough to pay off the mortgage (but of course on the other end of the equation, the mortgage balance will slowly fall).

This is scary for me.  I have never blinked while investing steadily into tax-deferred savings accounts starting in 1991.  I've never jumped in or out of the market, through many ups and downs.   

But this money seems more real, for some reason. 

#psychology
Title: Re: DONT Payoff your Mortgage Club
Post by: AnswerIs42 on February 28, 2017, 05:35:36 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 28, 2017, 05:44:35 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on February 28, 2017, 05:47:23 PM
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.

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 28, 2017, 06:27:10 PM
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.

Same way I look at it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Friar on March 01, 2017, 08:48:48 AM
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.

They're fantastic when the base rate is low! My parents are on something crazy like AnswerIs42 and only pay ~£13 interest a month on their mortgage.

I prefer the security of a fixed payment that the fixed rate gives me over the slightly improved rate of a tracker.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on March 01, 2017, 09:30:15 AM
25x expenses + total mortgage owed - someone posted that's their FI number and I'm stealing it!
Title: Re: DONT Payoff your Mortgage Club
Post by: nara on March 01, 2017, 08:02:00 PM
We aren't paying it off early. We put down 50% and have 29 more years to go! We're not putting an extra penny into our minimum monthly payments. With out fixed rate of 3.75% our monthly payments will be virtually nothing in the next 15-20+ years!!!
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 01, 2017, 08:36:50 PM
I went onto www.cFireSim.com and tested a couple of scenarios.  In about a year or so I'll have an infusion of cash that will let me pay off my current 15yr (then 14yr) mortgage early.    I'm testing out whether I should invest that money and pay the mortgage out of the invested money and its earnings.   The investment would be a 75/25% stock/bond split with Vanguard style fees:

$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.   


$180,000 mortgage, 30 years, $771  P&I, 3.125% fixed rate.   That works out to a non-inflation-adjusted yearly spend of $9,252.

82% success rate.

The top five failures were in the $45,000 to $80,000 in the hole, rounded to the nearest $5,000.

It also doesn't take into account taxes, either for the mortgage insurance or the investment income.

Based on this, I'm leaning towards of paying it off early.  If I can get a fixed rate of return that's high enough to make this a winner for sure, I'll jump on not paying it off.   In theory I'll have enough surplus cash coming in to cover the bad sequence of returns cases, so maybe I should just get more intestinal fortitude.

I'm not sure I would recommend doing this to anyone who could not easily absorb an extra $45,000 to $80,000 drain on their stash to pay off the mortgage in a bad returns case.   


Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 01, 2017, 09:00:52 PM





$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 ran this and got a 91.73% success rate.

75% equities 25% bonds
180,000 portfolio balance
.05% fees for Vanguard
14,820 Non inflation adjusted spending.

Did you happen to run it for inflation adjusted spending?  That may be the difference.

I also ran your 30 year number assuming 100% equities with non inflation adjusted spending and got a 97.46% success rate.

The 30 year scenario had an average ending portfolio of over 500k.  Seems like a pretty good bet to me, but maybe I'm running the numbers wrong?  Seriously, I'm on my phone so cFireSim is a little tricky to work lol
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 02, 2017, 05:13:02 AM
"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.

ETA: Whoops! Another comment slipped in while I was hunt-and-pecking. The quote was from SwordGuy's post, up two.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 02, 2017, 05:52:41 AM
i get 98.29 on the 30 year at cfiresim

this is easily worth investing esp. if youre not FIREd i mean a sub 2% chance you have issues. Thanks for posting that makes me more confident in keeping my mortgage in FIRE now
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on March 02, 2017, 08:36:32 AM
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%.

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? :-))
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 02, 2017, 08:55:22 AM
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%.

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. 

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on March 02, 2017, 12:49:54 PM
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. 

Thanks! Other than the mortgage, the low interest rates on my debt are pure dumb luck on my part (I went to law school 2003-2006 when interest rates were really good, and then consolidated federal loans at some point when they were even better). I definitely wasn't giving any particular thought to interest rates at the time!
Title: Re: DONT Payoff your Mortgage Club
Post by: gocubs on March 02, 2017, 11:02:47 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 03, 2017, 04:09:09 AM
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!

If you didn't make the best choice all of our FIRE plans will have failed and we won't really care about or mortgage being paid or not
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on March 03, 2017, 05:52:38 AM
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!

I haven't done this particular bit of math, but it would be possible to figure out just how bad the market would have to be before investing would be a worse choice than pre-paying a secured 4.25% loan. Particularly if you're investing pre-tax money, the market would have to have the worst thirty years in its history, by FAR.

boarder42 nailed it: if this turns out to be the wrong choice we'll all have bigger problems.

Let it ride!
Title: Re: DONT Payoff your Mortgage Club
Post by: KMMK on March 03, 2017, 06:11:11 AM
I'm in Canada so will see what rates are at renewal time but for now at 2.74% all extra money gets invested within TFSA. Then we'll decide at renewal if we put down a lump sum or change our payment amount. I would like to have it paid off before retirement so that's about 20 years instead of the 25 we currently have.
Title: Re: DONT Payoff your Mortgage Club
Post by: jedsbud on March 03, 2017, 07:55:54 AM
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. 

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.   


Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 03, 2017, 08:28:23 AM
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!
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 ;)

As boarder said. If not, then shit really hit the fan and this could be the least of our worries.

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Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 03, 2017, 09:21:11 AM
"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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 03, 2017, 10:08:42 AM
"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.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on March 03, 2017, 11:54:22 AM
infromsea, I think you're definitely on the right track in your math. You could spend time being more precise, but the result would be the same: prepaying a 3.25% loan is waaaay worse for your financial future than saving that money.

Prepaying the loan only makes sense if you would just go spend the extra money on face-punch-worthy frivolities. If you save it (whether pre-tax or post-) then you're much better off letting the mortgage ride.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 03, 2017, 12:17:37 PM



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

Your calculations are fairly basic but seem to be pretty accurate with historical returns.  One thing I might change is to do the calculations with a 9.6% rate of return instead of the inflation adjusted 7% rate of return (average inflation adjusted market returns are about 6.7% while non inflation adjusted returns are closer to 9.6%).  I recommend this because your debt is fixed with no chance of it rising due to inflation, so you should be comparing it to non inflation adjusted returns IMO.

Also, remember that it is much easier to pre-pay the mortgage than it is to extract equity from you home, especially with your ridiculously low rate of 3.25.  Meaning, if you pre-pay down to 50k but then need to extract 50k you would either have to refinance or open a HELOC which would most likely be around 4.5-5% instead of your current 3.25% rate.

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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Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 03, 2017, 12:25:14 PM
Infromsea,

Also, if you do decide to invest make sure you have monthly automated contributions to you taxable account.  This way you are somewhat forcing yourself to stick to the plan. Oh, and increase the contribution amounts if your housing stipend increases.

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2017, 12:58:39 PM
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. 

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.
Did you adjust for inflation?  Using $75k in today's dollars plus 3% inflation for 18 years the number would be around $124,000.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2017, 01:00:38 PM
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%.

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? :-))
Oh, God, I love this comment! Hooray! Another one has seen the Light! Yippee!!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 03, 2017, 01:17:57 PM
*
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on March 03, 2017, 01:20:20 PM

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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 03, 2017, 02:09:53 PM

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.
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).

It boggles my mind that so many people can't see how inflexible pre-paying a mortgage really is.

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Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 03, 2017, 02:11:29 PM
*
Haha! Brilliant :)

I think this should be posted every time someone comes over from the "dark" side ;)

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Title: Re: DONT Payoff your Mortgage Club
Post by: Slinky on March 03, 2017, 04:14:42 PM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on March 03, 2017, 04:27:18 PM
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.
 
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on March 03, 2017, 04:30:59 PM
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?

With that little in the mortgage, I'd probably pay it down completely in a year or 2, then step down the work level after that bill is gone for ever.  Getting rid of the mortgage payment immediately frees up cash flow (once it's paid off).  On the other hand, if it's going to take longer than a couple of years, then a refi might be a good idea.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on March 03, 2017, 04:31:30 PM
KMMK and Swick, and other Canadians out there.

This was my journey to the NOT pay  off mortgage club...

1)  I originally wanted to pay off the mortgage -- interest rate was at 6.5% for our first mortgage in the 90's..  pay it off was our choice, at 2x the require payments... 
2)  After many moves, back in Vancouver with an atrociously high mortgage (IT's still over $400k even with paying down mortgages over the years and rolling each into the new place)...
3) ..... this created a ton of FEAR -- my mortgage rate was at 3.5% and now is at 2.1%...  what happens if my rate goes up only 0.5%?  why, that is a 25% increase in my monthly payment amount!   on $400k, that is huge...  like, $500 more a month, please, says the bank.   


This is when I realized that paying off a mortgage is about A) the numbers* then B) Cashflow and Risk aka FEAR, and then C) back to the numbers*.

So -- I needed to do something to alleviate my fear, and realized that creating a mortgage payoff fund OUTSIDE of my retirement funds (ok,I used my TFSA like KMMK at first, because, duh!), really makes a difference to my ability to sleep and not worry about variable rates and rate resets every few years.

Also -- with 20 years to pay the thing off, accelerating it just makes it creep down faster -- there was no remedy for the cash flow question in a short time.. NOT appealing to chain yourself to mortgage payments.   If we get in trouble later, fine, we will move to a cheaper place away from the city.

3)  Now, I am going FIRE (with a small income), incomes only 35% of what we had before....   Guess what -- we may not qualify to renew a huge mortgage in 2019!   What to do?

4)  -- here is the new feature not mentioned by others....   We can have a self-directed mortgage inside our RRSP.    i.e. we use our RRSP funds to issue a mortgage to ourselves.   The biggest drawback are paying the mortgage origination and management fees, and accepting a retirement portfolio that is heavily weighted to "conservative"  e.g., low interest, investments...because $400k of it would be at only 2-4% return.     

So,  For us, it still makes sense to keep the mortgage at a bank, to use our funds in better returning investments,  but if rates skyrocket or we are denied in future, then we can self-fund from the RRSP... without withdrawing from the RRSP and paying income tax....

5)  We can also pay it down / off later if rates go higher than investment returns.  *now we are back to the numbers game


So -- paying off a mortgage is NOT a requirement for FIRE...  only ensuring you have the cashflow to continue to pay it down..   as long are mortgage rates stay low, and a large balance is owning, why on earth would a person pay it off instead of investing?

*For us, the mortgage rate needs to be 1.5% or lower than what we can pretty much expect from fixed income / preferred shares / dividends  on a low risk investment.  (2.1% plus 1.5% is only 3.6%.... I am pretty sure I can beat 3.6% per year today)...
Title: Re: DONT Payoff your Mortgage Club
Post by: Slinky on March 03, 2017, 05:12:45 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on March 03, 2017, 05:19:36 PM



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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Slinky on March 03, 2017, 05:55:47 PM



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.

Very little prepayment, just rounded up to a whole number for auto pay so it would end up about the same. Although since my CU is showing 4.125% for a 30 year FRM, possibly higher.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 03, 2017, 06:23:44 PM


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?

With a mortgage that low you would only be paying about 300-400 a month at a rate of 3.25%.  I would ride out the mortgage and keep investing.  Mostly because freeing up 300-400 a month wouldn't make a difference in my budget.  I'd continue maxing out pre-tax accounts and then start creating an after tax investment fund that could act as a buffer between you and the mortgage payment (if you fell short some months after going part time).  Math is math, so a 75k mortgage at 3.25% is still better to keep and invest.  Whether that is in pre or post tax accounts is really up to you.  It sounds like you may not have enough income to fund all pre tax accounts and a post tax account. If that is the case, maybe fund the pre tax accounts to get you out of a higher tax bracket and then start on the post tax account.

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Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 03, 2017, 08:52:07 PM
"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.

This is very odd.

When I ran it before, I put in the yearly expense under "Initial Yearly Expense" and marked it as "Not Inflation Adjusted"

Based on your suggestion, I put a 0 there and moved the yearly expense to the Expense section at the bottom of the page, also marking as not inflation adjusted.

There are a LOT of numbers on the simulation results page besides the success percentage.

The success percentage is the same either way but the rest of the numbers -- not even close!   At this point I'm not sure what the rest of the numbers actually mean.   Any ideas as to why there is so  much difference?

The success was 98.46%, but the failures were horrible!  Negative $76,000 on a $180,000 nest egg reserved for that purpose.  Yowsa.   Without some buffer to cover that 1.54% it could get really ugly.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 03, 2017, 08:59:17 PM
$225,000 invested to cover a $180,000 15yr, 2.75% mortgage  never dipped into negative territory given any 15 year time period.

That's good to know.

So, in the example I gave earlier, a $180,000 nest egg invested and drawn down to pay the mortgage over time (instead of paying it off early) had a 98.5% (rounded) chance of success but with a 1.5% chance of running $76,000 in the hole.   

An extra $45,000 invested covered the downside risk.   

That's still WAY better than having to save 25* your annual P&I mortgage payment!   That's only 1.25 times!

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 03, 2017, 09:34:57 PM



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.

30 year is definitely the way to go if you can lock in a 3.125% rate.  I wasn't able to get anywhere near that rate when I just refinanced though (I locked in at 4.125).  I'll still have a great chance to beat out the guaranteed return of 4.125%, especially after tax breaks.




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Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 04, 2017, 12:36:18 AM
.
Ok, I confess, I'm getting a whole lot more comfortable not paying the mortgage off early.
*!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 04, 2017, 03:35:31 AM
Sword guy glad you're coming around. 4.125 is probably the best 30 year right now. If anyone ever got 3.125 they almost certainly bought points. My refi guy gave me 3.25 at the bottom last July BC of how many times I've refid and all the referrals.  One other point. The 225k is 1.25x your mortgage balance. Which is still. 21.5x your annual mortgage. But great way to think about it for some concerned about running out of money. It doesn't have to be 25X.
Title: Re: DONT Payoff your Mortgage Club
Post by: dreams_and_discoveries on March 04, 2017, 04:47:27 AM
I'm a firm member of this club - 1.5% mortgage rate currently, about 18 years remaining.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on March 04, 2017, 05:20:39 AM

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.

Swick, maybe you could refinance (3 years is now @ 2.25%) and max out your TFSA every year.

Or, start the Smith Manoeuvre (the way for us, Canadian, to make our mortgage tax-deductible. Take a HELOC @ a good rate (3.2%) and reimburse every penny you can on the mortgage each payment, each year, with no penalty. Finaly, pull the money back from the HELOC and invest in a taxable account. Your interests are now deductibles at your marginal tax rate so your net interest rate is now arround 2%!

By the way, just ditch your bonds because it does not make sense to own debt (bonds) while have debt (mortgage). Samething about your REITs, MERs are to high and your house expose you a lot to the real estate and interest rates future rise.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on March 04, 2017, 05:51:24 AM
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 exactly got this feeling, mine is 43k @ 2.24% with 15 years left. Monthly payment is 275$
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 04, 2017, 07:06:40 AM
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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Title: Re: DONT Payoff your Mortgage Club
Post by: nottoolatetostart on March 04, 2017, 07:09:08 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 04, 2017, 07:18:33 AM


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.

Glad we were able to help with the cFireSim calculations.  20 months away from retirement? Exciting times!

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Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 04, 2017, 10:27:43 AM
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?
I want to know too. Wow!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 04, 2017, 10:40:07 AM
One question....
Are we putting too much emphasis on the "tax write-off" that we get by paying a mortgage?
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?

Well, I used to anyway...Current home was purchased sans mortgage, which occasionally makes me weep, especially when I read comments like dreams_and_discoveries'. Wah!
Title: Re: DONT Payoff your Mortgage Club
Post by: Nords on March 04, 2017, 12:07:48 PM
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.

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'd keep the mortgage.

Everyone with a COLA pension can reasonably expect to make money from a 30-year mortgage.  You're using an inflation-adjusted annuity (with a rising stream of nominal income) to make a fixed payment of an obligation that's being eroded by inflation. 

A military pension makes this even easier because the inflation-adjusted annuity is coming from the world's best source.  In 15 years of military retirement, my pension has risen by over 30%... despite three separate years of 0% COLAs. 

To boost the portfolio's success rate even further, money which could have paid off the mortgage can now stay invested in a high-equity portfolio.  However the market volatility is not for the faint of heart.

Back in 2004 my spouse and I signed up for a 30-year mortgage fixed at 5.5%.  We'd been having the usual "Pay off the mortgage or invest?" debate at Early-Retirement.org, so I ran FIRECalc on the success rate and decided to track the result:
http://www.early-retirement.org/forums/f28/covering-a-mortgage-without-losing-your-ass-ets-15237.html

These numbers are for the iShares small-cap value ETF (ticker IJS).  They assume that the dividend distributions are taxed at 15% and the remainder is invested at the next day's share price.  My spreadsheet does not consider the additional tax deduction for paying mortgage interest, because after the first 10 years the interest goes below the standard deduction.  That ETF also has a heftier expense ratio (0.25%), so an equivalent ETF today may have a much smaller drag on returns.

Year::APY
2005: 17.1%
2006: 13.3%
2007: 13.5%
2008: 5.3%
2009: 2.0%
2010: 3.3%
2011: 2.3%
2012:  5.9%
2014: 8.2%
2016:  8.2%

Note that we "won" the early years but suffered a nasty recession during the first decade.  (In early 2009 the APY actually turned negative for a couple months.)  I suspect the Great Recession is a pretty good example of sequence-of-returns risk, and perhaps from now on the long-term APY is going to hold above 7%. 

In other words, borrowing at 5.5% and investing in equities for the long term gave us an after-tax risk premium of over 1.5%.

Last month we decided to refinance our rental-property mortgage (4.625%).  The broker suggested that instead we should pay off its loan by taking out a bigger 30-year mortgage on our home.  The result is that we're borrowing a new 30-year mortgage at 3.25% and using it to pay off the mortgages on our rental property (4.625%) and our home (3.625%).  The refinance drops our monthly payments by over $400 and will pay back the closing costs in less than two years.

Note that since I now have a VA disability rating, we opted for a VA loan where we can waive the 1.25% funding fee.  The payback would be longer if I'd had to pay that fee.

Borrowing money at 3.25% and investing it?  Navy Federal Credit Union is already offering 7-year CDs at 3%.  Now one of my new life goals is outliving the mortgage-- we'll make our final payment when I'm 86 years old.

Again, this works great with a military pension because it has a COLA.  More importantly, that federal pension should be reliably paid for at least the next 30 years.  Those with a corporate COLA pension, or a pension with no COLA at all, will find that mortgage arbitrage is more risky. 

If you're using the 4% SWR with no annuity income whatsoever (except Social Security) then your FIRECalc success rate may be less than 75%... even in a high-equity portfolio.  More importantly, I suspect that the emotions of behavioral financial psychology will be very difficult to handle.

Mortgage arbitrage also makes the most sense for an asset allocation that has an average historical return which is higher than the mortgage interest rate.  If you're holding a large amount of your investment portfolio in bonds or cash then you're just wasting money on the assets which return less than the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on March 04, 2017, 04:07:39 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 04, 2017, 05:43:39 PM


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.

Wow, that's a crazy good deal even for an adjustable rate.  Curious now, where are you located at?

The best adjustable rate I've seen lately is around 3.25% for a 5 year fixed and then adjusted yearly after that.





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Title: Re: DONT Payoff your Mortgage Club
Post by: SwedishMoustache on March 05, 2017, 02:10:52 AM
I'm in on this thread. Paying off my mortgage beyond the rate that swedish law requires would actually be a loss for me, given the average 4.36% Yield (4.78% YoC) that my dividend portfolio currently nets.

After much haggling, i've gotten my mortgage down to 1.19% using a local bank. The only way for me to get this lower, would be to have assets/cash of more than 500 000$ on the bank, after which i could get a 0.99% interest rate. Unfortunately, that is not the case.

Still, any penny spent on my mortgage right now is actually loss for me, since it could be spent on dividend stocks, increasing my net worth and yielding dividends.

I'll have to see if i fix it for 3-5 years. The current fixable rate for me is 1.87%, which is still good but...think i'll wait a bit :).
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on March 06, 2017, 03:29:40 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on March 06, 2017, 06:00:21 AM
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.

Depends of the real estate market prices vs rents in your area. Real estate can bring good cashflow and ROI due to leverage. On the other hand, this investment comes with downsides: high cost to buy/sell/maintain, not very liquid, not diversified, interest rates sensible. Here (where I live), it's a no-no (dumb investment) maybe you can own 1 rental and invest in stocks?
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on March 06, 2017, 06:53:11 AM
 I am very lucky that when I purchased my first house it was in a highly rentable area. I purchased it as a primary property as a 20 something that wanted to be in the middle of it all, during the recession so I got it for a steal;plus I got the $8000 first time homebuyer tax credit. It was a stars aligning type of situation.

I want to continue to buy in the same area because I have had back to back (awesome) renters for this house and even people waiting for the current tenants to move out (the new tenants have only been there 2 weeks). It's close to employment and tourist attractions and most of my renters have been full time employees at jobs within short walking distance. However what has been a well kept secret coming into light, and a booming housing market here, plus inventory that had been purchased during the low, by investors only to be flipped and listed at over valued imo, prices, I fear being priced out by the time I am ready to buy next year. I couldn't afford my own home today. If I can't buy here, my plan is to buy student housing by the university.
Title: Re: DONT Payoff your Mortgage Club
Post by: powskier on March 07, 2017, 12:45:59 AM
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.
Title: DONT Payoff your Mortgage Club
Post by: twistedfirestarter on March 07, 2017, 09:41:50 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 07, 2017, 10:33:11 AM
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.

Nice!  When did you purchase the investment property and for how much?  That's some awesome cash flow right there!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 07, 2017, 10:36:06 AM
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.

Welcome!  Can you provide some more details on what rate you would be able to remortgage for and the term?  Would it be 120k at 1.9% adjusted after five years with a 30 year amortization?  Is it fixed or do you have the option for a 30 year fixed?
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on March 07, 2017, 11:34:05 AM
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.

I don't recommend having all my money tied up in a house.  Let's say you refinance to a nice round number like £100k.  The interest in year 1 will cost less than £1,900.  If the stock market goes up as little 5-10% you would make £5k-£10k with the potential for further compounding.  Yes, it could also go down.  Perhaps you should put it in a Vanguard mutual fund that is a portion of bonds and a bit less in stocks for some stability.  You miss out on upside but don't get hit as much on the downside.

Go back and look at the 10-yr returns on ETF's and mutual funds out there.  It will include the 2007-08 recession as well as the nice recovery.  You will see that a 10-yr time frame under those circumstances was much preferable to a 2% return (even if it was a wild ride). 

Of course there are no guarantees, it could be all downhill from here.
Title: Re: DONT Payoff your Mortgage Club
Post by: evensjw on March 07, 2017, 08:11:02 PM
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! 

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.





Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 07, 2017, 09:26:32 PM
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.
Consider yourself reassured and welcomed, clickhappy!

If you can comfortably afford the payment and will be vigilant about saving and investing, I say go for it!

Be sure you have a healthy EF. If anything awful happens, knowing you can keep making payments will help.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 07, 2017, 09:30:03 PM
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! 

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.
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: davisgang90 on March 08, 2017, 05:58:49 AM
Thanks to all for the insights, especially Nords as I'm in the military pension category.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Nords on March 11, 2017, 06:28:49 PM
Thanks to all for the insights, especially Nords as I'm in the military pension category.

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.
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.

The processor also did not care about the DFAS income verification letter (for our pension) or the electronic Retiree Account Statement on myPay.  The only evidence she'd accept was two months of checking account statements showing the deposit (where I had to explain the difference between "pension" and "VA compensation") and two years of income-tax returns (with 1099-Rs).

I'm told that she has 14 years of experience.  I suspect it's mostly been on applications with debt, not so much with assets & income.
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on March 20, 2017, 10:00:07 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 20, 2017, 10:06:19 AM
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.

Thats the way to do it !!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 21, 2017, 01:37:52 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 21, 2017, 03:28:51 PM
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.

who cares if the house doesnt apprasie you money has been making you more money in the markets in most cases than depreciating in your house as you are indicating.  also pulling out 100k in equity doesnt mean the house appreciated it could have been paid down equity
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 22, 2017, 01:18:33 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 22, 2017, 01:53:20 PM
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.

yes you need an appraisal but there are many low to no cost companies that will do REFI's i REFId at no cost to a 30 year at 3.25% in august.  i dont quite get your point.  pay 400 dollars for an appraisal to take 100k out.  100k earns say 3% more than the 4% interest loan in the market.  so you're making an extra 3k per year on the money for a fee of an appraisal. 
Title: Re: DONT Payoff your Mortgage Club
Post by: twell1 on March 24, 2017, 08:59:58 AM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 24, 2017, 09:12:49 AM
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.

congrats.  Yes its quite staggering when you look at it from a real numbers side.  all those who pay it down are leaving 10s if not 100s of thousands on the table. for nothing more than feelings.
Title: Re: DONT Payoff your Mortgage Club
Post by: Nords on March 24, 2017, 09:51:34 AM
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. 

It's much simpler to figure out which type of decision an investor is likely to make, to highlight the issue (for their self-awareness), and then to say "So if you're going to decide on that basis, then here's what will build your wealth while still helping you sleep better at night."

For example, people who have more money than they need (for whatever reason, including "for the rest of their lives") may choose to stop taking what they used to view as prudent risks. They're still leaving hundreds of thousands of dollars on the table "for nothing more than feelings" but they're much happier about it.  They already have "enough".  Why run up the score?  Why work so hard?

I know several people like this.  It usually involves military retirees (perhaps from senior ranks) with inflation-fighting pensions and cheap healthcare.  One of them, in particular, has the vast majority of their wealth in whole life insurance policies.  We come from very similar backgrounds so I can't simply explain it away by saying "Oh, just one of them emotional types..."
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on March 24, 2017, 12:57:16 PM
 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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 24, 2017, 02:09:54 PM
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....
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 28, 2017, 09:48:37 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on March 28, 2017, 10:19:03 AM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 28, 2017, 10:45:59 AM
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
I personally have a 10k emergency cash buffer as well.

Proving an all invested approach is better than an emergency fund can be hard.  Mostly because your investment timeline is much shorter in my opinion.  I am fairly confident that I will need to use that 10k in the next 5 years in order to fix or get through something.

Now 10k is about 2.5 months spending for us so it isn't a huge amount.  I think most married mustachians with dual income should have smaller emergency funds if they are saving 50% or more.  This is because that savings rate alone is a built in emergency fund.  One of you loses your job? No biggie, you still have your expenses covered 100%.

It's really going to be different for each couple or person.  But in general, I don't see an issue with having 2-6 months of expenses in cash.  I'm personally keeping the 2.5 months in cash and will begin building a larger after tax investment account to cover anything over that amount.

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 28, 2017, 10:57:25 AM
https://forum.mrmoneymustache.com/welcome-to-the-forum/why-do-you-do-and-pay-off-your-mortgage-early/

new thread.  for a slightly different topic. maybe we can win a few over.
Title: Re: DONT Payoff your Mortgage Club
Post by: acroy on March 28, 2017, 11:01:59 AM
I like this thread :) It is Financial Badassity at it's finest!!

Home loans are heavily subsidized; so make the system work for you.

8 years into our 30yr 3.25% fixed $140k loan. Gonna ride it all the way out, long as we stay here.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 28, 2017, 11:05:15 AM
on the EF front i dont have one.  We are in a low cost of living area with 2 very high incomes.  100k and 70k .  one salary can support both.  We are also well into saving and ahve over 30k in Taxable accounts and lots of roth contributions if push came to shove.  if large unexpected expenses come up here is how i handle them. - i'm actually doing this right now.  we had a miscarriage and have 3k in medical bills hitting so i am following below.  we have an HSA with plenty but would prefer to let it grow tax free

0. pay with credit card
1. halt taxable contributions - ~2k per month
2. halt roth contributions 1.1k per month - this was enough to meet the medical bills
3. halt 401k contributions - I'd probably actually do 4 here first to not need to do this
4. use Manufactured spending to create a buffer for a couple months to allow 1 and 2 to catch up to what is owed.
5. hit up taxable
6. if its really bad go to roth contributions

once you get all the way to 5 you should have been able to really assess what you need and develop a real plan moving forward.

Title: Re: DONT Payoff your Mortgage Club
Post by: FireHiker on March 28, 2017, 11:51:16 AM
I came over here from your other thread. We are definitely in this club, although we may have the highest mortgage in the group so far...

We re-financed last August/September, 30 year fixed at 3.25%. We currently have $575k remaining on our mortgage. We don't plan to retire in place, and are currently sitting on $523k of home equity (according to zillow; seems pretty accurate based on recent comps). Rent for a comparable house would be at least $1000 more than we pay for our mortgage. I would LOVE to downsize to something much smaller, but given the rapid appreciation we saw in the first 2 years after buying (bought in 2012), the math doesn't make sense.

We will pay the minimum on this mortgage until we either do sell and downsize locally, or hit FIRE and cash out to a lower cost of living area where we ultimately want to live. Even my "worst" return on my 401K, the 10 year number, is 5.6%. Last year I think I had something ridiculous, 16%? There's no way we're paying the mortgage early.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 29, 2017, 05:55:19 AM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on March 29, 2017, 05:59:44 AM
You can recast for free or less than $200 to take advantage of pre-payments.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on March 29, 2017, 06:47:43 AM
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...
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 29, 2017, 07:06:12 AM
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...

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bruizer on March 29, 2017, 09:38:54 AM
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.

This argument would be valid if you had a guaranteed rate of return greater than your mortgage interest rate on your investment of the funds you don't use to prepay your mortgage, taking into account inflation and taxes.  Your investments are just that - there is a risk of gains and losses.  Who knows if over the next 15 years you would have come out ahead by prepaying your mortgage or investing the funds.  You need to quick calling this an emotional versus logic decision. Both sides have logic and emotion involved, and both have valid reasons.  I myself plan to keep my mortgage as long as possible, but if my financial situation changes, I may consider paying it off sooner.   
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on March 29, 2017, 09:47:54 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bruizer on March 29, 2017, 09:51:30 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on March 29, 2017, 10:16:28 AM
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.

Absolutely agree.  If I could pay off my mortgage in 3 to 5 years, I'd do that in order to reduce a monthly payment/bills.  In my case I owe $355k and that's going to be 15 years at least even if I did no other saving/investing.  So for me it makes more sense to dump everything into the market because of the time horizon. 
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on March 29, 2017, 11:19:15 AM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 29, 2017, 11:28:55 AM
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%
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 29, 2017, 11:29:49 AM
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.

At $91/month you're essentially paying [an additional] 3% on the first $36k. Your effective interest rate for the whole loan is 3.1% with PMI.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 29, 2017, 11:48:09 AM
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

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 29, 2017, 12:10:58 PM
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

we both did math half correct.  RWD did it the fully correct way.  You have 5.75% interest on the 36k but the rest of the balance is at 2.75% averaging that out its really 3.1% making it still not worth paying down.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on March 29, 2017, 12:14:00 PM
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

Thanks! Glad that my no-math gut feeling was steering me right. And thanks, everyone else, for the replies! This forum never ceases to amaze me! :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 29, 2017, 12:40:50 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 29, 2017, 12:42:40 PM
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%.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bruizer on March 29, 2017, 05:55:27 PM

Welcome to the boards!

Thank you!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 29, 2017, 07:11:06 PM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 29, 2017, 07:28:46 PM
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

Just want to keep this one on topic. And let that debate on why emotions are better than math live over there. I really liked frozenbits thought on it all. There is a dumpster fire starting over there bc people refuse to believe one can get the same satisfaction watching a sexy girl in a bikini mow their lawn for 30 bucks as one can get from paying down their mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 29, 2017, 08:06:34 PM
Well now that we are done with that debacle...

My investments are nearing 240k now :)

Up nearly 37k YTD.  Not too bad for Q1 2017! Excited to hit 250k and we are on track for 300k by years end.

Time to sell some stuff or find some side gigs to throw more cash into investments!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 29, 2017, 08:27:35 PM
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....
This is pure gold. Here's a big ol' mmmmmwah! for you, FB. Another one who gets it. Oh, boyoboyoboy!
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on March 30, 2017, 06:58:06 AM
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.

Yes! Thanks for this. Will calendar this to re-evaluate annually.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 30, 2017, 07:39:47 AM
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....
This is pure gold. Here's a big ol' mmmmmwah! for you, FB. Another one who gets it. Oh, boyoboyoboy!

Dicey i started a whole thread for this specifically.  Enjoy the dumpster fire
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 30, 2017, 10:22:48 AM
I'm on that one, too, b42!

The only reason I hang around here post-FIRE is the possibility of making other people's journey easier. That's why I  sing every verse of the "Don't Kill The Cheap, Affordable Mortgage Before You Stuff Full Every Other Possible Retirement Saving Option" Song at every opportunity. It sure ain't catchy, but fuck, is it ever true.

Naturally, I have perfect pitch and never miss a note, yuk, yuk.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 30, 2017, 10:34:38 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 30, 2017, 11:39:07 AM
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.

1. do you have the cash flow to afford the mortgage payment in the scenario presented
2. show the math difference. our 400k house if we invested 320k would be worth X in 10 years vs just sitting here doing nothing for us.


if you lay down your numbers i'll run them thru moneychimp really quick.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on March 30, 2017, 11:54:09 AM
I dunno, that would be too much like leveraging to me.  If I had a chance to kill my mortgage in the short term, I would take it.  But then again, I have job instability and cutting out a massive monthly payment would be pretty awesome.  Since I can't do that, I dump everything into 401k, Roth, Vanguard taxable (in that order).

I do have to say that our investments ($300k) are getting close to overtaking the total left on the mortgage ($350k).  That's pretty cool!
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 30, 2017, 12:02:20 PM
House was bought at $125K.  Zillow says $160K today, although I think that's probably high.  Balance is $4,400.  I'm thinking the loan would be in the $100 to $120K range, max.

Cash flow shouldn't be an issue, as I'll still be working, and we have lots - in excess of $400K - of other assets that could be tapped if necessary.  Not quite to "Home is 5% of networth" like the poster in the other thread, but getting there.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 30, 2017, 12:15:07 PM
at the end of 30 years you will have 200k more to your name with 7% returns on a 120k lump sum invested now at 4.25% interest on the mortgage side.  913k vs 715k.  assuming you invest the 590 a month mortgage payment in lieu of refi'ing. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Cwadda on March 30, 2017, 01:02:40 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 30, 2017, 01:19:13 PM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 30, 2017, 01:21:17 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 30, 2017, 01:24:46 PM
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

i'd take an interest only 80% loan to value for life.  that would be just fantastic.  i get all the equity appreciation for the small cost of 3.25% interest on the value of the home. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Cwadda on March 30, 2017, 01:36:17 PM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 30, 2017, 01:42:30 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 30, 2017, 01:56:04 PM
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....
This is pure gold. Here's a big ol' mmmmmwah! for you, FB. Another one who gets it. Oh, boyoboyoboy!

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Cwadda on March 30, 2017, 02:02:01 PM
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.

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?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 30, 2017, 02:08:20 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 30, 2017, 02:11:05 PM
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?

Ouch, this being a rental property will increase the difficulty to refinance.  You will need more equity and they will most likely hit you with a higher interest rate than a primary mortgage.  I'm still sticking with my statement below though.

"I'd 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."
Title: Re: DONT Payoff your Mortgage Club
Post by: Cwadda on March 30, 2017, 02:27:45 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 30, 2017, 02:32:09 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Cwadda on March 30, 2017, 03:07:08 PM
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).
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 30, 2017, 04:12:35 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on March 30, 2017, 08:50:16 PM
Nicely done, frozenbits!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 31, 2017, 05:13:36 AM
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....
This is pure gold. Here's a big ol' mmmmmwah! for you, FB. Another one who gets it. Oh, boyoboyoboy!

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.
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?

We live in a HCOLA, so please don't waste your breath hating the amount we spent. It was a short sale and it has appreciated about 40% since we bought it less than four years ago. We sold two mortgaged-and-highly-appreciated homes to buy this one.

We bought this crazy-ass, beautiful clown house so my MIL and her invisible friend, Al Z Heimer, could move in with us. It is 3.5 blocks from DH's work. We paid cash after the mortgage broker refused to lock our rate one Thursday during escrow and the rates spiked nearly a full point the following week. We took advantage of our FU money and brought a huge cashier's check to the closing. It was fun, but we both still kinda miss having a mortgage.

We are FI. We got that way by keeping our mortgages, investing the difference, letting appreciation and time work their powerful magic. "Killing" the mortgage first is an option, but it is a costly choice. Paying more when there is an easy way to pay less is about as anti-mustachian as you can get.

Mortgage + Leverage + Investments + Appreciation + Inflation + Time = Cheaper Financial Freedom.

It's way more complicated than the simplistic "All debt is bad" approach. It is completely worth sitting your ass down and studying it until you understand. Then if you still choose the backwards approach, you'll know how much more of your life energy it's costing you to get rid of that low-interest loan on your affordable house too soon.

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.

We're not high wage earners, never were. We live in a crazy HCOLA. We didn't get a particularly early start. We own multiple vehicles, including a <gasp> truck. We stopped and smelled the roses along the way. Yet we're rich beyond our wildest imagination and freely give 10% of our income to charity, because it makes us happy.

We still own three other SFHs, which are rentals. Each of them has a long, lovely, low-interest mortgage. We have no interest (hee) in paying them off, early or ever. Last year we re-fi'd the oldest of the three, resetting the clock to 30 years, lowering the interest rate, and improving the cash flow.

Whew, that was a lot of words and I never even mentioned tax deductibility. If you're in the US, it's just icing on the cake.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bruizer on March 31, 2017, 06:48:46 AM


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.


100% agree!  Nicely put!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 31, 2017, 07:00:50 AM
Dicey-
you indeed sound badass bringing that god-awful six-digit check to closing just to flex your muscles in front of that disgusting banker. I love it!

FU Money is all about giving yourself options when other people don't expect you to have them!
Title: Re: DONT Payoff your Mortgage Club
Post by: Cwadda on March 31, 2017, 10:04:40 AM
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.

Thank you for this analysis. Unfortunately $77k is more than all my lifetime assets. I would need to borrow money to get there. This will definitely be good to revisit say a year from now when the loan is seasoned and refinance eligible.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 31, 2017, 10:19:47 AM
loans are REFI able in 6 months. just an FYI... and you can rate lock prior to the actual close date of exactly 6 months out.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 31, 2017, 10:22:13 AM
cwadda. 

something else to look into is to do conventional and not bring 77k to close you do not have to have 20% down to avoid PMI in most cases a mortgage broker can get you a higher interest fixed rate loan and pre pay your PMI with the points they've sold. 

My friend actually just did a sub 5% equity REFI no PMI in July of 2016(the bottom of rates) for 3.5% ...

this was only 1/4 point higher than my no cost REFI at 3.25%

so if you assume 3/8ths above prime as worst case you'd still be at 4.5% which is better that 4.85%.  your banker or lender should have run all these scenarios if they didnt then you should find a new one.  you shouldnt have to ask.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on March 31, 2017, 01:57:20 PM

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?

no you dont add them together.
Title: Re: DONT Payoff your Mortgage Club
Post by: Stachless on March 31, 2017, 04:36:17 PM
Cwadda - have you considered getting a 2nd mortgage for the $77k you need to avoid PMI?

Even the most usurous 2nd mortgage is better than a 'fee' that never gets paid off.  Plus having a 2nd mortgage would make my truth-preaching neighbor boarder42 twice as proud of you!

Best of luck!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIT_Goat on April 02, 2017, 12:43:19 PM
I commented in the other thread that you've convinced me.

Current mortgage balance: $170,148.52
Current payment (PITI): $1,062.19
Years Left: 28.5
APR: 3.25%
FHA MI: 0.85%
Effective APR: 4.1%

Due to some over-payment already, I am 10 months ahead or it would still be over 29 years.  I was paying $1,750 to the mortgage the last few months.  I am now paying $1,100 and have added $650 a month to my VTSAX automatic purchase.  The MI won't be removed unless I refinance to a different type of loan.  With the current direction the rates are heading, it looks like that won't make sense.

The VTSAX account is not a tax-advantaged one, which provides me with some flexibility.  It actually makes me sleep better at night, because I can pull from that to cover the mortgage payment if things go pear-shaped.  Where, I wouldn't have many options otherwise.

Edit: I might even go and remove that extra $37.81, used to round it out, because it shortens the loan by around 2 years! And, that money could be added to the investment.  It just ruins my nice round numbers.  But, are nice round numbers worth the extra cost?

---------------
Edit 2:  Redid the numbers, think I have it right this time.

Pay minimum and Invest $687.81 =   649,920.55 after 29 years
Overpay then invest PI+$687.81 =    574,836.61 after 17 years

Difference: 75,083.94

In both cases, I have a paid off house and the investment plus returns.  I end up with $75k more when I invest the $687.81 than I end up with when I use it to pay down the loan.  I think I have it right this time.  That's significant enough to make it worth it.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 02, 2017, 12:55:55 PM


I commented in the other thread that you've convinced me.

Welcome to the club!

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 02, 2017, 01:03:53 PM
Just got a bonus which made my taxable investment contribution for this month a little over 3400.

We are set to automatically max out 2 401ks and an HSA, we then usually max 2 Iras during tax season.  After 401k match the total comes out to about 63k a year in tax differed investment accounts.

This brokerage account will be where we pull money out to max the Iras and anything above the 11k will add to our taxable investments.  My goal. Is to have 25k in the taxable brokerage account by the end of the year.  Stretch goal would be 40k but I don't see how that's possible with our current savings rate.

Also, I thought it would be fun to start monthly tracking of our outstanding mortgage balances verses our investment.  Mortgage numbers for 2016 are estimates.



                       Investment Balance                Mortgage Balance

01/31/16 =              129,707                               204,466
02/29/16 =              137,003                               204,102
03/31/16 =              151,122                               203,738
04/30/16 =              158,218                               203,374
05/31/16 =              176,190                               203,010
06/30/16 =              183,020                               202,846
07/31/16 =              195,013                               202,482
08/31/16 =              190,813                               202,118
09/30/16 =              192,290                               201,754
10/31/16 =              190,672                               201,390
11/30/16 =              198,065                               201,026
12/31/16 =              203,004                               200,650
01/31/17 =              212,600                               203,200 <----- Refinanced out of a 5/1 ARM to a fix 30@4.125 and dropped PMI due to value increase
02/28/17 =              225,035                               202,913
03/31/17 =              240,341                               202,626


I'm hoping this will motivate me to save and invest more.  And it will give me some accountability going forward, especially when it comes to after tax investments.




Title: Re: DONT Payoff your Mortgage Club
Post by: FIT_Goat on April 02, 2017, 02:09:52 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 02, 2017, 02:53:30 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIT_Goat on April 02, 2017, 03:45:17 PM
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.

That's awesome. I figured out what I did wrong. I ran the first numbers with the investing returning 6% and prepay then investing returning 7% (typo when playing with different rate potentials). So, handicapping the investing scenario still kept it as a clear winner.

Even changing the way I calculate returns to be more conservative still gets to $180k benefit. It is scary, to be in debt that long, but clearly best.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 02, 2017, 03:48:38 PM
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 prefer the cFireSim calculator myself.

It's pretty easy to do. I assume the house is completely paid off and calculate the success rate on a 30 year refinance.

Your retirement length would be 30 years, the portfolio would be whatever your cash acquired would be by mortgaging it, and your expenses would be non inflation adjusted and fixed at the amount of your yearly mortgage principal and interest payments.

Then it will spit out your success right with median and average ending portfolios. It also gives you best and worse case scenarios.



Sent from my SM-G935F using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 02, 2017, 04:50:03 PM
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.

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?
That's a tough one.

I would probably stick to investing as much as possible in taxable accounts and then deal with the rate changes as they come.  I honestly don't see Canadian rates going up drastically anytime soon. Unless they want to see a nice housing crash....

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 02, 2017, 05:25:05 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 02, 2017, 05:52:19 PM
Thanks very much, FrozenBits.

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.
No problem.

If your able to stache enough away in investments that you could pay off the mortgage during a rate change then you are negating a lot of the risk.

Say after 7 years you have a mortgage balance of 300k but you also have 300k invested, you basically can leverage that investment however you want on the refinance. If rates are 10% pay it off, if they are 4% milk it another 7 years.

Worst case, If rates are 10% and your investments just fell 50% from a market crash you could pay the 10% on the mortgage until your investments recover in 5 years or so.  The chances of this happening are probably under 1%.  Shit would really have to hit the fan...  We could over analyze this a ton if we wanted. Lol

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Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on April 02, 2017, 06:57:14 PM
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...
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 02, 2017, 07:38:47 PM
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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Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on April 03, 2017, 02:22:18 AM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 03, 2017, 04:27:35 AM
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

The reduced interest comes in when the mortgage is paid off and all money is now funneled to investing. It was done correctly bc the base mortgage payment doesn't change.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on April 03, 2017, 04:52:29 AM
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'm also 100% stock and my HELOC is used for 200k$ for investing purposes

But let face it, in this thread, we celebrate individuals who choose to invest and keep their mortgage but a lot of them invest in a 70/30 or ŗ 60/40 portfolio! I often get comments about the "risk" of being 100% stock at 45 and 5 years to go before ER.

Like you, my "bond" is my ability to work part time if needed...
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 03, 2017, 10:56:44 AM
I thought it was pretty common place to be no more than 20 to maybe 25% bonds as a rule in a FiRE forum. I know we have alot of oversaved older people retiring much closer to normal age around here. But if you're cutting the cord in your 30s or 40s you need a larger stock allocation to make it. Assuming you didn't over save.  I personally think money can make a large difference in many lives over time. And don't plan to carry over 10% bonds ever to maximize the earnings to hopefully positively affect those who are less fortunate. The odds of bad things happening are so incredibly small and I think far too many oversave. There are many ways to make money post FIRE. Look at ARS who pulled the cord a little early and now funds retirement and then some soley from tradelines which is a 20k+ 20 hour per year job.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 03, 2017, 12:39:11 PM
Ayup.
Title: Re: DONT Payoff your Mortgage Club
Post by: evensjw on April 04, 2017, 07:16:57 PM
So, I think I may have ended up doing this slightly wrong ;-)

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on April 04, 2017, 07:33:23 PM
For most people, maxing the 401k before prepaying a low interest rate mortgage is likely to have better financial outcomes. I would also think that investing the $300 every month would result in a larger stash over the long term when compared to mortgage prepayment.
Title: Re: DONT Payoff your Mortgage Club
Post by: tomorrowsomewherenew on April 05, 2017, 06:32:20 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 05, 2017, 06:44:07 AM
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.

you just said it you're 10-11 years out right now.  Who knows what the healthcare landscape will look like then.  Just invest and evaluate closer to FIRE.  It may make sense with subsidies to have a paid off house but again its math.  If you slow pay it down now you cant get that money back and are stuck with where you are.  plus your mortgage will reduce with inflation.  so 13k today is really 9.4k in 11 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 06, 2017, 12:01:56 PM
Just threw another 1600 into my taxable investment account!

I may be receiving some unexpected money this month as well.  That would be another 5-7k that I can throw into my taxable account. 

Turning out to be a good start to the month!

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Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 08, 2017, 01:25:28 PM
So, I think I may have ended up doing this slightly wrong ;-)

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.
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 08, 2017, 01:31:57 PM
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!

Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics threads on this subject.

ETA: The Department of Redundancy Department called and made me fix that.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 08, 2017, 01:41:44 PM
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!

Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
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..... :/

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Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 09, 2017, 06:39:21 AM
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!

Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
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..... :/

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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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 09, 2017, 11:38:13 AM
BTW, it literally makes my heart happy to see posts from people who are starting to get the math, Hooray!

Also kudos to b42 for taking on teaching/ sharing these important lessons. I love both of b42's current topics on this subject.
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..... :/

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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 chuckled when I found your hidden motive behind that thread. Lol

It's a very valid point though.  How can you be so confident in using something for one part of FIRE but not for your mortgage when the numbers are identical?

We just have to get one convert at a time!

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Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 09, 2017, 02:47:16 PM
I gotta say this was my position long before MMM opened up shop. It's damn nice to hear other voices in the choir these days. The harmony is lovely!
Title: Re: DONT Payoff your Mortgage Club
Post by: josh4trunks on April 14, 2017, 05:48:36 PM
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.
Though, I could see a scenario though where someone wants to maximize FASFA benefits and draw-down taxable assets to lower debt on their primary home.



But I did want to bring up another thing I was running some numbers on. If you can lower your interest rate by choosing a shorter payback period, you do come out ahead.
I ran a scenario with the following assumptions...

My question was, which mortgage would be ahead if at any year you decided to liquidate everything, debt and investments.
For the first 6 years the 15 year mortgage is ahead slightly, probably because the 30 year is paying mostly interest and investments haven't started to compound. But, by the 7th year the 30 year mortgage passes, and ends up $36.8K ahead at the end of 15 years. At this point I believe the 15 year mortgage pass the 30 year mortgage because with no mortgage payment all of that money could be invested.

Obviously the assumptions could be tweaked for different situations and I am happy to rerun the numbers with different assumptions. This is something to think about if you could commit to a shorter mortgage if they gave you better rates. I do not know what a realistic difference is in interest rates, but I suspect if you can save a large amount (like 1%), because it acts on the total mortgage amount, it equates to a much large ROI on the monthly mortgage savings being invested.

Sorry if this has been covered but I haven't had a chance to read through the whole thread yet.
EDIT
I made this spreadsheet a few months ago and wasn't reading the result backwards. My writeup has been corrected.
Title: Re: DONT Payoff your Mortgage Club
Post by: sovereign on April 15, 2017, 07:45:54 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: trashmanz on April 15, 2017, 07:51:06 AM
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.

Essentially then you are a market timer.  Best of luck with that.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 15, 2017, 07:52:50 AM
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....

You should at least be taking advantage of your pre-tax IRA.

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Title: Re: DONT Payoff your Mortgage Club
Post by: nottoolatetostart on April 16, 2017, 05:05:16 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 16, 2017, 06:12:06 AM
...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.
I hear a chorus of angels singing!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 16, 2017, 12:49:28 PM
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.

This is a horrible decision. This debate that shouldn't be a debate only exists with taxable dollars. You can't magically go back to 2015 and fund an IRA once the window has passed those tax savings are gone.

Also as mentioned above you're market timing based on your rationale​. A terrible thing to do. Worse even than paying down your mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 17, 2017, 07:18:38 AM
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.

This is awesome glad my over persistence has helped you see the light AND made you FI all by just moving around some debt essentially. So awesome and fantastic news
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 21, 2017, 04:08:09 PM
Just deposited some unexpected income into our checking.  First thing I did was set up a transfer for that exact amount to our taxable brokerage account adding a little over 5,500 to VTSAX.

I have a lofty stretch goal of having 50k in our taxable brokerage account by years end.  We started the year at 0 and are over 10k now.  50k is doable but it's a lot on top of our normal pre-tax contributions, which come out to around 62k per year.

Focusing on investing has really encouraged me to cut back even more and get every cent I can out of our budget by eliminating purchases that just aren't worth it to us.
Title: Re: DONT Payoff your Mortgage Club
Post by: Karinajane8 on April 26, 2017, 09:25:09 PM
I am currently trying to decide between a few options.  I'd love input/help with the math.
My husband and I are beginning construction on our home (he is a builder/log home kit sales).  We will still own the "model home" we've been living in and using as an office meaning there are 2 mortgages in our future.  (We are not paying extra on the 30 year fixed at 3.5% with 25 years to go!)
Options:
(1) Should we take out a HELOC on the property (best I can find locally is prime (4% right now)) to fund construction costs over our savings then refinance at completion?
(2)(a) Should we take out a mortgage right now (15, 20, 30?) to hopefully lock in a lower rate than we could get in 12-18 months (and avoid a second closing)?
(2)(b) If we go this route, do we aim high? 

(Numbers just in case: Construction estimate is 300k, we've already paid about 50k, have 100k earmarked to spend from savings, and will aim to keep final project well under estimate.  We're adding another kiddo and my salary will be halved starting this fall when I go part-time so keeping costs/payments low is a priority)
Thanks in advance and please let me know if this should be posted elsewhere.
Title: Re: DONT Payoff your Mortgage Club
Post by: dreadmoose on April 27, 2017, 12:36:25 AM
I'm in to this goal. I plan on paying minimum on my mortgage (403K at 2.19% for 30 years).

Ideally I'd go back 2 years and not agree to buy the condo but hindsight and all that. Now I'm toying with heloc and such for investing in the next few years (or at the 5 year mark as that's when the rate changes).

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Title: Re: DONT Payoff your Mortgage Club
Post by: albireo13 on April 27, 2017, 05:02:54 AM
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.


Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 27, 2017, 05:51:07 AM
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.

dont forget your state taxes if you have any.  we're 25% marginal plus 6% state making us 2.2% WHY WOULD YOU EVER PAY THAT OFF!!
Title: Re: DONT Payoff your Mortgage Club
Post by: bb11 on May 10, 2017, 12:29:04 PM
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%?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 10, 2017, 12:37:25 PM
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%?

No most debts under 5.5% should not be paid off currently see below. and if you havent maxed tax advantaged space dont pay off debts under 7.5%

Current 10-year Treasury note yield is ~2.5%.  See           
   http://quotes.wsj.com/bond/BX/TMUBMUSD10Y         
           
WHAT           
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund mega backdoor Roth if applicable           
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account with any extra.           
           
WHY           
0. Give yourself at least enough buffer to avoid worries about bouncing checks           
1. Company match rates are likely the highest percent return you can get on your money           
2. When the guaranteed return is this high, take it.*
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.           
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between.
   See Credits can make Traditional better than Roth for lower incomes and other posts in that thread about some exceptions to the rule.
   See Traditional versus Roth - Bogleheads for even more details and exceptions.
   The 'Calculations' tab in the Case Study Spreadsheet can show marginal rates for savings or withdrawals.
5. See #4 for choice of traditional or Roth for 401k           
6. Applicability depends on the rules for the specific 401k           
7. Again, take the risk-free return if high enough           
8. Because earnings, even if taxed, are beneficial           
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on May 10, 2017, 01:41:15 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Jenny1974 on May 10, 2017, 01:57:11 PM
About 14 1/2 year of a 15 year note at 2.75% to go . . with no intention of paying it off early!
Title: Re: DONT Payoff your Mortgage Club
Post by: bb11 on May 10, 2017, 03:48:08 PM
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.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on May 10, 2017, 04:45:28 PM
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.

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.

Why aren't more people doing this?

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.   
Title: Re: DONT Payoff your Mortgage Club
Post by: bb11 on May 10, 2017, 06:01:22 PM
Quote
1) 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.

Quote
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. 

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.

Quote
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.

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.

Quote
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. 

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?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on May 10, 2017, 06:23:13 PM
Well, then I guess the reason more people aren't doing it is because, like me, they didn't realize they could!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 11, 2017, 05:59:58 AM
Quote
1) 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.

Quote
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. 

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.

Quote
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.

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.

Quote
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. 

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: bb11 on May 11, 2017, 10:27:47 AM
Quote
1) 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.

Quote
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. 

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.

Quote
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.

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.

Quote
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. 

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.

Okay, I started a new thread. Here's the link for those interested:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/using-cheap-credit-(lt4-interest)-to-invest/
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 12, 2017, 07:20:15 AM

Quote
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.

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.


I've read best practices of credit churning, and they advocate setting aside a healthy slug of cash for rapid payoff of a card when something goes wrong. That cash will fall behind when compared to simply investing.

I've considered this approach, and even tried it for a year, with my goal to put enough spending on the 0% card to offset the payment of principal toward my mortgage...figuring out the optimal amount to carry as balance depends on your income/savings rate and your other debts. One of the things I learned during this year was that I'm a little less than perfect when it comes to the personal-record-keeping that credit churning requires. I expect I'll be carrying $10,000-ish long term, but I don't think I have the risk-tolerance to go much greater than that.
Title: Re: DONT Payoff your Mortgage Club
Post by: sisto on May 23, 2017, 04:58:36 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: josh4trunks on May 23, 2017, 05:52:27 PM
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...

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: sisto on May 23, 2017, 09:10:04 PM
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.
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 24, 2017, 04:13:35 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: josh4trunks on May 24, 2017, 01:07:31 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 24, 2017, 01:18:36 PM
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.

depending on where rates are compared to their norm i think this could be a good strategy.  if we're at an all time low again which i dont think we will be i'd rather lock that in to not tie up money in my house or have a higher rate,  this is all relative to the amount of time you plan to occupy the property though for us is 20+ years so our 3.25% rate will likely beat the 2.5% ARM over the life of the mortgage.  if it doesnt i really didnt miss out on that much.
Title: Re: DONT Payoff your Mortgage Club
Post by: Gardo on May 26, 2017, 07:42:39 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 26, 2017, 08:08:20 AM
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.

actually makes no sense.  you should invest the difference. then see what if any the rate adjusts to. and evaluate annually or REFI at the end of the 5 year fixed period.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on May 26, 2017, 11:32:26 AM
Been a while since I updated my Investment/Mortgage numbers. 


                       Investment Balance                Mortgage Balance

01/31/16 =              129,707                               204,466
02/29/16 =              137,003                               204,102
03/31/16 =              151,122                               203,738
04/30/16 =              158,218                               203,374
05/31/16 =              176,190                               203,010
06/30/16 =              183,020                               202,846
07/31/16 =              195,013                               202,482
08/31/16 =              190,813                               202,118
09/30/16 =              192,290                               201,754
10/31/16 =              190,672                               201,390
11/30/16 =              198,065                               201,026
12/31/16 =              203,004                               200,650
01/31/17 =              212,600                               203,200 <----- Refinanced out of a 5/1 ARM to a fix 30@4.125 and dropped PMI due to value increase
02/28/17 =              225,035                               202,913
03/31/17 =              240,341                               202,626
04/30/17 =              258,657                               202,338
05/31/17 =              267,273                               202,048

End of Year Goal =   300,000


Investments have been increasing at a good pace for us this year.  Aiming to break 300k invested by the end of the year!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 27, 2017, 04:43:03 PM
Nice work frozen.  This market has been nuts.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on May 27, 2017, 05:39:11 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on May 27, 2017, 06:38:24 PM
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!

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on May 27, 2017, 06:43:07 PM


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!

It was a very good day when I realized that happened.  I don't think I realized it until January or February through lol.

It is possible my mortgage could creep up past my investments again, especially when we move, but I'm hoping the days of a larger mortgage balance than investments are behind me for good :)

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 27, 2017, 07:37:03 PM
Nice job, FB!
Title: Re: DONT Payoff your Mortgage Club
Post by: Timmm on May 29, 2017, 11:33:05 AM
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:

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 29, 2017, 07:51:25 PM
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:

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, Timmm, how are you finding such low rates on rental properties?
Title: Re: DONT Payoff your Mortgage Club
Post by: Timmm on May 30, 2017, 08:01:20 AM
Ooh, Timm, how are you finding such low rates on rental properties?

Those were locked last September, I think near general lows. Even better, they paid us real money at closing, after all closing costs. I found the broker through the referal/ads on a very large site that offers free and sometimes useful property value 'estimates'. I'm pretty new here, not sure it's ok to just mention them by name. There's no referral scheme or anything. And I've used other similar mortgage broker marketplaces in the past, that one has just had the best deals for me for a while.

Those are our only two rental properties and we're ideal borrowers - plenty of W2 income, no other debt, very good credit scores (actually only in the 740s at the time due to some CC balance shenanigans, but I suspected the rate offers would not wait). I'm getting off topic here, is there a better thread for rental financing discussion? PM is fine too.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 30, 2017, 10:45:52 AM
PM sent and third "m" added. Thanks a lot, autocorrect.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 07, 2017, 05:52:26 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 08, 2017, 07:00:49 AM
timing is really good for lower rates right now: 10-year treasury yield was 2.15% yesterday.
Title: Re: DONT Payoff your Mortgage Club
Post by: dreadmoose on June 08, 2017, 08:44:06 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on June 08, 2017, 10:10:09 AM
We made another minimum payment on our mortgage this month
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 08, 2017, 10:13:41 AM
We made another minimum payment on our mortgage this month
Woot!

ETA: I got so excited for you, my response got caught in the quote bracket. Fixed it.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on June 08, 2017, 10:45:48 AM
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.

Why not track your investments versus your mortgage?  I like to think of this thread as an investment challenge.  Put your money to work in the most efficient way possible via index funds.  This way we could regularly celebrate contributions to investments rather than mortgage pay-down.  That's what I'm doing, planning on posting monthly updates at a minimum.

Hopefully this thread doesn't die off.  I've really enjoyed it so far.
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on June 08, 2017, 11:23:17 AM
Quote
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.

I have $112K left on my mortgage.  Five months of interest payments would be approximately $112,000 x 0.02625 / 12 * 5 = $1,225 in interest I paid this year.
My not paying down my mortgage, it has been invested in the market.  Even though I have several investments, I would guess that I am 1/3 DOW, 1/3 S&P, 1/3 Nasdaq. 
Looking at the ETF's DIA, VOO, and QQQ they are up (including dividends) 8.48%, 9.58%, and 21.20% this year, for an average of 13.09%. 

$112,000 x 0.1309 = $14,661.  So far this year alone I have saved $14,661 - $1,225 = $13,436 by not paying my mortgage down.  To say nothing of all the other years where I did not pay my mortgage down, that all continues to compound.  I'm talking about a limited time frame and amount of money here.

Your allocation may certainly be different.  Mine isn't 1/3 of each, I actually have no DOW but a lot of VOO and QQQ but wanted to "penalize" them for my other holdings which were different.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 08, 2017, 12:20:14 PM
I pay about $460/month in mortgage interest. (so about $1,380 per quarter)

In the last three months, I've received about $820 in dividends in a taxable investment account. I think an appropriate goal is to close the rest of that gap.
Title: Re: DONT Payoff your Mortgage Club
Post by: starbuck on July 03, 2017, 07:37:45 PM
Current mortgage balance: $173,761.36
Current taxable account balance: $220,206.22

Someone was describing their friend's recent property purchase, and how they bought it with cash and hated having a mortgage. She thought they were financial wizards, and all I could think of was the buttloads of lost financial leverage.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 03, 2017, 08:05:20 PM
Made another minimum payment this month. The sum of our invested assets has now passed double our mortgage balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on July 03, 2017, 09:41:28 PM
With the rising stock market, it has certainly paid to not payoff the mortgage.  I've been tracking for the last 5 years since I refinanced a balance of 280K at a rate of 3.5% for 30 years FRM.

A. Current mortgage balance: 251K
B. Taxable account balance: 52K
C. Dividends received: 3K

Net debt A - (B + C) = 196K

Had I prepaid mortgage instead of investing in taxable, my mortgage balance would be 205K.

Net savings = 9K.

Edit to add: The numbers are even better if I take into account tax savings.

My mortgage interest deductions are currently taken in the 33% bracket  (25% federal + 8% state).
Total tax savings from mortgage interest deduction in the years 2012 to 2016 = 12K.

If taxable account is liquidated, then taxes will be about 3K.

So effective savings = 9 + 12 - 3 = 18K.

Am I missing anything?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 04, 2017, 12:13:38 AM
Thanks for the bumps, guys! I love this thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: Davids on July 04, 2017, 05:34:37 AM
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.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 04, 2017, 07:50:36 AM
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.

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.
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on July 04, 2017, 10:55:38 AM
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.

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.
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!

And when investments compound faster than your day job, you really begin asking yourself if working worth it! No matter what the mortgage balance is...
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 05, 2017, 12:46:42 PM
The downside of having that much invested is that--when it goes down--you ask yourself "why did I lose a year's worth of income today?".
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 05, 2017, 01:08:08 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on July 05, 2017, 04:12:21 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 05, 2017, 10:53:35 PM
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!
Amen!
Title: Re: DONT Payoff your Mortgage Club
Post by: DarkandStormy on July 06, 2017, 08:16:28 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 06, 2017, 11:05:39 AM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: DarkandStormy on July 06, 2017, 11:34:21 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 06, 2017, 12:05:15 PM
VTIAX is up 6.3% (plus dividend) over the last four months. I'm glad my portfolio is diversified.
Title: Re: DONT Payoff your Mortgage Club
Post by: DarkandStormy on July 06, 2017, 12:27:21 PM
VTIAX is up 6.3% (plus dividend) over the last four months. I'm glad my portfolio is diversified.

Up 1.7% the last two months which is better than the U.S. indices - and international has outpaced domestic for most of the year.  So it depends on your AA.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on July 06, 2017, 01:05:27 PM
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.

Well, I got my mortgage 3 years ago, lets see how much stocks have floundered since then....

https://dqydj.com/sp-500-return-calculator/

From July 2014 to May 2017, the S&P 500 average return was 7%.  So still better than the 3.95% rate of my mortgage. 

BUT I also re-invest dividends, so that brings my return to 9%, which pretty much crushes my 4% mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: DarkandStormy on July 06, 2017, 01:30:32 PM
[quote author=tyort1 link=topic=69225.msg1614487#msg1614487
From July 2014 to May 2017, the S&P 500 average return was 7%.  So still better than the 3.95% rate of my mortgage. 

BUT I also re-invest dividends, so that brings my return to 9%, which pretty much crushes my 4% mortgage.
[/quote]

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 06, 2017, 02:13:40 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on July 06, 2017, 03:37:03 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 06, 2017, 10:02:17 PM
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.

From vocabulary.com:

"A flounder is a fish, but as a verb, it means to blunder about, to be in serious trouble. In the following examples, something is struggling but hasn't completely failed:

He set out for it, limping, while the sharp gravel rolled under his bleeding feet as he floundered up the climbing trail. (Harold Bindloss)

It is a war that has floundered for nine years without a rational strategy and may endure for another decade. (Sydney Morning Herald)

Just as he turned around that floundering business, he suggests, so too could he reverse the country's sagging fortunes as its chief executive. (Washington Post)"

From Dicey:

Mustachians generally take the loooooong view of the stock market. Such a short time period ain't nothin', man.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on July 06, 2017, 10:19:13 PM
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.

This is quite wrong.  When the market drops is the MOST IMPORTANT time to keep investing in it. 
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 07, 2017, 06:13:36 AM
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.

Haha, I was intentionally ambiguous. Of course I meant keep the price low (and size of home smaller).

Mortgages can be used very tactically and judiciously to use other people's money to fund your home while your own money seeks higher returns. Most of the time you'll win, but sometimes you could lose. And you won't know which case you're truly in until you have the benefit of hindsight. There is a certain peace to not having a mortgage at all.

The word mortgage itself means death contract. They should not be taken lightly.
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 07, 2017, 06:19:29 AM
@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?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 07, 2017, 06:40:41 AM
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.

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.



Title: Re: DONT Payoff your Mortgage Club
Post by: icbatbh on July 07, 2017, 06:57:11 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: YoungGranny on July 07, 2017, 07:15:25 AM
After flip-flopping and running scenarios to try to figure out what works best for our FIRE goals my DH and I finally decided to join y'all in the not-paying-off mortgage club. Well, we still are going to pay it off eventually since I'm going to continue making regular monthly payments but I forsee our total mortgage balance growing quite a bit over the next few years as we buy more rental units. We currently own 1 rental unit that was a cash deal (only cost $30k) and are in the process of buying our second one that will come with a $100k mortgage. We plan to buy another one within a year or so as we continue to keep our eyes on what comes up for sale.

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 07, 2017, 07:17:45 AM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: YoungGranny on July 07, 2017, 07:42:08 AM
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.

Thanks!

I do understand that mathematically it is the best thing to do but I did need to convince my DH. I think staying on the same page financially is also quite important. I also think it's important to note we continued funding our 401ks and IRAs and I would NEVER advocate paying extra by sacrificing those things. For us it was the desire to grow our real estate portfolio that helped us finally commit to not paying it off. Lots of spreadsheets and scenarios were used to show my husband the power of leveraging :)
Title: Re: DONT Payoff your Mortgage Club
Post by: DarkandStormy on July 07, 2017, 08:03:19 AM
@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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 07, 2017, 08:33:42 AM
@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.

the two bolded statements above directly contradict one another.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 09, 2017, 09:48:09 AM
The point about the standard deduction is a very good one. The TallTexan household has several important deductions come tax time each year:

1. Mortgage interest
2. Childcare expenses (some of which are through a Spending Account)
3. Charitable contributions
4. Traditional IRA contributions

#1 may actually be the smallest of the four for us already (and we still have about 24.5 years left on our mortgage according to the amortization tables).
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 09, 2017, 07:32:08 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 09, 2017, 08:29:15 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 09, 2017, 11:50:19 PM
@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?

We're not spatting. I really do think calling the market's recent (i.e. 2-3 months. WTH?) performance "floundering" was hilarious.

I'm older, I've seen a lot, and I know what the word means. Nowhere close to floundering. In fact, I'm sure it will be interesting to see what some people do should when the market actually does flounder. Well, it won't be at all interesting to watch me, because that will be boring as shit, 'cuz I won't be doing much besides maybe dumping a little extra cash into the market when it's on sale.

My kind of dice games are Yahtzee and a Bunco-like game called "5000". Been playing with a group of 12 once a month for decades. 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.
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 10, 2017, 05:37:53 AM
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.

One of the sites I played on used a dice server to handle the rolls for online play. That server was called dicey and would send emails to each player with the dice results in real time.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 10, 2017, 06:12:46 AM
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.

Feel free to start your own upteenth thread to discuss this. 

this is a thread for people who have chosen to not to pay down your mortgage.  If you'd like to discuss the hypocracy in following some version of the 4% rule and paying down a mortgage faster than necessary with a low fixed rate there are probably 50+ threads you could go to find this information in ... or you could start another.

pizza steve is an extremely overly conservative person pushing into sub 2% SWR levels. 
Title: Re: DONT Payoff your Mortgage Club
Post by: YoungGranny on July 10, 2017, 07:35:45 AM
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.

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 :)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 10, 2017, 09:31:46 AM
Pretty sure when I got my wife to agree to a 5/1 ARM, she thought we'd be paying it down a lot faster than we are.

But my wife is pragmatic, and she appreciates the returns on our other investments that have been possible because we, ahem, failed to do this.
Title: Re: DONT Payoff your Mortgage Club
Post by: BrandNewPapa on July 10, 2017, 11:06:44 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 12, 2017, 05:52:57 AM
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 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.
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 12, 2017, 06:38:35 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 12, 2017, 07:07:24 AM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on July 12, 2017, 08:26:38 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 12, 2017, 10:21:30 AM
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.

you think. 

its a poor way to manage your money to try and time the market.  people have been saying stocks are overvalued for the last 3 years .. you'd have missed a lot of run up.  the current PE is around 26 which isnt that much higher than 25 which is what sustains the 4% SWR.  the Shiller PE has 2 really shitty years of earnings in it that are inflating the 10 year PE alot.  i'd say stocks are slightly over valued right now but earnings are rising again.  we could just be in a happy sweet spot.  but you pick a AA and you stick to it.  anything else is market timing. 

Yeah sure it COULD make sense right now but we wont know that answer til next year or later.  dump in all you're willing to dump in as soon as its available and you'll come out far ahead of those trying to time the markets and assume values.
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 12, 2017, 11:08:15 AM
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.

Love it!

On the 3rd one, I never assume so anymore as I have integrated this thought into my world view.

ďLive as if you were to die tomorrow. #Learn as if you were to live #forever.Ē Favorite #Ghandi quote. #neverstoplearning
Title: Re: DONT Payoff your Mortgage Club
Post by: Missy B on July 12, 2017, 03:56:34 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 13, 2017, 05:39:54 AM
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.

congratulations stick around here and keep it up ... your future self will look back and thank you.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 13, 2017, 05:41:13 AM
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.

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 :)
Great to hear it!

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.

nothing in my post was a personal attack.  i said this was about paying down mortgages and you could feel free to spread your stock fear thread else where. 

show me where thats a personal attack.  i gave you the full right to go spread your statement somewhere else and only commented on your statement.

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 13, 2017, 08:15:54 AM
Ten-year (US) treasuries recently spiked from yielding 2.15% to yielding 2.38%. Get those low mortgages while they can still be gotten!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 13, 2017, 08:49:21 AM


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.

The vitriol spewed by debt-haters on this (and many other sites) is epic. I salute B42 for their diligence in promoting what is surely a more efficient path to FI. Long live B42!

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!

*Don't worry, I don't actually play craps any more, but I had a group of friends (including BF) who liked to go to the casinos after a day of snow or water skiing, back when I was in college. I figured out that if I was going to do this, playing the Don't Pass Line in Craps with full odds was the way to go. It was fun, interesting, and I pretty much broke even. One of the hallmarks of true Mustachianism is to be able to play the part if/when desired, without becoming an actual sukka.

And here's a P.S. to get us back on track:

Frankly, I don't give a flying fuck about how great anyone says it "feels" to pay off a mortgage. 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.
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 13, 2017, 01:49:56 PM


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.

.
.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: justaguy on July 13, 2017, 03:22:37 PM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 13, 2017, 06:00:40 PM
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.

Yes welcome to the club.  As your stache grows assuming you have stable employment. You'll like find a traditional Efund of any type to be mostly unneeded. And you'll be able to let your mortgage even role back to right on time. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on July 13, 2017, 06:06:55 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 13, 2017, 06:07:42 PM


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.

.
.

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.

Like button.

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 13, 2017, 06:08:48 PM
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.

I'd agree. Figured I'd let him dip his toe first before throwing down on that plan.

But this is much better advise.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 14, 2017, 05:35:08 AM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 14, 2017, 09:05:17 AM
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.  vs using the money against principal now.  Really he should just pump his mortgage payment into the market til his next one is due.
Title: Re: DONT Payoff your Mortgage Club
Post by: ks135ks on July 14, 2017, 06:39:02 PM
I get to join the "we-have-a-mortgage-club" again soon.  No current plans to pay it off in any rapidly early way unless SHTF somewhere.  150K at 3.5%.....  just in time to FIRE in August. :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 14, 2017, 06:49:12 PM
he has paid it ahead... which should mean he has a grace period. 

"Should" is a word that can cause you to get foreclosed on.

Different banks handle it differently.

Let's say I have a coupon book with one payment coupon per month.

But I want to pay it off twice as fast, so I send in one payment every 1/2 month when I get paid.  I use a new payment coupon each time.

My bank might match my payments to the date of the coupon.   In that case, I would have a grace period.

Or, they might apply each payment against the month it was received in.  In that case, I would have no grace period.

I've had both situation come up with different banks.

Want to know what will happen?  Ask your mortgage holder and get an OFFICIAL answer IN WRITING.
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on July 18, 2017, 12:54:35 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 18, 2017, 04:14:06 PM
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.

You are absolutely and completely correct!   

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 24, 2017, 09:05:39 AM
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)?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 24, 2017, 09:17:24 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: financiallypossible on July 24, 2017, 09:38:49 AM
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.

I agree with both of your viewpoints. Tax considerations are a large consideration for taking either of these courses of action though.
Title: Re: DONT Payoff your Mortgage Club
Post by: marielle on July 24, 2017, 09:44:29 AM
Is there a thread/post somewhere on here listing all the arguments for not paying off your mortgage? I'm fully on board (if I had a mortgage), but can't seem to convince someone. He's apparently pretty risk-averse, but I'm trying to make him see that it's hypocritical to want to rely on a 4% withdrawal rate in retirement yet want to pay off a 3% mortgage early.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on July 24, 2017, 11:18:47 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: nottoolatetostart on July 25, 2017, 04:38:34 AM
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.

We too could pay off mortgage now. Honestly, we have had large amounts of cash for so long and such a great low monthly payment for the next 30 years that it is no longer appealing to pay it off. I would freak out, in your shoes, ONLY having that $60k cash (I assuming you have other $$$ too as we do). I don't know if I could sleep at night having that low reserves and a paid off house.

Is your mortgage payment high (i.e.is the payment based on a higher original principle balance? Could you refinance to get a lower payment based off the 100k so basically your dividends are close to paying your mortgage interest payment? Since we did something similar, thanks to this forum thread, and running my own calculations, our refi'd mortgage is such a laughable amount, I kind of love it and get tickled every month I pay it. AND we get to keep all our cash.

A non-inflation adjusted mortgage with our cash reserves has a 100% chance of success. If SHTF, I could work for minimum wage somewhere, anywhere and still make my payment.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 25, 2017, 05:59:30 PM
Rebalancing into a liquid asset is rebalancing. Putting it in your mortgage at a low fixed rate. More or less locks it in at that interest rate for today forever. In the event of a market down turn you don't have a real opportunity to rebalance the other way easily. Also market timing so quit it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Oemssi on July 31, 2017, 11:54:18 AM
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.

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 Ä100 per month on a ~150k mortgage. Currently throwing all I can at the stock market as well as looking for new rental properties.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 31, 2017, 12:02:19 PM
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.

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 Ä100 per month on a ~150k mortgage. Currently throwing all I can at the stock market as well as looking for new rental properties.
That is so enlightened! Both you and your government. Kudos!
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on July 31, 2017, 02:23:44 PM
the current PE is around 26 which isnt that much higher than 25 which is what sustains the 4% SWR. 

A 25 P/E implies a 4% return on equity, not a 4% withdrawal rate. 
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on July 31, 2017, 02:26:21 PM

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.

Gross assets?  You mean investible assets?
Net worth would remain unchanged; the reduction in assets would correspond to a reduction in liabilities.
Title: Re: DONT Payoff your Mortgage Club
Post by: runewell on July 31, 2017, 02:28:49 PM
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. 


P/E and P/B ratios for US stocks are high enough now that it is no longer clear whether one should expect a higher return on stocks or mortgage payoff over the next 10-15 years.  Over a 30-yr time period I would still think stocks.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 02, 2017, 02:36:14 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 03, 2017, 07:21:02 AM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: DarkandStormy on August 03, 2017, 07:43:59 AM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 03, 2017, 05:38:55 PM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: DarkandStormy on August 04, 2017, 07:24:31 AM
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

Good catch, my bad.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 04, 2017, 02:30:17 PM
We're fixed at 3% ARM for the fifteen remaining payments.

The rational Part of my wife understands the math about saving $2,000/year in interest because we had a lower rate than would have come with 30-year fixed. The irrational part of my wife is concerned about what jump in payments could be arriving in late 2018 as interest rates normalize. IF they normalize.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on August 04, 2017, 02:35:39 PM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 04, 2017, 03:19:42 PM
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?

there is a thread for you to go spread this blasphemy in and you're welcome to go do that there.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on August 04, 2017, 03:28:15 PM
You've clearly forgotten my frequent contributions to this thread where I generally support not paying off the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 04, 2017, 03:41:07 PM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on August 04, 2017, 03:59:37 PM
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

Oh, right you are.  Then yeah if it's more than a couple years out, screw paying it off.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 05, 2017, 09:18:37 AM
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.

ETA: Whoops, I see b42 has already addressed this. Sorry to pile on.
I'm going to leave this comment, so I can share more details later.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 07, 2017, 02:33:16 PM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 08, 2017, 06:09:02 AM
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?

it doesnt have to be below 4% to favor paying it down slowly.  anything under 6% is still better though it gets grayer.  and you really should look at the real cost of the interest rate if you take the mortgage interest tax deduction b/c that would allow for a rate up around 6% to still get you around 4% assuming you're in the 25% bracket and have ~6% state income tax.  but your name is texan so you likely dont have the state tax.  but this would still allow for a much higher rate even at just 25% savings due to tax deductions
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 09, 2017, 12:06:52 AM
Hmmm, today I heard an ad on the radio for a 15 year fixed mortgage at 2.99% APR and APY with no points. Mighty tempting. I wonder if this rate is actually obtainable by mere mortals or if it's just a tease? Our house has no mortgage and is worth about 1.3M. Problem is, we don't really need the money, as our 'stache is pretty fat, but still...
Title: Re: DONT Payoff your Mortgage Club
Post by: Izzozi on August 12, 2017, 12:07:18 PM
Alright, I wanted to join the club so I'm taking out a 30 year fixed 381K loan @ 3.875%. Jealous of some of the rates being thrown around here!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 12, 2017, 07:07:29 PM
Ooh, more details, please!
Title: Re: DONT Payoff your Mortgage Club
Post by: Izzozi on August 13, 2017, 12:39:05 AM
HCOL buying first house in mid-late 20's. 20% down. Decided to keep additional funds invested rather than sell and take out a much smaller loan. Between delaying capital gains and (hopefully) better long term stock performance, not paying off makes more sense to me!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 13, 2017, 02:10:31 AM
Ooh, I think I misunderstood. Your post was right after mine, so I assumed the circumstances were similar. For clarity, I was referring to taking out a loan on an existing home that's mortgage free, i.e. borrowing cheap money against our primary home in order to make other investments. I suspect that when loan rates return to historical norms, we'll sorely wish we had.

Now I think I see you're talking about an initial purchase, not about taking out a mortgage on an existing home that has no mortgage. Did I get it right this time? Hope so.

Kudos to you for taking out a long, cheap, affordable mortgage. It may seem hard to believe, but as long as you also keep adding steadily to your investment accounts, your future self is going to be pleased as hell about how smart past you was to do it this way. Also bonus points for you for amassing 20% down for your first house without cashing in all of your investments, and in a HCOLA to boot. Not easy, I know.
Title: Re: DONT Payoff your Mortgage Club
Post by: ewkid on August 13, 2017, 03:24:07 PM
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.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on August 13, 2017, 04:01:17 PM
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.

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.
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.

The "don't refinance" option has more variables - you have a paid-off house at the end of 8 years, and then more to invest.  How much is the P&I on the refinance?  Will your additional spending be proportional, or is the $400 / month extra spending from lower house-payment fixed?  Because in 8 years, you're freeing up more money, so what you expect you will do with that impacts this.

Example:
Your current P&I is $2200 / month.  In 8 years, your spending goes up by $400 as it would today, leaving you $1800 to invest.  So at the end of the 15 years you've got $186K plus your paid off house.  In this case, you should do the refinance.  $186K>$150K

Example 2:
Your current P&I is $2200 / month.  In 8 years, your spending goes up by a little less than half of that amount - $1,000, leaving $1200 to invest.  At the end of 15 years, you've got $124K plus your paid off house.  In this case, you should not do the refinance.  $124K<$150K

At very low market return assumptions, then not doing the refinance is the play, but you break-even with the "I'll spend about half of the amount I free up" earlier than you'd think - I'm getting that at about 3% assumed market returns.  But it is quite a ways up on the return amount - market returns of 11-12% before refinance is clearly the play if it is more like "I"ll spend another $400 / month or so out of the freed up mortgage".

So if you know you will look at the increased cash-flow as an opportunity to increase spending as well as investing, then the answer is not nearly as clear cut as invest the difference only analysis.  Which is something to think about - I think many more people do this than would readily admit, even in this community which is all about decoupling spending decisions from current income / cash-flow.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 13, 2017, 06:57:31 PM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 15, 2017, 11:51:09 AM
Get them to quote you a rate on a 5/1 ARM. Your payments could be amortized to 15 years or to 30, but there should be a lower rate in either case.
Title: Re: DONT Payoff your Mortgage Club
Post by: gmdv on August 17, 2017, 05:59:05 AM
I'm in.  Have 9.5 years left on a 2.75% 15 years fixed. I prepaid  a bit in the first year, then thought what in the world am I doing with rate this low.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on August 20, 2017, 02:17:57 PM
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.

Boarder has a good idea about the 30years, if you are looking at this.

IMO,  it would be better to refinance to 30 years, but take out a larger amount (back up to 80% financed) so that your monthly payment is the same, then invest the freed up cash in something you can get your hands on if future cashflow becomes a problem (e..g, sell $5k at a time to top off your mortgage payments).  Not sure if you can get an equally low mortgage rate for refinancing to release cash, though.

Do not just lower your payments because of lifestyle creep.  Unless you have a real shortfall each month, that is.
Title: Re: DONT Payoff your Mortgage Club
Post by: nottoolatetostart on August 30, 2017, 04:28:41 AM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 30, 2017, 09:59:08 AM
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
I'm so impressed and even a tiny bit envious of your lovely, long mortgage..
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 30, 2017, 10:21:51 AM
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
I'm so impressed and even a tiny bit envious of your lovely, long mortgage..

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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 31, 2017, 07:03:37 AM
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

Something tells me that a savvy real estate expert like you can find a way to reset the clock so that it's many more than 356 payments :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on August 31, 2017, 01:37:58 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on August 31, 2017, 04:29:05 PM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on September 01, 2017, 07:12:26 AM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 01, 2017, 09:38:47 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on September 01, 2017, 10:58:58 AM
It's unlikely we see rates that low again anytime soon with the fed raising rates again.

True. I'd be open to refinancing pretty much anytime during years 5-10 of my 15-year term, so maybe they'll be low again during that window. If not, I'll be even more content with that 2.75%!
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on September 10, 2017, 08:40:04 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 11, 2017, 06:17:00 AM
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.

awesome welcome to the club!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 11, 2017, 07:17:27 AM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 11, 2017, 07:25:34 AM
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?

all of your questions are just about what your asset allocation is and how to maintain that at the lowest fees.  i invest in index funds with vanguard, max all tax advantaged accounts, and pick the lowest ER funds in those accounts to maintain my AA as i want it.  when a bear market comes its pretty simple you just dont sell. 

These questions are odd to me.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on September 11, 2017, 10:22:34 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 11, 2017, 11:15:17 AM
[...] only charges .04% - yes, four tenths of one percent.
Isn't that four hundredths of one percent?
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on September 11, 2017, 11:16:54 AM
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.

Four one-hundredths of one percent, technically.
Title: Re: DONT Payoff your Mortgage Club
Post by: JohnSteed on September 11, 2017, 01:44:05 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on September 11, 2017, 02:22:15 PM
[...] only charges .04% - yes, four tenths of one percent.
Isn't that four hundredths of one percent?

Putting on my best Dr. McCoy voice:

"Dammit Jim, I'm a DOCTOR, not a mathematician!"

Sorry for the error :-) 
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on September 11, 2017, 02:24:02 PM
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.

Meh.  You might want to check out some of the "Red Dow" and "The Top is in" threads that show what happens when someone tries to predict what the stock market is going to do. 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 11, 2017, 02:27:57 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 11, 2017, 02:51:12 PM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on September 11, 2017, 03:57:04 PM
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?!
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on September 12, 2017, 06:17:59 AM
I have 11.5 more years to enjoy my 2.625% mortgage.  With the stock market as expensive as it is, it is unlikely that the next 10 yrs of returns will be similar to historical averages.  I think we would be smarter to only plan for 4-5% per year.

Wow, what a coincidence (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...
Title: Re: DONT Payoff your Mortgage Club
Post by: josh4trunks on September 18, 2017, 01:04:43 PM
I was thinking of another permutation yesterday while working on my house. (Removing carpet and installing vinyl plank flooring).

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: dreadmoose on September 18, 2017, 01:13:40 PM
I was thinking of another permutation yesterday while working on my house.

This is my plan once enough value has appreciated in my home. I've got it all down to anything less than 6% interest and I'll pull a line of credit against the house and invest it.

In Canada it's called the Smith Manoeuvre (basically our mortgages are NOT tax free, but borrowed money to invest is). We're only allowed to pull out 80% of the value of our house but it should provide gains that prove worth it. In most cases (except the most dire), you'd have the money to pay back the loan plus any interest accrued.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on September 18, 2017, 01:28:55 PM
I was thinking of another permutation yesterday while working on my house. (Removing carpet and installing vinyl plank flooring).

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.
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Basenji on September 18, 2017, 01:31:07 PM
I'm in: 30 year fixed at 2.85%
Over 500k and 28 years to go...I'll be pulling SS before that sucker is paid off. Or maybe at that point (when we start SS) we'll pay it off.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 19, 2017, 07:39:31 AM
Just came up with a new thought that really isnt mentioned much when people try to say this is a personal choice and there is no financially incorrect decision.

We always make the assumption that people are in the same spot and keep the same E fund whether they pay down your mortgage or invest.  AND when paying down a mortgage an E Fund is 100% necessary throughout the entire paydown for most people b/c of the massive amount of increased risk if they were to lose their income and not be able to make mortgage payments.  But to the savvy Indexer like those in this group your taxable account will grow to a point that a traditional E Fund is no longer necessary and will then allow to you to invest that E fund money in your index funds as well.  So there is around an extra 20-30k that the invester will be able to invest 7-8 years sooner than the person paying down their mortgage.

Just food for thought.
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on September 19, 2017, 08:16:55 AM
You also always assume that indexes are the only/main form of investing that are sought. For other types of investing (business and real estate), liquidity and cashflow are more of a priority. If you earn enough money from a job, to buy enough indexes to make a real difference, in the amount of time desired, that is wonderful. For others who may not regularly earn enough active income to meet the hypothetical numbers in your examples, and who's chosen investments rely on spending, not saving, your one size fits all crusade is bogus.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 19, 2017, 09:14:01 AM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on September 19, 2017, 09:26:15 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Snowman99 on September 19, 2017, 09:43:51 AM
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

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

3.25% fixed for 30 years

Nice work.  We fetched the same rate on our 30 year at $342k right after Brexit last year.  I don't think a 30 year will ever go lower than that.  Thank you Brits!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 19, 2017, 10:10:55 AM
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.

there have been many surveys done on this forum and over 90% of this forum index invests.  so the statement is true for most cases.  bringing me back to the point that the default answer to paydown my low cost mortgage or invest question should be invest ... then when compelling evidence is presented otherwise maybe paying it down makes sense. 
Title: Re: DONT Payoff your Mortgage Club
Post by: mizzourah2006 on September 19, 2017, 10:39:35 AM
In. Have 25 years left at 3.375%. I actually had the opportunity to re-fi right to a 15 year right before the election that would have brought my interest rate down to 2.75% and only cost me $800 out of pocket, but the election happened and the broker didn't lock in the rate, so needless to say I never heard from him again. But the up-tick in rates does make me realize that we may never see rates that low again, so the 3.375% is looking mighty good to me.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 19, 2017, 12:01:38 PM
yeah and 25 years at 3.375 is much better than 15 at 2.75
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 25, 2017, 01:29:31 PM
Can you go into more detail about why you judge the higher interest rate situation to be better?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 25, 2017, 02:47:36 PM
Can you go into more detail about why you judge the higher interest rate situation to be better?

its really a math equation and can be plugged into https://michaelbluejay.com/house/15vs30.html

my blanket statement wasnt 100% correct as its a sliding scale in most 30 year vs 15 year mortgage situations you're looking at around a .75 to 1% difference in interest rate.  In most cases you must live in your house for 7 years give or take for the 30 year to come out ahead of the 15 year.  in the scenario posted above there were a few less years left meaning higher prinicpal payments being made and there was a smaller spread.  i havent done the math but that would likely take it down to around a 3-4 year break even.  And the poster wasnt talking about selling and we're almost another year in so i made an assumption they would live there longer than the break even point ...
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 26, 2017, 12:14:26 PM
Michael's calculator doesn't include the option value of a HELOC against equity (you'd have extra equity with the 15).

I don't want to pay down my mortgage fast, but I *hate* paying interest I don't have to. I was lucky when I got my mortgaage to have such a favorable rate for an ARM at 30-year amortization (it was 3.0 when 30-year fixed was 4.125).

HELOC sounds strange, but people thought rates were going to jump between 2013 and now, and...they haven't.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on October 07, 2017, 06:03:26 AM
I have 11.5 more years to enjoy my 2.625% mortgage.  With the stock market as expensive as it is, it is unlikely that the next 10 yrs of returns will be similar to historical averages.  I think we would be smarter to only plan for 4-5% per year.

Wow, what a coincidence (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...

Runewell and JohnSteed both disapeared from the members list!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 07, 2017, 08:59:07 AM
...Thanks to RWD's great catch. Sharp!
Title: Re: DONT Payoff your Mortgage Club
Post by: Helvegen on October 09, 2017, 10:34:09 AM
I'm joining up.

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

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

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

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

The money will be sent to taxable. My Roths have been maxed, my HSA will be maxed next pay period, our 401ks I contribute to the match and not really interested in putting more in there than I have to (15% bracket). My taxable is sad anyway after buying the house and really needs more help than the mortgage does.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 10, 2017, 01:23:10 PM
That's a great rate. Anything <3 may not be available again for a while. I'm late in the fourth year of a 5/1 at 3.0%, and my co-worker tried to persuade me to refinance to a 3.75% fixed. I said, "no thanks".
Title: Re: DONT Payoff your Mortgage Club
Post by: Helvegen on October 10, 2017, 04:17:25 PM
Seller paid for that rate, so that was about the only nice thing about buying a Fannie Mae foreclosure. The whole process to buy through them was a complete PITA for us, for both agents, for our loan officers. 0/10, do not recommend.

I thought it was interesting when we were going though the disclosure and it said in addition to a maximum adjustment rate of 7.9%, there was a minimum, I think at 1.9%. Darn, no negative interest rate mortgage for me with these terms!
Title: Re: DONT Payoff your Mortgage Club
Post by: Timmm on October 10, 2017, 05:15:11 PM
I'd have been pretty tempted by that 3.75 fixed option, talltexan. What would your current loan adjust to if it went floating today? Are you thinking you'll still be able to get 3.75 in a year?

We're at 2.625 on a 5/1 with 3 more years fixed, but I'm expecting we'll be very likely to sell within 2-3 years, so it would take a great deal to attract me to refinance this loan. I suppose I'll consider another ARM if it looks like we'll keep it another 5+ years at that time.
Title: Re: DONT Payoff your Mortgage Club
Post by: Helvegen on October 11, 2017, 07:51:15 AM
That was in the back of my mind when I decided to take the ARM. The thing is, there is no law that says there is a floor to these interest rates and they can only skyrocket from here. NIRP is a thing in some countries. There is nothing magical about the number 0 when it comes to interest rates.

I'm not betting the farm on them dropping to 0, but I can afford the maximum adjustment, should that happen. Again, I don't know how long I plan on being a homeowner past the 7 year term. I may not even live in the country anymore. Who knows.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 12, 2017, 07:20:31 AM
Here was the trick to persuading my wife to take on the ARM: buying a new house for ~80% of the cost of the old one. (sure sounds Mustachian now that I'm typing it)

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

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

Our index is LIBOR, which appears to have risen about 50 basis points over the last year.
Title: Re: DONT Payoff your Mortgage Club
Post by: DarkandStormy on October 12, 2017, 07:59:27 AM
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

LIBOR is dead, so I'm curious as to what your index is now.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 13, 2017, 10:05:20 AM
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

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

Can you explain what you mean by this comment?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 13, 2017, 10:09:49 AM
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

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

Can you explain what you mean by this comment?

He might mean this?
https://www.cnbc.com/2017/07/27/scandalous-libor-rate-to-end-in-2021.html
Title: Re: DONT Payoff your Mortgage Club
Post by: terrifictim on October 13, 2017, 04:54:18 PM
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

Stats:
Purchased (2BR,1.5BA,1100SF) townhouse 05/2015
Purchase price: 289K.
Current market price: 360K
PITI: $1070/month
Initial Mortgage: $231,200 @ 3.75%
Remaining Mortgage: $202,450
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on October 13, 2017, 08:55:33 PM
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

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

Welcome to the club. It's a relief to get that debt elephant off your shoulders isn't it!  When you truly see the light it frees up your life so much more than obsessing over paying down good debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 16, 2017, 12:59:53 PM
Our index is LIBOR, which appears to have risen about 50 basis points over the last year.

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

Can you explain what you mean by this comment?

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

So I read this article, and it sounds like LIBOR is still going to exist in its current form for more than 3 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on October 17, 2017, 06:47:13 AM
I'm firmly in the DPYMC (15-year @ 2.75%), but I'm a little bit tempted to pay some student loans a little bit early (while still putting ~$40k/year into the stache).

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

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

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

Thoughts?

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

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

So I say, don't pay off your mortgage, but get the student loans off your shoulders and when paid, start dumping that money into investments.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 17, 2017, 07:13:52 AM
I'm firmly in the DPYMC (15-year @ 2.75%), but I'm a little bit tempted to pay some student loans a little bit early (while still putting ~$40k/year into the stache).

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

Thoughts?

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

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

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

I tend to agree with P. Pan's final point, unless there are any forgiveness options on the horizon, in which case I'd set minimum autopayments and forget about 'em.
Title: Re: DONT Payoff your Mortgage Club
Post by: marielle on October 17, 2017, 07:44:36 AM
I'm firmly in the DPYMC (15-year @ 2.75%), but I'm a little bit tempted to pay some student loans a little bit early (while still putting ~$40k/year into the stache).

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

Thoughts?

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

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

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

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

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

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

You claim this deduction as an adjustment to income, so you don't need to itemize your deductions on Form 1040, Schedule A (PDF), Itemized Deductions.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on October 17, 2017, 08:33:02 AM
While I'm a big believer in the DPOYM theory (fact!), I feel differently about student loans--especially if they are adjustable.  I feel this way for a number of reasons:

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

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

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

I think I will start pre-paying them a bit more in 2018, while still having a primary focus on investing, which is much more tax-favorable. Current monthly SL payments are $1,244 and current investments per month are ~$3,700. If I get a bit of a raise this fall, might just apply the raise (likely $100-200 / month) to student loans and keep everything else the same.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 17, 2017, 01:41:03 PM
I will start off by saying that I am FIRE'd, but not drawing down my savings as yet (lifestyle work is enough for the basics).

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

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

Most of the time we compare mortgage rates to what our overall portfolio is doing, so this is different.  Also, it is not a pure math decision because other factors, like monthly cash flow, and having a mortgage  with fixed risk set up in today's dollars but paying it with tomorrow's dollars, should be considered.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on October 17, 2017, 02:04:46 PM
I will start off by saying that I am FIRE'd, but not drawing down my savings as yet (lifestyle work is enough for the basics).

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

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

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

i dont think you provided enough information for me to answer the question.  but my switch over percent in terms of real rate - meaning after i take my interest deduction would be around 5.5-6% probably - which means somewhere around a rate of 8.7%
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 17, 2017, 02:32:58 PM
I will start off by saying that I am FIRE'd, but not drawing down my savings as yet (lifestyle work is enough for the basics).

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

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

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

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

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

My bonds are in my registered (not taxed) account.  What do you mean by "interest deduction"...   Assume I don't itemize deductions (because I don't, being in Canada).
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 18, 2017, 12:57:17 PM
In the US, mortgage interest is tax deductible.

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

Regardless, my question still stands -- any takers?
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 18, 2017, 01:11:18 PM
I might be misunderstanding, but I think this is what you`re looking for:

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

I am looking for a differential -- are you stating the differential at 0%, and to ignore all other factors, including the fact that a mortgage locks in a purchase price in today's dollars, but pays for them with tomorrow's dollars?
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on October 18, 2017, 03:28:08 PM
I personally use my house as a hedge, and Smith maneuver the rest. Paying off the house would be counter optimized, but that's with the current interest rates. Inflation for houses are quite variable, so I wouldn't be too sure how to calculate out the difference in current/future dollars for the price. Your questions are too advanced for me, Sorry!

Did you used all of your available HELOC for SM? I actualy use 150k$ and 30k$ is unused. I keep it as a cushion on top of my EF. Actual debt/assets is less than 20% and portfolio is 100% stocks
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 18, 2017, 03:34:10 PM
I personally use my house as a hedge, and Smith maneuver the rest. Paying off the house would be counter optimized, but that's with the current interest rates. Inflation for houses are quite variable, so I wouldn't be too sure how to calculate out the difference in current/future dollars for the price. Your questions are too advanced for me, Sorry!

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

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

When my bond return is = or < mortgage rate?   What else to consider?
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 18, 2017, 04:56:58 PM
Hmmm,   good point... my asset rebalancing happens when I am about 5% out of whack,  so I only need to keep a reasonable portion of bonds that I can sell to rebalance, if I include the home value in the allocations..
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 19, 2017, 08:15:22 AM
I'm still not sure what the purpose of bonds is when debt is so cheap and available. Isn't a mortgage basically negative bonds?
Title: Re: DONT Payoff your Mortgage Club
Post by: terrifictim on October 19, 2017, 08:25:43 AM
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

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

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

Thanks! I came from an upbringing that was heavily influenced by Dave Ramsey and held that all debt was bad. While there's lots of people for whom his advice makes sense, I'm hopefully enough of an MMM enthusiast that I can still be saving money without the enforcement of paying off the mortgage sooner. Taking that $400 a month extra in principal and applying it to Vanguard is a great boost to the FIRE date.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on October 19, 2017, 09:32:32 AM
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

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

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

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

yep and its as simpe as that
Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on October 27, 2017, 12:28:56 PM
Okay, in the immortal words of the Monkees, now I'm a believer.

https://www.youtube.com/watch?v=wB9YIsKIEbA
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on October 27, 2017, 12:46:01 PM
Okay, in the immortal words of the Monkees, now I'm a believer.

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

Awesome and welcome its so hard to get over the mental hurdles of debt is bad and how can it be not in my best interest to pay this down.
Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on October 27, 2017, 12:52:13 PM
Okay, in the immortal words of the Monkees, now I'm a believer.

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

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

I'm four years into a 15 year at 3 3/8 %.  Balance is around $140k.  Let it ride, baby.
Title: Re: DONT Payoff your Mortgage Club
Post by: Peter Parker on October 27, 2017, 06:24:59 PM
Okay, in the immortal words of the Monkees, now I'm a believer.

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

I believe Neil Diamond wrote that song :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 15, 2017, 12:00:53 PM
bought some more VTSAX today!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 15, 2017, 02:19:39 PM
It sounds a little contrarian, but I actually moved about $10,000 in bonds back into stocks last week. Tired of that stuff slowing me down when there's money to be made!!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 15, 2017, 02:39:26 PM
It sounds a little contrarian, but I actually moved about $10,000 in bonds back into stocks last week. Tired of that stuff slowing me down when there's money to be made!!

good work every green soldier working!

now when will we have a crash.  Being a post 2008 really big investor i'd like to see my portfolio lose 200k so i can feel that pinch.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 16, 2017, 01:01:33 PM
Will it go up 20% before the next time it goes down 20%?
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on November 21, 2017, 03:23:42 PM
It's been about five years since I last refinanced into a 30 year FRM at 3.5%. Since then, instead of prepaying, we've been investing the money into a Vanguard stock fund. Compared to prepaying the mortgage, we are ahead by more about 10K. Granted that comparing a fixed rate instrument to a risky variable instrument is not the correct one to be doing.   This has been in an upward trending market and the results  could have been worse had the market gone into a tailspin. Nonetheless, it's nice to see that taxable account balance grow. 

Title: Re: DONT Payoff your Mortgage Club
Post by: SachaFiscal on November 21, 2017, 05:54:52 PM
Iím one of those people who really hates debt. However at a 3.5% interest I just canít justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 22, 2017, 12:02:42 AM
Iím one of those people who really hates debt. However at a 3.5% interest I just canít justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
OMG! That is brilliant, SachaFiscal. That needs to be our new mantra!! Can we use this forever, pretty please?
Title: Re: DONT Payoff your Mortgage Club
Post by: SachaFiscal on November 22, 2017, 01:29:22 AM
Iím one of those people who really hates debt. However at a 3.5% interest I just canít justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
OMG! That is brilliant, SachaFiscal. That needs to be our new mantra!! Can we use this forever, pretty please?
Yes, of course!
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on November 26, 2017, 06:54:08 AM
We have 14 years left on a 15-year, $100k, 2.75% mortgage. Before I found this site early this year we had planned to knock it out in 10 years. The first month I paid an extra $300.

Now we realize how valuable it is to hang on to the cheap money as long as possible.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 07:22:19 AM
congrats welcome !!
Title: Re: DONT Payoff your Mortgage Club
Post by: Apple_Tango on November 26, 2017, 08:20:59 AM
 I am about 2 years away from purchasing a home. I go back and forth with thinking about a 15 or a 30 year mortgage. I think the difference for me will be how low the monthly payment is. If it was $500 or less, I could see paying it for 30 years. If it was more than that, I think I would have to get a 15 year loan so I didn't drive myself crazy with payments for 30 years. Really I could afford with my current budget, a payment of $1000 per month. So if I need to do that for 15 years and then be free. I could. But I couldn't stomach that amount for 30 years!! The key for me is, what monthly payment will I be able to tolerate forever without paying extra or early. I'll probably need a LARGE down payment to get to the right numbers, which maybe defeats the purpose that people on this thread suggest in terms of leveraging? Lots to think about.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 09:44:08 AM
I am about 2 years away from purchasing a home. I go back and forth with thinking about a 15 or a 30 year mortgage. I think the difference for me will be how low the monthly payment is. If it was $500 or less, I could see paying it for 30 years. If it was more than that, I think I would have to get a 15 year loan so I didn't drive myself crazy with payments for 30 years. Really I could afford with my current budget, a payment of $1000 per month. So if I need to do that for 15 years and then be free. I could. But I couldn't stomach that amount for 30 years!! The key for me is, what monthly payment will I be able to tolerate forever without paying extra or early. I'll probably need a LARGE down payment to get to the right numbers, which maybe defeats the purpose that people on this thread suggest in terms of leveraging? Lots to think about.

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

you should approach this from the side of

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

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

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

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

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

you need to be approaching this purchase from a much different mindset - cashflow is an issue but dumping a bunch of little green soldiers into it to make cash flow work is a terrible waste of money and a sign you're over purchasing a house.
Title: Re: DONT Payoff your Mortgage Club
Post by: Apple_Tango on November 26, 2017, 12:05:05 PM
Maybe I was misunderstood? My choice is either to buy a small house and pay straight up cash for the whole thing, or to finance some of it if the monthly payment doesn't drive me crazy. Why would I choose a monthly payment unless I could handle it?

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

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

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

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

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

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

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

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

I think the point of this thread is that if you assume that reaching FI is good then reaching it faster must be better, and not paying off the mortgage or delaying paying it off will cause most people to reach FI faster, hence "coming out miles ahead".
Title: Re: DONT Payoff your Mortgage Club
Post by: Apple_Tango on November 26, 2017, 01:31:40 PM
My heart says just pay for it in cash. "PAY IN CASH. DEBT BAD." it is screaming at me. But this thread has convinced my brain to leverage part of it (actually quite a large part!). But not to the point that I'm paying more than $500 per month lol. It doesn't have to be all or nothing.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 02:19:25 PM
Your head is wrong it should be all or nothing. Start with the math.  The poster above is completely misunderstanding the 4% rule for starters.  And for the sake of this the 4% rule has nothing to do with the calculation. 

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

160k invested over 30 = 2.77MM

9168 invested annually for 30 = 1.67 MM

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

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

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

Investing 9168 for 9 = 136k

So 100k over 9 years. Just to like math more than hating debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: Apple_Tango on November 26, 2017, 03:01:26 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 03:11:44 PM
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? 
Title: Re: DONT Payoff your Mortgage Club
Post by: paulkots on November 26, 2017, 03:16:28 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Apple_Tango on November 26, 2017, 03:19:04 PM

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 03:20:18 PM
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.

I mean that's just a poor way to do this if you can mentally shove it into a mortgage you can setup auto payments to vanguard index funds. Setup the auto pay and then once it's in think of it as locked bc short term capital gains suck.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 03:22:30 PM

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?
Title: Re: DONT Payoff your Mortgage Club
Post by: Apple_Tango on November 26, 2017, 03:29:26 PM

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 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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 03:34:01 PM

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Apple_Tango on November 26, 2017, 03:38:39 PM

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.

So...I'm already maxing all my tax advantaged accounts. You don't want me to put money into a taxable account. You don't want me to buy properties for cash. And you don't want me to put money into my bank account for short term use (this is where my down payment will be coming from in 1-2 years. There's no way I'm putting this into the market). Where do you expect me to put my money? Gold? Bullets? I can't quite follow your logic.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 03:53:24 PM
No im saying you can retire much earlier than you're likely predicting. It sounds like you should do a full case study. First you scoff at 1MM extra dollars because who needs that you only need 750k  then you claim you'll have 3-4MM in your tax advantaged accounts by 65. None of this is adding up really for me which tells me you're not sure of your full plan or you haven't laid it out completely. Which a case study would help.
Title: Re: DONT Payoff your Mortgage Club
Post by: Apple_Tango on November 26, 2017, 04:26:33 PM
Ah yes I know I will reach FI sooner than 9 years. But as far as RE, I think 9 years isn't too long to work. That's why I wasn't jumping for joy at your finding that I could cut my working career to 7-8 years via mortgage leveraging. In reality I could do it probably in about 7 even without mortgage leveraging. Working the extra 2 years is a backup..a planned case of the "one more year syndrome" if you will. Plus those 2 years will give me either a paid off house, OR a super low payment that wont cause me any stress (I know you're against this ...we probably don't have to hash it out again. I've already stated my reasons for posting). I guess a good way of summarizing may be that your plan for me to get the extra few million is by lots of mortgage leveraging. My way is to work for 2 extra years and only leverage a little mortgage. I just don't see the need to do both.

My IRA and 401k money will be there in case I need it in my old age. I don't want my future kids and family mad at me because I "never worked" and now they have to take care of me financially. It's like my backup plan money if all systems fail. If for some strange or horrible reason I can't find a way to make a few extra bucks once I reach FIRE when the occasion calls for it. Or if I underestimated my true burn rate rate and I actually tear through my 'stache too quickly. Or the small but non zero chance that the 4% withdrawal rate fails.

And yes I "scoffed" at the extra money. Why would I need any money on top of my $750,000 which will probably last me forever, plus my 3-4 million which I probably won't even need to touch? I'm not saying it's bad to want money...but adding more on top isn't going to bring me any more happiness.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 26, 2017, 04:35:41 PM
So you're extremely over saving. You should really laydown a case study and start reading and learning around here. If 4% of 750k is all you need you can retire when the sum of your accounts hit that if you want to go crazy conservative never failed in the history at 3% it won't take too much longer based on the numbers you've laid down.

If your only thing is I don't care about money im going to have too much then there isn't much that can be learned. 

You keep making incredible increasingly contradictory statements that show you haven't done the math. And do not have a true understanding of how money works in fire and in life. It would greatly benefit you to lay out the numbers in a case study and let some of the math gurus around here show you what and how your plan will likely work out for you.

On that note to keep this thread on topic.

You should put down 20% and invest the rest and take the mortgage to a 30 year term. Anything less is incredibly inefficient and hurts just about all points you've made as to why you wouldn't want debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 26, 2017, 09:48:09 PM
Alas, Apple_Tango, by the time you realize your $750k isn't going to stretch far enough, you may not be in a position to easily earn more money. It would be great if you took the advice to start a case study, just so you can be sure you are following the most optimal path to FIRE. What have you got to lose?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 27, 2017, 07:03:32 AM
Your goal is to have a 'stache of $750,000 in nine years?

Do you have a pile of $345,000 cash sitting in front of you right now? If you do, then invest it 100% into VTSAX today, and you wait. Because--on average--buying into VTSAX today will be the best price you'll ever be offered. On average, you won't need to save any more to reach this goal, although buying on a dip might help you reach it sooner.

If you have less than that, then you'll need to save additional money into investments over the next nine years. Based on a 9% rate of return, calculate how much money you'll need to save out of your current monthly expenses.

Now, you probably need to live somewhere: you can make a rent VS. buy decision using the information on this website, but you'll want to do this preserving whatever numbers you calculate above. Housing in most areas will return less than the stock market.
Title: Re: DONT Payoff your Mortgage Club
Post by: Manchester on November 30, 2017, 05:41:33 AM
Hi All, thought I'd post on here to see what you guys think of my plan.  I'm in the process of remortgaging (will have made a final decision by the end of next week) so any feedback soon would be helpful.

I'm 24, I've been with my S/O for 7/8 years.  We spent 1 year renting and then bought a house together (02/02/16) for £207k.  We put roughly 10% down on a 30 year mortgage at 3.04%.  I fixed it for 2 years, knowing that my equity in the house would rise and I'd be able to negotiate a better deal at this point.

Unfortunately I'm not incredibly 'handy' and the house needs a few things doing (new bathroom, new kitchen).  We've got by for 2 years, but we're getting to the point where it's moving from a necessity to upgrade the house rather than a wish and anything we can do ourselves has been done. 

We owe £179k on the mortgage with 28 years remaining.  The bank currently values our house at £240k.  We used a free consultation with a mortgage advisor who informed us the cheapest rate we'd get was with our current mortgage provider (1.7%).  My plan is as follows:

Go back up to a 30 year mortgage. Fix the term for 2 years.  Take £15k out of the property and use it to sort out the house with some extra to go towards bulking up our investments (my estimate is the work on the house will cost roughly £8k with £2k wiggle room, £5k + any money left over on house work can go into P2P lending or set up a vanguard account).

This would result in us paying £100 per month less than we currently do.  If we stayed on our current term (28 years) it would cost us an extra £45 per month (surely this money is better going into so form of investment 1.7% is dirt cheap?!).  I live in a MCOL area, house prices are strong and expected to rise even through a brexit disaster.  There are planned expansions of public transport (trams) to within walking distance of the house which will create a commuter link which should boost prices.  Historically house prices have doubled every 9 years in my area although the financial crisis in 08 as well as brexit will make that less predictable.


Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 30, 2017, 06:05:01 AM
Inwoildnt be concerned with housing prices but I'd take it to a full 30 year and invest the difference 1.7% is an insane rate. Keep that and invest the rest in what ever your asset allocation plan says.
Title: Re: DONT Payoff your Mortgage Club
Post by: Lmoot on November 30, 2017, 07:19:18 AM
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on November 30, 2017, 07:28:15 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Manchester on November 30, 2017, 08:00:23 AM
What do you mean by "fix the term for two years"? Is it an adjustable rate? Meaning the 1.79% could change?

So we have two major types of mortgages (there are more, but not something a simpleton like me could access):

Standard Variable Rate - this tracks the base rate (currently 0.5% here).  The banks will usually add between 3% and 4%.  My current lenders variable rate is around 3.7%.  If the base rate goes up to 1% theirs will go to 4.2% etc.

Fixed Rate mortgage - this is what most people do.  You 'lock in' a rate for a fixed period of time.  Because you're tied into paying interest to that lender, you usually receive a better rate.  If the interest rate drops (it won't in the next 5 years) you lose as a borrower, if it increases (it will) you win as you're locked in.  You pay higher interest the longer you lock in (normally). 

After your fixed rate finishes, you're free to either pay your SV rate, pay off the mortgage in full, ReFi with a different lender. Refi with your current lender.
Title: Re: DONT Payoff your Mortgage Club
Post by: Manchester on November 30, 2017, 08:04:19 AM
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.

Exactly, it's the same with pretty much everything here, from Mortgages to household bills to gym memberships. 

You're enticed to deal with a company based on an amazing limited time offer.  After that offer expires, you go onto a 'standard' rate (which is always insanely high).  Historically 99% of people are too lazy to check/refinance which is why companies like 'Compare the market, GoCompare, Money Supermarket' are booming now.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 30, 2017, 09:10:36 AM
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.

Title: Re: DONT Payoff your Mortgage Club
Post by: Manchester on November 30, 2017, 09:56:13 AM
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.

Thanks so much for your feedback. 

I'll look more seriously into IFs as opposed to P2P lending.  The reason I'd naturally lean towards the latter is because I find the platforms more user friendly and my brother, who invests in ratesetter, has had a reasonably good return (7%) across the two years he's had his account.  Realistically Vanguard is the obvious choice, but I can't help but find their platform unhelpful.

In regards to how much I'm borrowing the sweet spot I'm aiming for is just over 20% loan to value.  That's when the banks offer you a more reduced rate (less risk to the them).  I could borrow less cash, but I don't necessarily think it's the best way to go - I could even put that money in a fixed 2 year bond @ 4% - I know when I come to refinance in two years time it would be worth more than if I left it in the mortgage?

I don't know if I'm getting carried away at the rate I've been offered though.  I feel like it's a licence to print money.


Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 01, 2017, 08:04:13 AM
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.

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on December 01, 2017, 08:24:29 AM
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.

a devaluation of currency would mean that being invested is better on both accounts as it would lead to inflation and the markets would adjust in price due to the weaker pound.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on December 01, 2017, 08:45:47 AM
Made another minimum payment today. Our investments are now approximately 2.5x our mortgage balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: never give up on December 01, 2017, 08:50:06 AM
Hi Manchester. Iím also a UK person. Being quite cautious I was a mortgage over payer so I donít 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 Iíve 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? Whatís your job security like as far as you can tell? All questions I donít 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 wonít be as low as 1.7% if itís 3% or something and you have 5 years where you know it canít 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. Youíre not using the money to buy a £40,000 monster truck on credit so either way youíre winning.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on December 01, 2017, 09:29:35 AM
Made another minimum payment today. Investment total should pass amount due on mortgage sometime in 2019.

Still sort of wish I hadn't refi-ed from 30-year to 15, but the 15-year rate is pretty amazing, so not much harm done.

Onward!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on December 01, 2017, 10:02:36 AM
awesome - we too made a minimum payment today.  Our house has gained a lot of equity in the 2 years since we owned it ... it would be nice for rates to drop for a cash out REFI to a new 30 year.  but doesnt make sense at the moment due to our 3.25% fixed rate. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Manchester on December 04, 2017, 03:26:20 AM
Hi Manchester. Iím also a UK person. Being quite cautious I was a mortgage over payer so I donít 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 Iíve 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? Whatís your job security like as far as you can tell? All questions I donít 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 wonít be as low as 1.7% if itís 3% or something and you have 5 years where you know it canít 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. Youíre not using the money to buy a £40,000 monster truck on credit so either way youíre winning.

Thanks for your feedback.  It's good hearing things from a different point of view.

In terms of the questions you've asked, I'll try and give it a go. :P

How much do you expect interest rates to rise in the next few years?

If our economy continues plugging along, we'll most likely see another rise of 0.5% per year.  If Brexit goes terribly wrong, I reckon they will be kept low to encourage spending. 

How do you think markets will perform over the next few years.

It's nearly impossible to predict this.  I think they've shot up a bit excesively over the past year, I think there will be a correction soon.  Even if they plummet it wouldn't upset me much.  Just a signal to chuck more money into it.

How will Brexit turn out?

Right now it looks like we're going to get shafted!!  We'll probably end up with a Norway type deal (we pay an annual fee to access free market).

Whatís your job security like as far as you can tell?

I'd say it's pretty safe.  I work for myself (so no chance of getting fired) and I have over 300 customers who pay me a licencing fee to use the companies software.  It would take a change in legislation to put all 300 of my customers out of business. But we've started diversifying and around 10% of our turnover comes from other industries now.

Overall I think that I can afford a certain level of risk now because if it goes wrong I'll have a long time to sort it out.  I'm not necessarily rushing to retire, I want to rush towards being financially independent and not having to work.  I think this makes me a lot more chilled out about money - I can manage stress quite well.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 04, 2017, 08:29:54 AM
I'm one of the rare animals with an adjustable rate mortgage. When I signed the papers (in 2013), LIBOR was our index for the rate in the adjustable period, which begains in January 2019.

I have been curious about whether they will try to change to a different index because of the Brexit decision (still no word from my loan servicer on this matter, and I don't wish to remind them about me).
Title: Re: DONT Payoff your Mortgage Club
Post by: channtheman on December 07, 2017, 08:51:22 PM
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread. 

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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 07, 2017, 10:38:27 PM
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread. 

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.
Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: channtheman on December 07, 2017, 11:37:57 PM
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread. 

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.
Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 08, 2017, 06:00:15 PM
So I figured this thread was a more pertinent place to put this post, rather than the payoff your mortgage thread. 

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.
Channthemann for the win! Congratulations! So cool that your wife is along for the ride! That is badass progress.

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.
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: protostache on December 22, 2017, 01:48:47 PM
Does The Math change now that the standard deduction is significantly higher so fewer people will be itemizing?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on December 22, 2017, 02:40:09 PM
Does The Math change now that the standard deduction is significantly higher so fewer people will be itemizing?

The math changes slightly in that it's not super duper Uber great. But it's still super duper great. And for the record most of the time I do math for people I never show the rate with an itemized deduction  I always do the math with the actual rate. So most math that is posted around this site is based on not itemizing.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on December 28, 2017, 07:50:55 AM
Just prepaid my mortgage for the next 2 months.  may do 3 months depending on how my calcs work out today.  31% instant ROI for a payment you'll have to make in a couple months anyways. 

If you itemize this year you should look into it.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 28, 2017, 01:44:24 PM
can you clarify boarder, these are "prepaid" payments? So you just send the money now, and call them your 2/1, 3/1 payments?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on December 28, 2017, 01:59:59 PM
There was clarification in another thread that technically you cannot do this so I just paid Jan today and will not do Feb.
Title: Re: DONT Payoff your Mortgage Club
Post by: Helvegen on December 31, 2017, 04:11:40 PM
Three paycheck month. Since I was already a month ahead on the mortgage, I went ahead and sent the most of the payment to Vanguard. The rest went into the house/car repair slush fund.

It was tempting to do an extra principal payment though.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 03, 2018, 09:19:27 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on January 03, 2018, 09:39:15 AM
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.

It was half a joke but also serious because if the IRS law was different would have made mathematical sense to pre pay mortgage payments to get the deduction in 2017 - if it worked this way but it didnt.  its not paying extra to principal its just paying a few months in advance to get what would have been around a 20% ROI with tax savings for me.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 03, 2018, 02:04:29 PM
understood.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 05, 2018, 09:26:49 AM
Another minimum payment!

124 months remaining!
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 05, 2018, 09:37:00 AM
FYI to all,

For those of you that have prepaid principal and want to know the number of remaining payments at minimum payment, there is a great calculator at this link.

https://financial-calculators.com/loan-calculator (https://financial-calculators.com/loan-calculator)

You can put in all the values and enter "Number of Payments" at 0, and go to the advanced options to set your original start date on the loan and it will calculate out the 'non-standard' amortization table.

Take the number of payments and subtract the number you have already made and thats the number remaining.

Also, you can just use today's date and the loan payment amount and rate and it will calc out the remaining months-  but the total interest paid will be wrong, just FYI.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 05, 2018, 09:40:29 AM
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.

 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 08, 2018, 10:48:08 AM
My wife and I reviewed our retirement plan a while ago, and she asked if our mortgage would be paid off. I replied that I was showing her pots of money that would add up to $2,200,000, so if she was worried about debt that would total 5% of that, then of course we could make that go away then.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on January 14, 2018, 02:40:25 AM
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..
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on January 14, 2018, 03:41:30 AM
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
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on January 14, 2018, 02:16:42 PM
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%
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on January 14, 2018, 06:29:57 PM
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%

A HELOC is different than a mortgage the rates aren't fixed and they are callable debt. Risk is much different. Paydown time typically isn't 30years either. So it's not a question of market timing but a question what risk are you willing to take on with whatever HELOC terms you have.

Market timing is changing your IPS or whatever your investing plan is based on market conditions.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on January 15, 2018, 02:37:32 PM
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?

I have enough exposure to Canadian stock market now (30%) and I usualy look for a total return when investing.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on February 05, 2018, 12:04:16 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 05, 2018, 12:07:02 PM
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.

congrats what an amazing milestone.  i'm not sure we will hit that number before we FIRE.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 05, 2018, 12:45:44 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 05, 2018, 01:30:14 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on February 05, 2018, 03:33:23 PM
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.

Which is exactly why it is such a big deal now....

Another standard mortgage payment tonight!  Yay!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 07, 2018, 07:23:52 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 07, 2018, 07:36:37 AM
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.

Oh I agree that's why I started it. And lots of newcomers will have fixed 30 year low rate mortgages still locked from this time in years to come. So it should continue to help and add value to people's fire timelines
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 07, 2018, 08:55:46 AM
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 don't believe paying off a mortgage is "wrong" in all cases. It has nothing to do with my internal compass. It has to do with understanding the math, which requires learning. So does the skill to use a compass. I believe what you're referring to is more like a gut instinct, which is completely different. When people rely on platitudes, feelings, and gut instincts to make decisions that will effect their financial well-being for life, it is sub-optimal. The point of this blog and forum is to learn and share with each other how to live life optimally. I know that you understand this, TT. But a shocking number of people simply do not.
Title: Re: DONT Payoff your Mortgage Club
Post by: wannabe-stache on February 07, 2018, 10:49:29 AM
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...
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on February 07, 2018, 11:13:57 AM
Just an update from me - thanks to this thread I've been putting all my money into VTSAX & VBTLX and even with the recent dips in the market, we're still WAY UP!  We owe $346k on the mortgage but we have $367k in investments.  More in cash than we owe on the house!

If I'd paid extra to the mortgage instead of invest it, the mortgage would still be higher than our cash investments.  Wow.  So thanks everyone!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 07, 2018, 12:52:51 PM
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?

There is a huge difference between killing all debt and using a mortgage to create wealth! I'd rather be wealthy, wouldn't you?
Title: Re: DONT Payoff your Mortgage Club
Post by: wannabe-stache on February 07, 2018, 01:56:25 PM
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?

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 07, 2018, 03:49:02 PM
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?

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.
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.

*To be crystal clear, I did not acknowledge your specific strategy, although your comment seems to imply that I did. Once you provided specifics, I gave you an answer more germane to your situation. You can't have it both ways. And you don't have to take my advice.
Title: Re: DONT Payoff your Mortgage Club
Post by: wannabe-stache on February 07, 2018, 06:18:36 PM

[/quote]
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.

*To be crystal clear, I did not acknowledge your specific strategy, although your comment seems to imply that I did. Once you provided specifics, I gave you an answer more germane to your situation. You can't have it both ways. And you don't have to take my advice.
[/quote]

if this thread is about teaching, i am in the wrong place. apologies.

methinks you hit the bottle too early tonight. or you have really, really bad grammar. or both.

i am sorry to hear that you didn't learn these lessons until later in life. as a 38 yr old with enough to retire and a paid off mortgage i do consider myself at the crossroads of lucky and hard working.

also sorry to hear that you think that you are addressing "snowflakes".  my time is too valuable to engage in those activities. i would think you would feel the same based on your tone.

please respond if u like. i am done here.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 08, 2018, 05:13:50 AM
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?

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.

there is next to nothing you could say that would make paying off a house in 4 years make sense esp when you plan to use it as a rental property now- i'd be willing to bet its probably a poor rental in the grand scheme and would only be cash flow positive due to the fact there is no mortgage.  The fact that you keep quoting the standard deduction as being a good reason to now pay off mortgages is a poor way to look at it and many people incorrectly calculate the value of the mortgage interest deduction - not that you were really taking advantage of it anyways while you seriously over paid a low cost fixed rate mortgage.  which you had in 2016 when you could have refi'd to the lowest rates in history of 3.25% or lower for a 30 year loan.  Its your choice to not learn and understand - but from your comments here it is clear you do NOT acutally understand the math - so you could learn or you could continue with the feelings that had you pay off the first mortgage to what will be a guaranteed longer time to FIRE as you missed one of the largest bull market runs in history paying down debt. - and this isnt hindsight is 20/20 - based on historical returns you're more likely to have more money way more often by investing and hitting a window where paydown wins is like finding a needle in a haystack. 

Based on your incliniation to not understand i'd strongly be thinking about whether or not you can actually hold equities in a down market in FIRE b/c when presented with the math and data about a mortgage you chose emotion over even learning math - think about your stache being cut in half in FIRE b/c of a down market and what you may emotionally choose to do then - directly in the face of the math telling you not to sell.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 14, 2018, 12:51:08 PM
Happy Wednesday just remember....

(https://i.imgflip.com/24kusr.jpg) (https://imgflip.com/i/24kusr)
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on February 14, 2018, 07:28:10 PM
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!

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 14, 2018, 07:34:57 PM
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!

I doubt we see these rates again.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 15, 2018, 08:56:15 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on February 16, 2018, 05:57:25 AM
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.

yep - and the yields on 10 year treasury notes are rapidly approaching my mortgage rate of 3.25%
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on February 16, 2018, 11:00:57 AM
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.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 16, 2018, 01:22:23 PM
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.
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on February 16, 2018, 03:03:24 PM
PTF - Making minimum payments on my 2.625% 15 year fixed mortgage with $216K left to go.

I am also in the Payoff your Mortgage Club where I paid off a 2nd small foreclosure home with 4.75% 30 year interest rates that we originally bought for $55K.  Paying it off made sense because we were required to have more expensive homeowner's insurance while we had a loan, as a vacation home and with certain characteristics, I saved $750/year on insurance by upping the deductible and reducing the total coverage required.  The $750 on a $44K loan represented costs of 1.7% per year.  When the loan was at $22K, it represented a 3.5% cost and made payoff much more attractive. Of course that was during the same time the stock market was going super well and we would have been better off investing, but hindsight really is 20/20.

I plan to retire to the paid off small home in four years. We will sell our bigger house with whatever mortgage remains at that point. Too bad I don't have the ability to assign my mortgage to someone else.  It's a good one.
Title: Re: DONT Payoff your Mortgage Club
Post by: meatgrinder on April 09, 2018, 08:49:30 AM
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%. 

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?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 09, 2018, 09:28:25 AM
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%. 

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?
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: meatgrinder on April 09, 2018, 10:04:02 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 10, 2018, 03:17:17 AM
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?

If you sell you're going to get the money back anyway, so I'm not sure I'd pay it off, though you easily could. I'd be inclined to look at the 7/1 arm or similar. Have you spoken to your current lender about doing some kind of reset, or streamline re-fi? Also, does your current loan not have a max annual rate cap? How often does it adjust now?

Sorry, I'm still asking lots of questions, but this is a great "problem" to have. I love riddles like this!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 10, 2018, 12:06:10 PM
I personally follow the heuristic of getting the lowest interest rate, as I don't think of paying principal as really paying anything, more like just storing your money somewhere. That would mean 7/1 ARM instead of 30-year fixed. Have you priced a 5/1 arm?

That rate of 3.5% is still pretty strong.

Title: Re: DONT Payoff your Mortgage Club
Post by: Basenji on April 10, 2018, 12:11:29 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on April 10, 2018, 02:04:21 PM
I haven't posted here lately because, well, I'm just dutifully paying the minimum at the end of each month on our 2.75% 15-year mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 10, 2018, 02:41:28 PM
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.

Its good because (If you are following a mustachian philosophy) capital gains on a house are "Bonus Monies".  You (generally) shouldn't get in to real estate for the appreciation aspects, but rather- you should get in for the (1) rate of return (if its a rental) or (2) a place to live that isn't too costly (your own house).  Appreciation above and beyond inflation is a bonus, not an expectation.

Dicey, does the 500k capital gains threshold apply to ALL the gains once the threshold hits or only to the gains above 500k?

Also, considering 4% and change is still REALLY low, and the % only applies to gains over 500k (assuming), I highly doubt it will change the pay-down / dont-pay-down equation.

My money is on the math saying don't pay down the principal, since starting at 4.95% is still really low.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 10, 2018, 02:52:31 PM
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...
Title: Re: DONT Payoff your Mortgage Club
Post by: Snowman99 on April 11, 2018, 12:27:49 AM
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...

So are you saying I shouldn't prepay my 30 year fixed at 3.25% :)?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 11, 2018, 01:09:11 AM
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:

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
Title: Re: DONT Payoff your Mortgage Club
Post by: Basenji on April 11, 2018, 06:13:41 AM
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:

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?
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on April 11, 2018, 06:49:44 AM
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:

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.....
Title: Re: DONT Payoff your Mortgage Club
Post by: Wile E. Coyote on April 11, 2018, 07:01:12 AM
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:

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 11, 2018, 08:39:26 AM
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:

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.
As long as the Cheeto is in charge, who knows what will happen?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 11, 2018, 11:48:49 AM
checking in. My 1040 reported $5,500 of dividends from taxable investment accounts, in addition to positive capital gains.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 11, 2018, 11:51:18 AM
checking in. My 1040 reported $5,500 of dividends from taxable investment accounts, in addition to positive capital gains.

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.
Nice!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 13, 2018, 09:15:10 AM
I should be open with the fact that my mortgage balance is $182,000 (total of all debt is about $220,000), while the sum of value of those taxable investment accounts is in excess of $300,000. Crank it up!
Title: Re: DONT Payoff your Mortgage Club
Post by: Basenji on April 13, 2018, 09:34:41 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 13, 2018, 10:03:13 AM
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.

as you get closer to the end of a loan if a REFI is not available the likelihood of the market variablity being worse is higher but this seems like a martket timing play to me vs. just making a plan and sticking to it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Basenji on April 13, 2018, 10:23:20 AM
Gotcha, makes sense. We'll see how we feel in 20 years ; )
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 13, 2018, 11:47:12 AM
Gotcha, makes sense. We'll see how we feel in 20 years ; )

yeah no one knows what the tax structure would look like then and thats really where i see something like this possibly changing that could make sense for a paydown lump sum - but as i've always said i'm not against paying down a mortgage if it makes mathematical sense but rarely can you make that case in the current US mortgage climate.
Title: Re: DONT Payoff your Mortgage Club
Post by: dacalo on April 13, 2018, 05:50:01 PM
Just bought our home for $850k last September with $623k remaining now at 3.875%. It already appreciated $100k, the housing market in the bay area is nuts.

We are going to take our sweet time, that's a lot of debt to pay off lol.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 30, 2018, 12:26:37 PM
nice welcome -

Going to go on a little rant b/c I'm tired of people giving crappy reasons for why they are paying off their house and why it made sense if they have it paid off.

1. I may have made more investing the last few years but it was just as likely to go down.
2. I have more money to invest now that my house is paid off.
3. I want to avoid a risky situation so i want to take the safer play in paying off my house.
4. It's really just a personal choice i dont need to be optimal.
5. Stock market returns are not guaranteed.
6. Its so much more flexible when you dont have debt.

1. NO no its not just as likely to go down as up or this whole FIRE thing woudnt F*cking work!
2. yeah you do but you dont live in a vacuum of today and missed out on all that other earning while you were paying it down.
3. If you can do it lump sum you lower your risk of unlikely events that you will likely miss (sequence of return and deflation) If you're paying it off with extra over time you're increasing your risk during the paydown period vs investing it does not decrease risk except for total stock market failure (extremely unlikely)
4. you can F*cking say that about anything we face punch people for around here.  Driving a hummer to work is just a personal choice thats suboptimal -but its not as suboptimal as paying down a low fixed rate US mortgage.
5. While they arent guaranteed. If you truly believe this statement and it drives you to pay down a low fixed rate US mortgage than you can NEVER quit working and rely on stocks to support you.  they are completely conflating opinions.
6. how is having 200k - 1MM plus tied up in a fixed hard to sell asset more flexible than having that much money invested in a liquidable equity allocation - the answer - its not
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 30, 2018, 02:14:19 PM
...

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 30, 2018, 02:45:59 PM
On a similar note, made another standard payment on the family minivan.

48 payments, $6,348.00 principle, 3.140% Interest Rate.

First payment 7-16-2015.
Last payment 6-16-2019.

https://dqydj.com/sp-500-return-calculator/ (https://dqydj.com/sp-500-return-calculator/)

Annualized S&P Returns with dividends reinvested at 10.514% to date

10.514% - 3.140% = 7.374 Margin.

7.374% x $6,348.00 x 3 years = $1,404.30 Margin Gains across 3 years.
(I know this isn't a perfect calculation method, if anyone has one that takes into account the exponential nature of the equation, I'll gladly hear it)


Ya I could have not invested it and had the "security" of my van by owning outright, but it would have cost me $1,404.30 to date on a $6,348.00 purchase.......

I could pay it off in cash tomorrow- but I won't for the same reasons.  The money in the taxable account is worth WAY more there as a hedge against risk compared to a fixed (not fluid) asset.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on April 30, 2018, 03:40:52 PM
...

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.

I think @tomsang may have something. Could just be a link to a website where you have to do some snacks Excel math your self. Though hthat would he a great spreadsheet to make where you just update the return info for vtsax and input your mortgage terms and it shows you how intelligent you were not paying it down. Would also allow for testing to show how unlikely you are to come out ahead paying down a mortgage
Title: Re: DONT Payoff your Mortgage Club
Post by: tomsang on April 30, 2018, 03:55:20 PM
I made a calculator a few years ago.  To show the whole side of the transaction. Everyone, focuses on saving interest on the mortgage, but does not account for the loss on the gains on investing.  I have not updated it for the new tax law changes on capital gains, but you can input whatever rate you feel is appropriate.

Title: Re: DONT Payoff your Mortgage Club
Post by: tomsang on April 30, 2018, 04:06:36 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 30, 2018, 07:10:48 PM
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.

Holy shit.

Even with my modest 165k house and a not-as-perfect 5.00% loan rate, I still come out millions ahead at the current pace.  3.9mil to be exact.
With a more moderate (and average) market, from 1988 to today, I still come out $350,000 ahead.  About 1/3rd of my FIRE amount.  It would be a margin of 3.09% that is pretty darn sure.  I know I did the math a few years back, but in light of this market run, holy cow does it show...

Nice calculator.
Title: Re: DONT Payoff your Mortgage Club
Post by: YoungGranny on May 01, 2018, 06:03:45 AM
I switched to this camp this year and started throwing our extra money into a Vanguard account. We're already up to $23k in contributions. The calculator linked is cool - I did our $155k mortgage with our 3.25% mortgage interest and assumed 15% capital gains and 10% investment yield. I think I screwed something up though because it says we only come out ahead $22k in 25 years and it's $77k at 20 years. Obviously investing is still the right strategy but if it's only $22k difference it hardly seems worth it.

Upon further inspection it looks like the pesky capital gains are the reason - when I change it to 0% then I come out $1m ahead - looks like I need to do some more research to get that down.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on May 02, 2018, 01:35:43 PM
Made another minimum payment on the mortgage and set up recurring minimum payments on the car loan as well. Just refinanced the car loan at 1.69% which would be crazy to pay down faster.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on May 02, 2018, 02:51:23 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 03, 2018, 04:33:54 AM
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.

Yeah it really is nuts. We're not talking pennies here like most would have you think. And if you've been in this camp the last 2-6 years you've basically won already. Highly unlikely paying down a mortgage over investing can beat the gains we've had already.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 03, 2018, 12:41:37 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on May 07, 2018, 03:04:22 PM
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.

7. Answer: Run the numbers in the above Mortgage Payment Calculator to show the surprisingly awesome math to your spouse.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 08, 2018, 07:54:22 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on May 08, 2018, 07:48:08 PM
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.

I accept your pithy reply in good fun.

Likewise, I pity those whose spouse cannot be converted by having a million more dollars instead of a million less.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 09, 2018, 12:00:11 PM
My wife and I had a discussion about investing and finance in summer of 2016. I showed her some projections under which I thought we'd be retiring with about $2,200,000 in investments, and her first question was: "Will the mortgage be paid off?" At the time, our mortgage balance was about $190,000, so I pointed out how small that was relative to the investment balance, and she seemed persuaded by that. I felt as though the exchange established both the correctness of our cause AND the emotional weight associated with carrying a mortgage.

Since that conversation, our mortgage balance is $9,000 less, and our net worth is $300,000 more. It's mostly in retirement accounts, so there wouldn't be a conversation about using some of those gains to pay down the mortgage anyway.
Title: Re: DONT Payoff your Mortgage Club
Post by: eightyeighttoone on May 13, 2018, 09:55:45 PM
Hi. Posting to follow all you smart people!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 14, 2018, 08:54:54 AM
We're trying our best, thanks! Glad to have you in the discussion 88-to-1.
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 15, 2018, 05:59:15 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 15, 2018, 07:24:07 AM
Do you mow your own lawn vs higher someone at 40/week for 25 weeks?
- difference after 10 years investing - 15k - plus you had to do work.
Do you bring your own lunches vs eat out at a difference of 8/day for 52 weeksx5days?
- difference after 10 years investing - 30.2k - plus you had to do work

Mortgage difference after ten years is much higher than both of those.  So worth it for doing nothing other than redirecting investment to a taxable account i'd say easily worth it.  and 7% is very conservative as your mortgage doesnt index too inflation you've removed inflation from that return but not your mortgage interest rate based on historical returns - make that number the historical avg over 7 years and you'll get a much higher differential. almost 100k more. 

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?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 15, 2018, 08:46:39 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 15, 2018, 10:47:20 AM
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.

why not refi to a fixed rate at 4.5-4.75 or find another ARM.  personally i'd go for the fixed rate unless the arm was still in the 3's even at 5% you're still in pretty great shape.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on May 15, 2018, 11:34:22 AM
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.

My whole mortgage is 5% and I'm making bank.

5% is not high.  12% is high. 

@boarder42 , is there a historical resource out there for the average mortgage rate across the years?  That might help ease some minds.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 15, 2018, 12:14:01 PM
https://fred.stlouisfed.org/graph/?g=NUh 

click max and you can see the history of the 30 year mortgage rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 15, 2018, 12:21:48 PM
Ha! We have excellent credit. We just bought a house to flip. To get the loan, we had to put 50% down and got a rate of 5.125%. Why? Because it's non owner occ, and that's what the lender demanded. Fu-u-u-uck!

Not really. It's still a helluva good rate, but the last decade has spoiled us. It sucked to put that much down, but we had it sitting in cash anyway, so it will be fine.

Moral of the story: go get a fixed rate, 30 year mortgage asap. Then laugh all the way to the bank as rates creep up but yours doesn't. Pay it off on any schedule that makes financial sense to you, but grab a big hunk of that fixed rate money before it's gone.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 15, 2018, 12:32:13 PM
https://fred.stlouisfed.org/graph/?g=NUh 

click max and you can see the history of the 30 year mortgage rate.
Fun 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.
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 15, 2018, 01:56:52 PM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 15, 2018, 02:53:40 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 15, 2018, 03:43:33 PM
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.

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.

I contribute quite a bit to charities and friends "down on their luck" throughout the year, so I really hope I'm not one of the most selfish people you know.

You're right that no one NEEDS 4MM - but as my name implies I'm not fully Mustachian - maybe not at all - and I am aiming for fatFIRE and a pretty damn nice early retirement where I get to enjoy volunteering my time/money for causes that I care about along with a Ferrari - if that makes me selfish, that's fine.

I didn't ask you nor anyone else to CARE personally about what I want to do with my mortgage, I was just asking whether it makes sense to extend/maintain it versus paying it off.  If the calculator showed me greater values with my inputs, I would have been all-in.  Right now I'm probably leaning about 75% to continuing the early payoff. 

I am still toying with opening up a separate Vanguard account to test the non-early payoff strategy.



Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 15, 2018, 04:10:30 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 15, 2018, 04:50:17 PM
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!


MOD EDIT: Forum rule #1.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on May 15, 2018, 05:54:46 PM

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. 

 
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 15, 2018, 06:58:28 PM
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!

Quit with the personal attacks man. You came in here asking questions you didn't want the answers to.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 16, 2018, 06:01:19 AM
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!
MOD EDIT: Forum rule #1.
@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.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 16, 2018, 07:15:59 AM

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.

Not an attorney, but I can see how the argument for paying down a shared debt makes sense if you think the marriage is in trouble: a good attorney will find a way to let you live in the house, but stick your spouse with the mortgage payments. I was an expert witness in several cases in which the spouse gave up way more in retirement accounts than she should have in order to keep residency in the marital home, which her income (smaller than his) would have had trouble supporting, were it still carrying the mortgage. People get emotional about houses, so if you're a logical person, you can come out ahead by duping your ex-spouse here.
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on May 17, 2018, 08:52:58 AM
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***


Title: Re: DONT Payoff your Mortgage Club
Post by: tomsang on May 17, 2018, 09:35:51 AM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on May 17, 2018, 05:10:08 PM
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?--

Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on May 17, 2018, 08:31:27 PM
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, itís 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!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 17, 2018, 10:59:41 PM
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, itís 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.

@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!
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on May 18, 2018, 12:44:18 AM
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.

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.




Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on May 18, 2018, 04:31:52 AM
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, itís 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.

@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!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 18, 2018, 08:00:19 AM
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

wrong thread if you're looking for congrats, if you're looking to remortgage and take advantage of these still low rates then you've come to the correct place.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 18, 2018, 08:46:39 AM
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?--

Goldielocks: are you currently retired? What percentage of your expenses would go to the mortgage payments under different scenarios?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 18, 2018, 09:01:22 AM
snip

I am not a fan of holding debt and bonds at the same Time. For me, itís 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.

@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!

I'm thankful every day i found this site. it has taught me many things and lead to research on many other new learnings

1. I dont need 5MM to retire - i only need 2MM
2. Understanding indexing and why its better
3. Understanding the large amount of money left on the table paying down these crazy low mortgages.  Honestly i doubt we ever see the 3.25%/30year notes i have on my house again. banks are going to look back at this time and think WTF were we thinking.  (My mortgage holder calls me monthly to talk about refinancing)
4. Understanding different withdrawal strategies to protect assets
5. Understanding how safe the 4% number truly is - i'm a risk taker it didnt take much convincing
6. Travel hacking
7. Selling Tradelines
8. Taxes man thats huge- particularly tax strategy
9. Trad over Roth
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 18, 2018, 09:39:15 AM
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!
MOD EDIT: Forum rule #1.
@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.

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.

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.



Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 18, 2018, 09:44:57 AM
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***


Honest question:

If I'm retiring in 10 years, where is this "extra investment" coming from?

I'm not going to be earning any more money to invest.
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 18, 2018, 10:08:14 AM
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.

But isn't this spreadsheet counting on the fact that I would be continuing to invest the $1629?  As I mentioned just a minute ago, if I'm retired, where would that investment be coming from?

And folks, believe it or not - In principle I AM in this camp - at least partially - I'm just not convinced to go all in (with keeping my mortgage as long as possible). 







Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on May 18, 2018, 01:13:41 PM
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

Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 18, 2018, 03:02:39 PM
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 :)




Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on May 18, 2018, 04:51:15 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 18, 2018, 08:24:46 PM
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.

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.
@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.

In your case, I strongly suspect you are not leaving money on the table, as some others seem to be elsewhere. This is the kind of information I'm wondering about. You don't have to answer my questions directly (really, don't). I've tried to word this response in a way that will give you a little more to help you figure it out.

One more general thought, not specific to Goldilocks: getting the sequence wrong isn't the end of the freaking world. It just means you'll have to work longer and earn/save/invest more actual dollars to achieve FIRE. If you're looking to retire at a traditional age, that's no big deal. But aren't we all here to learn how to achieve FIRE faster and more efficiently? To that end, B42 and I are at your service. Slightly different message, same good wishes for all.

And while I'm in here fixing typos, thanks for your cross post, @sherr. It took me a while to get used to B42's direct style and phrasing, but I wouldn't change it for the world. And he surely wasn't the one breaking the forum rules, as you aptly noted.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on May 18, 2018, 08:52:20 PM
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"?
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 19, 2018, 10:03:29 AM
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"?

Umm I was obviously referring to my posts before my last Mod deleted remark.

He said: "Those who say who cares i could die with an extra million are some of the more selfish people alive."

While he may not have said directly: "PSEUDOSTACHE is one the more selfish people alive"

I would hope that you would also be able to comprehend that this an indictment on my character.

Then goes on to say "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."

Yeah, don't you just love it when strangers talk to you like that?

Would you be OK if I said something like, "People who act like Boarder on forums are jerks"  Hey, I'm not directly attacking him, just the thought of people like him.

Are we good now - or do we need to keep this going?

MOD EDIT: No. You don't need to keep going. Take it to PMs.
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 19, 2018, 10:45:09 AM
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).




Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on May 19, 2018, 10:47:27 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: PseudoStache on May 19, 2018, 11:13:25 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on May 19, 2018, 02:23:48 PM
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.

Border regularly toes the line. You decided to escalate and stepped right over it, while simultaneously riding on a high horse of moral superiority. Not to mention that you are contentious enough in your own right.

Have a blessed day!
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on May 19, 2018, 04:26:36 PM
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).

The way I look at is this - if I have money extra money, investing gets me 10%.  Paying of the mortgage gets me a savings of 4%.  So investing gets me a 6% better return than paying down the mortgage. 

Using this math, I can see that on a 30 year time horizon, every month I use that $1625 to pay extra towards the mortgage, I am leaving about $10k on the table.  Every month!  $10k!

On the other hand, I really hate debt.  Hence my plan to get to FIRE asap using high return investments (VTSAX) front-loaded, and then once I have FI, I'll re-evaluate. 

I'll say this - once you get to 1.5 to 2 million, the compounding becomes just crazy.  For example, if you get 10% returns on 1.5 mil, that's $150,000 returns per year.  Once I hit 1.5 million, the investment gains ALONE will pay off the balance of my mortgage in about 2 years.  Crazy. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Bateaux on May 19, 2018, 05:27:34 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on May 19, 2018, 07:50:53 PM
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 feel your pain.

I owe $162k with 13 years and 2 months to go out of the original 15.  Fixed rate at 2.75%.

Just sold my old house and it looks like we'll sell our flip house early.   I want to just pay off the darn mortgage.  Intellectually I know it's foolish and, unless we'll save a bunch on ACA subsidies by avoiding the subsidy cliff, I think we'll hold off on paying it off early.

But it still bugs me.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on May 20, 2018, 12:12:49 AM
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.
Goldielocks: are you currently retired? What percentage of your expenses would go to the mortgage payments under different scenarios?

Well, I am retired, and only working a part time adjunct professor role.  DH is working but at half the pay he used to get, but likes the job better and it is 40hr/wk max and 6 miles away from us.

What percentage of my expenses to to the mortgage payments?

Currently, the mortgage is 40% of what we WANT to spend for total expenses, and 50% of what we SHOULD spend (a lower amount ) of our total expenses.

We have around 67% equity currently.  If we pay it off, (the max I am willing to pay off) we will still have a mortgage for 17% of the home value.

Our property taxes, insurance, water / sewer / garbage bill is another 8% of our total (desired) expense budget.
Then, of course, we have general maintenance, gardening supplies ( i need to buy a new hose,  seeds), heating, etc.

If we pay down half of our mortgage, it would fall to around 20% to 25% of our expenses.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on May 20, 2018, 12:23:08 AM
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.?
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on May 20, 2018, 05:43:51 AM
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.?

Itís not a big deal to put the fixed income from non-registered to pay down the mortgage. If all of your tax-advantaged accounts are maxed out and your AA is at least 80-90% stocks or stocks-alike, youíll be fine. Maybe, you just have to much of a house or live in a HCOL, wich is not always an advatage for retirement.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on May 20, 2018, 11:32:40 AM
Definite HCOL.   (1)  The cheapest house for sale out of a region of 2.5 million people starts at $650k.

I came to terms with the idea of having an eternal mortgage when we moved here.  As long as I can sell and buy a nice townhouse or condo outright, I am ok with it.

The challenge now is wondering if the risk  / dislike of changing (increasing) rates and reduced monthly cash flow is worth the slight advantage of having Fixed income -- assuming the fixed income returns positive over the long term.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on May 20, 2018, 01:14:27 PM
Did you think of downsizing or even rent? Even in my not HCOL town (350k$ for a datached cottage) I plan to move when kids will be gone. Not only for the financial reasons but to get closer to downtown happening and services and get rid of at least 1 car. My neigbourhood is perfect for young families but not for older us.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on May 21, 2018, 12:52:04 AM
Relocating is the backup plan to the backup plan (the first level is that I go earn a bit of money, at least until my kids are out of high school.).  DH loves his workshop here, so is not ready to downsize.

I can make it work, it is just that I am closer to the hurdle point of paying off half the mortgage -- or now.  Trying to figure it out.
Title: Re: DONT Payoff your Mortgage Club
Post by: Le Barbu on May 21, 2018, 05:17:03 AM
My kids are 11 and 14 so, I fully understand you dont move now!

If I may ask, how much is your mortgage balance and taxable account(s) value? If you sell your investments now, what would be your capital gain?

Did you know you can make your mortgage interest deductibles in Canada? Itís called the Smith Manoeuvre.

There is a version of SM, the Singleton Shuffle, you can use when you already have taxable investments.

Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on May 21, 2018, 10:19:50 AM
I am not going to share the numbers but the mortgage is around half the value of my investments.   Taxes on the non-reg portion is fairly minor (I reset them a year ago, and minimal cap gains since then, some tax losses), and depending on what we pull, only a portion would come from non-reg.

As I stated upthread, my income is low, so the tax deduction on a Smith Maneouvre is not really relevant and the spread between mortgage rate and HELOC rate is just over 1%... or about 0.8% with tax deduction taken into account.

Instead, it would be to my advantage to bring the mortgage into our RRSP, but then I would want to do that with the whole damn thing (instead of creating two mortgages), and having 50% of our investments as equivalent to fixed income is too much for me, I don't want to exceed 75%, (I like the total $'s I have in equities) and the RRSP mortgage adds at least 0.5% cost to self-fund / register your mortgage each year, compared to the typical mortgage route at a big bank.    This tactic also encourages you to put more $'s into the tax free  RRSP account, (by creating a higher mortgage rate) but the issue is cash flow for me, not the size of the RRSP at this point.   (RRSP mortgage is a good strategy to over fund the RRSP if anyone is looking for that).

I think we will sit on it for 6 months, then talk to our bank about early renewals.  If I don't like the answers (they won't match the best available rate, or insist that my new low income is not enough to carry the mortgage), then I will evaluate paying down the mortgage.

Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on June 24, 2018, 02:36:26 PM
I checked my Vanguard account today and saw that my dividends are in for the quarter.  By not paying off my mortgage and investing instead, at least for 3rd quarter 2018, my dividends have paid my mortgage.  (but not the full PITI).
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on June 24, 2018, 07:36:13 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on June 24, 2018, 07:49:22 PM
@Goldielocks

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.


Ö

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.

Ö

Should I put a large lump sum ($100k to $200k) onto my mortgage, drawing down my fixed income portfolio?--

With all the drama, I'm not sure you got an answer. 


3.1% is still a very good rate.     2.5% is an excellent rate.  What is the cap on the variable rate and the max it can go up in one year?


Any rate below 3.5% is way below what you could expect to earn in stocks.

So, if it was a matter of staying in stocks or paying off the mortgage early, I would stay in stocks.  You would be more likely to come out ahead even having to sell some stocks to pay down the mortgage.   What would be your withdrawal rate if you keep the mortgage or don't keep the mortgage?

I decided to stay out of bond FUNDS because the interest rates have been so very low.  They are pretty much guaranteed to lose value because rates really can't go much lower, but they can go much higher.  (Kind of the same reason the stock market always goes up over time per JL Collin's explanation, only in the opposite direction.)    (Plus we have other sources of fixed or semi-fixed income that serve the same purpose.)

So, I'm not the one to give you advice on selling the bond FUNDS other than to say I wouldn't want to own them at this time.
I guess I'm committing the sin of market timing with bond FUNDS.
   
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 25, 2018, 04:09:35 AM
[snip]
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.
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.

Congratulations on the move and the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on June 25, 2018, 05:28:44 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on June 25, 2018, 07:29:32 AM
My cats pissed on my furniture, so there's that.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on June 25, 2018, 09:37:36 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on June 25, 2018, 09:50:53 AM
[snip]
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.
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.

Congratulations on the move and the mortgage.

Thanks!  This has definitely been a year of transition.  My next dilemma is deciding if I should start switching jobs every 2-3 years in order to maximize income or if I should stick it out with an amazing employer for most likely less pay.  I'm hoping I move up quickly in the company and my salary follows.  I should be done with my Masters in a year so we will see....
Title: Re: DONT Payoff your Mortgage Club
Post by: Saving4Fire on June 25, 2018, 10:45:52 AM
Count me in this club.

Five years ago I refinanced my mortgage to a 15 yr @ 2.75%. I figured I had the extra money and I wasn't using it, so why not? At the time I didn't really think about investing much outside of my 401k. In retrospect it wasn't a great decision because it would have been better to invest in the market, but I'm at peace with it. It'll be cool to have it paid off in 10 years. First world problems, etc.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 26, 2018, 08:36:37 AM
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.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on June 26, 2018, 09:02:20 AM
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.

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.

For me, it's a tug-of-war between saving and buying items that will reasonably last. My wife and I did apartment living for the first several years of our life. We went the extreme frugal route because we didn't start out with much money. We didn't buy a TV, the dresser and bed was a freebies from college, the couch was found second-hand by in-laws, dining room table and chairs were from Craigslist ($100), used washer and dryer were a Christmas present one year. The rest of the apartment was furnished with the extremely cheap Walmart style furniture.

It was perfect for a time in our lives where we had almost no money to spend on furniture. But the reality is that most of it eventually broke down and showed signs of wear after 5 years.

Fast-forward to our house purchase. We finally broke down and spent some money on furniture. Most of it is found through relatives, Craigslist and estate sales. But a specific things we bought new as well. Everything should last us much longer, which I remind myself, since buying furniture gets expensive quickly - even when shopping carefully.

The main thing we're trying to do is buy furniture we'll still like and won't look too outdated (or we won't care) 10 or 20 years from now and things that will hopefully last that long or longer.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 26, 2018, 09:56:14 AM
^^This.^^ When I was just starting out, I read a great quote. "Only the rich can afford to buy cheap furniture." I have only purchased quality furnishings, typically used. That saying has saved me thousands on the path to FIRE.

I did accept a lot of cast-offs and hand-me-down, but when I turned 40, I wanted a more cohesive, grown-up look. Craigslist to the rescue, for the win.
Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on June 27, 2018, 01:33:12 PM
When we first moved into our current house in 2010 I ordered some inexpensive furniture online, including a sectional.  It was not well made, it was uncomfortable, and it did not last.  And the cats pissed on it.  (They didn't like it either).  Last year, we had the great room repainted, and I had wood floors put it.  I also got a new sectional at a local showroom.  (Great American Home Store IIRC).  Price point was mid-range, but the quality is way, way better.  Cats have not pissed on it.  I probably could have found something cheaper but I have no regrets.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on June 27, 2018, 07:01:34 PM
My quality furniture I still love 20+ years later. The cheaper stuff has warped or peeled.  The one exception is the couches - you cannot have nice stuff with children. They will jump on your couches and ruin them until they reach 18 and leave. We got a leather sectional last year, and I should not have let them talk me into leather. Some stupid kid sat on it with a wet swimsuit while wiggling around and playing video games....Fabric used couches are the way to go. They can be cleaned, and the cushions can be flipped over.  Pillows that are sewn into the back seem like a good idea until your kids decide to sit on them and rip them off.  Kids. Gotta love em - can't return em.  Craigslist quality furniture for the win
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on June 29, 2018, 11:35:17 AM
I "think" I belong here.  Historically as our income increased we refi'd from 30y @ 5%, to 15y @ 3.5%, and now 2 years in to a 10y @ 2.79 percent.  I see the error of my ways especially considering market returns during that period.

I need some help with the thought process for the next move-most of which is hypothetical given uncertainty in interest rates, market returns, housing values,etc.  So mainly a thinking exercise.

That said, we plan to relocate in a few years, and will walk away with ~$300k, and current prices for housing in new area location are $300-$350k.  We'd plan to be there for quite some time (daughter will just be starting Pre-K, and close family there).  My thought is 20% down, 30y fixed and invest the rest in VTSAX.  I'd probably tweak my tax sheltered investments to maintain 80/20 rather than have the taxable account have its own allocation. I currently do not have a taxable account, but will start one as daycare costs lower.  Maxing out Dependent Care FSA, HSA, 2x 401k, 2x Roth IRA's.

After the relocation, Plan is to work part time, so should be making enough to make the regular payments- but at some point, we'll want to pull the plug completely (5 years, 10 years?).  Then what?

Do I pay off mortgage with hopefully a taxable account that doubled?
Do I change AA to something less aggressive and continue to make the payments out of the investment account?
Our goal would be to maximize ACA subsidies at that point (assuming still around), and maximize FAFSA benefits, but I think a large taxable account would affect the FAFSA.

Any advice is welcome and appreciated- nice to actually get these thoughts down!
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on June 29, 2018, 12:31:02 PM
I'm in.  our mortgage is effectively 1.75%
no way I 'm paying that.

I used to have a  6.25% I paid that down like it was my job
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on June 29, 2018, 06:58:59 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 29, 2018, 07:38:30 PM
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!
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on June 30, 2018, 10:37:55 AM
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.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 30, 2018, 10:57:47 AM
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.

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.
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on June 30, 2018, 11:58:33 AM
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.

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.
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.

Thanks!  I have 2 library memberships (Denver and High Plains), Denver didn't have it on Overdrive but High Plains has it as an eBook on Hoopla.  Just downloaded it and am reading it now. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 02, 2018, 08:15:32 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on July 02, 2018, 10:59:38 AM
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). 

My main point is this - I have a steady job in an established career so my income is consistent from month to month.  For her those things are not true (although spousal support will help a lot).  Until she has regular, substantial income from her real estate job, she's better off keeping the cash as a buffer for slow/down months. 

On the other hand I can see her point.  In the 4 years we lived in this current house, it went from $455k to about $715k.  That's how things are all over here and it's still happening at a fast clip.  So if she rents for a while, she's right that housing prices will just get more out of reach, so best to buy now & own it while prices go up.  At some point they will flatten, but we're definitely not there yet. 
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 03, 2018, 07:18:15 AM
Just did some fun testing with CFIRESim and perpetual mortgages appear to eliminate SORR in most cases.  i expanded on @Retire-Canada  's post if you scroll down you'll see my testing metrics
https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/msg2058297/#msg2058297

Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on July 03, 2018, 09:55:53 AM
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...

I take their comment to mean "there is a disproportionate spread of an additional 100k once you hit the 500k mark".

It is the same thing around here.  120K will buy you a crack house with rats while an additional 35k will buy a middle-suburban, very nice house (at 155k).  There is much more than 35k worth of materials / improvements in that last (relatively small) step.


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).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 03, 2018, 10:56:00 AM
...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.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on July 03, 2018, 03:09:04 PM
...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.


Dang Dicey, those bus tires hurt going across my back... lol!

I was mainly trying to agree and point out that there are tiers in real estate that don't make much sense in value terms, and going to that 'plateau' is more cost-effective.  I'm not saying that you can't FIRE and have a mortgage (since my goal is to FIRE and have a mortgage.....), but you have to agree that math is math and a 500k purchase (and it is a purchase) along the way to or after FIRE does make an impact.  Considering solid, well built housing is environmentally neutral and likely necessary worldwide for humanity to reach some sort of perpetual stability, I am not saying it is a bad thing to have a nice house, but rather trying to point out that an additional 35k (or 100k) of house that buys double that in value terms is worth consideration since all of it is 'excessive' in the absolute strictest FIRE terms.  (IE, don't make a huge purchase and you will FIRE faster).

I can see how my last statement was easily misconstrued, however.


---
Which remind me, I need to make another minimum payment on my mortgage.  ;)
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on July 04, 2018, 07:56:42 AM
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.)
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 04, 2018, 08:02:47 AM
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.)

Depends on how long you plan to stay. If you stay over 7 years the 30 year will likley come out ahead. Less the 15 year.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on July 04, 2018, 09:00:47 AM
Planning on forever. Wife and I are committed to the area. Of course life does and can change but the plan is to stay there and not relocate.
Title: Re: DONT Payoff your Mortgage Club
Post by: protostache on July 04, 2018, 12:17:17 PM
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".
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 04, 2018, 12:23:17 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: protostache on July 04, 2018, 04:37:43 PM
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.

Huh. Well, she read it. Turns out sheís been on team ďdonít pay off the mortgageĒ forever, we just hadnít really discussed it in those terms. Sheís skeptical of the authorís 7-8% returns but I think I can build on this.

Oh and all she required was foot rubs.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 04, 2018, 11:16:19 PM
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.

Huh. Well, she read it. Turns out sheís been on team ďdonít pay off the mortgageĒ forever, we just hadnít really discussed it in those terms. Sheís skeptical of the authorís 7-8% returns but I think I can build on this.

Oh and all she required was foot rubs.
Holy cow!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 05, 2018, 08:40:16 AM
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.

Huh. Well, she read it. Turns out sheís been on team ďdonít pay off the mortgageĒ forever, we just hadnít really discussed it in those terms. Sheís skeptical of the authorís 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)
Title: Re: DONT Payoff your Mortgage Club
Post by: tyort1 on July 05, 2018, 11:14:35 AM
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.

Huh. Well, she read it. Turns out sheís been on team ďdonít pay off the mortgageĒ forever, we just hadnít really discussed it in those terms. Sheís skeptical of the authorís 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)

Careful, foot massages are pretty dangerous territory - https://www.youtube.com/watch?v=KCO-SBPTF5E
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on July 09, 2018, 03:02:19 PM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on July 09, 2018, 04:04:02 PM
I don't know if there is a hard-fast rule, but I think once you get above around 10-year Treasury plus 3%-ish it is a good idea to get rid of the debt. 

The fact it is variable makes it more attractive to retire it. 
Title: Re: DONT Payoff your Mortgage Club
Post by: tomsang on July 09, 2018, 04:55:36 PM
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.  The whole value of the 30 year or in your case 15 year fixed rate mortgages is that they are fixed, if you have a few bad years of returns, you still have plenty of time for the market to turn, and they were at historic lows.  Mortgages are still incredibly cheap, but when the government was giving out a 30 year fixed rate loan for 3%, that was crazy.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on July 09, 2018, 07:09:05 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on July 09, 2018, 07:20:09 PM
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.

Thanks a lot for the thoughts. I think I'll start paying down some of those small loans soon and do a bit of a snowball on the others with the extra payment I avoid every month. Exciting!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 09, 2018, 07:41:30 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on July 09, 2018, 08:59:41 PM
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.

Purchase Price $350K - Down Payment of $70K for loan of $280K. Yes, the $9K is actually the bank not providing any credits. If I take the 4.625% the bank gives me $3.5K credits, so I just have to bring $1k to close. If I take the 4.000% rate, there are $0 credits, so essentially it is a difference of $9K. I am asking the bank to consider credits for the 4.000% so I can compare apples to apples for the points (the points are listed as $4550 on the quote), but if I am not successful, do you suggest comparing at the $9K level of funds to pay into the loan? I usually use 4% for compounding - super conservative over here :).
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 10, 2018, 04:28:47 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on July 10, 2018, 08:20:09 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 10, 2018, 09:17:57 AM
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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on July 10, 2018, 11:27:01 AM
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.

Thanks - I still have to pay $1k for the 4.625, so the payback is not quite 15 years. Yes, I max all the tax advantage accounts including dependent care :) and put another 10-20k towards an investment account. The extra $3k would likely just be paid toward moving costs as I am really cash light as I invest as much as possible.

I really appreciate your feedback. This has been very helpful.
Title: Re: DONT Payoff your Mortgage Club
Post by: Slee_stack on July 10, 2018, 02:19:43 PM
I screwed up and paid my mortgage off.

OK, so I had no choice because I sold the house.   Boy do I miss that sweet low rate!  Didn't need the property any longer though.   

If/when the next house purchase comes up..hopefully nice long, low rates will still be there.
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on July 10, 2018, 03:06:40 PM
Wow! Trollish behavior in here today!

Still paying off the mortgages as slowly as possible.

I think this guy is just another crystal ball gazer but wouldn't sub 3% rates a la europe be amazing? There's still some room before I hit my fannie/freddie loan limits:
https://www.realwealthnetwork.com/learn/interest-rates-predictions-bruce-norris/
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 10, 2018, 08:50:08 PM
I believe we were politely asked to leave that thread alone, @boarder42, not the entire site, lol.

Like you, it pains me that a thread like that one exists, with no neutral place for balanced explanation/discussion. It's almost as if someone started a "Let's Celebrate Our New Monster Trucks" thread, and then complained they were getting too many face punches, and the mods agreed with them. Even this thread isn't the best solution, because people dead-set on killing.all.the.debt are never going to even open this thread. They just beeline to the Payoff Party.

I suppose we can take comfort that a small, but growing number of mustachians have been open to learning before they make a decision, and have made the choice that best suits their situation, hooray!

I hang around here to help make the path to FIRE easier for other people. I'm happy that I'm able to contribute to the discussion, and that has to be enough. Finally, b42, I admire the shit out of your tenacity. You never give up. But maybe we have to admit that we just can't save 'em all, much as we'd really, really like to.

Dicey

P.S, I wrote this immediately after b42's post at 10:50 this morning, but it didn't post. I'm going to leave it and send as written, because I stand by it, no matter what the cross chat has been in the interim.
Title: Re: DONT Payoff your Mortgage Club
Post by: mrmoonymartian on July 11, 2018, 06:09:18 AM
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...


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.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 11, 2018, 06:47:52 AM
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.

correct this has nothing to do with you - you're not an american you dont have low fixed rates - we understand these counterpoints - we dont blindly support not paying down mortgages. We support them when they make sense. 
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 14, 2018, 10:01:07 PM
Just threw 1k into vanguard and I became 401k eligible at my new job this month.  Really excited to start throwing money towards investments now that we've settled in down here to a certain extent.  Time to get back on it! :D

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 16, 2018, 06:58:39 AM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on July 16, 2018, 07:24:26 AM
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.

If I'm missing the point and you just want to complain to a sympathetic audience, then that's fine and ignore me.

However I'd say that one of the freedoms a frugal lifestyle gives you is not having to worry about money as a primary consideration. First move where you want when you want, and then secondarily optimize the finances of the situation as much as possible. You don't have to be trapped into moving somewhere sub-optimal now because the interest rates might go up in the future.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 16, 2018, 09:25:03 AM
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.

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 ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: FIRE@50 on July 16, 2018, 09:40:22 AM
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.

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 ;-)
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.

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???
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 16, 2018, 09:47:46 AM
That would greatly depend on your interest rate in a few years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 16, 2018, 11:14:20 AM
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.
[/quote]
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.)
.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on July 16, 2018, 12:12:07 PM
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???

I'm with Dicey here.  If the money is in your bank account, then you control it.  If it is in your house, then you don't control it.

On a related note, I have a dear friend who is a physician.  Unlike a lot of doctors, she's been pretty smart with money.  After med school, she lived in two bedroom apartment with room mate and paid her student loans in just a few years.  She drives a car with 150K on the clock.  She is debt adverse and smartly frugal.  Maxes her 401K, etc.   She got married and bought a a dream house.  Not huge, but just a really cool home, and bought at the bottom of the market. And characteristically, she's been paying aggressively on the mortgage (15 year), with the idea in a few years she'll have no mortgage payment, and that will give flexibility to work fewer hours, travel more, easier to pay for college for the kids, etc.   And maybe down the road she sells it and downsizes, and that will be her retirement.  Not the most efficient retirement plan perhaps, but at least it is one, which is more than most people have. 

Very sadly, she is getting divorced.  She lives in a community property state, so that means the husband gets half of everything while they were married.  Now she is in situation where she will either have to sell the house, or pay the soon-to-be ex-husband about $150K for his share of the equity--which she'll have to borrow.  The house and area have appreciated a lot, so it is basically irreplaceable.  Now her retirement plan has been dealt a mortal blow, and she'll have to go into debt, which she absolutely hates. 

Moral of the story is keep the money out of the house.  At today's interest rates, it is simply not a good thing to do.   A high risk/low reward proposition. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 17, 2018, 09:17:37 AM
I've met two kinds of doctors:


Title: Re: DONT Payoff your Mortgage Club
Post by: FIRE@50 on July 17, 2018, 09:25:19 AM
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.)
.
[/quote]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.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 17, 2018, 10:00:12 AM


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.)
.
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.
[/quote]

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.

Sent from my SM-G935F using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 17, 2018, 10:07:18 AM
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.)
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.
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.

Replying partly just to fix the quoting... I once dropped a ~$30k principal payment on our mortgage because I knew we were going to sell the house in a few months. Guaranteed short term return on investment (interest rate was 5%). It also simplified the closing process because it meant we weren't underwater anymore... The best course of action does depend a lot on your time frame for how much longer you'll be in the house.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 17, 2018, 07:07:55 PM
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.)
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.
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.

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.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 18, 2018, 08:05:36 AM
PMI is one of those areas where Boarder and I have debated back and forth, each failing to convince the other. I personally choose to live my life never having paid it. 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. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 18, 2018, 09:27:00 AM
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?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIRE@50 on July 18, 2018, 12:28:29 PM
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.)
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.
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.

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.
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: redbirdfan on July 18, 2018, 02:11:28 PM
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? 

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 18, 2018, 02:26:05 PM
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.
Title: Re: DONT Payoff your Mortgage Club
Post by: redbirdfan on July 18, 2018, 03:28:23 PM
Quote
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'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. 

Again, forgive me for posting in this thread.  I'm not trolling. I just enjoy getting feedback from all angles.  My gut instinct is to be in the the don't payoff the mortgage group...but the idea of getting pre-tax money into Roth accounts and to withdraw money from taxable accounts tax-free is pushing me the other way.   

*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.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on July 18, 2018, 03:59:25 PM
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?

I personally have done a 180.   Back when I was a young lad, aggressively paid on the mortgage, because that is what you are supposed to do, right?    Then my contract position ended very unexpectedly, and I still had the mortgage and not much cash.   Non-fun times followed.  The more I investigated the pros and co