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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: Tyson 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: Tyson 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: Tyson 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: Tyson 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: Tyson 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: Tyson 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: Tyson 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: Tyson 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 à 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: Tyson 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: Tyson 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: Tyson 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.

“Live as if you were to die tomorrow. #Learn as if you were to live #forever.” 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: Tyson 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 €100 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 €100 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: Tyson 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: Tyson 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: Tyson 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: Tyson 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: Tyson 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: Tyson 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: Tyson 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
I’m one of those people who really hates debt. However at a 3.5% interest I just can’t justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 22, 2017, 12:02:42 AM
I’m one of those people who really hates debt. However at a 3.5% interest I just can’t justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
OMG! That is brilliant, SachaFiscal. That needs to be our new mantra!! Can we use this forever, pretty please?
Title: Re: DONT Payoff your Mortgage Club
Post by: SachaFiscal on November 22, 2017, 01:29:22 AM
I’m one of those people who really hates debt. However at a 3.5% interest I just can’t justify paying off the mortgage early. Our plan is to invest in stocks/bonds and just pay the minimum mortgage payment every month. Actually we do pay a 13th payment every year which I think reduces our timeline to 27 years instead of 30. Instinctively I want to just pay it off and be done with it but every time we run the numbers in our spreadsheet it makes more sense to invest that money in the stock market instead. I love math more than I hate debt.
OMG! That is brilliant, SachaFiscal. That needs to be our new mantra!! Can we use this forever, pretty please?
Yes, of course!
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. I’m also a UK person. Being quite cautious I was a mortgage over payer so I don’t particularly belong on this thread! However there is a lot of good advice here and there are other threads that are worth looking at that discuss mortgage overpaying versus investing.

The US do have the security of 30 year fixes and I believe they can claim back tax against their mortgage payments. Someone on here can correct me if I’ve got this wrong. Therefore the case for not overpaying in the US is a lot stronger than it is for us. My worry was always coming out of a fixed period and finding interest rates were now 8%+. My parents stories of a 12% mortgage rate got to me here.

With the marvellous wisdom of hindsight my mortgage was never higher than about 4.5% and the markets have performed well over the last few years. So I would have been better investing.

So it really is about your attitude to risk and how easy it will be for you to sleep at night with whatever choice you make. How much do you expect interest rates to rise in the next few years? How do you think markets will perform over the next few years. How will Brexit turn out? What’s your job security like as far as you can tell? All questions I don’t expect you to be able to answer. Although if you do know the answers please tell me!

What rate can you get a 5 year fix at? Although it won’t be as low as 1.7% if it’s 3% or something and you have 5 years where you know it can’t go up that would give you more freedom to invest.

Good luck. Well done for getting on the housing ladder so young and putting proper thought into how to proceed. Although there is an optimum choice here (hindsight will inform you what it was) at the end of the day investing or paying off a mortgage are great things to do. You’re not using the money to buy a £40,000 monster truck on credit so either way you’re winning.
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. I’m also a UK person. Being quite cautious I was a mortgage over payer so I don’t particularly belong on this thread! However there is a lot of good advice here and there are other threads that are worth looking at that discuss mortgage overpaying versus investing.

The US do have the security of 30 year fixes and I believe they can claim back tax against their mortgage payments. Someone on here can correct me if I’ve got this wrong. Therefore the case for not overpaying in the US is a lot stronger than it is for us. My worry was always coming out of a fixed period and finding interest rates were now 8%+. My parents stories of a 12% mortgage rate got to me here.

With the marvellous wisdom of hindsight my mortgage was never higher than about 4.5% and the markets have performed well over the last few years. So I would have been better investing.

So it really is about your attitude to risk and how easy it will be for you to sleep at night with whatever choice you make. How much do you expect interest rates to rise in the next few years? How do you think markets will perform over the next few years. How will Brexit turn out? What’s your job security like as far as you can tell? All questions I don’t expect you to be able to answer. Although if you do know the answers please tell me!

What rate can you get a 5 year fix at? Although it won’t be as low as 1.7% if it’s 3% or something and you have 5 years where you know it can’t go up that would give you more freedom to invest.

Good luck. Well done for getting on the housing ladder so young and putting proper thought into how to proceed. Although there is an optimum choice here (hindsight will inform you what it was) at the end of the day investing or paying off a mortgage are great things to do. You’re not using the money to buy a £40,000 monster truck on credit so either way you’re winning.

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).

What’s 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: Tyson 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: Tyson 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, it’s a continuum. First, you have debt and 100% stocks, then deleverage  but still 100% stocks, finaly introduce short term bonds. YMMV, let see what others think!
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, it’s a continuum. First, you have debt and 100% stocks, then deleverage  but still 100% stocks, finaly introduce short term bonds. YMMV, let see what others think!
@Le Barbu, funny, I said something very similar on another thread this week. Wish I'd worked that out in my head when I was much younger. I think I was unnecessarily conservative way back then because I failed to realize this. It simply wasn't taught that way then, which, once again, underscores the value of resources like this forum.

@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, it’s a continuum. First, you have debt and 100% stocks, then deleverage  but still 100% stocks, finaly introduce short term bonds. YMMV, let see what others think!
@Le Barbu, funny, I said something very similar on another thread this week. Wish I'd worked that out in my head when I was much younger. I think I was unnecessarily conservative way back then because I failed to realize this. It simply wasn't taught that way then, which, once again, underscores the value of resources like this forum.

@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, it’s a continuum. First, you have debt and 100% stocks, then deleverage  but still 100% stocks, finaly introduce short term bonds. YMMV, let see what others think!
@Le Barbu, funny, I said something very similar on another thread this week. Wish I'd worked that out in my head when I was much younger. I think I was unnecessarily conservative way back then because I failed to realize this. It simply wasn't taught that way then, which, once again, underscores the value of resources like this forum.

@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: Tyson 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: Tyson 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.?

It’s 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, you’ll 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? It’s 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.




Recap --
Have a large variable mortgage renews in 2019.  Currently at 2.85% now.  Has increased from 2.1% in the past 16 months and likely to go to at least 3% this year.

20 year amortization remaining.

5 year variable rates are 2.5% (today, likely to increase)
5 year fixed rates are 3.15% (today, likely to increase, especially if we can't shop it around)

I am currently cashflow negative (drawing from savings), and it will get to be moreso as my mortgage rate increase.

No tax benefits for holding a mortgage - both because of country differences, and also because my income is so low that the Marginal Tax Rate is also quite low.  So don't need to adjust for taxes in the calcs.



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

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: Tyson 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: Tyson 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: Tyson 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 she’s been on team “don’t pay off the mortgage” forever, we just hadn’t really discussed it in those terms. She’s skeptical of the author’s 7-8% returns but I think I can build on this.

Oh and all she required was foot rubs.
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 she’s been on team “don’t pay off the mortgage” forever, we just hadn’t really discussed it in those terms. She’s skeptical of the author’s 7-8% returns but I think I can build on this.

Oh and all she required was foot rubs.
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 she’s been on team “don’t pay off the mortgage” forever, we just hadn’t really discussed it in those terms. She’s skeptical of the author’s 7-8% returns but I think I can build on this.

Oh and all she required was foot rubs.

It would be a great value to start building a list of service providers who will accept foot rubs in place of $100. (It also wouldn't be on the topic of this discussion)
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson 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 she’s been on team “don’t pay off the mortgage” forever, we just hadn’t really discussed it in those terms. She’s skeptical of the author’s 7-8% returns but I think I can build on this.

Oh and all she required was foot rubs.

It would be a great value to start building a list of service providers who will accept foot rubs in place of $100. (It also wouldn't be on the topic of this discussion)

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 cons, I concluded there are almost no pros, and lots of cons.    I certainly understand the appeal of no mortgage, but the appeal is mostly an illusion.   

RE: The HELOC.  You talked about this in the other thread, and I believe you said part of reason for doing this was that you thought it would keep you more motivated.  If that's the case, then fair enough.     However, since it sounds like you are still thinking about, I'll chime in with my two cents. 

Using the HELOC to payoff the mortgage early is also an illusion, and the people who promote it almost always have something they are selling, even if it is only adviews on Youtube. There are two parts that trip people up (not saying this applies to you personally, but in general):  Many people think that mortgage interest is front loaded.   It is not.  You pay more interest in the beginning because you owe more money.   And the other part that trips people up up is that they think HELOC interest and mortgage interest are calculated differently.   They are calculated exactly the same way.  The only difference is how the payment is calculated. 

Bottom line is that you are just moving the interest from the mortgage to the HELOC, and the amount of interest you owe is calculated the same way.   The HELOC Gurus claim that you save money overall because interest on the mortgage is "front loaded."  But it isn't.  The lump sum payment from the HELOC on the mortage, and then paying the HELOC,  works out pretty close to, if not actually identical to simply paying extra on the mortgage.   

I believe you have lower HELOC interest for the first year, so you might actually get some savings there, but it is only for one year, and you also have fees you have to subtract too, so I suspect you aren't saving very much, if anything, when the smoke clears.  Also keep in mind that you are trading long term, low fixed interest debt for variable interest debt.   No one expects to get divorced, get sick, or lose their job, but what if that happens?  The your the interest on your HELOC very well could go up.   Is that safer than simply paying down the mortgage?

Quote
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.

Not quite correct.   Remember, the SWR is inflation adjusted (average inflation is 3.5% per year), but your mortgage is fixed.   I'm not sure how to easily do the SWR calculation properly for a fixed expense like a mortgage, but in 30 years inflation will cut that $12k a year payment to something more like $5K in today's dollars.   As RWD indicates,  even with very conservative rates of return you should easily be able to make your mortgage payment indefinitely just by setting aside the mortgage balance, and very likely wind up with a giant pile of money at the end.   

Which is another reason not to pay off your mortgage.  You are using fully valued dollars today to save puny, inflation ravaged dollars in the future. 

Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on July 18, 2018, 04:10:20 PM

I'm assuming that people on this thread are saving money in taxable accounts.  Wouldn't that $915/mo* also be subject to tax?  My thoughts were that if I can pay off the mortgage quickly and invest after it's paid off, I could stay under taxable thresholds for withdrawals in the future.  If I have to pull out $12k/year for the mortgage, it makes staying in the (current) 12% tax bracket much more difficult going forward.  Being single for tax purposes shifts this to the payoff mode for me.  MFJ provides way more space for long-term capital gains. 

*the mortgage payment is closer to $1k.  $915 could be withdrawn as the initial amount invested on the $183k.  I believe the other $85 would be subject to tax depending on LTCG v. STCG and tax bracket at the time.

This is correct.  But that means you only increased your taxable income by $1000/year.   So unless you are right on the cusp that shouldn't push you into a higher tax bracket.    And even if it does, only income about that amount is taxed at the higher rate.  So unnlikely to be much of a factor.   

The same issue could affect Obamacare subsidies.  Might might be worth looking into. 
Title: Re: DONT Payoff your Mortgage Club
Post by: redbirdfan on July 18, 2018, 06:18:43 PM
Ugh...I've flip flopped again.  I think the only path I can force myself to stay on is to split this 50/50.  I know mathematically speaking investing wins over the long run.  I also have an illogical desire to be debt-free because it feels like I will have more freedom/options.  If I go 100% in either direction I end up doing a complete 180.  A Vulcan I am not. 
Title: Re: DONT Payoff your Mortgage Club
Post by: protostache on July 18, 2018, 06:58:32 PM
Ugh...I've flip flopped again.  I think the only path I can force myself to stay on is to split this 50/50.  I know mathematically speaking investing wins over the long run.  I also have an illogical desire to be debt-free because it feels like I will have more freedom/options.  If I go 100% in either direction I end up doing a complete 180.  A Vulcan I am not.

I've flipped a few times myself but I think I've finally, permanently come around to the view that investing the cash instead of paying extra on the mortgage yields more flexibility, and ultimately a bigger return. Like, yes, debt free is for sure a great feeling (I was there before we bought this house) but if I have enough investments to pay off the debt and then some, that's also pretty great.
Title: Re: DONT Payoff your Mortgage Club
Post by: palerider1858 on July 18, 2018, 07:01:37 PM
Ugh...I've flip flopped again.  I think the only path I can force myself to stay on is to split this 50/50.  I know mathematically speaking investing wins over the long run.  I also have an illogical desire to be debt-free because it feels like I will have more freedom/options.  If I go 100% in either direction I end up doing a complete 180.  A Vulcan I am not.
This is where I am at. Max IRA & 401k accounts and then throw a large chunk at the mortgage. On track to have it paid off in 4 years, then I will buy another house.
Title: Re: DONT Payoff your Mortgage Club
Post by: mudstache on July 19, 2018, 10:38:08 AM
Ugh...I've flip flopped again.  I think the only path I can force myself to stay on is to split this 50/50.  I know mathematically speaking investing wins over the long run.  I also have an illogical desire to be debt-free because it feels like I will have more freedom/options.  If I go 100% in either direction I end up doing a complete 180.  A Vulcan I am not.

I've flipped a few times myself but I think I've finally, permanently come around to the view that investing the cash instead of paying extra on the mortgage yields more flexibility, and ultimately a bigger return. Like, yes, debt free is for sure a great feeling (I was there before we bought this house) but if I have enough investments to pay off the debt and then some, that's also pretty great.

I just keep coming back here to keep my emotions in check, and follow the math.  I hadn't really thought about how, if you're investing the extra cash, rather than paying down the mortgage, at FIRE, I'll have more than enough cash to pay off the mortgage at that point (if I stop following the math then), plus the extra earned in the market.  And in the meantime, if something takes a nasty turn, the money is available without selling/refinancing. 

There was a huge disconnect in my brain, where I could still have a paid off mortgage at FIRE, while not paying extra toward the principal now.  But I don't even have to decide that now, and may just choose to hold the mortgage for the distance.  I like that flexibility. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 19, 2018, 01:42:30 PM
Ugh...I've flip flopped again.  I think the only path I can force myself to stay on is to split this 50/50.  I know mathematically speaking investing wins over the long run.  I also have an illogical desire to be debt-free because it feels like I will have more freedom/options.  If I go 100% in either direction I end up doing a complete 180.  A Vulcan I am not.

more freedom and options when and at what cost - and as a sacrafice to freedom and options today.  Also saying you have a logical desire to be debt free because of a feeling is an oxymoron. Your freedom being debt free may by you while emotional will in all liklihood come faster if you hit the stocks 100% then made the choice to pay down at the end - the optimal way to get the most of the feeling you're looking for - more freedom and options on your path to debt paydown then the feeling of more cashflow if you choose to pay down in the end - the way i see it based on your feelings here you're attacking this incorrectly to maximize you freedom/options.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 19, 2018, 03:28:48 PM
Ugh...I've flip flopped again.  I think the only path I can force myself to stay on is to split this 50/50.  I know mathematically speaking investing wins over the long run.  I also have an illogical desire to be debt-free because it feels like I will have more freedom/options.  If I go 100% in either direction I end up doing a complete 180.  A Vulcan I am not.

50/50 is the worst of both choices, not the best of both choices.

Your living expenses are just as high because the mortgage payment is just as high even though the balance is lower.
So it gives you no cash flow advantage at all, nor does it help you keep your income lower for tax or subsidy purposes.

You have depleted your reserves, so if things go bad, you have less saved up to ride out the bad times.  Even worse, if things get really bad and the bank forecloses on your house, you just made it EASIER for them to do so!   How?  Because they only need to sell it for enough to cover what you owe them plus administrative/closing costs.   Since you cut the debt in half, they'll have a much easier time finding a buyer!

This situation, depending upon interest rates of course, is one of those times where compromise is a bad idea.

.

Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on July 19, 2018, 04:28:57 PM
Ugh...I've flip flopped again.  I think the only path I can force myself to stay on is to split this 50/50.  I know mathematically speaking investing wins over the long run.  I also have an illogical desire to be debt-free because it feels like I will have more freedom/options.  If I go 100% in either direction I end up doing a complete 180.  A Vulcan I am not.

50/50 is the worst of both choices, not the best of both choices.

Your living expenses are just as high because the mortgage payment is just as high even though the balance is lower.
So it gives you no cash flow advantage at all, nor does it help you keep your income lower for tax or subsidy purposes.

You have depleted your reserves, so if things go bad, you have less saved up to ride out the bad times.  Even worse, if things get really bad and the bank forecloses on your house, you just made it EASIER for them to do so!   How?  Because they only need to sell it for enough to cover what you owe them plus administrative/closing costs.   Since you cut the debt in half, they'll have a much easier time finding a buyer!

This situation, depending upon interest rates of course, is one of those times where compromise is a bad idea.

.


Listen to the man.

If the bank lender has two homes on his desk, both bought for 400k in the same month, both depreciated to 300k in estimated resale value, and both up for foreclosure....  but one is at 200k principal and one is at 365k principal, which one do you think he is going to foreclose on first?  How much rope will he give the underwater guy?....

That is a very legitimate risk.


Compare it to having 600k in the bank/assets with a 350k mortgage, I doubt you will ever be foreclosed on.  In reality, your "E-Fund" if you were to decide to tap into retirement could last for years, as opposed to the standard E-fund of six months or so.
Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on July 20, 2018, 11:09:08 AM
I will be in the vicinity of FIRE in or around 2023.  At that time I will have a mortgage balance of appx $69,000, with 5 years left to go on a 15-year fixed at 3 3/8 %.  My monthly payment is $1,800; which is approximately $500 escrow and $1,300 P&I.  So the magic question is, how much do I need above my FIRE number to retire with a mortgage payment?  Is it 60 months of payments, which would be $108k?  Is it 60 months of P&I, which would be $78k?  Or is it the remaining principal balance, which at that time would be about $69k?
Title: Re: DONT Payoff your Mortgage Club
Post by: protostache on July 20, 2018, 11:34:10 AM
I will be in the vicinity of FIRE in or around 2023.  At that time I will have a mortgage balance of appx $69,000, with 5 years left to go on a 15-year fixed at 3 3/8 %.  My monthly payment is $1,800; which is approximately $500 escrow and $1,300 P&I.  So the magic question is, how much do I need above my FIRE number to retire with a mortgage payment?  Is it 60 months of payments, which would be $108k?  Is it 60 months of P&I, which would be $78k?  Or is it the remaining principal balance, which at that time would be about $69k?

You can sim this out in cfiresim, but I think the prudent thing would be to count the $500 escrow as part of your basic FIRE expenses (because it covers taxes and insurance which don't go away) but not the P&I, and then an additional $78k to cover the rest of the P&I.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on July 20, 2018, 07:01:57 PM
I will be in the vicinity of FIRE in or around 2023.  At that time I will have a mortgage balance of appx $69,000, with 5 years left to go on a 15-year fixed at 3 3/8 %.  My monthly payment is $1,800; which is approximately $500 escrow and $1,300 P&I.  So the magic question is, how much do I need above my FIRE number to retire with a mortgage payment?  Is it 60 months of payments, which would be $108k?  Is it 60 months of P&I, which would be $78k?  Or is it the remaining principal balance, which at that time would be about $69k?

You can sim this out in cfiresim, but I think the prudent thing would be to count the $500 escrow as part of your basic FIRE expenses (because it covers taxes and insurance which don't go away) but not the P&I, and then an additional $78k to cover the rest of the P&I.

I agree that you need to plan to cover the escrow payment (taxes and insurance) for as long as you own the house.  And these will likely increase with inflation unlike your mortgage P&I.   So property taxes and insurance should be included in your estimated expenses which you use to calculate the stash you need to FIRE at 4% or whatever number works for you.

I don't know that you would need to save an additional $78k for the P&I payments though.  It doesn't make sense to save more than the mortgage if you could just pay it off instead.  Normally, I'd say you just need to save the amount of the mortgage.  I'm hoping to FIRE with around 20 years left of a 30 year mortgage at 3.5%.  When I simulate the amount remaining on my mortgage at that time and my yearly P&I payments (not adjusted for inflation) for 20 years in cFIREsim, it shows around 91% success rate.  When I do the same for OurTown's mortgage of $69k with yearly payments of $15,600 for 5 years, the success rate is 56%.  Not great.  In your case, I think it might make sense to just pay of the mortgage when you FIRE and be done with it.  Or, since this is the Don't Pay off your Mortgage Club, refinance at some point before you FIRE to a 30 year mortgage and then just have the amount of the mortgage saved when you FIRE in addition to your stash for your regular expenses.  This should work out to more like a 90+% success rate compared to 50%.  5 years is just too short of a time period so there's a lot more risk compared to 20-30 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 23, 2018, 07:58:07 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?

I enjoy the company of people who care about personal finance things, whether they are "all debt is bad" people or "use debt smartly as a tool" people. Our club here is the latter group.

When I'm with the former group--whom I do not actively try to educate about the value smart use of debt can have--I can at least say I don't use PMI on my primary residence as a way of fitting in.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on July 23, 2018, 10:28:50 AM
I enjoy the company of people who care about personal finance things, whether they are "all debt is bad" people or "use debt smartly as a tool" people. Our club here is the latter group.

When I'm with the former group--whom I do not actively try to educate about the value smart use of debt can have--I can at least say I don't use PMI on my primary residence as a way of fitting in.

And this also gives you bonus points among the "live and let live" crowd.  :D

Back to the topic at hand, I recently discovered that quite a few of the more prestigious colleges and universities in the US use the so-called "institutional methodology" in determining how much parents are expected to pay.  This considers home equity in the calculations.  I ran a couple simulations and discovered that our family's hypothetical expected family contribution (EFC) roughly doubles, from $9,xxx to $18,xxx per year, when our home equity is included.  I could imagine in HCOL areas with much higher real estate prices, a large amount of home equity could all but eliminate need-based institutional grants, even for a mustachian couple drawing ~$60k from retirement accounts.

I'm not sure it would make sense to take out a new mortgage on a paid-off house just to bring the EFC down, but a fresh 30 year low-rate mortgage and marginal home equity when your kids are starting college could be highly advantageous in some situations.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 23, 2018, 11:43:42 AM
I enjoy the company of people who care about personal finance things, whether they are "all debt is bad" people or "use debt smartly as a tool" people. Our club here is the latter group.

When I'm with the former group--whom I do not actively try to educate about the value smart use of debt can have--I can at least say I don't use PMI on my primary residence as a way of fitting in.

And this also gives you bonus points among the "live and let live" crowd.  :D

Back to the topic at hand, I recently discovered that quite a few of the more prestigious colleges and universities in the US use the so-called "institutional methodology" in determining how much parents are expected to pay.  This considers home equity in the calculations.  I ran a couple simulations and discovered that our family's hypothetical expected family contribution (EFC) roughly doubles, from $9,xxx to $18,xxx per year, when our home equity is included.  I could imagine in HCOL areas with much higher real estate prices, a large amount of home equity could all but eliminate need-based institutional grants, even for a mustachian couple drawing ~$60k from retirement accounts.

I'm not sure it would make sense to take out a new mortgage on a paid-off house just to bring the EFC down, but a fresh 30 year low-rate mortgage and marginal home equity when your kids are starting college could be highly advantageous in some situations.
Now that is some fine mustachian thinking! Where do you put the funds received so that they don't count against you? Seems like you could funnel it into retirement funds over a few years time. This requires some advanced planning, but that's another fine mustachian trait. Hmmm, more discussion please.
Title: Re: DONT Payoff your Mortgage Club
Post by: ditkanate on July 23, 2018, 11:58:50 AM
Finally knocked out my last piece of debt other than the house.  So, now that I have cash flow that can go towards actual savings / investing / future planning, I'm curious what the crowd in this thread would say about my home loans.  Here are the details:

Purchase price: $183,000 (appraised at $190,000)

1st Mortgage:
$145,900 current balance
3.125% until May 2023 (5 year ARM)

2nd Mortgage:
$34,400 current balance
4.5% until May 2025 (7 year ARM)

Scenario 1: Pay the minimums and if my rates go up down the road, deal with it then.  For now just invest. 

Scenario 2: Pay enough extra between now and May 2025 (or sooner if possible?) to get the LTV at 80% so I can refinance into a 30 year fixed rate. 

Or perhaps there's another path I'm not seeing. 

Other details.  Currently 47 years old.  Funding 401k up to employer match.  I'm not paying any PMI, the 2nd mortgage is basically set up as a home equity loan amortized over 30 years. 

If I've left something out that would prove helpful, let me know.  Maybe there is no great answer because it really depends on what interest rates do in the next 5-7 years. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on July 23, 2018, 12:40:06 PM
I'm not sure it would make sense to take out a new mortgage on a paid-off house just to bring the EFC down, but a fresh 30 year low-rate mortgage and marginal home equity when your kids are starting college could be highly advantageous in some situations.

Now that is some fine mustachian thinking! Where do you put the funds received so that they don't count against you? Seems like you could funnel it into retirement funds over a few years time. This requires some advanced planning, but that's another fine mustachian trait. Hmmm, more discussion please.

Yeah, this would be tricky.  You could spend down a fair bit of cash on Roth IRA conversions, but the tax implications make this less compelling as income goes up.  You'd probably have to spread it out over a bunch of years, far enough ahead of college that you wouldn't even know whether your kid would eventually be attending an institution that considered home equity.  :o

I suppose you could successfully hide the assets by buying a fleet of expensive cars, or a bunch of diamonds, or rare rock & roll memorabilia.  But these obviously come with a lot of risk, not to mention you might need to eventually repair your broken moral compass.  :D

If you had any large expenses you planned on incurring anyway (home renovation, new cars, etc.), it would probably make sense to spend on those right before filling out the financial aid applications.

But probably the most mustachian approach would be to help your kid choose a solid school that doesn't put an oversized financial burden on the family, regardless of home equity.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 23, 2018, 03:22:18 PM
I was idly thinking that if you weren't investing up the annual limits in your 401k because it simply wasn't possible*, you could ratchet them up to the max and use the proceeds from the re-fi to fill the gap. Do this for you and your spouse. I'd think by the time your offspring was about 12, you'd have a pretty good idea if they were college bound. That would give you a good chunk of years to make your position as optimal as possible before the reams of paperwork started.

As to the moral compass, I quite agree. However, I have no problem with massaging assets in any way that is legal and legitimate. I equate it to paying income taxes. I'll happily pay what I owe, but one penny more. Of course, the caveat is "within reason". Unlike another spicy blogger. I'm not willing to do backflips to get my tax liability down to zero.

*Flash: I never once managed to max out my 401k in my entire career. Funny, I got to FIRE anyway.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on July 23, 2018, 03:43:02 PM
Yep earlier Roth conversions to eat some tax now to get savings later. Would be quite the math equation. I'm fully aware my idea behind keeping the mortgage may change as life situations change the math with healthcare or college assistance driving the needle the other way. It's just extremely difficult to do. Esp when my rate is at inflation for 30 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on July 23, 2018, 04:05:36 PM
I was idly thinking that if you weren't investing up the annual limits in your 401k because it simply wasn't possible*, you could ratchet them up to the max and use the proceeds from the re-fi to fill the gap. Do this for you and your spouse.

Actually this is could be an awesome idea for some folks who otherwise would balk at cashing out a mortgage to invest, yet who don't have enough income to max out retirement accounts.  In our case we have three $18.5k pretax buckets, plus two 5.5k Roth IRA buckets.  We don't earn enough and/or expenses are too high to fill all of that ($55.5k pre-tax and $11k Roth).  But if mortgage rates dipped a bit and we knew for a fact our kid would be attending a school that considers home equity, it sure would be tempting!

Quote
I'd think by the time your offspring was about 12, you'd have a pretty good idea if they were college bound. That would give you a good chunk of years to make your position as optimal as possible before the reams of paperwork started.

The problem is you don't know which problem to optimize ahead of time.  You could optimize for low assets (including home equity) and higher income, and this would work great for schools that looked at these assets.  Or you could optimize for low income and that would help for schools that don't care about home equity.  But until your kid starts looking at colleges, you won't have a good idea which to optimize for, and by then (junior or senior year of HS) it's basically too late because the FAFSA and other forms look at the previous year's financial info.[/quote]
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 24, 2018, 08:14:27 AM
Yep earlier Roth conversions to eat some tax now to get savings later. Would be quite the math equation. I'm fully aware my idea behind keeping the mortgage may change as life situations change the math with healthcare or college assistance driving the needle the other way. It's just extremely difficult to do. Esp when my rate is at inflation for 30 years.

Your admittedly desirable rate could still be above inflation for those 30 years if things break badly and we have a substantially deflationary period a la Japan in the 1990's.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 24, 2018, 10:13:39 AM
Yep earlier Roth conversions to eat some tax now to get savings later. Would be quite the math equation. I'm fully aware my idea behind keeping the mortgage may change as life situations change the math with healthcare or college assistance driving the needle the other way. It's just extremely difficult to do. Esp when my rate is at inflation for 30 years.

Your admittedly desirable rate could still be above inflation for those 30 years if things break badly and we have a substantially deflationary period a la Japan in the 1990's.
But it wouldn't be much higher. Seriously, what are the odds that this will happen?
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on July 24, 2018, 11:28:38 AM
Yep earlier Roth conversions to eat some tax now to get savings later. Would be quite the math equation. I'm fully aware my idea behind keeping the mortgage may change as life situations change the math with healthcare or college assistance driving the needle the other way. It's just extremely difficult to do. Esp when my rate is at inflation for 30 years.

Your admittedly desirable rate could still be above inflation for those 30 years if things break badly and we have a substantially deflationary period a la Japan in the 1990's.

But it wouldn't be much higher. Seriously, what are the odds that this will happen?

If the US had deflation in the same (or similar) vein as the Japan Deflationary Spiral, we would have much bigger problems to worry about....

I highly doubt the treasury would ever allow that to happen anyways.  If it ever were to get to that point, it is going to be a major crash anyway because the deflationary action would have to be sudden (1929's major...).  In that sort of instance, pretty much all bets are off and even traditional hedge against deflation could be at risk.

Either way, I'm not nearly as much of a fan of taking out another mortgage or refinancing at 5% or 6% as opposed to riding out the beautiful 30-Year mortgage at 3%. One of these is meh, the other nets millions of dollars in (essentially free) gains with lower risk. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 25, 2018, 08:11:39 AM
I agree that the 3% mortgage is better.

But I don't want to be locked into a less-optimal living situation because I don't want to change my mortgage, either.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 01, 2018, 08:04:16 AM
I agree that the 3% mortgage is better.

But I don't want to be locked into a less-optimal living situation because I don't want to change my mortgage, either.
Don't know the specifics of what you're referring to, but one way to hang on to that mortgage whilst optimizing your living situation might be to keep it as a rental.
Title: Re: DONT Payoff your Mortgage Club
Post by: DavidN on August 01, 2018, 05:07:11 PM
Hi, all,

First post here! I've been binge-reading the blog and really researching investing and saving after having ignored it for the first 9 or so years of my professional career. Luckily, I have very good income now and will just work extra hard to getting to that sweet spot of financial freedom over the next 15 years or so.

Anyway, in regards to mortgage, I see a lot of folks just using the interest rate of the loan rather than APR when calculating how much their income would be worth once they are mortgage free. Which should we be using?

I ask, because in late 2016, I took a 30-year fixed rate mortgage in the US with only 3.5% down. My interest rate is 3.625%, but once you add in the costs and my MIP, which will always be a part of the loan since I was under 90% LTV when I took the loan, my APR comes out to 4.716%.

I could refinance to a conventional loan now to get rid of the MIP (around 0.85%), but interest rates have risen to the point that it probably doesn't make sense.

So, should I look at my potential mortgage-free income (assuming I prioritize paying it down) at having an effective interest rate of 3.625% or 4.716%?

Sorry if this is a dumb question, but all of this is still rather new to me.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 01, 2018, 05:52:27 PM
Hi, all,

First post here! I've been binge-reading the blog and really researching investing and saving after having ignored it for the first 9 or so years of my professional career. Luckily, I have very good income now and will just work extra hard to getting to that sweet spot of financial freedom over the next 15 years or so.

Anyway, in regards to mortgage, I see a lot of folks just using the interest rate of the loan rather than APR when calculating how much their income would be worth once they are mortgage free. Which should we be using?

I ask, because in late 2016, I took a 30-year fixed rate mortgage in the US with only 3.5% down. My interest rate is 3.625%, but once you add in the costs and my MIP, which will always be a part of the loan since I was under 90% LTV when I took the loan, my APR comes out to 4.716%.

I could refinance to a conventional loan now to get rid of the MIP (around 0.85%), but interest rates have risen to the point that it probably doesn't make sense.

So, should I look at my potential mortgage-free income (assuming I prioritize paying it down) at having an effective interest rate of 3.625% or 4.716%?

Sorry if this is a dumb question, but all of this is still rather new to me.

Hi and welcome! I'm not sure APR is the right term for interest rate + MIP, but I understand what you're asking. You should definitely be including MIP in your calculations and comparisons. There are several other people with similar questions earlier in this thread (if you dare dig through 15 pages to find them).

The way to do this calculation is to look at how much you save by getting rid of MIP and divide it by how much it takes to get rid of MIP to calculate the return on investment of just this partial mortgage paydown. You also need to be sure that the terms of your MIP allow it to go away just by getting your LTV low enough. Some mortgages, like relatively recent FHA loans, require refinancing to get rid of PMI. This calculation may also change as you get closer to the drop point, so you may want to rerun it periodically to see if it makes sense to make a single principal payment to knock it out.

Here's an example of the calculation, since you didn't provide your specific numbers:
$100k value
$90k mortgage
$81.83/month MIP removed automatically at $78k
$12k required to remove MIP which will save $981.96/year = 8.18% return on investment

edit: you could also add your mortgage interest rate to that return on investment, depending on what you're trying to calculate
Title: Re: DONT Payoff your Mortgage Club
Post by: DavidN on August 01, 2018, 06:25:32 PM
Hi, all,

First post here! I've been binge-reading the blog and really researching investing and saving after having ignored it for the first 9 or so years of my professional career. Luckily, I have very good income now and will just work extra hard to getting to that sweet spot of financial freedom over the next 15 years or so.

Anyway, in regards to mortgage, I see a lot of folks just using the interest rate of the loan rather than APR when calculating how much their income would be worth once they are mortgage free. Which should we be using?

I ask, because in late 2016, I took a 30-year fixed rate mortgage in the US with only 3.5% down. My interest rate is 3.625%, but once you add in the costs and my MIP, which will always be a part of the loan since I was under 90% LTV when I took the loan, my APR comes out to 4.716%.

I could refinance to a conventional loan now to get rid of the MIP (around 0.85%), but interest rates have risen to the point that it probably doesn't make sense.

So, should I look at my potential mortgage-free income (assuming I prioritize paying it down) at having an effective interest rate of 3.625% or 4.716%?

Sorry if this is a dumb question, but all of this is still rather new to me.

Hi and welcome! I'm not sure APR is the right term for interest rate + MIP, but I understand what you're asking. You should definitely be including MIP in your calculations and comparisons. There are several other people with similar questions earlier in this thread (if you dare dig through 15 pages to find them).

The way to do this calculation is to look at how much you save by getting rid of MIP and divide it by how much it takes to get rid of MIP to calculate the return on investment of just this partial mortgage paydown. You also need to be sure that the terms of your MIP allow it to go away just by getting your LTV low enough. Some mortgages, like relatively recent FHA loans, require refinancing to get rid of PMI. This calculation may also change as you get closer to the drop point, so you may want to rerun it periodically to see if it makes sense to make a single principal payment to knock it out.

Here's an example of the calculation, since you didn't provide your specific numbers:
$100k value
$90k mortgage
$81.83/month MIP removed automatically at $78k
$12k required to remove MIP which will save $981.96/year = 8.18% return on investment

edit: you could also add your mortgage interest rate to that return on investment, depending on what you're trying to calculate

Thanks for the quick reply!

With my current terms, being an FHA mortgage from 2016 with less than 90% LTV, the mortgage insurance premiums are a fixed ~0.85% for the life the loan, but it is only re-calculated once per year based on the remaining loan amount at that time. I don't have the math skills to quickly figure out how that would work, but if I combine the 0.85% with the 3.625% interest, I get 4.475%.

I have around $470,000 remaining on the loan, but I am in a position to go full bore and put in an extra $50,000 per year (or around $4166 per month) towards the principal. According to a calculator on my loan handlers site, if I started doing that next month and continued it each month, I would be paid off by August 2025 (7 years) for a total of $470,446 principal and $62,281 interest for $532,727 total. At 4.475%, that would be $556,566, whereas if I invested it assuming a 7% return, I would be at $570,017 or a difference of $13,451. This is all assuming that I would continue to put in 10% or more in my pre-tax 401k and max out my Roth IRA every year.

Assuming my calculations are correct, that's a pretty tough choice. I would be effectively paying $13,451 for peace of mind and a good chunk of equity in rapidly appreciating Seattle-area real estate (who knows how long that will continue, though). On the other hand, I wouldn't have nearly $600k in investments that could easily pay for a lifestyle should I decide to sell the property at that point and downsize to something less expensive (although there's no telling where the Seattle real estate market will be then).

Got some thinking to do for sure.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 01, 2018, 06:26:28 PM
The above math to calculate your interest rate with pmi is incorrect I'll post some correct math later or you could provide your numbers and I can get real specific.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 01, 2018, 07:15:53 PM
The above math to calculate your interest rate with pmi is incorrect I'll post some correct math later or you could provide your numbers and I can get real specific.

Are you referring to my math? You agreed with it last year (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1494185/#msg1494185).

I should reiterate that it is calculating the ROI on getting rid of MIP and not the effective rate of the whole mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 01, 2018, 07:22:31 PM
If you can't make a single lump sum payment to get rid of of MIP you should invest instead. You only get the benefit of paying extra on the loan at the exact moment MIP goes away. Any partial amounts will only help the effective rate of 4.475%. Better to invest at that rate. Eventually when you have enough to get rid of it in one single payment you should reevaluate if it's worth it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on August 01, 2018, 07:24:39 PM
Assuming my calculations are correct, that's a pretty tough choice. I would be effectively paying $13,451 for peace of mind and a good chunk of equity in rapidly appreciating Seattle-area real estate (who knows how long that will continue, though). On the other hand, I wouldn't have nearly $600k in investments that could easily pay for a lifestyle should I decide to sell the property at that point and downsize to something less expensive (although there's no telling where the Seattle real estate market will be then).


Minor point of clarification.  Equity does not grow faster by paying down the mortgage.  For example, let's you put  $0 down on a property that appreciates from $400K to $600K.  You now have $200K in equity.  Now let's say you put $400K down on a property that appreciates from $400K to $600K.  You now have $200K in equity.  Same thing.  It doesn't matter if you put it down all at once or over time, equity does not grow faster. 

Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 01, 2018, 07:28:11 PM
Assuming my calculations are correct, that's a pretty tough choice. I would be effectively paying $13,451 for peace of mind and a good chunk of equity in rapidly appreciating Seattle-area real estate (who knows how long that will continue, though). On the other hand, I wouldn't have nearly $600k in investments that could easily pay for a lifestyle should I decide to sell the property at that point and downsize to something less expensive (although there's no telling where the Seattle real estate market will be then).


Minor point of clarification.  Equity does not grow faster by paying down the mortgage.  For example, let's you put  $0 down on a property that appreciates from $400K to $600K.  You now have $200K in equity.  Now let's say you put $400K down on a property that appreciates from $400K to $600K.  You now have $200K in equity.  Same thing.  It doesn't matter if you put it down all at once or over time, equity does not grow faster.

Profit doesn't grow faster equity does. In the second case you have 600k in equity. But that's also 600 little green soldiers tied up saving you less than 5%
Title: Re: DONT Payoff your Mortgage Club
Post by: DavidN on August 01, 2018, 07:55:17 PM
Good point on the equity. I feel a bit more enlightened with each of these facts as they get pointed out.

One more thing that this came to mind (and again, sorry if this is a stupid question) but how do you factor capital gains tax into all of this? My understanding is that you can make up to a $250,000 profit by selling your primary residence after having lived in it for at least two years without any of that being subject to capital gains. Obviously that wouldn't apply to any profits you made from investing in index funds at an assumed 7% growth rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 01, 2018, 09:30:10 PM
If you invest inside a tax sheltered account (401k, Roth IRA, etc.) you won't have any capital gains tax. If you've used up all your tax advantaged space then you would be slightly more conservative to account for taxes. The Investment Order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) recommends setting the debt payments vs invest threshold 2% lower (currently 8% for tax advantaged and 6% for taxable).

Depending on your tax situation you may owe very little in capital gains taxes (https://www.gocurrycracker.com/never-pay-taxes-again/).
Title: Re: DONT Payoff your Mortgage Club
Post by: DavidN on August 01, 2018, 10:59:53 PM
If you invest inside a tax sheltered account (401k, Roth IRA, etc.) you won't have any capital gains tax. If you've used up all your tax advantaged space then you would be slightly more conservative to account for taxes. The Investment Order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) recommends setting the debt payments vs invest threshold 2% lower (currently 8% for tax advantaged and 6% for taxable).

Depending on your tax situation you may owe very little in capital gains taxes (https://www.gocurrycracker.com/never-pay-taxes-again/).

Wow, thanks a lot for this. Great information. Looks like I've got some more studying this stuff to do, but perhaps paying towards the mortgage after maxing out 401k and Roth IRA each year is not a bad idea.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 02, 2018, 04:25:59 AM
If you invest inside a tax sheltered account (401k, Roth IRA, etc.) you won't have any capital gains tax. If you've used up all your tax advantaged space then you would be slightly more conservative to account for taxes. The Investment Order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) recommends setting the debt payments vs invest threshold 2% lower (currently 8% for tax advantaged and 6% for taxable).

Depending on your tax situation you may owe very little in capital gains taxes (https://www.gocurrycracker.com/never-pay-taxes-again/).

Wow, thanks a lot for this. Great information. Looks like I've got some more studying this stuff to do, but perhaps paying towards the mortgage after maxing out 401k and Roth IRA each year is not a bad idea.

In general at your rate its a terrible idea. It's the entire reason I created this thread. You increase your risk of financial failure during Paydown. Which causes many to hold large efs. Then you increase your chances of your money dieing before you after you FIRE. You also are all but guaranteed to work longer.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 02, 2018, 04:35:10 AM
Also if you're using a 7% growth rate for equities you've deducted inflation. Which means you should pull 3% off your mortgage interest too. So you're comparing apples to apples
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 02, 2018, 07:47:10 AM
Assuming that your income is high and robust (such that it's a reasonable house for you), I favor not over-paying on the mortgage, and instead investing the difference.

If you own many bonds in your investment account, that might be a sign that your risk tolerance is not sufficient that this will make sense for you.

I appreciate you coming her to let the DNPYM Club make their case.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 02, 2018, 05:30:56 PM
YouTube recommended this video to me about why it's a bad idea to pay down your mortgage early:
https://www.youtube.com/watch?v=AJSCT51Rfws
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on August 02, 2018, 07:55:27 PM
YouTube recommended this video to me about why it's a bad idea to pay down your mortgage early:
https://www.youtube.com/watch?v=AJSCT51Rfws

It's unfortunate that he started off his 3-part argument with the oft-repeated, usually specious claim that you can write off your entire mortgage interest as a tax deduction.  It's 2018, man.  The standard deduction was a thing before, but now it's a kind of huge thing for most people, and basically everyone outside of HCOL areas.  He lost a lot of credibility right off the bat, given that the video was posted in May 2018.

Also, from the comment section, I'm pretty dang sure that Golumn (sic) McSmeagolHomie is boarder42.  Or his long lost brother.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 02, 2018, 08:16:11 PM
YouTube recommended this video to me about why it's a bad idea to pay down your mortgage early:
https://www.youtube.com/watch?v=AJSCT51Rfws

It's unfortunate that he started off his 3-part argument with the oft-repeated, usually specious claim that you can write off your entire mortgage interest as a tax deduction.  It's 2018, man.  The standard deduction was a thing before, but now it's a kind of huge thing for most people, and basically everyone outside of HCOL areas.  He lost a lot of credibility right off the bat, given that the video was posted in May 2018.

Also, from the comment section, I'm pretty dang sure that Golumn (sic) McSmeagolHomie is boarder42.  Or his long lost brother.

No it's not me.  But that is a horrible way to start a video in 2018 with the new tax law. But it's still crazy advantageous
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 02, 2018, 08:22:35 PM
YouTube recommended this video to me about why it's a bad idea to pay down your mortgage early:
https://www.youtube.com/watch?v=AJSCT51Rfws

It's unfortunate that he started off his 3-part argument with the oft-repeated, usually specious claim that you can write off your entire mortgage interest as a tax deduction.  It's 2018, man.  The standard deduction was a thing before, but now it's a kind of huge thing for most people, and basically everyone outside of HCOL areas.  He lost a lot of credibility right off the bat, given that the video was posted in May 2018.

Also, from the comment section, I'm pretty dang sure that Golumn (sic) McSmeagolHomie is boarder42.  Or his long lost brother.

I was also disappointed he didn't clarify that you only can deduct as much interest as goes over the standard deduction. Also, it wasn't even necessary to the argument as with his 4.2% example it is still very clear you should be investing. I do like that he mentioned using an S&P 500 index fund. I'm just happy there are people out there (besides just on specialized forums like this one) that will challenge the Dave Ramsey mantra.

Haha, yeah, I'm going with long lost brother.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 02, 2018, 08:35:26 PM
Seriously. How the hell could you think that was s me lol I don't ever fucking lol this isn't a laughing matter lol this is people wasting money.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 02, 2018, 08:36:40 PM
Lol
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on August 02, 2018, 08:42:26 PM
Seriously. How the hell could you think that was s me lol I don't ever fucking lol this isn't a laughing matter lol this is people wasting money.

Same difficulty with caps and run-on sentences, though.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 02, 2018, 10:59:27 PM
Seriously. How the hell could you think that was s me lol I don't ever fucking lol this isn't a laughing matter lol this is people wasting money.

Same difficulty with caps and run-on sentences, though.
yup he's never gonna change we've got to love him the way he is ♡♡♡♡♡
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on August 03, 2018, 07:21:10 AM
does anyone have any wisdom nuggets for how much house they can afford.?
the rubrics that exist are slanted in favor of buying too much house.

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

 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 03, 2018, 08:37:13 AM
does anyone have any wisdom nuggets for how much house they can afford.?
the rubrics that exist are slanted in favor of buying too much house.

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

Whatever allows you to still hit your savings goals. I like to prioritize the longest time frame goals first. For example:
1. Saving enough for FIRE in 10 years
2. Saving enough for house down payment in 3 years
3. Saving enough for car replacement in 1 year
etc.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 03, 2018, 08:38:20 AM
Since this is the DNPYM Club, the most important variable in whether you can afford a property is cash-flow.

Some of it depends on your stage in life. My wife and I bought our current house at the start of a five-year period in which we've exceeded $20,000 annually in childcare expenses. Having three digit mortgage payments has been quite the relief, but we could have afforded much more. Our mortgage payment represents about 10% of our monthly take-home. About 1/2 of that mortgage payment is principal decrease. These numbers sound very low compared to what a bank will approve for a mortgage, but there was a discussion thread on this forum a while ago in which many mustachians reported figures in line with that.

Some of it depends on how well you think you can make the house perform as an investment. If you're a serious Mustachian (saving rate at least 40%), you can bear more risk to buy into a neighborhood in which you think you'll get capital appreciation, even if that won't appear in your checking account right away.

Some of it depends on how robust your income is: if you are in a two-income household, are you and your partner in the same industry? Could a single employer hitting bad times result in both of your incomes evaporating at the same time?


Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on August 03, 2018, 08:43:03 AM
does anyone have any wisdom nuggets for how much house they can afford.?
the rubrics that exist are slanted in favor of buying too much house.

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

There is really no one-size-fits-all answer here IMO.  It will depend on your financial goals, income, probably the size of your investment accounts, the cost of homes vs income in your area, desired/required size of house, etc.

My personal philosophy on housing is about the same as it is for any purchase: try to minimize the price given all the other constraints/requirements imposed by my personal preferences and financial situation.  I try to consider factors that may affect future resale value, but this can be hard to predict and many external factors could come into play that you have no control over.

FWIW my house value is approximately 22% of TNW and likely to get significantly smaller as pre-tax accounts continue to grow.  We've lived here for 10+ years and expect to stay here another 10+ years.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 03, 2018, 08:45:43 AM
People here hate on Dave Ramsey, but I've noticed on his millionaire call-in hours that very few of the millionaires make their money from primary house appreciation. It's usually 401k or investment properties.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 03, 2018, 08:46:25 AM
which is another way of saying: don't pick a house to live thinking of it as an investment. Think of it as a lifestyle choice, which implies trying to minimize what you spend.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 03, 2018, 09:24:20 AM
which is another way of saying: don't pick a house to live thinking of it as an investment. Think of it as a lifestyle choice, which implies trying to minimize what you spend.
I don't think that necessarily implies minimizing your spend.  Housing is one area where we recently "splurged".  We spent a lot of money on a modest house in a great location which also cut our commute time by about 70%.  The goal was to buy a house that we would be happy with for a long time and I honestly don't see us ever moving unless we decided to move out of state. Upgrading homes is a killer and real estate fees can really make an impact on your net worth if you "upgrade" 2 or 3 times in 30 years.

I guess it really just depends on how you envision your FIRE life.  Then make the home purchase based off of that as long as it's within reason from a cash flow standpoint.

For the longest time I couldn't understand how some people could spend so much on a house.  Then I moved to the hottest real estate market in America.....  That sure did teach me a lesson..

Anyways, all this to say that in my mind there is not a really clear answer here.  We may have general guidelines but in the end it just depends on what your FIRE lifestyle goals are and the value you get from house x vs house y after considering the financial costs.



Sent from my SM-G935F using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: DavidN on August 03, 2018, 12:08:32 PM
Also if you're using a 7% growth rate for equities you've deducted inflation. Which means you should pull 3% off your mortgage interest too. So you're comparing apples to apples

Jesus, I didn't even think about that. 2 ~ 3% off of my interest (3.625%) would mean it's 0.625% ~ 1.625% and even if I look at my APR (4.716%), it's still just 1.716% ~ 2.716%. Hard to justify paying that down rather than investing it just for peace of mind.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 03, 2018, 12:10:28 PM
Also if you're using a 7% growth rate for equities you've deducted inflation. Which means you should pull 3% off your mortgage interest too. So you're comparing apples to apples

Jesus, I didn't even think about that. 2 ~ 3% off of my interest (3.625%) would mean it's 0.625% ~ 1.625% and even if I look at my APR (4.716%), it's still just 1.716% ~ 2.716%. Hard to justify paying that down rather than investing it just for peace of mind.

Great conclusion. That's why this thread was started it's counterintuitive bit will make you much wealthier faster which decreases your FIRE timeline
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 03, 2018, 12:55:11 PM
I'm already about $10k ahead by investing (https://dqydj.com/sp-500-dividend-reinvestment-and-periodic-investment-calculator/) instead of paying down the mortgage we got two years ago.

Based on some quick calculations a recent graduate of the opposite thread missed out on ~$40k because they paid off their mortgage in five years. They're on an accelerated path to FI (2 years to go), but that decision will still likely cost them at least 4 months of working.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on August 03, 2018, 01:17:20 PM

Jesus, I didn't even think about that. 2 ~ 3% off of my interest (3.625%) would mean it's 0.625% ~ 1.625% and even if I look at my APR (4.716%), it's still just 1.716% ~ 2.716%. Hard to justify paying that down rather than investing it just for peace of mind.

Indeed.   

And it is even worse (better?) than that, because not only is the cost of borrowing close to zero, you are using full value dollars today to save inflation ravaged dollars in the future.   The other thing is that the peace of mind issue is also an illusion.  I just made a post about it in another thread: 

https://forum.mrmoneymustache.com/welcome-to-the-forum/equity-shaming/msg2093302/#msg2093302

You're taking on more risk, not less, by paying down the mortgage even though most people don't think about it that way.     An analogy is learning to ski.   Beginners instinctively want to lean back because you essentially falling forward down the hill.  But you really need to learn forward to get control of your skis.   Leaning back is instinctive, but wrong.  Same with paying off the mortgage. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 04, 2018, 07:00:04 AM

Jesus, I didn't even think about that. 2 ~ 3% off of my interest (3.625%) would mean it's 0.625% ~ 1.625% and even if I look at my APR (4.716%), it's still just 1.716% ~ 2.716%. Hard to justify paying that down rather than investing it just for peace of mind.

Indeed.   

And it is even worse (better?) than that, because not only is the cost of borrowing close to zero, you are using full value dollars today to save inflation ravaged dollars in the future. The other thing is that the peace of mind issue is also an illusion. I just made a post about it in another thread: 

https://forum.mrmoneymustache.com/welcome-to-the-forum/equity-shaming/msg2093302/#msg2093302

You're taking on more risk, not less, by paying down the mortgage even though most people don't think about it that way. An analogy is learning to ski. Beginners instinctively want to lean back because you essentially falling forward down the hill. But you really need to learn forward to get control of your skis. Leaning back is instinctive, but wrong.  Same with paying off the mortgage.
Great analogy!

When I first learned of this don't-pay-off-the-mortgage concept, I had a very hard time believing it could possibly be true. I am so glad that threads like these exist so that others can explore, learn, and make optimal decisions, not emotional ones.
Title: Re: DONT Payoff your Mortgage Club
Post by: cartman1973 on August 13, 2018, 08:42:19 AM
Really interesting thread that has got me thinking about my own situation...looking for some advice.

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

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

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

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

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

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

Any and all advice gratefully received.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 13, 2018, 09:49:23 AM
Cartman-
I do not know what mortgage risk you're bearing with that rate. Will it reset again in five or more years? The extent to which you can guarantee the time during which you'll have the low rate is the most important variable in the DNPYM club. Otherwise, having a lower mortgage balance can significantly reduce the risk you bear from an increase in your mortgage rate.

Title: Re: DONT Payoff your Mortgage Club
Post by: cartman1973 on August 13, 2018, 10:58:11 AM
Cartman-
I do not know what mortgage risk you're bearing with that rate. Will it reset again in five or more years? The extent to which you can guarantee the time during which you'll have the low rate is the most important variable in the DNPYM club. Otherwise, having a lower mortgage balance can significantly reduce the risk you bear from an increase in your mortgage rate.
Yes, in the UK we have variable, tracker and fixed rate mortgages, and you might typically fix for 2, 5 or increasingly 10 years, but not really any longer than that, and then they revert to the lender's normal variable rate (currently 4.35% on the one I looked at) - but then, providing rates haven't gone up massively in the meantime you normally take out another fixed rate mortgage... and of course for the last 10 years or so we've had really low rates here in the UK... these 30 year mortgages you guys have in the US sound wonderful in comparison.
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on August 14, 2018, 08:52:52 AM
i wonder if this thread also applies to 'dont buy a different abode  and , by doing so, saddle yourself with a higher interest rate'
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 14, 2018, 09:38:54 AM
Really interesting thread that has got me thinking about my own situation...looking for some advice.

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

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

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

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

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

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

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

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

If I lived in your country and had enough money invested to kill the mortgage in case interest rates made a huge jump, I'd harness and ride that low rate mortgage as long as possible. This includes a re-fi to invest scenario.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 14, 2018, 09:47:10 AM
If you're saving into a 401(k)--in keeping with the "investment order''--the money is tax-deductible anyway.
Title: Re: DONT Payoff your Mortgage Club
Post by: cartman1973 on August 14, 2018, 10:44:00 AM

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

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

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

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

Now debts are cleared I should be able to invest about £1350 per month plus the £200 AVCs contributions per month - which the FIRE calcs reckon will see me FI in middle 50s, which is my target. I only need about £250k to be fully FIRE with 25x (LCOL area, small bungalow, modest living), I just don't want to work until I'm 60 - like my job, just plenty of other things I could be doing. So given my pensions I don't really need to reach 25 x living expenses, I could just get to an amount sufficient to clear the mortgage plus enough years living expenses to carry me over until my pension kicks in, but the idea is appealing...
Title: Re: DONT Payoff your Mortgage Club
Post by: cartman1973 on August 14, 2018, 10:47:21 AM
If you're saving into a 401(k)--in keeping with the "investment order''--the money is tax-deductible anyway.
No 401ks in the UK unfortunately, but yes, the AVCs (no tax payable until withdrawal at pension age) and investments via my ISA (a tax advantaged account where you pay no tax and can access it at anytime) are the first target for my savings, and the ISA would be the target for investing any equity from the mortgage (we have a £20k per annum allowance).
Title: Re: DONT Payoff your Mortgage Club
Post by: never give up on August 14, 2018, 11:01:26 AM
Hi cartman1973. Fellow UKer here. This is a very interesting thread with lots of great advice and information, but please be aware it is heavily orientated to the US mortgage, tax, & financial system. Completely understandable as this is primarily a US site after all. You may find some useful threads on the UK tax board. We use this to talk about all things UK based not just tax. If there isn’t anything useful there feel free to post your questions there for some UK specific advice.

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

In your situation I don’t think I would borrow any more. I would keep the low rate you have, control the controllables I.e. your expenses and invest the rest in whatever vehicles make sense tax wise for you. Good luck with your goal.
Title: Re: DONT Payoff your Mortgage Club
Post by: cartman1973 on August 14, 2018, 12:17:59 PM
never give up (and others) - Many thanks, I think that seems to be the sensible conclusion in my situation.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on August 17, 2018, 07:24:04 PM
does anyone have any wisdom nuggets for how much house they can afford.?
the rubrics that exist are slanted in favor of buying too much house.

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

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

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

As for monthly mortgage cost, I'd say 1/4 to 1/3 of monthly take home pay is about as high as I'd want to go.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 20, 2018, 07:18:13 AM
I estimated on another thread that our mortgage payments are roughly 9% of our monthly expenses. That will change when our rate resets, but it's been nice to have that kind of flexibility for achieving other goals with the 15% of our budget that isn't going toward house.
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on August 20, 2018, 07:44:50 AM
i am very thankful for this reply.

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



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

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

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

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

As for monthly mortgage cost, I'd say 1/4 to 1/3 of monthly take home pay is about as high as I'd want to go.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 20, 2018, 07:47:57 AM
our mortgage is around 25% of our monthly expenses.
Title: Re: DONT Payoff your Mortgage Club
Post by: Zola. on August 20, 2018, 09:00:17 AM
I used to overpay on the mortgage a bit and it is exciting and seductive seeing the number drop instantly, an instant result and return, but now I am pouring it more into investments instead.

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

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

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


Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 20, 2018, 09:02:32 AM
I used to overpay on the mortgage a bit and it is exciting and seductive seeing the number drop instantly, an instant result and return, but now I am pouring it more into investments instead.

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

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

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

congrats and welcome - the bolded statement above is a bad decision worse IMO than just paying down a mortgage why would you put money that cant be obtained easily in an emergency into the house at all - a hybrid approach is worse than going hook line and sinkier one way or the other.
Title: Re: DONT Payoff your Mortgage Club
Post by: Zola. on August 20, 2018, 09:24:15 AM
As the saying goes 'everything in moderation' 

(playing devils advocate)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 20, 2018, 09:36:52 AM
As the saying goes 'everything in moderation' 

(playing devils advocate)
But why do that when there's no need to?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 20, 2018, 09:41:12 AM
Zola-
If you're determined to do something high-risk/high-reward with that extra thousand, may I suggest opening a brokerage account and putting it into a Small-Cap Value index fund?
Title: Re: DONT Payoff your Mortgage Club
Post by: Zola. on August 20, 2018, 09:42:46 AM
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 20, 2018, 10:32:34 AM
  • It gets the total debt down sooner
  • spreads risk between having cash, investments and lowered debt
  • psychological boost

its increasing your risk - you may feel like it pyschologically reducing risk but you're increasing it. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on August 20, 2018, 11:14:39 AM
  • It gets the total debt down sooner
  • spreads risk between having cash, investments and lowered debt
  • psychological boost

It might get debt down sooner, but it also increases the time it takes to pay off the debt completely.
Title: Re: DONT Payoff your Mortgage Club
Post by: Andeanmustache on August 20, 2018, 06:52:41 PM
Hi all,

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

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

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

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

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

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

A couple of points for additional context:
- 7.25% is actually a good rate in my country, so that a refinancing is not realistic.
- Inflation is relatively low and stable, at about 3%.
- Market returns are extremely variable, and investing in the local stock market is also very costly (high fees, capital gains tax, etc.). On the other hand, term deposits at the bank pay up to 7% tax free.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 20, 2018, 11:16:03 PM
I speak the language of 50% of take-home mortgage payments, even with a substantial down payment. It's what single people sometimes have to to to own a home in a HCOLA, so you won't get any hate from me. With mad frugal skills, I lived comfortably and saved well with the other half of my monthly take-home.  My first thought is if you bought more house than you need, do you have extra space you could rent out? A roommate or airbnb? Having roommates really kept me ahead in the FIRE game.

And I remember being thrilled that my excellent credit got me a 7% mortgage on that condo in 1996.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on August 21, 2018, 03:10:22 PM
Just made my last payment for year 2 of 15.  Only 13 more years to go at 2.75%!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 21, 2018, 04:39:52 PM
Just made my last payment for year 2 of 15.  Only 13 more years to go at 2.75%!

Nice
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 22, 2018, 07:09:05 AM
I have a co-worker who brags about his 2.75.

But he bought in Fall of 2012, so he only gets to enjoy that rate--which is lower than inflation--for nine more years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 22, 2018, 07:12:51 AM
Just made my last payment for year 2 of 15.  Only 13 more years to go at 2.75%!
Sweet! It will be interesting to see what mortgage interest rates do in the next 13 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 22, 2018, 07:26:57 AM
Just made my last payment for year 2 of 15.  Only 13 more years to go at 2.75%!
Sweet! It will be interesting to see what mortgage interest rates do in the next 13 years.

i hope they go down again so i can cash out refi. Strongly looking into a 2nd fixed rate mortgage right now to pull out 50-100k in equity to buy some more VTSAX
Title: Re: DONT Payoff your Mortgage Club
Post by: onlykelsey on August 22, 2018, 07:35:38 AM
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

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

At any rate, is there a better way to do this so I get an accurate net worth?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on August 22, 2018, 07:58:40 AM
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

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

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

its all pretty personal to your area.  i keep up with all home sales so i know what my house is worth approximately.  i dont include the cost to update my house i the calcs though i just subtract transfer fees.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 22, 2018, 08:04:57 AM
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

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

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

From the other side of the FIRE finish line, I suggest you just ballpark it. It won't matter that much. When I sold my house, my agent wanted to go on at $529k. I pushed for $539k and ended up getting $600k. No way to predict that.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on August 26, 2018, 07:32:59 PM
DH is waffling all over the board. 

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

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

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

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

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

ACK.   I don't want to know what is next.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on August 26, 2018, 07:48:25 PM
Mortgage free home owners on the rise:

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

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

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



https://www.seattletimes.com/seattle-news/data/mortgage-free-homeowners-on-the-rise-in-seattle-data-show/
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 26, 2018, 11:15:46 PM
Mortgage free home owners on the rise:

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


https://www.seattletimes.com/seattle-news/data/mortgage-free-homeowners-on-the-rise-in-seattle-data-show/
Hmmm, what makes them "lucky"?
Title: Re: DONT Payoff your Mortgage Club
Post by: tomorrowsomewherenew on August 27, 2018, 06:56:14 AM
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

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

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

There are several houses in my area with the exact same floor plan as my own house. So, I look at what those houses have sold for, and judge whether they're in better or worse condition than mine. Also, do they have a pool? In my area, that adds about $30,000 to the selling price. (I live in FL).
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 27, 2018, 08:30:11 AM
Mortgage free home owners on the rise:

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

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

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



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

42,000 seems like so few to me. I imagine there are 2,000,000 households in the Seattle area, something like 1,200,000 of them would own (not rent). So we're talking under 5%?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 27, 2018, 09:09:53 AM
Mortgage free home owners on the rise:

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

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

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



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

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

Not too shabby.

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

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

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

I have 2 cells in my spreadsheet: 1 is my mortgage balance, and the other is 0.85 x home value (Avg of Redfin and Zillow Estimates). I figure 85% is a reasonable estimate of what i would get after transaction costs and price variance of the estimates. Hardly perfect, but takes about 30 seconds to calculate and I call it good enough.
Title: Re: DONT Payoff your Mortgage Club
Post by: onlykelsey on August 27, 2018, 09:51:28 AM
Related but off-topic question: if you include your house in your net worth (long term I don't think I'll stay FIREd in Manhattan, so I'm budgeting for rent somewhere else), how do you value it? 

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

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

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

That's a cool idea... it would track increases in the value.  Thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on September 03, 2018, 06:25:44 PM
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

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

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

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

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

Anyone else have similar concerns?

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Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 04, 2018, 05:34:12 AM
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

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

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

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

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

Anyone else have similar concerns?

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


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

Title: Re: DONT Payoff your Mortgage Club
Post by: onlykelsey on September 04, 2018, 07:26:30 AM
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

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

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

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

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

Anyone else have similar concerns?

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Well, seven years is a long time.  Is part of your skepticism that you are getting closer to retirement?  Because that's actually rational.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 04, 2018, 08:36:46 AM
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

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

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

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

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

Anyone else have similar concerns?

Sent from my moto g(6) using Tapatalk

i mean you just said it the market could gain another 30% before a 30% dip no one knows.  and the market goes up more than down so its more likely to continue up.  it could even remain flat or earnings could continue to grow - all of this would start to realign PE ratios.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on September 04, 2018, 09:13:07 AM
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

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

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

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

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

Anyone else have similar concerns?

Sent from my moto g(6) using Tapatalk
Well, seven years is a long time.  Is part of your skepticism that you are getting closer to retirement?  Because that's actually rational.
We have probably been investing heavily for 5 of those 7 years.  Still have a ways to go to reach FI but our stache has gotten to the point where market fluctuations have more of an impact than contributions due to currently a low savings rate.

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Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on September 04, 2018, 09:14:47 AM
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

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

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

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

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

Anyone else have similar concerns?

Sent from my moto g(6) using Tapatalk

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

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Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on September 05, 2018, 07:56:49 PM
I’ve read some of this thread but not all yet.

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

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

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

Thanks.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on September 05, 2018, 11:10:13 PM
I’ve read some of this thread but not all yet.

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

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

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

Thanks.

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

BUT -- maybe that person expects that there is a 50% chance to be out of a job in 5 years and would like some accessible cash just in case?   What is the reason they are so conservative?  Would paying off a mortgage help or hinder whatever is driving their conservative goal / need for security?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 06, 2018, 08:58:45 AM
Since mortgages are in "nominal" dollars, you need to consider your investment returns nominally as well (inflation is irrelevant). SP500 returned 10.2% average over the last 80-ish years, so that's your benchmark. You may think you have an investment strategy that improves on that, or you may wish to invest with less risk since you have this massive mortgage you're trying to service: check out https://evergreensmallbusiness.com/100-stocks-allocation-suffers-two-big-flaws/ (https://evergreensmallbusiness.com/100-stocks-allocation-suffers-two-big-flaws/) for a discussion of risk versus return.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on September 06, 2018, 09:32:32 AM
I’ve read some of this thread but not all yet.

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

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

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

Thanks.

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

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

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

(https://s15.postimg.cc/51q7yilnf/Mortgage_Loss_and_Gain.jpg)

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

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

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

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

Long story short, just be willing to do the math to see what path makes more sense.  I am in the 'middle ground' of a 5% mortgage but it still makes WAY more sense to ride out the mortgage than try to agressively pay it off because I'm sitting at a 4% return vs. mortgage rate variation.  If you must have bonds, that 2.5% is so close to the 3.5% mortgage that it is likely 'meh' either way.  Just don't lose assets that might protect you in an emergency....
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on September 09, 2018, 10:34:42 PM
Is anyone else in this thread concerned with the current market and correlated P/E ratios.

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

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

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

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

Anyone else have similar concerns?


I don't.  The only rational way to view stock investing is to look at the long term potential returns. Next year or five years from now isn't long term. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dr.Jeckyl on September 11, 2018, 09:34:26 AM
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

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

3.25% fixed for 30 years

Sometimes I think I'm the only one and that I should be working on paying it down sooner. But to pay more on my house would mean investing less in my retirement accounts and they sure beat 3.5% fixed for the next 28 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 11, 2018, 09:50:09 AM
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

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

3.25% fixed for 30 years

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

welcome - there are many around here who have seen the light.
Title: Re: DONT Payoff your Mortgage Club
Post by: honeyfill on September 11, 2018, 10:38:06 AM
Lets do this the right way.  And spread the word about how great NOT paying down our mortgages are for our FIRE dates.

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

3.25% fixed for 30 years





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




Already retired here.  Mortgage is 28 yrs and 269K at 3.5%.  Mrs HF is 59.  It makes no sense to pay off mortgage in next 6 years because the income needed would put us over the ACA cliff. We will reevaluate in 2024 but I have  a feeling that Govt bonds will be paying more than 3.5% by then.   
Title: Re: DONT Payoff your Mortgage Club
Post by: redbirdfan on September 12, 2018, 02:54:07 PM
Just finished reading "The Value of Debt in Building Wealth" by Thomas J. Anderson (from the library, of course) and some blog posts on not paying off debt.  It seems clear that the best way to optimize net worth and flexibility is to not pay down low interest fixed-rate debt aggressively.  It's a bit more dangerous to do so when the debt is merely paid down and not paid off.  I get it.  I really think I do.  I just know that I'll always have the knee jerk reaction to want to be out of debt.  I may have to come back to this thread from time to time for moral support.     
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 12, 2018, 04:05:49 PM
I may have to come back to this thread from time to time for moral support.     
We're here for you! I stopped worrying about our low interest debt a long time ago; probably roughly when we had a year's worth of payments saved up outside of retirement accounts.
Title: Re: DONT Payoff your Mortgage Club
Post by: terrifictim on September 12, 2018, 05:07:24 PM
Just saying thanks to @boarder42 for helping me see the light. At the time of joining the club (Oct 17) I had $7k in taxable. Since then I've gone up to $30k in taxable while dropping my mortgage $4k. And my FIRE date keeps on getting closer!


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 September 12, 2018, 08:36:47 PM
Congratulations. Welcome. Doesn't that cash buffer feel great!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 13, 2018, 06:57:29 AM
Just finished reading "The Value of Debt in Building Wealth" by Thomas J. Anderson (from the library, of course) and some blog posts on not paying off debt.  It seems clear that the best way to optimize net worth and flexibility is to not pay down low interest fixed-rate debt aggressively.  It's a bit more dangerous to do so when the debt is merely paid down and not paid off.  I get it.  I really think I do.  I just know that I'll always have the knee jerk reaction to want to be out of debt.  I may have to come back to this thread from time to time for moral support.     

It depends on how the cash flow for the debt compares to your income. And it depends on whether the debt is callable. And it depends on your investment strategy being effective enough over time to lap the debt. Debt is risky, but risks are something you can manage with these other things. Glad to have you in the DNPOYM club!
Title: Re: DONT Payoff your Mortgage Club
Post by: TempusFugit on September 13, 2018, 04:57:56 PM
Did anyone happen across this article today?

https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j (https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j)

I'm a little confused by some of the examples the author used.  I'm not sure I agree with some of his statements.  I'm sure this crowd can either confirm or refute what he says.   I generally agree on the fact that paying off a low interest mortgage early is sub-optimal, but I think this guy is just wrong on some big particulars.

Specifically, I don't think this is correct:

"For example, assume you have a 30-year mortgage with a monthly payment of $2,000. Your first payment includes about $360 in principal and $1,640 in interest, while the last payment includes about $60 in interest and $1,940 in principal. If you made a double payment of $4,000 (to "save" on interest), all you're saving is $60, and that's 30 years from now. Put another way, it's a return of less than 0.1% per year."

This he bases on an earlier statement (which is not exactly clear):

"Mortgage interest is calculated differently from interest on other items (like credit cards). Essentially, the majority of your first monthly payment is interest, while the last payment is mostly principal. Each regular monthly payment you make applies to the next payment due, and any extra payment applies to the last payment due."

I think that the $1,940 in principal paid early will have a return of (your rate)* ($1940) * (the number of years remaining on your) mortgage (ignoring any inflation or tax related stuff).  That's damn sure more that $60. 



Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on September 13, 2018, 05:16:31 PM
TempusFugit -

Point 1 in the article is just really bad math.

Point 2 would be correct, except for the horrendously bad math in point 1 leads to things like "even a money market account at 1% will do better", which obviously isn't true.

Point 3 is correct - fixed payment gets cheaper every year due to inflation.

Point 4 is sort of correct - the selling price shouldn't reflect whether there is a mortgage or not, so the very basic profit relative to the purchase price should be the same. Of course, person with a mortgage has paid interest whereas the person without has not, so we've got incomplete reasoning.

Has the right conclusion - you come out ahead by keeping a low, fixed rate mortgage for as long as possible and investing the rest.

But mostly wrong reasoning to get there and some of the specific stuff that you could take as a recommendation is way off base - money market beats paying down mortgage is the most obvious.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on September 13, 2018, 05:22:47 PM
If you have an amortization schedule, you can see how much interest and how much principal is being paid at different times based on the current equity level (how much principal is left to pay down).  So let's say you have 169K to pay down still... My thinking is if you put down, say, an extra 2K in principal on a payment, meaning that there would be 167K left, then you would just then locate the 167K principal amount on the amortization table, and then see how much interest you avoided by putting down the extra money.  Add up all the interest payments between the 169K level and the 167K level.  That's what I would do anyway.  Not sure if it's right or not.
If you do it this way, add up the principal and the interest between 167K and 169K. Take the example in the article as stated - a $2,000 payment at the beginning is $360 of principal and $1640 of interest. You pay an extra $2,000, and rather than having made the last payment and nothing else happening, you jump in the amortization schedule as you've said - about 5-6 months forward ($2,000 / 360). so that's $10K - $12K of payments on the loan you don't have to make.

Ignoring the time-value of money of course.

The conclusion of the article is right - this thread illustrates over and over again how you come out ahead keeping a low fixed rate mortgage compared to paying it down early - but the math used in the article is about as wrong as it could possibly be.
Title: Re: DONT Payoff your Mortgage Club
Post by: TempusFugit on September 13, 2018, 05:25:27 PM
I don't think it is bad math so much as he is incorrect about how interest is applied.  Paying $1940 of principal early means you aren't paying 4% or whatever on that $1940 for 29 years.  That's >$2K not $60. 
Title: Re: DONT Payoff your Mortgage Club
Post by: HPstache on September 13, 2018, 05:26:58 PM
Did anyone happen across this article today?

https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j (https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j)

I'm a little confused by some of the examples the author used.  I'm not sure I agree with some of his statements.  I'm sure this crowd can either confirm or refute what he says.   I generally agree on the fact that paying off a low interest mortgage early is sub-optimal, but I think this guy is just wrong on some big particulars.

Specifically, I don't think this is correct:

"For example, assume you have a 30-year mortgage with a monthly payment of $2,000. Your first payment includes about $360 in principal and $1,640 in interest, while the last payment includes about $60 in interest and $1,940 in principal. If you made a double payment of $4,000 (to "save" on interest), all you're saving is $60, and that's 30 years from now. Put another way, it's a return of less than 0.1% per year."

This he bases on an earlier statement (which is not exactly clear):

"Mortgage interest is calculated differently from interest on other items (like credit cards). Essentially, the majority of your first monthly payment is interest, while the last payment is mostly principal. Each regular monthly payment you make applies to the next payment due, and any extra payment applies to the last payment due."

I think that the $1,940 in principal paid early will have a return of (your rate)* ($1940) * (the number of years remaining on your) mortgage (ignoring any inflation or tax related stuff).  That's damn sure more that $60.

I read it today and about pulled my hair out.  Very poorly written.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on September 13, 2018, 05:35:10 PM
I don't think it is bad math so much as he is incorrect about how interest is applied.  Paying $1940 of principal early means you aren't paying 4% or whatever on that $1940 for 29 years.  That's >$2K not $60.
It is actually quite a bit more than that - more like $10K saved from that one principal payment (compound interest is amazing that way).

ETA: which sounds like a lot, but still pales in comparison to what you're likely to make investing that money in something like VTSAX over the 30 years or so.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on September 13, 2018, 07:35:12 PM
I don't think it is bad math so much as he is incorrect about how interest is applied.  Paying $1940 of principal early means you aren't paying 4% or whatever on that $1940 for 29 years.  That's >$2K not $60.

And that payment is sort of applied to the end,  (because of the equal payments applied until paid in full); but it eliminates the last SEVERAL payments, not just the $60 interest on the final one.  Could shorten your payments by a year or more, depending on how much you pre pay.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 13, 2018, 11:10:59 PM
Good premise for an article, alas, incredibly poorly researched. This guy may be able to think, but he can't math. Ugh.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 14, 2018, 07:36:55 AM
If you'd like to think these thoughts but cannot do the math, wolfram alpha makes it so easy. They even show year by year how much principal/interest you're paying. http://www.wolframalpha.com/examples/everyday-life/personal-finance/mortgages-and-loans/ (http://www.wolframalpha.com/examples/everyday-life/personal-finance/mortgages-and-loans/)

Of course, your mortgage statements also show this. In my case (year 5 of a 30-year, 3.0% mortgage), doubling the payment would triple the amount that goes toward principal.
Title: Re: DONT Payoff your Mortgage Club
Post by: YevKassem on September 24, 2018, 07:24:08 AM
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 24, 2018, 08:34:41 AM
If you want something fairly safe, but still have ten years on the mortgage, why not consider the Larry Portfolio? The chances of a draw-down are modest, but the upside is much greater. Set aside 70% in those CD's you're talking about, and put 30% in something like $IJS

https://portfoliocharts.com/portfolio/larry-portfolio/ (https://portfoliocharts.com/portfolio/larry-portfolio/)
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 24, 2018, 09:21:02 AM
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

you'll probably find the thread where people are paying down their mortgages more helpful.  that money should be going into VTSAX or whatever your AA is and make you piles more than changing your AA b/c of your amazingly low mortgage ... Pay it off as slowly as possible and dont skew your AA b/c of it.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 24, 2018, 09:21:46 AM
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

I don't understand how no mortgage payment means more security. If I had $170k invested and a mortgage payment I would feel much more secure than $0 and no mortgage payment.

The fact that you can get CD rates better than your mortgage just shows how absurd it would be to pay any amount extra on it. As for how to invest your spare dollars you should follow your investment policy statement (https://www.bogleheads.org/wiki/Investment_policy_statement). If CDs are part of your desired asset allocation then go for it.
Title: Re: DONT Payoff your Mortgage Club
Post by: meatgrinder on September 24, 2018, 10:54:11 AM
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years.  Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 24, 2018, 10:57:54 AM
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years.  Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?

yeah somewhere aroun 6-7% depending on what the 10 year yield is
Title: Re: DONT Payoff your Mortgage Club
Post by: onlykelsey on September 24, 2018, 11:04:55 AM
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years.  Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?

yeah somewhere aroun 6-7% depending on what the 10 year yield is

OMG boarder42 told me to pay down my HELOC early!
Title: Re: DONT Payoff your Mortgage Club
Post by: boarder42 on September 24, 2018, 11:10:57 AM
My 5/1 ARM was resetting from 2.25% to 5.5% so I just refinanced into a 3/1 ARM at 3.39% with a 145K balance with another 30 years.  Going to keep riding the wave of ARM refinance until the rate gets to 5%, 6%?

yeah somewhere aroun 6-7% depending on what the 10 year yield is

OMG boarder42 told me to pay down my HELOC early!

if i did i'm sure it depended upon many variables - one of which is HELOCs and mortgages are not the same. - its a math problem i'm not dont pay off your mortgage ever no matter what i'm do the thing that will end you with statistically the best results. 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 24, 2018, 11:54:52 AM
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

I don't understand how no mortgage payment means more security. If I had $170k invested and a mortgage payment I would feel much more secure than $0 and no mortgage payment.

The fact that you can get CD rates better than your mortgage just shows how absurd it would be to pay any amount extra on it. As for how to invest your spare dollars you should follow your investment policy statement (https://www.bogleheads.org/wiki/Investment_policy_statement). If CDs are part of your desired asset allocation then go for it.
No one is saying only pay off a morgage.  Obviously one should not only invest in one thing, whether stocks, debt payment or rental real estate in a single area unless they want to take that risk level.  If you already have 2M in stocks, are 60 yrs old and carry a 200k morgage, would your advice change?

Again, this is not saying carrying debt when you are accumulating to invest more is not awsome for wealth building, just to stimulate thinking.

I agree. That's why I suggest creating a general investment policy statement to follow instead of always evaluating how to invest with every new dollar.

If I had $2 million in stocks at 60 years old with a $200k fixed rate mortgage at 2.5% (or 4% or whatever reasonable number) I would still make the minimum payment. There would have to be some large incentive not to (maybe a tax cliff or something).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 25, 2018, 12:37:40 AM
If I had $2 million in stocks at 60 years old with a $200k fixed rate mortgage at 2.5% (or 4% or whatever reasonable number) I would still make the minimum payment. There would have to be some large incentive not to (maybe a tax cliff or something).
♡♡♡♡♡♡♡♡♡♡♡
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 25, 2018, 06:57:05 AM
If you have $2,000,000 liquid, do whatever you want. I won't pretend that my humble thoughts about mortgages or accumulation will teach you anything!

If I had significantly more than that--say $5 million--I wouldn't even own. Would just rent. Want to change that wall? Just move to a place where it's already changed!
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on September 25, 2018, 02:15:44 PM
Hi,

I'm 5 years into a 15 yr. note @2.5% fixed with $170K left on the balance.  I realize that it's crazy to pay it off, but would love the security of having no mortgage payment.  Since CD rates have started to tick back up, would it be a good move to invest in those at 3-3.5% just until I have enough saved where I could cover the mortgage balance?  Even though the return might be less than the stock market over the next few years, it would be guaranteed in the event of a worst-case scenario.  Thoughts?

If you can answer this -- then you will be close to your answer...

Why would paying it off provide you with "..security of having no mortgage payment" versus owning a CD?

The percentage differences in your question are small enough that the numerical answer is not as important as figuring out why a paid off home is more secure to your situation than a CD.
Title: Re: DONT Payoff your Mortgage Club
Post by: Simplefunlife on October 02, 2018, 12:29:32 PM
I'd like to join the club!

I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k.  I've only paid the required payment ever since I refinanced at the end of 2014. 

When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero.  I get the math when it comes to mortgage rates so I'm not going to pay it off early.  However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on October 02, 2018, 12:32:59 PM
I'd like to join the club!

I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k.  I've only paid the required payment ever since I refinanced at the end of 2014. 

When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero.  I get the math when it comes to mortgage rates so I'm not going to pay it off early.  However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.

you could make a graph of P or equity
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 02, 2018, 12:58:32 PM
I'd like to join the club!

I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k.  I've only paid the required payment ever since I refinanced at the end of 2014. 

When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero.  I get the math when it comes to mortgage rates so I'm not going to pay it off early.  However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.

There's a thread where a few people are working on exceeding their debt in their taxable brokerage accounts. Though obviously you should be using tax advantaged space (IRAs, 401k, 403b, etc.) as much as possible first.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/

I track our net worth, but mostly I get excited about keeping our expenses low (also tracked).
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 02, 2018, 12:59:57 PM
However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.

Everyone is motivated by different things, but what helps me is monitoring my retirement/investment balances frequently when markets are smoking, and infrequently when they're lagging.  :)

And I think it's a great idea to plot your investments (and expected future investment balances) versus your mortgage balance to see where they cross!
Title: Re: DONT Payoff your Mortgage Club
Post by: Simplefunlife on October 02, 2018, 01:42:28 PM

There's a thread where a few people are working on exceeding their debt in their taxable brokerage accounts. Though obviously you should be using tax advantaged space (IRAs, 401k, 403b, etc.) as much as possible first.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/

I track our net worth, but mostly I get excited about keeping our expenses low (also tracked).

Thanks I may start tracking that and joining that thread.  So far I've just been maxing out 401K, HSA, IRA, Dependent care spending account, and 10% after tax 401k (max allowed) for mega backdoor roth.  Starting in the next few months I should have some extra money after expenses to throw into a taxable brokerage account.  Unless someone knows of some other tax advantaged space : )
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 02, 2018, 02:44:19 PM
I track the dividend income from my investments versus the interest on my mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on October 04, 2018, 09:29:33 AM
I track the dividend income from my investments versus the interest on my mortgage.

This sounds like a good idea. 

I'm not the best member of this club but in one investment account the amount it makes on its own will exceed the regular payment I put in this past year. That is exciting.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 04, 2018, 10:07:07 AM
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.

I cannot explain what an amazingly powerful feeling it is, but if you try it, you're statistically likely to have the same result. It's amazing how many of life's problems disappear, and how many doors are opened, when you have a huge pile of investments to optimize your time on this planet.

It is important to note that I was single, never a high wage earner, always lived in a HCOLA, and was never able to save the majority of my salary or anywhere near that. Keeping a mortgage and investing steadily got me over the finish line. This shit works, it really, really works! I know I'm mostly preaching to the choir here, but you never know what open-minded souls are reading this thread, willing to learn a concept that is often misunderstood, if it's considered at all.

When I first heard of the idea of NOT prepaying a mortgage, I was an unwilling pupil, and skeptical to the hilt. I am so grateful to the two people in my life who kept teaching until I was willing to learn. My life is amazing now, due to their persistence and willingness to keep at it until I finally got it. Hanging around here and continuing to post on this topic is my way of paying it forward.

Obligatory disclaimer: The above refers to affordable, long term, fixed rate, (mostly) tax deductible mortgages, primarily in the US. If you live somewhere else, I cannot speak to your situation. Please do your own due dilligence.

Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on October 04, 2018, 11:07:55 AM
I track the dividend income from my investments versus the interest on my mortgage.

Done! 2018 to date

Interest 2181 < Dividends 2620.

Cool, I'm on the right track.  Both are very small but it is nice to see I<D.

Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on October 04, 2018, 11:32:54 AM
I guess I'll join this club.

Every few months, I start thinking about what ifs regarding our financial life, and of course a big one of those is "what if I didn't have the mortgage expense anymore", but I always snap back to reality and realize that having a mortgage was and is one of the keys to our current financial success plus living how we want to live right now.

Does anyone here try to determine what an optimal mortgage balance is for them, and then try to maintain that in some way, either by refinancing every few years or using interest only loans, etc.?

I'm in a little different situation than many on this board, our financials would look more Boglehead-ish. We originally had a mortgage of 698k at 5%, we then refinanced in 2015 with cashout to increase the balance to 840k at 3.5% (used proceeds to pay off student loans that we couldn't deduct and that had rates of just over 4%, and then also invested about 50k in an aftertax account). We are now down to a balance of 762k (we prepay a small amount extra each month just to round up the payment, the extra probably represented less than 5% of what we save each month), and while we are maybe 1/3 to 1/2 of the way to hitting our FIRE number, I am trying to internally gauge what the ideal balance would be for me.

I've kinda always ballparked that comfortable number around 500k, which would mean doing nothing for the next 7 years (we have a 10/1, so that will be a decision point) as we'll still be above 500k. But I do toy with the idea of getting our payment down a little by refinancing again on this smaller amount while resetting the 30y clock, or even going the interest-only route. We _probably_ won't move for another 12 years (youngest is in kindergarten), although I do constantly feeling the siren call of upgrading to a nicer place in the neighborhood.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 04, 2018, 12:16:58 PM
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.

Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
My sixth FIREversary is around the corner. A lot of appreciation has happened since I pulled the plug on the paycheck. Maybe I saved exactly the right amount and compound interest and market gains did the "oversaving" for me while I was off doing other things? Hmmm, wasn't that my point in the first place?

Not comparing myself to the master, except to mention that Pete himself has experienced something similar, albeit on a much larger scale, with the success of his blog, and, presumably, the extended bull market we've all enjoyed.

One can't predict a bull run the likes of which we're still experiencing, so sure, it happens. Why does your comment sound slightly accusatory? Sad if that's all you could glean from my post.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 04, 2018, 12:40:38 PM
I guess I'll join this club.

Every few months, I start thinking about what ifs regarding our financial life, and of course a big one of those is "what if I didn't have the mortgage expense anymore", but I always snap back to reality and realize that having a mortgage was and is one of the keys to our current financial success plus living how we want to live right now.

Does anyone here try to determine what an optimal mortgage balance is for them, and then try to maintain that in some way, either by refinancing every few years or using interest only loans, etc.?

I'm in a little different situation than many on this board, our financials would look more Boglehead-ish. We originally had a mortgage of 698k at 5%, we then refinanced in 2015 with cashout to increase the balance to 840k at 3.5% (used proceeds to pay off student loans that we couldn't deduct and that had rates of just over 4%, and then also invested about 50k in an aftertax account). We are now down to a balance of 762k (we prepay a small amount extra each month just to round up the payment, the extra probably represented less than 5% of what we save each month), and while we are maybe 1/3 to 1/2 of the way to hitting our FIRE number, I am trying to internally gauge what the ideal balance would be for me.

I've kinda always ballparked that comfortable number around 500k, which would mean doing nothing for the next 7 years (we have a 10/1, so that will be a decision point) as we'll still be above 500k. But I do toy with the idea of getting our payment down a little by refinancing again on this smaller amount while resetting the 30y clock, or even going the interest-only route. We _probably_ won't move for another 12 years (youngest is in kindergarten), although I do constantly feeling the siren call of upgrading to a nicer place in the neighborhood.

Glad to have you in the club. From what I recall about Dallas, an $840,000 mortgage comes with a Bogle-Head-House indeed!

If it were me, and if I thought I could replicate my income indefinitely, I'd probably aim to have an interest-only mortgage for 60% of the value of my house. That way, I'm unlikely to lose all my equity in a crash, but I'm also able to put my principal-advancement into stock investments.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on October 04, 2018, 12:42:49 PM
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.

Feels like that person slightly oversaved if their gains are higher than the total they need to retire...

If you follow the 4% rule, in most cases you wind up filthy rich in retirement.   In other words, most people save more than they need, but that extra is for insurance purposes.   
Title: Re: DONT Payoff your Mortgage Club
Post by: englishteacheralex on October 04, 2018, 12:52:12 PM
I've been slowly coming around to this concept over the past year or so. Can anyone read over the following to see if I've got this straight? If I write it down I'll understand it better.

1. The problem with paying off your mortgage is that then all that money is locked up in an asset that is not very liquid at all.

2. Here are our circumstances:
Mortgage: $298k left on a 30 year fixed mortgage at 3.75%. The condo is worth ~$425k.

The interest rate is low and fixed. So....

3. The smart thing to do is to let the mortgage ride, while investing as much as possible in our retirement accounts. Since we budget very carefully and do not randomly blow extra money, making the intentional decision to invest extra money rather than pay off the mortgage is a better choice because

A. The money will probably earn more (possibly substantially more) interest in an index fund than it will save us interest by paying down the mortgage early

B. 3.75% is an extremely low rate, and the risk involved with keeping this mortgage is pretty low, too, since we're nowhere near underwater on the condo and we both have very stable incomes.

4. To put extra money towards paying off the condo early would mean tying up money in an ill-liquid asset--we'd have to sell the place to get the money out, in the event of a situation in which we needed money--and the opportunity cost paid by putting the money towards the 3.75% interest rate instead of the 7+% returns on index funds.

Have I got this thing dialed in yet? It took me a long time to come around.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 04, 2018, 01:32:15 PM
Item B. of your list requires a little more explanation: in the USA, mortgage debt is non-callable, so it's less risky to have a high balance if it's amortized over a very long payment period.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on October 04, 2018, 01:34:04 PM
I've been slowly coming around to this concept over the past year or so. Can anyone read over the following to see if I've got this straight? If I write it down I'll understand it better.

1. The problem with paying off your mortgage is that then all that money is locked up in an asset that is not very liquid at all.

2. Here are our circumstances:
Mortgage: $298k left on a 30 year fixed mortgage at 3.75%. The condo is worth ~$425k.

The interest rate is low and fixed. So....

3. The smart thing to do is to let the mortgage ride, while investing as much as possible in our retirement accounts. Since we budget very carefully and do not randomly blow extra money, making the intentional decision to invest extra money rather than pay off the mortgage is a better choice because

A. The money will probably earn more (possibly substantially more) interest in an index fund than it will save us interest by paying down the mortgage early

B. 3.75% is an extremely low rate, and the risk involved with keeping this mortgage is pretty low, too, since we're nowhere near underwater on the condo and we both have very stable incomes.

4. To put extra money towards paying off the condo early would mean tying up money in an ill-liquid asset--we'd have to sell the place to get the money out, in the event of a situation in which we needed money--and the opportunity cost paid by putting the money towards the 3.75% interest rate instead of the 7+% returns on index funds.

Have I got this thing dialed in yet? It took me a long time to come around.

Spot on.  One other thing to keep in mind is the future value of money.   The historical inflation rate is about 3.5%.   That cuts the value of money in half over 30 years.   Paying down the mortgage is literally like paying a dollar now to save 50 cents in the future. 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 04, 2018, 01:37:43 PM
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.

Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
My sixth FIREversary is around the corner. A lot of appreciation has happened since I pulled the plug on the paycheck. Maybe I saved exactly the right amount and compound interest and market gains did the "oversaving" for me while I was off doing other things? Hmmm, wasn't that my point in the first place?

Not comparing myself to the master, except to mention that Pete himself has experienced something similar, albeit on a much larger scale, with the success of his blog, and, presumably, the extended bull market we've all enjoyed.

One can't predict a bull run the likes of which we're still experiencing, so sure, it happens. Why does your comment sound slightly accusatory? Sad if that's all you could glean from my post.

I think he was pointing out a bit of ambiguity with your "account balances grow at a rate higher [...] than your FI number". Does that mean your investments are earning your original FI number every year? For example, you hit FI at $1 million and now you have $10 million earning $1 million per year (assuming 10% returns).
Title: Re: DONT Payoff your Mortgage Club
Post by: NeverTooLate on October 04, 2018, 02:13:26 PM
This whole concept really stresses me out.  I am newish to MMM although by default I have always been a pretty frugal person.  But I tend to be really conservative and always assume the worst.  One of the things I have done after reading all his articles is throw an extra 40k into investments that I had sitting around in account just "in case" when I realized what my fear was costing me.  I had upped my mortgage payments to pay off the place I just bought in 15 years since at that point I figured I could go part-time, live off of that, and then just let me investments grow without further contributions.  If something happened I figured a paid off house was a buffer for me.  But after reading Boarder42's very impassioned arguments for not paying off the mortgage early in other threads I decided to back off on extra payments.

Especially since I still wasn't maxing out my 403b (the plan was to do it in the next 5 years).  So I upped my 403b from 19% to 28% and put my mortgage payments back to what I am required to pay just rounded up to the nearest hundred.

I owe $143k at 4.25% and have 28.5 years on it.  The psychological effects of NOT paying off early is really huge for me.  I have read the arguments and I am sure I am now doing the right thing but it is tough.  At least for a couple years the couple hundred I get back from taxes is probably going into the mortgage just so I can feel better. Also the fact that I won't ever have a partner to rely on makes me even more timid. Realistically I am way more likely to get injured with my job in the next 30 than the next 15 and not be able to work for awhile.

Anyways, I am glad for Boarder42 and glad I joined this club but I will probably be stressed for the next 28.5 years.  *chuckle*
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on October 04, 2018, 02:19:13 PM
Rather than banned, I think boarder42 must have been moved to view-only status. On his profile (https://forum.mrmoneymustache.com/profile/?u=11328) his last active date is today (10-4). But his last post was 9-29.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on October 04, 2018, 02:40:00 PM
I owe $143k at 4.25% and have 28.5 years on it.  The psychological effects of NOT paying off early is really huge for me.  I have read the arguments and I am sure I am now doing the right thing but it is tough.  At least for a couple years the couple hundred I get back from taxes is probably going into the mortgage just so I can feel better. Also the fact that I won't ever have a partner to rely on makes me even more timid. Realistically I am way more likely to get injured with my job in the next 30 than the next 15 and not be able to work for awhile.

Anyways, I am glad for Boarder42 and glad I joined this club but I will probably be stressed for the next 28.5 years.  *chuckle*

The stress will change to exhilaration in a few years when you start to see your brokerage account balances shoot up like Dicey described.   And remember, if you get injured and can't pay the mortgage for some reason, the bank will still foreclose regardless of how many extra payments you've made.   So, until the mortgage is completely paid off, you are taking more risk by paying it down, not less risk.  Safety is liquid assets. 



Title: Re: DONT Payoff your Mortgage Club
Post by: Turkey Leg on October 04, 2018, 02:42:43 PM
Rather than banned, I think boarder42 must have been moved to view-only status. On his profile (https://forum.mrmoneymustache.com/profile/?u=11328) his last active date is today (10-4). But his last post was 9-29.

@boarder42 ..."view-only," but not forgotten! Thanks, b42, for carrying the DPYM torch!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on October 04, 2018, 02:53:20 PM
I'd like to join the club!

I've got a little over 11 years left on a 15 year mortgage at 3.125% current balance is $74k.  I've only paid the required payment ever since I refinanced at the end of 2014. 

When I was paying off student loans 10 years ago it was a very tangible goal and felt good to watch that balance go to zero.  I get the math when it comes to mortgage rates so I'm not going to pay it off early.  However, I am looking how to get that same "good feeling" and working towards a goal.  What do others here do to stay motivated on aggressively investing?  Track NW every month? Set a goal to get an investment account up to mortgage amount?  Just looking for fun ways to track and feel the progress.

I track dividends and actually compare them to my mortgage payment so by leaving my money in the investments, my investments are working to pay for the mortgage.  (Actually they do pay the mortgage working on taxes and insurance) 
Title: Re: DONT Payoff your Mortgage Club
Post by: PizzaSteve on October 04, 2018, 03:04:27 PM
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.

Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
My sixth FIREversary is around the corner. A lot of appreciation has happened since I pulled the plug on the paycheck. Maybe I saved exactly the right amount and compound interest and market gains did the "oversaving" for me while I was off doing other things? Hmmm, wasn't that my point in the first place?

Not comparing myself to the master, except to mention that Pete himself has experienced something similar, albeit on a much larger scale, with the success of his blog, and, presumably, the extended bull market we've all enjoyed.

One can't predict a bull run the likes of which we're still experiencing, so sure, it happens. Why does your comment sound slightly accusatory? Sad if that's all you could glean from my post.

I think he was pointing out a bit of ambiguity with your "account balances grow at a rate higher [...] than your FI number". Does that mean your investments are earning your original FI number every year? For example, you hit FI at $1 million and now you have $10 million earning $1 million per year (assuming 10% returns).

Yup! I meant that if you just by your FI number, you've oversaved. (Sure it might have been by accident, or due to markets, but still oversaved!)

Just as a nit pick, I really don't think it is fare to say a person over saved, just because they have more than they need now.  Weve had a historic bull market which has created more wealth than many frugal savers will need. 

If one retires with a stash size number that is reasonable, based on the best available historic returns data, to me that is saving the right amount.    If later, one receives 15% compound returns or has a stock windfall from their employer, it is not the fault of their planning, it is just luck.

Conversely, if you yolo assuming 15% never ending returns, with no backup plan, then you are probably foolish, even if you actually get them.   

Bull markets are great for your success rate, but they do not mean you over saved.  Had you saved less and assumed higher returns, that would have been foolishly optimistic.  Excess wealth <> over saving.  Over saving only occurs if you saved more than you would ever need, even with reasonable assumptions.  Even there, the savings allow charity and other actions that can benefit the world beyond consuming more.

Good luck and I hope we all achieve our dreams, without judgement.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 04, 2018, 11:40:03 PM
For you to receive your FI number in account changes, we're talking about 100% gain.
If I've translated what you're saying here correctly (in account = in your investment accounts), yes, that's the miracle of compound interest! More than 100% gain, given sufficient time, so start early, people! Do it before you prepay your ...blah, blah, blah.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 04, 2018, 11:42:13 PM
Rather than banned, I think boarder42 must have been moved to view-only status. On his profile (https://forum.mrmoneymustache.com/profile/?u=11328) his last active date is today (10-4). But his last post was 9-29.

@boarder42 ..."view-only," but not forgotten! Thanks, b42, for carrying the DPYM torch!
He can see us, but we can't see him. Miss you B42, but I know you're killing it IRL.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 05, 2018, 02:19:33 AM
The other thing that's exciting is watching your investment account balances grow. The next steps are when the account balances grow at a rate higher than your monthly income, then your annual income, then your actual mortgage balance, then your FI number. It happens, it really does. It is so much more exciting and empowering than killing the mortgage. People think paying that off is going to feel good, but they have no idea what a blast it is to ride the rocket ship of compound interest to infinity and beyond.

Feels like that person slightly oversaved if their gains are higher than the total they need to retire...
My sixth FIREversary is around the corner. A lot of appreciation has happened since I pulled the plug on the paycheck. Maybe I saved exactly the right amount and compound interest and market gains did the "oversaving" for me while I was off doing other things? Hmmm, wasn't that my point in the first place?

Not comparing myself to the master, except to mention that Pete himself has experienced something similar, albeit on a much larger scale, with the success of his blog, and, presumably, the extended bull market we've all enjoyed.

One can't predict a bull run the likes of which we're still experiencing, so sure, it happens. Why does your comment sound slightly accusatory? Sad if that's all you could glean from my post.

I think he was pointing out a bit of ambiguity with your "account balances grow at a rate higher [...] than your FI number". Does that mean your investments are earning your original FI number every year? For example, you hit FI at $1 million and now you have $10 million earning $1 million per year (assuming 10% returns).

Yup! I meant that if you just by your FI number, you've oversaved. (Sure it might have been by accident, or due to markets, but still oversaved!)
But you said it like it was a bad thing. In fact, IMO, oversaving (OMY) is a bad thing, but that's not really what happened.

A FI number is merely an educated guess. Some costs simply can't be known very far in advance. For example, ACA didn't exist when I was working my way toward FIRE. I have pre-existing conditions and had a very rare form of cancer a long time ago. I had no way of knowing if I could get insurance or how much it would cost, so I had to guess and guess big. You could say market currents shifted in my favor while I was pulling steadily toward the goal. A couple of things happened, I hit FI rather suddenly, so I RE, and the market just kept doing its thing. At most, I overworked by about a month, but most of that was my three-week notice.

My experience totally mimics the compound interest graph. After a certain point, money grows exponentially. It's a crazy ride that beats the hell out of the buzz of prepaying a cheap-ass mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: YoungGranny on October 10, 2018, 09:26:20 AM
Still sad about not having B42 here. He convinced me to join the DPYMC about a year ago. I switched from throwing extra money at my mortgage to tossing it into investments. I was always maxing out my 401k, my husband maxes out his and we max out an HSA so I figured splitting the difference and paying off our mortgage in 3 years instead of investing was good enough but B42 convinced me otherwise.

 Just figured it's a good time to share that my taxable account that I started last January now has ~$75k in it - I'd be less than a year away from paying off my mortgage but instead I've grown my investments, earned some dividends, and will be able to FIRE in 3-4 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 10, 2018, 09:35:10 AM
This is a great story, thanks for sharing!

Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on October 14, 2018, 09:33:40 AM
I've been going through all pages of this thread for awhile as well as reading other don't pay off your mortgage threads. I haven't been able to quite figure out what is best for my situation and I am truly open to suggestions. Both low income earners but wife and I were able to max out TIRAS and put little in 401s. We bought a house this year because our cheap rent was going to increase more than what we could get a mortgage payment for... However we only put 10% down and have PMI. (Conventional) Loan is for 125k and PMI is $75/mo and rate is 4.75%. I think theres roughly 94 payments until we would get 20% equity, so roughly $7050 in PMI would be paid if we did do the min payment for mortgage.

Also have $35k in student debt @ 4.25% Federal loans.  - 8 years left.

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 14, 2018, 10:42:16 AM
I've been going through all pages of this thread for awhile as well as reading other don't pay off your mortgage threads. I haven't been able to quite figure out what is best for my situation and I am truly open to suggestions. Both low income earners but wife and I were able to max out TIRAS and put little in 401s. We bought a house this year because our cheap rent was going to increase more than what we could get a mortgage payment for... However we only put 10% down and have PMI. (Conventional) Loan is for 125k and PMI is $75/mo and rate is 4.75%. I think theres roughly 94 payments until we would get 20% equity, so roughly $7050 in PMI would be paid if we did do the min payment for mortgage.

Also have $35k in student debt @ 4.25% Federal loans.  - 8 years left.

Okay, so if you dropped ~$18k on the mortgage you could get rid of PMI? That would save you $1,755/year, a 9.75% return on investment. If you can lump sum it I would do it to get rid of PMI. Are there any catches (e.g requires a refinance to remove PMI)?

However, the calculation gets more complicated if you can't lump sum remove PMI. PMI is currently adding 0.72% to your interest rate, making your effective rate 4.75+0.72 = 5.47%. Sort of borderline but if you aren't maxing tax advantaged accounts yet usually you'd want to do that first. Depends on how much extra you can direct towards the mortgage though.

Minimum payment on the student loans should be fine.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on October 14, 2018, 10:54:44 AM
Purchased at 135k and original appraisal at 137k. About 15k lump sum would do it. PMI at 80% LTV ratio will be removed after written request... Supposedly. Otherwise 78% LTV it is removed by law. Problem is I don't have a lump sum to do that with. At least at this time. Thats why I was wondering if I would be better off making extra payments towards principal to get the PMI off faster than switch over to making the minimum payment. I agree though, any tax deferred accounts should be a priority. Theres just not much leftover after that though lol.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 14, 2018, 11:46:43 AM
Purchased at 135k and original appraisal at 137k. About 15k lump sum would do it. PMI at 80% LTV ratio will be removed after written request... Supposedly. Otherwise 78% LTV it is removed by law. Problem is I don't have a lump sum to do that with. At least at this time. Thats why I was wondering if I would be better off making extra payments towards principal to get the PMI off faster than switch over to making the minimum payment. I agree though, any tax deferred accounts should be a priority. Theres just not much leftover after that though lol.
How much extra could you realistically put towards the mortgage each month?


Everything I'm hearing makes me think you should keep the PMI until your income grows and your liquidity is stronger.  My 2 cents.   
I'm leaning towards that recommendation as well.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on October 14, 2018, 11:48:17 AM
I think this year we will be sitting at 64k (pre-tax) (combined) married filing jointly - no kids. We focus on the IRA's because one of our 401k's has no match but decent ER's and the other has a small match but horrible ER's. The student debt is fixed and in 3-4 more years we'll qualify for forgiveness on a portion of it. After that if lower rates can be had we'll refinance it. At this point even with my PMI rate it still may make sense to pay the minimum yet. 7% invest return  minus the 5.47% adjusted rate still leaves me with a 1.53% positive increase in returns when invested which is not a ton but more than none.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on October 14, 2018, 11:59:06 AM
Purchased at 135k and original appraisal at 137k. About 15k lump sum would do it. PMI at 80% LTV ratio will be removed after written request... Supposedly. Otherwise 78% LTV it is removed by law. Problem is I don't have a lump sum to do that with. At least at this time. Thats why I was wondering if I would be better off making extra payments towards principal to get the PMI off faster than switch over to making the minimum payment. I agree though, any tax deferred accounts should be a priority. Theres just not much leftover after that though lol.
How much extra could you realistically put towards the mortgage each month?

I was already set for $100 extra a month. Without touching what we are putting into pretax accounts... Maybe another (monthly)$300 - $400.... Whereas again the pretaxes are still not maxed out where this money could be going into them instead.


Everything I'm hearing makes me think you should keep the PMI until your income grows and your liquidity is stronger.  My 2 cents.   
I'm leaning towards that recommendation as well.

Yes.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 14, 2018, 01:33:14 PM
I was already set for $100 extra a month. Without touching what we are putting into pretax accounts... Maybe another (monthly)$300 - $400.... Whereas again the pretaxes are still not maxed out where this money could be going into them instead.

At an additional $500/month you'll remove PMI after 27 payments costing an extra $13.5k. This will reduce your principal balance by $13.7k compared to the minimum payment. If instead invested the $500/month would have grown to $14.3k to $15.1k (5% - 10% range). Total cost to get rid of PMI = $14.1k to $14.9k. Benefit going forward: $651 (annual interest saved on reduced principal) + $900 (PMI) - $715 to $1,510 (continued investment interest) = $51 to $836. ROI = 0.3% to 5.6%, depending on your expected investment returns. I'm ignoring that PMI wouldn't last forever anyway, but I don't want to do all the spreadsheet calculations to factor that in right now.

Yeah, I'd recommend investing in a tax advantaged account, at least until you get closer to the 80% point.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 14, 2018, 07:44:54 PM
I'm loving the smart conversation happening here. B42 would be so pleased.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on October 14, 2018, 08:46:29 PM
This is awesome. And by utilizing the 401k contributions we would be saving more on payroll tax too. The cheapest ER I can get is 1.6% (my wife lucks out @ 0.04%) so...less than 5% hah. So if I'm understanding this correctly. Pay the minimum - Worse case I'll come ahead 0.3% and best case 5.6%. Is this my overall scenario or just during the PMI period?

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 14, 2018, 10:01:26 PM
So if I'm understanding this correctly. Pay the minimum - Worse case I'll come ahead 0.3% and best case 5.6%. Is this my overall scenario or just during the PMI period?
No, that's not what I meant. 0.3% to 5.6% is the return expected by paying $500/month extra on your mortgage until PMI is gone. But looking at my math again I'm not sure that's the right way to think about it.

A good way to test if numbers make sense is to try the calculation another way. So let's try this instead:

94 minimum payments...
Payment + PMI sum: $68.3k
Loan principal reduction: $17.6k
Investment balance: $39.0k, $51.7k, $66.5k, $98.4k, $162.2k (min, bottom 10 percentile, median, top 10 percentile, max) [7 years, 10 months (https://dqydj.com/sp-500-historical-return-calculator/)]

26 extra payments + 68 minimum payments...
Payment + PMI sum: $76.2k
Loan principal reduction: $35.4k
Investment balance: $34.2k, $41.9k, $50.0k, $65.7k, $92.2k

Worst case scenario (-4.953% returns): Paying $500/month extra is better by $5.1k
Really bad returns (2.442% returns): Break even ($100 difference)
Median stock market (8.513% returns): Minimum payments is $6.6k better
Really good returns (17.288% returns): Minimum payments is $22.8k better
Best 94 months ever (27.556% returns): Minimum payments is $60.1k better


Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.

Edit: My math was wrong. See update below (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg2169946/#msg2169946).
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 15, 2018, 07:11:28 AM
Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.

Your math is solid.  Compounding is awesome!

Also keep in mind that Mr. Metal Mustache will have more options through liquidity if he has it in an investment account.  Even in his very-close-to-break-even situation, the options are better from keeping the mortgage.

Also keep in mind that extra money invested to get rid of PMI is for the life of the mortgage.  You can't pull that money back out (without HELOC expenses and fees) so you really need to be using compounding across the life of the loan, rather than only the PMI portion.  That will increase the numbers towards the keep-the-mortgage scenario.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 15, 2018, 07:46:28 AM
Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.

Your math is solid.  Compounding is awesome!

Also keep in mind that Mr. Metal Mustache will have more options through liquidity if he has it in an investment account.  Even in his very-close-to-break-even situation, the options are better from keeping the mortgage.

Also keep in mind that extra money invested to get rid of PMI is for the life of the mortgage.  You can't pull that money back out (without HELOC expenses and fees) so you really need to be using compounding across the life of the loan, rather than only the PMI portion.  That will increase the numbers towards the keep-the-mortgage scenario.

Thanks. I may need to run the numbers a couple more times to convince myself.

I figured if the minimum payments approach was ahead after 94 payments (when PMI drops anyway) then it would stay ahead over the life of the loan. But you're right, doing the full loan length would be more accurate.

I also didn't account for pre-tax savings ($500 extra on mortgage might be the equivalent of $641 in a 401k).
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 15, 2018, 08:22:55 AM
Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.

Okay, I found a big problem with my math. I double counted the extra payments. The investment balance I came up with already takes into account the difference in payments cost so I should not have been also counting the extra cost of those. Just adding principal reduction and ending investment balances should be fine.

Revised summary...

Worst case scenario (-4.953% returns): Paying $500/month extra is better by $13k
Really bad returns (2.442% returns): Paying $500/month extra is better by $8k
Median stock market (8.513% returns): Paying $500/month extra is better by $1.3k
Really good returns (17.288% returns): Minimum payments is $14.9k better
Best 94 months ever (27.556% returns): Minimum payments is $52.2k better

As TexasRunner mentioned this does not take into account the capital locked up in the mortgage. And it also is ignoring the pre-tax benefits of investing in a 401k. Both of those factors would make paying the minimum more advantageous.

I will follow up with more comprehensive analysis.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 15, 2018, 09:15:10 AM
Hmm, is it really better to invest in the stock market at ~2.5% than pay down a mortgage at 4.75% + PMI? I must be doing something wrong here... I don't see any obvious errors though and I have to go to bed now. Maybe someone else can point out any flaws in this math.

Okay, I found a big problem with my math. I double counted the extra payments. The investment balance I came up with already takes into account the difference in payments cost so I should not have been also counting the extra cost of those. Just adding principal reduction and ending investment balances should be fine.

Revised summary...

Worst case scenario (-4.953% returns): Paying $500/month extra is better by $13k
Really bad returns (2.442% returns): Paying $500/month extra is better by $8k
Median stock market (8.513% returns): Paying $500/month extra is better by $1.3k
Really good returns (17.288% returns): Minimum payments is $14.9k better
Best 94 months ever (27.556% returns): Minimum payments is $52.2k better

As TexasRunner mentioned this does not take into account the capital locked up in the mortgage. And it also is ignoring the pre-tax benefits of investing in a 401k. Both of those factors would make paying the minimum more advantageous.

I will follow up with more comprehensive analysis.

Don't forget inflation analysis...  Either reduce the mortgage rate by ~3.1% (or more conservative if you prefer) or increase the stock return numbers.  IE - Paying the mortgage payment in 2030 will be in reduced value 2030 dollars, vs prepaying in higher-value 2018 dollars.

I'm just gonna build a spreadsheet for this, because it comes up way to much and I'm sure it can be done.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 15, 2018, 09:27:54 AM
Okay, 30 year analysis.

Assumptions:
125k starting balance at 4.75% interest with $653 P+I payment
$75 PMI until loan balance drops below $110k
Extra payment (or investment) of $500
Extra payments only made until PMI is removed
30 year historic S&P 500 returns source (https://dqydj.com/sp-500-historical-return-calculator/) (using nominal returns)
Investing in post-tax account (ignoring capital gains and taxes on dividends, e.g. Roth IRA)

SP500 returns Minimum payment advantage
Min3.635%-$22k
Bad6.376%$1.5k
Median9.879%$85k
Good12.443%$238k
Max14.319%$452k

There is some oscillation in between. For 6.376% returns (worst 10 percentile in history) paying the minimum will be ahead for 25 months, will slip behind shortly after the PMI drops off, but pulls back ahead at the 305 month mark. For median returns you'll be ahead for 48 months with minimum payments, but will drop behind until month 94 where it blazes on ahead. Anything at 10.6% returns or higher is always better no matter the time frame. All this assumes a consistent yearly return. A certain sequence of returns could make it better or worse than expected.

Assuming 22% marginal tax bracket and investing in a pre-tax account (e.g. 401k):

SP500 returns Minimum payment advantage
Min3.635%-$28k
Bad6.376%$2.0k
Median9.879%$109k
Good12.443%$305k
Max14.319%$580k

In the pre-tax scenario the oscillation is not nearly as bad. The 6.376% case only results in a disadvantage from months 73 through 120. Returns over 7.1% will always favor minimum payments, no matter the time frame.

So, in conclusion, @Mr. Metal Mustache, my recommendation would be to make the minimum payments.


Don't forget inflation analysis...  Either reduce the mortgage rate by ~3.1% (or more conservative if you prefer) or increase the stock return numbers.  IE - Paying the mortgage payment in 2030 will be in reduced value 2030 dollars, vs prepaying in higher-value 2018 dollars.

I'm just gonna build a spreadsheet for this, because it comes up way to much and I'm sure it can be done.

All my numbers used nominal returns so they can be compared to the actual mortgage rate.

I built a spreadsheet myself. (attached)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 15, 2018, 09:46:48 AM
Gotta say, there are a number of disclaimers, such as:

1. If you're funding every retirement/investment vehicle available to you and still have money left over
2. You don't live where you can get fixed-rate mortages
3. You don't live where mortgages are tax deductible
4. You live in a place where housing is cheap and
5. You haven't bought a clown house

...then the advantages of Don't Payoff vs. Prepayment become smaller and smaller.

With such a small mortgage, I'd consider skipping the math and PMI gyrations and stockpiling $125k asap (side hustles, belt tightening, etc.). Once I had the payoff amount in hand, the option of decimating the mortgage in one fell swoop might seem a reasonable option.

But I live in a high COLA where $125k won't even buy you a garage.
Title: Re: DONT Payoff your Mortgage Club
Post by: onlykelsey on October 15, 2018, 10:08:38 AM
Okay, 30 year analysis.

Assumptions:
125k starting balance at 4.75% interest with $653 P+I payment
$75 PMI until loan balance drops below $110k
Extra payment (or investment) of $500
Extra payments only made until PMI is removed
30 year historic S&P 500 returns source (https://dqydj.com/sp-500-historical-return-calculator/) (using nominal returns)
Investing in post-tax account (ignoring capital gains and taxes on dividends, e.g. Roth IRA)

SP500 returns Minimum payment advantage
Min3.635%-$22k
Bad6.376%$1.5k
Median9.879%$85k
Good12.443%$238k
Max14.319%$452k

There is some oscillation in between. For 6.376% returns (worst 10 percentile in history) paying the minimum will be ahead for 25 months, will slip behind shortly after the PMI drops off, but pulls back ahead at the 305 month mark. For median returns you'll be ahead for 48 months with minimum payments, but will drop behind until month 94 where it blazes on ahead. Anything at 10.6% returns or higher is always better no matter the time frame. All this assumes a consistent yearly return. A certain sequence of returns could make it better or worse than expected.

Assuming 22% marginal tax bracket and investing in a pre-tax account (e.g. 401k):

SP500 returns Minimum payment advantage
Min3.635%-$28k
Bad6.376%$2.0k
Median9.879%$109k
Good12.443%$305k
Max14.319%$580k

In the pre-tax scenario the oscillation is not nearly as bad. The 6.376% case only results in a disadvantage from months 73 through 120. Returns over 7.1% will always favor minimum payments, no matter the time frame.

So, in conclusion, @Mr. Metal Mustache, my recommendation would be to make the minimum payments.


Don't forget inflation analysis...  Either reduce the mortgage rate by ~3.1% (or more conservative if you prefer) or increase the stock return numbers.  IE - Paying the mortgage payment in 2030 will be in reduced value 2030 dollars, vs prepaying in higher-value 2018 dollars.

I'm just gonna build a spreadsheet for this, because it comes up way to much and I'm sure it can be done.

All my numbers used nominal returns so they can be compared to the actual mortgage rate.

I built a spreadsheet myself. (attached)

I can't see these spreadsheets at work, but sounds awesome.  One small thing that might move the needle the tiniest bit is fees on your investment account, but they should be pretty low. 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 15, 2018, 10:30:19 AM
I built a spreadsheet myself. (attached)

I can't see these spreadsheets at work, but sounds awesome.  One small thing that might move the needle the tiniest bit is fees on your investment account, but they should be pretty low.

Yes, good point, I excluded expense ratios. Assuming 0.04% the change is pretty negligible. About $2k at median returns after 30 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 15, 2018, 11:42:50 AM
The spreadsheet is much more usefull for **trying** to prove to the 600k mortgage at 3% crowd than the 150k at 5% crowd...
The math at 5% is going to be much different than 3%...  Exponents and all....

I'll dig through the spreadsheet shortly and let you know if I find anything.  :)
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 15, 2018, 11:54:59 AM
The spreadsheet is much more usefull for **trying** to prove to the 600k mortgage at 3% crowd than the 150k at 5% crowd...
The math at 5% is going to be much different than 3%...  Exponents and all....

I'll dig through the spreadsheet shortly and let you know if I find anything.  :)

I agree.

Thanks, I appreciate it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on October 15, 2018, 12:08:11 PM
I appreciate all the digging for my case. That's why I had to post. I just couldn't figure it out either. So as of right now we're on the still on the 'Do not prepay mortgage' page and focus on pretax investments?
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 15, 2018, 12:25:07 PM
The spreadsheet is much more usefull for **trying** to prove to the 600k mortgage at 3% crowd than the 150k at 5% crowd...
The math at 5% is going to be much different than 3%...  Exponents and all....

I'll dig through the spreadsheet shortly and let you know if I find anything.  :)

I agree.

Thanks, I appreciate it.

Spreadsheet looks correct.  Technically....  Since OP is alread a bit into his loan, we aren't seeing the exact values on a 360 term but its 100% accurate for him as far as time is concerned.  I doubt he is in the 22% income tax threshold.  Still, the fact that if he were to dump $3,000 into the mortgage to remove PMI monthly, he would lose another $30,000 by the end of the loan is telling.  Its not a good idea, generally, for him to prepay.

Also note:  he has to get down to 78% LTV to get rid of PMI or pay for another appraisal.  The agreement with the bank is 80% based on the standard amort schedule or 78% by law, or 80% LTV based on a re-appraisal (hence recommending a re-app now).  Getting to 80% ahead of schedule isn't enough, they still want the 2% or an app done.


Now the fun begins:
A $600,000 mortgage at 3% interest with 0% down payment investing vs making extra $5,000 payments to get rid of PMI nets an additional $1,049,703.00 if invested instead.
A $600,000 mortgage at 3% interest with 0% down payment investing vs making extra payments to pay off the whole house nets an additional $2,606,283.00 if invested instead.

Thats why the math at 3% doesn't work.  Even at 150k at 3% the numbers are much more drastic.  A 3% mortgage is a great thing...
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 15, 2018, 12:36:54 PM
I appreciate all the digging for my case. That's why I had to post. I just couldn't figure it out either. So as of right now we're on the still on the 'Do not prepay mortgage' page and focus on pretax investments?

Yes.  The math says no to pre-payment. 

Which would make you more comfortable in 7 years, having removed PMI and owing 78% of the principle on your loan with a 6 month emergency fund
--or--
Having PMI and owing ~86% of the principle on your loan but having a 6-month emergency fund and an additional $9,950.74 in an investment account (or your 401k, which would be an even higher amount due to pre-tax) that you can draw on in an absolute emergency...?

$9,950.00 would buy you an additional 12 months worth of payments or so while you find another job (in a personal level SHTF situation).  Most likely, just by not paying PMI, in the next 7 years you will have doubled your emergency fund from 6 months to 12 months (IE - less personal risk) while also getting closer to FIRE.  Thats a deal I would take.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 15, 2018, 12:41:02 PM
The spreadsheet is much more usefull for **trying** to prove to the 600k mortgage at 3% crowd than the 150k at 5% crowd...
The math at 5% is going to be much different than 3%...  Exponents and all....

I'll dig through the spreadsheet shortly and let you know if I find anything.  :)

I agree.

Thanks, I appreciate it.

Spreadsheet looks correct.  Technically....  Since OP is alread a bit into his loan, we aren't seeing the exact values on a 360 term but its 100% accurate for him as far as time is concerned.  I doubt he is in the 22% income tax threshold.  Still, the fact that if he were to dump $3,000 into the mortgage to remove PMI monthly, he would lose another $30,000 by the end of the loan is telling.  Its not a good idea, generally, for him to prepay.

Also note:  he has to get down to 78% LTV to get rid of PMI or pay for another appraisal.  The agreement with the bank is 80% based on the standard amort schedule or 78% by law, or 80% LTV based on a re-appraisal (hence recommending a re-app now).  Getting to 80% ahead of schedule isn't enough, they still want the 2% or an app done.

Thanks for looking it over. Yeah, I didn't have enough information to figure out how many payments into the loan I should start but I figured treating it like a new 30 year was close enough for this case. I did try to make as many fields configurable as possible (expected investment returns, marginal tax bracket, LTV threshold, etc.).
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 15, 2018, 12:47:51 PM
I appreciate all the digging for my case. That's why I had to post. I just couldn't figure it out either. So as of right now we're on the still on the 'Do not prepay mortgage' page and focus on pretax investments?

No problem, I enjoy playing with numbers. Yes, I think pretax investments should be your priority, at least for the ones that don't have crazy fees.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on October 15, 2018, 02:33:20 PM
All valid points. If it helps any. 12% (Thinking 6% for state?) Tax bracket and 359 payments left.

I really am grateful for all the help.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 15, 2018, 03:06:39 PM
All valid points. If it helps any. 12% (Thinking 6% for state?) Tax bracket and 359 payments left.

I really am grateful for all the help.

Assuming 18% marginal tax rate your investments will need to beat ~6.3%/year (including inflation) over 30 years to come out ahead. Historically this has happened over 90% of the time (S&P 500).
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 15, 2018, 10:09:34 PM
Gotta say, there are a number of disclaimers, such as:

1. If you're funding every retirement/investment vehicle available to you and still have money left over
2. You don't live where you can get fixed-rate mortages
3. You don't live where mortgages are tax deductible

4. You live in a place where housing is cheap and
5. You haven't bought a clown house

...then the advantages of Don't Payoff vs. Prepayment become smaller and smaller.

With such a small mortgage, I'd consider skipping the math and PMI gyrations and stockpiling $125k asap (side hustles, belt tightening, etc.). Once I had the payoff amount in hand, the option of decimating the mortgage in one fell swoop might seem a reasonable option.

But I live in a high COLA where $125k won't even buy you a garage.
The points 2 & 3 are true, but I need to point out:
My variable rate mortgage is about 1% lower than the available fixed rate, which compensates for the difference in not going for fixed rate and taking on the risk.  (put the extra into a non-reg account, ready to pull and pay down the principal if needed)

Even with no deduction on mortgages (hmm didn't the USA just pass a revision to taxes reducing this?), there is still a benefit to not paying down the mortgage -- BUT!  usually getting rid of PMI is a very high priority due to the payback / costs.   e.g., get the employer match, then pay off your PMI to 80% LTV.

@RWD -- can you elaborate, 6.3% returns are "bad"  ?  Is that annual return or return over all 94 months?  Why "Bad"?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 16, 2018, 06:35:26 AM
@RWD -- can you elaborate, 6.3% returns are "bad"  ?  Is that annual return or return over all 94 months?  Why "Bad"?

It's bad for nominal annual returns over 30 years as 90% of the time they have been higher (https://dqydj.com/sp-500-historical-return-calculator/). For a 94 month period 2.442% annual returns would be bad (again, worst 10 percentile). I used "bad" because it was short and fit nicely in the table...
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 16, 2018, 10:16:16 AM
@RWD -- can you elaborate, 6.3% returns are "bad"  ?  Is that annual return or return over all 94 months?  Why "Bad"?

It's bad for nominal annual returns over 30 years as 90% of the time they have been higher (https://dqydj.com/sp-500-historical-return-calculator/). For a 94 month period 2.442% annual returns would be bad (again, worst 10 percentile). I used "bad" because it was short and fit nicely in the table...
Ah, thanks.   I see where my misunderstanding occurred.  I always use the nominal rates NET of inflation, so I can compare everything in today's dollars... and 6.3% over 94 months NET OF INFLATION is not bad at all.  :-)

I think you or another person already pointed out the impact of inflation, and how to adjust the final numbers to take it into account.. ..a mortgage is paid off in FUTURE dollars, at a $ amount decided today, but the dollars themselves are worth less and less due to inflation over time... which is why a mortgage has another advantage to keeping it for a long time.

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 16, 2018, 11:13:18 AM
@RWD -- can you elaborate, 6.3% returns are "bad"  ?  Is that annual return or return over all 94 months?  Why "Bad"?

It's bad for nominal annual returns over 30 years as 90% of the time they have been higher (https://dqydj.com/sp-500-historical-return-calculator/). For a 94 month period 2.442% annual returns would be bad (again, worst 10 percentile). I used "bad" because it was short and fit nicely in the table...
Ah, thanks.   I see where my misunderstanding occurred.  I always use the nominal rates NET of inflation, so I can compare everything in today's dollars... and 6.3% over 94 months NET OF INFLATION is not bad at all.  :-)

I think you or another person already pointed out the impact of inflation, and how to adjust the final numbers to take it into account.. ..a mortgage is paid off in FUTURE dollars, at a $ amount decided today, but the dollars themselves are worth less and less due to inflation over time... which is why a mortgage has another advantage to keeping it for a long time.

I used nominal for these calculations because I didn't want to guess at what inflation would be and it simplifies the calculations. But it should be fine either way. Calculate using nominal returns and the actual mortgage interest rate or using real returns and mortgage interest minus inflation.

The SP500 has beaten 6.3% nominal returns about 65% of the time for a 94 month period. The period I was calculating for though was the 30 year mark, which is what gives the 90% success rate. If the house was sold at the 94 month mark then 6.3% returns would not be good enough to come out ahead. You would need 7.5%+ nominal returns to come out ahead after 94 months. This has happened about 55% of the time in the past.

Yes, the longer you can keep a mortgage the less expensive it gets due to inflation.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 17, 2018, 07:24:09 AM
This is so good, I just had to share it here. Thanks, @Telecaster, this is brilliant! B42 would heartily approve.

My thought of saving the money in investments until I have enough to pay it off in is that I would have more liquid available in case of job loss or other emergency. Just paying extra on the mortgage every month does get me the guaranteed return, but obviously is not at all liquid.

I'm thinking about putting half toward the mortgage for the guaranteed return and the other half in taxable.

Anybody have thoughts on this? Invest then pay off in lump sum vs. extra principal payments with guaranteed 4.65% returns?

A couple thoughts. First--and this seems subtle, but it really isn't--is that you don't get a guaranteed "return" by paying down the mortgage. What you are really getting is a future savings. If you were getting an actual return, then you could become richer than Bill Gates by paying off your 23% credit card every month. As a matter of shorthand, everyone says "return" and I often do too, but it is important to understand the difference.

Second, you are making the calculation wrong. You have to compare apples to apples. Nominal stock market returns are about 10%. If you are going to adjust for inflation down to 7%, then you also need to adjust your mortgage cost down to about 1.5%. Is a 1.5% "return" even worth your time? As you correctly point out, in case of a job loss or other calamity (hate to use the word divorce, but divorces happen), the money is locked up in your house where it is expensive and difficult to access. And again, you are locking up your money indefinitely for 1.5.%. But even with the very conservative stock market returns you are using, you are still coming out a million bucks ahead. That's real money.   Even if it is only half a million bucks ahead, that's still real money. 

Imagine if it wasn't a mortgage, it was some other investment. We'll call it private shares in the Deadward Bones Company. Here's the FAQ:

Q:  How long does it take for my shares to become fully vested in Deadward Bones?

A:  30 years. But if you pay extra, you get a bonus return of 4.5%. 

Q:  Bonus return? Sounds great! What is the standard return during that time?

A:  Nothing. 

Q:  But once I'm vested, it pays dividends, right?

A:  No. You get nothing, other than you don't have continue making payments. 

Q:  You mean, once I'm fully vested those shares generate no return? 

A:  Correct.   

Q:  What if I want or need part of the money I've invested?   

A:  Too bad. You can't get your money back unless you sell the entire investment and there are very high costs and commissions that go along with that. However, you might be able to borrow against it. But no guarantees on that one.   

Q:  What if I can't make the payments before I'm fully vested? Like say in the event of disability or job loss? 

A:  We seize your assets, including most or even all of the extra payments you've made. You are guaranteed of getting nothing, and you might even owe us. That only thing that is is guaranteed is that this happens you will pay us enormous fees. 

Q:  Really? You'd kick a guy when he's down like that?

A:  Damn straight. 

Q:  This sounds like the stupidest fucking investment I've ever heard of! What kind of lunatic would even consider something so obviously nutso?

A:  You'd be surprised.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 17, 2018, 08:46:16 AM
The logic about maintaining a mortgage balance is fundamentally correct, but I disliked the Bill-Gates argument.

Financial life is about perceiving a basket of different investments and allocating cash flow toward them. Some of these do involve settling debt from a short position...you can earn that guaranteed 23% return on the $580 balance on that credit card, but it's simply not available for that 581st dollar. (this group is where the mortgage belongs)

Some of these involve taking the long position, bearing no risk and getting a lower return: you can put whatever money you wish--up to what you have--into that savings account and earn a risk free rate of 2%. Or you can lend some of it to your cousin, who promises you 10% interest for the next month, but you also know your cousin is unreliable.

Or, you can invest it in the stock market into any of a number of investments.

You're not going to become the next Warren Buffet by lending money to unreliable cousins chasing double-digit percentage returns.
Title: Re: DONT Payoff your Mortgage Club
Post by: PizzaSteve on October 17, 2018, 11:19:49 AM
This is so good, I just had to share it here. Thanks, @Telecaster, this is brilliant! B42 would heartily approve.

My thought of saving the money in investments until I have enough to pay it off in is that I would have more liquid available in case of job loss or other emergency. Just paying extra on the mortgage every month does get me the guaranteed return, but obviously is not at all liquid.

I'm thinking about putting half toward the mortgage for the guaranteed return and the other half in taxable.

Anybody have thoughts on this? Invest then pay off in lump sum vs. extra principal payments with guaranteed 4.65% returns?

A couple thoughts. First--and this seems subtle, but it really isn't--is that you don't get a guaranteed "return" by paying down the mortgage. What you are really getting is a future savings. If you were getting an actual return, then you could become richer than Bill Gates by paying off your 23% credit card every month. As a matter of shorthand, everyone says "return" and I often do too, but it is important to understand the difference.

Second, you are making the calculation wrong. You have to compare apples to apples. Nominal stock market returns are about 10%. If you are going to adjust for inflation down to 7%, then you also need to adjust your mortgage cost down to about 1.5%. Is a 1.5% "return" even worth your time? As you correctly point out, in case of a job loss or other calamity (hate to use the word divorce, but divorces happen), the money is locked up in your house where it is expensive and difficult to access. And again, you are locking up your money indefinitely for 1.5.%. But even with the very conservative stock market returns you are using, you are still coming out a million bucks ahead. That's real money.   Even if it is only half a million bucks ahead, that's still real money. 

Imagine if it wasn't a mortgage, it was some other investment. We'll call it private shares in the Deadward Bones Company. Here's the FAQ:

Q:  How long does it take for my shares to become fully vested in Deadward Bones?

A:  30 years. But if you pay extra, you get a bonus return of 4.5%. 

Q:  Bonus return? Sounds great! What is the standard return during that time?

A:  Nothing. 

Q:  But once I'm vested, it pays dividends, right?

A:  No. You get nothing, other than you don't have continue making payments. 

Q:  You mean, once I'm fully vested those shares generate no return? 

A:  Correct.   

Q:  What if I want or need part of the money I've invested?   

A:  Too bad. You can't get your money back unless you sell the entire investment and there are very high costs and commissions that go along with that. However, you might be able to borrow against it. But no guarantees on that one.   

Q:  What if I can't make the payments before I'm fully vested? Like say in the event of disability or job loss? 

A:  We seize your assets, including most or even all of the extra payments you've made. You are guaranteed of getting nothing, and you might even owe us. That only thing that is is guaranteed is that this happens you will pay us enormous fees. 

Q:  Really? You'd kick a guy when he's down like that?

A:  Damn straight. 

Q:  This sounds like the stupidest fucking investment I've ever heard of! What kind of lunatic would even consider something so obviously nutso?

A:  You'd be surprised.
Yes, it ticks all the B42 boxes.

1) Weird logical false strawman attacking using the term guaranteed return aimed at the impact of paying down debt (of course you take a 23% interest savings over investing in stocks, some people even take CD returns over stocks, with good reasons).
2) Exaggerated future market returns built into benefits (10% year on year)
3) Implication that market returns are guaranteed better in long run (without apparent awareness of the irony after attacking the guaranted thing on prepayment)
4) Use of swear words (f bombs, which Dicey seems to think add something to the dialog)
5) Insulting others who are here to discuss the topic by calling a reasoned decision to pay down a mortgage 'stupid' and any person who does that a 'lunatic' even in the face of the many, many reasoned posts explaining why, due to local market, emotional or sequence of returns wise, it can be good to do.   Also, for those not accumulating and over the target, it is just the right thing to do according to all the experts, unless you advise increasing consumption instead, which is counter to all MMM values.

I agree it is worthy of that banned poster.  Only needs a puppet account to post agreement with himself,....well close.
Title: Re: DONT Payoff your Mortgage Club
Post by: HPstache on October 17, 2018, 12:43:41 PM
A home does pay dividends, in a sense, though.  It provides you a place to live - something you'd have to pay for otherwise.  Don't get me wrong, I agree that a home is not an investment and that it make more sense to invest rather than pay down your mortgage if the rate is low.  But to completely ignore the value of being able to live in the house during those 30 years is short sighted.  Maybe a better example for the imaginary conversation above would be investing in a Organic Farm that provides food throughout the year while your are reaching full vesting.  Sure it's not a monetary dividend, but it does provide something of value during the years that you'd have to pay for otherwise.  I might be wrong, but it seems strange to completely ignore the functional value of buying a house...
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on October 17, 2018, 02:54:53 PM
A home does pay dividends, in a sense, though.  It provides you a place to live - something you'd have to pay for otherwise.  Don't get me wrong, I agree that a home is not an investment and that it make more sense to invest rather than pay down your mortgage if the rate is low.  But to completely ignore the value of being able to live in the house during those 30 years is short sighted.  Maybe a better example for the imaginary conversation above would be investing in a Organic Farm that provides food throughout the year while your are reaching full vesting.  Sure it's not a monetary dividend, but it does provide something of value during the years that you'd have to pay for otherwise.  I might be wrong, but it seems strange to completely ignore the functional value of buying a house...

Not quite, because you still have a place to live regardless if you pay down the mortgage or not, and therefore you capture the imputed value of rent no matter what.   Now, if you are deciding whether to rent or buy, then you definitely need to consider the cost of rent.  But in this case, we're assuming that we already bought and we deciding to pay down the mortgage or not.

Regardless, my point is that if you didn't call a mortgage a "mortgage" but called it "cattle futures" or some other thing with all the same characteristics of a mortgage*, people would universally view it as a poor investment.   And it is a poor investment.  The upside is small, barely above inflation, yet requires a long time horizon and the investment is illquid, expensive to access, and no guarantees you even can access it.  Why would you choose an investment like that?  There are a host of much more attractive options.  The answer is people have emotional attachments to their house (nothing wrong with that, I have an emotional attachment to mine), and that blinds them from thinking about the financial aspects. 


*Standard disclaimers apply:  A long-term mortgage at today's low interest rates. 
Title: Re: DONT Payoff your Mortgage Club
Post by: HPstache on October 17, 2018, 05:24:48 PM
A home does pay dividends, in a sense, though.  It provides you a place to live - something you'd have to pay for otherwise.  Don't get me wrong, I agree that a home is not an investment and that it make more sense to invest rather than pay down your mortgage if the rate is low.  But to completely ignore the value of being able to live in the house during those 30 years is short sighted.  Maybe a better example for the imaginary conversation above would be investing in a Organic Farm that provides food throughout the year while your are reaching full vesting.  Sure it's not a monetary dividend, but it does provide something of value during the years that you'd have to pay for otherwise.  I might be wrong, but it seems strange to completely ignore the functional value of buying a house...

Not quite, because you still have a place to live regardless if you pay down the mortgage or not, and therefore you capture the imputed value of rent no matter what.   Now, if you are deciding whether to rent or buy, then you definitely need to consider the cost of rent.  But in this case, we're assuming that we already bought and we deciding to pay down the mortgage or not.

Regardless, my point is that if you didn't call a mortgage a "mortgage" but called it "cattle futures" or some other thing with all the same characteristics of a mortgage*, people would universally view it as a poor investment.   And it is a poor investment.  The upside is small, barely above inflation, yet requires a long time horizon and the investment is illquid, expensive to access, and no guarantees you even can access it.  Why would you choose an investment like that?  There are a host of much more attractive options.  The answer is people have emotional attachments to their house (nothing wrong with that, I have an emotional attachment to mine), and that blinds them from thinking about the financial aspects. 


*Standard disclaimers apply:  A long-term mortgage at today's low interest rates.

This is where I have the problem with your story:

"Q:  But once I'm vested, it pays dividends, right?

A:  No. You get nothing, other than you don't have continue making payments.

Q:  You mean, once I'm fully vested those shares generate no return?

A:  Correct.   "

Being "fully vested" in your example (paid off house) does begin to pay "dividends" (a place to live with no mortgage).  You're making paying off your home early sound worse than it actually is (agreed, it is less than ideal though) by putting no value on the home when it is mortgage-free (saying there are no dividends / return).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 17, 2018, 06:44:41 PM
4) Use of swear words (f bombs, which Dicey seems to think add something to the dialog)
There is so much meat on this bone. It's going to be tough to choose where to begin. Let's try #4, shall we?

MMM on Twitter:
"I love how the anti-swearing crowd feels it is their public duty to email me daily and suggest I edit out all profanity. VERY HELPFUL"

MMM on, well, his very own blog:
"I’m really sorry to have to say this, but this blog is a hobby and not a corporation. So in order to stay motivated to write, I have to write in the way that I enjoy writing. And I just happen to find this shit funny. If it’s any consolation, I don’t actually think I am even remotely badass in real life, so you can imagine a mild-mannered computer engineer doing the typing, rather than a Smug Asshat, whatever that looks like. And as a consolation to me, plenty of people seem to be reading all this smug asshatty profanity, so I’d say it’s a sign I should continue writing this way."

And then there's this classic:
http://www.mrmoneymustache.com/2012/06/21/i-just-gave-up-4000-per-month-to-keep-my-freedom-of-speech/

Yeah, I think @Telecaster is coloring well within the MMM lines here, and yes, I loved their post, profanity and all, which is why I quoted it, PizzaSteve. Please feel free to write whatever you want on your own blog.

Title: Re: DONT Payoff your Mortgage Club
Post by: YoungGranny on October 18, 2018, 08:12:28 AM
It's been about a year since I've firmly joined the DPYMC folks and before then I must admit I was paying it down. However I just got an email for redemption! My lender is willing to recast my loan back to the original maturity date with a lower monthly payment. +1 for being able to course correct and pay $150 less on my mortgage each month =D
Title: Re: DONT Payoff your Mortgage Club
Post by: onlykelsey on October 18, 2018, 08:25:23 AM
It's been about a year since I've firmly joined the DPYMC folks and before then I must admit I was paying it down. However I just got an email for redemption! My lender is willing to recast my loan back to the original maturity date with a lower monthly payment. +1 for being able to course correct and pay $150 less on my mortgage each month =D

That's interesting (and great for you!).  Do you think they're just trying to shore up their long-term financials?  Take advantage of this interest rate environment?
Title: Re: DONT Payoff your Mortgage Club
Post by: YoungGranny on October 18, 2018, 08:38:59 AM
Not really sure why they're doing it. It's great for me to lock in at my 3.25% interest rate - it seems like it'd be better for them if I did a refinance at a new, higher interest rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 18, 2018, 10:00:15 AM
Not really sure why they're doing it. It's great for me to lock in at my 3.25% interest rate - it seems like it'd be better for them if I did a refinance at a new, higher interest rate.

This is somewhat baffling because today's rates are up around 5% (for 30 year fixed refi at any rate), so I don't see why the re-cast is in the lender's interest in this case.  They must really want to keep you as a customer for some reason!  Was there any fee associated with the re-cast offer?  Do you mind sharing which lender you're using?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 18, 2018, 10:39:55 AM
It's been about a year since I've firmly joined the DPYMC folks and before then I must admit I was paying it down. However I just got an email for redemption! My lender is willing to recast my loan back to the original maturity date with a lower monthly payment. +1 for being able to course correct and pay $150 less on my mortgage each month =D
OMG, do it before they change their minds!
Title: Re: DONT Payoff your Mortgage Club
Post by: YoungGranny on October 19, 2018, 10:45:20 AM
Not really sure why they're doing it. It's great for me to lock in at my 3.25% interest rate - it seems like it'd be better for them if I did a refinance at a new, higher interest rate.

This is somewhat baffling because today's rates are up around 5% (for 30 year fixed refi at any rate), so I don't see why the re-cast is in the lender's interest in this case.  They must really want to keep you as a customer for some reason!  Was there any fee associated with the re-cast offer?  Do you mind sharing which lender you're using?

My loan was sold to Chase about a year ago so they're the ones offering the recast. Perhaps it's because I'm a relatively safe client? Credit score over 800, loan balance is equal to roughly half of my households annual salary. That's the only reason I can think they want to do it but I'm totally spit-balling here because it still doesn't make sense to me. It will be free for me to get the recast since my account is in "good standing" and will apply for Dec 1 payment!
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 19, 2018, 11:02:36 AM
My loan was sold to Chase about a year ago so they're the ones offering the recast. Perhaps it's because I'm a relatively safe client? Credit score over 800, loan balance is equal to roughly half of my households annual salary. That's the only reason I can think they want to do it but I'm totally spit-balling here because it still doesn't make sense to me. It will be free for me to get the recast since my account is in "good standing" and will apply for Dec 1 payment!

Free recast -- that's fantastic!  So strange that they're just offering it to you out of the blue, but (assuming the fine print checks out) that sounds like an awesome opportunity for you come full circle in your mortgage paydown => stop paydown => invest instead journey.  Congrats.  :)

Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 19, 2018, 12:26:21 PM
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 19, 2018, 12:30:55 PM
(https://i.imgflip.com/2ki28p.jpg)
...
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 19, 2018, 12:33:22 PM
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.

@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 19, 2018, 12:36:16 PM
(https://i.imgflip.com/2ki2x8.jpg)
Title: Re: DONT Payoff your Mortgage Club
Post by: HPstache on October 19, 2018, 12:43:52 PM
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.

@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

You two do realize that having an significant e-fund is also not mathematically optimal?  Right?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 19, 2018, 01:03:00 PM
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.

@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

You two do realize that having an significant e-fund is also not mathematically optimal?  Right?
Right! But that depends on where you put your EF money. Agreed that under the mattress and passbook savings are terrible options. Losing your home because you have no EF is worse.

You do realize that having no EF, prepaying a cheap-ass, fixed rate mortgage, and not getting your employer's full match is worse still. Right?

Can you believe there are people who do this and still believe they're being mustachian? And they're not getting facepunched??
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 19, 2018, 01:16:58 PM
The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

I'm not here to argue in favor of paydown -- it's clearly the wrong thread for that.  :)  I'm just offering my congratulations to those who are making headway in their non-paydown strategy.  I think it's super cool that Youngranny found a strategy that works for her, and the unexpected recast opportunity is some pretty sweet icing on the cake.

And I definitely agree that understanding the trade-offs is really important.  In a sense we're paying off our mortgage from an ivory tower; already (barebones) FI, maxing out pre-tax accounts, relatively small mortgage compared to income/nest egg, taxable account balance exceeds mortgage balance, etc.  I wouldn't necessarily recommend our strategy for someone in different circumstances.

One minor quibble: it's possible (very unlikely over longer timelines, if history turns out to be a decent guide) that a paydown strategy will be optimal.  But that won't be known until some time in the future, since it depends on future market returns, inflation, tax laws, etc.  Having said that, I sure as heck hope SP500 returns beat the snot out of my 4.25% mortgage going forward, since the market is where the vast majority of our net worth is stashed!
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 19, 2018, 01:23:49 PM
Full disclosure: we are still planning on paying off our mortgage early, but I've always had the recast option in my back pocket just in case we want to change course.  Our lender has a fairly modest $100 fee for recasting.  If it were free, I'd probably do it immediately whether or not we planned on paying off the mortgage (P&I would drop from ~$1,700 to ~$500 in our case).

The problem isn't people paying down their mortgage.  The problem is people blindly paying down there mortgage without doing to math first and recognizing the costs of doing so.  Especially if they are not maxing out their tax-free investment options or don't have a significant E-fund.  Those are the issues.  As long as one understand the math and the costs, then a decision to pay down is still financially wise, just not financially optimal.

Kudos on the paydown.  :)
it gives me goosebumps to see posts like this, @TexasRunner! I love it when people get the math.

@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

You two do realize that having an significant e-fund is also not mathematically optimal?  Right?
Right! But that depends on where you put your EF money. Agreed that under the mattress and passbook savings are terrible options. Losing your home because you have no EF is worse.

You do realize that having no EF, prepaying a cheap-ass, fixed rate mortgage, and not getting your employer's full match is worse still. Right?

Can you believe there are people who do this and still believe they're being mustachian? And they're not getting facepunched??

My 6-Month rolling timeline of CD's at 2.4% is accesible in an emergency...  My 30k+ in equity is not accessible at all.  Having a 6 month to 1 year E-fund is not perfectly optimal but is insurance.  However, paying early into a mortgage doesn't net any of those benefits.

Also, people with 2 to 3 year EM Funds need facepunching too, unless they are already FIRE and do not include the cash in there 4% rule calcs.  But even still, early paydown on a low fixed-rate mortgage is worse...  thats how bad it is.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 19, 2018, 01:25:07 PM
@Bird In Hand, you're balking over a hundred bucks? Seriously? I'd grab that offer and never look back. There's no guarantee it will be around forever.

That's a good point!  We've had the same lender for many years, and the recast policy/fee hasn't changed in those years.  Obviously not a guarantee that it will continue in the future, but since we've reached barebones FI, and our taxable account exceeds our mortgage balance, we're feeling pretty relaxed about the whole thing.  If they unexpectedly offered us a free recast I'd jump on it just to save the $100 -- lowering the P&I from $1,700 to $500 would just be a fun side effect  :D
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 19, 2018, 01:28:39 PM
You two do realize that having an significant e-fund is also not mathematically optimal?  Right?

Hey, don't drag me into this -- most of our EF is in our Roth IRAs invested in index funds!
Title: Tax deferral benefits Re: DONT Payoff your Mortgage Club
Post by: rpr on October 19, 2018, 09:11:19 PM
For a US married couple above 50 with both working, the amount of tax deferred space next year will be $64 K (assuming a 401K and IRA for each). If said couple were in a 30% bracket (including federal + state), the savings are $19.2K. That is a pretty hefty chunk of change. For a couple below 50, the tax savings are  ~$15K.

Basically, for every $1K that you prepay the mortgage instead of maxing your tax deferred space, you are forfeiting an immediate tax savings of $300. Once this tax deferred space is lost it is likely to be gone forever.
 
In ER assuming lower income, setup a Roth Ladder and slowly convert the money in lower (no) tax brackets to harvest the savings.

It is so totally worth it to be in the DPYMC (especially if you are in the US and not maxing your tax deferred space). 
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on October 19, 2018, 09:18:20 PM
(https://i.imgflip.com/2ki2x8.jpg)

Haha! I would suggest this for post of the day but it would probably be too incendiary.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 19, 2018, 11:20:10 PM
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!

Luckily, that is not the "Best Post..." thread, so you are certainly welcome to post it there, @rpr. It's certainly worthy of wider distribution and always, always, always, further discussion.
Title: Re: DONT Payoff your Mortgage Club
Post by: PizzaSteve on October 20, 2018, 11:20:23 AM
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!

Luckily, that is not the "Best Post..." thread, so you are certainly welcome to post it there, @rpr. It's certainly worthy of wider distribution and always, always, always, further discussion.
This is a complete misscharacterization of the debate, with maximum spin.  No one objected to the illustration that keeping a morgage to leverage investments could deliver a better long term return.

We objected to

1) Calling someone stupid or idiots if they chose not to pursue that strategy
2) Implying that these better returns are guaranteed due to 'math', rather than the historically the case based on back testing.
3) Endlessly trolling any post stating a different opinion.  Repeating points 2 and 3, over and over again.  Because anyone who didnt agree with holding fixed rate debt for long leverage needed to be yelled at, cussing at, etc., even in threads where peolee were not seeking this 'advice,' like a case study.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 21, 2018, 08:43:11 AM
I was not responding to you, but I do find it mildly interesting that you are so sure that "no one objected to"...anything.  How can you possibly know that? Talk about "maximum spin". Also not clear who "we" is.

You are forgetting that Boarder42 started this thread, perhaps?

You and I are never going to see eye to eye, so let's just agree not to agree, m'kay? I'm sure we can both live happy, productive lives with no further interaction.

.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 21, 2018, 12:25:18 PM
I had a stray thought about mortgage payoff.  One that I do not recall being addressed.

Because I live in the land of 5 year terms, we essentially need to shop for a mortgage every 5 years.

When I was in the USA I was a bit shocked at first, at the upfront costs to get into a mortgage, and "buying points" costs for mortgages.   Here, the costs are all back end loaded, so it can be nearly free upfront, but with a huge penalty if you end your mortgage before 5 years are up.

Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?   I have owned / lived in 4 different locations, plus a rental location, since I first became a home owner 23 years ago. 


  If new mortgage origination costs are incurred by selling every 7 years, or 3x over a 30 year investment horizon.... how much of an impact/ drag does it put into the equation.

For someone with a "pay off" mentality:
I would assume that loan origination costs are needed at the start, then are quite small for the first move after 7 years, (e.g., 1/2) because half the mortgage is gone.   The next 2 moves would then have zero loan origination costs because there is no loan.

For the person keeping the mortgage to invest, they would have added loan origination costs after 7 years, 17 years, 27 years, for each move.

How big of an impact to the "keep mortgage" math is it to someone moving every 7 to 10 years?

For most, I agree that maximizing one's mortgage and investments typically pays off.  -- this is my genuine question, not an attempt to negate the theme of this thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 21, 2018, 12:48:31 PM
I had a stray thought about mortgage payoff.  One that I do not recall being addressed.

Because I live in the land of 5 year terms, we essentially need to shop for a mortgage every 5 years.

When I was in the USA I was a bit shocked at first, at the upfront costs to get into a mortgage, and "buying points" costs for mortgages.   Here, the costs are all back end loaded, so it can be nearly free upfront, but with a huge penalty if you end your mortgage before 5 years are up.

Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?   I have owned / lived in 4 different locations, plus a rental location, since I first became a home owner 23 years ago. 


  If new mortgage origination costs are incurred by selling every 7 years, or 3x over a 30 year investment horizon.... how much of an impact/ drag does it put into the equation.

For someone with a "pay off" mentality:
I would assume that loan origination costs are needed at the start, then are quite small for the first move after 7 years, (e.g., 1/2) because half the mortgage is gone.   The next 2 moves would then have zero loan origination costs because there is no loan.

For the person keeping the mortgage to invest, they would have added loan origination costs after 7 years, 17 years, 27 years, for each move.

How big of an impact to the "keep mortgage" math is it to someone moving every 7 to 10 years?

For most, I agree that maximizing one's mortgage and investments typically pays off.  -- this is my genuine question, not an attempt to negate the theme of this thread.

You should evaluate on a case by case basis and not as a general rule. For each new mortgage you should estimate how long you plan to keep the property and weigh that against the expected investment returns for the same period.

As for origination costs if you are renewing your mortgage on a regular basis then you should roll that into your interest calculation. If you have the choice of buying a house outright or financing then you should include the origination costs as part of your interest rate as well. But after you already have a mortgage those costs are sunk and you should compare investing to the ongoing interest rate.

Even for the "pay off" crowd there are still plenty of costs associated with buying/selling property once they get to the point of being able to buy a house without financing. It cost us roughly 6.7% of the selling price to sell our last house. When we bought our current house we paid $500 in mortgage origination fees and $1600 in title and other fees. So not getting a mortgage would have saved us a whopping 0.2% of the purchase price. So I think mortgage origination fees are pretty inconsequential.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on October 21, 2018, 01:56:37 PM
Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?   


I think it's the wrong question motivated by the right idea. :)


If someone is moving very often, they should be asking themselves if they should be buying a house AT ALL.   It's not the mortage fees that get you (if you're decent at shopping around), it's the real estate commissions.


Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 21, 2018, 07:31:43 PM
RWD -- Thanks,  I am not up to date on the US origination fees (amount for a given size of mortgage)... It makes a lot of sense that they might represent up to 0.5%, but at the end of the day, evaluate the decision based on the rolled up mortgage rate, versus the invest decision.

This is the kind of "math" question that pops into my head at night...   I love to mentally test financial frameworks that I believe in to see how risk or other "drags' would affect them.   Usually the impact is minor, but I have been very surprised.

SwordGuy -- to true!   That is why I indicated 7 to 10 years, and not 4 ot 7 years.  :-)   


I think that the math pays out to keep your mortgage.   

The primary reason to pay it down / off, is not actually because the math is better, long term, but because of cash flow impacts.    As long as income is rolling in, it is easy to be comfortable with the mortgage.

I find in FIRE that YES, I could draw more capital out of investments to pay down the mortgage rate... but... my nature is that I MUCH prefer to not touch my investments monthly, and to keep the cash flow outlays small.  A large mortgage (mine is currently over $2k per month) does not mesh well with low cash flow / ability to be agile with investment withdrawals.

    It is easier for me  to make a large, once a year decision of how much to draw, and when, than it is to draw from investments when they dip....  So, I am uncomfortable with the large mortgage, but so far I have chosen to keep it because of MATH.



Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on October 21, 2018, 08:11:12 PM
(https://i.imgflip.com/2ki2x8.jpg)

Let me fix that:

Mustachians: "We have the choice between a low fixed-rate mortgage and equities that are currently very expensive from a historical viewpoint. We know that if we pay off the mortgage instead of investing, we are no longer looking at 30-year timelines but much shorter ones where fixed-rate investments can blow equities out of the water. We also have various other reasons why choosing the fixed return can help eliminate left-tail risk under certain circumstances. What do we do?"

Boarder42: "You are all fucking idiots for not accepting my naive worldview that there is absolutely no risk related to investing in equities. You deserve a facepunch and stripping of all Mustachian honors because it's obvious that historical returns predict future performance."

The Moderator, while throwing B42 out the window: "If you continue to be an asshole after numerous reasonable comments to the contrary, good riddance. And payoff is not a verb, assclown!"

[MOD NOTE: Please don't misquote us, especially with insults.  We would be violating our own rules if we communicated with users in that fashion.]
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on October 21, 2018, 08:37:53 PM
I had a stray thought about mortgage payoff.  One that I do not recall being addressed.

Because I live in the land of 5 year terms, we essentially need to shop for a mortgage every 5 years.

When I was in the USA I was a bit shocked at first, at the upfront costs to get into a mortgage, and "buying points" costs for mortgages.   Here, the costs are all back end loaded, so it can be nearly free upfront, but with a huge penalty if you end your mortgage before 5 years are up.

Now for the stray thought -- How does the fact that the average person may move every 7 to 10 years impact the math to "keep your mortgage".?   I have owned / lived in 4 different locations, plus a rental location, since I first became a home owner 23 years ago. 


  If new mortgage origination costs are incurred by selling every 7 years, or 3x over a 30 year investment horizon.... how much of an impact/ drag does it put into the equation.

For someone with a "pay off" mentality:
I would assume that loan origination costs are needed at the start, then are quite small for the first move after 7 years, (e.g., 1/2) because half the mortgage is gone.   The next 2 moves would then have zero loan origination costs because there is no loan.

For the person keeping the mortgage to invest, they would have added loan origination costs after 7 years, 17 years, 27 years, for each move.

How big of an impact to the "keep mortgage" math is it to someone moving every 7 to 10 years?

For most, I agree that maximizing one's mortgage and investments typically pays off.  -- this is my genuine question, not an attempt to negate the theme of this thread.
The first step would be to make your best guesses at the information required to fill out https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html and see if buying made sense. Owning a house can introduce anchoring bias into your decisions, making them take a turn for the worse. Also they really do take time and work to sell.

After that, I agree that the US posters on the forum often make too much fuss about a 30 year mortgage. The average American moves about once every 9 years, and interest rates are usually better at the shorter end. Lots of people, who have already decided that buying is better than renting, should strongly consider a 5/1, 5/5, 7/1, or 10/1 adjustable rate mortgage unless they think this is truly their forever house, which is where they will reside for decades come hell or high water. I regret such a long mortgage on my house, shoulda used one of the ARM's I listed. I'd likely end with thousands more, unless things break just right.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on October 21, 2018, 11:01:54 PM
That 30 year mortgage is pretty cool, however, if you intend to carry a mortgage into FIRE -- no more requalifying with a now-low income!
Title: Re: DONT Payoff your Mortgage Club
Post by: Bateaux on October 21, 2018, 11:56:52 PM
I'm going to accept the math of not paying off producing a bigger stash in the end.  B42 beat that into me last year.   But, I still think I'm going to pay the SOB off before FIRE.  The stash is 10 times what is owed on the mortgage.  I just don't want the hassle of owing money.  Especially since I've pretty much decided to wait for 2020 anyhow. 
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on October 22, 2018, 07:26:54 AM
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.

If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on October 22, 2018, 08:54:49 AM
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.

If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.

Agreed. If one can get an after-tax risk-free return greater than the mortgage rate, one should absolutely never pay down the mortgage. But that's not the current case. The current choice involves risky equities versus low-interest bonds versus mortgage "bonds" with a duration equal to the amortization payoff schedule (and of course numerous other investment possibilities). The winner in this picture will only be clear after the fact.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 22, 2018, 10:22:25 AM
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.

If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.

Agreed. If one can get an after-tax risk-free return greater than the mortgage rate, one should absolutely never pay down the mortgage. But that's not the current case. The current choice involves risky equities versus low-interest bonds versus mortgage "bonds" with a duration equal to the amortization payoff schedule (and of course numerous other investment possibilities). The winner in this picture will only be clear after the fact.

Equities are not risky across 30 year timespans.  That is a fact.

If you believe they are, then you cannot FIRE until you have a stash of <years expecting to live> x <annual spending> saved, which is WAY higher than the 4% rule.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on October 22, 2018, 10:42:08 AM
I think as we see interest rates continue to rise back to near historical average and the associated rise of CD rates, it will become very obvious that those who held onto their fixed low rate debt took advantage of an economic situation that we most probably will not see again in our lifetime. When six month CD rates are 6% and the mortgage debt is 3%, all the risk arguments fall away.

If the debt is tied to a personal residence and you may move in the near to mid future, then the above does not apply.

Agreed. If one can get an after-tax risk-free return greater than the mortgage rate, one should absolutely never pay down the mortgage. But that's not the current case. The current choice involves risky equities versus low-interest bonds versus mortgage "bonds" with a duration equal to the amortization payoff schedule (and of course numerous other investment possibilities). The winner in this picture will only be clear after the fact.

Equities are not risky across 30 year timespans.  That is a fact.

If you believe they are, then you cannot FIRE until you have a stash of <years expecting to live> x <annual spending> saved, which is WAY higher than the 4% rule.

And mortgages do not have a 30-year duration if one is paying it off early. That is also a fact. Therefore, one needs to look at the appropriate timespan when performing a true comparison.
Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on October 22, 2018, 01:36:10 PM
I'm going to accept the math of not paying off producing a bigger stash in the end.  B42 beat that into me last year.   But, I still think I'm going to pay the SOB off before FIRE.  The stash is 10 times what is owed on the mortgage.  I just don't want the hassle of owing money.  Especially since I've pretty much decided to wait for 2020 anyhow.

I won't "get there" for a few years, so it's still kind of academic at this point.  But let's say I arrive at my number, for purposes of argument $1M.  Then let's say I save up an additional amount that is equivalent to the outstanding mortgage balance at that time, say $75k for example.  Let's further assume I have about five years left to go on the mortgage at that point and I'm booking along at 3 1/8 percent.  The arbitrage is, of course, make the mortgage payments as they come along and invest the 75k.  Here's the deal:  at a short time horizon (five years or less) it's not necessarily a sure thing that my investment will beat the interest rates.  It's more likely than not, but it's not a sure thing.  At that point it might be simpler to just pay the sucker off and go on with life.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 22, 2018, 01:52:00 PM
I'm going to accept the math of not paying off producing a bigger stash in the end.  B42 beat that into me last year.   But, I still think I'm going to pay the SOB off before FIRE.  The stash is 10 times what is owed on the mortgage.  I just don't want the hassle of owing money.  Especially since I've pretty much decided to wait for 2020 anyhow.

I won't "get there" for a few years, so it's still kind of academic at this point.  But let's say I arrive at my number, for purposes of argument $1M.  Then let's say I save up an additional amount that is equivalent to the outstanding mortgage balance at that time, say $75k for example.  Let's further assume I have about five years left to go on the mortgage at that point and I'm booking along at 3 1/8 percent.  The arbitrage is, of course, make the mortgage payments as they come along and invest the 75k.  Here's the deal:  at a short time horizon (five years or less) it's not necessarily a sure thing that my investment will beat the interest rates.  It's more likely than not, but it's not a sure thing.  At that point it might be simpler to just pay the sucker off and go on with life.

The SP500 has historically returned 4.65% or better 70% of the time over 5 year periods. Nothing is a sure thing in investing. We have had plenty of periods in US history where inflation has exceeded 3.125%. In those time periods the return on investment of paying down this mortgage would be negative in real terms.

I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 22, 2018, 03:49:58 PM
I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.

Yup.  This isn't the problem.  The problem is people not maxing out their tax-differed accounts or saving aggressively and instead paying down an extremely safe, low rate debt.

If someone is FIRE and wants to blast the mortgage, especially with significantly less time remaining, more power to them.  But doing so early in your FIRE savings timeline will hurt you by years- even more so if you don't max out your buckets....
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on October 22, 2018, 08:06:56 PM
I'm going to accept the math of not paying off producing a bigger stash in the end.  B42 beat that into me last year.   But, I still think I'm going to pay the SOB off before FIRE.  The stash is 10 times what is owed on the mortgage.  I just don't want the hassle of owing money.  Especially since I've pretty much decided to wait for 2020 anyhow.

I won't "get there" for a few years, so it's still kind of academic at this point.  But let's say I arrive at my number, for purposes of argument $1M.  Then let's say I save up an additional amount that is equivalent to the outstanding mortgage balance at that time, say $75k for example.  Let's further assume I have about five years left to go on the mortgage at that point and I'm booking along at 3 1/8 percent.  The arbitrage is, of course, make the mortgage payments as they come along and invest the 75k.  Here's the deal:  at a short time horizon (five years or less) it's not necessarily a sure thing that my investment will beat the interest rates.  It's more likely than not, but it's not a sure thing.  At that point it might be simpler to just pay the sucker off and go on with life.

The SP500 has historically returned 4.65% or better 70% of the time over 5 year periods. Nothing is a sure thing in investing. We have had plenty of periods in US history where inflation has exceeded 3.125%. In those time periods the return on investment of paying down this mortgage would be negative in real terms.

I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 23, 2018, 08:13:00 AM
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.

I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company.  But I am curious what makes that a significant burden.

In our case we would have our home insurance payments auto-deducted from our checking account once or twice a year, just like our car insurance.  And we would write a property tax check twice a year.  Comparing that to 12 auto-deducted mortgage payments, plus the annual ritual of escrow analysis and writing a lump sum check or changing the monthly payment amounts going forward?  I don't see a clear advantage to either approach.

I actually look forward to getting rid of tax/insurance escrow.  When tax/insurance is handled in escrow through the mortgage company, I don't even really think about the amounts -- they just get lost in the monthly payment.  If we handled it ourselves, I would probably scrutinize the insurance portion more carefully and perhaps be motivated to shop for a better deal.  Not only that, but it's annoying that the mortgage company gets to hold thousands of our dollars in escrow for months with a pathetic interest rate.  At our current property tax / savings account rates, we're giving up about $120/year.  As rates (and taxes!) keep ticking up, that number keeps climbing.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 23, 2018, 08:17:04 AM
I get the simplification argument. If your mortgage is an insignificant portion of your finances then just getting rid of it reduces the number of things you have to think about.
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.
Having the taxes and insurance all rolled into one monthly payment is certainly convenient. I once owned a small amount of land outright (was a gift) and paying taxes on it was a nightmare. The county kept mailing paperwork to the wrong address and since it was so infrequent I would forget that I should be expecting said paperwork. I got hit with lots of late penalties on that. I'm pretty sure I paid more than 10% of the value of the property in late fees alone...
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on October 23, 2018, 11:20:13 AM
many ppl make mistake of buying too much house.  but it's an easy trap to fall into , espec in HCOL
does anyone have any threasds or info about ascertaining how much house is too much? 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on October 23, 2018, 11:52:08 AM
many ppl make mistake of buying too much house.  but it's an easy trap to fall into , espec in HCOL
does anyone have any threasds or info about ascertaining how much house is too much?

Yeah, just a few......
https://forum.mrmoneymustache.com/ask-a-mustachian/how-much-house/
https://forum.mrmoneymustache.com/real-estate-and-landlording/how-much-house-to-buy/
https://forum.mrmoneymustache.com/welcome-to-the-forum/how-much-house-can-i-afford/
https://forum.mrmoneymustache.com/ask-a-mustachian/how-much-is-too-much-for-a-house/
https://forum.mrmoneymustache.com/ask-a-mustachian/how-much-house-can-i-afford-37980/
https://forum.mrmoneymustache.com/ask-a-mustachian/how-much-house-can-we-afford/
https://forum.mrmoneymustache.com/real-estate-and-landlording/how-much-house-should-i-afford/
https://forum.mrmoneymustache.com/ask-a-mustachian/how-much-house-to-buy-82199/
https://forum.mrmoneymustache.com/ask-a-mustachian/easy-ratio-for-how-much-house-to-buy/
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on October 23, 2018, 07:51:59 PM
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.

I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company.  But I am curious what makes that a significant burden.
Actually it would not really be enough of a burden to think about twice, just not an advantage either. Though I can say the county mails me my property tax summaries once a year to be paid out quarterly as far as I can tell, and they look really annoying. I might have to join RWD in the 10% penalty club if I was in charge.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 23, 2018, 10:21:33 PM
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.

I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company.  But I am curious what makes that a significant burden.
Actually it would not really be enough of a burden to think about twice, just not an advantage either. Though I can say the county mails me my property tax summaries once a year to be paid out quarterly as far as I can tell, and they look really annoying. I might have to join RWD in the 10% penalty club if I was in charge.
Yes, I know this is an MPP - I used to like having an impound account, but DH does not, therefore, we pay our taxes semi-annually ourselves. The taxes on all our properties total $32,500 per year. I know the tenants pay their share of the taxes in their rent, but that is still a fuck-ton of money. Fortunately, DH pays the bills, so I don't actually have to write the check(s), but damn, it hurts. I totally understand how an impound account takes some of the sting out of the taxman's bite.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 24, 2018, 10:20:09 AM
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.

I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company.  But I am curious what makes that a significant burden.
Actually it would not really be enough of a burden to think about twice, just not an advantage either. Though I can say the county mails me my property tax summaries once a year to be paid out quarterly as far as I can tell, and they look really annoying. I might have to join RWD in the 10% penalty club if I was in charge.
Yes, I know this is an MPP - I used to like having an impound account, but DH does not, therefore, we pay our taxes semi-annually ourselves. The taxes on all our properties total $32,500 per year. I know the tenants pay their share of the taxes in their rent, but that is still a fuck-ton of money. Fortunately, DH pays the bills, so I don't actually have to write the check(s), but damn, it hurts. I totally understand how an impound account takes some of the sting out of the taxman's bite.

Do your counties really not offer an online pre-payment or fixed payment schedule?  Ours charges $1 per online transactions and allows you to prepay as early as you want for the tax.  I was curious so I looked up the rules.  Get a rewards credit card, set up auto payments online and don't worry about it...?

Everyone might not have the same options though.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 27, 2018, 04:17:37 PM
For my case I don't. My house's owner-bank sorts out the insurance and county property tax for me. If I paid down the mortgage not only would I have higher risk while partly paid, lower returns expected in any case, but if I succeeded I'd have to deal with two institutions instead of one (county....*shudder*). Totally a loser situation in every respect, and if you would be making periodic investments into the S&P500 the percentage of 5-year periods with returns under 4.65% would be notably lower than for the bad-luck-of-the-draw lump sum sucker.

I'm not really arguing with you, because you're right that you have to deal with the insurance company and the tax entity (county in your case) instead of just the mortgage company.  But I am curious what makes that a significant burden.
Actually it would not really be enough of a burden to think about twice, just not an advantage either. Though I can say the county mails me my property tax summaries once a year to be paid out quarterly as far as I can tell, and they look really annoying. I might have to join RWD in the 10% penalty club if I was in charge.
Yes, I know this is an MPP - I used to like having an impound account, but DH does not, therefore, we pay our taxes semi-annually ourselves. The taxes on all our properties total $32,500 per year. I know the tenants pay their share of the taxes in their rent, but that is still a fuck-ton of money. Fortunately, DH pays the bills, so I don't actually have to write the check(s), but damn, it hurts. I totally understand how an impound account takes some of the sting out of the taxman's bite.

Do your counties really not offer an online pre-payment or fixed payment schedule?  Ours charges $1 per online transactions and allows you to prepay as early as you want for the tax.  I was curious so I looked up the rules.  Get a rewards credit card, set up auto payments online and don't worry about it...?

Everyone might not have the same options though.
Last we checked, the fees were prohibitive - i.e. for cash strapped Sukkas only, not worth the "rewards". Also, that 32.5k is spread out over five properties in two counties. Any fee, however modest, multiplied times five, tends to turn us off. I will look into the fixed payment schedule, but it would still essentially be pre-paying. We have the money to pay the taxes, it just hurts in a mustachian kind of way when the big checks get written.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on October 29, 2018, 07:47:03 PM
Last we checked, the fees were prohibitive - i.e. for cash strapped Sukkas only, not worth the "rewards". Also, that 32.5k is spread out over five properties in two counties. Any fee, however modest, multiplied times five, tends to turn us off. I will look into the fixed payment schedule, but it would still essentially be pre-paying. We have the money to pay the taxes, it just hurts in a mustachian kind of way when the big checks get written.

Dang that stinks.  Though it might help to compare the cost of the fees - even stacked together - compared to the costs of missing one payment by even a week.  The online fees might simply be a cheap insurance against forgetting to pay it (assuming your allowed to schedule in advance).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 29, 2018, 11:57:23 PM
Last we checked, the fees were prohibitive - i.e. for cash strapped Sukkas only, not worth the "rewards". Also, that 32.5k is spread out over five properties in two counties. Any fee, however modest, multiplied times five, tends to turn us off. I will look into the fixed payment schedule, but it would still essentially be pre-paying. We have the money to pay the taxes, it just hurts in a mustachian kind of way when the big checks get written.

Dang that stinks.  Though it might help to compare the cost of the fees - even stacked together - compared to the costs of missing one payment by even a week.  The online fees might simply be a cheap insurance against forgetting to pay it (assuming your allowed to schedule in advance).
Zero chance that we'll forget to pay, the penalties are huge. Not gonna happen.

We're in the middle of a very extensive flip; we're spending over $100k OOP* on renovations. First question as we were roughing out the budget was, "Do we have enough cash on hand to do this and easily pay our taxes?" Yes.

*If you've seen me say $200k before, you're sharp. We have a partner. They're putting in the other $100k. Even if we really screw up and go over the budget, we can still pay our property taxes, all of them.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 02, 2018, 04:20:17 PM
In the comments on an article that say "30 year mortgage are stupid", responding to a comment about a 30-year 3.75% mortgage, MMM himself advising to hold onto the mortgage for the long haul.

https://www.mrmoneymustache.com/2011/05/24/mmm-challenge-get-yourself-a-lower-mortgage-rate/#comment-1748446 (https://www.mrmoneymustache.com/2011/05/24/mmm-challenge-get-yourself-a-lower-mortgage-rate/#comment-1748446)

Guess some things have changed since 2011.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 06, 2018, 11:02:50 AM
His cash flow is greater than expected. Planning a mortgage position on a property is about balancing your cash flow--which could potentially be from other sources--with the interest rate. It's documented that MMM's cash flow from the blog is wildly beyond what he might have expected in 2011, therefore keeping the mortgage becomes more favorable.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 06, 2018, 12:00:45 PM
I agree, MMM is experiencing some hindsight bias. He clearly made the right choice to pay off the mortgage before retirement, given his input assumptions. I don't like to think of it as a cash flow situation, but rather as left-tail risk mitigation.

Let's compare two Mustachians, one just starting out and one getting ready for FIRE. They both share similar assumptions: a) given a low interest rate mortgage, stocks are expected to outperform paying off the mortgage over the long term; b) stocks come with some risk that they will not outperform paying off the mortgage over shorter time periods.

1) Mustachian Abe is a couple years out of college and just bought his house. He knows stocks are one of the best passive investment strategies to maximize earnings and minimize time to FIRE. He also considers the risk of what might happen if stocks decide to take a huge dump in his middle-to-late earnings years: if this were to happen, he knows they will probably rebound, but even if not he could work another year or two at his highest earning potential to attain FIRE.

2) Mustachian Beatrice is getting ready to FIRE in the next year or two. She knows stocks are one of the best passive investment strategies to help sustain her safe withdrawal rate through retirement. She also considers the risk of what might happen if stocks decide to take a huge dump early in FIRE; if this were to happen, she knows the chances are decent she might have to work as a Walmart greeter for five to ten years sometime in the next twenty years in order to not lose her house (and go hungry).

To conclude the parable of the two Mustachians, the tail risk consequences are the big differences as to why paying off the mortgage might make a lot of sense for the early retiree. For the earner, the choice is easy: with stocks, Abe is likely to cut years off his working career, with the very small risk he might need to work an extra year or two. Beatrice, on the other hand, knows that the consequence of failing in FIRE leads to a much less desirable conclusion.


By the way, came across this very thorough approach to the question of having a mortgage during early retirement: https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 06, 2018, 01:31:48 PM

By the way, came across this very thorough approach to the question of having a mortgage during early retirement: https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)

That was has come up before.   He makes a basic assumption inflation will remain constant at 2%.   Terrible assumption.  Current inflation rate is 2.5% and the historical average is about 3.5%.   Many people on this board remember when inflation was well into the double digits.  In fact, he sort of acknowledges this issue:


Finally, I can see how at some point down the road interest rates could be much higher than today. If you retire in 5 years and still have 20 years left on your 3.25% fixed rate mortgage but bond interest rates are now 3.5 or 4%, then by all means, hold on to that mortgage. Now the mortgage vs. bond leverage works beautifully!


The 10-year bond has already been over 3% a couple times this year, and historically has been been well above 4%.  There is a natural human tendency to assume that current conditions will extend into the future forever, but that's not the case in the real world.   We should anticipate bond and interest rates will return to something like average eventually.     Which is the more likely event?   A 1929-style market collapse or bonds yielding average returns?   And if the latter  happens--which it almost certainly will--his whole argument about paying down the mortgage goes away.

Speaking of changes in input assumptions:  Divorce.  I don't know MMM's personal circumstances so I won't speculate.  But let's take a hypothetical couple who has say, $700,000 in investments and a paid off house, and some years later they decide to get divorced.   How do you split the house?   One former spouse has to buy out the other one.  Where does that money come from? Or they have to sell the house, which is expensive and time consuming--and you don't wind up with a house.

If they had kept the mortgage, it would be much easier to buy out the other ex-spouse and they would have more liquid assets to do so.   Nobody plans on getting divorced, but it happens.   Sadly, it is a more likely event for most people than a 1929-style market collapse.   
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on December 06, 2018, 02:00:49 PM
...she knows the chances are decent she might have to work as a Walmart greeter for five to ten years sometime in the next twenty years in order to not lose her house (and go hungry).

...Beatrice, on the other hand, knows that the consequence of failing in FIRE leads to a much less desirable conclusion.

I think the situation of the second person as presented is unnecessarily dire. Despite the fact that a 3% withdrawal rate has a 100% success in the forecasters we have available, if Beatrice was concerned about a market drop affecting the longevity of her portfolio, she has a myriad of choices besides working at Walmart.  She could do any or combination of the following- 1) cut her vacation budget by 50% for a year or two, 2) cut her hobby/fun budget by 50% for a year or so, 3) work a fun part time job that ties into an interest of hers- taster at a winery, PT at an art gallery, brewer's assistant as a brewery. Or she could do both by working PT at an outdoor store, knitting shop, her gym, etc to both boost her income and an employee discount to help her fun budget stretch further.

Don't make the mistake of thinking that once someone leaves their chosen profession, they become a pariah in the working world. FIREd people are smart and hardworking- what every employer wants in an employee and isn't always easy to find in someone looking to work part time.

Hell, given what they pay people at wally world, she could probably earn more churning bank account bonuses.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 06, 2018, 03:28:19 PM
...she knows the chances are decent she might have to work as a Walmart greeter for five to ten years sometime in the next twenty years in order to not lose her house (and go hungry).

...Beatrice, on the other hand, knows that the consequence of failing in FIRE leads to a much less desirable conclusion.

I think the situation of the second person as presented is unnecessarily dire. Despite the fact that a 3% withdrawal rate has a 100% success in the forecasters we have available, if Beatrice was concerned about a market drop affecting the longevity of her portfolio, she has a myriad of choices besides working at Walmart.  She could do any or combination of the following- 1) cut her vacation budget by 50% for a year or two, 2) cut her hobby/fun budget by 50% for a year or so, 3) work a fun part time job that ties into an interest of hers- taster at a winery, PT at an art gallery, brewer's assistant as a brewery. Or she could do both by working PT at an outdoor store, knitting shop, her gym, etc to both boost her income and an employee discount to help her fun budget stretch further.

Don't make the mistake of thinking that once someone leaves their chosen profession, they become a pariah in the working world. FIREd people are smart and hardworking- what every employer wants in an employee and isn't always easy to find in someone looking to work part time.

Hell, given what they pay people at wally world, she could probably earn more churning bank account bonuses.

The Walmart greeter was a bit of an exaggeration, but the tail risk is nonetheless real. And of course a lot depends on the job market; in the current market, you can probably get a decent job if you have a pulse, but there have been some rough job markets that coincided with a shitty stock market.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 06, 2018, 03:54:48 PM

By the way, came across this very thorough approach to the question of having a mortgage during early retirement: https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/)

That was has come up before.   He makes a basic assumption inflation will remain constant at 2%.   Terrible assumption.  Current inflation rate is 2.5% and the historical average is about 3.5%.   Many people on this board remember when inflation was well into the double digits.  In fact, he sort of acknowledges this issue:


Finally, I can see how at some point down the road interest rates could be much higher than today. If you retire in 5 years and still have 20 years left on your 3.25% fixed rate mortgage but bond interest rates are now 3.5 or 4%, then by all means, hold on to that mortgage. Now the mortgage vs. bond leverage works beautifully!


The 10-year bond has already been over 3% a couple times this year, and historically has been been well above 4%.  There is a natural human tendency to assume that current conditions will extend into the future forever, but that's not the case in the real world.   We should anticipate bond and interest rates will return to something like average eventually.     Which is the more likely event?   A 1929-style market collapse or bonds yielding average returns?   And if the latter  happens--which it almost certainly will--his whole argument about paying down the mortgage goes away.

Speaking of changes in input assumptions:  Divorce.  I don't know MMM's personal circumstances so I won't speculate.  But let's take a hypothetical couple who has say, $700,000 in investments and a paid off house, and some years later they decide to get divorced.   How do you split the house?   One former spouse has to buy out the other one.  Where does that money come from? Or they have to sell the house, which is expensive and time consuming--and you don't wind up with a house.

If they had kept the mortgage, it would be much easier to buy out the other ex-spouse and they would have more liquid assets to do so.   Nobody plans on getting divorced, but it happens.   Sadly, it is a more likely event for most people than a 1929-style market collapse.

I agree with you that if we are looking at average expected returns, the best bet is to not pay the mortgage for a variety of reasons (including inflation). My comment was referring to minimizing tail risk in early retirement (which is the same objective of the 4% rule and cFIREsim), and looking at the tails one can see that deflationary events and poor stock returns (and shitty job markets) are correlated. (Do you think the unleveraged brokers were jumping out windows in 1929?)

As for divorce, it blows the 4% rule out of the water, regardless of whether or not the mortgage is paid off. One reason I think 4% is too conservative for me (not that I plan to divorce).
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on December 06, 2018, 03:55:56 PM
The Walmart greeter was a bit of an exaggeration, but the tail risk is nonetheless real. And of course a lot depends on the job market; in the current market, you can probably get a decent job if you have a pulse, but there have been some rough job markets that coincided with a shitty stock market.

But that is one of the benefits of FIRE, no? If the stock market dropped 40% on year 2 of your retirement with 4% SWR and you're in that one Oh, Shit! monte carlo simulation, you wouldn't be need to go out immediately to get a job to make ends meet. You could cut back some of the discretionary spending for a couple years and casually search for a PT job that interests you. If the market stinks and it takes awhile that find that job, big deal.
Title: Re: DONT Payoff your Mortgage Club
Post by: moof on December 06, 2018, 04:22:48 PM
I played with Cfiresim and compared my own personal situation as to paying down the mortgage now vs over its natural life.  For my OWN situation with a 3% mortgage, 95% success rate while factoring approximate tax differences (barely affects things), and so forth I get a shoulder shrug result.

My SWR goes down 1.5% by paying down my mortgage early over the next 5 years compared to finishing it off over the next 13 remaining years.

So in my case I chose to stick with the 13 year payout.  I completely understand the the arguments on both sides, I chose to base my own decision on numbers.  If my rate was anything north of 4% I would probably have gone the other way.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 06, 2018, 07:23:43 PM
I played with Cfiresim and compared my own personal situation as to paying down the mortgage now vs over its natural life.  For my OWN situation with a 3% mortgage, 95% success rate while factoring approximate tax differences (barely affects things), and so forth I get a shoulder shrug result.

My SWR goes down 1.5% by paying down my mortgage early over the next 5 years compared to finishing it off over the next 13 remaining years.

So in my case I chose to stick with the 13 year payout.  I completely understand the the arguments on both sides, I chose to base my own decision on numbers.  If my rate was anything north of 4% I would probably have gone the other way.

3% is a killer deal. Under certain circumstances you can break even on the SWR (consider looking at the options throughout your time horizon), but you might as well keep it at that interest rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 06, 2018, 07:28:51 PM
The Walmart greeter was a bit of an exaggeration, but the tail risk is nonetheless real. And of course a lot depends on the job market; in the current market, you can probably get a decent job if you have a pulse, but there have been some rough job markets that coincided with a shitty stock market.

But that is one of the benefits of FIRE, no? If the stock market dropped 40% on year 2 of your retirement with 4% SWR and you're in that one Oh, Shit! monte carlo simulation, you wouldn't be need to go out immediately to get a job to make ends meet. You could cut back some of the discretionary spending for a couple years and casually search for a PT job that interests you. If the market stinks and it takes awhile that find that job, big deal.

Agreed, if you had discretionary money to cut. But, my point remains, if the point is to get enough and FIRE, many (especially given the rising mortgage rates) can get to 4% SWR sooner by paying off the mortgage shortly before retirement.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 07, 2018, 02:06:03 PM
I agree with you that if we are looking at average expected returns, the best bet is to not pay the mortgage for a variety of reasons (including inflation). My comment was referring to minimizing tail risk in early retirement (which is the same objective of the 4% rule and cFIREsim), and looking at the tails one can see that deflationary events and poor stock returns (and shitty job markets) are correlated. (Do you think the unleveraged brokers were jumping out windows in 1929?)


Not quite.  BigErn's analysis that you linked to showing advantage of not having a mortgage in retirement assumed a inflation rate of just 2% for the next 60 years.  A couple problems with that assumption: 

-There has never been a 60 year period of 2% inflation in the United States

-There has never even been been a 30 year period of 2% inflation in the United States.

-Inflation is higher than 2% right now.

Is that an assumption you really want to use for retirement planning?   

It is easy to come up with scenarios where the 4% rule fails.  If something that has never happened before (like say 2% inflation for 30 years) happens in the future, then 4% won't work.    But that exercise is enormously unproductive, you can't protect against everything.   You should know within 7-10 years if the 4% rule is failing.  At that point there are a number of things you can do to mitigate, as tralfamadorian points out.   

On the flip side, instead of guarding against fantastically unlikely events (like 2% inflation for 30 years), keeping liquid assets outside the house provides protection against far more likely invents.   Divorce, for example.    Simple prudence dictates protecting yourself against more likely events before moving onto the unlikely. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 08, 2018, 09:58:06 AM
Inflation is a bit of a red herring in this conversation. The important things to consider are the returns on the mortgage relative to other investment assets, and the sequence of returns risk that comes with stock performance.

When you leverage assets into equities, the sequence of returns can blow up the portfolio (in both directions, positive and negative). This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on December 08, 2018, 10:08:17 AM
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection.  When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.

You should be aware of your States homestead laws and how that relates to protecting your assets.  Where I live (Florida) - we have no limit on homestead value/protection.  So every penny in your homestead is protected against creditors.  This could be bankruptcy, it could be an auto accident, it could be a lot of things.  And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.

For example.  Maybe you have $200k remaining on your mortgage and $1M in stocks.  Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on December 08, 2018, 10:53:06 AM
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection.  When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.

You should be aware of your States homestead laws and how that relates to protecting your assets.  Where I live (Florida) - we have no limit on homestead value/protection.  So every penny in your homestead is protected against creditors.  This could be bankruptcy, it could be an auto accident, it could be a lot of things.  And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.

For example.  Maybe you have $200k remaining on your mortgage and $1M in stocks.  Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.

Most 401k plans are also protected from bankruptcy and lawsuits.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on December 08, 2018, 10:58:56 AM
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection.  When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.

You should be aware of your States homestead laws and how that relates to protecting your assets.  Where I live (Florida) - we have no limit on homestead value/protection.  So every penny in your homestead is protected against creditors.  This could be bankruptcy, it could be an auto accident, it could be a lot of things.  And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.

For example.  Maybe you have $200k remaining on your mortgage and $1M in stocks.  Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.

Most 401k plans are also protected from bankruptcy and lawsuits.
Most states also have laws that give IRA's the same treatment as 401ks when it comes to lawsuits as well.

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Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on December 08, 2018, 11:04:18 AM


This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.

I'd like to see how you ran this through cFIREsim.  I've also ran different scenarios through to compare mortgage vs invest and I found the opposite.  Accelerating mortgage payoff almost always resulted in a longer time to FI if you assumed sub 4% mortgage rates.

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Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 08, 2018, 05:19:23 PM


This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.

I'd like to see how you ran this through cFIREsim.  I've also ran different scenarios through to compare mortgage vs invest and I found the opposite.  Accelerating mortgage payoff almost always resulted in a longer time to FI if you assumed sub 4% mortgage rates.

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I _think_  the logic goes like this (correct me if I'm wrong please):  Let's say you have a $1MM portfolio.   Your monthly expenses except housing are $26K a year.   You can:

1) Take out a nice $250K mortgage at sub 4% interest, your payments would be about $14K per year, add in the $26K in other expenses and boom!  The math works.  You can retire on 4% of your portfolio. cFIREsim gives this a 96% chance of success.   

2)  Plunk down $250K cash for a house, leaving you with $750K.   Since you only need the $26K, you can retire on a WR of only 3.4%.    Since 3.4% is safer than 4% there is less chance you go bust.  And indeed, cFIREsim gives this a 100% chance of success.   

There is some logic there.  A 4% chance of going bust is not nothing, and the standard of living is the same (at least early on).   However, cFIREsim allows you to model holding a mortgage by fixing some spending, instead of letting it rise with inflation.    If you fix the $14K mortgage spending then the success rate of holding a mortgage goes to 100%.

I suppose in theory the 3.4% WR is still microscopically safer, but c'mon!   Putting a large portion of your money in a single, non-liquid asset is plenty risky, and it is flat foolish to ignore those risks in order to protect yourself from scenarios that have never happened in recorded US financial history.     

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on December 08, 2018, 05:48:15 PM
This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.

I'd like to see how you ran this through cFIREsim.  I've also ran different scenarios through to compare mortgage vs invest and I found the opposite.  Accelerating mortgage payoff almost always resulted in a longer time to FI if you assumed sub 4% mortgage rates.

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I _think_  the logic goes like this (correct me if I'm wrong please):  Let's say you have a $1MM portfolio.   Your monthly expenses except housing are $26K a year.   You can:

1) Take out a nice $250K mortgage at sub 4% interest, your payments would be about $14K per year, add in the $26K in other expenses and boom!  The math works.  You can retire on 4% of your portfolio. cFIREsim gives this a 96% chance of success.   

2)  Plunk down $250K cash for a house, leaving you with $750K.   Since you only need the $26K, you can retire on a WR of only 3.4%.    Since 3.4% is safer than 4% there is less chance you go bust.  And indeed, cFIREsim gives this a 100% chance of success.   

There is some logic there.  A 4% chance of going bust is not nothing, and the standard of living is the same (at least early on).   However, cFIREsim allows you to model holding a mortgage by fixing some spending, instead of letting it rise with inflation.    If you fix the $14K mortgage spending then the success rate of holding a mortgage goes to 100%.

I suppose in theory the 3.4% WR is still microscopically safer, but c'mon!   Putting a large portion of your money in a single, non-liquid asset is plenty risky, and it is flat foolish to ignore those risks in order to protect yourself from scenarios that have never happened in recorded US financial history.     

House payments should not be considered the same as normal expenses with regards to the 4% rule because they don't increase with inflation (which you mentioned) and they are not indefinite. I don't think option 2) actually gives better results in cFIREsim. But at this point in either case 1) or 2) you are already well below the 4% rule.
Title: Re: DONT Payoff your Mortgage Club
Post by: muckety_muck on December 08, 2018, 07:35:48 PM
We have just over 11 years left on a 15 yr mortgage at 3%. We're not in any hurry to pay it off.

But - The mortgage payment will be a BEAST if we FIRE... so we may pay it off by then. Not sure. Have to look at what else we will have as income (rentals, etc).

Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on December 08, 2018, 08:12:32 PM
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection.  When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.

You should be aware of your States homestead laws and how that relates to protecting your assets.  Where I live (Florida) - we have no limit on homestead value/protection.  So every penny in your homestead is protected against creditors.  This could be bankruptcy, it could be an auto accident, it could be a lot of things.  And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.

For example.  Maybe you have $200k remaining on your mortgage and $1M in stocks.  Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.

Most 401k plans are also protected from bankruptcy and lawsuits.

Correct. But who said it has to be one or the other? Protecting $1M in a homestead is not comparable to $60k in an IRA.  Both are good options for asset protection.  But anyways, my point was simple and that is anyone having this debate about paying off a mortgage should also factor in asset protection. I know doctors who take asset protection very seriously with malpractice lawsuit concerns.  It's not the solution for everyone, but again, it is something to consider. I personally paid off my mortgage on a $1.4M home.  I like knowing I could FIRE by selling my house and that the money is protected, the security of that is a big deal for me. It also freed up a lot of cashflow that I aggressiveky invest.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on December 08, 2018, 09:38:11 PM
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection.  When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.

You should be aware of your States homestead laws and how that relates to protecting your assets.  Where I live (Florida) - we have no limit on homestead value/protection.  So every penny in your homestead is protected against creditors.  This could be bankruptcy, it could be an auto accident, it could be a lot of things.  And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.

For example.  Maybe you have $200k remaining on your mortgage and $1M in stocks.  Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.

Most 401k plans are also protected from bankruptcy and lawsuits.

Correct. But who said it has to be one or the other? Protecting $1M in a homestead is not comparable to $60k in an IRA.  Both are good options for asset protection.  But anyways, my point was simple and that is anyone having this debate about paying off a mortgage should also factor in asset protection. I know doctors who take asset protection very seriously with malpractice lawsuit concerns.  It's not the solution for everyone, but again, it is something to consider. I personally paid off my mortgage on a $1.4M home.  I like knowing I could FIRE by selling my house and that the money is protected, the security of that is a big deal for me. It also freed up a lot of cashflow that I aggressiveky invest.

It is not uncommon to end up with $1 million in a 401k either. I would much rather pay for umbrella insurance, malpractice insurance, or whatever is necessary for sufficient protection than tie up so much capital in my residence. A paid off house isn't perfectly safe either if you don't have the necessary insurance against some sort of "act of god" that destroys it (e.g. earthquake, flood).
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on December 08, 2018, 09:57:07 PM
Umbrella insurance is cheap.   If you have $1M in assets, you can afford it.


As for my mortgage, $180,001 on a 15 year 2.75% fixed rate basis.

13 years to go, balance now $157,002.52.

I'll knock off over $10,000 in principal paying the minimum next year.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on December 08, 2018, 10:15:16 PM
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection.  When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.

You should be aware of your States homestead laws and how that relates to protecting your assets.  Where I live (Florida) - we have no limit on homestead value/protection.  So every penny in your homestead is protected against creditors.  This could be bankruptcy, it could be an auto accident, it could be a lot of things.  And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.

For example.  Maybe you have $200k remaining on your mortgage and $1M in stocks.  Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.

Most 401k plans are also protected from bankruptcy and lawsuits.

Correct. But who said it has to be one or the other? Protecting $1M in a homestead is not comparable to $60k in an IRA.  Both are good options for asset protection.  But anyways, my point was simple and that is anyone having this debate about paying off a mortgage should also factor in asset protection. I know doctors who take asset protection very seriously with malpractice lawsuit concerns.  It's not the solution for everyone, but again, it is something to consider. I personally paid off my mortgage on a $1.4M home.  I like knowing I could FIRE by selling my house and that the money is protected, the security of that is a big deal for me. It also freed up a lot of cashflow that I aggressiveky invest.
If your income is high enough to pay off a 1.4m home then we are probably picking at small issues but here are my thoughts.

1. It is very easy to shelter a TON of money into 401k/IRA accounts.  If we stopped investing now we would still have about 4.3M between our tax advantaged accounts by "traditional" retirement assuming historical inflation adjusted returns.

2.  If you did happen to sell the house and FIRE then that 1.4m is no longer protected as it is now not secured by your home.

3. Potentially a better solution would be to do a mega backdoor roth if possible.  That way the money is protected until you withdraw minimal amounts to fund FIRE. It sounds like you may already be doing this though.



Either way you are kicking ass. Even though it may not be the most optimal route for asset growth and protection.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 10, 2018, 09:29:56 AM


This risk, when you consider the 4% rule (or cFIREsim), shows that in many cases (even with relatively low mortgage interest rates) you delay financial independence by holding on to the mortgage.

I'd like to see how you ran this through cFIREsim.  I've also ran different scenarios through to compare mortgage vs invest and I found the opposite.  Accelerating mortgage payoff almost always resulted in a longer time to FI if you assumed sub 4% mortgage rates.

Sent from my moto g(6) using Tapatalk

I went through the cFIREsim results for paying off the mortgage early during FIRE in this thread: https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733). This applies to someone about to enter FIRE or in FIRE, not someone in the accumulation stage, when the quickest way to FI is to use the mortgage to leverage into equities.

Note that there are a lot of factors that affect this decision, only a few of which I touched on here (mortgage interest rate, loan-to-portfolio ratio, and years remaining on loan). Note also that the math may change the decision point during FIRE (it might state to keep the mortgage a the beginning, but depending on how things go it might be advantageous later on to pay off the mortgage).
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on December 11, 2018, 09:45:08 AM
I didn't read the entire thread, but skimming the posts I don't see any discussion at all about asset protection.  When making a decision about paying off a mortgage, there is more to consider than just interest/ROI.

You should be aware of your States homestead laws and how that relates to protecting your assets.  Where I live (Florida) - we have no limit on homestead value/protection.  So every penny in your homestead is protected against creditors.  This could be bankruptcy, it could be an auto accident, it could be a lot of things.  And considering Mustachians often don't want to over insure, probably not carrying umbrella insurance, honestly, paying off a mortgage and protecting your funds may not always be a bad idea.

For example.  Maybe you have $200k remaining on your mortgage and $1M in stocks.  Pulling 20% of your stock portfolio to pay off the mortgage and protect these funds could very well be a good idea.

Most 401k plans are also protected from bankruptcy and lawsuits.

Correct. But who said it has to be one or the other? Protecting $1M in a homestead is not comparable to $60k in an IRA.  Both are good options for asset protection.  But anyways, my point was simple and that is anyone having this debate about paying off a mortgage should also factor in asset protection. I know doctors who take asset protection very seriously with malpractice lawsuit concerns.  It's not the solution for everyone, but again, it is something to consider. I personally paid off my mortgage on a $1.4M home.  I like knowing I could FIRE by selling my house and that the money is protected, the security of that is a big deal for me. It also freed up a lot of cashflow that I aggressiveky invest.
If your income is high enough to pay off a 1.4m home then we are probably picking at small issues but here are my thoughts.

1. It is very easy to shelter a TON of money into 401k/IRA accounts.  If we stopped investing now we would still have about 4.3M between our tax advantaged accounts by "traditional" retirement assuming historical inflation adjusted returns.

2.  If you did happen to sell the house and FIRE then that 1.4m is no longer protected as it is now not secured by your home.

3. Potentially a better solution would be to do a mega backdoor roth if possible.  That way the money is protected until you withdraw minimal amounts to fund FIRE. It sounds like you may already be doing this though.



Either way you are kicking ass. Even though it may not be the most optimal route for asset growth and protection.

Sent from my moto g(6) using Tapatalk

As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early?  Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.  I have them funded at "typical" levels which is $12,500/yr for my SIMPLE and $5500 for my traditional IRA.  Even at current funding and projected returns, based on my age, they are already funded enough for when I'm 60.  I project about $2.5M which is probably too much as it is.  Though I'll continue to fund them for a few more years.  I do use them for asset protection as well.  And again, my point was that asset protection should only be considered when contemplating paying off a mortgage, but not necessarily a rule.

If I had a 2.75% mortgage with only $150k on it like some folks here, I probably wouldn't be in a hurry to pay it off either.  Though and I am very much a proponent of being debt free, sub 3% is really, really cheap money.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on December 11, 2018, 10:44:20 AM
As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early?  Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.

But you can touch them (without penalty) before 60 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/).

If you go the "Roth Pipeline" route you pretty much only need 5 years' expenses in taxable accounts and/or Roth contributions.
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on December 12, 2018, 08:42:48 AM
As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early?  Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.

But you can touch them (without penalty) before 60 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/).

If you go the "Roth Pipeline" route you pretty much only need 5 years' expenses in taxable accounts and/or Roth contributions.

That's interesting.  Not something I was familiar with.  Now, can you tell me how I can put $200k/year in earnings in to an IRA so I can do this?  At the moment, at least to the best of my knowledge (always happy to learn more) - I can only put $18,000 or so in to my IRA's annually.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 12, 2018, 09:53:51 AM
As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early?  Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.

But you can touch them (without penalty) before 60 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/).

If you go the "Roth Pipeline" route you pretty much only need 5 years' expenses in taxable accounts and/or Roth contributions.

That's interesting.  Not something I was familiar with.  Now, can you tell me how I can put $200k/year in earnings in to an IRA so I can do this?  At the moment, at least to the best of my knowledge (always happy to learn more) - I can only put $18,000 or so in to my IRA's annually.
It isn't that complicated - you max your tax advantaged accounts to the extent possible, then invest in taxable. At an income that allows you to put $200K/year into investments, you almost certainly want to favor Traditional over Roth whenever you can. Depending on your situation, you might have:

401K/403B/TSP - 19K / year max (2019)
457B (available to a lot of teachers / government workers) - another 19K
IRA - 6K (depending on income may have to be Roth - under current law, if you're careful you can always make Roth IRA contributions, either straight-forwardly or via the backdoor)

Then your employer might have a 401a in addition to all of the above - often a non-optional fixed percentage goes into there. Then your 401K might support the Mega-backdoor Roth technique to get you up to the $56K limit.

Does any of your income come in the form of a side-business? Then up to another $56K into a solo 401K or SEP-IRA. If you have employees in your side business, do your homework on options. If you've got a large side business, you might even start a defined-benefit plan.

All of these numbers are per person if you're married. OK, 401K and the like are per working person. A lot of them also depend on the particulars of your employer's retirement plans, so there is no getting out of doing your homework.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 12, 2018, 09:56:12 AM
At that income, you might want to check out whitecoatinvestor.com - targeted at doctors, but has a lot of ideas that apply to pretty much anyone with a high income.
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on December 13, 2018, 06:48:21 AM
As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early?  Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.

But you can touch them (without penalty) before 60 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/).

If you go the "Roth Pipeline" route you pretty much only need 5 years' expenses in taxable accounts and/or Roth contributions.

That's interesting.  Not something I was familiar with.  Now, can you tell me how I can put $200k/year in earnings in to an IRA so I can do this?  At the moment, at least to the best of my knowledge (always happy to learn more) - I can only put $18,000 or so in to my IRA's annually.
It isn't that complicated - you max your tax advantaged accounts to the extent possible, then invest in taxable. At an income that allows you to put $200K/year into investments, you almost certainly want to favor Traditional over Roth whenever you can. Depending on your situation, you might have:

401K/403B/TSP - 19K / year max (2019)
457B (available to a lot of teachers / government workers) - another 19K
IRA - 6K (depending on income may have to be Roth - under current law, if you're careful you can always make Roth IRA contributions, either straight-forwardly or via the backdoor)

Then your employer might have a 401a in addition to all of the above - often a non-optional fixed percentage goes into there. Then your 401K might support the Mega-backdoor Roth technique to get you up to the $56K limit.

Does any of your income come in the form of a side-business? Then up to another $56K into a solo 401K or SEP-IRA. If you have employees in your side business, do your homework on options. If you've got a large side business, you might even start a defined-benefit plan.

All of these numbers are per person if you're married. OK, 401K and the like are per working person. A lot of them also depend on the particulars of your employer's retirement plans, so there is no getting out of doing your homework.

I am the employer.  If I do a 401k, then I have to deal with all the fees associated (that's why I didn't create one and went with a SIMPLE) and I'd be pretty much the only one using it.  Plus I already have a SIMPLE IRA, can I even do both?  Right now I max out the SIMPLE through the company and also a personal traditional IRA.  I make too much for a Roth and the tax advantages are favorable for a traditional anyways, as you know.

I am married and I max out my wife's traditional IRA, too.

The info here about penalty free withdrawals and the backdoor Roth is new to me, so I am going to do some more reading on that and discuss it with my accountant.

Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on December 13, 2018, 06:51:24 AM
At that income, you might want to check out whitecoatinvestor.com - targeted at doctors, but has a lot of ideas that apply to pretty much anyone with a high income.

I much prefer the strategies and approach of MMM regardless of my income.  It's timeless and useful.  I do read other sites, too.  But I like the "grounding" from a site like this that focuses a lot on frugality and I tend to relate better to the types of people here.
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on December 13, 2018, 07:04:38 AM
Are you eligible for a solo 401k? If so, there are no fees associated with them.
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on December 13, 2018, 11:36:57 AM
Are you eligible for a solo 401k? If so, there are no fees associated with them.

No, I have a lot of employees.  None of which took the SIMPLE IRA offer with matching.. Lol.  Oh well...  darn.  You want proof that people just don't understand the basics?  My office is it.
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on December 14, 2018, 10:16:54 AM
Are there any rules of thumb for choosing 10/15yr over a 30y?  Right now, the spread looks to be ~.6% (4.4% for 30, 3.8% for 10/15)

We'll be selling our current home this spring and relocating.  Netting ~$150k from sale.

New home will be $300-$350k, and trying to decide between 20% downpayment with 30y or 15y.  If we did 30y, we'd invest the difference between 15/30, and likely another $1k/mo with either mortgage.

We could put down larger downpayment and even look at a 10yr, but I think 15y might be the sweet spot.

Maxing all 401k/Roth/HSA, but very little left for taxable investing (driver of the move is to increase savings)

Thoughts?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on December 14, 2018, 10:44:02 AM
There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on December 14, 2018, 12:53:36 PM
No, I have a lot of employees.  None of which took the SIMPLE IRA offer with matching.. Lol.  Oh well...  darn.  You want proof that people just don't understand the basics?  My office is it.

LOL.  Yup, the company I work for operates several hundred restaurants.  The vast majority of the employees are kitchen and waitstaff.  I'm not considered a HCE so I can max out my account.  But the several times I've had to contact HR about a 401k issue it was obvious my questions were completely foreign to them.  401k participation is low and I'm clearly the outlier.  Like you said, the vast majority don't understand the basics.

Based on what I've seen I'd bet my entire stache that there are several times more people with pay garnishments than those who contribute to their 401k. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 14, 2018, 02:20:11 PM
There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.

One thing to consider if the poster really does intend to move is something like a 7/1 ARM.   The interest rate is between a 15 and a 30-year.  But the loan is amortized over 30 years, so the monthly payments will be lower than either.   You have to be pretty sure you will move before the fixed period is over though. 
Title: Re: DONT Payoff your Mortgage Club
Post by: FIRE@50 on December 14, 2018, 02:26:57 PM
There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.

One thing to consider if the poster really does intend to move is something like a 7/1 ARM.   The interest rate is between a 15 and a 30-year.  But the loan is amortized over 30 years, so the monthly payments will be lower than either.   You have to be pretty sure you will move before the fixed period is over though.
Really? You know what rates will be 7 years from now? Care to share?
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 14, 2018, 02:37:08 PM
I have no idea what rates will be in seven years.   That's exactly why a 7/1 ARM only makes sense if you are sure you are going to move.   The beauty of the 30-fixed is the extremely long period fixed at today's low rates.   But if you can't take advantage of that long time period, why pay extra?   
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 14, 2018, 05:59:40 PM
There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.

One thing to consider if the poster really does intend to move is something like a 7/1 ARM.   The interest rate is between a 15 and a 30-year.  But the loan is amortized over 30 years, so the monthly payments will be lower than either.   You have to be pretty sure you will move before the fixed period is over though.
Really? You know what rates will be 7 years from now? Care to share?
I have no idea what rates will be in seven years.   That's exactly why a 7/1 ARM only makes sense if you are sure you are going to move.   The beauty of the 30-fixed is the extremely long period fixed at today's low rates.   But if you can't take advantage of that long time period, why pay extra?   
Why the snark, @FIRE@50? What do you mean by "Care to share?"
Title: Re: DONT Payoff your Mortgage Club
Post by: Icecreamarsenal on December 14, 2018, 06:34:12 PM
Dag I messed up and paid off the mortgage today.  I blame MMM's accountant.  Granted, he's already FIRE'd.

https://wealthyaccountant.com/2018/09/24/paying-off-the-mortgage-vs-investing-the-difference/

Should I take out a HELOC and invest in the market?
Title: Re: DONT Payoff your Mortgage Club
Post by: mrmoonymartian on December 14, 2018, 07:15:25 PM
Dang I messed up and paid off the mortgage today.  I blame MMM's accountant.  Granted, he's already FIRE'd.

https://wealthyaccountant.com/2018/09/24/paying-off-the-mortgage-vs-investing-the-difference/

Should I take out a HELOC and invest in the market?
The guy has a point. And that point is... after successfully timing the market, it's a good idea to pocket some winnings if there is some piddling 6-figure debt that is mildly annoying to your 8-figure magnificence.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 14, 2018, 07:27:06 PM
Dag I messed up and paid off the mortgage today.  I blame MMM's accountant.  Granted, he's already FIRE'd.

https://wealthyaccountant.com/2018/09/24/paying-off-the-mortgage-vs-investing-the-difference/

Should I take out a HELOC and invest in the market?
You could take out a HELOC, but a more straightforward way would to simply refinance.
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on December 14, 2018, 08:27:51 PM
There's a break even point that depends on how long you will keep the house. Longer means 30 year mortgage is better. You should do the calculations yourself (or use something like the NY Times calculator) but it usually works out to something like less than 10 years the shorter mortgage with lower interest rate is better.

I’ll take a look for that calculator. New home is in a great town walking/biking distance to schools, groceries, and close family. So I anticipate being there long term. 

The 15yr would have house paid off when daughter is in high school, but lower payment of 30y gives flexibility for one or both of us to go part time work at some point.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 15, 2018, 02:06:34 AM
Dag I messed up and paid off the mortgage today.  I blame MMM's accountant.  Granted, he's already FIRE'd.

https://wealthyaccountant.com/2018/09/24/paying-off-the-mortgage-vs-investing-the-difference/

Should I take out a HELOC and invest in the market?
Sorry, if we can't comment on that other thread, comments like yours are not welcome here. Take it to the proper thead. Unless you're joking. In which case, welcome to the world of the enlightened.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 15, 2018, 10:01:09 AM
Our mortgage just got paid off.  Although, it happened, cause I already paid too much in.  Otherwise, it had just ran it's course,

It was paid off in 10 years. 

We just sold our other home.  Planning to invest it.  Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out.  Well, it happened.  Couldn't come at a better time, in our opinion.
Again, there's a thread for celebrating premature mortgage payoff and this is not it.

As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?

It seems unnecessarily antagonistic.
Title: Re: DONT Payoff your Mortgage Club
Post by: ACyclist on December 15, 2018, 10:13:41 AM
Our mortgage just got paid off.  Although, it happened, cause I already paid too much in.  Otherwise, it had just ran it's course,

It was paid off in 10 years. 

We just sold our other home.  Planning to invest it.  Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out.  Well, it happened.  Couldn't come at a better time, in our opinion.
Again, there's a thread for celebrating premature mortgage payoff and this is not it.

As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?

It seems unnecessarily antagonistic.

Antagonistic.  I am so sorry, if it came off that way.  Not intended.  I followed his advice and am honestly looking for what the next step should be. 

I thought he was the author of the thread.  Just making conversation. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 15, 2018, 10:24:43 AM
Our mortgage just got paid off.  Although, it happened, cause I already paid too much in.  Otherwise, it had just ran it's course,

It was paid off in 10 years. 

We just sold our other home.  Planning to invest it.  Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out.  Well, it happened.  Couldn't come at a better time, in our opinion.
Again, there's a thread for celebrating premature mortgage payoff and this is not it.

As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?

It seems unnecessarily antagonistic.

Antagonistic.  I am so sorry, if it came off that way.  Not intended.  I followed his advice and am honestly looking for what the next step should be. 

I thought he was the author of the thread.  Just making conversation.
He was, but has since been banned for multiple forum decorum violations.  For those of us who considered him an integral part of this forum it is sad to not have him around, regardless of whether we agreed with 100% of his postings.

I think Dicey's point is that this thread was created for those of us who choose not to pay off our mortgage.  There are lots (LOTS) of additional threads dedicated to discussing the pro's & con's of this approach.  Unfortunately it attracts some posters who want to congratulate themselves for doing the opposite of the thread's stated purpose.
Title: Re: DONT Payoff your Mortgage Club
Post by: ACyclist on December 15, 2018, 10:26:55 AM
We rode ours to the end, after chatting with boarder

<exiting>
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 15, 2018, 10:36:03 AM
Our mortgage just got paid off.  Although, it happened, cause I already paid too much in.  Otherwise, it had just ran it's course,

It was paid off in 10 years. 

We just sold our other home.  Planning to invest it.  Just have not hit those buttons. Posted an update for boarder, as it was suggested that we sell out.  Well, it happened.  Couldn't come at a better time, in our opinion.
Again, there's a thread for celebrating premature mortgage payoff and this is not it.

As to the "other home" update: if you're really posting for boarder42's benefit, why compose your post the way you did?

It seems unnecessarily antagonistic.

Antagonistic.  I am so sorry, if it came off that way.  Not intended.  I followed his advice and am honestly looking for what the next step should be. 

I thought he was the author of the thread.  Just making conversation.
Just making conversation with someone who is banned? If you really want him to know, you can compose a message, pm it to me and I will forward it to him. Otherwise, please take this topic to the other thread(s).

And yes, boarder42 did start this thread, at my suggestion. Seems people who were blithely celebrating paying off their mortgages, often at the expense of better options like saving enough to get their full employer match, had no tolerance for the possibility that their decisions were potentially sub-optimal. The mods asked us to lay off so this thread was born.

Boarder42 also started another great motivational thread. As 2018 wraps up, I fervently hope he reaches his goal.
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/1mm-networth-by-the-end-of-2018/

And @ACyclist, your comment is about to cross with mine. I'm not asking you to leave, just please stay on topic.
Title: Re: DONT Payoff your Mortgage Club
Post by: ACyclist on December 15, 2018, 10:51:40 AM
I didn't know Boarder was banned.  That makes me sad.  I was in celebratory mode about selling off the rental.

Was waiting for him to reply to me thread in another place on the site.  LOL  We better get that removed. 

Sad.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 15, 2018, 10:57:06 AM
I didn't know Boarder was banned.  That makes me sad.  I was in celebratory mode about selling off the rental.

Was waiting for him to reply to me thread in another place on the site.  LOL  We better get that removed. 

Sad.
Or you could let the mods know you'd like him back :-))

There's this thread, which he hopefully reads on occasion. https://forum.mrmoneymustache.com/off-topic/r-i-p-boarder42/150/
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on December 15, 2018, 10:57:33 AM
I'm also presuming that the first mortgage payoff person is trolling us. But for anyone else reading in the future to which it might be helpful: IMO fixed 30 year refinances are vastly superior to callable HELOCs for long term for stock market vs debt arbitrage.

And an on-topic question- unless something very expected happens in the next two weeks, 2018 has been a bust for me for buying property. I continue to doggedly check the numbers on all likely candidates I come across but nothing worked out this year. Simultaneously, while rates have dipped slightly the last month or so, overall they are still up ~1% over EOY 2017.

I just ran a quote at my favorite online lender, which gave me 5.255% APR in my target market. Against the total average stock market return of 10%, this still looks like a pretty good spread. But looking towards the future and presuming we will continue to see a regression to the mean, the choice becomes less clear. You know, I started with the previous then decided I was looking at this the wrong way. We say here all the time, 10% 10% 10% but really, what I'm interested in here as someone comparing 30yr fixed mortgage debt to the stock market, is rolling 30 year returns. Why should I look at average returns instead of rolling returns when I want an apples to apples comparison?

Taking a look at a chart of the rolling 30 year annual S&P returns here:
(https://awealthofcommonsense.com/wp-content/uploads/2016/05/Screen-Shot-2016-05-13-at-3.07.32-PM.png)

This chart makes me feel like chicken little for being uncomfortable with my potential 5.25% mortgage rate. There has never been a time in modern American history where the rolling 30 year average annual returns is less than a smidge under 8%.

And here is the chart of mortgage rates from the St Louis fed:
(https://fred.stlouisfed.org/graph/fredgraph.png?g=lBVh)

The data only goes back to the 70s but is still helpful. Note that the average rate is 8.08%.

What do you all think? What is the rate range where you would switch from long term minimum payments to lump sum payoff and why?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on December 15, 2018, 12:13:10 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.

A fun little update.... Moving to a better job market is definitely starting to pay off.

I just received an offer from another company for 20% higher base pay.  On top of that, the offer had RSU and Cash bonuses written into it for a total compensation increase of 40-50% depending on the cash bonus.

This means our total comp has had an estimated conservative increase of 45% between the two of us since moving from our LCOL area just over a year ago.  The best part is we have a pretty clear path to gain another 20-25% of base pay over the next 3 years which could put us back on a very quick path to FI regardless of our high mortgage.

It's been a rough ride but we are starting to see the light.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 15, 2018, 12:19:47 PM
Wow!
Title: Re: DONT Payoff your Mortgage Club
Post by: DreamFIRE on December 15, 2018, 01:21:33 PM

But I live in a high COLA where $125k won't even buy you a garage.

You can get a decent house with an attached two car garage in a nice neighborhood in my area for $125,000.  Jump that up to about $160,000, and you have a lot of nice options.  A dreamhouse log house that I like on 9 acres of land nicely secluded by trees is $200,000.  It's too far of a drive for work and is not a practical choice for me, so the dream is cheap. lol  We get stuck with higher property taxes, though.

When I got my home loans around 16 and 25 years ago, not a cent of it was deductible because my standard deduction alone exceeded what I could have deducted otherwise at that time, despite the high mortgage rates at the time.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 17, 2018, 10:47:04 AM
What do you all think? What is the rate range where you would switch from long term minimum payments to lump sum payoff and why?

First off, as most likely understand, there is no correct optimal answer to this question except in hindsight. The best we can do is study the past, and make the optimal choice based on those assumptions. And of course not everyone uses the same historical lens, which leads toward unique "right" answers for everyone. Now that that's out of the way....

The answer for me depends on investment timeframe.

If I am young, earning the big bucks, and early in my investment life (far from FI), I want to maximize expected returns. I'd probably tell my younger self to keep debt at up to around 10% to max out tax-deferred investments in equities, and maybe up to 5% for taxable accounts. The 10% would be my risk-taking attempt to maximize expected returns with the tax-deferred boost, while the 5% is lower than expected returns but understands the risk that if the economy tanks and the market tanks, I would still have to pay down that debt and might not have strong job prospects. For mortgage payments I might go slightly higher than 5% (maybe 7%), since it is a long-term debt instrument.

As I get closer to FI, the goal becomes less of maximizing returns to maximizing financial independence, and hence my risk tolerance decreases. I think it still makes sense to feed the fire with tax-deferred investments up to probably 8% or so (though by this time you really shouldn't have any debt anywhere near this high with the large taxable cash cushion), and for taxable I'd probably drop to 4% (my safe withdrawal rate). As for the mortgage, it would depend on the time remaining; the longer the remaining duration, the better chance of me holding onto a higher percentage rather than paying it off.

(The numbers might go up or down somewhat based on my feelings for current market and economy conditions.)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 23, 2018, 01:50:49 PM
In a perfect world, I would be posting this elsewhere on this forum, but the mods have spoken, so here I am, sharing these golden eggs with the enlightened. At least it's good confirmation. Feel free to share it far and wide, if you find a place that seems appropriate and not inflammatory. After all, the people celebrating their payoffs don't want to hear from the Debbie Downers like us, lol.

I think this Motley Fool article is so useful, I'm copying the entire text here and the link.

https://www.yahoo.com/finance/news/why-shouldn-apos-t-pay-124500544.html


Why You Shouldn't Pay Off Your Mortgage Early, Even If You Can
 
Sending in a monthly mortgage payment can be a hassle and a headache. It's probably your largest monthly payment, and it likely takes a good chunk out of your budget.
 
If you're tired of the bank being a co-owner on your home and want to stop sending in those payments every month, you may be tempted to try to pay off your mortgage early by sending in extra payments. Unfortunately, while it seems like a smart financial move, doing so can actually be a bad idea. Here's why.

1. There's a big opportunity cost to paying off your mortgage early.

Every dollar you put toward paying off your mortgage early is a dollar you can't use for anything else, such as saving up an emergency fund.

If you have no emergency fund because you put your extra money toward an early mortgage payoff, a single financial disaster could force you to take out costly loans. Or, if your mortgage hasn't been paid off in full yet,  an emergency could lead to foreclosure on your house if it means can't pay the mortgage later. While you could tap into the equity in your home using a home equity loan or line of credit to cover emergencies, getting these loans can be costly, time-consuming and you aren't guaranteed to get it.

Another opportunity cost is losing the chance to invest in the stock market. If you put all your extra cash toward a mortgage payoff, you're losing the chance to earn higher returns and benefit from compound growth by investing in the stock market. It's reasonable to expect around a 7% to 8% return if you invest in the broader market. Meanwhile, your mortgage rate is probably below 4.5% and may be much lower, so at most, you're likely getting a 4.5% return on any money you prepay to your mortgage.

You're better off doing something with your money that will most likely earn you close to double the return you'd get from paying off your home loan ahead of schedule. There's no pressure saying you have to beat your mortgage payment schedule.

2. You'll miss out on tax breaks.

If you itemize your taxes by taking specific deductions instead of claiming the standard deduction, you can deduct interest paid on your mortgage.  When you deduct mortgage interest, this reduces your taxable income for the year, meaning you may pay a less percent of your income in taxes if you fall into a lower tax bracket.

 If you took out your mortgage before December 15, 2017, you're eligible to deduct the cost of mortgage interest you pay on up to $1 million in mortgage debt. If you took out your loan after, you can deduct mortgage interest on up to $750,000 of indebtedness.

You give up that tax break each year  after your mortgage is paid off. Plus, if you're using money to pay your mortgage that you otherwise could've invested in a 401(k) or IRA, you're also giving up a tax break each year you could've gotten for retirement savings. And you don't have to itemize to claim these tax breaks for retirement investments, which means you can claim them even if you take the standard deduction.

If you spend $5,500 prepaying your mortgage instead of putting it into an IRA, you could miss out on a $1,210 tax break just from this alone if you're in the 22% tax bracket since you wouldn't have to pay the 22% tax on the $5,500 in income you deducted.

3. Inflation offsets savings in interest

Despite the fact you can earn better returns by investing than by paying off your mortgage early, some people still prefer to prepay their mortgage. This may be because of an aversion to debt, or a belief it's better to get the guaranteed return that comes from mortgage prepayment, since there's no guarantee invested money will grow.

The problem is, you need to factor in inflation when deciding if this strategy makes sense. Due to inflation, your mortgage effectively becomes cheaper to pay over time since the value of your money erodes but your mortgage payment stays the same (assuming you have a fixed-rate loan). If you have a monthly payment of $1,500 today, in 25 years, the $1,500 you'll pay toward your mortgage would be the equivalent of around $942 of today's dollars -- assuming inflation of 2% annually.

Since your mortgage payment is continually getting cheaper over time, it seldom makes sense to prepay it. Don't forget that all the interest savings you net from paying off the mortgage early are also reduced by inflation, making this even less of a good deal over time. If you save around $80,000 in interest by paying off a $300,000 4.5% mortgage in 21.5 years instead of 30 years, you've actually saved less than $50,000 when accounting for the fact you don't benefit from the interest savings for more than two decades.

Consider investing instead of paying off your mortgage early

If you want to make the smartest choice for your money, putting it into the market and building a diversified portfolio is the way to go. Over time, you'll likely earn better returns on your money, you will benefit from years of tax breaks, and the costs of your monthly mortgage payment will fall thanks to inflation.

Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on December 23, 2018, 07:33:02 PM
With the standard deduction being so high, the tax breaks on mortgage interest is probably irrelevant to most people here.

"putting it into the market and building a diversified portfolio is the way to go."

So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.


I think the Motley Fool author has Captain Hindsight syndrome.  Though they do admit the stock market will "likely" have better returns....  Compared to your guaranteed return on your mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 24, 2018, 12:10:02 AM
With the standard deduction being so high, the tax breaks on mortgage interest is probably irrelevant to most people here.

"putting it into the market and building a diversified portfolio is the way to go."

So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.


I think the Motley Fool author has Captain Hindsight syndrome.  Though they do admit the stock market will "likely" have better returns....  Compared to your guaranteed return on your mortgage.
Thanks for sharing your insights, @AlexMar.

Not quite sure how you concluded that the author's recommendation of a diversified portfolio means having all your money in the stock market. Diversified means, well, diversified.

And yes, yes, you have "met" someone who wishes she had a pre-December 15, 2017 mortgage. [Insert big sigh here.]

This article was deliberately posted on the "Don't..." thread. If you have another opinion, there's a more appropriate place for it. If we can't go there to discuss this concept, then sorry, you can't naysay it here. FWIW, no one is forcing anyone to do anything. Rather, we are open to learning all the angles so as to make the most informed decision possible. Because the goal is to reach FIRE as expediently as possible.

If you come, learn, and chose to do something different, that is your decision, but at least you will be fully informed, which is the Mustachian way. But you don't to get to stay here and attempt to dissuade others, you have to go to the other side. Kinda sucks, but that's what the mods asked us to do. We're abiding by their request and we will be mighty obliged if the folks with other opinions will kindly do the same.

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 24, 2018, 10:02:49 AM
Quote
So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.

Among the financially affluent, I think these people are more common than you realize. My parents like to joke that they are 40 years into their 30 year mortgage, nad they ‘only’ have another 12 to go.  Refinancing a home to pull out equity is a rather common strategy - unfortunately it’s gotten a bad rap lately when countless spends-pants consumers used the equity in their homes unintellegently, like for exotic vacations or installing a pool instead of increasing their wealth.  Ultimately that’s what refinancing is - transferring equity from one asset class into another.  In this case it’s pulling it from a rather illiquid asset with an historically low rate of return into something else.  If that something else allows for something like increased contributions into one’s 401(k) it’s likely a smart move.  If it’s to buy a luxury SUV, that’s not so intelligent use of money.

Finally, a key reason why you don’t hear a lot of people say “gosh, i wish I had never paid down my house”  or hear people talking about using tons of equity to throw it all into the market iis because these people never let it get to that point.  They’ve realized they can carry a mortgage for decades, and allow inflation to eat away at their payments while bulking up the rest of their financial buckets. It’s been an intentional, gradual process where each month they chose saving and investing more over reducing manageable low-interest debt.  Some - like my parents - carry their mortgages deep into retirement, and by that point their Principle and Interest payments pale in comparison to Taxes and Insurance (which never go away).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 24, 2018, 11:40:52 AM
Quote
So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.

Among the financially affluent, I think these people are more common than you realize. My parents like to joke that they are 40 years into their 30 year mortgage, nad they ‘only’ have another 12 to go.  Refinancing a home to pull out equity is a rather common strategy - unfortunately it’s gotten a bad rap lately when countless spends-pants consumers used the equity in their homes unintellegently, like for exotic vacations or installing a pool instead of increasing their wealth.  Ultimately that’s what refinancing is - transferring equity from one asset class into another.  In this case it’s pulling it from a rather illiquid asset with an historically low rate of return into something else.  If that something else allows for something like increased contributions into one’s 401(k) it’s likely a smart move.  If it’s to buy a luxury SUV, that’s not so intelligent use of money.

Finally, a key reason why you don’t hear a lot of people say “gosh, i wish I had never paid down my house”  or hear people talking about using tons of equity to throw it all into the market iis because these people never let it get to that point.  They’ve realized they can carry a mortgage for decades, and allow inflation to eat away at their payments while bulking up the rest of their financial buckets. It’s been an intentional, gradual process where each month they chose saving and investing more over reducing manageable low-interest debt.  Some - like my parents - carry their mortgages deep into retirement, and by that point their Principle and Interest payments pale in comparison to Taxes and Insurance (which never go away).
OMG - You've triggered a memory, nereo. I can hear (and see in my mind) exactly where we were standing in my parent's house when my dad was griping about how much their utility bills were. Even then, my smart-ass self told him he was lucky to be facing such a "big" problem. My taxes for a month were more than he paid in a year, and after 30+ years, they had no mortgage, so the utilities loomed large in comparison. It was a pretty funny conversation.

Which reminds me of another vignette, years later, with my mom. They had a new (paid-for) house in a Senior Community, a late model paid-cash-for Camry, no debt and a government pension, with incredible healthcare, plus SS for both. She was worrying about money, so I went through the finance dance with her and reviewed their numbers. I said, "You do realize that you have children who work full-time who don't earn this much?" She looked me straight in the eye and said, "Yes, but we can't go out and earn more." OMG, mom, you don't need to! In fact, after I backed out my HCOLA mortgage payment, they were netting more that I was. Scarcity mindset is real, especially for seniors.

Awesome that your parents set such a good example @nereo!
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on December 24, 2018, 12:33:12 PM
So the author thinks "diversified" means having all of your money in the stock market?  To this day I don't really know anyone who says "Gosh, I sure wish my house wasn't paid off" nor do I know anyone taking out huge equity lines on their homes to throw it all in to the stock market.

With the recent market dip, we are seriously discussing a cashout refi to put more into the stock market and to reset to a 30 year fixed rate mortgage. Tentative trigger is 40% drop. Consider it "rebalancing asset classes" if you like.

Any good tips on lenders to shop? Have top Preferred Rewards status with BoA, which saves a bit on their closing costs.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 24, 2018, 01:10:14 PM

I think the Motley Fool author has Captain Hindsight syndrome.  Though they do admit the stock market will "likely" have better returns....  Compared to your guaranteed return on your mortgage.

Imagine an investment where you don't see the returns for 10-20 years.   Oh, and the rate of return is only a point or so above the current inflation rate.  In you were trying to sell people on such an investment they would say you were barking mad.   
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 25, 2018, 04:32:07 PM
In a perfect world, I would be posting this elsewhere on this forum, but the mods have spoken, so here I am, sharing these golden eggs with the enlightened. At least it's good confirmation. Feel free to share it far and wide, if you find a place that seems appropriate and not inflammatory. After all, the people celebrating their payoffs don't want to hear from the Debbie Downers like us, lol.

I'll be the Debbie Downer here, at least as far as #3 goes (others have touched on the few Mustachians qualifying for the mortgage deduction these days).

(Though I sense I might offend sensibilities here, this isn't a post telling people to pay off their mortgage. I just want everyone to have the right information to make the properly informed decision.)


3. Inflation offsets savings in interest

Despite the fact you can earn better returns by investing than by paying off your mortgage early, some people still prefer to prepay their mortgage. This may be because of an aversion to debt, or a belief it's better to get the guaranteed return that comes from mortgage prepayment, since there's no guarantee invested money will grow.

The problem is, you need to factor in inflation when deciding if this strategy makes sense. Due to inflation, your mortgage effectively becomes cheaper to pay over time since the value of your money erodes but your mortgage payment stays the same (assuming you have a fixed-rate loan). If you have a monthly payment of $1,500 today, in 25 years, the $1,500 you'll pay toward your mortgage would be the equivalent of around $942 of today's dollars -- assuming inflation of 2% annually.

Since your mortgage payment is continually getting cheaper over time, it seldom makes sense to prepay it. Don't forget that all the interest savings you net from paying off the mortgage early are also reduced by inflation, making this even less of a good deal over time. If you save around $80,000 in interest by paying off a $300,000 4.5% mortgage in 21.5 years instead of 30 years, you've actually saved less than $50,000 when accounting for the fact you don't benefit from the interest savings for more than two decades.


Inflation with regards to mortgages is a huge red herring for Mustachians. (Inflation may pay a role if you're living paycheck to paycheck, where the reduced inflation-adjusted mortgage payment may result in transitioning from high-cost debt to investment savings or to allow for more tax-deferred savings.) If you're already maxing all tax-advantaged accounts, inflation is irrelevant*.

A mortgage is a debt instrument. And it happens to be amortized, though it could have been structured as a percentage of the debt that covers interest and some of the principle (or in any other matter). This has nothing to do with inflation. In fact, a debt instrument could be structured to increase with some pre-calculated inflation rate (say, 2%), and still the amount you pay would be the same (whatever the interest rate is). In fact, from a long-term investment strategy, an inflation-adjusted amortization schedule would be the ideal approach since you can invest more money early in the accumulation phase (note that the time horizon here is relevant, not the inflation rate).

Generally speaking, inflation is irrelevant when comparing your investment and debt alternatives. If you have doubts, use a spreadsheet to compare paying off a mortgage (at say, 5%) with investing in a fixed income instrument at the same interest rate (feel free to use any inflation rate). The outcome will be identical.

I know I'm going to get blow-back on this, but I think this is one of the huge myths a lot of people cling to to not pay off their mortgage. If there is something I'm not properly considering, I'd love to be corrected otherwise.

*The obvious exception would be if you're considering investing in TIPS.

p.s. Merry Season of Family Gathering.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on December 25, 2018, 04:49:26 PM
With interest rates continuing to rise, sometime in 2019 we could see risk-free FDIC insured savings accounts offering interest rates that are equivalent to the mortgage rates that many of us are paying. I'm looking forward to see how that changes the tone of the "should I pay off my mortgage" debate. I'm guessing the pay-off your mortgage camp will focus more on the emotional aspects of paying off debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: mrmoonymartian on December 25, 2018, 05:01:13 PM
I think the case for not paying off your mortgage is about 20% stronger now than it was a couple of months ago.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on December 25, 2018, 05:08:14 PM
Hahaha!

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 25, 2018, 05:18:56 PM
Hahaha!

Sent from my moto g(6) using Tapatalk

Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on December 25, 2018, 07:47:58 PM
Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
Inflation is completely relevant to whether one should pay off one's mortgage early, assuming a fixed rate mortgage.  The higher the inflation the less one should pay early.   Much better to pay off a fixed rate mortgage with highly inflated dollars.









Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 25, 2018, 09:19:38 PM
Hahaha!

Sent from my moto g(6) using Tapatalk

Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
See point 3 on post #1014 above.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 26, 2018, 11:54:24 AM
Hahaha!

Sent from my moto g(6) using Tapatalk

Not sure if any of these comments were in response to mine, but still waiting to see some analysis showing that inflation is relevant.
See point 3 on post #1014 above.

To expand on that point...you assumed only 2% inflation.  The historical average is something like 3.5%.    So if inflation is something like average, your effective mortgage payment will be cut in half in just twenty years.   If inflation was say, 4.5%, then that $1,500 payment will be the equivalent of just $620.   

To put it another way, you are spending fully valued dollars today to save puny inflation-ravaged dollars in the future.   FWIW, from 1970 to 1999, inflation averaged 5.5%.   
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 26, 2018, 12:47:03 PM
I understand how inflation affects buying power, but regardless of inflation, you are still and always being charged your interest rate on the remaining value of the mortgage. So you can factor in inflation, but you have to then compare this inflation-adjusted rate to all other inflation-adjusted options for where to put that money. For example, if you are looking at buying bonds (I know not everyone here believes they are a good investment), and they are paying 3%, does that make them a bad investment because they are probably not keeping up with inflation? The right answer would be: compared to what other investment?

Another way to look at this: Let's assume the government controls prices and has regulated 0% inflation, guaranteed for the next 30 years (you even have a crystal ball that confirms this is the case). How would that affect your investment strategy (to include paying off debt)?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 26, 2018, 01:13:48 PM
Another way to look at this: Let's assume the government controls prices and has regulated 0% inflation, guaranteed for the next 30 years (you even have a crystal ball that confirms this is the case). How would that affect your investment strategy (to include paying off debt)?
Can I have a unicorn in this magical scenario?

If not, could I also know what the returns will be on equities (and specific stocks preferably) during the same time frame?  I'm guessing no - because that's always 'unknowable', as are future inflation rates and future bond rates and unemployment rates and all the other various financial conditions. Which is kind of the point.  We can't know what the exact conditions will be over thirty year time periods, so we do the next best thing, we look at what has happened in the past, and we evaluate whether that's reasonable for the future. In which case I go with what is most likely, while doing what is practical to guard against what may be most detrimental.
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on December 27, 2018, 07:02:51 AM
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.

Let's apply this to two scenarios. One in which there is 0% inflation for 30 years and one in which there is 4% inflation for 30 years and compare the differences in pre-paying a mortgage. You can run these numbers for yourself using a mortgage pre-payment calculator.

(I'm using 200K mortgage, 4% interest, 30 year loan, $1,000/month additional mortgage payment)

Scenario 1: inflation is 0% (making the real interest rate 4%) - By paying off the mortgage early, you will save $98,732

Scenario 2: inflation is 4% (making the real interest rate 0%) - By paying off the mortgage early, you will save $0

And if inflation is ever higher than your nominal interest rate, the bank is in fact paying YOU to hold the loan.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 27, 2018, 08:07:25 AM
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.


This is also why one must treat claims that "paying off your mortgage gives you a guaranteed X% return [with 'X' being the mortgage rate]" with a hefty dose of salt.  What you are getting is a nominal return, and the real return will be quite a bit less (and possibly negative).

The same logic is applied to market returns; annualized returns over the last 30 years has been 10%, but 'real' returns have averaged 7.2%.  We used real returns because we want to compare apples to apples (we want to equate spending power in 1987 to spending power in 2018). 
It makes no sense to use inflation adjusted numbers for market returns but not use inflation adjusted numbers for your mortgage payments.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 27, 2018, 11:41:01 AM
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).

And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 27, 2018, 03:55:50 PM
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.

Let's apply this to two scenarios. One in which there is 0% inflation for 30 years and one in which there is 4% inflation for 30 years and compare the differences in pre-paying a mortgage. You can run these numbers for yourself using a mortgage pre-payment calculator.

(I'm using 200K mortgage, 4% interest, 30 year loan, $1,000/month additional mortgage payment)

Scenario 1: inflation is 0% (making the real interest rate 4%) - By paying off the mortgage early, you will save $98,732

Scenario 2: inflation is 4% (making the real interest rate 0%) - By paying off the mortgage early, you will save $0

And if inflation is ever higher than your nominal interest rate, the bank is in fact paying YOU to hold the loan.

Actually, you save the exact same amount of money in both scenarios. The purchasing power of that money is just going to decrease faster in Scenario 2.

Let's look at scenario 2 from the bank's perspective. They are getting 4% interest, and they expect 4% inflation. Yes, their purchasing power isn't going to increase at the end of the loan's term, so why would they make such a loan? Well, the answer is that they are making the optimal decision given the investment choices they have. What are they going to do, hold onto the cash? Are they going to burn it on a flashy new bank? (And of course they are getting leverage on their loans, so their profits tend to be higher than the return.)

Let's look at your "Scenario 3", where the bank is lending you money at 3%, and you know inflation is going to be 4%. Meanwhile, your best investment option is going to return 2%. Would you keep the loan since the bank is "in fact paying you to hold the loan"?
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 27, 2018, 04:01:58 PM
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).

And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.

From what I've read, stock market real returns have little to no correlation with inflation.

https://pensionpartners.com/inflation-deflation-and-stock-market-returns/ (https://pensionpartners.com/inflation-deflation-and-stock-market-returns/)
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 27, 2018, 04:14:08 PM
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.


This is also why one must treat claims that "paying off your mortgage gives you a guaranteed X% return [with 'X' being the mortgage rate]" with a hefty dose of salt.  What you are getting is a nominal return, and the real return will be quite a bit less (and possibly negative).

The same logic is applied to market returns; annualized returns over the last 30 years has been 10%, but 'real' returns have averaged 7.2%.  We used real returns because we want to compare apples to apples (we want to equate spending power in 1987 to spending power in 2018). 
It makes no sense to use inflation adjusted numbers for market returns but not use inflation adjusted numbers for your mortgage payments.

I disagree with your first paragraph. The return is guaranteed; it is the purchasing power that is not guaranteed.

Your second paragraph is spot on. You need to compare investments (which include debt payments) using the same inflation criteria (either adjusted or not adjusted). So if people say "hold your mortgage because inflation", by that logic they should also say "dump stocks because inflation". Because you want that dollar today, right? What if inflation was at double digits and forecasted stock returns were single digits; would you sell all your stock, because theoretically you're paying those companies to hold your money, right? (Or would gold start coming into the conversation?)

Yes, I know these are theoreticals, but the important thing is that investments are relative, and inflation shouldn't really be considered when comparing two different investment strategies since all investments are subject to inflation (except TIPS (and some say gold)).
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on December 27, 2018, 05:32:50 PM
To answer Boofinator's question and for future readers wondering the same thing, here is the mathematical reasoning on how inflation relates to mortgage pre-payment decisions: a low interest mortgage acts as a hedge against high inflation.

The real interest rate = nominal interest rate - rate of inflation.

Let's apply this to two scenarios. One in which there is 0% inflation for 30 years and one in which there is 4% inflation for 30 years and compare the differences in pre-paying a mortgage. You can run these numbers for yourself using a mortgage pre-payment calculator.

(I'm using 200K mortgage, 4% interest, 30 year loan, $1,000/month additional mortgage payment)

Scenario 1: inflation is 0% (making the real interest rate 4%) - By paying off the mortgage early, you will save $98,732

Scenario 2: inflation is 4% (making the real interest rate 0%) - By paying off the mortgage early, you will save $0

And if inflation is ever higher than your nominal interest rate, the bank is in fact paying YOU to hold the loan.
Actually, you save the exact same amount of money in both scenarios. The purchasing power of that money is just going to decrease faster in Scenario 2.

In nominal terms, you save the same amount of money. But in real terms, factoring in inflation, the amount saved is different. This is prior to considering any opportunity cost of investing the money.

I believe your examples have been too nebulous to understand because you were trying to evaluate both how inflation relates to mortgage pre-payment and how it relates to investments. Investments in stocks are not the same as fixed interest loan or bonds.

In the long-term, stocks act as excellent hedges against inflation because the revenue, expenses, and net profit of corporations will rise with the inflation and so will their subsequent dividends and valuations.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 27, 2018, 07:24:56 PM

Your second paragraph is spot on. You need to compare investments (which include debt payments) using the same inflation criteria (either adjusted or not adjusted). So if people say "hold your mortgage because inflation", by that logic they should also say "dump stocks because inflation". Because you want that dollar today, right? What if inflation was at double digits and forecasted stock returns were single digits; would you sell all your stock, because theoretically you're paying those companies to hold your money, right? (Or would gold start coming into the conversation?)


I think you might be conflating two different arguments.  One involves inflation, one doesn't.  Over any long period of time (like say, the length of a typical mortgage), stocks have returned about 7% after inflation.  If you got a mortgage in the last few years, the mortgage rate is likely around 4%.   If the future is anything like the past, you can expect your return of paying down the mortgage after inflation to be around 0.5-1%.  Something like that.  Since ~7% is greater than about 1% the decision is pretty easy.   

Strictly speaking paying down the mortgage is not a return.   It is a future savings.   Nothing wrong with a future savings!  But many people don't realize they are paying a dollar now to save 75 cents or like even less in the future, and therefore tend to overestimate the benefits of paying down the mortgage. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on December 27, 2018, 09:31:14 PM
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).

And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.
This hit the nail on the head. If you own or produce real goods, then by definition the value of your remaining mortgage will become relatively smaller because of inflation. If you own nothing and produce nothing, then it won't matter either way.

and inflation shouldn't really be considered when comparing two different investment strategies since all investments are subject to inflation (except TIPS (and some say gold)).
Honestly it doesn't really matter. Use real returns for both, or nominal returns for both, just don't mix them together.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on December 27, 2018, 09:35:07 PM
What is the rate range where you would switch from long term minimum payments to lump sum payoff and why?
I would pay off the mortgage as a lump sum if 1) its rate was greater than 1/PE10 + expected inflation, and 2) I had enough money (edit: in taxable accounts) to pay it off as a lump sum.

I would also pay it off as a lump sum if 1) its rate was higher than that of my bond allocation, and 2) my bond allocation was big enough to pay it off as a lump sum.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 28, 2018, 12:31:36 PM
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 28, 2018, 02:32:27 PM
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 28, 2018, 03:19:59 PM
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 28, 2018, 03:33:14 PM
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't.  Where's the logic in that?
Title: Re: DONT Payoff your Mortgage Club
Post by: AnswerIs42 on December 28, 2018, 05:52:13 PM
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't.  Where's the logic in that?
Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.

In theory, mortgage B would be better if you're investing the difference because your money would be invested for longer.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on December 28, 2018, 06:53:13 PM
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't.  Where's the logic in that?
Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.

In theory, mortgage B would be better if you're investing the difference because your money would be invested for longer.
Yeah I don't get this at all.... Why would you ever want a mortgage that is adjustable and increases as inflation occurs over time.  Mortgage B make no sense.

If you are trying to demonstrate how inflation actually decreases a fixed rate mortgage over time then a good example would be below.  This assumes 2.6% inflation over a 30 year term.

YearPI Inflation Adjusted
20003000
20012922
20022846.028
20032772.031272
20042699.958459
20052629.759539
20062561.385791
20072494.78976
20082429.925227
20092366.747171
20102305.211744
20112245.276239
20122186.899057
20132130.039681
20142074.65865
20152020.717525
20161968.178869
20171917.006218
20181867.164057
20191818.617791
20201771.333729
20211725.279052
20221680.421796
20231636.73083
20241594.175828
20251552.727257
20261512.356348
20271473.035083
20281434.736171
20291397.43303


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Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 28, 2018, 07:50:13 PM
I’ve never seen a mortgage structured this way.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on December 29, 2018, 11:11:14 AM
A: 12/28/2018 30 Year Treasury Bond Yield: 3.045%
B: 12/28/2018 30 Year Treasury Inflation Protected Bond Yield: 1.212%

I would love to see an explanation of why the A yield should be the same as the B yield.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 29, 2018, 06:41:29 PM
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

I'm not sure I understand.  If they are both 30 year mortgage loans, how can you have payments that increase by 4% every year, and another that is fixed? You can't have both the term and the loan amount stay the same under these conditions.

Mortgage A is a standard mortgage.

Mortgage B is amortized to increase by 4% annually (to account for inflation), pay 4% interest, and the loan will be completely paid off in 30 years.

that still doesn't compute. If they start the same Mortgage B will just increase every year while Mortgage A won't.  Where's the logic in that?
Sure it does make sense... the starting payments *wouldn't* be the same - the payments would be lower to start with under mortgage B, but increase over time so they eventually overtake the original mortgage A payments. The maths can be made to work if you juggle the figures enough.

In theory, mortgage B would be better if you're investing the difference because your money would be invested for longer.

Exactly. I and I hope most others on this board would love to see a mortgage amortized to increase with inflation (as long as the interest rate is the same).

Let's see if the google sheets attachment works, otherwise I'll summarize in another post. In addition to the monthly figure and statistics, I've also included a theoretical investment using leftover money ($500 per month total) to show that B is far superior to A.

The point of the whole exercise here is that an inflation-adjusted mortgage would be a good thing, assuming you are paying the same interest rate. But such a thing is not available, so we have to take the best option we have. That being said, when we are comparing the investment options for our money, unless stocks can be shown to be an inflation hedge (and the jury is out as mentioned in an earlier post), then all the talk about mortgages being an inflation hedge is irrelevant. What is relevant is expected returns, which for mortgages are essentially guaranteed but for stocks, well, we are aware of the risks and rewards.

p.s. A mortgage is an inflation hedge if you're comparing your living arrangements to renting.
Title: Re: DONT Payoff your Mortgage Club
Post by: AnswerIs42 on December 29, 2018, 07:07:34 PM
Yeah I don't get this at all.... Why would you ever want a mortgage that is adjustable and increases as inflation occurs over time.  Mortgage B make no sense.
Turning this on its head for a minute - why would you want a mortgage that costs more in real terms at the beginning, when you're younger and your wages are presumably lower, and the money could be invested earlier to work longer for you instead; and costs less in real terms later in the mortgage, when you're earning so much you have lots of spare money but if you invest it instead it has less time to grow?

I couldn't get Boofinator's attachment to work, but I had a go too (see attachment). Mine's pretty simplified, assuming you pay the mortgage yearly rather than monthly. Note that my figures are not inflation adjusted.

The initial payments for mortgage B are way less than mortgage A - about 40% less. They don't even cover the interest during the first five years. I also added a couple of columns for what could happen if you invested the difference (later on withdrawing the difference from the investments to make up the difference once mortgage B's payments overtook mortgage A's), assuming 7% above-inflation stock-market returns (big assumption, I know).

I understand why the banks would be reluctant to offer this - the main risks to the bank with mortgages are in the early stages when LTV is high, so it's in the bank's interest to reduce the LTV ASAP in case something goes wrong and the property has to be sold at a loss. That said, the banks used to like offering interest-only mortgages, which is pretty risky for the banks in the early years too.

And I also get why borrowers would be a bit wary about mortgage payments that rise with inflation... but then again, rent rises with inflation too, and renters have to just deal with it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 29, 2018, 08:03:29 PM
The google sheets attachment appeared to be a flop. Here's a summary of the statistics:

                        Principle   Interest   Payment                                   Principle   Interest   Payment
Mortgage A:   100000   71867.99   171867.99   Mortgage B:       100000   93434.24   193434.24

Investment Returns A    Investment Returns B
51257.71                     210065.73
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 29, 2018, 09:13:07 PM
Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).

And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.

This (bolding mine) is intuitive, but from what I have read is not the historic case. There is some correlation of stocks with inflation at lower inflation values (at which time a mortgage could be considered a deflation hedge and stocks an inflation hedge, as someone else has noted), but the stock market tends to tank even in nominal terms with high inflation (presumably because wages do not rise as fast, and thus consumerism suffers). So overall, there appears to be generally little to no correlation between stocks and inflation. If you have data to the contrary I am open to being educated otherwise.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 31, 2018, 12:15:13 PM
As we've veered away from the purpose of this thread and into the realm of hypothetical loan structures, I'd ask those who want to continue that line line of analysis to start a new thread and post a link to it below.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 31, 2018, 12:35:51 PM
As we've veered away from the purpose of this thread and into the realm of hypothetical loan structures, I'd ask those who want to continue that line line of analysis to start a new thread and post a link to it below.

Since a very common refrain to not pay off the mortgage is because of "inflation", and since it was brought up yet again in this very thread, it is an appropriate topic of communication. The inflation communicants seem to fall into one of two (or sometimes both) camps:

1) Mortgages are an inflation hedge, since the price is locked in upon purchase. This can be a valid argument when comparing purchasing a house to purchasing things that rise with inflation (or renting). However, historical stock returns appear to be relatively independent from inflation (certainly there's a correlation, since both are generally rising, but if both metrics are transformed than the correlation is minimal).

2) Mortgages are great because payments don't rise with inflation.

The hypothetical mortgage was meant to show the fallacy in argument #2.

I don't think our thread originator B42 was a fan of the echo chamber, so in some small way I think he'd appreciate the comments here.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 31, 2018, 12:56:59 PM
I thought it was pretty well accepted that inflation depresses real stock returns.   

A somewhat dense paper exploring inflation on stock returns in ten countries here:

https://www.federalreserve.gov/pubs/ifdp/1994/464/ifdp464.pdf

A less dense explanation from Warren Buffet why inflation depresses real stock returns here:

http://fortune.com/2011/06/12/buffett-how-inflation-swindles-the-equity-investor-fortune-classics-1977/

Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on December 31, 2018, 01:49:06 PM
I thought it was pretty well accepted that inflation depresses real stock returns.   

A somewhat dense paper exploring inflation on stock returns in ten countries here:

https://www.federalreserve.gov/pubs/ifdp/1994/464/ifdp464.pdf

A less dense explanation from Warren Buffet why inflation depresses real stock returns here:

http://fortune.com/2011/06/12/buffett-how-inflation-swindles-the-equity-investor-fortune-classics-1977/

Thanks for the two papers.

I think we all agree that inflation depresses real stock returns, but what we really want to compare is nominal returns of equities to a fixed-return investment (such as a mortgage). I haven't yet dug deep on the federal reserve paper, but Warren argues that the nominal returns act like a fixed-return bond (and hence are not an inflation hedge).
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on January 01, 2019, 08:35:22 PM
1) Mortgages are an inflation hedge, since the price is locked in upon purchase. This can be a valid argument when comparing purchasing a house to purchasing things that rise with inflation (or renting). However, historical stock returns appear to be relatively independent from inflation (certainly there's a correlation, since both are generally rising, but if both metrics are transformed than the correlation is minimal).
In the long run stock values are tied to real prices and the economy, plus expectations. If the economy and expectations are tanking while inflation soars then they will not do well in real terms, but that is because of those other two factors. All else being equal, they correlate to inflation. Another issue is choosing too short a period to test for correlation. The idea is that stocks compensate for inflation over say ten years or more, so checking one year rolling correlations is a poor test of this. It is like the people a couple years ago who were saying "US and international stocks are almost perfectly correlated. Besides, international returns are negative over the past ten years while US stocks are positive!" You can tell from the statement that something is wrong, and the something is checking short term correlations and incorrectly extending them to longer terms despite that obviously being incorrect.

In any case inflation is apparently good for stock returns up to about 4%, and generally bad at some point after that. But I am confused. The idea that inflation shocks are bad for stock returns in the short term is exactly why I would consider keeping a mortgage if I had the option to pay it off. You seem to be saying that inflation is bad for the returns of stocks (and presumably bonds), and so that makes an inflation hedge pointless? It seems like that is what makes it valuable.

Quote
2) Mortgages are great because payments don't rise with inflation.

The hypothetical mortgage was meant to show the fallacy in argument #2.
There is nothing inherently great about mortgages. But they don't rise with inflation, so if you are considering one, that is something to include in the consideration.

Inflation is relevant because the conditions that produce it also produce higher (nominal) incomes via wages or via stock market returns. So you have more income relative to your debt (and debt payments).

And, yes, more of that income is sucked away by other expenses, too. But your debt payments have stayed fixed with a 30-year fixed mortgage.

This (bolding mine) is intuitive, but from what I have read is not the historic case. There is some correlation of stocks with inflation at lower inflation values (at which time a mortgage could be considered a deflation hedge and stocks an inflation hedge, as someone else has noted), but the stock market tends to tank even in nominal terms with high inflation (presumably because wages do not rise as fast, and thus consumerism suffers). So overall, there appears to be generally little to no correlation between stocks and inflation. If you have data to the contrary I am open to being educated otherwise.
Read "Deep Risk" by William Bernstein.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 02, 2019, 12:52:35 PM
So for everyone who likes that mortgage payments do not rise with inflation: If the bank offered you two thirty-year mortgage loans, both at the same interest rate (say 4%), with the first being a standard mortgage, but the second amortized so that the payments increase for inflation every year by 4%, which would you take?

(I'll post my answer and math in a little while.)

So I read up until this post, and--while I'm fascinated by the idea--I do not think this product would ever become popular with banks. I built a spreadsheet and started tinkering around, and it looks like the bank would actually have to offer negative amortization over the first few years to get something like this. In my example, a mortgage of $300,000 with 4.875 APR and 3% assumed annual inflation had an initial monthly payment of $1,090, while the initial monthly interest was $1,219. It wasn't until the middle of year 5 that the payments had risen to the point that they were more than offsetting interest on the loan.

Now that I've typed this, I'm going to scroll down and read the rest of your posts, it looks like a really neat math exercise.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 02, 2019, 12:56:51 PM
PS I think a mortgage product that starts low and increases over time is...a lot like the one I have.

My 5/1 ARM included sixty payments at a rate of 3.0%, now it's just reset up to 5.0%. It's chunkier than the escalating payments, but my lender gave me a premium, which was five years at that teaser rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 02, 2019, 01:50:08 PM
Another month, another minimum payment on our 3.125% mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 02, 2019, 04:52:21 PM
PS I think a mortgage product that starts low and increases over time is...a lot like the one I have.

My 5/1 ARM included sixty payments at a rate of 3.0%, now it's just reset up to 5.0%. It's chunkier than the escalating payments, but my lender gave me a premium, which was five years at that teaser rate.

That is very true. I personally like ARMs, and got one on my previous house (I think I have had the tendency to move enough that ten years in a home may never actually happen, let alone thirty years). I recently moved to a new house, and unfortunately the interest rates being offered for ARMs were no better than fixed long-term mortgages, so I went with the latter.

EDIT: Actually, now that I think of it a bit more, there is a big difference between an ARM and the hypothetical "inflation-adjusted" mortgage in that your interest rate has increased (versus the hypothetical mortgage where the interest rate is constant). In my opinion, the big factors to consider for which investment to send your little green soldiers are investment time horizon, volatility, and expected return. As the interest rate increases, you need a longer time horizon to make stocks a good bet over the fixed-rate debt. I think your interest rate of 5% still favors investments over paying off the debt as long as you have a very long time horizon.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 02, 2019, 11:34:17 PM
Another month, another minimum payment on our 3.125% mortgage.
What a thrill!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 03, 2019, 06:21:58 AM
Another month, another minimum payment on our 3.125% mortgage.
What a thrill!
I feel pretty damn lucky to have a 2.6% mortgage :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 03, 2019, 06:52:15 AM
Another month, another minimum payment on our 3.125% mortgage.
What a thrill!
I feel pretty damn lucky to have a 2.6% mortgage :-)
Thirty year? OMG!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 03, 2019, 07:59:48 AM
Another month, another minimum payment on our 3.125% mortgage.
What a thrill!
I feel pretty damn lucky to have a 2.6% mortgage :-)
Thirty year? OMG!
25y.  O' Canada...
:-)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 03, 2019, 12:25:12 PM
Another month, another minimum payment on our 3.125% mortgage.

While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 03, 2019, 02:01:32 PM
Another month, another minimum payment on our 3.125% mortgage.

While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?

Sure. Dividends alone are already significantly more than the interest on the mortgage. I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k. Our taxable brokerage account is roughly equal to our mortgage balance. Despite the recent drops the stock market is still up significantly since we bought the house (Spring 2016).
Title: Re: DONT Payoff your Mortgage Club
Post by: Basenji on January 03, 2019, 02:34:02 PM
Another month, another minimum payment on our 3.125% mortgage.

While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?

Sure. Dividends alone are already significantly more than the interest on the mortgage. I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k. Our taxable brokerage account is roughly equal to our mortgage balance. Despite the recent drops the stock market is still up significantly since we bought the house (Spring 2016).

Ooh, gonna go run and check some numbers. Great idea!
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on January 03, 2019, 09:45:20 PM
Another month, another minimum payment on our 3.125% mortgage.

While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?

Sure. Dividends alone are already significantly more than the interest on the mortgage. I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k. Our taxable brokerage account is roughly equal to our mortgage balance. Despite the recent drops the stock market is still up significantly since we bought the house (Spring 2016).
That's a pretty nice way of thinking of it. I hadn't though of that before. Using http://www.multpl.com/s-p-500-dividend-growth dividends have grown by an average of 5.94% per year. Say you had taken a 3.5% mortgage in November 2012. Back then the S&P500 dividend was $33.6 on a price of 1422.29, or 2.2% (lots of imprecision in these numbers). In September 2018 (most recent available) S&P500 dividend was 52.26 on a price of 2785.46. The dividend increased by a factor of 1.55. Apply that to your starting 2.2% dividend yield, and your would dividend is 1.55*2.2%=3.42% of principal. Your dividend now pays as many dollars per year as the interest savings from paying down the mortgage would have! Plus your stock value nearly doubled in that time.

Of course that is one of the most extreme cherry picking examples possible, but lets apply the average dividend growth rate of 5.94% to today's VTI dividend yield of 2.09% to see when it would catch up to paying down various mortgages in terms of cash flow.

Year   Dividend (% of original investment)
0   2.20%   
1   2.33%   
2   2.47%   
3   2.62%   
4   2.77%   
5   2.94%   
6   3.11%   
7   3.29%   
8   3.49%   
9   3.70%   
10   3.92%   
11   4.15%   
12   4.40%   
13   4.66%   
14   4.93%   
15   5.23%   
Erm... feel free to check my math.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on January 04, 2019, 05:20:43 AM
Another month, another minimum payment on our 3.125% mortgage.
What a thrill!
I feel pretty damn lucky to have a 2.6% mortgage :-)
Thirty year? OMG!
25y.  O' Canada...
:-)

Jeebus, thought my 3.25% was pretty good. 2.6% seems almost criminal.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 04, 2019, 05:30:40 AM
Another month, another minimum payment on our 3.125% mortgage.
What a thrill!
I feel pretty damn lucky to have a 2.6% mortgage :-)
Thirty year? OMG!
25y.  O' Canada...
:-)

Jeebus, thought my 3.25% was pretty good. 2.6% seems almost criminal.

For a while I had the mortgage and a few student loans (subsidizsed) at 0%, then 2.1%.  Folks from the DR forum piled on me about snowballing and killing that debt. 
Nope - not going to pay off any sub 3% debt when I still have oodles of headspace in my tax-advantaged accounts.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on January 04, 2019, 05:54:48 AM
Another month, another minimum payment on our 3.125% mortgage.
What a thrill!
I feel pretty damn lucky to have a 2.6% mortgage :-)
Thirty year? OMG!
25y.  O' Canada...
:-)

Jeebus, thought my 3.25% was pretty good. 2.6% seems almost criminal.

For a while I had the mortgage and a few student loans (subsidizsed) at 0%, then 2.1%.  Folks from the DR forum piled on me about snowballing and killing that debt. 
Nope - not going to pay off any sub 3% debt when I still have oodles of headspace in my tax-advantaged accounts.

I'm doing the same. Will not send one extra cent towards the mortgage until tax deferred accounts are maxed out. Even then I may still not. I listen to DR on the radio occasionally. I cringe every time he says pay off debt from smallest balance to largest regardless of interest rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 05, 2019, 10:38:12 AM
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.
I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 05, 2019, 01:01:33 PM
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.
I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.

One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%.  The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate.  Mind you the 10y treasury note is paying out at 2.7% right now....

I'm still waiting for the paperwork for that loan to come through. Any day now. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 05, 2019, 04:56:03 PM
May I be next in line, please?
Title: Re: DONT Payoff your Mortgage Club
Post by: protostache on January 06, 2019, 03:20:48 PM
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.
I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.

One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%.  The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate.  Mind you the 10y treasury note is paying out at 2.7% right now....

I'm still waiting for the paperwork for that loan to come through. Any day now.

I keep looking for interest-only mortgages but I haven’t found any yet. Feels like maybe they’re illegal in Michigan.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on January 06, 2019, 06:52:48 PM
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.
I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.

One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%.  The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate.  Mind you the 10y treasury note is paying out at 2.7% right now....

I'm still waiting for the paperwork for that loan to come through. Any day now.

Sign me up! Also, I had to google acolyte. Thanks.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on January 06, 2019, 11:09:20 PM
I have a confession to make.

I didn't exactly fall off the wagon, but I added an extra $140 dollars to my mortgage payment so the principal would go down a full $1,000 each payment.  We have a 15 year, fixed rate mortgage at 2.75%.

I've been tracking our net worth each month for the last 8 months (since we FIRED) and it makes me happy each time I update my spreadsheet to show the mortgage balance dropped another $1000.

Totally emotional.   Totally math irrational.   But it really made me happy to do it.  Because owing that money bugs me.   It sticks in my craw.   

I could have paid off the mortgage any time in the last 3 years by withdrawing from our investments, but I didn't because of what I've learned in this thread.   

I could have paid off the mortgage when we sold our old house last spring, but I didn't.

I could pay off the mortgage when the buyers of our owner-financed Flip #1 finish their renovations and refinance to a lower rate.    I expect it will happen sometime in 2019, probably in the fall.     I think if I see the balance falling $1,000 a month I'll be less likely to pay off our mortgage then.    It will stick in my craw a bit less.

The only reason I can see for paying the mortgage off early (other than I would like to see the back of it!) is that I'll be switching over to the ACA in 2020 from COBRA.   COBRA runs out at the end of 2019 for me.   I know that the ACA premiums are affected by how much our income is, and I don't know (yet) how much that will affect us.    I've got a bunch of research to do to learn what the rules are and how we can tax shelter our income so we don't go over the subsidy cliff.

We have a variety of income sources:

farmland that is sharecropped.
rental houses.
social security.
minimum required distributions from an inherited IRA and also from my wife's 401K.
teaching income
art income (hopefully)

So, it may be that we'll be falling over that subsidy cliff regardless.   But if we can shelter some of that income so it doesn't count against the subsidy, we might need to reduce our expenses.   Being able to drop our expenses by $14,658.36 (P&I) per year that we don't have to treat as income might save us a fair bit in subsidies.   I'll just have to do the math.

I hadn't taken the time to really understand the ACA rules in detail because I expected the GOP would crap on them bigly over the last 2 years.   Now it looks like we're more likely to have the current rules for the next 2 years. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 07, 2019, 03:59:55 AM
I have a confession to make.

I didn't exactly fall off the wagon, but I added an extra $140 dollars to my mortgage payment so the principal would go down a full $1,000 each payment.  We have a 15 year, fixed rate mortgage at 2.75%.

I've been tracking our net worth each month for the last 8 months (since we FIRED) and it makes me happy each time I update my spreadsheet to show the mortgage balance dropped another $1000.

Totally emotional.   Totally math irrational.   But it really made me happy to do it.  Because owing that money bugs me.   It sticks in my craw.   

I could have paid off the mortgage any time in the last 3 years by withdrawing from our investments, but I didn't because of what I've learned in this thread.   

I could have paid off the mortgage when we sold our old house last spring, but I didn't.

I could pay off the mortgage when the buyers of our owner-financed Flip #1 finish their renovations and refinance to a lower rate.    I expect it will happen sometime in 2019, probably in the fall.     I think if I see the balance falling $1,000 a month I'll be less likely to pay off our mortgage then.    It will stick in my craw a bit less.

The only reason I can see for paying the mortgage off early (other than I would like to see the back of it!) is that I'll be switching over to the ACA in 2020 from COBRA.   COBRA runs out at the end of 2019 for me.   I know that the ACA premiums are affected by how much our income is, and I don't know (yet) how much that will affect us.    I've got a bunch of research to do to learn what the rules are and how we can tax shelter our income so we don't go over the subsidy cliff.

We have a variety of income sources:

farmland that is sharecropped.
rental houses.
social security.
minimum required distributions from an inherited IRA and also from my wife's 401K.
teaching income
art income (hopefully)

So, it may be that we'll be falling over that subsidy cliff regardless.   But if we can shelter some of that income so it doesn't count against the subsidy, we might need to reduce our expenses.   Being able to drop our expenses by $14,658.36 (P&I) per year that we don't have to treat as income might save us a fair bit in subsidies.   I'll just have to do the math.

I hadn't taken the time to really understand the ACA rules in detail because I expected the GOP would crap on them bigly over the last 2 years.   Now it looks like we're more likely to have the current rules for the next 2 years.
Sweet Baby Jeebus, 2.75% is an amazing rate! Good for you for locking that in @SwordGuy . I differ from B42 in that I don't believe in endless refinancing. I believe in paying off the mortgage last, after all other boxes have been checked. You have done exactly that.

I saw that ACA convo and it made me wonder about the same thing. If paying the mortgage off at or near FIRE can save a substantial amount of money on healthcare, that angle is completely worth exploring. I believe @lhamo may have more information on that subject, including whether it's better to stay the course or abandon the Good Ship Cobra, so I'm batsignalling her on your behalf. I don't know if she follows this thread, but she's active on the ACA threads and has done her homework.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on January 07, 2019, 05:16:15 AM
Another month, another minimum payment on our 3.125% mortgage.

While I applaud your discipline in sticking to the plan, RWD, can you include some kind of investment measure with these updates? Perhaps your dividends are starting to appear sizable when compared to your monthly interest or something?

I'm not the above poster you are asking for. 

But yearly Mortgage payments for 2018 $11,114.88 (926.24/month)
2018 Vanguard taxable account dividends:  $11,389.93 
ETA:  Mortgage interest 2018:  $6415.91

Taxable account is now about 2x the mortgage so it is not apples to oranges but yes my investments pay my mortgage, next goal is for them to pay taxes and insurance as well which I hope they do by 2020.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 07, 2019, 07:24:03 AM
I have a confession to make.

I didn't exactly fall off the wagon, but I added an extra $140 dollars to my mortgage payment so the principal would go down a full $1,000 each payment.  We have a 15 year, fixed rate mortgage at 2.75%.

I've been tracking our net worth each month for the last 8 months (since we FIRED) and it makes me happy each time I update my spreadsheet to show the mortgage balance dropped another $1000.

Totally emotional.   Totally math irrational.   But it really made me happy to do it.  Because owing that money bugs me.   It sticks in my craw.   

I could have paid off the mortgage any time in the last 3 years by withdrawing from our investments, but I didn't because of what I've learned in this thread.   

I could have paid off the mortgage when we sold our old house last spring, but I didn't.

I could pay off the mortgage when the buyers of our owner-financed Flip #1 finish their renovations and refinance to a lower rate.    I expect it will happen sometime in 2019, probably in the fall.     I think if I see the balance falling $1,000 a month I'll be less likely to pay off our mortgage then.    It will stick in my craw a bit less.

The only reason I can see for paying the mortgage off early (other than I would like to see the back of it!) is that I'll be switching over to the ACA in 2020 from COBRA.   COBRA runs out at the end of 2019 for me.   I know that the ACA premiums are affected by how much our income is, and I don't know (yet) how much that will affect us.    I've got a bunch of research to do to learn what the rules are and how we can tax shelter our income so we don't go over the subsidy cliff.

We have a variety of income sources:

farmland that is sharecropped.
rental houses.
social security.
minimum required distributions from an inherited IRA and also from my wife's 401K.
teaching income
art income (hopefully)

So, it may be that we'll be falling over that subsidy cliff regardless.   But if we can shelter some of that income so it doesn't count against the subsidy, we might need to reduce our expenses.   Being able to drop our expenses by $14,658.36 (P&I) per year that we don't have to treat as income might save us a fair bit in subsidies.   I'll just have to do the math.

I hadn't taken the time to really understand the ACA rules in detail because I expected the GOP would crap on them bigly over the last 2 years.   Now it looks like we're more likely to have the current rules for the next 2 years.

Sword guy-
if your goal is for the principal to drop by $1,000 every payment, you can start adding less than $140 soon, because the amount of principal change should rise with each payment in the amortization schedule.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 07, 2019, 07:37:01 AM
I haven't calculated it in a few months but we should be around $9k/year in dividends (all accounts) and mortgage interest is around $5k.
I am entering our final 2018 transactions today and have some more concrete numbers now. Our total dividends (and other interest income) minus administrative fees for 2018 comes to $10,681. We paid $5,932 in loan interest in 2018 (includes 1.69% car loan). Next year I expect our dividends will be more than double our loan interest costs.

One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%.  The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate.  Mind you the 10y treasury note is paying out at 2.7% right now....

I'm still waiting for the paperwork for that loan to come through. Any day now.

This is an interesting intellectual exercise.

Is the lender offering this $1,000,000 loan with no collateral? Suppose my $200,000 house is collateral (so it's basically a negative LTV loan; and let's assume the price of the house is fixed)...Bear markets occur routinely in the stock market, perhaps every 3-4 years. So I can expect to be under water--perhaps wayyy under water--at some point in the next four years if I put the money 100% into stocks.

Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market, with my stocks at $680,000, leaving me to sell my house and beg friends/family for the extra $120,000 to make the lender whole at that point? I recognize that Dave Ramsey is a bogeyman in the DNPYM club, but I think there is still quite a bit of risk in the scenario you're describing, much more than in the situation most of us are in here with mortgages that are 60%-80% of the value of our properties.

So really, I ought to
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 07, 2019, 07:49:34 AM
whether I would accept an interest only, $1MM loan at 2%.

Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market [...]?

Every time I've seen this hypothetical dream loan it's always stated to be non-callable so you can ride out the market long term. Callable loans already exist (investing on margin) so there is not much point in making a hypothetical about those.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 07, 2019, 07:57:14 AM
This is an interesting intellectual exercise.

Is the lender offering this $1,000,000 loan with no collateral? Suppose my $200,000 house is collateral (so it's basically a negative LTV loan; and let's assume the price of the house is fixed)...Bear markets occur routinely in the stock market, perhaps every 3-4 years. So I can expect to be under water--perhaps wayyy under water--at some point in the next four years if I put the money 100% into stocks.

Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market, with my stocks at $680,000, leaving me to sell my house and beg friends/family for the extra $120,000 to make the lender whole at that point? I recognize that Dave Ramsey is a bogeyman in the DNPYM club, but I think there is still quite a bit of risk in the scenario you're describing, much more than in the situation most of us are in here with mortgages that are 60%-80% of the value of our properties.

So really, I ought to

It's a very real example DR uses to try to convince people why they shouldn't carry any debt.
In this particular, hypothetical case, the bank would never call the loan due.  I'd owe $20,000/year in interest, or $1,667/month.  In exchange I'd have $1MM to do with as I pleased. 
The idea (as I understand it) is to make people feel uncomfortable at the idea of paying $1,667 every single month, and in effect bring them to the conclusion that they must get rid of all debt now, regardless of the rate or its fixed (not indexed to inflation) status. The interest payment is supposed to feel like a weight around your neck, while one is told to ignore the massive asset because you're reminded of the weight every single month.  In this thought exercise it aways came back to "but you'd be paying over a thousand dollars every single month!!!"

Of course the counter-argument is that one could simply rely on the gains from that $1MM to more than pay off the interest.  A 2% WR is in crazy-conservative territory, particularly if one doesn't index it to inflation.  There's never been a 30year period where that wouldn't result in having more money, and under the majority of scenarios you'd have a ton more money. Even the worst 30 year period would have you more than doubling the initial $1MM. If even that were too 'risky' for you one could put the money into 10year US treasury bonds and still come out (slightly) ahead.

ETA: I was curious about the effects of NOT adjusting for inflation with a constant (not adjusted for inflation) withdraw rate, so I monkeyed a bit with cFireSIM - turns out there has never been a 40 year period when a 4% WR failed if one does NOT index (increase) distributions with inflation each year.  Your purchasing power would steadily erode, but in this absurd hypotthetical interest-only loan one could pay off the interest and have an additional $20k/year to do with as he or she pleased in perpetuity. Man, i wish this actually existed...
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 07, 2019, 12:02:46 PM
whether I would accept an interest only, $1MM loan at 2%.

Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market [...]?

Every time I've seen this hypothetical dream loan it's always stated to be non-callable so you can ride out the market long term. Callable loans already exist (investing on margin) so there is not much point in making a hypothetical about those.
Agreed. One of the many reasons I'm not a DR fan. Even real world mortgage loans aren't callable any more. Duh, DR.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 07, 2019, 12:53:02 PM
whether I would accept an interest only, $1MM loan at 2%.

Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market [...]?

Every time I've seen this hypothetical dream loan it's always stated to be non-callable so you can ride out the market long term. Callable loans already exist (investing on margin) so there is not much point in making a hypothetical about those.
Agreed. One of the many reasons I'm not a DR fan. Even real world mortgage loans aren't callable any more. Duh, DR.

In his defense, he has updated his advice online to pay off everything but a "normal mortgage", which is a big step up from "kill all the debt now".  I'm not sure what he actively teaches, because I won't pay for his content, but the online (free) stuff isn't a bad place to start at all.  My biggest issue is his "save now to spend later" mentality about having a Fat FIRE retirement...  And he pushes mutual funds and doesn't ever mention ETFs.


Edit: Found his stuff-  https://www.daveramsey.com/baby-steps/?snid=start.steps (https://www.daveramsey.com/baby-steps/?snid=start.steps)
He still says to pay off the mortgage AFTER saving 15% of your income.  Not sure why 15%.  Why not 10%?  Why not 45%?  Why not 24,000 that you can put away tax-advantaged?  Or is 15% just a nice round number that seems easy for people to swallow and allows you to sell to people without pushing too many away (you betcha)...
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 07, 2019, 01:20:29 PM

Edit: Found his stuff-  https://www.daveramsey.com/baby-steps/?snid=start.steps (https://www.daveramsey.com/baby-steps/?snid=start.steps)
He still says to pay off the mortgage AFTER saving 15% of your income.  Not sure why 15%.  Why not 10%?  Why not 45%?  Why not 24,000 that you can put away tax-advantaged?  Or is 15% just a nice round number that seems easy for people to swallow and allows you to sell to people without pushing too many away (you betcha)...

Bingo - it's behavioral advice for those who tend to make poor decisions about money to begin with - like spending more than they have and impulse purchasing.  And I'll fully admit that DR helps a lot of people who need this kind of advice. 
My objections are when advice becomes gospel without any hard reasoning behind it.  Why not keep investing in your tax-advantaged accounts until you max every available bucket? Why pay off low-interest debt before getting a 50% match from your employer and lowering your taxes? At times his advice is ill-tailored for an individual.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 07, 2019, 02:07:14 PM
My objections are when advice becomes gospel...

Heh heh heh.  I see what you did there.  :D


Very valid, though, and it is (one of the reasons*) why we don't teach DR at my local church.  We have a financial class that covers staying out of unproductive debt, and that cover the biblical definitions of money and spending (particularly that wasting it and spending more than you have or earn actually does go against the Bible...).  We use some of his stuff, but not nearly as much as the whole program.


*Note:  The other reason we don't use his stuff as it seems extremely unethical to charge $139.00 dollars to someone who is struggling to tithe and struggling with finances.  When that point is brought up (poor people can't afford to pay for the program to even learn how to get on the right track), the excuse given seems to be that "the church should cover the fee"...  So 139 bucks for what should be a 25$ (ish) book and some youtube videos.  That doesn't sit right with many of us- hence our class that uses a $4.45 book, free youtube videos, and volunteer time which we happily give.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 07, 2019, 02:25:21 PM
My objections are when advice becomes gospel...

Heh heh heh.  I see what you did there.  :D


Very valid, though, and it is (one of the reasons*) why we don't teach DR at my local church.  We have a financial class that covers staying out of unproductive debt, and that cover the biblical definitions of money and spending (particularly that wasting it and spending more than you have or earn actually does go against the Bible...).  We use some of his stuff, but not nearly as much as the whole program.


*Note:  The other reason we don't use his stuff as it seems extremely unethical to charge $139.00 dollars to someone who is struggling to tithe and struggling with finances.  When that point is brought up (poor people can't afford to pay for the program to even learn how to get on the right track), the excuse given seems to be that "the church should cover the fee"...  So 139 bucks for what should be a 25$ (ish) book and some youtube videos.  That doesn't sit right with many of us- hence our class that uses a $4.45 book, free youtube videos, and volunteer time which we happily give.

If I lived in 'Tejas' I would happily volunteer my time there to help people get a better hold of their finances. 
As I tell people... it's not hard, we just never properly learn how to do it.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on January 07, 2019, 04:38:17 PM
I have a confession to make.

I didn't exactly fall off the wagon, but I added an extra $140 dollars to my mortgage payment so the principal would go down a full $1,000 each payment.  We have a 15 year, fixed rate mortgage at 2.75%.

I've been tracking our net worth each month for the last 8 months (since we FIRED) and it makes me happy each time I update my spreadsheet to show the mortgage balance dropped another $1000.

...

Sword guy-
if your goal is for the principal to drop by $1,000 every payment, you can start adding less than $140 soon, because the amount of principal change should rise with each payment in the amortization schedule.

Yeah, the amount of principal paid goes up about $2 per month.   This last payment was $2000.00   It's a nice round number that requires no thought or effort to remember. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 08, 2019, 09:49:42 AM
This is an interesting intellectual exercise.

Is the lender offering this $1,000,000 loan with no collateral? Suppose my $200,000 house is collateral (so it's basically a negative LTV loan; and let's assume the price of the house is fixed)...Bear markets occur routinely in the stock market, perhaps every 3-4 years. So I can expect to be under water--perhaps wayyy under water--at some point in the next four years if I put the money 100% into stocks.

Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market, with my stocks at $680,000, leaving me to sell my house and beg friends/family for the extra $120,000 to make the lender whole at that point? I recognize that Dave Ramsey is a bogeyman in the DNPYM club, but I think there is still quite a bit of risk in the scenario you're describing, much more than in the situation most of us are in here with mortgages that are 60%-80% of the value of our properties.

So really, I ought to

It's a very real example DR uses to try to convince people why they shouldn't carry any debt.
In this particular, hypothetical case, the bank would never call the loan due.  I'd owe $20,000/year in interest, or $1,667/month.  In exchange I'd have $1MM to do with as I pleased. 
The idea (as I understand it) is to make people feel uncomfortable at the idea of paying $1,667 every single month, and in effect bring them to the conclusion that they must get rid of all debt now, regardless of the rate or its fixed (not indexed to inflation) status. The interest payment is supposed to feel like a weight around your neck, while one is told to ignore the massive asset because you're reminded of the weight every single month.  In this thought exercise it aways came back to "but you'd be paying over a thousand dollars every single month!!!"

Of course the counter-argument is that one could simply rely on the gains from that $1MM to more than pay off the interest.  A 2% WR is in crazy-conservative territory, particularly if one doesn't index it to inflation.  There's never been a 30year period where that wouldn't result in having more money, and under the majority of scenarios you'd have a ton more money. Even the worst 30 year period would have you more than doubling the initial $1MM. If even that were too 'risky' for you one could put the money into 10year US treasury bonds and still come out (slightly) ahead.

ETA: I was curious about the effects of NOT adjusting for inflation with a constant (not adjusted for inflation) withdraw rate, so I monkeyed a bit with cFireSIM - turns out there has never been a 40 year period when a 4% WR failed if one does NOT index (increase) distributions with inflation each year.  Your purchasing power would steadily erode, but in this absurd hypotthetical interest-only loan one could pay off the interest and have an additional $20k/year to do with as he or she pleased in perpetuity. Man, i wish this actually existed...

You are correct in that I've heard Dave use this example to attempt to persuade people toward maintaining a mortgage in order to get investing sooner.

But--when you add conditions such as collateral and the possibility of calling a loan--the riskiness of being in debt is real and present. You're welcome to review my posts if you think I'm not still a member of the DNPYM club (I am).

But you don't have to be a Dave Ramsey disciple to learn from the example of market timer here: https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Emotions, income, market conditions all imply some optimum amount of debt to be servicing, and I cannot help but think that optimum is below $1,000,000 for most people.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 08, 2019, 09:58:05 AM
But--when you add conditions such as collateral and the possibility of calling a loan--the riskiness of being in debt is real and present. You're welcome to review my posts if you think I'm not still a member of the DNPYM club (I am).
I know you are, but for Pete's sake, please stop with the loan calling boogeyman act! US based mortgage loans are simply NOT callable.

Your point is taken for other types of loans debt, but it does not apply to mortgages, which is the point of this thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 08, 2019, 03:28:00 PM
As we've veered away from the purpose of this thread and into the realm of hypothetical loan structures, I'd ask those who want to continue that line line of analysis to start a new thread and post a link to it below.

One of the more absurd arguments I had with a DR acolyte was whether I would accept an interest only, $1MM loan at 2%.  The poster simply couldn't believe that I would actually take up such an offer - I the point he/she was attempting to make was that if I would refuse to take on a $1MM loan at 2% then I obviously had to pay off a $7k not at a similar interest rate.  Mind you the 10y treasury note is paying out at 2.7% right now....

I'm still waiting for the paperwork for that loan to come through. Any day now.

I'm glad you appreciate a nice hypothetical loan structure to illustrate a point as much as I do.

That being said, I would take the latter loan structure in a heartbeat. The only (quasi-)loans I'm aware of where you're not really expected to pay back the principle as a borrower are payday loans (hence the exorbitant interest rates) and stocks (each must inevitably go to zero at some point in time). Theoretically, much higher interest rates are associated with forever loans to offset never getting a return on principle, so this loan would be the equivalent of a 1.x% 30-year loan (with x depending on your preferred time value of money).

What's also interesting, is that people were lending long-term money for less than 2% interest for a good chunk of 2011-2016 (10-year treasury yields spent a good portion of this time below 2%). I like to think I'm not a market timer, but I would find it hard to stomach investing in something that is guaranteed to yield less than 2% for ten years.
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on January 14, 2019, 06:12:40 AM
whether I would accept an interest only, $1MM loan at 2%.

Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market [...]?

Every time I've seen this hypothetical dream loan it's always stated to be non-callable so you can ride out the market long term. Callable loans already exist (investing on margin) so there is not much point in making a hypothetical about those.
Agreed. One of the many reasons I'm not a DR fan. Even real world mortgage loans aren't callable any more. Duh, DR.

In his defense, he has updated his advice online to pay off everything but a "normal mortgage", which is a big step up from "kill all the debt now".  I'm not sure what he actively teaches, because I won't pay for his content, but the online (free) stuff isn't a bad place to start at all.  My biggest issue is his "save now to spend later" mentality about having a Fat FIRE retirement...  And he pushes mutual funds and doesn't ever mention ETFs.


Edit: Found his stuff-  https://www.daveramsey.com/baby-steps/?snid=start.steps (https://www.daveramsey.com/baby-steps/?snid=start.steps)
He still says to pay off the mortgage AFTER saving 15% of your income.  Not sure why 15%.  Why not 10%?  Why not 45%?  Why not 24,000 that you can put away tax-advantaged? Or is 15% just a nice round number that seems easy for people to swallow and allows you to sell to people without pushing too many away (you betcha)...

This is what most of his advice seems to be geared towards.  Which is why I don't dislike the guy at all.  It's not always about the "smart money" decision and he understands that.  People are people.  Like starting with the smallest debt regardless of interest rate.  Obviously this is about the psychology of it.  And he may very well be on to something.  His advice isn't bad, and from an objective viewpoint, his advice may even be better than MMM when applied to a larger number of people due to psychological factors with a larger portion of the general population.  Of course, that's not US, which is why we are here. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2019, 07:42:32 AM
"I don't dislike the guy" and "his advice isn't bad" is probably the most tepid endorsement I've read about someone in a very long time.

You do bring up a good point - whether more 'good' is done by getting a very large number of people to address their impulse-driven debt traps, or an arguably smaller segment of the population to move into more advanced financial topics.  I don't think they are mutually exclusive; as an analogy DR's main contribution is to get overweight couch potatoes to start exercising regularly and not guzzling empty calories every day, whereas MMM's a trainer focused on getting your body into a finely tuned machine.
Meh, maybe not the greatest of analogies....

point is they can both be helpful, but largely serve different niches. DR's really about helping people who have had no spending impulse control.  Suggestions of his like "freezing your ER fund in a block of ice so really have to work to access it" is borderline crazy to those of us who have no problem separating 'need' from 'want' and can reliably live on less than we earn.  His full-throated support of high-fee managed mutual funds makes me certain that some of his advice is structured around kickbacks to him (i.e. conflict of interest) and his religious leanings are not my religion leanings.   I also don't care for DR's advice of: once you can afford it you can buy it, it's your reward, since it fails to address the worst parts of our consumeristic lifestyles.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 14, 2019, 07:48:07 AM
@AlexMar, that's my point exactly, DR is fine for sheeple, er, people, especially those mired in credit card debt. Becoming mustachian means you are seeking a more focused way to reach a targeted goal. DR is not a FIRE guy, so why follow a non-FIRE guy's approach?

And +1 to what nereo just cross-posted.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 14, 2019, 08:20:52 AM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 14, 2019, 10:35:13 AM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on January 14, 2019, 11:35:06 AM
Nereo and Dicey.  We are all saying the same thing :)

We are HERE for a reason.  But DR isn't a bad guy or giving bad advice for the general population.  It's hard to understand the thinking of some people.  I have friends I've sent to MMM and have read quite a bit.  One of them just got done telling me about how they are going to buy a new car next year since they got a pay raise.  I mean, it's insane.  I can't make sense of it.  But it just underscores why DR's approach is probably pretty good.  And ultimately, whatever works for different people - as long as it's working, is good as far as I'm concerned.

But even DR wouldn't let me friend finance a new car!  But damned if these people won't buy new cars anyways, knowing they shouldn't and still justifying it.  So if you can get people to at least DO SOMETHING, it's at least.... something.

I like the couch potato vs trainer comparison, lol.  That's pretty accurate.  But really, I don't think MMM is all that radical at all or outside of the mainstream.  Which is why it becomes all the more shocking when you see readers do stuff that is so far out of left field.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 14, 2019, 11:55:51 AM
But DR isn't a bad guy

I disagree. Claiming 12% returns on the mutual funds he recommends (and gets a kickback for) is bad in my book.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2019, 12:51:56 PM
But DR isn't a bad guy

I disagree. Claiming 12% returns on the mutual funds he recommends (and gets a kickback for) is bad in my book.

This is where I oscillate regarding DR.  On the whole his advice is helpful to a great number of people who are hopelessly in debt.  But then, on occasion, he recommends or says something I find so contrary to good practices that I find myself mentally screaming at him.  Recommending high-cost managed funds that he gets a kickback for. Telling a 70-something man in poor health with no children to never consider a reverse mortgage. Condoning consumerism 'if you can afford it' and never pondering the effect it has on our planet. Telling people they aren't a 'good christian/person' unless they tithe. Suggesting money-lending is inherently base for both the lender and the borrower. Charging a lot of money for his seminars and products from people who can afford it the least. Owning a 13,000+ sqft home. Etc.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 14, 2019, 03:21:33 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2019, 03:27:48 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 14, 2019, 03:31:15 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

"if your expenses and income are such that you can barely afford your mortgage payment" then you aren't even investing "on margin",  You are over-consuming on housing...  The typical discussion in here is <invest 30k a year toward tax-deferred accounts> vs <pay down the mortgage>.  If someone was paying a 3 grand a month mortgage and saving 2 grand a year, I'm pretty sure EVERYBODY in this thread would tell them to sell the house. 

Not to mention, paying extra on the mortgage is money that you cannot quickly get back out in an emergency.  Paying extra into investments is money you can quickly liquidate to keep from getting foreclosed.  Not even comparable options...
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 14, 2019, 03:33:11 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?

No. If you borrow money for a mortgage on your house, and are unable to sustain those payments, your home (and the equity built up in it) are "callable".

By the way, the Market Timer thread, if anyone here hasn't read through it, is intense and educational. What's most amazing was that he was able to claw his way back out of a stupendous amount of debt to become FI in a matter of a few years following the Great Bust.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2019, 03:35:30 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?

No.

Ok.  I think that’s where some confusion lies.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 14, 2019, 03:55:52 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

"if your expenses and income are such that you can barely afford your mortgage payment" then you aren't even investing "on margin",  You are over-consuming on housing...  The typical discussion in here is <invest 30k a year toward tax-deferred accounts> vs <pay down the mortgage>.  If someone was paying a 3 grand a month mortgage and saving 2 grand a year, I'm pretty sure EVERYBODY in this thread would tell them to sell the house. 

Not to mention, paying extra on the mortgage is money that you cannot quickly get back out in an emergency.  Paying extra into investments is money you can quickly liquidate to keep from getting foreclosed.  Not even comparable options...

Thank you for pointing out the semantics involved.

Let's use a better example. A Mustachian buys a house with 20% down, with a resulting (very Mustachian) budget of $3k per month and income of $4k per month. The extra $1k per month is funneled into VTSAX. After three months, the economy craters, our friend loses their job, and VTSAX loses a third of its value. Now our friend still has to scrape up $3k per month, with $2k per month of unemployment and $2k in investments.

I'm certainly not suggesting putting the extra money into the mortgage, but I am suggesting there are always added risks involved when investing with debt. (In this case, I would suggest our friend was not in a good position to buy a house, but should have instead invested their down payment and waited until they had a substantial emergency fund built up beyond the down payment before making that purchase.)
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 14, 2019, 04:10:23 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

"if your expenses and income are such that you can barely afford your mortgage payment" then you aren't even investing "on margin",  You are over-consuming on housing...  The typical discussion in here is <invest 30k a year toward tax-deferred accounts> vs <pay down the mortgage>.  If someone was paying a 3 grand a month mortgage and saving 2 grand a year, I'm pretty sure EVERYBODY in this thread would tell them to sell the house. 

Not to mention, paying extra on the mortgage is money that you cannot quickly get back out in an emergency.  Paying extra into investments is money you can quickly liquidate to keep from getting foreclosed.  Not even comparable options...

Thank you for pointing out the semantics involved.

Let's use a better example. A Mustachian buys a house with 20% down, with a resulting (very Mustachian) budget of $3k per month and income of $4k per month. The extra $1k per month is funneled into VTSAX. After three months, the economy craters, our friend loses their job, and VTSAX loses a third of its value. Now our friend still has to scrape up $3k per month, with $2k per month of unemployment and $2k in investments.

I'm certainly not suggesting putting the extra money into the mortgage, but I am suggesting there are always added risks involved when investing with debt. (In this case, I would suggest our friend was not in a good position to buy a house, but should have instead invested their down payment and waited until they had a substantial emergency fund built up beyond the down payment before making that purchase.)

And for the purposes of this thread, the alternative is that our Mustachian puts that extra 1k into the mortgage to KILL ALL THE DEBT ™.  Now after three months, the mustachian loses their job, the economy craters, and he has to scrape together 3k per month out of 2k of unemployment and NO investments.  Fortunately for him the bank is happy that he paid an extra 3k towards the mortgage during those months since that will cover the extra fees for selling.

In the "PAY DOWN THE MORTGAGE NOW™" scenario, the mustachian will last exactly 0 months.
In the "Evil Leveraging" scenario, the mustachian will last exactly 1 months, and hopefully can stretch that out to 2 months and find a job.

"Evil Leveraging" still wins in your example...  Yes debt incurs risk but trying to kill all the debt asap is actually riskier.  The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing.  One of these is a good decision, one of them is not.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 14, 2019, 04:24:28 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

"if your expenses and income are such that you can barely afford your mortgage payment" then you aren't even investing "on margin",  You are over-consuming on housing...  The typical discussion in here is <invest 30k a year toward tax-deferred accounts> vs <pay down the mortgage>.  If someone was paying a 3 grand a month mortgage and saving 2 grand a year, I'm pretty sure EVERYBODY in this thread would tell them to sell the house. 

Not to mention, paying extra on the mortgage is money that you cannot quickly get back out in an emergency.  Paying extra into investments is money you can quickly liquidate to keep from getting foreclosed.  Not even comparable options...

Thank you for pointing out the semantics involved.

Let's use a better example. A Mustachian buys a house with 20% down, with a resulting (very Mustachian) budget of $3k per month and income of $4k per month. The extra $1k per month is funneled into VTSAX. After three months, the economy craters, our friend loses their job, and VTSAX loses a third of its value. Now our friend still has to scrape up $3k per month, with $2k per month of unemployment and $2k in investments.

I'm certainly not suggesting putting the extra money into the mortgage, but I am suggesting there are always added risks involved when investing with debt. (In this case, I would suggest our friend was not in a good position to buy a house, but should have instead invested their down payment and waited until they had a substantial emergency fund built up beyond the down payment before making that purchase.)

And for the purposes of this thread, the alternative is that our Mustachian puts that extra 1k into the mortgage to KILL ALL THE DEBT ™.  Now after three months, the mustachian loses their job, the economy craters, and he has to scrape together 3k per month out of 2k of unemployment and NO investments.  Fortunately for him the bank is happy that he paid an extra 3k towards the mortgage during those months since that will cover the extra fees for selling.

In the "PAY DOWN THE MORTGAGE NOW™" scenario, the mustachian will last exactly 0 months.
In the "Evil Leveraging" scenario, the mustachian will last exactly 1 months, and hopefully can stretch that out to 2 months and find a job.

"Evil Leveraging" still wins in your example...  Yes debt incurs risk but trying to kill all the debt asap is actually riskier.  The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing.  One of these is a good decision, one of them is not.

I'm not arguing with you on that point. I'm arguing with your bold caps italicized comment up thread. Come to think of it, Market Timer was invested significantly in non callable debt (in addition to callable debt). His saving grace was that he was able to command significant income to pull himself out of the hole he was in.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2019, 04:30:48 PM
are you 'Market Timer' @Boofinator?
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on January 14, 2019, 05:31:39 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?

No. If you borrow money for a mortgage on your house, and are unable to sustain those payments, your home (and the equity built up in it) are "callable".

That's not what "callable" means, not by any standard usage of the term.  A "callable loan"  means that the lender can demand repayment of the full value of the loan at the lender's discretion.  That is the definition of a callable loan. 

Except for very rare exceptions, home mortgages in the United States are not callable.   You do, of course, have to abide by the conditions of the loan agreement, but that requirement in no sense makes the loan callable. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 14, 2019, 07:30:43 PM
are you 'Market Timer' @Boofinator?

I can only wish. He is one of the marvels of the Bogleheads forum, and I but a lonely peon.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on January 14, 2019, 07:33:16 PM
Let's see, Formerly known as something (FKaS) is a Federal Employee. 

FKaS decided to only put a bit over 20% down on her current residence in 2017 even though FKaS could have paid for the residence in cash.  FKaS is "essential" and continues to go to work even though FKaS is not getting a paycheck until whenever. 

FKaS has 7.3 years of current expenses (not cutting anything) in a taxable account or 3.5 years at a 50% reduction in the taxable account.  If FKaS had paid cash for a house she would have 5.5 years of current expenses - Mortgage or 2.75 years of expenses at a 50% reduction.

FKaS is not regretting choosing to have a mortgage even though FKaS is getting paid with an IOU. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 14, 2019, 07:39:34 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?

No. If you borrow money for a mortgage on your house, and are unable to sustain those payments, your home (and the equity built up in it) are "callable".

That's not what "callable" means, not by any standard usage of the term.  A "callable loan"  means that the lender can demand repayment of the full value of the loan at the lender's discretion.  That is the definition of a callable loan. 

Except for very rare exceptions, home mortgages in the United States are not callable.   You do, of course, have to abide by the conditions of the loan agreement, but that requirement in no sense makes the loan callable.

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 14, 2019, 09:33:33 PM
Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I disagree. Certainly there are differences, but having mounds of non-callable debt doesn't make investing on leverage any less safe. For example, if your expenses and income are such that you can barely afford your mortgage payment each month and then lose your source of income, you'll soon find out the equivalent of a margin call on your home [equity].

You aren’t atlking about that hypothetical mentioned up thread a week I go, are you?

No. If you borrow money for a mortgage on your house, and are unable to sustain those payments, your home (and the equity built up in it) are "callable".

That's not what "callable" means, not by any standard usage of the term.  A "callable loan"  means that the lender can demand repayment of the full value of the loan at the lender's discretion.  That is the definition of a callable loan. 

Except for very rare exceptions, home mortgages in the United States are not callable.   You do, of course, have to abide by the conditions of the loan agreement, but that requirement in no sense makes the loan callable.

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.
Bank can call your loan for no reason = callable
Bank takes your house for non payment = foreclosure

Not the same thing. Nope nope nope.

And @formerly known as something - you are my hero, on so many levels. May your paychecks be non-rubber soon. OMG, she gets it! She gets it!! ♡♡♡♡♡
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 15, 2019, 06:08:29 AM

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.
Title: Re: DONT Payoff your Mortgage Club
Post by: starbuck on January 15, 2019, 06:44:58 AM
Let's see, Formerly known as something (FKaS) is a Federal Employee. 

FKaS decided to only put a bit over 20% down on her current residence in 2017 even though FKaS could have paid for the residence in cash.  FKaS is "essential" and continues to go to work even though FKaS is not getting a paycheck until whenever. 

FKaS has 7.3 years of current expenses (not cutting anything) in a taxable account or 3.5 years at a 50% reduction in the taxable account.  If FKaS had paid cash for a house she would have 5.5 years of current expenses - Mortgage or 2.75 years of expenses at a 50% reduction.

FKaS is not regretting choosing to have a mortgage even though FKaS is getting paid with an IOU.

Happily, this is the exact situation we are in too as a one-income household. Mr. Starbuck is also working during the shutdown but we invested the proceeds from our first house sale instead of paying cash for house #2 and have ample funds to pull from if needed. In fact, we are about to close on house #3 in a few weeks and will have another wonderful 30 year mortgage to our name.
Title: Re: DONT Payoff your Mortgage Club
Post by: protostache on January 15, 2019, 07:23:03 AM

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

The only even slightly callable mortgage in the Us is a HELOC, and that’s not truly callable. The bank can reduce your credit line to the amount outstanding (and reduce it again every time you make a payment) if the value of your house falls below their equity requirement but as long as you keep making payments they can’t accelerate the outstanding loan.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 15, 2019, 07:33:11 AM

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

Yes, in both situations (margin calls and foreclosure) you owe your collateral.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 15, 2019, 08:02:41 AM

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

Yes, in both situations (margin calls and foreclosure) you owe your collateral.

This is not the same thing.
Here is an example to illustrate.  Let's say you take out a $200k, 30y note @ 4%.  Your monthly payments (PI) will be ~$950/month.

Your bank cannot decide that you must pay the entirety of the loan for any reason. The most you are obligated to pay is the $950/mo +TA.

What you seem to be discussing is what happens if you are delinquent on your loan, which is not the same thing.  Even here, up and until the property goes into foreclosure you can return to good standing by paying the owed payments plus applicable fees.  Again, this is not callable. Your 'net assets' have nothing to do with it, and the bank cannot decide that you suddenly have to pay the full value of the note even if you lose your job or if you raid your 401(k) or whatever.

If the property does go into foreclosure you are entitled to whatever equity remains from the sale after subtracting the remainder of what's owed plus selling costs.  So following this example, let's suppose that 18 years into your mortgage you would have $100k remaining, but you default on multiple payments.  The bank sells the property at 'fair market value' for $300k (because: appreciation).  After fees and penalties, etc. the bank would still owe you over $100k.  Since the bank is only interested in recouping their money, they will list it low enough for a quick sale and will not pay money to fix the place up, but there are laws against them dumping properties far below market value.

Alternatively, you can decide at any point to sell your home to a 3rd party, and the bank cannot prevent you from doing this or 'call' your mortgage due before it is sold.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 15, 2019, 08:09:37 AM
"Evil Leveraging" still wins in your example...  Yes debt incurs risk but trying to kill all the debt asap is actually riskier.  The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing.  One of these is a good decision, one of them is not.

I'm not arguing with you on that point. I'm arguing with your bold caps italicized comment up thread. Come to think of it, Market Timer was invested significantly in non callable debt (in addition to callable debt). His saving grace was that he was able to command significant income to pull himself out of the hole he was in.

So you admit that (all else being equal) carrying a mortgage is safer than paying extra cash into the house at warp speed...  Because thats what this thread is primarily about.  Its not about leveraging callable assets, its not about leveraging yourself "into richness", its not even about buying houses...  Its about the most efficient place to put your little green soldiers and what actual, real world risk those places present.

1. There is more risk in paying down your mortgage early than investing.**
2. There is very little reason to pay down a low-rate, fixed interest, long-term, non-callable, US-Based mortgage in real life-  Despite what others on this forum may espouse with " KILL ALL THE DEBT™ " mentality this actually puts one in a riskier position.
3. The bigger your mortgage, the lower your rate, and the higher your savings-  The better off you are NOT paying early.  Yet these are the same people paying off in 5 years so they can feel warm and squishy inside while not maxing out their 401ks...


**Caveat 1:  It may be slightly less risky to lump-sum pay off the mortgage as you no longer have that monthly expense.  You still lose out mathematically, but the risk becomes negligible as you cannot be foreclosed on (except for taxes...).
**Caveat 2:  It may be valid to pay off the mortgage immediately preceding FIRE to reduce sequence of return risk.  It doesn't completely eliminate it, but for those who plan on lean-FIRE then it is a valid consideration.  It is also a consideration to move to a lower cost of living area and pay cash for housing.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 15, 2019, 08:24:51 AM

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

Yes, in both situations (margin calls and foreclosure) you owe your collateral.

This is not the same thing.
Here is an example to illustrate.  Let's say you take out a $200k, 30y note @ 4%.  Your monthly payments (PI) will be ~$950/month.

Your bank cannot decide that you must pay the entirety of the loan for any reason. The most you are obligated to pay is the $950/mo +TA.

What you seem to be discussing is what happens if you are delinquent on your loan, which is not the same thing.  Even here, up and until the property goes into foreclosure you can return to good standing by paying the owed payments plus applicable fees.  Again, this is not callable. Your 'net assets' have nothing to do with it, and the bank cannot decide that you suddenly have to pay the full value of the note even if you lose your job or if you raid your 401(k) or whatever.

If the property does go into foreclosure you are entitled to whatever equity remains from the sale after subtracting the remainder of what's owed plus selling costs.  So following this example, let's suppose that 18 years into your mortgage you would have $100k remaining, but you default on multiple payments.  The bank sells the property at 'fair market value' for $300k (because: appreciation).  After fees and penalties, etc. the bank would still owe you over $100k.  Since the bank is only interested in recouping their money, they will list it low enough for a quick sale and will not pay money to fix the place up, but there are laws against them dumping properties far below market value.

Alternatively, you can decide at any point to sell your home to a 3rd party, and the bank cannot prevent you from doing this or 'call' your mortgage due before it is sold.

I'm not saying there aren't differences. I'm saying there are similarities. Going back to talltexan's comment:

Despite my full-throated support for building investment assets even as I maintain various low-interest rate debts, I force myself to read the famous "market timer" thread from Bogleheads once a year. It's a good reminder about the psychology that you have to manage in yourself to deal with building ample market exposure through leverage in the short term.

https://www.bogleheads.org/forum/viewtopic.php?t=5934 (https://www.bogleheads.org/forum/viewtopic.php?t=5934)

Doesn't apply.  His loan was CALLABLE.  Its not even a close comparison...

I understand and agree with talltexan's sentiments completely, though others only felt the need to point out the differences. His point is that early in your investment career (such as MarketTimer's), you should be taking some risk to build up market exposure (though MT's was borderline excessive), and you need to steel yourself to potential consequences to those risks. It doesn't matter whether his loan was callable (and there has been some disagreement whether margin calls classify as callable loans).
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 15, 2019, 08:49:52 AM
"Evil Leveraging" still wins in your example...  Yes debt incurs risk but trying to kill all the debt asap is actually riskier.  The discussion isn't debt vs no debt (as the ERE forum shows, no debt at all is a much quicker way to FIRE), its pre-paying the mortgage vs investing.  One of these is a good decision, one of them is not.

I'm not arguing with you on that point. I'm arguing with your bold caps italicized comment up thread. Come to think of it, Market Timer was invested significantly in non callable debt (in addition to callable debt). His saving grace was that he was able to command significant income to pull himself out of the hole he was in.

So you admit that (all else being equal) carrying a mortgage is safer than paying extra cash into the house at warp speed...  Because thats what this thread is primarily about.  Its not about leveraging callable assets, its not about leveraging yourself "into richness", its not even about buying houses...  Its about the most efficient place to put your little green soldiers and what actual, real world risk those places present.

1. There is more risk in paying down your mortgage early than investing.**
2. There is very little reason to pay down a low-rate, fixed interest, long-term, non-callable, US-Based mortgage in real life-  Despite what others on this forum may espouse with " KILL ALL THE DEBT™ " mentality this actually puts one in a riskier position.
3. The bigger your mortgage, the lower your rate, and the higher your savings-  The better off you are NOT paying early.  Yet these are the same people paying off in 5 years so they can feel warm and squishy inside while not maxing out their 401ks...


**Caveat 1:  It may be slightly less risky to lump-sum pay off the mortgage as you no longer have that monthly expense.  You still lose out mathematically, but the risk becomes negligible as you cannot be foreclosed on (except for taxes...).
**Caveat 2:  It may be valid to pay off the mortgage immediately preceding FIRE to reduce sequence of return risk.  It doesn't completely eliminate it, but for those who plan on lean-FIRE then it is a valid consideration.  It is also a consideration to move to a lower cost of living area and pay cash for housing.

Yes, I agree 99% with what you say. It has been the path I have used to become fairly close to FI (as defined by 25x bare-bones expenses). The only 1% I don't agree with is that the size of the mortgage and the savings rate shouldn't play that much of a role (outside of ensuring you have sufficient liquidity to cover the mortgage should the shit hit the fan with your income stream). Obviously interest rate on the mortgage is a big factor, and I would recommend using a sliding scale based on accumulated savings and mortgage interest rate to determine whether it might be financially prudent to pay off the mortgage (for example, if someone has no savings, I'd probably recommend investing in taxable over paying off a mortgage up to at least 8% interest rate (if not 10%); as someone gets close to FI, I'd recommend paying off the mortgage at a lower interest rate (perhaps as low as 4%) to improve the odds of securing FI (of course considering market valuations (hat tip to MT))).

I have much more in agreement than disagreement with most on this thread, but we should humbly acknowledge that most of us in some respect have been extremely lucky with stock returns over the last decade. Others might not realize the risk inherent in using leverage to invest, and I fear it may burn them (as it did to me in 2000, which turned me off from the stock market for almost a decade).
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 15, 2019, 08:51:48 AM
I agree with TallTexan'scomments as well: It's not even a close comparison. Buying stocks on margin is not remotely comparable to holding a fixed-rate mortgage.  With a margin call you must either liquidate your holdings or provide more capital.  I see no similarities when holding a mortgage - you cannot be asked to pay more due to market fluctuations, changes in income, assets, or anything else.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 15, 2019, 09:06:01 AM

As far as I am aware, margin calls occur when your account falls below some preset maintenance margin, not "at the lender's discretion" (though of course the maintenance margin is set at the lender's discretion). I'm not in finance, so if this is different from being "callable", I stand corrected and apologize, but maintain that a mortgage can experience something similar to a margin call if sufficient assets are not available.

No, this cannot happen with a mortgage in the US. The lender cannot force you to pay the entirety of the loan even if your assets fall below some point.

Yes, in both situations (margin calls and foreclosure) you owe your collateral.
But not for no fucking reason at all - a crucial distinction. Which is why big 'stache, including EF, and a buffer, is exponentially better strategy than prepayment. Oops - i see nereo has this covered.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 15, 2019, 09:19:13 AM
Yes, I agree 99% with what you say. It has been the path I have used to become fairly close to FI (as defined by 25x bare-bones expenses). The only 1% I don't agree with is that the size of the mortgage and the savings rate shouldn't play that much of a role (outside of ensuring you have sufficient liquidity to cover the mortgage should the shit hit the fan with your income stream). Obviously interest rate on the mortgage is a big factor, and I would recommend using a sliding scale based on accumulated savings and mortgage interest rate to determine whether it might be financially prudent to pay off the mortgage (for example, if someone has no savings, I'd probably recommend investing in taxable over paying off a mortgage up to at least 8% interest rate (if not 10%); as someone gets close to FI, I'd recommend paying off the mortgage at a lower interest rate (perhaps as low as 4%) to improve the odds of securing FI (of course considering market valuations (hat tip to MT))).

I have much more in agreement than disagreement with most on this thread, but we should humbly acknowledge that most of us in some respect have been extremely lucky with stock returns over the last decade. Others might not realize the risk inherent in using leverage to invest, and I fear it may burn them (as it did to me in 2000, which turned me off from the stock market for almost a decade).

Understood.  The only reason I point out that big mortgages make a bigger difference is because of the compounding nature of the equation.

If you have two mortgages, one for 100k and one for 500k (assuming both persons have a income "equal" to their mortgage, and are not over-consuming), both at 3.5% interest, and both at 30 years fixed-  The bigger mortgage will save $3,687,696 vs $641,101 for the smaller mortgage.  The compounding effect starts off with bigger dollars, sooner, and makes a bigger difference for the larger mortgages.

Personally, I think we need to stop getting into such expensive housing, BUT, considering those decisions are already made, its about helping people most effectively place their dollars.  The difference can be years on a FIRE date.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 15, 2019, 09:28:25 AM
I agree with TallTexan'scomments as well: It's not even a close comparison. Buying stocks on margin is not remotely comparable to holding a fixed-rate mortgage.  With a margin call you must either liquidate your holdings or provide more capital.  I see no similarities when holding a mortgage - you cannot be asked to pay more due to market fluctuations, changes in income, assets, or anything else.

Yes, it is about taking risks with money you don't have (in the form of leverage) to purchase equity. Now the risks aren't equal by any stretch, but they remain risks. Note that I've had a mortgage for many years, but have never invested using margin, which should be a clear indicator of my opinion for the disparity in the risks.

As far as the structural similarities, I feel like having to give up your home due to foreclosure as a liquidation of holdings to make the lender whole, and that the 20% down payment is similar to (though not the same as) margin maintenance (to ensure the lender doesn't lose their shirt).

Anyway, I feel this topic has been beat to death without any budging of opinions on either side, which is fine. In my mind we agree on everything except whether two investment strategies that use leverage have similar (though not identical and not equal) risks. If I understand correctly, your position is that the risks are so dissimilar as to be not even comparable, whereas I disagree with that assessment and consider the awareness of leverage very important for investors (even if it is low-risk).
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 15, 2019, 09:34:38 AM
Yes, I agree 99% with what you say. It has been the path I have used to become fairly close to FI (as defined by 25x bare-bones expenses). The only 1% I don't agree with is that the size of the mortgage and the savings rate shouldn't play that much of a role (outside of ensuring you have sufficient liquidity to cover the mortgage should the shit hit the fan with your income stream). Obviously interest rate on the mortgage is a big factor, and I would recommend using a sliding scale based on accumulated savings and mortgage interest rate to determine whether it might be financially prudent to pay off the mortgage (for example, if someone has no savings, I'd probably recommend investing in taxable over paying off a mortgage up to at least 8% interest rate (if not 10%); as someone gets close to FI, I'd recommend paying off the mortgage at a lower interest rate (perhaps as low as 4%) to improve the odds of securing FI (of course considering market valuations (hat tip to MT))).

I have much more in agreement than disagreement with most on this thread, but we should humbly acknowledge that most of us in some respect have been extremely lucky with stock returns over the last decade. Others might not realize the risk inherent in using leverage to invest, and I fear it may burn them (as it did to me in 2000, which turned me off from the stock market for almost a decade).

Understood.  The only reason I point out that big mortgages make a bigger difference is because of the compounding nature of the equation.

If you have two mortgages, one for 100k and one for 500k (assuming both persons have a income "equal" to their mortgage, and are not over-consuming), both at 3.5% interest, and both at 30 years fixed-  The bigger mortgage will save $3,687,696 vs $641,101 for the smaller mortgage.  The compounding effect starts off with bigger dollars, sooner, and makes a bigger difference for the larger mortgages.

Personally, I think we need to stop getting into such expensive housing, BUT, considering those decisions are already made, its about helping people most effectively place their dollars.  The difference can be years on a FIRE date.

I see where you're coming from, and yes, you're right that savings rate makes a key contribution (I was looking at it more from investment horizon perspective, but they are clearly related). As to the size of the mortgage, I think it is important relative to savings rate (but otherwise unimportant).

And yes, housing is ridiculously expensive, but it is what people seem to be willing to spend money on (for a variety of reasons). To be honest, my house is probably face-punch worthy, but my wife enjoys it so I'm willing to work a few more years.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 15, 2019, 09:39:33 AM
If I understand correctly, your position is that the risks are so dissimilar as to be not even comparable, whereas I disagree with that assessment and consider the awareness of leverage very important for investors (even if it is low-risk).

Yes, this is my position: Buying equities on margin is so dissimilar from a fixed-rate mortgage that comparisons between the two are largely meaningless. It seems that we are already in broad agreement but are unlikely to move any closer, so I'm fine leaving this where it is.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 15, 2019, 02:26:34 PM
I didn't intend for my comments to provoke such discussion, but it seems as though arriving at a distinction between "consuming too much house for your income" and "taking on too much debt for your income" is valuable.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 15, 2019, 02:47:13 PM
I think the discussion has all been in good faith, and hopefully others see it that way too.
Title: Re: DONT Payoff your Mortgage Club
Post by: jojoguy on January 15, 2019, 04:16:02 PM
Well, I`ve definitely joined this club! Thanks @TexasRunner !
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on January 16, 2019, 05:55:57 AM
And yes, housing is ridiculously expensive, but it is what people seem to be willing to spend money on (for a variety of reasons). To be honest, my house is probably face-punch worthy, but my wife enjoys it so I'm willing to work a few more years.

Sounds like me. Lol.  I would be totally fine in a smaller and (much) cheaper house.  Wife seems to like this one, but it's as far from mustachian as you can probably get!
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on January 16, 2019, 08:00:44 AM
Well, I`ve definitely joined this club! Thanks @TexasRunner !

👍

@jojoguy Glad to have helped you.  Now along the long and fruitful road to FIRE, once you have had years of compounding on your nearly-maxed out 401k, we can discuss payoff before FIRE...  Which would have been about 4 to 6 years later for you (by my math) had you gone the payoff route.

We do get into the weeds here, but to me it is always in good faith.  I'm just happy that those in this thread are ready and willing to look at the mathematical hard cost BEFORE making a life altering decision based on feelings. 



@Boofinator , I agree with you (in essence) that your point is that debt (any and all) increases risk.  I think you are completely correct.  If I were to choose the nomad life, living out of a VW beetle and travelling the county, I would incur much less risk than having a mortgage.  That being said, viewing the totality of the risk in each situation is the important part of the puzzle.  Someone with 18 months worth of emergency fund in CD's paying off a low rate mortgage is (IMO) extremely low risk.  However, someone who is paying off their mortgage ASAP and only has six months emergency fund-  AND that fund is 100% stocks, they are in a much riskier position.  (Not to mention, paying off the mortgage early without paying it off completely didn't help their risk level at all....  while assets would help reduce risk).  I would never advise someone with a 100k income to buy a 900k house and mortgage the shit out of it just to 'invest on leverage' because that is a financially AWFUL decision.  But, when there isn't a bigger underlying problem, I would tell someone with a nice ER fund, a 300k a year job, and a 900k mortgage at 3% to pay that sucker off as slow as possible because that is what makes sense in their specific situation. 

That was the whole problem with the "Pay Off The Mortgage Club"...  They never rarely ask for specifics to see if paying off the mortgage actually makes sense.  And they rarely determine if the house/mortgage was a good financial choice anyway.  To me, thats the underlying problem.  This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE.  Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.

Anyways, /offsoapbox.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 16, 2019, 09:03:47 AM
That was the whole problem with the "Pay Off The Mortgage Club"...  They never rarely ask for specifics to see if paying off the mortgage actually makes sense.  And they rarely determine if the house/mortgage was a good financial choice anyway.  To me, thats the underlying problem.  This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE.  Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.

I agree except for the comment that paying off the mortgage is a shitty choice. It is highly likely in many cases to be a suboptimal choice given the constraints, but a shitty choice would have been using the money to buy (fill in inappropriate stereotypical consumer-sukka purchase here).

We have to keep in mind that different people have different tolerances for risk, and different knowledge backgrounds. But if their hearts on in the right place, let's accept their choice of investments as legitimate (and certainly a better option than a savings account). Besides, nobody knows what the future may hold, and there is a finite possibility that paying off the mortgage will turn out to be the optimal choice.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 16, 2019, 09:04:41 AM

That was the whole problem with the "Pay Off The Mortgage Club"...  They never rarely ask for specifics to see if paying off the mortgage actually makes sense.  And they rarely determine if the house/mortgage was a good financial choice anyway.  To me, thats the underlying problem.  This forum used to be efficiency-based and focused on reducing environmental impact while optimizing your savings and reducing your time to FIRE.  Now its more along the lines of upper-middle class patting themselves on the back for being rich enough to make shitty choices, lol.

This comment resonates with me.
Before one ever gets to the "pay off vs Don't pay off" the mortgage question, there's the even more important question "should I own this house" that all too often gets ignored. A home that is too big, too expensive, too inefficient or in the wrong place will have a much larger impact on a person's ability to FIRE (as well as their carbon footprint) than whether they carry a mortgage or kill it quickly.
Perspective.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on January 19, 2019, 08:25:06 AM
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 19, 2019, 08:50:59 AM
Yeah, when I logged into Ally yesterday I noticed they had raised their savings account up to 2.20%. I'm starting to wonder if it will ever exceed my mortgage rate (3.125%). Seems plausible.
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on January 19, 2019, 08:53:16 AM
And on that day all the DPOYMC members will be like to all the haters.

(https://media.giphy.com/media/Vff5Qxz6LLzag/giphy.gif)
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 19, 2019, 09:21:07 AM
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 19, 2019, 09:32:03 AM
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)
Knock it off, @Boofinator. You don't get to argue the other side, even sarcastically, on this thread. If the DPYMC folk aren't allowed to inject reason into the POYM thread, you can't spew that crap here. Even if you're only joking, which must be the case.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 19, 2019, 09:58:35 AM
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap?
Like this, right?
https://i.imgur.com/vjC7JeI.mp4

If you keep trying to time the market eventually you'll be right. But with all your money tied up in your house equity I don't see how you would really take advantage anyway. Available cashflow? Whoop de doo you can put in an extra thousand or so per month but the market will recover before that amounts to anything significant.
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on January 19, 2019, 10:12:49 AM
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)

Hate on, Boof! The regression to the mean of interest rates is a pretty awesome thing that some hand waving around portfolio allocation isn't going to derail. BTW- and thanks for being my personal spell checker! What's the point of re-reading my messages when someone else will do the work for me ;)
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 19, 2019, 04:01:12 PM
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)

Hate on, Boof! The regression to the mean of interest rates is a pretty awesome thing that some hand waving around portfolio allocation isn't going to derail. BTW- and thanks for being my personal spell checker! What's the point of re-reading my messages when someone else will do the work for me ;)

It's a little dig at B42's grammar (or lack thereof). It pains me to ever use "payoff" as a verb (which I must do when referencing this club).
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 19, 2019, 04:36:11 PM
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap? (Or conversely, the confusion and sadness that occurs when the DPYMC [sic] members realize that they could get bonds that pay more than their mortgage, but don't (because Stocks!), meanwhile their large portfolio of stocks perform like shit due to the heavy price and the flight to safety that accompanies the rising bond market?)
Knock it off, @Boofinator. You don't get to argue the other side, even sarcastically, on this thread. If the DPYMC folk aren't allowed to inject reason into the POYM thread, you can't spew that crap here. Even if you're only joking, which must be the case.

I think if it was just reason then the DPYMC would not have been banned from posting on the POYM thread. Instead, it's reason suffused with smugness. A significant number of the posts here are ripping fellow forum members choosing a different path.

If bond yields rise above mortgage rates (plus applicable taxes), then it simply makes sense for those paying their mortgage to transfer their extra payments to bonds (in most cases, though there are some exceptions). It does not affect the strategy of members of this club in the slightest. Hence the smugness for even bringing it up here.

EDIT: Changed my wording to reflect reality per RWD's accurate comment below.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 19, 2019, 06:53:12 PM
I'd wager a vast majority of the posts here are ripping fellow forum members choosing a different path.
How much would you like to wager and what is your definition of "vast majority"?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 19, 2019, 08:15:01 PM
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on January 19, 2019, 08:27:48 PM
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
I don't think boof has a point...  I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.

On a good note... We bought our house in summer of 2018 when rates were higher but we just locked in a refinance rate of 4.375 down from 4.75.  No lender fees on the refi and enough lender credits that it will be a 0 cost refi other than us funding escrow.  Hoping the refi goes smoothly!



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Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 19, 2019, 09:01:29 PM
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
I don't think boof has a point...  I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.

On a good note... We bought our house in summer of 2018 when rates were higher but we just locked in a refinance rate of 4.375 down from 4.75.  No lender fees on the refi and enough lender credits that it will be a 0 cost refi other than us funding escrow.  Hoping the refi goes smoothly!
I noticed rates have been dropping. I think the flip house is at 4.75% too. We're not going to re-fi, but the downward drift of rates makes me hopeful that we can sell our house for more than the $1.1M the smaller house next door went for.

There used to be a thing called a "streamline re-fi", which I used successfully a couple of times in the olden days when the rates were higher. Basically, if you re-fi within a year of acquisition, you can lower your rate with minimal paperwork, fees and hassle. Sounds like what you're working on. I'd encourage anyone who bought in the same time frame to look into it. You literally have nothing to lose.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on January 19, 2019, 09:40:47 PM
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 19, 2019, 10:08:33 PM
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.
It's a Sixties-era tract home, 3+2, about 1800sf, and yes, they take BART into The City. Our house next door is 4+2.5 and about 2000sf. We're doing okay at sticking to our reno budget despite massive scope creep, and we're hoping to sell for the same price they paid. If the market dictates a higher price than that, we will be thrilled.

I have siblings in Folsom and Auburn, you don' a gotta remin' me how much more affordable things are in your neck of the woods. My sister's house is on five acres with a pond and a pool, my brother's is a little bit McMansion-y (biggest house, smallest lot) and on a golf course. The square footage of all three houses is roughly even. Our house (same city as the flip house) cost more than both of theirs combined. No pool, no acreage, no golf course.

I would like to preen a just little bit. My brother bought a foreclosure that was in pretty good shape, my sister bought a foreclosure that was completely vandalized by the previous owners, and we got ours on a short sale. But for a single glaring exception, who shall go further unremarked upon, we're a pretty frugal lot.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 20, 2019, 08:09:31 AM
Sorry, this is when I really miss b42. I have no idea what boof's point is, so I can't comment further.

Today I had a chat with the neighbor at the flip house. They paid $1.1M for the smaller house next door about a year ago. I mentioned that we were going to wait to put our house on the market until March, because if it doesn't close until late April, our gains will be taxed as long term gains vs. ordinary income. The conversation meandered from there. He mentioned they had a mortgage for $800k at 3.875%. AND that they were never going to pay it off early. As you can imagine, this made Dicey very happy. They are a young couple and this is their first house. They put 300k down and have the income to support their mortgage. BTW, this is not a McMansion, and they moved from SF to my suburb because it's more "affordable". This makes me feel ancient, but I'll say it anyway. I don't know how they do it.

Oh, they ride their bikes to transit.
Wow, $1.1M for the smaller house next to your flip and not a McMansion. I'm guessing that this is still BART service area, not further out. I certainly think $1.1M would still have to be a McMansion here in the Sacramento area.

Lived in Santa Cruz for years (the tech crowd has a saying: Work in San Jose/Mountainview/Cupertino, live in Santa Cruz).  Consequentially we have some of the most expensive home prices for a small town.  Looked at a 800 sqft 2 bedroom, 1 bath listed for $675k - it sold for almost $800k shortly after being listed. Absolutely nothign special about it, other than it was in Santa Cruz. Over 60% of our spending went to housing costs while living there, and we had a roomate in our 2 bedroom in the hills.
To prevent the town from expanding rapidly (and swamping the utility infrastructure) the town has curtailed new construction for decades.  Prop 13 has kept property taxes obscenely low for families that have lived there since the 1970s, but has locked them into their current home.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 20, 2019, 09:20:46 AM
Can you post the gif that shows the smugness of the POYM club when overpriced stocks crash and they have the cashflow available to invest heavily when stocks are cheap?
Like this, right?
https://i.imgur.com/vjC7JeI.mp4

If you keep trying to time the market eventually you'll be right. But with all your money tied up in your house equity I don't see how you would really take advantage anyway. Available cashflow? Whoop de doo you can put in an extra thousand or so per month but the market will recover before that amounts to anything significant.

You are correct, I believe market timing tied to valuations is a healthy activity. (Note that by market timing, I'm not speaking in the vein of Jesse Livermore (sell everything and short using leverage), but more of the techniques called out by Bogle or Buffett for the allocation of new money.) I wish I had the time right now to do a bit more research for the forum on the current level of expectations based on historical returns given current valuations (to show whether the whoop de doo really amounts to anything significant given my mortgage interest rate), but unfortunately I have garage shelves to build at the moment.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 20, 2019, 09:23:44 AM
I'd wager a vast majority of the posts here are ripping fellow forum members choosing a different path.
How much would you like to wager and what is your definition of "vast majority"?

Poor choice of words on my part, apologies.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 20, 2019, 09:27:24 AM
I don't think boof has a point...  I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.

Do you understand that the 4% rule that most of us rely on is based on "what if" scenarios? Like, what if the worst happens, will we make it through our retirement?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on January 20, 2019, 10:54:30 AM


I don't think boof has a point...  I'm also kinda sick of this thread going into “what if“ scenarios that aren't relevant.

Do you understand that the 4% rule that most of us rely on is based on "what if" scenarios? Like, what if the worst happens, will we make it through our retirement?

Lol....

Yes, I understand the 4% rule....  Although I'm planning on using a 5% rule that will reset each year in order to take advantage of bull runs and also protect myself from sequence of returns risks during bear markets.

I was more talking about the crazy mortgage structures brought up earlier that arnt offered and will most likely never be offered.  Essentially what if scenarios that have never happened before.  Preparing for those is just a waste of time in my opinion and is mostly brought on by fear more than anything else.  Like prepping for the end of the world.

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Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 20, 2019, 11:25:40 AM
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on January 20, 2019, 01:45:21 PM
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.
Yep.....

It's essentially emotional based investing.

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Title: Re: DONT Payoff your Mortgage Club
Post by: englishteacheralex on January 20, 2019, 04:19:37 PM
Well, it took us three years but we finally joined this club. We went from putting an additional $800/month on the principal to putting $200/month extra on the principal, and next month we will be down to zero extra. We'll be putting the $200/month into my Roth IRA VTSX admiral shares instead. The $600 got sucked into the additional daycare bill when we added our second child to the mix. But none of it is going to lifestyle inflation.

In case anybody is curious--it's a 30 year, fixed rate 3.75% mortgage. We're at $296k so far. The original mortgage was for $327k. Y'all talked us into seeing the mortgage in a different way.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on January 20, 2019, 04:54:30 PM


Well, it took us three years but we finally joined this club. We went from putting an additional $800/month on the principal to putting $200/month extra on the principal, and next month we will be down to zero extra. We'll be putting the $200/month into my Roth IRA VTSX admiral shares instead. The $600 got sucked into the additional daycare bill when we added our second child to the mix. But none of it is going to lifestyle inflation.

In case anybody is curious--it's a 30 year, fixed rate 3.75% mortgage. We're at $296k so far. The original mortgage was for $327k. Y'all talked us into seeing the mortgage in a different way.

Welcome!

That is a KILLER rate!

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Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on January 20, 2019, 10:58:49 PM
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.

I've told this story before (maybe in this thread, I can't remember) but it is well worth repeating when the subject of risk comes up.  A dear friend is an MD.  I wouldn't say she's mustaschian, but she's frugal and hates debt.  When she got done with med school, she stayed in her student apartment and crushed her student loans.   She bought nice cars, but not fancy cars and mostly saved and invested.  I will say that I've observed that most doctors are pretty bad with money, because they seem to think they will always have a gusher of money in the future, so they don't think much about investing and saving, except in investing in things that they think will be home runs.  A broad brush, but I think fairly accurate, so she definitely was an outlier among her peers as far as savings and investing.  She told me most of her peers still are paying on their student loans, for example. 

She meets a great guy who is a civil servant who makes OK money, but will never be a huge earner.  They fall in love, get married, have a kid,  and buy their dream house together.  And by dream house, I mean dream house.  It is the coolest house that anyone I've personally known has owned.  It isn't particularly big or fancy, but every element of the house just works.  If you walked into it, you'd think this house is totally cool.   Great school district, close to work and the grandparents.  It is absolutely a forever house.  It was very expensive, but they bought at the bottom of the market and put down a lot of money (mostly hers).

Her plan is they aggressively kill the mortgage (just like she did with her student loans) before the kid gets to college.   Then they'll have income to put the kid through college.  And then cut back hours and continue to save and retire on schedule but very comfortably in their dream house.

As it turns out, they are not in love anymore, can't work it out, and don't want to be married.  However, the house has appreciated a lot and they live in a community property state, so separating means she would have to cut him an enormous check for his share in the equity in the house.   So that means selling the dream house, and in turn that would mean moving farther away from work and the grandparents.  So what they decided to do is both stay in the house as divorced parents.  Neither of them want to do this, but they can't figure out how to make it work financially otherwise so they put up with a far less an ideal living arrangement.   She feels like there is a financial Sword of Damocles hanging over her head.  Her retirement plan, while not strictly mustashician, is still better than 95% of the populace, is dead.

If she hadn't been aggressively paying down the mortgage she could simply cut the ex-husband a check and be done.   It would be a setback, but everyone would be better off.  But because the money is tied up in the house, everyone is worse off.  Most likely, neither one of them will wind up living in their forever house, and both will have to move farther from work, the good school district, and the grandparents. 

Everyone who advocates paying down the mortgage says something along the lines of "It makes me feel better."  And that's worth something, no question.  But no one gets married thinking they might get divorced.  No one thinks they will be the one who is laid off.  No thinks they or a loved one will have an extended illness and can't work and will need expensive medical care.  If the money is tied up in the house, it can be really hard, or maybe impossible to deal with those issues.  Those are real risks, and they happen to real people.  People who advocate paying down the mortgage without including those risks are making a mistake.  A bird in the hand is worth two in the bush.  And paying down the mortgage is more like one in the bush.   
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 21, 2019, 06:17:04 AM
Liked the story Telecaster, and as someone who has parents, inlaws and siblings who are doctors I could tell dozens of stories about the bone-headed things doctors do with their money (but save that for another thread).

I know there's a psychological component to people who want their mortgage gone (the "it just makes me feel better" argument).  And I'm not so passionate about this that I'd argue against anyone taking this route if they have the means and have more-or-less followed the investment order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) (or have at least gotten through 0-5).  BUT (big 'BUT') - don't do it at the expense of all other savings.  Don't ignore your retirement accounts and emergency fund. Don't let your home make up the majority of your net worth.  Cash is king, and investments will get you out of a very bad situation (divorce, unemployment, lawsuits) in  a way that a home that's way ahead of schedule in being paid off (but still not totally paid off) cannot.
Title: Re: DONT Payoff your Mortgage Club
Post by: AlexMar on January 21, 2019, 09:44:27 AM
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.

I've told this story before (maybe in this thread, I can't remember) but it is well worth repeating when the subject of risk comes up.  A dear friend is an MD.  I wouldn't say she's mustaschian, but she's frugal and hates debt.  When she got done with med school, she stayed in her student apartment and crushed her student loans.   She bought nice cars, but not fancy cars and mostly saved and invested.  I will say that I've observed that most doctors are pretty bad with money, because they seem to think they will always have a gusher of money in the future, so they don't think much about investing and saving, except in investing in things that they think will be home runs.  A broad brush, but I think fairly accurate, so she definitely was an outlier among her peers as far as savings and investing.  She told me most of her peers still are paying on their student loans, for example. 

She meets a great guy who is a civil servant who makes OK money, but will never be a huge earner.  They fall in love, get married, have a kid,  and buy their dream house together.  And by dream house, I mean dream house.  It is the coolest house that anyone I've personally known has owned.  It isn't particularly big or fancy, but every element of the house just works.  If you walked into it, you'd think this house is totally cool.   Great school district, close to work and the grandparents.  It is absolutely a forever house.  It was very expensive, but they bought at the bottom of the market and put down a lot of money (mostly hers).

Her plan is they aggressively kill the mortgage (just like she did with her student loans) before the kid gets to college.   Then they'll have income to put the kid through college.  And then cut back hours and continue to save and retire on schedule but very comfortably in their dream house.

As it turns out, they are not in love anymore, can't work it out, and don't want to be married.  However, the house has appreciated a lot and they live in a community property state, so separating means she would have to cut him an enormous check for his share in the equity in the house.   So that means selling the dream house, and in turn that would mean moving farther away from work and the grandparents.  So what they decided to do is both stay in the house as divorced parents.  Neither of them want to do this, but they can't figure out how to make it work financially otherwise so they put up with a far less an ideal living arrangement.   She feels like there is a financial Sword of Damocles hanging over her head.  Her retirement plan, while not strictly mustashician, is still better than 95% of the populace, is dead.

If she hadn't been aggressively paying down the mortgage she could simply cut the ex-husband a check and be done.   It would be a setback, but everyone would be better off.  But because the money is tied up in the house, everyone is worse off.  Most likely, neither one of them will wind up living in their forever house, and both will have to move farther from work, the good school district, and the grandparents. 

Everyone who advocates paying down the mortgage says something along the lines of "It makes me feel better."  And that's worth something, no question.  But no one gets married thinking they might get divorced.  No one thinks they will be the one who is laid off.  No thinks they or a loved one will have an extended illness and can't work and will need expensive medical care.  If the money is tied up in the house, it can be really hard, or maybe impossible to deal with those issues.  Those are real risks, and they happen to real people.  People who advocate paying down the mortgage without including those risks are making a mistake.  A bird in the hand is worth two in the bush.  And paying down the mortgage is more like one in the bush.

This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State.  How marriage laws in your State work is important to understand.  And if you have a much larger income, REALLY understanding all of that.  This story has almost nothing to do with whether it's a good idea to pay off the house or not.  If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex.  The money isn't "tied up in the house" in any way.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on January 21, 2019, 10:11:58 AM
What baffles me is when people are accepting of an inflation-adjusted 4% WR but think holding onto a 4% fixed mortgage is somehow 'too risky'.

I've told this story before (maybe in this thread, I can't remember) but it is well worth repeating when the subject of risk comes up.  A dear friend is an MD.  I wouldn't say she's mustaschian, but she's frugal and hates debt.  When she got done with med school, she stayed in her student apartment and crushed her student loans.   She bought nice cars, but not fancy cars and mostly saved and invested.  I will say that I've observed that most doctors are pretty bad with money, because they seem to think they will always have a gusher of money in the future, so they don't think much about investing and saving, except in investing in things that they think will be home runs.  A broad brush, but I think fairly accurate, so she definitely was an outlier among her peers as far as savings and investing.  She told me most of her peers still are paying on their student loans, for example. 

She meets a great guy who is a civil servant who makes OK money, but will never be a huge earner.  They fall in love, get married, have a kid,  and buy their dream house together.  And by dream house, I mean dream house.  It is the coolest house that anyone I've personally known has owned.  It isn't particularly big or fancy, but every element of the house just works.  If you walked into it, you'd think this house is totally cool.   Great school district, close to work and the grandparents.  It is absolutely a forever house.  It was very expensive, but they bought at the bottom of the market and put down a lot of money (mostly hers).

Her plan is they aggressively kill the mortgage (just like she did with her student loans) before the kid gets to college.   Then they'll have income to put the kid through college.  And then cut back hours and continue to save and retire on schedule but very comfortably in their dream house.

As it turns out, they are not in love anymore, can't work it out, and don't want to be married.  However, the house has appreciated a lot and they live in a community property state, so separating means she would have to cut him an enormous check for his share in the equity in the house.   So that means selling the dream house, and in turn that would mean moving farther away from work and the grandparents.  So what they decided to do is both stay in the house as divorced parents.  Neither of them want to do this, but they can't figure out how to make it work financially otherwise so they put up with a far less an ideal living arrangement.   She feels like there is a financial Sword of Damocles hanging over her head.  Her retirement plan, while not strictly mustashician, is still better than 95% of the populace, is dead.

If she hadn't been aggressively paying down the mortgage she could simply cut the ex-husband a check and be done.   It would be a setback, but everyone would be better off.  But because the money is tied up in the house, everyone is worse off.  Most likely, neither one of them will wind up living in their forever house, and both will have to move farther from work, the good school district, and the grandparents. 

Everyone who advocates paying down the mortgage says something along the lines of "It makes me feel better."  And that's worth something, no question.  But no one gets married thinking they might get divorced.  No one thinks they will be the one who is laid off.  No thinks they or a loved one will have an extended illness and can't work and will need expensive medical care.  If the money is tied up in the house, it can be really hard, or maybe impossible to deal with those issues.  Those are real risks, and they happen to real people.  People who advocate paying down the mortgage without including those risks are making a mistake.  A bird in the hand is worth two in the bush.  And paying down the mortgage is more like one in the bush.

This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State.  How marriage laws in your State work is important to understand.  And if you have a much larger income, REALLY understanding all of that.  This story has almost nothing to do with whether it's a good idea to pay off the house or not.  If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex.  The money isn't "tied up in the house" in any way.

That's exactly what I was thinking as well. Could they not get a HELOC? Can't imagine a shittier situation than living with your ex-spouse, though I imagine it works for some people.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 21, 2019, 11:36:51 AM

This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State.  How marriage laws in your State work is important to understand.  And if you have a much larger income, REALLY understanding all of that.  This story has almost nothing to do with whether it's a good idea to pay off the house or not.  If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex.  The money isn't "tied up in the house" in any way.

When you have a jointly-held asset you cannot just borrow against that asset to pay off the other partner.  For starters, you need the consent of both parties.  Think through the available scenarios for a minute: each party is entitled to 50% of the equity in the home, but since neither side has cash to bring to the table it has to come from the home.  After several years of aggressively paying off a mortgage there may be half left, and the home probably will have increased in value by, say, 25% (half of which the second partner is entitled to).  So Partner A would need to take out a HELOC worth close to half the current value of their home with Partner B's permission.  But here's the problem: that will leave Partner A with both the mortgage and the HELOC to pay off simultaneously, which could more than double the monthly payments. 

 The bank will review a HELOC of this size and may very likely deny it, stating that the single income of Partner A is no longer sufficient to meet the required payments in part because s/he no longer has his/her partner's income, and/or that the amount requested for the HELOC and the remaining principle on the mortgage now exceeds the original mortgage.

This is why such situations often lead to a forced sale even when at least one party wishes to keep the home.  If most of your NW is tied to your home and you are required to make a large payout (whether to a spouse or in a lawsuit or major emergency) you often cannot leverage your home to that extent.  Had the couple in @Telecaster's story put ~50% into investments, the equity in the home would have been lower and one partner could likely have bought out the other with cash on hand.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on January 21, 2019, 01:21:25 PM

This is more of a story about why you shouldn't get married, or at least understand that marriage is nothing but a financial contract with the State.  How marriage laws in your State work is important to understand.  And if you have a much larger income, REALLY understanding all of that.  This story has almost nothing to do with whether it's a good idea to pay off the house or not.  If the Dr just wanted to cut a check and be done with it, then she could EASILY get an equity line and cut a check to her ex.  The money isn't "tied up in the house" in any way.

As nereo points out, sometimes it isn't that easy.   And in what scenario is it fair that he walks away with the cash and she's stuck with the HELOC?   Shouldn't he be responsible for his half of the HELOC interest?  What if he doesn't want a bunch of debt?  How do you work that out with bank if he's not the owner anymore?   And what do the HELCO payments do to their lifestyles?   To be clear, I'm certain there a million other things going on in their divorce that I don't know about, so I can't really discuss the ins and outs of her thinking in detail.   But I'm absolutely certain she does not want to exit the marriage with the burden of a large amount of fresh debt.   I don't see how that is prudent in general, and she's debt averse anyway.   

You are right in the sense that most people don't really think about the consequences of a marriage not working out.   Most people assume they be in love forever and they will continue on with their lives just as they did when the got married.   But the reality doesn't work out that way for many people.  Similarly, most people don't really think about the possibility of their company being bought out and their job made redundant.   Or getting injured and not being to do your job, or any number of other things that happen as we go through life.  At those junctures, you will need access to your savings.  That's why you don't want your money tied up in your house.    I've made this point on numerous occasions in the myriad of times we've had these discussions.   And the response is always the same:  "Just get a HELOC."  Go into debt, in other words.   I suppose if that's what you have to do, then that's what you do.  But at these junctures in life, taking on fresh debt is almost always the worst option.   Debt has to be paid back with interest.   If I was faced with a large, unanticipated bill like a divorce or job loss,  I would much rather get through the situation by paying cash over borrowing.   
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 21, 2019, 02:41:26 PM
For those following along, here's some numbers on how this might play out:

Scenario:  Dual-income couple purchases 'forever home' for $500,000 with a $400k / 30y mortgage @ 4% fixed.  Each partner contributed 10% of the downpayment ($50k each)  Wishing to rid themselves of the mortgage as quickly as possible they over-pay an extra $2,000/mo - saving nothing else.  Under that plan they would pay off the year in 10 years 6 months.
BUT - their marriage falls apart after 7 years.  The home appreciates at 3%/year

The math:
Mortgage = $1909.
Accelerated payments = $2,000
Taxes (at 1.5%) = $650
Total monthly payment: $4,535

At the 7 year mark they've paid off $250k (63%) of the original $400k mortgage.
The house is now worth $615k (due to appreciation)

Splitting the asset
Total home equity = $465k ($615k home value - $150k remaining on the mortgage)
Partner A does not want to sell the home, so s/he owes Partner B $232.5k
The lender offers a HELOC of 4.5% APR with a 15y Amortization.  HELOC payment = $1,780/mo
Partner A would have monthly payments of $3,689 without bonus mortgage payments.  It will now take Partner A an additional 8years, 5 months to pay off the mortgage. 
Unfortunately, without Partner B's income s/he cannot afford the $4,315 monthly payments (Minimum Mortgage + HELOC + Taxes).

However...
The bank sees this and restricts the HELOC to $100k (the maximum amount they consider Partner A able to pay based on assets and salary)
Newly divorced couple winds up with unorthodox living arrangement.
Title: Re: DONT Payoff your Mortgage Club
Post by: skip207 on January 21, 2019, 02:55:11 PM
So WWYD question for the don't pay off members...

Mortgage 190k.  2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.

Currently paying 1.5k pcm of which 500 is an overpayment.

Income c.5k pcm.  Other bills 1.1k.  Total monthly out 2.6k.  So stache about 2.5k pcm currently.

So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…


WWYD!! 
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on January 21, 2019, 03:00:00 PM
Alright, I've been thinking about this for a while and I think there may be a way for carrying a large mortgage with massive amounts of cash or investments on hand to actually hedge against a down housing market and specifically another 2007 to 2011 downturn of 50%. 

Is this strategy ethical? Probably not... But going through another home purchase it occurred to me that maybe you could perform what I am going to call "foreclosure arbitrage" if you have a non-recourse mortgage and a high amount of cash or investments on hand.  The example I am thinking about it below.

High-income couple with an equal income split.  Let's say 125k a piece or 250k total yearly income.

Cash on hand = 600k

Home purchase price = 600k with 5% down (30k) plus 10k closing costs at 4.375% interest with a 30 yr term.

Home is purchased and the loan is secured by Partner A only.

4 years later the market has dropped by 50%.  The home is now worth 300k and the outstanding mortgage is 530K

Partner A purchases another similar home for 300k with cash or Partner B purchases a similar home with a mix of cash/financing.

After the second home is secured you move in and let the first property go through a short sale or foreclosure.

IF this works you are essentially trading the good credit of Partner A for a little over 200k and it must be in a non-recourse mortgage or non-recourse state.

Honestly, I don't think I would even consider this even if it were possible but it occurred to me that it might be an option.  Of course, there are many other personal factors that would play into this and I think it would really depend on your ethical view about it and if you are will to take a 7-year credit score hit for 200-250k payout.  Your investments would also have to fare well by the time you executed the purchase of the 2nd home.

Ohhhh the random things that go through my head....
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 21, 2019, 03:03:51 PM
I see you are in the UK, but my response is for a mortgage in the US (laws and tax implications vary from country to country)

I would not overpay a mortgage at 2.79%.  I'd take the $500 over payment and invest it based on the investment order outlined by MDM.
With ~$60k in annual income the reduction in taxes alone would make funding tax-advantaged accounts far more valuable than the reduction in mortgage interest paid.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on January 21, 2019, 03:11:21 PM
So WWYD question for the don't pay off members...

Mortgage 190k.  2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.

Currently paying 1.5k pcm of which 500 is an overpayment.

Income c.5k pcm.  Other bills 1.1k.  Total monthly out 2.6k.  So stache about 2.5k pcm currently.

So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…


WWYD!!

There is noooo wayy I would accelerate payoff on a loan that is secured at 2.79%.  I would keep it as a pet, give it a good name, and try to make it last as long as possible.

Dang that's an insane rate.  It's fixed for the entire term and not adjustable right?
Title: Re: DONT Payoff your Mortgage Club
Post by: skip207 on January 21, 2019, 03:37:59 PM
So WWYD question for the don't pay off members...

Mortgage 190k.  2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.

Currently paying 1.5k pcm of which 500 is an overpayment.

Income c.5k pcm.  Other bills 1.1k.  Total monthly out 2.6k.  So stache about 2.5k pcm currently.

So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…


WWYD!!

There is noooo wayy I would accelerate payoff on a loan that is secured at 2.79%.  I would keep it as a pet, give it a good name, and try to make it last as long as possible.

Dang that's an insane rate.  It's fixed for the entire term and not adjustable right?

Its a fixed rate until end 2020.  Then we will have to re-apply for another 5 year fix.  The product I am on at the moment (5 year fix) is currently being offered at 1.97% so we are actually on quite a high rate.   
Title: Re: DONT Payoff your Mortgage Club
Post by: skip207 on January 21, 2019, 03:56:27 PM
I see you are in the UK, but my response is for a mortgage in the US (laws and tax implications vary from country to country)

I would not overpay a mortgage at 2.79%.  I'd take the $500 over payment and invest it based on the investment order outlined by MDM.
With ~$60k in annual income the reduction in taxes alone would make funding tax-advantaged accounts far more valuable than the reduction in mortgage interest paid.

Yeah does not really apply here and if it did our tax is around 3k PA on the 60k.  (they even give us free healthcare.. yet still we complain!)

Pension and tax free investments are utilised though, FWIW.   
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on January 21, 2019, 03:57:14 PM
So WWYD question for the don't pay off members...

Mortgage 190k.  2.79% 21 years to run on term but overpayment takes it down to maybe 15yrs.

Currently paying 1.5k pcm of which 500 is an overpayment.

Income c.5k pcm.  Other bills 1.1k.  Total monthly out 2.6k.  So stache about 2.5k pcm currently.

So, invest 190k once and keep paying 1.5k for around 15 years or invest 1.5k pcm…


WWYD!!

There is noooo wayy I would accelerate payoff on a loan that is secured at 2.79%.  I would keep it as a pet, give it a good name, and try to make it last as long as possible.

Dang that's an insane rate.  It's fixed for the entire term and not adjustable right?

Its a fixed rate until end 2020.  Then we will have to re-apply for another 5 year fix.  The product I am on at the moment (5 year fix) is currently being offered at 1.97% so we are actually on quite a high rate.   

That changes things a bit and I would really need to know more of your financial position to make a good recommendation.  Such as how much you have in investments and do you have any sort of emergency fund, even if the emergency fund is invested.

I would still hold on to the rate, especially if you think it will adjust downward.  Instead of paying extra on the mortgage shove that money into an account that is easily accessible and follows your desired asset allocation if you were to invest it.

My personal goal is to eventually have a very substantial "emergency fund" that is just in an accessible brokerage account.  Maybe at 80/20 stock bond mix and just take from that if anything comes up.  Really, my planned emergency fund is just going to be investments that are in a normal brokerage account, are accessible without any penalty, and have a little more bond exposure than my "retirement" portfolio.
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on January 24, 2019, 10:21:53 PM
OK  So I have admitted before that my partner is in the DO pay off your mortgage club and I have learn't that the DON'T club is better.

I have been able to slow them down a bit, invested in my own retirement funds over the past 2.5 years, but alas, the mortgage is paid off.  (I don't think I have ever said "alas", but that is the best word.)

Our mortgage is actually on a rental property that is self sufficient. Also, it is set up as a HELOC, so it's easy to take money in and out. I have really liked keeping a HELOC on this rental property and using it as a checking account for it. I have kept track of exactly how many extra payments we made.  We matched each other dollar for dollar. 

It is a relief to have the debt gone, but we BOTH need to catch up on our retirement. 

My goal is to take out $20,000 at the start of this year and every year. Split it between the two of us to invest in our retirement funds.  That is the amount of "debt" my partner is comfortable with. The rental property should be able to pay that back over the year. Rinse and repeat every year until the "extra payments" are paid off by the property itself. This way the rental property will continue to have some mortgage interest we can write off. 

Over the year we will have more savings that we can now focus towards retirement as well.

Any comments?   
Is this a really dumb idea? 
Is this a great idea to keep debt in perpetuity?
Is it a good compromise considering my partner was set on paying off the mortgage?





Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 24, 2019, 10:59:58 PM
OK  So I have admitted before that my partner is in the DO pay off your mortgage club and I have learn't that the DON'T club is better.

I have been able to slow them down a bit, invested in my own retirement funds over the past 2.5 years, but alas, the mortgage is paid off.  (I don't think I have ever said "alas", but that is the best word.)

Our mortgage is actually on a rental property that is self sufficient. Also, it is set up as a HELOC, so it's easy to take money in and out. I have really liked keeping a HELOC on this rental property and using it as a checking account for it. I have kept track of exactly how many extra payments we made.  We matched each other dollar for dollar. 

It is a relief to have the debt gone, but we BOTH need to catch up on our retirement. 

My goal is to take out $20,000 at the start of this year and every year. Split it between the two of us to invest in our retirement funds.  That is the amount of "debt" my partner is comfortable with. The rental property should be able to pay that back over the year. Rinse and repeat every year until the "extra payments" are paid off by the property itself. This way the rental property will continue to have some mortgage interest we can write off. 

Over the year we will have more savings that we can now focus towards retirement as well.

Any comments?   
Is this a really dumb idea? 
Is this a great idea to keep debt in perpetuity?
Is it a good compromise considering my partner was set on paying off the mortgage?
Not so sure about the bolded part. Contact your tax professional, as I am not one, because I think there are restrictions that could limit the effectiveness of your intended strategy.
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on January 25, 2019, 06:35:39 AM
OK  So I have admitted before that my partner is in the DO pay off your mortgage club and I have learn't that the DON'T club is better.

I have been able to slow them down a bit, invested in my own retirement funds over the past 2.5 years, but alas, the mortgage is paid off.  (I don't think I have ever said "alas", but that is the best word.)

Our mortgage is actually on a rental property that is self sufficient. Also, it is set up as a HELOC, so it's easy to take money in and out. I have really liked keeping a HELOC on this rental property and using it as a checking account for it. I have kept track of exactly how many extra payments we made.  We matched each other dollar for dollar. 

It is a relief to have the debt gone, but we BOTH need to catch up on our retirement. 

My goal is to take out $20,000 at the start of this year and every year. Split it between the two of us to invest in our retirement funds.  That is the amount of "debt" my partner is comfortable with. The rental property should be able to pay that back over the year. Rinse and repeat every year until the "extra payments" are paid off by the property itself. This way the rental property will continue to have some mortgage interest we can write off. 

Over the year we will have more savings that we can now focus towards retirement as well.

Any comments?   
Is this a really dumb idea? 
Is this a great idea to keep debt in perpetuity?
Is it a good compromise considering my partner was set on paying off the mortgage?
Not so sure about the bolded part. Contact your tax professional, as I am not one, because I think there are restrictions that could limit the effectiveness of your intended strategy.

+1

Part of the most recent tax law is that debt taken against a property cannot have the interest deducted unless it is used for real estate.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 25, 2019, 06:48:27 AM
In addition to tax considerations, you may want to pursue refinancing your home (i.e. cash-out refinancing) and compare that to your rates under a HELOC. While the former requires a bit more legwork you can often get more favorable terms.

I'm also confused what you mean by taking out $20k every year and then having the rental property pay that back (in full?) each year, then repeating.  If you indeed intend to take out $20k in a HELOC every January and then pay it back by December you won't gain much of an advantage.  Instead you could simply use all of the revenue generated by the rental to fund your retirement account. Or am I misunderstanding your strategy?

ETA:  What I would personally do in your situation is to refinance your own home (assuming you own) to whatever amount your partner is comfortable with and then use that money to immediately fund your retirement accounts for 2019.  This will likely get you the lowest rate while also providing a large tax break and (potentially) qualify you for the mortgage interest deduction. A full case study (or at least a lot more information) would be necessary to determine how benefitial this might be for you (for instance, your income, tax bracket, credit history, home ownership & equity and access to 401(k)/403(b) etc are all relevant here).
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on January 25, 2019, 08:34:43 AM
In addition to tax considerations, you may want to pursue refinancing your home (i.e. cash-out refinancing) and compare that to your rates under a HELOC. While the former requires a bit more legwork you can often get more favorable terms.

I'm also confused what you mean by taking out $20k every year and then having the rental property pay that back (in full?) each year, then repeating.  If you indeed intend to take out $20k in a HELOC every January and then pay it back by December you won't gain much of an advantage.  Instead you could simply use all of the revenue generated by the rental to fund your retirement account. Or am I misunderstanding your strategy?


I don't get it either.  Why give yourself a 4% to 6% HELOC interest headwind on your investing?  Why not just invest the rent checks?   You only get a fraction of the interest back (at best) as a mortgage interest deduction.   You do get to count the payments as expenses so you don't pay taxes on them.  Does the math really work out in your favor?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 25, 2019, 11:26:01 AM
It's effectively investing the rent checks at the start of the year, then paying back over the course of the year. Not crazy, but a discussion could be had about whether half of your expected annual return was > the interest rate on the HELOC.
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on January 25, 2019, 12:08:42 PM
It's effectively investing the rent checks at the start of the year, then paying back over the course of the year. Not crazy, but a discussion could be had about whether half of your expected annual return was > the interest rate on the HELOC.

Indeed. Let alone that the extremely short investment period maximizes stock market volatility risk as opposed to the low risk of the 30 year investment time frame that we all adhere to.

Basically giving yourself this:

(https://awealthofcommonsense.com/wp-content/uploads/2015/03/SP-1-Yr.png)

Instead of this:

(https://awealthofcommonsense.com/wp-content/uploads/2016/05/Screen-Shot-2016-05-13-at-3.07.32-PM.png)

@K-ice Sorry to piss in your cheerios but these mini HELOC loans are not really giving you all a financial advantage. Could you discuss doing a small (10-20% equity) fixed rate mortgage with your SO instead?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 25, 2019, 01:10:41 PM
There is one argument for doing fewer investments during the year, and that's combining your investment with rebalancing, i.e. suppose your stocks ran ahead of your bonds last year, you can buy some bonds as part of your annual purchase to bring yourself back to your desired allocation with fewer transactions.

This is usually just relevant for taxable accounts when the transaction fees are nonzero.
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on January 29, 2019, 08:38:02 PM
There is one argument for doing fewer investments during the year, and that's combining your investment with rebalancing,

Yes I would use the payment to re-balance. But it would be large enough it would probably be split into bonds & equities to re-balance.  I do have a $10 fee per transaction so I have never done monthly installments.  More like twice a year after it builds in my pathetic savings account.

It's effectively investing the rent checks at the start of the year, then paying back over the course of the year. Not crazy, but a discussion could be had about whether half of your expected annual return was > the interest rate on the HELOC.

YES investing at the start rather than the end of the year was part of the plan. My interest rate is currently 4.45%. Hard to predict what the markets will do but I am not trying to time it or anything.

Once invested, I plan to keep it invested for a long time.

One of the reasons for me wanting to do this is a part of me resents that my savings were used to pay off the mortgage on a rental property. It is able to support itself, but was not able to pay itself off this fast on its own.   

Thanks for the discussion, it may not be  worth the hassle, especially if I cannot get a tax deduction.




Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 13, 2019, 09:19:04 AM
Every time I see that other thread pop up in my feed, I look for something to read on this one so my head doesn't explode. There hasn't been anything new posted here lately, so I'm giving this thread a bump. I don't want it sink to the bottom of the vast, unsearchable* MMM Forum ocean.

In related news, I see mortgage rates are drifting down slightly, but I doubt we'll see sub-4's again. If I had one, I'd hang on to it for dear life.

*Yes, I know there are workarounds, but a newb might not.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on February 13, 2019, 12:06:27 PM
Not to brag, but I'm still locked in to 2.5% for another 3 years. Sadly we might be moving soon so that Deal Of A Lifetime may be coming to an end.

Interest rates are still Historically Great though, so I'm not overly worried about it.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 13, 2019, 12:15:18 PM
I've lost my way lately. Bought some ground beef for dinner with a debit card the other night. $4.62 that could have stayed in the market another month.
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on February 13, 2019, 01:23:31 PM
It's tough to have as much traffic here as the other thread unless it's spurred by someone coming in to troll. Checking to say that mortgage minimum was paid for another month isn't very exciting.

However, I did have a developer make a cold offer on one of my rental properties. My first thought was "Oh no, not my 3.75% mortgage!" :)
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on February 13, 2019, 04:04:43 PM
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?

Title: Re: DONT Payoff your Mortgage Club
Post by: onlykelsey on February 13, 2019, 06:22:51 PM
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?
Investments > Mortgage is great.  I reached that around January of last year.   My  next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).
Title: Re: DONT Payoff your Mortgage Club
Post by: iOlly on February 14, 2019, 04:04:30 AM
Those are my two goals.

Investments &gt; Mortgage. Close, so close, needed the bull a little longer.

Investments (without pensions) &gt; Mortgage.

And, a bonus one:

Property &lt; 25% of assets.
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on February 14, 2019, 04:05:07 AM
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.

thats all.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 14, 2019, 06:11:37 AM
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.

thats all.
(https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcStQueAedo-VsCNP50IP_Ng2jgKP7iSc6mkKn34MxDbzvoVX6hMEA)
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on February 14, 2019, 08:04:29 AM
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.

thats all.
(https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcStQueAedo-VsCNP50IP_Ng2jgKP7iSc6mkKn34MxDbzvoVX6hMEA)

woohoo. I'm a winner baby!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 14, 2019, 08:09:11 AM
My rate reset at the end of 2018, so I'm now paying 5% interest instead of 3%. It's actually a little weird to have my mortgage be my highest-interest debt.

My wife and I expect to move soon, so I'm not really treating it like any kind of emergency. It's about $9,000/year of interest.
Title: Re: DONT Payoff your Mortgage Club
Post by: frugalecon on February 14, 2019, 08:18:19 AM
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?
Investments > Mortgage is great.  I reached that around January of last year.   My  next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).

The Taxable Investments > Mortgage (actually debt) milestone is what people are tracking in the "Defeat the Net Debt" thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 14, 2019, 09:52:52 AM
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?
Investments > Mortgage is great.  I reached that around January of last year.   My  next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).

The Taxable Investments > Mortgage (actually debt) milestone is what people are tracking in the "Defeat the Net Debt" thread.
Ha, I thought of your thread and was going to mention it here, because I think it's a great idea. Here's the link if you haven't seen it:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/msg2293424/#new
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on February 14, 2019, 11:23:55 AM
Investments > Mortgage is great.  I reached that around January of last year.   My  next one may be Taxable Investments > Mortgage (i.e. excluding my 401K and IRA).

The Taxable Investments > Mortgage (actually debt) milestone is what people are tracking in the "Defeat the Net Debt" thread.
Ha, I thought of your thread and was going to mention it here, because I think it's a great idea. Here's the link if you haven't seen it:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/defeat-the-delta/msg2293424/#new
I find the "Defeat the Net Debt" thread boring with the various progress posts. I would love to regularly see post that celebrate investment milestones - even better if they include a comparison between result of investing and what mortgage balance would have been if the investments had been extra mortgage payments instead. Titles like "I saved $xxK by not paying off my mortgage" could show up in "Share Your Badassity" regularly.

Potential Milestones:
Total Investments > Mortgage balance ($ saved is what mortgage balance would have been had investments been applied to mortgage instead)
Total Invested would have paid off Mortgage ($ saved is liquid net worth)
Taxable Investments > Mortgage balance
Taxable Invested would have paid off Mortgage

Real estate investors could include investment properties in their investment balances, then celebrate again every time they can take another property out of the investment total.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on February 14, 2019, 04:00:39 PM
So far it looks like we've roughly broken even by investing instead of paying down our mortgage (since early/mid 2016).
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on February 14, 2019, 07:02:42 PM
I would like to declare that I have had my mortgage 14 months and not paid one cent extra off on it.

thats all.
(https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcStQueAedo-VsCNP50IP_Ng2jgKP7iSc6mkKn34MxDbzvoVX6hMEA)

woohoo. I'm a winner baby!

Everyone who doesn't pay off their mortgage is a winner!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 15, 2019, 07:51:20 AM
Payday today. Looking forward to using that money for investing rather than paying extra on my very reasonable mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on February 15, 2019, 09:57:07 AM
when mine was 6.25% i used to pay it down.
now mine effectively is 2%  and i , of course, dont pay it down
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on February 15, 2019, 10:56:41 AM
Payday!

1,050 to 401k
269 to HSA
605 to Taxable brokerage

:)

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on February 17, 2019, 04:14:32 PM
Looks like we played the tax withholding game pretty well this year considering we had several job changes and a house purchase.  I am estimating we will get 1500 to 3000 back.  We will know for sure in the next month or so.

Anyways, we should be throwing an extra 10k or so towards investments in the coming months.  This will be above regular 401k/HSA contributions.

Our portfolio could be pushing 400k soon which is crazy to think about... Excited to cross that threshold and start looking towards 500k :D



Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on February 21, 2019, 05:19:39 AM
I guess we could brag:

I invested $x,xxx last month instead of paying off my mortgage.

We all make choices.

Or when you reach the milestone

Investments > mortgage

It could be more fun than saying: my mortgage just dropped below $100K.

Can anyone with a substantial mortgage say:

Investments = 10xMortgage

Can anyone else think of bragging milestones for this club?

Dividends on one's taxable account "could" pay the mortgage.  (Could because they are reinvested instead of course).
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on February 28, 2019, 04:28:07 AM
Not only are we not paying off our mortgage, we are buying a second place and not paying that off either! Lol

We currently own a small townhouse, which we will be renting out and buying an even smaller apartment to move into.

The townhouse is nearly fully mortgaged, but once it has a chunk of equity, we will likely refinance again to max the tax deduction from the interest.

That said, due to years of student debt repayment, it will be several years before we are able to max out our tax-advantaged account space because we've got a few hundred thousand in space to catch up on, so contemplating taxable vs mortgage pay off just isn't relevant any time soon.

Once we're at a point to contemplate taxable, we'll be at Lean-FIRE already and will drop down to coast-Fat-FIRE, so it may never be relevant.

Annually, our new mortgage is only 3.5% of our gross income, so it's pretty insignificant either way.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on February 28, 2019, 07:40:23 PM
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 28, 2019, 07:51:34 PM
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

Sent from my moto g(6) using Tapatalk
Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on February 28, 2019, 08:08:47 PM
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

Sent from my moto g(6) using Tapatalk
Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.

Purchased with 5% down at the peak of the market in the Seattle area in 2018.  Sales at the time of purchase comped the house at 640-670k.  We purchased the home for 640k. 

Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further.  Throwing the 50k at it would bring the principal balance down to 560k.  The 50k would cover approx 43k of paydown and 7k in closing.

Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts.  Gross yearly income is around 200k.  No plans to leave anytime soon.

It's a shitty situation for sure... But hey... It's what we got lol.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 01, 2019, 12:29:02 AM
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

Sent from my moto g(6) using Tapatalk
Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.

Purchased with 5% down at the peak of the market in the Seattle area in 2018.  Sales at the time of purchase comped the house at 640-670k.  We purchased the home for 640k. 

Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further.  Throwing the 50k at it would bring the principal balance down to 560k.  The 50k would cover approx 43k of paydown and 7k in closing.

Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts.  Gross yearly income is around 200k.  No plans to leave anytime soon.

It's a shitty situation for sure... But hey... It's what we got lol.
I want to look at these numbers again when I'm not suffering through yet another bout of insomnia, but my first thought is if you've considered challenging the appraised value. What comp properties did they use? Oh, and how much is your PMI?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 01, 2019, 07:17:09 AM
Pay $50,000 in order to save $6,600/year in interest?

It's basically a VTSAX return with zero risk. I say go for it.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on March 01, 2019, 08:15:09 AM
Pay $50,000 in order to save $6,600/year in interest?

It's basically a VTSAX return with zero risk. I say go for it.

Assuming the math is right and you can't get a better appraisal, I agree.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 01, 2019, 10:45:04 AM
Pay $50,000 in order to save $6,600/year in interest?

It's basically a VTSAX return with zero risk. I say go for it.

Assuming the math is right and you can't get a better appraisal, I agree.
I'm pretty confident that the math is correct.  We may try for a better appraisal but I am not confident it would change much with the recent home sales.

For the 50k we would essentially get a guaranteed return of 13.2% over the next 30 years.  The 50k of investments should be replenishd in 12 to 18 months with our current savings rate.  This does not include maxing out our 401k, Iras, and HSA.

To me this is a no brainer but I wanted to run it by some others in this forum.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 04, 2019, 07:12:49 AM
Another month of minimum payments. About three years left on the car (1.69%) and twelve years left on the house (3.125%). Taxable brokerage account is at 116% of the mortgage balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 04, 2019, 07:42:10 AM
Another month of minimum payments. About three years left on the car (1.69%) and twelve years left on the house (3.125%). Taxable brokerage account is at 116% of the mortgage balance.
Doesn't that feel amazing? People talk about how good it will feel when they "kill" their mortgage. If only they could somehow know how much better it feels to be in your position. The most shockingly unexpected thing it gave me was a pure, unbridled sense of power. And oh, the possibilities...endless!

3.125%? Wow!
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 04, 2019, 08:11:37 AM
Another month of minimum payments. About three years left on the car (1.69%) and twelve years left on the house (3.125%). Taxable brokerage account is at 116% of the mortgage balance.
Doesn't that feel amazing? People talk about how good it will feel when they "kill" their mortgage. If only they could somehow know how much better it feels to be in your position. The most shockingly unexpected thing it gave me was a pure, unbridled sense of power. And oh, the possibilities...endless!

3.125%? Wow!

Yep. It's crazy to think I could just go out and buy a brand new Acura NSX with cash and leave our retirement accounts untouched. Unfortunately I am a [mostly] sensible person...

We were able to get the 3.125% loan because we opted for the 15 year mortgage. Based on how long we expect to stay in our current location I believe that was the correct choice. I believe a 30-year mortgage would have been 3.875%.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 04, 2019, 08:19:13 AM

Yep. It's crazy to think I could just go out and buy a brand new Acura NSX with cash and leave our retirement accounts untouched. Unfortunately I am a [mostly] sensible person...
I know little about luxury sports cars, so I decided to google reviews of the Acura NSX to see what it was all about.  This one popped up from the late Warren Brown (car reviewer for WaPo)
Quote
"I was seeking solitary pleasure, the movement of bodies -- the car's and mine -- over distance and time at speed. But the NSX-T was too pretty. It called meddlesome attention to itself wherever it went, which meant it spent more time parked and guarded than on the highway. That left me with feelings I hadn't felt since Marguerite Poitier in the eighth grade. I took her to a party at Holy Redeemer School in New Orleans or, rather, she took me. Marguerite was so spectacularly beautiful, she attracted boys like ants to wet sugar on a summer sidewalk. I danced with her once and spent the remainder of the party wishing I had come with someone else.
...
Complaints: The NSX is too precious for its own good unless you're shopping for a museum piece instead of a car.

Praise: A Ferrari with manners; a Lamborghini with class. I love the car but can't live with it."

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 04, 2019, 08:30:37 AM

Yep. It's crazy to think I could just go out and buy a brand new Acura NSX with cash and leave our retirement accounts untouched. Unfortunately I am a [mostly] sensible person...
I know little about luxury sports cars, so I decided to google reviews of the Acura NSX to see what it was all about.  This one popped up from the late Warren Brown (car reviewer for WaPo)
Quote
"I was seeking solitary pleasure, the movement of bodies -- the car's and mine -- over distance and time at speed. But the NSX-T was too pretty. It called meddlesome attention to itself wherever it went, which meant it spent more time parked and guarded than on the highway. That left me with feelings I hadn't felt since Marguerite Poitier in the eighth grade. I took her to a party at Holy Redeemer School in New Orleans or, rather, she took me. Marguerite was so spectacularly beautiful, she attracted boys like ants to wet sugar on a summer sidewalk. I danced with her once and spent the remainder of the party wishing I had come with someone else.
...
Complaints: The NSX is too precious for its own good unless you're shopping for a museum piece instead of a car.

Praise: A Ferrari with manners; a Lamborghini with class. I love the car but can't live with it."

That review is for the original NSX. The actual owners of those cars probably disagree strongly with the statement about it being a museum piece. There are some cars that have over 200k miles now and at least one with over 300k miles (https://www.nsxprime.com/wiki/High_Mileage). Buying an NSX today is probably a good investment (as far as cars go) as they have started appreciating in value, have low operating costs, and the capital acquisition costs are relatively low (for now). Depending on year/mileage I think you can get a good one for $40k-90k.

The NSX I was referring to was the 2017+ model years (https://nsx.acura.com/explore/nsx). Those are currently being sold new for $160k. I imagine they will depreciate a lot though from that price in the short term.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 04, 2019, 08:34:52 AM
ok!  like I said, I know nothing about luxury sports cars.  They do look pretty - I just don't like being the center of attention while driving.  Or ever.  I'm sure they are fun as hell though.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 04, 2019, 08:50:30 AM
ok!  like I said, I know nothing about luxury sports cars.  They do look pretty - I just don't like being the center of attention while driving.  Or ever.  I'm sure they are fun as hell though.

Yeah, I understand that. I prefer not attracting too much attention too. The original NSX is old enough now and has restrained styling such that most people that don't know cars wouldn't really notice it. Our Porsche doesn't seem too bad either as they are pretty common. But I've heard it can be a real problem with more exotic vehicles (like the new NSX) as people will try to take pictures of your car while driving or try to race you and stuff.
Title: Re: DONT Payoff your Mortgage Club
Post by: Maya on March 04, 2019, 06:55:36 PM
Not only are we not paying off our mortgage, we are buying a second place and not paying that off either! Lol

We currently own a small townhouse, which we will be renting out and buying an even smaller apartment to move into.

The townhouse is nearly fully mortgaged, but once it has a chunk of equity, we will likely refinance again to max the tax deduction from the interest.

That said, due to years of student debt repayment, it will be several years before we are able to max out our tax-advantaged account space because we've got a few hundred thousand in space to catch up on, so contemplating taxable vs mortgage pay off just isn't relevant any time soon.

Once we're at a point to contemplate taxable, we'll be at Lean-FIRE already and will drop down to coast-Fat-FIRE, so it may never be relevant.

Annually, our new mortgage is only 3.5% of our gross income, so it's pretty insignificant either way.

And depending where you are in catching up in your RRSP contributions and plan to sell one of the properties you can move that money into that space basically tax free. Obviously if you hold the properties long term you'll have your RRSPs maxed out by then.

Oh and hi! I haven't been active enough around here but have missed you at the other place.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on March 05, 2019, 05:11:07 AM
Not only are we not paying off our mortgage, we are buying a second place and not paying that off either! Lol

We currently own a small townhouse, which we will be renting out and buying an even smaller apartment to move into.

The townhouse is nearly fully mortgaged, but once it has a chunk of equity, we will likely refinance again to max the tax deduction from the interest.

That said, due to years of student debt repayment, it will be several years before we are able to max out our tax-advantaged account space because we've got a few hundred thousand in space to catch up on, so contemplating taxable vs mortgage pay off just isn't relevant any time soon.

Once we're at a point to contemplate taxable, we'll be at Lean-FIRE already and will drop down to coast-Fat-FIRE, so it may never be relevant.

Annually, our new mortgage is only 3.5% of our gross income, so it's pretty insignificant either way.

And depending where you are in catching up in your RRSP contributions and plan to sell one of the properties you can move that money into that space basically tax free. Obviously if you hold the properties long term you'll have your RRSPs maxed out by then.

Oh and hi! I haven't been active enough around here but have missed you at the other place.

Hi!!!
I miss you guys, it's been an adjustment :(

I'll probably hold onto the properties well past maxing out the RRSPs, DH's space is eaten up by his pension, but it will be some time before all of the TFSA room is tackled as well.

Granted, by "some time" I mean that it will take about 3 years once the student debt is gone. So not tremendously long, but we'll reach FI just a year or two after that.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 09, 2019, 11:02:23 AM
Man, I missed last weeks payday... Well, here it is...  I think I'm going to start tracking my total investment portfolio here as well.

Payday! - 3/1/19
1,211 to 401k
269 to HSA


Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098


Investments are expected to go down by 50k this month due to selling some in order to refinance from 4.75% to 3.875%.

Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on March 10, 2019, 08:32:46 PM
@FIreDrill Are you refinancing into a 15 year? Otherwise 3.875% is a great rate for a 30 right now!! I'm currently at your same 4.75.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 10, 2019, 09:05:43 PM
@FIreDrill Are you refinancing into a 15 year? Otherwise 3.875% is a great rate for a 30 right now!! I'm currently at your same 4.75.
Right now my rate lock is for a 30 year which is the best I've seen for a while.  I'm just hoping everything goes smoothly on the refi. :)

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: SubL stache on March 10, 2019, 09:47:14 PM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 10, 2019, 09:52:41 PM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 11, 2019, 05:18:35 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

Write out: "I will not pay extra on a 2.625% fixed rate loan" 50 times before you post here again. :-P
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 11, 2019, 07:03:26 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

We don't have to face-punch you...by the time we're reading this, bank has already tacked on enough interest to get you back into the six-digit balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 11, 2019, 07:08:06 AM
My wife and I are contemplating a move within our city. Can I just say it is frustrating as hell to realize that we have $100,000 that is basically trapped in our current house? Thanks to saving, there is other money available; the thought of simultaneously moving money and stuff as part of the largest transaction of our lives sure makes me glad I am in this DNPYM club.
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on March 11, 2019, 07:09:07 AM
"Paid extra on my .625% (real) 15 year fixed interest rate loan (also paying more principal versus a 30 year amortization schedule)."
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 11, 2019, 07:21:00 AM
My wife and I are contemplating a move within our city. Can I just say it is frustrating as hell to realize that we have $100,000 that is basically trapped in our current house? Thanks to saving, there is other money available; the thought of simultaneously moving money and stuff as part of the largest transaction of our lives sure makes me glad I am in this DNPYM club.
I feel your pain/frustration.
We're currently moving while our previous home is on the market. Like you we have a similar amount tied up in its equity. I don't really want to sell investments to have 20% to put down on a new home, and I look forward to the day when we can take most of that equity from home#1 and plow it back into the market.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on March 11, 2019, 07:30:11 AM
Really enjoying reading some of the recent March posts so thought I would share:

We have 13 years left on a 3.25% mortgage with a balance of $116,000. Taxable brokerage accounts are about double the mortgage balance. The tax deferred accounts (457b, HSA & IRA) will be maxed out in about 2 years. Once they are maxed out, we probably still won't pay extra to the mortgage. As others have said, yes, it feels amazing! 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 11, 2019, 09:05:01 AM
My wife and I are contemplating a move within our city. Can I just say it is frustrating as hell to realize that we have $100,000 that is basically trapped in our current house? Thanks to saving, there is other money available; the thought of simultaneously moving money and stuff as part of the largest transaction of our lives sure makes me glad I am in this DNPYM club.
I feel your pain/frustration.
We're currently moving while our previous home is on the market. Like you we have a similar amount tied up in its equity. I don't really want to sell investments to have 20% to put down on a new home, and I look forward to the day when we can take most of that equity from home#1 and plow it back into the market.
We have several rentals in a 55+ community. One of our tenants owned their home outright, but needed cash to live on. They had to sell their house, then rent the same floor plan from us. I never, ever want to find myself in their position.

Another tenant owned a home in a posh Country Club community. The dues skyrocketed over the years. He finally sold (at a loss, because of the high dues) and rents a similar sized house from us. They love it. The kicker? Their entire monthly rent is less than their HOA dues were at their old house. And our place is updated, spotless and has two golf courses. They're pay-as-you-play, so the fees are low, and unlike a Country Club, if you don't play, you don't pay. No restaurant minimums either. It still sucks that they had to move.

These are just a couple of reaons why keeping the fixed rate mortgage on your affordable house until you have a big, fat-ass 'stache is the smarter way to go. It makes a huge difference at the end, when you're drawing down your assets . By then, your course is set and it's mostly too late to change.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 12, 2019, 05:23:20 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!

I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest.  Will drop it to $1,400 in a few years.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 12, 2019, 06:29:32 AM
In 2013, I convinced my wife to get a 5/1 ARM on the house we were buying by promising to overpay our payments enough that--even with rate resets--the mortgage payment would never exceed $1,252. We ultimately paid about $6,000 extra toward a mortgage that we still have while the SP500 was below 1,600; I'm grateful that we eventually stopped this lunacy.

It's close to 2,800 today. I was chastened by this committed group on this thread, and now I only make minimum payments.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 12, 2019, 07:50:45 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!
I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest.  Will drop it to $1,400 in a few years.
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 12, 2019, 10:07:48 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!
I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest.  Will drop it to $1,400 in a few years.
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.

Yep, it is sub-optimal for retirement savings.   

With non-stock passive income making up $72,000 of our projected $75,000 annual spend, that means I've got a 0.27% withdrawal rate from our portfolio in a normal year.  Sometime in the next year or two I'll pick up another rental property and take our withdrawal rate down to 0%.

So, since I'm retired already, I'm more interested in optimizing that $143 for happiness and not for investment earnings. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 12, 2019, 10:21:48 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!
I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest.  Will drop it to $1,400 in a few years.
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.

Yep, it is sub-optimal for retirement savings.   

With non-stock passive income making up $72,000 of our projected $75,000 annual spend, that means I've got a 0.27% withdrawal rate from our portfolio in a normal year.  Sometime in the next year or two I'll pick up another rental property and take our withdrawal rate down to 0%.

So, since I'm retired already, I'm more interested in optimizing that $143 for happiness and not for investment earnings. :)
@SwordGuy, you're killing it! You get a free pass and a shiny gold star from me! Maybe you could share how amazing it felt when your 'stache exceeded your mortgage balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on March 12, 2019, 10:26:37 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!
I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest.  Will drop it to $1,400 in a few years.
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.

Yep, it is sub-optimal for retirement savings.   

With non-stock passive income making up $72,000 of our projected $75,000 annual spend, that means I've got a 0.27% withdrawal rate from our portfolio in a normal year.  Sometime in the next year or two I'll pick up another rental property and take our withdrawal rate down to 0%.

So, since I'm retired already, I'm more interested in optimizing that $143 for happiness and not for investment earnings. :)
@SwordGuy, you're killing it! You get a free pass and a shiny gold star from me! Maybe you could share how amazing it felt when your 'stache exceeded your mortgage balance.

@SwordGuy, If anybody gets a pass its you...!  :)

The real point of this thread is paying a fixed-rate mortgage early in your earnings timeline, especially before tax-differed accounts, is the biggest deal.  I myself have encouraged (some) to pay off their mortgage in the months reaching FIRE.  It makes sense in some circumstances.  However, when your 28 and making bank is not the time to skip 401k to knock out the mortgage.  ;)

Overall, well done!
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 12, 2019, 10:59:04 AM
15 year or 30 year? High income family.  $650K house.  We plan to be there 5-10 years before going condo/FIRE. Real estate wasn't a great investment between 2005-2018 for us either (essentially sold for what we paid), other than for the tax deductions. We have a "cheap" paid off FIRE house in a LCOL, as well as a "cheap" paid off 55+ retirement condo in a HCOL area once a parent kicks the bucket (so hopefully not for at least another 15-20 years).

With the $24K MFJ amount, I'm leaning towards a 30 year and the interest being tax deductible since we'd have over $24K of interest/state property/income tax deductions.  All our charity deductions would "count" again - and I'd be more incented to give to charities.

$4K payment on a 15 year at 3.625%, $2.8K payment on a 30 year at 4.2%. I'm pretty sure you will all say take the 30 year $ and the mental breathing room that payment gives us.  :-)  It's still cheaper than renting a high-end apartment.



Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 12, 2019, 11:11:17 AM
15 year or 30 year? High income family.  $650K house.  We plan to be there 5-10 years before going condo/FIRE. Real estate wasn't a great investment between 2005-2018 for us either (essentially sold for what we paid), other than for the tax deductions. We have a "cheap" paid off FIRE house in a LCOL, as well as a "cheap" paid off 55+ retirement condo in a HCOL area once a parent kicks the bucket (so hopefully not for at least another 15-20 years).

With the $24K MFJ amount, I'm leaning towards a 30 year and the interest being tax deductible since we'd have over $24K of interest/state property/income tax deductions.  All our charity deductions would "count" again - and I'd be more incented to give to charities.

$4K payment on a 15 year at 3.625%, $2.8K payment on a 30 year at 4.2%. I'm pretty sure you will all say take the 30 year $ and the mental breathing room that payment gives us.  :-)  It's still cheaper than renting a high-end apartment.

More than the mortgage interest deduction, I suspect that additional $1.8k/month in cashflow from going with a 30y could be utilized toward reducing your taxable burden.  That assumes such options are available to you (for example: 401(k) and/or HSA contributions).  If you have access to those, and you are not already maxing them out, it's a very easy decision - take the 30y.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 12, 2019, 11:25:32 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!
I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest.  Will drop it to $1,400 in a few years.
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.

Yep, it is sub-optimal for retirement savings.   

With non-stock passive income making up $72,000 of our projected $75,000 annual spend, that means I've got a 0.27% withdrawal rate from our portfolio in a normal year.  Sometime in the next year or two I'll pick up another rental property and take our withdrawal rate down to 0%.

So, since I'm retired already, I'm more interested in optimizing that $143 for happiness and not for investment earnings. :)
@SwordGuy, you're killing it! You get a free pass and a shiny gold star from me! Maybe you could share how amazing it felt when your 'stache exceeded your mortgage balance.

@SwordGuy, If anybody gets a pass its you...!  :)

The real point of this thread is paying a fixed-rate mortgage early in your earnings timeline, especially before tax-differed accounts, is the biggest deal.  I myself have encouraged (some) to pay off their mortgage in the months reaching FIRE.  It makes sense in some circumstances.  However, when your 28 and making bank is not the time to skip 401k to knock out the mortgage.  ;)

Overall, well done!
@TexasRunner , I agree, there's a time and a place for many different strategies.  And for most people in the accumulation stage, with a low fixed rate mortgage, paying extra is not the best financial choice.

It's not even the best financial choice in my circumstances!  But it makes me happy and I can afford a little luxury that's merely sub-optimal financially.  Certainly more than other things that make me happy and are more expensive! :)
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 12, 2019, 11:51:30 AM
15 year or 30 year? High income family.  $650K house.  We plan to be there 5-10 years before going condo/FIRE. Real estate wasn't a great investment between 2005-2018 for us either (essentially sold for what we paid), other than for the tax deductions. We have a "cheap" paid off FIRE house in a LCOL, as well as a "cheap" paid off 55+ retirement condo in a HCOL area once a parent kicks the bucket (so hopefully not for at least another 15-20 years).

With the $24K MFJ amount, I'm leaning towards a 30 year and the interest being tax deductible since we'd have over $24K of interest/state property/income tax deductions.  All our charity deductions would "count" again - and I'd be more incented to give to charities.

$4K payment on a 15 year at 3.625%, $2.8K payment on a 30 year at 4.2%. I'm pretty sure you will all say take the 30 year $ and the mental breathing room that payment gives us.  :-)  It's still cheaper than renting a high-end apartment.

More than the mortgage interest deduction, I suspect that additional $1.8k/month in cashflow from going with a 30y could be utilized toward reducing your taxable burden.  That assumes such options are available to you (for example: 401(k) and/or HSA contributions).  If you have access to those, and you are not already maxing them out, it's a very easy decision - take the 30y.

Those are already maxed out, but I think the cash flow wiggle will feel much better to my inner bag lady.  I just need to work on DH to "invest" the difference of the 15 year vs spend the cash flow.  There's one person on team couponvan that is a saver, and one that is a spender.  Pay yourself first is the only way it has worked for us in the accumulation phase of FI.  If he sees it, he spends it....he acknowledges that too BTW.  I think I will propose that we can take the extra and put it in 529 plans for the state income tax deduction.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 12, 2019, 11:58:05 AM
15 year or 30 year? High income family.  $650K house.  We plan to be there 5-10 years before going condo/FIRE. Real estate wasn't a great investment between 2005-2018 for us either (essentially sold for what we paid), other than for the tax deductions. We have a "cheap" paid off FIRE house in a LCOL, as well as a "cheap" paid off 55+ retirement condo in a HCOL area once a parent kicks the bucket (so hopefully not for at least another 15-20 years).

With the $24K MFJ amount, I'm leaning towards a 30 year and the interest being tax deductible since we'd have over $24K of interest/state property/income tax deductions.  All our charity deductions would "count" again - and I'd be more incented to give to charities.

$4K payment on a 15 year at 3.625%, $2.8K payment on a 30 year at 4.2%. I'm pretty sure you will all say take the 30 year $ and the mental breathing room that payment gives us.  :-)  It's still cheaper than renting a high-end apartment.

More than the mortgage interest deduction, I suspect that additional $1.8k/month in cashflow from going with a 30y could be utilized toward reducing your taxable burden.  That assumes such options are available to you (for example: 401(k) and/or HSA contributions).  If you have access to those, and you are not already maxing them out, it's a very easy decision - take the 30y.

Those are already maxed out, but I think the cash flow wiggle will feel much better to my inner bag lady.  I just need to work on DH to "invest" the difference of the 15 year vs spend the cash flow.  There's one person on team couponvan that is a saver, and one that is a spender.  Pay yourself first is the only way it has worked for us in the accumulation phase of FI.  If he sees it, he spends it....he acknowledges that too BTW.  I think I will propose that we can take the extra and put it in 529 plans for the state income tax deduction.

For only 5-10 years a 15 year loan is usually a better deal.
Title: Re: DONT Payoff your Mortgage Club
Post by: brute on March 12, 2019, 12:48:51 PM
About to jump into a mortgage and it's killing me. I HATE seeing that money disappear from my accounts and vanish into (an albiet glorious) pile of wood and concrete.

Our taxable accounts have more than enough to buy the house in cash, but I'll keep it earning instead of locking it up in a thing. Still.. debt. It's a visceral fear. I figure in a few months I'll get over it, but it's going to be rough for a bit.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 12, 2019, 01:17:07 PM
About to jump into a mortgage and it's killing me. I HATE seeing that money disappear from my accounts and vanish into (an albiet glorious) pile of wood and concrete.

Our taxable accounts have more than enough to buy the house in cash, but I'll keep it earning instead of locking it up in a thing. Still.. debt. It's a visceral fear. I figure in a few months I'll get over it, but it's going to be rough for a bit.

Debt is an irritation, no question.   Not paying off the mortgage is the hardest early on because it seems like you get less bang for your buck.  You drop a grand on the mortgage, and boom!  Less irritation.   But you drop a grand in an investment account and some months and even some years it barely seems to grow.   But when the account gets big having not paid down the mortgage becomes a joy.   Even small upward movements in the market makes for big total dollar gains.   Delightful to watch. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 12, 2019, 01:42:11 PM
Couponvan-
have you asked for a quote on a 5/1 ARM? If you can get a lower rate there than for the 30-year fixed (the spreads between these two often fluctuate), you might save money.

If you're concerned about the interest rate risk, you can get the 5/1 ARM, but pay what the 15-year fixed payments would have been so that you have a lower balance by the time the reset gets here.

It sounds like your plans involve only staying in this house for a few years, which is why I'm suggesting this.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 12, 2019, 02:56:19 PM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!
I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest.  Will drop it to $1,400 in a few years.
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.

Dicey, in my case I am.  I fully fund my TSP, a ROTH (conversion), my HSA and put a significant amount into a taxable account.  I go back and forth on the extra $100 but it is less then I spend on my cats a month so it is a rounding error to me honestly.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 12, 2019, 04:03:48 PM
Couponvan-
have you asked for a quote on a 5/1 ARM? If you can get a lower rate there than for the 30-year fixed (the spreads between these two often fluctuate), you might save money.

If you're concerned about the interest rate risk, you can get the 5/1 ARM, but pay what the 15-year fixed payments would have been so that you have a lower balance by the time the reset gets here.

It sounds like your plans involve only staying in this house for a few years, which is why I'm suggesting this.

That's a definite possibility, but DH would not go for variable rates....even if we only plan on staying a few years. 
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 12, 2019, 05:20:16 PM
Couponvan-
have you asked for a quote on a 5/1 ARM? If you can get a lower rate there than for the 30-year fixed (the spreads between these two often fluctuate), you might save money.

If you're concerned about the interest rate risk, you can get the 5/1 ARM, but pay what the 15-year fixed payments would have been so that you have a lower balance by the time the reset gets here.

It sounds like your plans involve only staying in this house for a few years, which is why I'm suggesting this.

That's a definite possibility, but DH would not go for variable rates....even if we only plan on staying a few years.
Do you plan on renting it out after you move or is this strictly short term housing?  If it short term housing I would suggest doing a rent/buy comparison.  Depending on the spread renting may be a better option for you over the next 5 years.

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Title: Re: DONT Payoff your Mortgage Club
Post by: eightyeighttoone on March 12, 2019, 10:31:29 PM
Ok y'all convinced me. I have been paying an extra $50/month on my 4.5% fixed 30y since we signed the thing in 2015. It felt like a responsible move at the time. I will cancel that extra payment, and move that money into my 401(k) since I have not been maxing that out (just doing enough for the full ER contribution). The nice thing is I can boost my 401(k) by about $57/m since it's now pre-tax -- and it will feel the same. One small step!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 13, 2019, 05:31:52 AM
Ok y'all convinced me. I have been paying an extra $50/month on my 4.5% fixed 30y since we signed the thing in 2015. It felt like a responsible move at the time. I will cancel that extra payment, and move that money into my 401(k) since I have not been maxing that out (just doing enough for the full ER contribution). The nice thing is I can boost my 401(k) by about $57/m since it's now pre-tax -- and it will feel the same. One small step!
Woot!
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on March 13, 2019, 06:26:58 AM
About to jump into a mortgage and it's killing me. I HATE seeing that money disappear from my accounts and vanish into (an albiet glorious) pile of wood and concrete.

Our taxable accounts have more than enough to buy the house in cash, but I'll keep it earning instead of locking it up in a thing. Still.. debt. It's a visceral fear. I figure in a few months I'll get over it, but it's going to be rough for a bit.

Reading through this, I do wonder about the timing.  Buy low, sell high.

The market is hot right now and seemingly past due for a hit.  Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage?  Then start dollar cost averaging back in to the market?

I have one mortgage, and paid off another.  My real estate was up so much in value, without corresponding rent increases.  I loaded up after the crash 10 years ago.  The taxes were shooting up but rents were not.  So my ROI on the rentals was getting worse.  2% - 5% based on the sell value of the properties.  I decided to sell off my rentals for a huge profit.  I ended up with about $700k late last year.  Instead of dumping $700k at once in to a massive bull market, I thought it made more sense to take the guaranteed 4.5% return on my morgage and eliminate that debt.  And now without the mortgage debt, I'm putting what would have been my mortgage payment (and a lot more) in to the market every month.  Dollar cost averaging back in slower.  I'm not 100% sure that was the best move, but it seems to make sense.

Curious about the thoughts from some of the people here.  I do also have a 2nd home with a $200k mortgage that I'm not going to pay off even though I have the funds to do so.  Mostly because I am far too invested in real estate and don't want to drain my taxable accounts anymore.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 13, 2019, 06:51:00 AM

The market is hot right now and seemingly past due for a hit.  Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage?  Then start dollar cost averaging back in to the market?


I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.

If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge.  What you are proposing is market timing followed by DCAing back into it.  Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead. 

For example, suppose you are paying $2k/month on a mortgage with $125k left.  If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage.  You might even get really, really, really lucky and sell right before a big drop.  But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.

Time in the market is much more important than timing the market.
Title: Re: DONT Payoff your Mortgage Club
Post by: brute on March 13, 2019, 07:08:45 AM

The market is hot right now and seemingly past due for a hit.  Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage?  Then start dollar cost averaging back in to the market?


I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.

If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge.  What you are proposing is market timing followed by DCAing back into it.  Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead. 

For example, suppose you are paying $2k/month on a mortgage with $125k left.  If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage.  You might even get really, really, really lucky and sell right before a big drop.  But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.

Time in the market is much more important than timing the market.

True dat. I'll probably be living in this thread for the first 6 months to remind myself that investing is the right way to go. Also, that I don't need to throw it all back into the low interest money market account that I'd been using for the past year to hold the down payment. It's hard seeing that go to zero, but I have plenty of other cushion in ETFs, a good income, and excellent credit that I can borrow against if the need were to arise and I couldn't move money around fast enough. It will be fine. I just want to see that big scrooge mcduckian pile of money at my fingertips. Emotions are dumb sometimes.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 13, 2019, 07:31:56 AM
I paid an extra 15.03 on my 15 YR fixed @ 2.625% so that I could get down to $99,999.99 with my most recent payment...please face punch me, it was all about the figures.

I'm paying an extra ~$143 so the principal goes down $1000 a month.   It's silly but it works for me.  No stones cast from me!
I pay an extra 136.09 so my payment is an even $1,500 and i pay more to principle instead of interest.  Will drop it to $1,400 in a few years.
$15.03 is not much more than a rounding error. $143 and $136 are not. You're both diverting over $1500 a year from equities. Unless you are fully maximizing every single retirement saving option available to you, this is sub-optimal.

Dicey, in my case I am.  I fully fund my TSP, a ROTH (conversion), my HSA and put a significant amount into a taxable account.  I go back and forth on the extra $100 but it is less then I spend on my cats a month so it is a rounding error to me honestly.
Good for you! You're doing it in the right order. Congratulations, @Formerly known as something.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on March 13, 2019, 07:38:59 AM

The market is hot right now and seemingly past due for a hit.  Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage?  Then start dollar cost averaging back in to the market?


I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.

If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge.  What you are proposing is market timing followed by DCAing back into it.  Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead. 

For example, suppose you are paying $2k/month on a mortgage with $125k left.  If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage.  You might even get really, really, really lucky and sell right before a big drop.  But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.

Time in the market is much more important than timing the market.

A-fucken-men to that.

Plus, the less cash you have in your house, the easier it is to weather the economic crashes, possible job losses, provides more capital to jump on the many opportunities that crop up in crashes, etc, etc.

In a major crash, it's not like everything always just stays exactly the same and life chugs on like normal until recovery. The whole world gets all whacky and things can shift significantly in individual industries and regions. In a major crash, you want to be as flexible as possible in order to come out with the best outcome.

In fact, if everything did just stay the same and chug along until recovery, then leaving everything as-is is by far the best option.

Either way, if market timing was predictable, then we would have thousands of threads about all of the various approaches to market timing with countless of the local mathy-types posting endlessly about different statistical models, etc, etc.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 13, 2019, 08:17:57 AM
The market is hot right now and seemingly past due for a hit.

Were you not paying attention? The market already took the hit back in December. It still hasn't even recovered to the peak from over a year ago (Jan 2018) and you're calling the market hot right now?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 13, 2019, 08:36:20 AM
The market is hot right now and seemingly past due for a hit.

Were you not paying attention? The market already took the hit back in December. It still hasn't even recovered to the peak from over a year ago (Jan 2018) and you're calling the market hot right now?
Which market? Real Estate and the Stock Market don't necessarily move in tandem.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 13, 2019, 08:38:35 AM
The market is hot right now and seemingly past due for a hit.

Were you not paying attention? The market already took the hit back in December. It still hasn't even recovered to the peak from over a year ago (Jan 2018) and you're calling the market hot right now?
Which market? Real Estate and the Stock Market don't necessarily move in tandem.
I believe they are referring to the total us stock market, or VTSAX.

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Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on March 13, 2019, 08:50:08 AM

The market is hot right now and seemingly past due for a hit.  Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage?  Then start dollar cost averaging back in to the market?


I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.

If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge.  What you are proposing is market timing followed by DCAing back into it.  Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead. 

For example, suppose you are paying $2k/month on a mortgage with $125k left.  If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage.  You might even get really, really, really lucky and sell right before a big drop.  But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.

Time in the market is much more important than timing the market.

If there was a big drop, over 5 years you would have bought your way back in at a substantially discounted cost.  The gains would be much higher than if I put all of the funds in right now.  Instead of waiting years for the funds to come back after the drop, I'd see substantial gains by having a lower cost basis.  It seems if there was a drop, you would come out ahead paying off the mortgage then buying back in on the drop by cost averaging over a few years.

I understand the idea here is simply time in market and no timing at all.  That would have been a miss on my real estate which was getting exponentially worse returns.  Selling off and converting was a great strategy.  I'm not entirely convinced dropping $700k in at current levels instead of DCA would have been better.  Are you arguing against DCA then?
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on March 13, 2019, 08:55:02 AM

The market is hot right now and seemingly past due for a hit.  Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage?  Then start dollar cost averaging back in to the market?


I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.

If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge.  What you are proposing is market timing followed by DCAing back into it.  Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead. 

For example, suppose you are paying $2k/month on a mortgage with $125k left.  If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage.  You might even get really, really, really lucky and sell right before a big drop.  But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.

Time in the market is much more important than timing the market.

A-fucken-men to that.

Plus, the less cash you have in your house, the easier it is to weather the economic crashes, possible job losses, provides more capital to jump on the many opportunities that crop up in crashes, etc, etc.

In a major crash, it's not like everything always just stays exactly the same and life chugs on like normal until recovery. The whole world gets all whacky and things can shift significantly in individual industries and regions. In a major crash, you want to be as flexible as possible in order to come out with the best outcome.

In fact, if everything did just stay the same and chug along until recovery, then leaving everything as-is is by far the best option.

Either way, if market timing was predictable, then we would have thousands of threads about all of the various approaches to market timing with countless of the local mathy-types posting endlessly about different statistical models, etc, etc.

Couldn't you argue that not having a mortgage and substantially lower monthly bills also helps weather economic crashes?  I'm not opposed to mortgages.  I see the value in the uber low interest rates currently offered.  I have a mortgage on one of my houses that I plan to keep.  I'm just questioning a lump sum option.  And I think it's more of a DCA question.  Could you be better off in a bull market paying off the house then DCA back in?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 13, 2019, 09:44:39 AM
The market is hot right now and seemingly past due for a hit.

Were you not paying attention? The market already took the hit back in December. It still hasn't even recovered to the peak from over a year ago (Jan 2018) and you're calling the market hot right now?
Which market? Real Estate and the Stock Market don't necessarily move in tandem.
I believe they are referring to the total us stock market, or VTSAX.
Correct. EngagedToFIRE was talking about the stock market being overpriced as justification for selling equities to pay down the mortgage. So I pointed out the recent 20% correction in the SP500 as a counterpoint.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 13, 2019, 09:47:50 AM
Couldn't you argue that not having a mortgage and substantially lower monthly bills also helps weather economic crashes?  I'm not opposed to mortgages.  I see the value in the uber low interest rates currently offered.  I have a mortgage on one of my houses that I plan to keep.  I'm just questioning a lump sum option.  And I think it's more of a DCA question.  Could you be better off in a bull market paying off the house then DCA back in?
It's only better if you actually completely pay off your house and don't lose your job. If you have only partly paid off your house your mortgage payments don't get smaller. And if you lose your job you'll have no cushion to pay your bills. Having liquid assets is much more flexible.

On DCA:
https://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 13, 2019, 10:03:06 AM

Couldn't you argue that not having a mortgage and substantially lower monthly bills also helps weather economic crashes?  I'm not opposed to mortgages.  I see the value in the uber low interest rates currently offered.  I have a mortgage on one of my houses that I plan to keep.  I'm just questioning a lump sum option.  And I think it's more of a DCA question.  Could you be better off in a bull market paying off the house then DCA back in?

You could come up with scenarios where this might be true, but in general it is not.  What you gain by not having a mortgage is lower monthly expenses (ie better cashflow). Typically this is a 20-30% reduction in monthly expenditures for most people.  What you lose by paying off the mortgage is liquid assets (ie investments easily transferable to cash). While it's true that - should the SHTF - you may have to sell some investments at a loss, including some to continue paying off your mortgage, but that's really the worst-case scenario.  For perspective, one version of this scenario has you losing your income right as the markets crash and you have an emergency expense of ~$10,000. But even in such a scenario investments give you more ways of combating 'really bad stuff'.  Had you paid off your mortgage when both the economy dropped and you lost your employment you would be in a more precarious situation precisely because your smaller investment portfolio would also decrease, and that unexpected expense would cost just as much. You still have the majority of your monthly expenses to meet, but less cash on hand to do so.

The worst-case scenario (as RWD has already address) is if you start to aggressively pay off the mortgage while ignoring investments and then the SHTF.  Under such a scenario you have the worst of both worlds: higher expenses and less (or no) savings. 

I'll state the obvious, which is that if you are fortunate enough to have both a large investment portfolio AND no mortgage you'll probably be fine regardless, even though you'll still come out ahead most of the time by keeping the mortgage.

Lum sum:  JL Collins is good, but also check out the white paper put out by Vanguard  (http://Dollar-cost averaging just means taking risk later - Vanguard
https://personal.vanguard.com/pdf/s315.pdf).  Numerous threads on here and Bogleheads too.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on March 13, 2019, 10:34:33 AM

The market is hot right now and seemingly past due for a hit.  Could it possibly be a good strategy to pull money out of the taxable accounts, that are probably way up, and pay off a mortgage?  Then start dollar cost averaging back in to the market?


I wish I had $1 for every time a poster here talked about the markets being too "hot" and that a selloff was imminent.

If you pay off the mortgage you lose all future benefit. As the most common mortgages in the us are fixed and many in the 3-4.x% range the real (ie inflation adjusted) amount you pay each month steadily decreases, making it a fantastic inflation hedge.  What you are proposing is market timing followed by DCAing back into it.  Besides going against one of the central beliefs here ("don't try to time the market") the time frame involved will make it even more unlikely for you to come out ahead. 

For example, suppose you are paying $2k/month on a mortgage with $125k left.  If you decided to gut your taxable accounts to get rid of the mortgage it would take you over 5 years to pay it back with the $24k/year you "saved" from not having a mortgage.  You might even get really, really, really lucky and sell right before a big drop.  But five years later where is the market when you are still trying to buy your way back in? In most cases way above where it was when you started this whole exercise, even if you look at doing this just before a correction or recession.

Time in the market is much more important than timing the market.

A-fucken-men to that.

Plus, the less cash you have in your house, the easier it is to weather the economic crashes, possible job losses, provides more capital to jump on the many opportunities that crop up in crashes, etc, etc.

In a major crash, it's not like everything always just stays exactly the same and life chugs on like normal until recovery. The whole world gets all whacky and things can shift significantly in individual industries and regions. In a major crash, you want to be as flexible as possible in order to come out with the best outcome.

In fact, if everything did just stay the same and chug along until recovery, then leaving everything as-is is by far the best option.

Either way, if market timing was predictable, then we would have thousands of threads about all of the various approaches to market timing with countless of the local mathy-types posting endlessly about different statistical models, etc, etc.

Couldn't you argue that not having a mortgage and substantially lower monthly bills also helps weather economic crashes?  I'm not opposed to mortgages.  I see the value in the uber low interest rates currently offered.  I have a mortgage on one of my houses that I plan to keep.  I'm just questioning a lump sum option.  And I think it's more of a DCA question.  Could you be better off in a bull market paying off the house then DCA back in?

I see your logic, but it requires paying off the mortgage entirely, until the mortgage is gone, you are actually at higher risk.
A few months of covering a mortgage is not a huge amount of cash, so it doesn't take massive sums to have a lot of flexibility. Paying off the mortgage means trading off massive financial flexibility for a marginal gain in monthly cash flow. There's a net loss of flexibility.

If you have a ~200K mortgage, then a year of payments is ~12K. If you have 40K, you have a year's worth of living expenses with no income at all, regardless of how much is left on the mortgage. If you pay off your mortgage completely with that 40K, you still need income to pay for the rest of life. How long are you expecting to be jobless? Do you potentially lose out on opportunities by having to take whatever job you can get in order to pay those lower monthly expenses?
What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.

As for your DCA question...maybe you could make more money doing that?
It would all depend on your timing, which has been proven to be tremendously unlikely to pull off.

Regardless, I come back to my initial point, which is that if it was a predictably good strategy, then it would be discussed to death here, on finance blogs, in books, etc.
At the end of the day, it's market timing...'nuff said.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 13, 2019, 11:32:03 AM
What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.

Just want to point out that downturns occur more frequently and with higher magnitude in the stock market than in real estate (so if a downturn did occur, you'd presumably be selling your investments at a huge loss). That's why sequence of returns risk usually favors paying off a mortgage at early retirement rather than keeping the mortgage and increasing your stash.

That being said, if you don't have any liquid holdings, you should avoid paying any extra on the mortgage for a number of reasons (as noted by Malkynn and many others).
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 13, 2019, 12:20:52 PM
What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.

Just want to point out that downturns occur more frequently and with higher magnitude in the stock market than in real estate (so if a downturn did occur, you'd presumably be selling your investments at a huge loss). That's why sequence of returns risk usually favors paying off a mortgage at early retirement rather than keeping the mortgage and increasing your stash.

That being said, if you don't have any liquid holdings, you should avoid paying any extra on the mortgage for a number of reasons (as noted by Malkynn and many others).
Intersting.  Are you certain this is the case?
From what I see, your personal residence is an un-diversified asset.  You cannot change where it is. I've also seen housing markets which have crashed and stayed depressed for generations - something that the broad market has not done.  Smaller towns are infamous for this but it happens in large cities as well (example: Detroit), and with considerable frequency.

Regardless, the value of my home only matters to me when I intend to sell or refinance. So there is that.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 13, 2019, 12:39:14 PM
What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.

Just want to point out that downturns occur more frequently and with higher magnitude in the stock market than in real estate (so if a downturn did occur, you'd presumably be selling your investments at a huge loss). That's why sequence of returns risk usually favors paying off a mortgage at early retirement rather than keeping the mortgage and increasing your stash.

That being said, if you don't have any liquid holdings, you should avoid paying any extra on the mortgage for a number of reasons (as noted by Malkynn and many others).
Intersting.  Are you certain this is the case?
From what I see, your personal residence is an un-diversified asset.  You cannot change where it is. I've also seen housing markets which have crashed and stayed depressed for generations - something that the broad market has not done.  Smaller towns are infamous for this but it happens in large cities as well (example: Detroit), and with considerable frequency.

Regardless, the value of my home only matters to me when I intend to sell or refinance. So there is that.
I think fluctuation is perhaps the better term. The stock market fluctuates much more than Real Estate. RE cycles tend to take years. Even in your example, there was little fluctuation, just continuous downward spiral. I agree that one shouldn't bank on RE going up continuously, but it's far less volatile than the Stock Market. It's not a diversified asset, but if you're planted in an economically strong area, and the numbers make sense, why not?
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 13, 2019, 12:45:51 PM
What happens if a 40K opportunity comes up? Like buying into a business, or buying more real estate? Downturns open A LOT of doors if you have cash because most people will be cash-strapped.

Just want to point out that downturns occur more frequently and with higher magnitude in the stock market than in real estate (so if a downturn did occur, you'd presumably be selling your investments at a huge loss). That's why sequence of returns risk usually favors paying off a mortgage at early retirement rather than keeping the mortgage and increasing your stash.

That being said, if you don't have any liquid holdings, you should avoid paying any extra on the mortgage for a number of reasons (as noted by Malkynn and many others).
Intersting.  Are you certain this is the case?
From what I see, your personal residence is an un-diversified asset.  You cannot change where it is. I've also seen housing markets which have crashed and stayed depressed for generations - something that the broad market has not done.  Smaller towns are infamous for this but it happens in large cities as well (example: Detroit), and with considerable frequency.

Regardless, the value of my home only matters to me when I intend to sell or refinance. So there is that.

You are accurate, the purchase of a home is an undiversified asset, subject to many unique forces. It is similar to buying a single stock, which often go full belly-up. But most of us know better than to buy a single stock (with apologies to the professional traders on these boards), and buy a market fund instead. So stocks have the benefit of diversification as an asset class, which a single home purchase does not. If you compare apples to apples, or asset class to asset class, then real estate typically provides a much smoother ride: https://www.businessinsider.com/real-estate-vs-stock-market-investment-2018-9 (https://www.businessinsider.com/real-estate-vs-stock-market-investment-2018-9).

That being said, we are asking the question of whether or not one should pay off the mortgage, conditional to the home having already been purchased. In that case, I can't think of any scenario where the home value is relevant to the decision of whether or not to pay off the home (for a Mustachian with extra savings to invest). If anybody can think of a scenario otherwise, I'd be curious to hear about it.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on March 13, 2019, 01:36:21 PM
What a great conversation!

Nereo, "unexpected expense".  If you were to pay off your home, I would hope you would also have some liquid funds.  Paying off a home and having no emergency fund would be silly.  At the same time, a paid off home could have an equity line attached to it for emergencies as well as credit cards.

RWD/Malkynn.  I am not advocating for the $1,000/mo towards mortgage approach. I don't like that.  My original comment was in regards to another poster who said they could pay the house cash.  I also brought up my personal situation where I paid the mortgage off in full.  For anyone looking to pay their house off early, I would suggest putting the money in an index fund like VTSAX, once it's enough to pay the house off in full, consider selling the position and paying off the house.  I am not a fan of putting small amounts towards the mortgage here and there. 

I think this does come down to a market timing question.  If the markets are sky high and clearly on a bull run, taking in past volatility, is it a terrible idea to liquidate some of the gains, pay off the house IN FULL if able, and DCA back in to the market assuming, based on historical performance, that the market could very well have a large correction?

I'm not a fan of trying to time the top and bottom of a market.  It's always good to buy no matter what, which is why I am using my previous mortgage payment to DCA back in to the market.  But there can be some clear indicators that the market is due to go south.  It was obvious that it was a good time to sell my real estate assets when I did.  Very smart.  Worked out well but I don't think that was luck.  I bought when I knew the market was trashed and values were low but rents were fairly stable.  Once the market went back up, it made a lot of sense to cash out the properties and put the funds in to higher performing assets.  The problem, is that the stock market right now is on a long bull run.  I've read "historical".  I'm no expert, which is why I started the conversation to hear other opinions, but it seems to me to make sense to get the 100% 4.5% ROI on my primary residence and DCA that money in to the market assuming there may be some volatility and potential sales on stocks coming up.  If my mortgage was like some of those here, 2%+ then I would definitely not pay it off.  But mine was 4.5% which is still low, but not so low that it's a no brainer to keep it.

Am I right?  I have no idea.  My logic could be flawed.  I'm no expert.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on March 13, 2019, 01:47:05 PM
^um...

Paying off the house in full vs not was a very small part of my response...

The rest of my post gives my answer with respect to what you've posted above.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 13, 2019, 06:51:23 PM
I think this does come down to a market timing question.  If the markets are sky high and clearly on a bull run, taking in past volatility, is it a terrible idea to liquidate some of the gains, pay off the house IN FULL if able, and DCA back in to the market assuming, based on historical performance, that the market could very well have a large correction?


Yep, it is terrible idea. 

There are several misconceptions in your post, including one I see almost every day here.  Namely, because the market is now highly valued, there must be a big crash around the corner.  This notion is false.  There might be a big crash around the corner, or the market just might trend sideways for years.   Both have happened in the past.  You seem to be betting on a big crash in some future date, and you have no earthly idea if that will happen or not. 

We all know that stocks are supposed to be long term investments.  Therefore, the only rational way to value making a stock investment is over some long period of time.  Now, if stocks are valued higher than average, then we can reasonably expect the long term return will be lower than average.  That's okay.  You can't be above average all the time.  If you sit in cash waiting for a crash and then invest, you are also effectively lowering your long term rate of return by some amount.   Since we don't know how much, why bet against yourself?  The caveat is if you are close to the end of your mortgage, then the calculation changes.  Early in the term paying off the mortgage is nutso.   

DCA is almost always a bad strategy for too many reasons to get into here.  But basically you are again betting against yourself. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on March 13, 2019, 07:36:17 PM
There are several misconceptions in your post, including one I see almost every day here.  Namely, because the market is now highly valued, there must be a big crash around the corner. 

...

I'm just gonna point out that we had a 3.4% gain in less than a week...  If you weren't in the market then you missed out on that.

Even if its overvalued but it goes up 35% more before the next 30% correction, then there is no "I told you so moment", you will have lost out anyways not even counting dividends...

Its strange to me how many pay-off-the-mortgage types are also willing to try (and fail) timing the market...  :/
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on March 14, 2019, 07:26:50 AM
There are several misconceptions in your post, including one I see almost every day here.  Namely, because the market is now highly valued, there must be a big crash around the corner. 

...

I'm just gonna point out that we had a 3.4% gain in less than a week...  If you weren't in the market then you missed out on that.

Even if its overvalued but it goes up 35% more before the next 30% correction, then there is no "I told you so moment", you will have lost out anyways not even counting dividends...

Its strange to me how many pay-off-the-mortgage types are also willing to try (and fail) timing the market...  :/

I would like to point out that Dollar Cost Averaging is all about not timing the market.  Everything I've read suggests dollar cost averaging is the way to go.  Telecaster, you made a comment that DCA is almost always a bad strategy.  We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?

I'm not a "pay off the mortgage" type, per se.  I think finance is too dynamic for such rules.  As I said, I do still hold a mortgage on a second property.  It's not my plan to pay it off.  My dilemma was that I had a ton of cash.  I know, dilemma!  I had 3 options, assuming my goal is to invest it.  Invest it all at once in the market.  Hold the cash and DCA slowly, thus having lots of cash on hand losing value or in bonds/low risk investments that are substantially less than my mortgage interest.  Or third, pay off the house, then use the old mortgage payment to DCA in to the market.

All of my reading suggests DCA is a good idea.  Some here are challenging that idea and it's intriguing as I thought DCA was a well accepted good practice.  In my case, it seemed paying off the mortgage then making large monthly investments in to an index fund makes sense.

Whether the so called experts are right or wrong about us due a major crash, that's left to be seen.  I think their commentary and reasoning is convincing.  We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective.  My comment ultimately is pretty simple.  Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market?  Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding.  I like that and the insight is great.

I'll bookmark this page of the thread, it would be interesting to see how this ages.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 14, 2019, 08:29:04 AM
What makes real estate crashes more damaging isn't the price variation, but the leverage.

But here at the DNPYM club, we think about our mortgage debt as being set aside All our assets. Our ability to maintain a $200,000 loan is far stronger when it's backed by $300,000 of real estate and $100,000 of investments. And if those $100,000 of investments grow to $300,000, they pay for that mortgage completely, even if a weak local real estate market has sliced off 30% of your equity in the property.
Title: Re: DONT Payoff your Mortgage Club
Post by: terrifictim on March 14, 2019, 08:54:32 AM
In regards to DCA - it's a good strategy when it's contributing a consistent amount out of your income (W2 or otherwise) and it's done over a period of years.
When it's done with a large lump sum, however, it's suboptimal because of "time in the market better than timing the market". Granted investing in a lump sum at once is statistically the better choice - but it doesn't guarantee a better outcome for a particular combination of financial parameters.

References:
https://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/ (https://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/)
https://www.madfientist.com/front-loading/ (https://www.madfientist.com/front-loading/)
https://affordanything.com/why-dollar-cost-averaging-stinks/ (https://affordanything.com/why-dollar-cost-averaging-stinks/)
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 14, 2019, 09:39:36 AM
There are several misconceptions in your post, including one I see almost every day here.  Namely, because the market is now highly valued, there must be a big crash around the corner. 

...

I'm just gonna point out that we had a 3.4% gain in less than a week...  If you weren't in the market then you missed out on that.

Even if its overvalued but it goes up 35% more before the next 30% correction, then there is no "I told you so moment", you will have lost out anyways not even counting dividends...

Its strange to me how many pay-off-the-mortgage types are also willing to try (and fail) timing the market...  :/

I would like to point out that Dollar Cost Averaging is all about not timing the market.  Everything I've read suggests dollar cost averaging is the way to go.  Telecaster, you made a comment that DCA is almost always a bad strategy.  We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?

I'm not a "pay off the mortgage" type, per se.  I think finance is too dynamic for such rules.  As I said, I do still hold a mortgage on a second property.  It's not my plan to pay it off.  My dilemma was that I had a ton of cash.  I know, dilemma!  I had 3 options, assuming my goal is to invest it.  Invest it all at once in the market.  Hold the cash and DCA slowly, thus having lots of cash on hand losing value or in bonds/low risk investments that are substantially less than my mortgage interest.  Or third, pay off the house, then use the old mortgage payment to DCA in to the market.

All of my reading suggests DCA is a good idea.  Some here are challenging that idea and it's intriguing as I thought DCA was a well accepted good practice.  In my case, it seemed paying off the mortgage then making large monthly investments in to an index fund makes sense.

Whether the so called experts are right or wrong about us due a major crash, that's left to be seen.  I think their commentary and reasoning is convincing.  We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective.  My comment ultimately is pretty simple.  Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market?  Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding.  I like that and the insight is great.

I'll bookmark this page of the thread, it would be interesting to see how this ages.

This is not a poor strategy in my opinion, presuming you have enough liquidity to cover any minor emergencies (and all financial emergencies are relatively minor if you live a Mustachian lifestyle). You're increasing your asset allocation to bonds (essentially) at a time when low returns and high volatility are expected in the stock market (ref Vanguard market outlook for 2019: https://personal.vanguard.com/pdf/ISGVEMO_122018.pdf (https://personal.vanguard.com/pdf/ISGVEMO_122018.pdf)). So you're essentially getting a risk-free rate of 4.5% when U.S. stocks are expected to return 3-5% (with a median volatility of 16.3%) over the next decade (per Vanguard).

Don't take it personally, but it seems that some people on these boards view any approach to investing that looks at anything other than historical data of U.S. market returns as "market timing". Theirs is not a bad approach for the layman investor, but at the same time one can make calculated risks with the knowledge available and not lose their Mustachian card.

(Note that if you were DCAing with cash, I would be singing a different tune.)
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 14, 2019, 09:47:34 AM
I'm just gonna point out that we had a 3.4% gain in less than a week...  If you weren't in the market then you missed out on that.

I'm just going to point out that pointing out weekly blips in the stock market is not a way I would recommend to think about investing. (It's like pointing out minor weather fluctuations when discussing climate.)
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on March 14, 2019, 10:36:43 AM
I'm just gonna point out that we had a 3.4% gain in less than a week...  If you weren't in the market then you missed out on that.

I'm just going to point out that pointing out weekly blips in the stock market is not a way I would recommend to think about investing. (It's like pointing out minor weather fluctuations when discussing climate.)

Except very short periods of time can have huge impacts on returns.  The "Time in the market" argument is primarily focused on not missing out on the best days, as well as collecting dividends and riding the upward trend.

https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/ (https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/)
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 14, 2019, 10:56:40 AM
I'm just gonna point out that we had a 3.4% gain in less than a week...  If you weren't in the market then you missed out on that.

I'm just going to point out that pointing out weekly blips in the stock market is not a way I would recommend to think about investing. (It's like pointing out minor weather fluctuations when discussing climate.)

Except very short periods of time can have huge impacts on returns.  The "Time in the market" argument is primarily focused on not missing out on the best days, as well as collecting dividends and riding the upward trend.

https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/ (https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/)

I don't disagree, but it cuts both ways. What if we had a 3.4%* loss last week? Or next week? (Or a 7.7% loss the week before Christmas?) Really none of the small movements matter if you're investing for the long-term. 100% agree with "Time in the Market", but that's to capture the long-term expected returns while completely ignoring the short-term noise.

*By the way, not sure which index you are looking at. S&P 500 returned 2.5% since last Friday's low.
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on March 14, 2019, 11:19:57 AM
I think the DCA argument depends on how you acquired that large chunk of cash.

a) An inheritance or something unexpected

b) You squirreled away a bunch of cash over time and are now asking what to do with it.

On the day you need to make your decision the cases are the same, but ideally you won't find yourself in situation b because you were DCA over the past year anyway.

I confess, I have been in situation b before Doh!
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 14, 2019, 12:26:01 PM
I would like to point out that Dollar Cost Averaging is all about not timing the market.  Everything I've read suggests dollar cost averaging is the way to go.  Telecaster, you made a comment that DCA is almost always a bad strategy.  We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?

Sure, here's a paper from Vanguard:

https://personal.vanguard.com/pdf/ISGDCA.pdf

Here's the basic logic:  The market goes up 2/3 and down 1/3 of the time.   So if you DCA in a lump sum, you lose 2/3 of the time.  And even if you DCA, eventually you will fully invested in the market anyway, right?   You only avoid volatility for the DCA period and then only for the part of your investment that isn't invested.   

Stocks of course are long term investments.   So if you look at your portfolio 30 years from now, do you think it would matter to the final value if you were fully invested in 2019 or on DCA'ed into 2020?   


Quote
Whether the so called experts are right or wrong about us due a major crash, that's left to be seen.  I think their commentary and reasoning is convincing.  We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective.  My comment ultimately is pretty simple.  Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market?  Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding.  I like that and the insight is great.


There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term.   If your remaining term is short, then maybe paying it off isn't a terrible idea.  Otherwise it really doesn't make sense.   Remember that 4% mortgage payment is hit by inflation every year.  Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.   
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on March 14, 2019, 12:32:43 PM
There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term.   If your remaining term is short, then maybe paying it off isn't a terrible idea.  Otherwise it really doesn't make sense.   Remember that 4% mortgage payment is hit by inflation every year.  Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.

Along this line of thinking, I just took advantage of CIT Banks savings account at 2.45% (with 25k+ in the account or at least a $100 deposit each month).  Stacked with the average inflation rate of 2.0% across the last three years I'm getting 4.45% FDIC insured....  And MUCH more liquid in an emergency then equity in the house.

In other words, a low rate fixed mortgage is a terrible investment vehicle for mustachians (but good for non-savers as it forces some version of savings).
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 14, 2019, 12:40:09 PM
There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term.   If your remaining term is short, then maybe paying it off isn't a terrible idea.  Otherwise it really doesn't make sense.   Remember that 4% mortgage payment is hit by inflation every year.  Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.

Along this line of thinking, I just took advantage of CIT Banks savings account at 2.45% (with 25k+ in the account or at least a $100 deposit each month).  Stacked with the average inflation rate of 2.0% across the last three years I'm getting 4.45% FDIC insured....  And MUCH more liquid in an emergency then equity in the house.

In other words, a low rate fixed mortgage is a terrible investment vehicle for mustachians (but good for non-savers as it forces some version of savings).

Are you saying your savings account is indexed for inflation?

ETA: I apologize for the sarcasm. I didn't get much sleep last night. That being said, you can't reasonably subtract inflation from your mortgage and talk about 'real returns' and in the next breath add inflation to the investment alternative (even if it was indexed to inflation, whereas yours I'm quite certain isn't).
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 14, 2019, 12:55:39 PM
I would like to point out that Dollar Cost Averaging is all about not timing the market.  Everything I've read suggests dollar cost averaging is the way to go.  Telecaster, you made a comment that DCA is almost always a bad strategy.  We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?

Sure, here's a paper from Vanguard:

https://personal.vanguard.com/pdf/ISGDCA.pdf

Here's the basic logic:  The market goes up 2/3 and down 1/3 of the time.   So if you DCA in a lump sum, you lose 2/3 of the time.  And even if you DCA, eventually you will fully invested in the market anyway, right?   You only avoid volatility for the DCA period and then only for the part of your investment that isn't invested.   

Stocks of course are long term investments.   So if you look at your portfolio 30 years from now, do you think it would matter to the final value if you were fully invested in 2019 or on DCA'ed into 2020?   


Quote
Whether the so called experts are right or wrong about us due a major crash, that's left to be seen.  I think their commentary and reasoning is convincing.  We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective.  My comment ultimately is pretty simple.  Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market?  Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding.  I like that and the insight is great.


There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term.   If your remaining term is short, then maybe paying it off isn't a terrible idea.  Otherwise it really doesn't make sense.   Remember that 4% mortgage payment is hit by inflation every year.  Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.

Regarding DCAing: EngagedToFIRE did lump-sum. He just lump-summed into his mortgage, rather into stocks. It's not like he's hoarding cash.

Regarding inflation and mortgages: I thought we beat this to death already. All that matters is the expected return and volatility of your investment alternatives (unless your alternative investment is linked to inflation, like TIPS). Imagine a hypothetical credit card with an APY of 10% and interest-only payments. 'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on March 14, 2019, 02:30:56 PM
I would like to point out that Dollar Cost Averaging is all about not timing the market.  Everything I've read suggests dollar cost averaging is the way to go.  Telecaster, you made a comment that DCA is almost always a bad strategy.  We don't need to get in to tons of reasons why, but could you point me to an article that you like so I can better understand your position?

Sure, here's a paper from Vanguard:

https://personal.vanguard.com/pdf/ISGDCA.pdf

Here's the basic logic: The market goes up 2/3 and down 1/3 of the time.   So if you DCA in a lump sum, you lose 2/3 of the time.  And even if you DCA, eventually you will fully invested in the market anyway, right?   You only avoid volatility for the DCA period and then only for the part of your investment that isn't invested.   

Stocks of course are long term investments.   So if you look at your portfolio 30 years from now, do you think it would matter to the final value if you were fully invested in 2019 or on DCA'ed into 2020?   


Quote
Whether the so called experts are right or wrong about us due a major crash, that's left to be seen.  I think their commentary and reasoning is convincing.  We all know the stock market can and does see huge corrections and crashes vs real estate which is why DCA is supposedly effective.  My comment ultimately is pretty simple.  Is it possible that it could be a good idea to harvest big gains during a long bull market and pay off a mortgage in full, providing a higher interest mortgage (4%+), then DCA your old mortgage payment back in to the market?  Considering the title of the thread, I was expecting contrarian opinions that would help expand my own understanding.  I like that and the insight is great.


There is a little bit of nuance to the "don't pay off the mortgage" philosophy, but basically the key is that mortgages are long term.   If your remaining term is short, then maybe paying it off isn't a terrible idea.  Otherwise it really doesn't make sense.   Remember that 4% mortgage payment is hit by inflation every year.  Inflation is around 2% currently, so you don't really have a high bar to clear to find better performing investments.

I like this explanation.  But to reiterate, I would never suggest holding cash then DCA over a long period of time.  My strategy was to take the 4.5% on my mortgage as a guaranteed return, then use the previous mortgage payment ($6,000/mo) to buy in to the market over a period of time.

I only had this mortgage for 3 years.  That said, I do plan on keeping my other mortgage for the term, which has 28 years left.  I have a Fundrise investment equal to the original mortgage amount that more than covers that mortgage along with the expenses for that house, essentially giving us a free vacation house which is a much better return than paying off the mortgage.  In fact, it provides a surplus that I reinvest.

Boofinator,

If the market outlook is about the same as my mortgage, then it seems I was probably reasonable in my approach of getting rid of the 4.5% mortgage.  I'll continue investing every month, often several times per month.  Maybe we'll get a big drop and cheaper prices, who knows.  Time shall tell.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 14, 2019, 02:54:56 PM
If the market outlook is about the same as my mortgage, then it seems I was probably reasonable in my approach of getting rid of the 4.5% mortgage.  I'll continue investing every month, often several times per month.  Maybe we'll get a big drop and cheaper prices, who knows.  Time shall tell.

I'd say it would be a reasonable approach, depending on your financial situation. If you consider market outlook and are close to FI, I think you've probably made the optimal investment; if you don't consider market outlook (and there is a very good case that can be made for this approach) and are close to FI, I think you've probably made a wise decision (one that does not result in the highest expected return, but it does provide a hedge against sequence of returns risk); and if you aren't close to FI, I would not recommend putting money into a mortgage at that rate, as you have a long time horizon and should be eager to take risk.

"Time shall tell", indeed. However, if I may get philosophical for a moment, hindsight confirmation is perhaps not the best way to view a decision-making process. You can make an optimal decision and come out behind most of the time. (Insurance is a good example of this.)
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 14, 2019, 03:54:36 PM

"Time shall tell", indeed. However, if I may get philosophical for a moment, hindsight confirmation is perhaps not the best way to view a decision-making process. You can make an optimal decision and come out behind most of the time. (Insurance is a good example of this.)

I'd just like to say how glad I am to see someone else stress this.
All too often I hear people say things like "I got an inheritance and invested it, but then the market dropped almost 10% - turns out I made a bad decision investing then".
No!  This person made a good decision given all that was known or knowable at the time.  Just because an outcome is bad doesn't mean the underlying decision was bad.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 14, 2019, 04:32:54 PM
Imagine a hypothetical credit card with an APY of 10% and interest-only payments.'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?

That 10% APR is being reduced by about 2% a year, so 8% real.  So, if you know of an investment that will return greater than 8% after inflation, then you should put money to that investment instead of paying off your credit card. 

I'm baffled why this is such a difficult concept for some. 

Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 14, 2019, 06:09:24 PM
Imagine a hypothetical credit card with an APY of 10% and interest-only payments.'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?

That 10% APR is being reduced by about 2% a year, so 8% real.  So, if you know of an investment that will return greater than 8% after inflation, then you should put money to that investment instead of paying off your credit card. 

I'm baffled why this is such a difficult concept for some. 


US stocks have historically returned about 11% on average. What city do you live in? I'd be happy to fly out and meet you personally if you'd like a six-figure loan at 10%.

In all seriousness, you probably are aware that this would be a really bad investment (ignore for the moment that you could certainly get cheaper money). Why?

By the way, the concept of real versus nominal returns is not difficult at all. It is the application of that concept to investment decisions which seems to be difficult for some.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on March 15, 2019, 08:30:43 AM
If the market outlook is about the same as my mortgage, then it seems I was probably reasonable in my approach of getting rid of the 4.5% mortgage.  I'll continue investing every month, often several times per month.  Maybe we'll get a big drop and cheaper prices, who knows.  Time shall tell.

I'd say it would be a reasonable approach, depending on your financial situation. If you consider market outlook and are close to FI, I think you've probably made the optimal investment; if you don't consider market outlook (and there is a very good case that can be made for this approach) and are close to FI, I think you've probably made a wise decision (one that does not result in the highest expected return, but it does provide a hedge against sequence of returns risk); and if you aren't close to FI, I would not recommend putting money into a mortgage at that rate, as you have a long time horizon and should be eager to take risk.

"Time shall tell", indeed. However, if I may get philosophical for a moment, hindsight confirmation is perhaps not the best way to view a decision-making process. You can make an optimal decision and come out behind most of the time. (Insurance is a good example of this.)


I am already FI and semi RE.  Business owner with a business that 98% runs itself.  I am not sure I'll ever fully retire since I have almost all of the freedom one would want when retiring already.

My comment about "time shall tell" was more about curiosity than any sort of confirmation.  It seems my financial decision was reasonable and made when there are multiple "correct" decisions that could be made.   Time will tell which one comes out ahead.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 15, 2019, 08:44:58 AM
If the market outlook is about the same as my mortgage, then it seems I was probably reasonable in my approach of getting rid of the 4.5% mortgage.  I'll continue investing every month, often several times per month.  Maybe we'll get a big drop and cheaper prices, who knows.  Time shall tell.

I'd say it would be a reasonable approach, depending on your financial situation. If you consider market outlook and are close to FI, I think you've probably made the optimal investment; if you don't consider market outlook (and there is a very good case that can be made for this approach) and are close to FI, I think you've probably made a wise decision (one that does not result in the highest expected return, but it does provide a hedge against sequence of returns risk); and if you aren't close to FI, I would not recommend putting money into a mortgage at that rate, as you have a long time horizon and should be eager to take risk.

"Time shall tell", indeed. However, if I may get philosophical for a moment, hindsight confirmation is perhaps not the best way to view a decision-making process. You can make an optimal decision and come out behind most of the time. (Insurance is a good example of this.)


I am already FI and semi RE.  Business owner with a business that 98% runs itself.  I am not sure I'll ever fully retire since I have almost all of the freedom one would want when retiring already.

My comment about "time shall tell" was more about curiosity than any sort of confirmation.  It seems my financial decision was reasonable and made when there are multiple "correct" decisions that could be made.   Time will tell which one comes out ahead.

I didn't want to imply in my statement on decision-making that it was directed at you. Apologies that I didn't better generalize it.

As nereo reiterated, the decision-making process is inherently forward-looking between options with uncertain outcomes. Some people think (or imply) hindsight should be used to judge the value of a decision, but instead hindsight should just be used to inform future decisions.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 15, 2019, 06:10:01 PM
Imagine a hypothetical credit card with an APY of 10% and interest-only payments.'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?

That 10% APR is being reduced by about 2% a year, so 8% real.  So, if you know of an investment that will return greater than 8% after inflation, then you should put money to that investment instead of paying off your credit card. 

I'm baffled why this is such a difficult concept for some. 


US stocks have historically returned about 11% on average. What city do you live in? I'd be happy to fly out and meet you personally if you'd like a six-figure loan at 10%.

In all seriousness, you probably are aware that this would be a really bad investment (ignore for the moment that you could certainly get cheaper money). Why?

By the way, the concept of real versus nominal returns is not difficult at all. It is the application of that concept to investment decisions which seems to be difficult for some.

You're right.  It is totally foolish to consider the effects of inflation. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 15, 2019, 08:05:27 PM
Imagine a hypothetical credit card with an APY of 10% and interest-only payments.'Bob' has a $100,000 balance. Should Bob pay this off as quickly as possible, or hold on to it for as long as possible because inflation will eventually reduce his payments to a pittance in real terms (and of course he'll invest the difference in equities)?

That 10% APR is being reduced by about 2% a year, so 8% real.  So, if you know of an investment that will return greater than 8% after inflation, then you should put money to that investment instead of paying off your credit card. 

I'm baffled why this is such a difficult concept for some. 


US stocks have historically returned about 11% on average. What city do you live in? I'd be happy to fly out and meet you personally if you'd like a six-figure loan at 10%.

In all seriousness, you probably are aware that this would be a really bad investment (ignore for the moment that you could certainly get cheaper money). Why?

By the way, the concept of real versus nominal returns is not difficult at all. It is the application of that concept to investment decisions which seems to be difficult for some.

You're right.  It is totally foolish to consider the effects of inflation.

I never said that inflation doesn't matter, only that it doesn't matter when considering two asset classes that don't correlate well with inflation. Read my previous posts. But to get into it again....

Historic stock returns do not correlate well with inflation (there might be some very delayed (10+ years) correlation). At very high inflation and deflation, stocks have done horribly (in nominal terms). So, when you have two asset classes that do not correlate with inflation (mortgage and equities), please tell me how inflation comes into this debate?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 17, 2019, 11:22:06 AM
Wow, for once Yahoo Finance picked up something interesting. Good food for thought.

https://www.yahoo.com/finance/news/7-reasons-not-pay-off-165620088.html

7 Reasons Not to Pay Off Your Mortgage Before Retiring
Money Talks News  Emmet Pierce,Money Talks News 2 hours 36 minutes ago
Reactions  Reblog on Tumblr  Share  Tweet  Email
Paying off a home mortgage before you retire is a common goal, but it isn’t always the best financial strategy.

It could end up costing you in the long run — such as by leaving you without cash savings to cover an unexpected expense or without the flexibility to take advantage of an opportunity to earn a better return on your money.

What follows are some financially shrewd reasons to carry your mortgage debt into retirement.

1. You plan to sell your home
Many people decide to downsize before or in retirement. They find that a smaller, less expensive home better fits their retirement lifestyle, as we detail in “7 Unexpected Benefits of Downsizing in Retirement.”

If you think you may be selling your home soon, think hard before you pay off the mortgage on your current home. That’s because selling your dwelling may give you the money you need to repay your home loan without having to deplete your savings.

2. You plan to rent out your home — or a room
Does your retirement plan include relocating and renting out your present home? There’s no pressing need to pay off your home loan if the tenants’ rent payments will cover your future mortgage costs.

You could avoid tapping into your savings to pay off the loan. You may even realize a profit after your mortgage bill is paid each month.

That could be true even if you remain in your home and simply rent out a spare room through a vacation rental site like Airbnb.

A 2018 analysis by Homes.com found that in some cities, a homeowner could make enough money by renting out a room just four or five nights per month to cover a monthly mortgage payment. We detailed the analysis findings in “Do This a Few Days Each Month and Watch Your Mortgage Disappear.”

3. It’s more important to repay debts with higher interest rates
Before you commit to paying off a mortgage, determine whether there are better ways to spend your money.

For example, if you’ve purchased or refinanced a home in the past decade, your home loan likely has a relatively low interest rate. And if that’s the case, you will be better off financially if you first repay debts with higher interest rates, such as credit cards debt.

Paying off the debt with the highest interest rate first will save you more money in interest payments over the life of your debt.

4. You’re still saving for retirement
Not everyone completes their career with enough money to enjoy a comfortable retirement. That’s why many Americans continue to work after age 65, the traditional retirement age.

If you’re contributing to a retirement account, such as an IRA or a 401(k), it may make more sense to use any extra money you have to build your retirement savings rather than to repay your mortgage ahead of schedule.

Retirement accounts are tax-advantaged. So, saving money in one will likely enable you to lower your taxable income now or avoid taxation when you withdraw funds from the account in retirement, depending on whether the account is Roth or traditional.

To learn more, check out “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple.”

5. You’re low on cash reserves
Maintaining an emergency fund is critical for financial stability. If paying off a mortgage will drain your cash reserves, it could leave you in a weakened position. No one can predict when an emergency will happen.

Corey Vandenberg, a mortgage banker in Lafayette, Indiana, says people who pay off their mortgages early often end up with lots of home equity but no money in the bank.

“This position is not financially healthy,” he tells Money Talks News. “You have to have an emergency fund for life’s unexpected events.”

6. You’d rather maximize your income through investments
If you pay off your mortgage, you will have less cash to invest. Much of your wealth will be tied up in the value of your home. The only way to get at it will be to sell the home or take out a loan against your home equity.

Without any liquid funds on hands, it will be more difficult to take advantage of an investment opportunity.

Watch the video of ‘7 Reasons Not to Pay Off Your Mortgage Before Retiring’ on MoneyTalksNews.com.

7. You want to deduct your mortgage interest
One of the benefits of being a homeowner is the ability to deduct the interest you pay on your home loan.

The Tax Cuts and Jobs Act of 2017 — the federal tax reform law — placed new limits on the deduction, but it’s still beneficial to homeowners, says Eric Tyson, co-author of “Mortgages for Dummies.”

For loans taken out after Dec. 15, 2017, most homeowners can deduct the interest they paid on up to $750,000 of qualified personal residence debt on a first and/or second home, Tyson tells Money Talks News. Married couples filing separate tax returns can deduct up to $375,000.

The previous limits were $1 million and, for married taxpayers filing separately, $500,000. If you took out your home loan before Dec. 16, 2017, you’ll be allowed to deduct interest under those old limits.

Mortgage interest is an itemized deduction, however. That means you can only take advantage of it if you itemize your deductions, as opposed to taking the standard deduction. And tax reform substantially increased the standard deduction — to as much as $24,000 for the 2018 tax year.

As a result, Congress’ Joint Committee on Taxation has estimated that far fewer taxpayers will opt to itemize deductions on their 2018 tax returns, since claiming the new standard deduction will gain them more money. That would mean far fewer homeowners stand to gain by itemizing deductions like mortgage interest.

This article was originally published on MoneyTalksNews.com as '7 Reasons Not to Pay Off Your Mortgage Before Retiring'.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 18, 2019, 07:19:29 AM
I cannot help but feel like item #6 should have been more like item #1., i.e. all of the other things involve minor decisions in life, but "maximizing investment returns" is really the only one that truly focuses on what the opportunity cost of those mortgage payments is.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 18, 2019, 07:29:53 AM
I don't really understand why #2 would be part of the equation. 
You can rent out a room in your home regardless of whether you have a mortgage or not. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 18, 2019, 08:28:46 AM
I cannot help but feel like item #6 should have been more like item #1., i.e. all of the other things involve minor decisions in life, but "maximizing investment returns" is really the only one that truly focuses on what the opportunity cost of those mortgage payments is.

For an article titled "7 Reasons Not to Pay Off Your Mortgage Before Retiring", and stating "What follows are some financially shrewd reasons to carry your mortgage debt into retirement", maximizing investment returns should not be priority #1. Minimizing the risk of going broke and having your children pay your way should be priority #1, and maximizing returns contingent to meeting #1 should follow as #2.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 19, 2019, 09:15:29 AM
Wow, for once Yahoo Finance picked up something interesting. Good food for thought.

https://www.yahoo.com/finance/news/7-reasons-not-pay-off-165620088.html

7 Reasons Not to Pay Off Your Mortgage Before Retiring
Money Talks News  Emmet Pierce,Money Talks News 2 hours 36 minutes ago
Reactions  Reblog on Tumblr  Share  Tweet  Email
Paying off a home mortgage before you retire is a common goal, but it isn’t always the best financial strategy.

It could end up costing you in the long run — such as by leaving you without cash savings to cover an unexpected expense or without the flexibility to take advantage of an opportunity to earn a better return on your money.

What follows are some financially shrewd reasons to carry your mortgage debt into retirement.

1. You plan to sell your home
Many people decide to downsize before or in retirement. They find that a smaller, less expensive home better fits their retirement lifestyle, as we detail in “7 Unexpected Benefits of Downsizing in Retirement.”

If you think you may be selling your home soon, think hard before you pay off the mortgage on your current home. That’s because selling your dwelling may give you the money you need to repay your home loan without having to deplete your savings.

2. You plan to rent out your home — or a room
Does your retirement plan include relocating and renting out your present home? There’s no pressing need to pay off your home loan if the tenants’ rent payments will cover your future mortgage costs.

You could avoid tapping into your savings to pay off the loan. You may even realize a profit after your mortgage bill is paid each month.

That could be true even if you remain in your home and simply rent out a spare room through a vacation rental site like Airbnb.

A 2018 analysis by Homes.com found that in some cities, a homeowner could make enough money by renting out a room just four or five nights per month to cover a monthly mortgage payment. We detailed the analysis findings in “Do This a Few Days Each Month and Watch Your Mortgage Disappear.”

3. It’s more important to repay debts with higher interest rates
Before you commit to paying off a mortgage, determine whether there are better ways to spend your money.

For example, if you’ve purchased or refinanced a home in the past decade, your home loan likely has a relatively low interest rate. And if that’s the case, you will be better off financially if you first repay debts with higher interest rates, such as credit cards debt.

Paying off the debt with the highest interest rate first will save you more money in interest payments over the life of your debt.

4. You’re still saving for retirement
Not everyone completes their career with enough money to enjoy a comfortable retirement. That’s why many Americans continue to work after age 65, the traditional retirement age.

If you’re contributing to a retirement account, such as an IRA or a 401(k), it may make more sense to use any extra money you have to build your retirement savings rather than to repay your mortgage ahead of schedule.

Retirement accounts are tax-advantaged. So, saving money in one will likely enable you to lower your taxable income now or avoid taxation when you withdraw funds from the account in retirement, depending on whether the account is Roth or traditional.

To learn more, check out “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple.”

5. You’re low on cash reserves
Maintaining an emergency fund is critical for financial stability. If paying off a mortgage will drain your cash reserves, it could leave you in a weakened position. No one can predict when an emergency will happen.

Corey Vandenberg, a mortgage banker in Lafayette, Indiana, says people who pay off their mortgages early often end up with lots of home equity but no money in the bank.

“This position is not financially healthy,” he tells Money Talks News. “You have to have an emergency fund for life’s unexpected events.”

6. You’d rather maximize your income through investments
If you pay off your mortgage, you will have less cash to invest. Much of your wealth will be tied up in the value of your home. The only way to get at it will be to sell the home or take out a loan against your home equity.

Without any liquid funds on hands, it will be more difficult to take advantage of an investment opportunity.

Watch the video of ‘7 Reasons Not to Pay Off Your Mortgage Before Retiring’ on MoneyTalksNews.com.

7. You want to deduct your mortgage interest
One of the benefits of being a homeowner is the ability to deduct the interest you pay on your home loan.

The Tax Cuts and Jobs Act of 2017 — the federal tax reform law — placed new limits on the deduction, but it’s still beneficial to homeowners, says Eric Tyson, co-author of “Mortgages for Dummies.”

For loans taken out after Dec. 15, 2017, most homeowners can deduct the interest they paid on up to $750,000 of qualified personal residence debt on a first and/or second home, Tyson tells Money Talks News. Married couples filing separate tax returns can deduct up to $375,000.

The previous limits were $1 million and, for married taxpayers filing separately, $500,000. If you took out your home loan before Dec. 16, 2017, you’ll be allowed to deduct interest under those old limits.

Mortgage interest is an itemized deduction, however. That means you can only take advantage of it if you itemize your deductions, as opposed to taking the standard deduction. And tax reform substantially increased the standard deduction — to as much as $24,000 for the 2018 tax year.

As a result, Congress’ Joint Committee on Taxation has estimated that far fewer taxpayers will opt to itemize deductions on their 2018 tax returns, since claiming the new standard deduction will gain them more money. That would mean far fewer homeowners stand to gain by itemizing deductions like mortgage interest.

This article was originally published on MoneyTalksNews.com as '7 Reasons Not to Pay Off Your Mortgage Before Retiring'.
I didn't say it was a perfect list. However, it is a damn good one, considering the source. Amazing for them, actually. Anything that increases awareness and fosters learning is a win in my book. Just as there's no single path to FIRE, there's not an absolute one-size-fits-all answer to this question.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 20, 2019, 08:52:40 AM
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

Sent from my moto g(6) using Tapatalk
Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.

Purchased with 5% down at the peak of the market in the Seattle area in 2018.  Sales at the time of purchase comped the house at 640-670k.  We purchased the home for 640k. 

Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further.  Throwing the 50k at it would bring the principal balance down to 560k.  The 50k would cover approx 43k of paydown and 7k in closing.

Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts.  Gross yearly income is around 200k.  No plans to leave anytime soon.

It's a shitty situation for sure... But hey... It's what we got lol.


Here is an update everyone.  Looking for advice.

We ended up having to get a new appraisal because the old lender would not release the appraisal that fell through from the first refi attempt.  New appraisal came back 50k higher and hit our original purchase price.  So we could do 95% LTV and still drop our payment significantly or we could put some extra money down to get to 90% LTV which would drop our payment even further and lower our PMI by about 40/mo.  Each scenario laid out below.

Current Mortage
Loan balance = 602k
Mortgage Payment = 3,903 (136 PMI)
9 months in on 30 year term

Refi Option 1
Loan balance = 608k
Mortgage Payment = 3,576 (122 PMI)
Cash to close = 7k(5k with be recouped from old escrow)

Refi Option 2
Loan balance = 576k
Mortgage Payment = 3,388 (84 PMI)
Cash to close = 39k (5k with be recouped from old escrow)


Putting an extra 32k into the mortgage would decrease the monthly payment by 188/mo or 2,256/yr which results in a guaranteed yearly return of 7.05% on that money.

I feel like both options are pretty good and I'm leaning towards option 2 but wanted to see what you all thought.  See if I was missing anything obvious.




Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 20, 2019, 09:28:15 AM
If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.

(disclosure: I am long $QYLD)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 20, 2019, 09:35:19 AM
What are the interest rates?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 20, 2019, 09:41:40 AM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: ender on March 20, 2019, 09:47:20 AM
This thread is making me consider doing a taxable investment for "mortgage payoff" (as compared with a high interest savings).

Hm. Hmmm.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 20, 2019, 09:51:41 AM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk
I'd go with @talltexan's advice. At your income level, I'd set it and forget it (just ignore the PMI). Then I'd focus on salting as much away as possible in taxable and retirement accounts. Once your taxable accounts exceed your mortgage balance, you can revisit the topic. By then, you'll be in a much more balanced position.

BTW, thanks for asking! It's actually fun to help others figure this stuff out. You know, mustachian fun. Costs us nothing but a few moments of time, and hastens your trip to FIREland. Win-win.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 20, 2019, 09:53:05 AM
This thread is making me consider doing a taxable investment for "mortgage payoff" (as compared with a high interest savings).

Hm. Hmmm.
The worst that happens is that you acquire a shitload of money that has longer to compound. What's not to like?
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on March 20, 2019, 09:55:13 AM
This thread is making me consider doing a taxable investment for "mortgage payoff" (as compared with a high interest savings).

Hm. Hmmm.
The worst that happens is that you acquire a shitload of money that has longer to compound. What's not to like?

we have to buy a bigger vehicle to carry the shitload around? :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 20, 2019, 10:35:09 AM
If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.

(disclosure: I am long $QYLD)

I try not to judge individuals' investment recommendations, but at least be forthcoming with the risks involved. Like in this case, for that 9% yield, somebody is paying you to take all of the downside but little of the upside. And that this stock is down 10% over the last 6 years (by comparison, the S&P 500 is up nearly double in that time period). And that it has a 0.6% expense ratio.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 20, 2019, 10:39:03 AM


What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk
I'd go with @talltexan's advice. At your income level, I'd set it and forget it (just ignore the PMI). Then I'd focus on salting as much away as possible in taxable and retirement accounts. Once your taxable accounts exceed your mortgage balance, you can revisit the topic. By then, you'll be in a much more balanced position.

BTW, thanks for asking! It's actually fun to help others figure this stuff out. You know, mustachian fun. Costs us nothing but a few moments of time, and hastens your trip to FIREland. Win-win.

Yeah I hope to see more people asking these types of questions.  It's always fun to play with the numbers :)

I think we are going to go with option 1 and put the money in taxable investments as a "mortgage flexibility" account.  Like how I phrased that? Lol

Probably a mix of stock/bonds as we are currently extremely stock heavy... As in 100% on a 375k portfolio.  So we may add some bonds to the mix somewhere.  Then again we may just stick with 100% VTSAX and call it good....

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 20, 2019, 10:43:35 AM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk

Are these 5/1, 15 or 30?  Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 20, 2019, 11:02:38 AM
I'm in an interesting situation.  Looking to refinance but property values have taken a dive in my area.  So in order to refi, we would liquidate 50k to pay down the mortgage balance to 95% ltv.

Current rate is 4.75% and our rate lock is at 3.875%.  According to the loan estimate, our pmi would drop as well.  Essentially we would lump sum 50k to refinance and it would lower our mortgage payment by a little over 550/mo or 6,600 per year.

This seems like a no brainer to me but I wanted to get this groups opinion.  Oh, and obviously we would pay the minimum and invest the extra for the 30 year term after the refi ;)

Sent from my moto g(6) using Tapatalk
Did you buy with nothing down? How does a $50k payment only get you to 95% LTV? Where's the $50k coming from? How much will you have left after that huge hypothetical payment, both loan balance and other assets? How long do you plan to stay? Much more info is needed for the most helpful answers, but good for you for asking here.

Purchased with 5% down at the peak of the market in the Seattle area in 2018.  Sales at the time of purchase comped the house at 640-670k.  We purchased the home for 640k. 

Recent refinance attempt fell through due to the appraisal coming back low at 590k but now I'm thinking it could be worth it to drop 50k down in order to refinance since rates have fallen even further.  Throwing the 50k at it would bring the principal balance down to 560k.  The 50k would cover approx 43k of paydown and 7k in closing.

Current investments and cash are just over 400k spread out across taxable, roth, & traditional accounts.  Gross yearly income is around 200k.  No plans to leave anytime soon.

It's a shitty situation for sure... But hey... It's what we got lol.


Here is an update everyone.  Looking for advice.

We ended up having to get a new appraisal because the old lender would not release the appraisal that fell through from the first refi attempt.  New appraisal came back 50k higher and hit our original purchase price.  So we could do 95% LTV and still drop our payment significantly or we could put some extra money down to get to 90% LTV which would drop our payment even further and lower our PMI by about 40/mo.  Each scenario laid out below.

Current Mortage
Loan balance = 602k
Mortgage Payment = 3,903 (136 PMI)
9 months in on 30 year term

Refi Option 1
Loan balance = 608k
Mortgage Payment = 3,576 (122 PMI)
Cash to close = 7k(5k with be recouped from old escrow)

Refi Option 2
Loan balance = 576k
Mortgage Payment = 3,388 (84 PMI)
Cash to close = 39k (5k with be recouped from old escrow)


Putting an extra 32k into the mortgage would decrease the monthly payment by 188/mo or 2,256/yr which results in a guaranteed yearly return of 7.05% on that money.

I feel like both options are pretty good and I'm leaning towards option 2 but wanted to see what you all thought.  See if I was missing anything obvious.

I'd recommend running the figures in a spreadsheet to see how much you need to earn in returns to come out ahead in either option. As my gift to you, random internet stranger, I went ahead and ran them myself.

<Drum roll...>

It looks like if you could get a steady 7%, Option 1 and Option 2 are pretty close to break-even over the course of the loan. Higher than 7%, Option 1 wins; lower than 7%, Option 2 wins. So if I were in your shoes, I'd ask myself whether or not I'd take on debt with a 7% interest rate to invest in stocks. For myself, the easy answer would be no, though others might come to different conclusions.

ETA: 7.1% to be precise.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 20, 2019, 11:50:17 AM
If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.

(disclosure: I am long $QYLD)

I try not to judge individuals' investment recommendations, but at least be forthcoming with the risks involved. Like in this case, for that 9% yield, somebody is paying you to take all of the downside but little of the upside. And that this stock is down 10% over the last 6 years (by comparison, the S&P 500 is up nearly double in that time period). And that it has a 0.6% expense ratio.

Agreed. QYLD is poor choice for total return, but the need for cash flow in this case is important. Someone who doesn't want to make this tradeoff would do better with the "lower payments" approach.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on March 20, 2019, 12:25:14 PM
If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.

(disclosure: I am long $QYLD)

I try not to judge individuals' investment recommendations, but at least be forthcoming with the risks involved. Like in this case, for that 9% yield, somebody is paying you to take all of the downside but little of the upside. And that this stock is down 10% over the last 6 years (by comparison, the S&P 500 is up nearly double in that time period). And that it has a 0.6% expense ratio.

Agreed. QYLD is poor choice for total return, but the need for cash flow in this case is important. Someone who doesn't want to make this tradeoff would do better with the "lower payments" approach.

Cash flow is important, unquestionably. In the OP's case, it will probably come from his $200k income, but in the event of job loss he has a taxable account he could pull from if necessary. So, in this specific case, I don't think that cash flow is an overriding factor.

In the hypothetical case where cash flow was an overriding factor, my advice would be to get a smaller house until you have a decent stash and can ensure cash flow in a downturn.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 20, 2019, 12:32:16 PM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk

Are these 5/1, 15 or 30?  Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 20, 2019, 12:42:07 PM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk

Are these 5/1, 15 or 30?  Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.

Sent from my moto g(6) using Tapatalk
Do you mind me asking which bank? Just thought I would check...
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 20, 2019, 12:42:49 PM


If it were me, I'd choose option 1, then open an ETrade Account, and put the extra $32,000 into ticker symbol $QYLD. It's an index fund that sells covered calls on the NASDAQ and yields approximately 9% on cash. You'd get approximately double the difference in your monthly payments in yield each month, leaving you ahead, even accounting for taxes.

(disclosure: I am long $QYLD)

I try not to judge individuals' investment recommendations, but at least be forthcoming with the risks involved. Like in this case, for that 9% yield, somebody is paying you to take all of the downside but little of the upside. And that this stock is down 10% over the last 6 years (by comparison, the S&amp;P 500 is up nearly double in that time period). And that it has a 0.6% expense ratio.

Agreed. QYLD is poor choice for total return, but the need for cash flow in this case is important. Someone who doesn't want to make this tradeoff would do better with the "lower payments" approach.

Cash flow is important, unquestionably. In the OP's case, it will probably come from his $200k income, but in the event of job loss he has a taxable account he could pull from if necessary. So, in this specific case, I don't think that cash flow is an overriding factor.

In the hypothetical case where cash flow was an overriding factor, my advice would be to get a smaller house until you have a decent stash and can ensure cash flow in a downturn.

This is the exact reason I am leaning towards maximizing the loan now.  Leaves me with more cash/investments in a taxable account which should reduce foreclosure risk if job loss or income drops.  Nothing currently indicates either of these things will happen but there is always a chance.  Also, investments in a taxable account allow for tax loss harvesting in a market downturn which could be a nice benefit for those in higher income brackets.  I just see more flexibility when having the cash in the taxable accounts which will completely go away if dumped into the mortgage.  It's hard to calculate the value of that flexibility when looking at ROI.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 20, 2019, 12:47:25 PM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk

Are these 5/1, 15 or 30?  Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.

Sent from my moto g(6) using Tapatalk
Do you mind me asking which bank? Just thought I would check...
Sent you a PM.

I'm going through a broker but the loan is with quicken.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: solon on March 20, 2019, 01:47:21 PM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk

Are these 5/1, 15 or 30?  Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.

Sent from my moto g(6) using Tapatalk

3.875%? Did you buy it down?  I have great credit but the best I can get right now is 4.4%
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 20, 2019, 03:27:29 PM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk

Are these 5/1, 15 or 30?  Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.

Sent from my moto g(6) using Tapatalk

3.875%? Did you buy it down?  I have great credit but the best I can get right now is 4.4%

I am paying the broker and covering the loan costs like origination, title insurance, appraisal, and all that good stuff.  About 7k total for getting the loan pushed through.  There is about another 6k in costs that will cover some interest and escrow funding.  But those arnt truly costs because my previous escrow will be paid back to me.  I am not technically paying the rate down but I could have gotten a rate of 4.18 with 5k in lender credits to almost offset the loan costs.  I chose the lower rate.  My credit is pretty good, over 780 last time I checked.

Sent from my moto g(6) using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 20, 2019, 04:26:42 PM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk
3.875% is a 30 year? That's definitely interesting to me, I want to get some equity out.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 20, 2019, 05:23:25 PM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk
3.875% is a 30 year? That's definitely interesting to me, I want to get some equity out.
Yep, 30yr.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on March 20, 2019, 05:54:51 PM
What are the interest rates?
Interest rates on both refi options are the same at 3.875%.  The big difference is the pmi premium you pay on 95% ltv vs 90% ltv. Although that difference is only there until you get to 20% ltv and pmi drops completely.  About 8 years of payments I believe.

Sent from my moto g(6) using Tapatalk

Are these 5/1, 15 or 30?  Just curious as I am shopping rates right now and the 30 is 4.1, 15 is 3.55, and a 5/1 is 3.8 (dropped from 3.9 this morning).
3.875% @ 30yr with 7k in closing costs. I locked in about 20 days ago.

Sent from my moto g(6) using Tapatalk

3.875%? Did you buy it down?  I have great credit but the best I can get right now is 4.4%

Not FIreDrill but per my latest rate email, I'm also seeing 3.875% as the zero point owner occupant rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldy on March 20, 2019, 08:42:32 PM
Wow, rates have dropped quite a bit.  AimLoan has 3.875% with $2800 in closing costs.  I have two years left on my 2.5% ARM so hopefully they stay low for a bit.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 21, 2019, 07:01:53 AM
I am only seeing these 3.875% rates for a 15 year loan, not 30.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 21, 2019, 09:28:08 AM
Every time y'all post your current rates, I get happy thinking about our 2.75% rate for the next dozen years.  :)   


Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 21, 2019, 09:30:18 AM
Holy Sh!t, I just checked on the ten year treasury yield, and they're down to 2.53%. Fed opted not to raise rates yesterday.

That period of substantially rising rates everyone was so sure was coming...is still in the future.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on March 21, 2019, 10:40:20 AM
I am only seeing these 3.875% rates for a 15 year loan, not 30.

Me too! I only see 3.875 for 15. Although the 30 is 3.990. I am hoping they drop below 3.6 and then I'm refinancing.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 21, 2019, 01:07:26 PM
I read the news with glee for those of you that are in the process of buying a home or contemplating it. It also makes me hopeful that we won't lose our ass on our current flip due to rising mortgage interest rates. Okay, I know we won't lose our ass, but the more we make on this deal, the happier I'll be. It has consumed our nights and weekends for almost ten months. That's because we don't do lipstick-on-the-pig flips. We do work we're proud of, but it does take longer.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 21, 2019, 08:06:25 PM
I read the news with glee for those of you that are in the process of buying a home or contemplating it. It also makes me hopeful that we won't lose our ass on our current flip due to rising mortgage interest rates. Okay, I know we won't lose our ass, but the more we make on this deal, the happier I'll be. It has consumed our nights and weekends for almost ten months. That's because we don't do lipstick-on-the-pig flips. We do work we're proud of, but it does take longer.


Good for you!   We do the same thing with our rentals.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 21, 2019, 11:42:04 PM
I read the news with glee for those of you that are in the process of buying a home or contemplating it. It also makes me hopeful that we won't lose our ass on our current flip due to rising mortgage interest rates. Okay, I know we won't lose our ass, but the more we make on this deal, the happier I'll be. It has consumed our nights and weekends for almost ten months. That's because we don't do lipstick-on-the-pig flips. We do work we're proud of, but it does take longer.
Good for you!  We do the same thing with our rentals.
Thank you! We also have rentals, all in the same retirement community. Our rule is to only buy homes that we would be happy to live in. We keep buying, because we love our tenants and don't want to displace anyone when we finally move there. We buy, rehab and rent. Eventually, we will move in to them one by one as our tenants vacate, do the major rehab if/as needed, sell it off and then move on to the next house, until they're all gone. That's the plan anyway.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 22, 2019, 06:22:44 AM
Now I want to know where Dicey's magic retirement community is....I'm from NCal too, and I can think of a few where I'd be happy to retire and would have old people houses that are of that age and price range.  Although none of the retirement communities lean to iron doors that I am aware of.  You must be in a more ritzy retirement land than me.  Also, I'm more a retirement condo person than house person.  No more lawn mowing for me. 
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on March 22, 2019, 01:28:42 PM
Now I want to know where Dicey's magic retirement community is....I'm from NCal too, and I can think of a few where I'd be happy to retire and would have old people houses that are of that age and price range.  Although none of the retirement communities lean to iron doors that I am aware of.  You must be in a more ritzy retirement land than me.  Also, I'm more a retirement condo person than house person.  No more lawn mowing for me.
My great-great uncle and his wife lived in a community of duplexes with a HOA that maintained all the landscape except a small patio area for each unit. Of course the less landscaping to maintain per unit, the lower the costs should be.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 22, 2019, 11:03:25 PM
Now I want to know where Dicey's magic retirement community is....I'm from NCal too, and I can think of a few where I'd be happy to retire and would have old people houses that are of that age and price range.  Although none of the retirement communities lean to iron doors that I am aware of.  You must be in a more ritzy retirement land than me.  Also, I'm more a retirement condo person than house person.  No more lawn mowing for me.
Lol, let's see...the iron door is on the flip house, which is in NorCal. It should sell for $1.1-$1.2M, or $600/sf, so it gets a fancy door.
The rentals are in a large retirement community in SoCal, where there is very little water. Our "buy" price there is $155-$160/sf, so no fancy iron doors, although there are big gates at all the community entrances. Oh, and everyone' has a gardener and very few have actual lawns.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 25, 2019, 08:06:16 AM
Now I want to know where Dicey's magic retirement community is....I'm from NCal too, and I can think of a few where I'd be happy to retire and would have old people houses that are of that age and price range.  Although none of the retirement communities lean to iron doors that I am aware of.  You must be in a more ritzy retirement land than me.  Also, I'm more a retirement condo person than house person.  No more lawn mowing for me.
Lol, let's see...the iron door is on the flip house, which is in NorCal. It should sell for $1.1-$1.2M, or $600/sf, so it gets a fancy door.
The rentals are in a large retirement community in SoCal, where there is very little water. Our "buy" price there is $155-$160/sf, so no fancy iron doors, although there are big gates at all the community entrances. Oh, and everyone' has a gardener and very few have actual lawns.

Oh this makes much more sense now.  I thought the flip house was in the same retirement community. (Since I am NorCal born.)  There is a 1980's 55+ community up in Healdsburg, CA.  I had visions of this area getting ritzified now that there is a bigger tourist group.  My great uncle and aunt lived there - River's Bend.

http://healdsburgadultcommunity.com/ (http://healdsburgadultcommunity.com/) It's on my list of potential retirement communities if I want an actual home. However all those places would need a major gut job if you ask me.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 29, 2019, 09:41:30 AM
Here we gooooooo!

Payday! - 3/29/19
726 to 401k
269 to HSA
605 to Taxable

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738


Refi should close today as well. Going from 4.75% 30yr  to 3.875% 30yr.  Will post more final numbers on that when it's official.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 29, 2019, 10:02:20 AM
Here we gooooooo!

Payday! - 3/29/19
726 to 401k
269 to HSA
605 to Taxable

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738


Refi should close today as well. Going from 4.75% 30yr  to 3.875% 30yr.  Will post more final numbers on that when it's official.

Sent from my moto g(6) using Tapatalk
Sweet!
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on March 29, 2019, 12:26:14 PM

UPDATE -- Getting a mortgage renewed while FIRED
I haven't posted in a while.  It's been a couple of months while I have been trying to renew our mortgage, while FIRED with a much lower income (about 1/3 our prior incomes, and 30% of that is from self employment and investments, DH still works).   Canadians have most commonly 5 year terms on the mortgages (with 25 year amortizations), that need to be renewed every 5 years.  If you keep a mortgage while FIRED, you need to have income to renew it, or pay a LOT more.

If you continue with your current lender, they can offer you whatever terms that they want, ours offered us 0.5% more than the competition. That is a large difference in $ per month given our large mortgage amount and normally small $monthly expenses, total.   If you switch to a new lender, you need to re-qualify for the mortgage amount based on your income vs payment ratios.   Canada just required that everyone requalify as if the interest rate is around 5.5%.  Our original mortgage, and what we would actually pay is under 3%, so that makes a big difference in how much we can qualify for, total.

And of course, like good investors, we have a very large mortgage, and a lot of money in tax-sheltered retirement investements, and a smaller amount in after tax investments, so I can't just pay off the whole thing from retirement savings today without paying a lot of taxes.

Good news -- finally signed mortgage papers after submitting a ton of documentation and a lot of research for the best rates.  You would think that having 60%+ equity in a home would make the paperwork easier and that is not the case.   I think I submitted over 12 documents plus the application form.

Hopefully is it done deal now, and we will roll over happily when the renewal date comes.    The new mortgage means our large HELOC will also disappear.  Our income is only enough for the mortgage, not a mortgage plus HELOC.  I was using it for emergencies, it had a zero balance, and it was the only account I could write a cheque on, so that will end.   

We managed to get 2.8% variable, with no legal fees or closing costs to us.  Can prepay 20% principal and up our payments by 20% every year if we choose.  It is signed up for 5 more years, when we need to go through this again, but it will be lower then and I will have freed up more money in after tax funds to pay it down enough to qualify.  As long as we have some income still coming in, in 5 years, it should work out well.

TLDR:   Set up your mortgage for the long term when you retire, or pay it off!
TLDR2:  Pay off your HELOC and any other non-mortgage loans when you retire, even if you are using it to borrow to invest -- having smaller debt servicing exposure made a huge difference to our ability to get the mortgage at the best rates.

Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on March 29, 2019, 01:04:36 PM

UPDATE -- Getting a mortgage renewed while FIRED
...snip...

I'm trying to wrap my head around the Canadian market, I know you guys have (basically) a 5/1 ARM as the standard mortgage- but even a ARM in the states doesn't require repetitive closing...  You guys have to renegotiate and re-close every 5 years?...  That just seems so- weird.  But then the advantage si that you can shop around at "Re-up" time whereas US based 5/1 ARMs just have the bank say "here is your new interest amount, enjoy". 

Previously when someone had an overseas mortgage I would say that the (DPOYMC) generally doesn't apply but if what you are going through is representative of everybody FIRE'd up there, there is no way you wouldn't want to kill the mortgage immediately before FIRE as the low income could be seen as risky to the lender and result in much higher rates.  It really changes the equation at FIRE time.

Are fixed rate long term mortgages not an option at all?  It seems if it were an option in the last year before FIRE you could roll into one of those with whatever mortgage amount you have and not risk getting surprised by the rate 5 years later.

Overall its just really different from us in the states, so the thinking has to change accordingly.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on March 29, 2019, 01:59:10 PM

UPDATE -- Getting a mortgage renewed while FIRED
...snip...

I'm trying to wrap my head around the Canadian market, I know you guys have (basically) a 5/1 ARM as the standard mortgage- but even a ARM in the states doesn't require repetitive closing...  You guys have to renegotiate and re-close every 5 years?...  That just seems so- weird.  But then the advantage si that you can shop around at "Re-up" time whereas US based 5/1 ARMs just have the bank say "here is your new interest amount, enjoy". 

Previously when someone had an overseas mortgage I would say that the (DPOYMC) generally doesn't apply but if what you are going through is representative of everybody FIRE'd up there, there is no way you wouldn't want to kill the mortgage immediately before FIRE as the low income could be seen as risky to the lender and result in much higher rates.  It really changes the equation at FIRE time.

Are fixed rate long term mortgages not an option at all?  It seems if it were an option in the last year before FIRE you could roll into one of those with whatever mortgage amount you have and not risk getting surprised by the rate 5 years later.

Overall its just really different from us in the states, so the thinking has to change accordingly.
Great questions.

First, the 5 year is just like re-upping your mortgage every 5 years, except most people do not take cash out, but they just keep their original amortization schedule by choice.  e.g., amortization drops by 5 years each time.  Not everyone, but it seems to be the default.

You have the choice to auto-renew and continue with your current bank with no other new qualifications, or to shop your mortgage around. The auto renewal rate we were offered by our bank worked out to 3.15% variable rate, which was a bit insulting when they are giving fixed terms to new clients for close to that.

When the 5 year renewal happens, there are usually no up front costs  to switch or obtain a mortgage with a new lender (unlike the USA).  Instead we have penalties for exiting a mortgage before the term you agreed to. (quitting your contract before they make the money that they intended). Hence, having a no cost "out" every 5 years is actually very good.

Canada does have longer term mortgages:  BUT  Rates are best on 5 yr terms.  Longer terms cost more.


A 5 year fixed rate can be had for between 3.3% and 5.5%, depending on the type of mortgage and your credit / equity, and if you pay mortgage insurance (if you pay it, you get a lower rate) etc.
A 5 year variable (changes up to 4x per year) is between 2.8% (hard to find) and 3.6% right now.


Longer terms best rates - Canada

7yr is 3.75% - 4.3% right now.   
A 10 yr is 4.1% - 4.7%, etc.   Those are for the top credit, best rates going.. most people with good credit will not get the bottom rate. 
15 yr fixed terms are 8.5%,
25 yr are 8.75% etc.  This is why many people don't get the 10 year plus rates, they just don't make any financial sense unless you have a unique scenario of no other liquid assets and expecting to lose income forever.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on March 29, 2019, 02:29:26 PM
Thanks for the answers @Goldielocks .  Canadian mortgages are just a completely different beast altogether.  Not a bad system, just different.

Does seem like it would make for a tough bet in 'proving' that you have income.  For US-based mortages, it means make all of you major purchases pre-FIRE if possible for the best rate.  Assuming the rates are still this good (big assumption), i'll probably lock in another 30 years right before FIRE (I'm 7-14 years out depending on circumstances) and be sure to buy the land that the wife and I want before pulling the trigger.

Also - Another standard mortgage payment this morning.  :)
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on March 30, 2019, 11:50:08 AM
As mortgage rates continue to fall I thought it would be fun to have a format where we could give advice and rate refinances as we look to tap equity and lower our interest rates.  Our refi just closed so I have the official numbers.... Drum roll please....


Old Mortgage:

Original loan         = 608,000
Balance at refi      = 601,794.93
Term                    = 30yr
Rate                     = 4.75%
Time In                 = 9mo
Years Remaining    = 29.25yr
PMI                       = 136
PI                         = 3,171.62

PITI+PMI              = 3,925.12

Average monthly principal pay down over the next 12 mo of loan = 806.92 (This will be used in my break-even calculation).


New Mortgage:

Original loan         = 608,000
Balance at refi      = 608,000
Term                    = 30yr
Rate                     = 3.875%
Time In                 = 0mo
Years Remaining    = 30yr
PMI                       = 122
PI                         = 2,859.05

PITI+PMI              = 3,598.79

Average monthly principal pay down over the next 12 mo of loan = 911.75 (This will be used in my break-even calculation).


Loan costs equal any cost associated with the loan excluding principal buy down, escrow funding, and prepaid interest.

Closing Costs                                = 8,113.70

Mortgage payment reduction          = 326.33

12mo Principal Payoff difference     = + 104.83

Total Mo difference over first 12mo = 431.16

Break-even = 18.8mo (After this period of time the costs of the Refi will be re-coupled by the decreased monthly payments and increased mo principal payoff.)


So how do you think I did?  Are there any other numbers people would be interested in?

Personally, I think a 12mo break-even is a home run, 18mo is still really good, 24mo acceptable, over 24mo is not very ideal.

Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on March 31, 2019, 06:36:52 PM
Crap, $3000/mo for mortgage.... $800 a month for Property Taxes... !! 

I thought my FIRE mortgage was tough, ($2k/mo mortgage, $300/mo property tax). I don't think I would be happy swinging your numbers each month in FIRE, even with a large stash to draw down.  I am strangely adverse to drawing down any of the FIRE stash for expenses until I am much older... actual math be damned.

ETA:  Why is your new mortgage balance $608k, not $601k loan that was remaining?  Be careful with upticks liket that.   IMO, closing costs should be refi'd with your cash on hand, not by extending your mortgage (in this case by 9 months).
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on March 31, 2019, 08:04:32 PM
The whole point of this club is to use cash at hand to invest instead of taking it and putting it toward to mortgage... So technically didn't he do the right thing by rolling the refi costs into the new loan?
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on April 01, 2019, 12:09:07 AM
The whole point of this club is to use cash at hand to invest instead of taking it and putting it toward to mortgage... So technically didn't he do the right thing by rolling the refi costs into the new loan?
Technically, yes, except origination costs are true bank fees that are added.  In this case, about $7k larger debt to service fees.

It only makes sense because of the huge interest rate difference, and I am left wondering why such a poor rate was had only 9 months ago?  Credit scores would not have changed much, in that time, and that is a huge swing on mortgage rates.

   Why not take the opportunity to reduce PMI?   PMI has a pretty good pay off versus invest calculation.   The mortgage rate is almost 4% so the PMI opportunity cost would be higher than that.   

hmm. now that you have me wondering, I wonder if there really is enough investments to justify this, and if so, why not pay off the PMI..  there is a chance that the home is the primary investment, so the large mortgage is not really to free up money to invest, and having a large home and  mortgage can be a large sucking drain on one's cashflow limiting future power to invest...   Surely that can't be the case on this thread but the idea of keeping PMI when you have ample to pay it off, and renew a mortgage with it anyway baffles me.

Bank Fees, and mortgage insurance fees  are fees, not really investments.... and that is what the $7k went to. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 01, 2019, 08:44:21 AM
DPOTMC has never been a good excuse for buying too much house.  Only FIreDrill can know if he has purchased 'too much' or not. 

Obviously, buying a 1.5mil house on a 65k/year salary would be unwise whether you get a 0.00% loan or not.  At that point the investing math doesn't apply.  I kind of suspect that a prerequisite to this club be that you didn't buy too much house.  (BTW, the same thing can apply to the 'Pay Off' club, if someone buys a 1.5 mil house and immediate starts to demolish the debt, the question remains was that 1.5mil a good purchase or not).

Overall, I think proving income or eliminating other (high interest) debt can drastically change the rate.  Both of those factors go direct into the equation whereas the credit score just places you somewhere in the underwriting tables...  By eliminating other debts (and thus increasing loan-to-income ratios) you can wind up on a different underwriting tabel completely with much more aggressive rates.  The hard thing is when you (like me) have had 50% or more raises in very few years (46k/year just at 3 years ago to 220k/year now) and 'proving' your income.  In those instances just a few months can make a DRASTIC difference.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr. Metal Mustache on April 01, 2019, 10:14:34 AM
@Goldielocks

That is a very good point you make, they are fees. So if you pay the interest of 3.875% for 30 years on that 7k wouldn't you still be better off rolling that 7k into the loan so that you could use your 7k to be invested for 30 years at an average of 7% a year?

I'm really interested in this scenario especially since I may be refinancing myself soon.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on April 01, 2019, 11:09:15 AM
@Goldielocks

That is a very good point you make, they are fees. So if you pay the interest of 3.875% for 30 years on that 7k wouldn't you still be better off rolling that 7k into the loan so that you could use your 7k to be invested for 30 years at an average of 7% a year?

I'm really interested in this scenario especially since I may be refinancing myself soon.

I am struggling to put a pin on the precise reason this move to refinance doesn't sit all that well with me as a "great move".  The finances work out.  Shedding 1% interest on a 30 year loan is a huge benefit.

I think that it is the practice of paying more origination fees to get a new mortgage, when the current one is less than a year old.   I have a solid dislike for paying fees, especially when they are more than $1000.   

If the point made above, that the new lower rate is a combination of dilligent paying off other debts, and a reduction in going rates.  (which is fantastic), then why not wait to save up enough, or perhaps borrow enough (that you would quickly pay off) to get rid of the PMI before you refinance?  Many people get about 5-8 years into their mortgage and work very hard to try to get the PMI removed...  why not take the opportunity to remove it now? 

$122 PMI x 360 payments = $43,920  (Is that right?  that the PMI payment is only for the insurance, and not part principal)
Plus approx $7k origination fees.... which ok, are better invested, IF you can get 7% guaranteed returns, and IF you actually put another $7k into investments and could not save the cash.. but reupping the amount, especially for such a small amount, seems to be a bit of a lazy financial habit, rather than a diligent decision?

Contrast to:
Refiance at $601k  -- > save $7k in origination fees, but lose 7k that could have gone to other investments.  Yeah, I understand the math that this is better invested, except they are paying PMI on this $7k.

or

Refinance at $545k (Amount with no PMI, guess, approximate) --> save the $43,920 in PMI costs,   Therefore the amount of borrowed money that PMI is needed for (I assume $60k) is actually borrowed at just under 7% interest, when you add the insurance cost to the mortgage rate.   

There is only marginal value in not paying down the $60k of PMI versus investing at 7%, infact, I would say that you need to be getting 9% or better in your investments, over 30 years, to make it worth the risk differential to keep the PMI.   AND, there is also the risk that arises with having very high mortgage payments and employment that is not guaranteed for 30 years at the current income levels.

So, if the goal is to keep yourself fully invested in the market, while reducing your mortgage rate to as low as possible, should not that also include getting rid of PMI as quickly as possible?   Doesn't adding $7k of origination fees to one's mortgage work against that?


Why not instead..
Pay down the mortgage to 50% equity, and borrow at low (tax deductible) rates against the property to invest.    Depends on the rate you can get, and your current income tax bracket, but is even more flexible than keeping all the borrowing as one fixed mortgage investment, because you could theoretically pay off the investment loan on a moment's notice by selling your investments if you lose your job.  Many mortgages do not accept very large single year pay offs.


At the end of the day, all of the above is trumped by the significantly lower mortgage rate over 30 years. 

I can't help thinking that the poster did not shop around for the best rate originally and now is making a solid good decision to fix that... but still being lazy by not taking the opportunity to pay it down a bit to accelerate PMI elimination.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 01, 2019, 11:20:54 AM
@Goldielocks

That is a very good point you make, they are fees. So if you pay the interest of 3.875% for 30 years on that 7k wouldn't you still be better off rolling that 7k into the loan so that you could use your 7k to be invested for 30 years at an average of 7% a year?

I'm really interested in this scenario especially since I may be refinancing myself soon.

I am struggling to put a pin on the precise reason this move to refinance doesn't sit all that well with me as a "great move".  The finances work out.  Shedding 1% interest on a 30 year loan is a huge benefit.

I think that it is the practice of paying more origination fees to get a new mortgage, when the current one is less than a year old.   I have a solid dislike for paying fees, especially when they are more than $1000.   

If the point made above, that the new lower rate is a combination of dilligent paying off other debts, and a reduction in going rates.  (which is fantastic), then why not wait to save up enough, or perhaps borrow enough (that you would quickly pay off) to get rid of the PMI before you refinance?  Many people get about 5-8 years into their mortgage and work very hard to try to get the PMI removed...  why not take the opportunity to remove it now? 

$122 PMI x 360 payments = $43,920  (Is that right?  that the PMI payment is only for the insurance, and not part principal)
Plus approx $7k origination fees.... which ok, are better invested, IF you can get 7% guaranteed returns, and IF you actually put another $7k into investments and could not save the cash.. but reupping the amount, especially for such a small amount, seems to be a bit of a lazy financial habit, rather than a diligent decision?

Contrast to:
Refiance at $601k  -- &gt; save $7k in origination fees, but lose 7k that could have gone to other investments.  Yeah, I understand the math that this is better invested, except they are paying PMI on this $7k.

or

Refinance at $545k (Amount with no PMI, guess, approximate) --&gt; save the $43,920 in PMI costs,   Therefore the amount of borrowed money that PMI is needed for (I assume $60k) is actually borrowed at just under 7% interest, when you add the insurance cost to the mortgage rate.   

There is only marginal value in not paying down the $60k of PMI versus investing at 7%, infact, I would say that you need to be getting 9% or better in your investments, over 30 years, to make it worth the risk differential to keep the PMI.   AND, there is also the risk that arises with having very high mortgage payments and employment that is not guaranteed for 30 years at the current income levels.

So, if the goal is to keep yourself fully invested in the market, while reducing your mortgage rate to as low as possible, should not that also include getting rid of PMI as quickly as possible?   Doesn't adding $7k of origination fees to one's mortgage work against that?


Why not instead..
Pay down the mortgage to 50% equity, and borrow at low (tax deductible) rates against the property to invest.    Depends on the rate you can get, and your current income tax bracket, but is even more flexible than keeping all the borrowing as one fixed mortgage investment, because you could theoretically pay off the investment loan on a moment's notice by selling your investments if you lose your job.  Many mortgages do not accept very large single year pay offs.


At the end of the day, all of the above is trumped by the significantly lower mortgage rate over 30 years. 

I can't help thinking that the poster did not shop around for the best rate originally and now is making a solid good decision to fix that... but still being lazy by not taking the opportunity to pay it down a bit to accelerate PMI elimination.
Wow... A lot of assumptions there lol. I'll try to get a detailed response together when I have time over the next day or two.

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Title: Re: DONT Payoff your Mortgage Club
Post by: Gardo on April 01, 2019, 11:46:18 AM
Every time y'all post your current rates, I get happy thinking about our 2.75% rate for the next dozen years.  :)

Mine is 2.6% for all years of payment.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 01, 2019, 06:33:00 PM
@Goldielocks

That is a very good point you make, they are fees. So if you pay the interest of 3.875% for 30 years on that 7k wouldn't you still be better off rolling that 7k into the loan so that you could use your 7k to be invested for 30 years at an average of 7% a year?

I'm really interested in this scenario especially since I may be refinancing myself soon.

I am struggling to put a pin on the precise reason this move to refinance doesn't sit all that well with me as a "great move".  The finances work out.  Shedding 1% interest on a 30 year loan is a huge benefit.

I think that it is the practice of paying more origination fees to get a new mortgage, when the current one is less than a year old.   I have a solid dislike for paying fees, especially when they are more than $1000.   

I definitely feel for the need to not pay fees but you have to realize that you are still paying fees with a "no fee" mortgage refi.  It's called an interest rate premium.  So my option was 4.18% with 3k in fees vs 3.875% with 8k in fees.  I probably could have gotten a 4.325% with absolutely "no fees".  After running the break even in all scenarios I decided to go with the lower rate at an 18 mo break even. 

If the point made above, that the new lower rate is a combination of dilligent paying off other debts, and a reduction in going rates.  (which is fantastic), then why not wait to save up enough, or perhaps borrow enough (that you would quickly pay off) to get rid of the PMI before you refinance?  Many people get about 5-8 years into their mortgage and work very hard to try to get the PMI removed...  why not take the opportunity to remove it now? 

$122 PMI x 360 payments = $43,920  (Is that right?  that the PMI payment is only for the insurance, and not part principal)
Plus approx $7k origination fees.... which ok, are better invested, IF you can get 7% guaranteed returns, and IF you actually put another $7k into investments and could not save the cash.. but reupping the amount, especially for such a small amount, seems to be a bit of a lazy financial habit, rather than a diligent decision?

Oh man.......

First,  Rates have taken a 1% dive in the last 6 months from the previous peak... Just look at Zillows rate history chart.

Second, the first rate was with a specific, well known, local lender that could pre-underwrite us and accommodate a 15 day closing.  This made our offers much stronger.  We still got lost out on 3 homes and some went for 100k over asking.  All of them were all-cash offers so it was important to make our offers as attractive as possible.  Having a reputable local lender, being pre-underwritten, and accommodating a closing as quick as 15 days was our strategy.  Our rate was probably .25% higher than the best rate I could find from an out of state known by nobody lender.

Third, and most importantly,  PMI with conventional loans automatically drops off after the loan reaches 78-80% LTV.  Which mean your PMI calculation of 122x360 is way off(my PMI is scheduled to drop off after 8 years or 96 payments).  This also means I could make a principal payment tomorrow and get rid of PMI if I wanted to.  In order to get rid of PMI you need 20% LTV.  It would take an additional 96k to drop PMI off of the loan.  If that 96K is invested in VTSAX, the dividends alone will exceed the cost of PMI.  If you calculate the PMI charges against the 96k it is a 1.525% interest rate increase over the base interest rate of 3.875%.  So I am basically keeping that money in the market at a cost of 5.4%.

Here is where things get interesting though regarding PMI.  It is a fixed cost and does not decrease until you hit that 20% LTV number.  So if you are 5 years in on the mortgage and 85% LTV your PMI cost is greater because now the only thing that is keeping you away from dropping that PMI is 5% LTV and not 15% LTV.  This is when it can be enticing to refinance, put some extra money in, and drop PMI off.  However,  I would only do a refi in this scenario if you are taking a drastically lower interest rate or if you for some horrible reason have an FHA loan where the PMI last the life of the loan.  In general, FHA loans suck compared to conventional loans because of the high closing costs and high PMI rates.


Contrast to:
Refiance at $601k  -- > save $7k in origination fees, but lose 7k that could have gone to other investments.  Yeah, I understand the math that this is better invested, except they are paying PMI on this $7k.

Alright, so when you refi your PMI costs are calculated based on your credit score, income, and LTV of the new mortgage.  In almost every case that I have seen your PMI only decreases after key LTV values are reached. Usually 95% 90% 85% and 80%, 80% LTV being no PMI at all of course.

So when you talk about paying 7k into the refi in order to lower PMI it will ONLY lower PMI if it results in the LTV of the loan breaking these key points.  Going from 95% LTV to 94% LTV results in the same exact PMI,  the only saving you will get is from the loan rate which was 3.875% in my case.

Refinance at $545k (Amount with no PMI, guess, approximate) --> save the $43,920 in PMI costs,   Therefore the amount of borrowed money that PMI is needed for (I assume $60k) is actually borrowed at just under 7% interest, when you add the insurance cost to the mortgage rate.   

See above.  5.4% total interest rate on the 15% LTV or 96k in this case.

There is only marginal value in not paying down the $60k of PMI versus investing at 7%, infact, I would say that you need to be getting 9% or better in your investments, over 30 years, to make it worth the risk differential to keep the PMI.   AND, there is also the risk that arises with having very high mortgage payments and employment that is not guaranteed for 30 years at the current income levels.

So, if the goal is to keep yourself fully invested in the market, while reducing your mortgage rate to as low as possible, should not that also include getting rid of PMI as quickly as possible?   Doesn't adding $7k of origination fees to one's mortgage work against that?

In the case of a job loss, I would much rather have the money liquid and in the market in order to continue paying the mortgage than tied up in the house with no access to it.  This greatly increases your options and the period of time you have to land a new job before you start missing payments.

Why not instead..
Pay down the mortgage to 50% equity, and borrow at low (tax deductible) rates against the property to invest.    Depends on the rate you can get, and your current income tax bracket, but is even more flexible than keeping all the borrowing as one fixed mortgage investment, because you could theoretically pay off the investment loan on a moment's notice by selling your investments if you lose your job.  Many mortgages do not accept very large single year pay offs.

Woah woah woah... The whole purpose of this thread is to divert money to investments instead of paying off the low-interest rate mortgage.  This is not the Mortgage Payoff Club so I see no point in accelerating payoff until 50% LTV,  80% LTV is definitely debatable depending on PMI costs which are unique to each person...  That being said, you should still only finance what you feel comfortable paying for on a monthly basis(aka mortgage payment).

I'm not sure why you think "Many mortgages do not accept very large single year pay offs."  They may not like it but they don't have a choice if your mortgage has a "no pre-payment penalty" clause.  Which almost all conventional mortgages have.  If you are trying to refi and the new mortgage has pre-payment penalties then you need to RUNNNNN.

At the end of the day, all of the above is trumped by the significantly lower mortgage rate over 30 years. 

I can't help thinking that the poster did not shop around for the best rate originally and now is making a solid good decision to fix that... but still being lazy by not taking the opportunity to pay it down a bit to accelerate PMI elimination.

Well, that's kind of insulting.... I'm a lot of things... But when it comes to finances, the last thing I am is lazy.

In regards to PMI though, for many people, it is definitely better to pay it off as quick as possible.  High income, great credit, and shopping around got me some great PMI rates.  In some cases, I was quoted 2x the amount of PMI. If my credit was in the high 600's or low 700's PMI could have easily been 250-300mo.


For what it's worth, our savings rate with automated investments is 40%.  After bonuses and stock, it will be about 50% projected for 2019.  We are also in a good position for career growth so the goal is to get our savings rate to 60-75% within the next 3 years or so.




Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on April 04, 2019, 01:00:36 AM
Hey, thanks for the detailed response.  It is more than I was expecting and very complete.   I can see now where some of my errors are, and that is because of the differences in how mortgages work in the USA versus Canada.  Yep. This is despite having heavily shopped for a mortgage when I lived in California, so I know, in theory, how it works.    But knowing something doesn't mean that it is instinct.

Three areas that I was completely off (and why).

1)  We have no fee mortgages -- zero points to buy, ever.  Sometimes legal fees are added, but often not.  This means that the only times a person ups the mortgage amount owing is usually when they are taking money out of the property, which is a significantly bad habit, even for many money savvy people that intend to invest it (because often not all the money ends up getting invested).

Lenders write up the paperwork this way automatically to make your monthly mortgage look smaller than before so you need to be attentive to it, to ensure they retract it back out.  (they make the mortgage out for more than you wanted them to).

My instinct was that upping a mortgage for $7k when the person clearly has the money is not great.     That is not the case here.

2)  We have sometimes HUGE penalties to break the mortgage -- because there are no upfront penalties.  The bank ensures that it gets it money back over the 5 year mortgage contract before you renew with them or another lender.    This means large penalties to prepay more than 10-20% of your mortgage.   
Not the case with your mortgage.

3)  PMI is not flat rate, here.  You only pay it as long as you carry it, and can remove it with that 10% prepayment...  it gets expensive, fast.  I have never had PMI because it costs so damn much, although those california lenders were certainly pushing it.  I do know that it can be hard to prove the LTV to your lender, based on increased home prices, and they can be slow to process the 80% point even on conventional mortgages, but YMMV.

4)  There are a few other older threads that do the math on PMI versus investments.   It is often a difficult one to justify keeping the PMI on conventional rates, not versus higher second mortgage or credit card rates.

One area that can still make sense, if you can get a loan at a decent rate, within 1-2% of your mortgage rate, and have a higher personal income tax rate, is using the "Smith Maneouver" to invest.    Especially if you no longer get the extremely nice mortgage deduction because of tax law changes.   We have never had a mortgage rate tax write off, so borrowing against home values to invest is actually the way to go when you intend to keep a high mortgage, and max out investments instead.

Smith Maneouver:

"The funds in the line of credit [money borrowed] are invested, presumably at a higher rate of return than the interest rate paid on the line of credit. However, the advantage here is that the interest payments on the line of credit are tax-deductible and should result in a tax refund when the borrower files taxes. This tax refund can be used to pay down the mortgage, thus accelerating the mortgage repayment schedule."


If you pay down $200k on your mortgage, and can borrow on a HELOC at 4%, and your mortgage rate is not tax deductible at 3%, and your marginal tax rate is 50% (all typical numbers here for someone at $200k/yr income),

Then you are borrowing at net 2% interest to earn your 7% return on the stock market. 
That $200k would cost you $4k a year to borrow instead of $6k/yr for the mortgage; and generate net profit of $10k.
Keep saving that $10k/yr and then pay off your home in one lump instead of renewing the mortgage, and FIRE in 15 years (or whatever the magic number is).

Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 04, 2019, 08:47:11 AM
Hey, thanks for the detailed response.  It is more than I was expecting and very complete.   I can see now where some of my errors are, and that is because of the differences in how mortgages work in the USA versus Canada.  Yep. This is despite having heavily shopped for a mortgage when I lived in California, so I know, in theory, how it works.    But knowing something doesn't mean that it is instinct.

Three areas that I was completely off (and why).

1)  We have no fee mortgages -- zero points to buy, ever.  Sometimes legal fees are added, but often not.  This means that the only times a person ups the mortgage amount owing is usually when they are taking money out of the property, which is a significantly bad habit, even for many money savvy people that intend to invest it (because often not all the money ends up getting invested).

Lenders write up the paperwork this way automatically to make your monthly mortgage look smaller than before so you need to be attentive to it, to ensure they retract it back out.  (they make the mortgage out for more than you wanted them to).

My instinct was that upping a mortgage for $7k when the person clearly has the money is not great.     That is not the case here.

2)  We have sometimes HUGE penalties to break the mortgage -- because there are no upfront penalties.  The bank ensures that it gets it money back over the 5 year mortgage contract before you renew with them or another lender.    This means large penalties to prepay more than 10-20% of your mortgage.   
Not the case with your mortgage.

3)  PMI is not flat rate, here.  You only pay it as long as you carry it, and can remove it with that 10% prepayment...  it gets expensive, fast.  I have never had PMI because it costs so damn much, although those california lenders were certainly pushing it.  I do know that it can be hard to prove the LTV to your lender, based on increased home prices, and they can be slow to process the 80% point even on conventional mortgages, but YMMV.

4)  There are a few other older threads that do the math on PMI versus investments.   It is often a difficult one to justify keeping the PMI on conventional rates, not versus higher second mortgage or credit card rates.

One area that can still make sense, if you can get a loan at a decent rate, within 1-2% of your mortgage rate, and have a higher personal income tax rate, is using the "Smith Maneouver" to invest.    Especially if you no longer get the extremely nice mortgage deduction because of tax law changes.   We have never had a mortgage rate tax write off, so borrowing against home values to invest is actually the way to go when you intend to keep a high mortgage, and max out investments instead.

Smith Maneouver:

"The funds in the line of credit [money borrowed] are invested, presumably at a higher rate of return than the interest rate paid on the line of credit. However, the advantage here is that the interest payments on the line of credit are tax-deductible and should result in a tax refund when the borrower files taxes. This tax refund can be used to pay down the mortgage, thus accelerating the mortgage repayment schedule."


If you pay down $200k on your mortgage, and can borrow on a HELOC at 4%, and your mortgage rate is not tax deductible at 3%, and your marginal tax rate is 50% (all typical numbers here for someone at $200k/yr income),

Then you are borrowing at net 2% interest to earn your 7% return on the stock market. 
That $200k would cost you $4k a year to borrow instead of $6k/yr for the mortgage; and generate net profit of $10k.
Keep saving that $10k/yr and then pay off your home in one lump instead of renewing the mortgage, and FIRE in 15 years (or whatever the magic number is).
Yeah I still don't fully understand Canadian mortgages but it's probably because I have no reason to research them at the moment. Lol

Our mortgage interest/taxes puts us at the amount where we are able to take itemized deductions.  In no way did we purchase the house because of this put it is a nice perk at the moment because we do a decent amount of charitable contributions that increase our itemized deductions.

Also, I'd like to make clear that we do not view this home in any way as an investment.  It would be a horrible investment lol.  This was really a "quality of life" purchase for us and this ment sacrificing some future investments by increasing monthly expenses.  We could probably have increase our total savings rate 10-20% by renting an apartment but to us the decrease in savings rate was worth the house. 

As long as we live in this area, we will live in this house, so there is a good chance this will be our primary residence for 10-30 years.  I know some people that buy an entry level house in HCOL area with the plan of selling in 5 years.  I personally hate this idea because you have to rely on market appreciation over a short period of time in order to break even after sales fees in 5 years.  Much better to save a bit more and buy a home with the prospects of lifetime ownership.  Totally different if you are talking about live in flips.  That idea I love.

Alright, I'm starting to get off topic.  Anyways, I guess it really just comes down to each refi scenario is unique especially if you consider pmi and US vs Canadian mortgages.  Maybe a "rate my refi" template is more complex than I originally thought.  Although, it's always fun analyzing numbers and helping people out if they have questions.  I was hoping it may be something that could drive more posts to this thread as rates have been on a downturn lately.

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Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 10:08:50 AM
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.

Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.

Savings: Currently investing $1650/month into 401k and Roth IRAs.

Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.

Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.

Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 04, 2019, 11:14:04 AM
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.

Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.

Savings: Currently investing $1650/month into 401k and Roth IRAs.

Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.

Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.

Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.

Having liquid assets is better than cash flow. If you needed to you could sell $650 per month from your liquid assets and the remaining balance will continue to compound.
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 11:33:47 AM
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.

Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.

Savings: Currently investing $1650/month into 401k and Roth IRAs.

Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.

Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.

Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.

Having liquid assets is better than cash flow. If you needed to you could sell $650 per month from your liquid assets and the remaining balance will continue to compound.

If we were going to invest the difference though, it would be in tax-advantaged 401ks - which is not liquid until I'm 59 1/2, yeah?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 04, 2019, 11:37:22 AM
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.

Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.

Savings: Currently investing $1650/month into 401k and Roth IRAs.

Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.

Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.

Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.

Having liquid assets is better than cash flow. If you needed to you could sell $650 per month from your liquid assets and the remaining balance will continue to compound.

If we were going to invest the difference though, it would be in tax-advantaged 401ks - which is not liquid until I'm 59 1/2, yeah?

You're comparing to tax-advantaged accounts? You really don't want to forgo maxing those out to pay extra on the mortgage, they are too valuable (and you only get so much space per year). Also, there are ways to access them before 59.5:
https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 11:46:25 AM
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.

Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.

Savings: Currently investing $1650/month into 401k and Roth IRAs.

Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.

Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.

Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.

Having liquid assets is better than cash flow. If you needed to you could sell $650 per month from your liquid assets and the remaining balance will continue to compound.

If we were going to invest the difference though, it would be in tax-advantaged 401ks - which is not liquid until I'm 59 1/2, yeah?

You're comparing to tax-advantaged accounts? You really don't want to forgo maxing those out to pay extra on the mortgage, they are too valuable (and you only get so much space per year). Also, there are ways to access them before 59.5:
https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 04, 2019, 11:57:30 AM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 12:01:36 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 04, 2019, 12:09:21 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 12:14:32 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?

Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 04, 2019, 12:21:49 PM
If you want to ensure more breathing room in the future then you may want to consider investing some in a taxable account and maybe also increase the size of your emergency fund. That way you'll know that you can absorb any unexpected things that might come up. Now is a good time to do that while you have a higher income to work with. Long term I don't expect you will run into any issues with a single $56k income as long as you manage your expenses and have that taxable/e-fund buffer.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 04, 2019, 12:25:15 PM
Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?

It does.  But what you seem to be concerned with is that if you invest that money now you won't be able to invest as much in the future when your income is less.  That's exactly backwards - you want to maximize both time in the market as well as the tax benefits.

You should always be able to just pay for something that 'comes up' (i.e. emergency expenses) - otherwise you are on too precarious a financial path.

Again you mentioned tax-advantaged accounts, but not taxable ones. What does that picture look like?
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on April 04, 2019, 12:25:34 PM
Outside of a 30 year mortgage (or I guess even a 15 year), is there any expense, both current or imagined future, for which you could have complete knowledge of what you'll pay, year in and year out? That's one of the reassurances that I get out of having a mortgage and keeping it as long as possible. Hell, I'd get an interest-only non-callable perpetual mortgage on my primary house if I could.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on April 04, 2019, 12:38:37 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?

Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?

I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.

Is there movement in increasing your income over the next few years as well?
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 12:46:57 PM
Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?

It does.  But what you seem to be concerned with is that if you invest that money now you won't be able to invest as much in the future when your income is less.  That's exactly backwards - you want to maximize both time in the market as well as the tax benefits.

You should always be able to just pay for something that 'comes up' (i.e. emergency expenses) - otherwise you are on too precarious a financial path.

Again you mentioned tax-advantaged accounts, but not taxable ones. What does that picture look like?

My bad. No taxable investments.
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 12:47:45 PM
Outside of a 30 year mortgage (or I guess even a 15 year), is there any expense, both current or imagined future, for which you could have complete knowledge of what you'll pay, year in and year out? That's one of the reassurances that I get out of having a mortgage and keeping it as long as possible. Hell, I'd get an interest-only non-callable perpetual mortgage on my primary house if I could.

Is it better to have a predictable expense or no expense at all?
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 12:49:17 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?

Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?

I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.

Is there movement in increasing your income over the next few years as well?

There should be- I estimate that I'll finish an MBA about the same time as we have a kid, so I would assume that income will be higher, but I always try to make sure that a plan can work in the worst-case scenario and then anything else is gravy. In the words of MMM, it's all about the safety net.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 04, 2019, 12:50:04 PM

I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.

Is there movement in increasing your income over the next few years as well?

That's where I am confused here.  For 2019 a couple can contribute $12,000k in IRAs and $19k for each 401(k).  jps did not say whether they have one 401(k) or two... but even if its' just one there's $2583/month minimum in tax-advantaged space.  If both spouses have work-sponsored retirement plans (and possibly an HSA) it would be over $4k.

I'm having a hard time imagining any scenario where over-paying the mortgage would make any sense.

ETA: jps responded by saying 'no taxable investments'.  Ok, that (and an efund of sufficient size) should be addressed long before overpaying a mortgage.

Is it better to have a predictable expense or no expense at all?
It's better to have sufficient liquid investments.
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 12:58:10 PM

I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.

Is there movement in increasing your income over the next few years as well?

That's where I am confused here.  For 2019 a couple can contribute $12,000k in IRAs and $19k for each 401(k).  jps did not say whether they have one 401(k) or two... but even if its' just one there's $2583/month minimum in tax-advantaged space.  If both spouses have work-sponsored retirement plans (and possibly an HSA) it would be over $4k.

I'm having a hard time imagining any scenario where over-paying the mortgage would make any sense.

ETA: jps responded by saying 'no taxable investments'.  Ok, that (and an efund of sufficient size) should be addressed long before overpaying a mortgage.

Is it better to have a predictable expense or no expense at all?
It's better to have sufficient liquid investments.

Yeah, we are not currently maxing both 401k/IRAs.

I think I get what you're saying - it's better to max them now, and then just pay my mortgage, which I will have enough income to do on top of an emergency fund, then to try and get rid of a mortgage that I would not have any problems paying. If I didn't have enough income to pay the mortgage without DW's income, it would be a different story - but would probably mean moving instead of paying the mortgage down anyway.

Thanks, Nereo.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on April 04, 2019, 01:03:14 PM

I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.

Is there movement in increasing your income over the next few years as well?

That's where I am confused here.  For 2019 a couple can contribute $12,000k in IRAs and $19k for each 401(k).  jps did not say whether they have one 401(k) or two... but even if its' just one there's $2583/month minimum in tax-advantaged space.  If both spouses have work-sponsored retirement plans (and possibly an HSA) it would be over $4k.

I'm having a hard time imagining any scenario where over-paying the mortgage would make any sense.

ETA: jps responded by saying 'no taxable investments'.  Ok, that (and an efund of sufficient size) should be addressed long before overpaying a mortgage.

Is it better to have a predictable expense or no expense at all?
It's better to have sufficient liquid investments.

Yup, I agree with nereo. Not sure I understand the need to pay off the mortgage over contributing to tax advantage accounts.
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 01:09:15 PM

I would recommend maxing all tax advantage accounts during your young years and while you have dual income. Set your future self up first. The $1650 combined is barley maxing out one 401k limit. By increasing your 401k contributions, you could also lower your marginal tax rate to under 22%. Then when you decide to expand the family re-evaluate where you want to direct your funds. You could also refinance in a few years for another 15 year term and lower your payment, if the budget is tight with the $650 payment on one income.

Is there movement in increasing your income over the next few years as well?

That's where I am confused here.  For 2019 a couple can contribute $12,000k in IRAs and $19k for each 401(k).  jps did not say whether they have one 401(k) or two... but even if its' just one there's $2583/month minimum in tax-advantaged space.  If both spouses have work-sponsored retirement plans (and possibly an HSA) it would be over $4k.

I'm having a hard time imagining any scenario where over-paying the mortgage would make any sense.

ETA: jps responded by saying 'no taxable investments'.  Ok, that (and an efund of sufficient size) should be addressed long before overpaying a mortgage.

Is it better to have a predictable expense or no expense at all?
It's better to have sufficient liquid investments.

Yup, I agree with nereo. Not sure I understand the need to pay off the mortgage over contributing to tax advantage accounts.

That's why I am here - to learn. It seemed like it could be a smart move to get the mortgage out of the way before my income gets halved.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 04, 2019, 01:16:53 PM
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.

Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.

Savings: Currently investing $1650/month into 401k and Roth IRAs.

Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.

Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.

Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.

@jps ,

12 months at $500 extra plus 24 months of $2500 extra comes to $66,000 in extra premium payments in 3 years.   That, plus your regular payments will get you paid off in 3 to 4 years.

What will you have to show for all that sacrifice in 3-4 years?

A paid off house and lower expenses per month.  Not $650 lower, because you said that was PITI, and paying off the mortgage only covers the PI of PITI.

That's it.   

You might say, but I'll have less stress because the mortgage is gone!   That might or might not be true.

What else could happen in LESS THAN  3-4 years?   

You could get your income cut in half due to an injury, illness, or just bad luck in an economy that's gone sour.   You would still have that mortgage payment so your expenses wouldn't be any lower.  The house could be foreclosed on due to loss of income and medical expenses, for example.   The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back.   It probably won't help you at all.

What if you were investing that money instead of paying down the mortgage?

Well, in any of the above situations, you would have more assets to cover you thru the bad times.   You would be less likely to lose the house to foreclosure, even if that same down economy cut stock prices by a bunch.

You could realize you need to move, either to help ill parents or just to get a job.  You can't get at the money locked up in in an unpaid for house as easily as you can by selling investments.   You might need to pay for two residences at the same time if your old one doesn't sell promptly.   

Now, if the economy is doing decently when you've accumulated enough investments to pay off the mortgage early, you'll be able to do it in one big payment in 3-4 years time.   If the economy is down for a bit, then you might wait another year for the market to recover.

Whatever you do, NEVER EVER confuse "the list of advantages I get by paying off my mortgage in full" with "I'm paying extra on my mortgage".   That's because those advantages don't show up until it's completely paid off.
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 01:20:25 PM
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.

Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.

Savings: Currently investing $1650/month into 401k and Roth IRAs.

Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.

Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.

Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.

@jps ,

12 months at $500 extra plus 24 months of $2500 extra comes to $66,000 in extra premium payments in 3 years.   That, plus your regular payments will get you paid off in 3 to 4 years.

What will you have to show for all that sacrifice in 3-4 years?

A paid off house and lower expenses per month.  Not $650 lower, because you said that was PITI, and paying off the mortgage only covers the PI of PITI.

That's it.   

You might say, but I'll have less stress because the mortgage is gone!   That might or might not be true.

What else could happen in LESS THAN  3-4 years?   

You could get your income cut in half due to an injury, illness, or just bad luck in an economy that's gone sour.   You would still have that mortgage payment so your expenses wouldn't be any lower.  The house could be foreclosed on due to loss of income and medical expenses, for example.   The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back.   It probably won't help you at all.

What if you were investing that money instead of paying down the mortgage?

Well, in any of the above situations, you would have more assets to cover you thru the bad times.   You would be less likely to lose the house to foreclosure, even if that same down economy cut stock prices by a bunch.

You could realize you need to move, either to help ill parents or just to get a job.  You can't get at the money locked up in in an unpaid for house as easily as you can by selling investments.   You might need to pay for two residences at the same time if your old one doesn't sell promptly.   

Now, if the economy is doing decently when you've accumulated enough investments to pay off the mortgage early, you'll be able to do it in one big payment in 3-4 years time.   If the economy is down for a bit, then you might wait another year for the market to recover.

Whatever you do, NEVER EVER confuse "the list of advantages I get by paying off my mortgage in full" with "I'm paying extra on my mortgage".   That's because those advantages don't show up until it's completely paid off.

My bad- PI itself is $650.

This totally makes sense. You are absolutely right about confusing the advantages of having a paid off mortgage with currently paying extra on the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 04, 2019, 01:50:02 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
Personally I have always made it a priority to max all tax advantaged accounts in order to reduce my tax liability. I take the known guaranteed savings now. If you can live off of 40k and have a high income at 22% tax bracket then in some cases you are still better of maxing all pre tax accounts and then tapping 401ks if a prolonged emergency pops up.

If you saved 22% in taxes on 40k in pre tax contribuions and then you have a year where you need to withdraw 40k in order to cover living expenses you would pay approx 20% in tax and penalties assuming no other income for that year.  This is assuming standard deduction of 22k for married filing jointly with 10% early withdrawal penalty. 

At the 22% bracket it is a "no brainer" to contribute pre tax until you are out of that bracket.

Replying from a phone so I'm sorry if this doesn't make much since. I'd like to get a more detailed example together but I don't have the time at the moment.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 01:51:42 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
Personally I have always made it a priority to max all tax advantaged accounts in order to reduce my tax liability. I take the known guaranteed savings now. If you can live off of 40k and have a high income at 22% tax bracket then in some cases you are still better of maxing all pre tax accounts and then tapping 401ks if a prolonged emergency pops up.

If you saved 22% in taxes on 40k in pre tax contribuions and then you have a year where you need to withdraw 40k in order to cover living expenses you would pay approx 20% in tax and penalties assuming no other income for that year.  This is assuming standard deduction of 22k for married filing jointly with 10% early withdrawal penalty. 

At the 22% bracket it is a "no brainer" to contribute pre tax until you are out of that bracket.

Replying from a phone so I'm sorry if this doesn't make much since. I'd like to get a more detailed example together but I don't have the time at the moment.

Sent from my moto g(6) using Tapatalk

Makes sense.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 04, 2019, 01:52:47 PM
Welcome to the club, jps :-)

In all seriousness - you are must vulnerable if the entire time you are overpaying a mortgage, unless you already have a considerable e-fund and investments in taxable accounts.

If I were in your shoes I would immediately stop paying down the mortgage and instead build up an e-fund equivalent to ~3-6 months expenses.  Then I would open an 'after-tax' (aka 'normal') brokerage account and contribute money until I had ~$5-10k invested.  Once I achieved that I would start piling more money into my tax advantaged (e.g. 401(k), IRA) accounts. 
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on April 04, 2019, 02:03:44 PM
Welcome to the club, jps :-)

In all seriousness - you are must vulnerable if the entire time you are overpaying a mortgage, unless you already have a considerable e-fund and investments in taxable accounts.

If I were in your shoes I would immediately stop paying down the mortgage and instead build up an e-fund equivalent to ~3-6 months expenses.  Then I would open an 'after-tax' (aka 'normal') brokerage account and contribute money until I had ~$5-10k invested.  Once I achieved that I would start piling more money into my tax advantaged (e.g. 401(k), IRA) accounts.

We have a full e-fund. How come you would also put 5-10 in a brokerage before maxing the tax-advantaged accounts? Just as an extra layer of safety?
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 04, 2019, 02:10:06 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
Personally I have always made it a priority to max all tax advantaged accounts in order to reduce my tax liability. I take the known guaranteed savings now. If you can live off of 40k and have a high income at 22% tax bracket then in some cases you are still better of maxing all pre tax accounts and then tapping 401ks if a prolonged emergency pops up.

If you saved 22% in taxes on 40k in pre tax contribuions and then you have a year where you need to withdraw 40k in order to cover living expenses you would pay approx 20% in tax and penalties assuming no other income for that year.  This is assuming standard deduction of 22k for married filing jointly with 10% early withdrawal penalty. 

At the 22% bracket it is a "no brainer" to contribute pre tax until you are out of that bracket.

Replying from a phone so I'm sorry if this doesn't make much since. I'd like to get a more detailed example together but I don't have the time at the moment.

Sent from my moto g(6) using Tapatalk

To analyze FIreDrill's comment a little further, I don't think you'd even pay 20% in taxes should you need to take that money out of the 401k/IRA and pay the penalty. You will receive the $24k standard deduction in the year you pull it out, and then pay 10% on the rest. Adding in the 10% penalty, you'd only be looking at an effective tax rate of about 14%. And keep in mind, this is a low-probability event, in which you'd be saving 8% (22% minus 14%) plus investment returns (otherwise, you get 22% plus investment returns).
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 04, 2019, 02:14:24 PM
Welcome to the club, jps :-)

In all seriousness - you are must vulnerable if the entire time you are overpaying a mortgage, unless you already have a considerable e-fund and investments in taxable accounts.

If I were in your shoes I would immediately stop paying down the mortgage and instead build up an e-fund equivalent to ~3-6 months expenses.  Then I would open an 'after-tax' (aka 'normal') brokerage account and contribute money until I had ~$5-10k invested.  Once I achieved that I would start piling more money into my tax advantaged (e.g. 401(k), IRA) accounts.

We have a full e-fund. How come you would also put 5-10 in a brokerage before maxing the tax-advantaged accounts? Just as an extra layer of safety?
Exactly.  How much depends on your risk tolerance and individual circumstances.  The e-fund is typically cash-equivalent that won't fluctuate with a market downturn.  The taxable account is invested (so it may drop during a market crash) but is useful for things like replacing a car unexpectedly. You *can* also use money in your Roth (principle can be withdrawn at any time) or your 401(k) (via a loan) but I prefer not to touch those unless absolutely necessary because htey are so valuable as tax-deferred vehicles.

Of course the better your financial picture the less you need to keep 'on the sidelines' (i.e. in an e-fund); if you are living well below your means and have 5 figures in easily accessable   accounts and a stable job and a heloc then you might just go with a 1-2 month 'float' in your checking account.  All depends on the number of layers of safety you have built into your life.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 04, 2019, 02:53:51 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I really don't want to come across as combative, I guess I could just use some help in understanding this math. If I haven't provided enough clarity on my situation please let me know.
Personally I have always made it a priority to max all tax advantaged accounts in order to reduce my tax liability. I take the known guaranteed savings now. If you can live off of 40k and have a high income at 22% tax bracket then in some cases you are still better of maxing all pre tax accounts and then tapping 401ks if a prolonged emergency pops up.

If you saved 22% in taxes on 40k in pre tax contribuions and then you have a year where you need to withdraw 40k in order to cover living expenses you would pay approx 20% in tax and penalties assuming no other income for that year.  This is assuming standard deduction of 22k for married filing jointly with 10% early withdrawal penalty. 

At the 22% bracket it is a "no brainer" to contribute pre tax until you are out of that bracket.

Replying from a phone so I'm sorry if this doesn't make much since. I'd like to get a more detailed example together but I don't have the time at the moment.

Sent from my moto g(6) using Tapatalk

To analyze FIreDrill's comment a little further, I don't think you'd even pay 20% in taxes should you need to take that money out of the 401k/IRA and pay the penalty. You will receive the $24k standard deduction in the year you pull it out, and then pay 10% on the rest. Adding in the 10% penalty, you'd only be looking at an effective tax rate of about 14%. And keep in mind, this is a low-probability event, in which you'd be saving 8% (22% minus 14%) plus investment returns (otherwise, you get 22% plus investment returns).
You are correct.

You would pay...

10% tax for the first 22k
20% for the next 19k
22% for the next 57k (I think, it's whatever the 12% bracket tops out at)




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Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on April 04, 2019, 03:11:14 PM
You *can* also use money in your Roth (principle can be withdrawn at any time) or your 401(k) (via a loan) but I prefer not to touch those unless absolutely necessary because they are so valuable as tax-deferred vehicles.
I always like to point out that you are better off emergency fund money into a Roth IRA if you otherwise would not be able to maximize your tax advantaged space. My advice that if you haven't maxed IRA contributions by the time the contribution deadline is approaching, move emergency fund money into a Roth IRA Savings Account to fill up that space. If you later re-establish your emergency fund with taxable money after filling all your tax advantaged space, you can roll that Roth IRA Savings Account into a Roth IRA Investment Account.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 04, 2019, 03:33:49 PM
You *can* also use money in your Roth (principle can be withdrawn at any time) or your 401(k) (via a loan) but I prefer not to touch those unless absolutely necessary because they are so valuable as tax-deferred vehicles.
I always like to point out that you are better off emergency fund money into a Roth IRA if you otherwise would not be able to maximize your tax advantaged space. My advice that if you haven't maxed IRA contributions by the time the contribution deadline is approaching, move emergency fund money into a Roth IRA Savings Account to fill up that space. If you later re-establish your emergency fund with taxable money after filling all your tax advantaged space, you can roll that Roth IRA Savings Account into a Roth IRA Investment Account.
Good point.  It's unclear whether OP has maxed out available IRAs - though it seems plain that there is plenty of headspace in the 401(k).
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on April 04, 2019, 05:04:34 PM

Setting up a 5-year roth pipeline to get $ out of a 401k doesn't seem like it supports the idea of "having liquid assets is better than cashflow". And as far as forgoing tax-advantaged accounts to pay extra on the mortgage- that's the crux of my question. In my head, it seems better to be able to contribute a medium amount for the long haul w/ less risk at lower income, than it does to max for a few years and then much less in perpetuity after that once my wife stops working and we still have a mortgage.

What does the rest of your investment picture look like?
I certainly wouldn't put extra into a mortgage if you lack a basic e-fund and some money in taxable accounts.

The advantage of putting more into your tax-advantaged accounts is that you lower your taxable burden today while getting tax-free growth.  As high earners that could be considerable savings -- you are likely in the 22% or 24% bracket depending on your deductions.

Have e-fund. Contributing to 401ks and IRAs at rate of $1650/mo plus some match.

We are just barely in the 22% tax bracket. Our effective tax rate for 2018 was something like 9.9%.

I am working on the math, and it looks like if I play out the difference of $650/month for 20 years after paying off the mortgage, VS maxing tax-advantaged and then having $650 less each month after DW stops working, the difference is $100K over 20 years. That's big $$, but, how do I assess the risk of having $650 less each and every month for another 10 years after we have a kid without the extra liquidity that would come from investing in taxable?

I'm not sure I understand what 'risk' you are worried about.
Are you concerned that you won't be able to pay your mortgage if/when DW stops working?

Not that I won't be able to mortgage - but just worried in general about the tighter cash flow. I've done a speculative budget and it is enough to live on, it's just tighter than I'm used to (obviously with double the income right now). So, wanting to pay off my mortgage would be for a little more breathing room each month, either to just pay for something that comes up, or to invest more each month. It would totally be a comfort thing. Does that make sense?

You are absolutely correct to be worried about and thinking about cash flow, especially if you predict expenses increasing and income decreasing for a while, like when you have kids.  At one point the monthly mortgage payment I was in could not be covered by only one income or ANY upsets in our financial cash flow.

Plus, I find it incredibly hard (emotionally) to sell investments to pay for monthly expenses.  Good theory, but seems wrong or the market is down a bit when I go to do it.  Doubly so if this incurs taxes or another penalty.   Even if investing is the numerically better than paying off the mortgage.

BUT!
Paying off the mortgage is only one way to do it, (reduce future cash flow risks) there are other ways, too.
I eventually invested in ROTH type accounts, that I marked in my mind only for house / future expenses, not retirement, that I could pull the money out on short non-tax notice to pay down the mortgage suddenly (if I chose, in future) or to pay for 1-2 years of maternity leave / part time work, medical expenses.

AND...As always, pay your taxes and get your employer matching on your 401k's first.  (I assume you arelady are, but worth repeating here).
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on April 04, 2019, 05:22:18 PM
Don't pay off your mortgage club -- new question!

I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies.  Our cost for it is around $350/yr.

I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).

Does anyone else notice this?  That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 04, 2019, 07:32:03 PM
I have never paid for life insurance (though I do get a small amount automatically through my employer). The more our assets grow the less I see a reason for it. It never even crossed my mind that the balance of the mortgage would matter for that. Money is fungible after all.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on April 04, 2019, 09:54:29 PM
Don't pay off your mortgage club -- new question!

I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies.  Our cost for it is around $350/yr.

I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).

Does anyone else notice this?  That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?


If the life insurance does not pay 100% of the mortgage, is it worth it to keep paying every year? If one of you dies, the other will still have the bill to pay every month, even with the life insurance.

I only have life insurance through my work and includes a small amount for stay at home spouse. I see no reason to have any additional life insurance, at this time.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 04, 2019, 10:18:11 PM
Don't pay off your mortgage club -- new question!

I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies.  Our cost for it is around $350/yr.

I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).

Does anyone else notice this?  That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?
I've kinda always veiwed life insurance as cash flow insurance for my spouse.  Kinda assuming that it would need to be enough to cover the portion of expenses that my income covers.

Recently I have taken a different approach and upped my life insurance through various methods. Mostly getting an additional policy through my employer.  If I go I don't want my spouse to worry about money.  Especially during that time.... The amount I have in coverage will easy cover mortgage payments for 10 years.  If anything it will just make it easier to sell/move/stay/whatever they want to do while processing the lose.  Loosing someone close is a horrible thing to go through as I have recently found out.  I don't want money to be a concern for my spouse in that situation.  All that to say that I think it's a really subjective topic.

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Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on April 05, 2019, 12:33:24 PM
Welcome to the club, jps :-)

In all seriousness - you are must vulnerable if the entire time you are overpaying a mortgage, unless you already have a considerable e-fund and investments in taxable accounts.

If I were in your shoes I would immediately stop paying down the mortgage and instead build up an e-fund equivalent to ~3-6 months expenses.  Then I would open an 'after-tax' (aka 'normal') brokerage account and contribute money until I had ~$5-10k invested.  Once I achieved that I would start piling more money into my tax advantaged (e.g. 401(k), IRA) accounts.

We have a full e-fund. How come you would also put 5-10 in a brokerage before maxing the tax-advantaged accounts? Just as an extra layer of safety?


Another option that may, or may not, be possible for you in the US.  Get a HELOC added to your house as an emergency fund before your wife's work situations changes.  Your goal is to keep the balance at ZERO but it is still nice to have.

It can be used as a springy debt emergency fund after you have exhausted your standard EF but before taping into taxable accounts or your ROTH.  MMM has an article on this.

https://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/

I will unfortunately need to dip into my HELOC before the end of the month to cover a huge expense that is about double, maybe triple, my emergency fund.  The rate is 4.45%.   It will then be paid back in about 3-4 months but I prefer this over selling investments.

I am a bit tempted to try some CC churning to move this balance to a no interest card for a few months but I like the simplicity of just having one CC.

Anyway, check out the HELOC option, as it will be easier to get approved while you are both employed.
 



Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on April 05, 2019, 12:33:46 PM
The house could be foreclosed on due to loss of income and medical expenses, for example.   The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back.   It probably won't help you at all.

Who would ever let a house with substantial equity be foreclosed on?  You would just sell the house...
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on April 05, 2019, 12:35:30 PM
Hey there DPYMC, I'm looking for some help w/r/t our mortgage and understanding the costs/benefits of whether or not to pay it off. We have had a mortgage for a few months and have been paying about $500 extra per month.

Mortgage: $75K remaining out of $85K. 15 year note, 4.5%.

Savings: Currently investing $1650/month into 401k and Roth IRAs.

Life situation: Young DINKs, making low six figures. Working to cash flow some necessary projects, which will be fully funded by the end of the year. Once those are funded, will have at least an extra $2-3K/month while both of us are working.

Kicker: would love to start a family in 3-5 years time. If we did, DW would stop working and we would go down to just my income, which is $56K/year. Current PITI is ~$650/mo.

Question: In my head, it makes sense to allocate the extra $ after we save up for necessary projects to paying off our mortgage, rather than to investment accounts, so that we could have an extra $650 in cash flow each month once we go down to one income. I am familiar with the 15/30 year return charts that people post here, but I would love second opinions on how this applies to a situation where income might be dropping significantly in a few years.

@jps ,

12 months at $500 extra plus 24 months of $2500 extra comes to $66,000 in extra premium payments in 3 years.   That, plus your regular payments will get you paid off in 3 to 4 years.

What will you have to show for all that sacrifice in 3-4 years?

A paid off house and lower expenses per month.  Not $650 lower, because you said that was PITI, and paying off the mortgage only covers the PI of PITI.

That's it.   

You might say, but I'll have less stress because the mortgage is gone!   That might or might not be true.

What else could happen in LESS THAN  3-4 years?   

You could get your income cut in half due to an injury, illness, or just bad luck in an economy that's gone sour.   You would still have that mortgage payment so your expenses wouldn't be any lower.  The house could be foreclosed on due to loss of income and medical expenses, for example.   The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back.   It probably won't help you at all.

What if you were investing that money instead of paying down the mortgage?

Well, in any of the above situations, you would have more assets to cover you thru the bad times.   You would be less likely to lose the house to foreclosure, even if that same down economy cut stock prices by a bunch.

You could realize you need to move, either to help ill parents or just to get a job.  You can't get at the money locked up in in an unpaid for house as easily as you can by selling investments.   You might need to pay for two residences at the same time if your old one doesn't sell promptly.   

Now, if the economy is doing decently when you've accumulated enough investments to pay off the mortgage early, you'll be able to do it in one big payment in 3-4 years time.   If the economy is down for a bit, then you might wait another year for the market to recover.

Whatever you do, NEVER EVER confuse "the list of advantages I get by paying off my mortgage in full" with "I'm paying extra on my mortgage".   That's because those advantages don't show up until it's completely paid off.

My bad- PI itself is $650.

This totally makes sense. You are absolutely right about confusing the advantages of having a paid off mortgage with currently paying extra on the mortgage.

I agree with SwordGuy.  I never, ever paid extra on my mortgage.  Instead, I only paid it off once I had the funds fully accumulated.  You are much better off investing the funds, letting them grow, and then paying the house off eventually in full, one shot.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on April 05, 2019, 12:38:56 PM
Don't pay off your mortgage club -- new question!

I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies.  Our cost for it is around $350/yr.

I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).

Does anyone else notice this?  That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?

Insurance is for catastrophes.  For me, dying and leaving my wife and kids without my income is a total catastrophe.  I carry a $1.5M term policy, along with our investments, paid off house, I know my family would be extremely well taken care of and its' worth every bit of the money I pay for it.

I'm not sure I thought much about the size of the mortgage payment when originally getting the term policy, though.  It's an interesting thought.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 05, 2019, 12:56:10 PM
We've thought about life insurance a bit differently than others in this thread.  We are a dual income household and we live off one of our (roughly equal) income streams. It's never made much sense to us to pay the premiums for very large policies. 

Instead, we carry policies on each of us that would cover ~5x our current annual expenses.  The idea is that it would give the survivors a few years of breathing room and (at this point) push them much closer to being FI.  Neither of us really want to be 'taken care of for life' by our deceased spouse any more than we want to inherit our retirement from our parents - it basically goes against our self-sufficient natures.
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on April 05, 2019, 12:59:41 PM
The house could be foreclosed on due to loss of income and medical expenses, for example.   The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back.   It probably won't help you at all.

Who would ever let a house with substantial equity be foreclosed on?  You would just sell the house...

It's kind of ironic that by paying down the mortgage faster you increase the risk of having to sell and/or being foreclosed on - if you had the money elsewhere, you would be more able to continue making payments during whatever hardship you had.

Only when the mortgage is $0 does that benefit come into play.
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on April 05, 2019, 01:31:44 PM
Hello everyone, I am jumping in a little early here to keep my resolve firm!  We are buying our first house, closing end of May.  It took some long chats with DH to work through the math, but we are agreed not to pay any extra to the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 05, 2019, 02:25:29 PM
Welcome, Raenia, you won't regret joining the DNPYM club.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 05, 2019, 02:33:29 PM
Hello everyone, I am jumping in a little early here to keep my resolve firm!  We are buying our first house, closing end of May.  It took some long chats with DH to work through the math, but we are agreed not to pay any extra to the mortgage.
Welcome!

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on April 05, 2019, 02:46:09 PM
We've thought about life insurance a bit differently than others in this thread.  We are a dual income household and we live off one of our (roughly equal) income streams. It's never made much sense to us to pay the premiums for very large policies. 

Instead, we carry policies on each of us that would cover ~5x our current annual expenses.  The idea is that it would give the survivors a few years of breathing room and (at this point) push them much closer to being FI.  Neither of us really want to be 'taken care of for life' by our deceased spouse any more than we want to inherit our retirement from our parents - it basically goes against our self-sufficient natures.

This is just about exactly what we do, although we have more like 8x annual expenses in coverage. We pay something like $60/month for roughly equal coverage ($500k) on both of us and we'll probably stop paying for it once we're closer to FI. Rate is guaranteed for like 15 years but I think we'll stop paying for it much sooner than that.
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on April 05, 2019, 02:48:43 PM
Hello everyone, I am jumping in a little early here to keep my resolve firm!  We are buying our first house, closing end of May.  It took some long chats with DH to work through the math, but we are agreed not to pay any extra to the mortgage.

Welcome, just be sure to brag about the money you are saving & investing instead of paying of your mortgage.

My investments are now 1.08 x my mortgage.

Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on April 05, 2019, 02:57:43 PM
The house could be foreclosed on due to loss of income and medical expenses, for example.   The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back.   It probably won't help you at all.

Who would ever let a house with substantial equity be foreclosed on?  You would just sell the house...
Most people would just pay it off with their investments, I would think, before selling.   That is what we considered as the backup.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on April 05, 2019, 03:03:33 PM
Don't pay off your mortgage club -- new question!

I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies.  Our cost for it is around $350/yr.

I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).

Does anyone else notice this?  That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?

Insurance is for catastrophes.  For me, dying and leaving my wife and kids without my income is a total catastrophe.  I carry a $1.5M term policy, along with our investments, paid off house, I know my family would be extremely well taken care of and its' worth every bit of the money I pay for it.

I'm not sure I thought much about the size of the mortgage payment when originally getting the term policy, though.  It's an interesting thought.

This is interesting.  At some point you would have $1.5 Million in investments plus a paid off house  (or equivalent if you carry a morgage).   Is self-insuring not an option?  At some point you don't need insurance, surely?

I  like term policies precisely because you can ramp your amount up or down according to your needs as you age. 
Examples
Large mortgage, building your investments and pension, steady income is needed,  and small kids = large policy.   
Large mortgage, large investments, moderate income, no minor kids = small policy. 
No mortgage, large investments, low income, no kids = no policy (unless for specific tax reasons).

I am quite interested in all the super "PRO LIFE INSURANCE" comments on a DPOYM thread.   Especially the 5x and 8x expenses.   (I guess if we are talking expenses, that is a lot lower than annual income, though).   The max policy I ever had was $500k... or to top up to 10 years of living expenses needed for the remaining people alive..  I would rather invest the money than pay it to life insurance policies.  ( insert cheeky wink).

Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 05, 2019, 03:53:39 PM
The house could be foreclosed on due to loss of income and medical expenses, for example.   The fact that you've paid extra on the mortgage just means it's easier for the bank to make their money back.   It probably won't help you at all.

Who would ever let a house with substantial equity be foreclosed on?  You would just sell the house...

Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?

Example:  Buy a house for $300,000.    Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.

Economy hits big recession.  Major employer(s) in area go belly up or lay off thousands of people and you are one of them.  House value drops to $230,000.   You sell the house to avoid foreclosure and lose $50,000 for the privilege.   Happy days are here again.

Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments.  Housing values might go up again or you might find employment before that cushion runs out.



Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 05, 2019, 05:18:46 PM
Don't pay off your mortgage club -- new question!

I realized that I am choosing to carry term life insurance on DH and I, to about 25% of the mortgage value... even though we would be fine without it, because of the huge mortgage value/ monthly payment that won't stop if one of us dies.  Our cost for it is around $350/yr.

I also know that if we paid off our mortgage using investments, or even dropped it to 50% current value, I would be more than fine to have ZERO life insurance (even with a smaller investment account).

Does anyone else notice this?  That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?

For me, no.   I buy insurance (of all types) when the risk to me is unacceptably high.  For example, even if I didn't have a mortgage I'd still buy home owner's insurance because while the risk of losing the house to a fire is low, the outcome would be unacceptably bad (to me).   

For the mortgage, I basically self-insure by having a big, fat, investment balance that I contribute to each month.  If something were to happen to me, my wife could draw on that balance for many years if necessary.     And either my wife or I could make the payment on our own anyway. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 05, 2019, 05:25:30 PM
Hello everyone, I am jumping in a little early here to keep my resolve firm!  We are buying our first house, closing end of May.  It took some long chats with DH to work through the math, but we are agreed not to pay any extra to the mortgage.

Stay the course!  It takes a while, but eventually the power of compounding takes over and your investment account balances explodes.  You simply laugh at your puny mortgage balance.   
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 05, 2019, 05:26:42 PM
Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?

Example:  Buy a house for $300,000.    Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.

Economy hits big recession.  Major employer(s) in area go belly up or lay off thousands of people and you are one of them.  House value drops to $230,000.   You sell the house to avoid foreclosure and lose $50,000 for the privilege.   Happy days are here again.

Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments.  Housing values might go up again or you might find employment before that cushion runs out.

And the other thing is that if you are having trouble paying your mortgage, you will also be having trouble paying your rent.  Liquid assets are king.   
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 05, 2019, 07:28:18 PM
Does anyone else notice this?  That keeping a large mortgage payment makes you get term life insurance that you don't absolutely need, all things being equal?

For the wife and I, not at all.  We both have term life insurance (mine is 300k private and about 90k through work, the wife is 600k private), on a 20-year term, but we only got the life insurance as coverage against the loss of life in the event either one of us dies while we are still in the child-raising years.  The money is designed to give us enough room to 'adjust life' if need be in the event of us passing.  It absolutely isn't intended to 'set the other for life' or cover any expenses (because if either of us died, the next step would be to move very close to other family since it would become a single-parent household- at least for a while).  It is coverage against a (hopefully) unlikely event to mitigate the worst financial aspects, not to solve all of life's problems.

Going after term life this way enables us to focus on the best priced plans (20 years, while we are both young) and we should be fully FIRE'd by the time the term ends.  Pretty much all the other (read: older person oriented) options seems to be absolute garbage.  Parents (or at least dad) has whole life insurance and its total crap.  Our insurance rates are 234.00 (annually for me) for 300k and the wife is 240.00 (annually) for 600k.  Per 1000 coverage for me costs $0.78 per year.  Per 1000 for the wife costs $0.40 per year.  Overall, thats really cheap to cover what would already be a very drastic and painful event.

(Also, Guys are apparently more dangerous to insure... 
Math checks out:  https://www.ssa.gov/oact/STATS/table4c6.html
Guy "risk of Death" the next year after 27 is 0.001502
Girl "risk of Death" the next year after 27 is 0.000604)

That being said, no- holding the mortgage hasn't spurred us to carry higher insurance.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 06, 2019, 01:16:13 AM
Who would ever let a house with substantial equity be foreclosed on?  You would just sell the house...
It happens all the time and it's always a sad story. Old people can't pay their taxes and lose their paid off house. They also didn't have enough cash to maintain it properly, so it sells for far less than decently maintained comps.

A relative was in a similar boat recently. She had a medical emergency that proved costly. The state paid for her care. Now her family needs to sell the house to pay for her continuing care. Surprise! The house is a dump and the state will grab thc proceeds of the sale to pay for her previous care, leaving her and her heirs with nothing from the sale of her run-down, paid-off house.

Here's another real life scenario: My sister lives outside Sacramento, CA. When the market dumped, houses suddenly lost as much as half their value. People lost their jobs and their confidence. They let their houses go back to the bank (jingle mail). The sad thing is that CA real estate has had a spectacular recovery. If those people had just found a way to hang on for a couple of years, their home values would have returned to what they paid and then zoomed beyond it. They'd be fine now. Instead, they're renters with so-so credit histories.

Related real life story: Another friend had leveraged their home to do renovations and pay off other debt. The market dropped and suddenly they were underwater. They felt swamped and decided to walk away and short sale the house. It sold for $762k, which was less than they owed. Since neither of them had lost their jobs, the bank and the IRS came after them. I do not know the results, but I just checked the current value of the house. It's $1.2M. If they has just stayed the course and kept making their payments steadily, they would have been fine.

I'll take an affordable fixed rate mortgage and a nice pile o' cash and investments over prepaying a mortgage every day of the year, every year.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on April 06, 2019, 09:24:20 AM
We've thought about life insurance a bit differently than others in this thread.  We are a dual income household and we live off one of our (roughly equal) income streams. It's never made much sense to us to pay the premiums for very large policies. 

Instead, we carry policies on each of us that would cover ~5x our current annual expenses.  The idea is that it would give the survivors a few years of breathing room and (at this point) push them much closer to being FI.  Neither of us really want to be 'taken care of for life' by our deceased spouse any more than we want to inherit our retirement from our parents - it basically goes against our self-sufficient natures.

This is just about exactly what we do, although we have more like 8x annual expenses in coverage. We pay something like $60/month for roughly equal coverage ($500k) on both of us and we'll probably stop paying for it once we're closer to FI. Rate is guaranteed for like 15 years but I think we'll stop paying for it much sooner than that.

We each have term life insurance for ~6x annual expenses, including the mortgage. So: $300k.  This is less than the person who boggled at 6x-8x expenses, yet had previously had $500k of life insurance. Maybe their spend is much higher.

However, once you factor in SSDI survivor's insurance, it's more like 15x expected annual expenses (for the next dozen years anyway.)  Which is long past the time my pension would be available, presuming I keep working. If I die, my wife could start drawing a reduced pension immediately, which along with SSDI would basically cover everything.

Which doesn't count either of our retirement accounts. 

The insurance policies are both pretty cheap term policies which will end in 4 years. It's likely we won't renew due to much higher rates and continued accrual of assets.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on April 08, 2019, 09:40:27 AM
Who would ever let a house with substantial equity be foreclosed on?  You would just sell the house...

Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?

Example:  Buy a house for $300,000.    Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.

Economy hits big recession.  Major employer(s) in area go belly up or lay off thousands of people and you are one of them.  House value drops to $230,000.   You sell the house to avoid foreclosure and lose $50,000 for the privilege.   Happy days are here again.

Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments.  Housing values might go up again or you might find employment before that cushion runs out.
By definition someone with substantial equity can get quite a bit more money from the sale of the house than the balance remaining on the mortgage. Equity is not based on your purchase price, it is based on current market value.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 08, 2019, 11:31:19 AM
Who would ever let a house with substantial equity be foreclosed on?  You would just sell the house...

Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?

Example:  Buy a house for $300,000.    Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.

Economy hits big recession.  Major employer(s) in area go belly up or lay off thousands of people and you are one of them.  House value drops to $230,000.   You sell the house to avoid foreclosure and lose $50,000 for the privilege.   Happy days are here again.

Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments.  Housing values might go up again or you might find employment before that cushion runs out.
By definition someone with substantial equity can get quite a bit more money from the sale of the house than the balance remaining on the mortgage. Equity is not based on your purchase price, it is based on current market value.


A technically accurate niggle.


Not at all useful for the purpose at hand, to decide whether it's riskier to pay extra on a mortgage or invest in index funds.

Using the example I gave above, let's assume they pumped $100,000 extra into the mortgage instead of $50,000.

Now they have $50,000 of equity and they sell at the same market price.  They still lost the same $50,000 I already pointed out they lost.

How are they better off than if they had that extra $100,000 in more liquid investments to weather the storm and then sell when the market price of the house had recovered?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 09, 2019, 06:46:49 AM
Who would ever let a house with substantial equity be foreclosed on?  You would just sell the house...

Aside from not trashing your credit with a foreclosure, how does that help you if you can't get a decent price for the house?

Example:  Buy a house for $300,000.    Pump extra on the mortgage to get it down to $230,000 instead of $280,000 via scheduled payments.

Economy hits big recession.  Major employer(s) in area go belly up or lay off thousands of people and you are one of them.  House value drops to $230,000.   You sell the house to avoid foreclosure and lose $50,000 for the privilege.   Happy days are here again.

Had that $50,000 been banked or invested instead, it would have provided many more months of mortgage payments.  Housing values might go up again or you might find employment before that cushion runs out.
By definition someone with substantial equity can get quite a bit more money from the sale of the house than the balance remaining on the mortgage. Equity is not based on your purchase price, it is based on current market value.


A technically accurate niggle.


Not at all useful for the purpose at hand, to decide whether it's riskier to pay extra on a mortgage or invest in index funds.

Using the example I gave above, let's assume they pumped $100,000 extra into the mortgage instead of $50,000.

Now they have $50,000 of equity and they sell at the same market price.  They still lost the same $50,000 I already pointed out they lost.

How are they better off than if they had that extra $100,000 in more liquid investments to weather the storm and then sell when the market price of the house had recovered?
Can you hold on a sec? I wanna make some popcorn. I love this conversation!

My old, Finally FIRE self so wishes I had known this stuff when I bought my first house. Real Estate made me rich, but I could have hit FIRE so much sooner had this info been readily available way back in 1988.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 12, 2019, 09:16:14 AM
Hey look, more money.... #Payday

4/12/19

726 to 401k
269 to HSA
605 to Espp (Minimum 15% discount. Profits will be taken right away at end of offering period)
462 to Taxable Brokerage

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719


Been moving a lot of money around lately with rollovers and what not.  Pretty excited to break the 400k invested mark though! :)






Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 12, 2019, 10:19:13 AM
Hey look, more money.... #Payday

4/12/19

726 to 401k
269 to HSA
605 to Espp (Minimum 15% discount. Profits will be taken right away at end of offering period)
462 to Taxable Brokerage

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719


Been moving a lot of money around lately with rollovers and what not.  Pretty excited to break the 400k invested mark though! :) ...
That's quite a milestone...congratulations!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 12, 2019, 11:17:35 AM
Hey look, more money.... #Payday

4/12/19

726 to 401k
269 to HSA
605 to Espp (Minimum 15% discount. Profits will be taken right away at end of offering period)
462 to Taxable Brokerage

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719


Been moving a lot of money around lately with rollovers and what not.  Pretty excited to break the 400k invested mark though! :) ...
That's quite a milestone...congratulations!
Thanks! Already have my sights set on 500k.  Really depends on the market but I'm hoping to get there in 12-18 months.  May have a couple big expenses during that time as well.. We will see.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on April 18, 2019, 08:30:45 AM
Got a call from my lender yesterday, suggesting using the VA interest rate reduction program. The program is legit, but I am trying to determine how much of a benefit I am going to get from a refinance (we only got the house a year ago).

Current LoanRefinance
Balance310,588314,766
Rate4.375%3.875%
Remaining term350 months360 months
P&I1,572.251,480.15

So, the closing costs would get rolled into the principal, which accounts for the increase in balance. I would be taking on $4,178 in closing costs to reduce my P&I by $92.10 and extend the loan by another 10 months. If I am doing the math right here, adding 10 extra P&I payments of $1,480.15 and $4,178 in closing costs adds $18,979.15 to the total cost of the house. Saving $92.10 on P&I means that it will take 206 months (17.2 years) to break even.

Half a percentage point sounds nice, but this looks like a terrible deal. Am I missing something?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 18, 2019, 09:01:21 AM


Got a call from my lender yesterday, suggesting using the VA interest rate reduction program. The program is legit, but I am trying to determine how much of a benefit I am going to get from a refinance (we only got the house a year ago).

Current LoanRefinance
Balance310,588314,766
Rate4.375%3.875%
Remaining term350 months360 months
P&I1,572.251,480.15

So, the closing costs would get rolled into the principal, which accounts for the increase in balance. I would be taking on $4,178 in closing costs to reduce my P&I by $92.10 and extend the loan by another 10 months. If I am doing the math right here, adding 10 extra P&I payments of $1,480.15 and $4,178 in closing costs adds $18,979.15 to the total cost of the house. Saving $92.10 on P&I means that it will take 206 months (17.2 years) to break even.

Half a percentage point sounds nice, but this looks like a terrible deal. Am I missing something?

I usually don't consider the extra payments added to the end of the loan on a break even. If you put your 92+ savings to extra principal payments you would eventually lower the amatorization to the original loan amount after the break even threshold was met.  That's usually why I don't count them in the break even. Also, with the current loan being so new you will probable be paying more principal payoff every month with the lower rate. Around 20 bucks or so from my quick estimate.

So you should look at how long it will take your savings to recoup the cost to refi (the 4k amount) Assuming 110/mo savings between decreased PI and increased principal paydown you would be at around a 37 mo break even which isn't too great.  I aim for 18-24mo break even when refinancing.  If you could get closing costs down to 2k the numbers would be much more favorable.

These are super rough numbers but it's the process I use for analyzing break evens during a refi.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on April 18, 2019, 09:08:55 AM
Thank you, that was very helpful
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 18, 2019, 09:13:36 AM
Run the numbers if you pay the same amount on the new mortgage as you are on the old one.   That might save you some money.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on April 18, 2019, 09:32:37 AM
My calculation of the current payoff was based off of our last mortgage statement. When accrued interest is added, the current payoff is actually $312,428, which makes the closing cost only $2,338, giving a payoff by your calculation of 24 months.

I feel dumb for not taking into account accrued interest. In my defense, it was late when we talked (and I was feeding a baby), and I'm currently fasting, so my brain is not functioning correctly.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 19, 2019, 07:40:57 AM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 19, 2019, 08:24:07 AM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html

The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.

Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on April 19, 2019, 09:29:45 AM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html

The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.

Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.

The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate.  Because you need to account for inflation.  So 4%-2% = 2%.  Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage.  That's a pretty freaking low bar. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 19, 2019, 09:46:43 AM
Thinking about it more, it's not unlike my skeptical uncle, who holds almost his entire NW (6 figures easily) in a savings account, because he 'doesn't trust' the market.  He can plot what his money will be worth in 1, 2, 5 years (minus inflationary effects) and that brings him comfort.  The idea of not knowing what his portfolio would be worth in 5 years if he had it invested in, say, VFINX is too much for him.

I shudder to think what the opportunity cost of 40+ years of savings in his local bank ahve been.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on April 19, 2019, 10:17:58 AM
Thinking about it more, it's not unlike my skeptical uncle, who holds almost his entire NW (6 figures easily) in a savings account, because he 'doesn't trust' the market.  He can plot what his money will be worth in 1, 2, 5 years (minus inflationary effects) and that brings him comfort.  The idea of not knowing what his portfolio would be worth in 5 years if he had it invested in, say, VFINX is too much for him.

I shudder to think what the opportunity cost of 40+ years of savings in his local bank ahve been.

I'm sure his bank thanks him for it!
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on April 19, 2019, 12:53:06 PM
Thinking about it more, it's not unlike my skeptical uncle, who holds almost his entire NW (6 figures easily) in a savings account, because he 'doesn't trust' the market.  He can plot what his money will be worth in 1, 2, 5 years (minus inflationary effects) and that brings him comfort.  The idea of not knowing what his portfolio would be worth in 5 years if he had it invested in, say, VFINX is too much for him.

I shudder to think what the opportunity cost of 40+ years of savings in his local bank ahve been.

See, a guy that like to me could maybe be a candidate for an annuity product maybe even like a variable one where basically you are letting the counterparty skim the heck out of the market returns in return for lower quoted volatility, just being cognizant of costs of course.  Like an annuity product with some I bonds and treasuries or CDs that he will hold to maturity.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 20, 2019, 08:17:58 AM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html

The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.

Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
I posted this article without details, because I wanted to let people form their own impressions. As usual, nereo, you've hit on the key point: fear of the unknown.

I vividly remember that early in the investment stage, small losses were really hard to take and made me very fearful. I see it on this forum whenever there is a pullback in the market. (I used to see it on the thread that's the opposite of this one, but I don't go there any more.) As my investments grew, they developed a kind of buoyancy. When my stache started earning more than I did in a month, things got really exciting. Once it grew to several year's salary,  I started to feel kind of giddy. When it exceeded my mortgage balance, I unexpectedly felt strong and mighty. When the markets tanked during the Great Recession, I increased my savings rate. When the markets recovered, I was suddenly FI. It made me feel bulletproof. I gave my employer the well-deserved middle finger and set out to enjoy the shit out of life. These days, I fear for nothing that money can cure. And having a shitload of money cures a LOT.

It wouldn't have happened as quickly if I was focusing on "killing" the mortgage. Had I just offed the mortgage, I'd have a paid-for house without the means to stop working. The glee one expects to feel when the house is paid off is fleeting, compared the the elation that comes from having more money than you ever dreamt possible.

If you're lucky enough to have some combination of high salary and moderate cost of living that you can max out all available savings options and still prepay your mortgage, then go for it! But the majority of zealous mortgage killers are unwittingly shooting themselves in the foot. For someone like me who was single, lived in a HCOLA, and never earned over 100k*, the fact that I'm now FIRE, with a stockpile of money is still a bit surreal. No, amazingly surreal. Every single freedom-filled** day.

I am forever grateful to the long-ago boyfriend who opened my steadfastly blind eyes to this concept. Wherever he is, I'm sure he hit FIRE long ago. Wherever he is, I thank him for helping me reach FIRE, too. I hang around here to help others do what he did for me. Just doin' my part to pay it forward.

*I have reported elsewhere on this forum that I broke the $100k mark once in my career.  A recent visit to the Social Security website has disproved that recollection. Which makes the size of my current stache even more unbelievable. This shit works, people!

** Those of you who have read my musings elsewhere (including my sorely-needs-an-update journal) may recall that my MIL has ALZ and lives with us. I still feel I live a freedom-filled life with many choices, because we have a big stache and so does she. We have the freedom to have her live with us (and pay cash for a clown house that suits our famiy's needs), because there is plenty of money. We make our choices based on what's best for our situation, not because it's all our finances will allow. That freedom is endlessly liberating. I want everyone to experience it.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 20, 2019, 11:51:54 AM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html

The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.

Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.
I posted this article without details, because I wanted to let people form their own impressions. As usual, nereo, you've hit on the key point: fear of the unknown.

I vividly remember that early in the investment stage, small losses were really hard to take and made me very fearful. I see it on this forum whenever there is a pullback in the market. (I used to see it on the thread that's the opposite of this one, but I don't go there any more.) As my investments grew, they developed a kind of buoyancy. When my stache started earning more than I did in a month, things got really exciting. Once it grew to several year's salary,  I started to feel kind of giddy. When it exceeded my mortgage balance, I unexpectedly felt strong and mighty. When the markets tanked during the Great Recession, I increased my savings rate. When the markets recovered, I was suddenly FI. It made me feel bulletproof. I gave my employer the well-deserved middle finger and set out to enjoy the shit out of life. These days, I fear for nothing that money can cure. And having a shitload of money cures a LOT.

It wouldn't have happened as quickly if I was focusing on "killing" the mortgage. Had I just offed the mortgage, I'd have a paid-for house without the means to stop working. The glee one expects to feel when the house is paid off is fleeting, compared the the elation that comes from having more money than you ever dreamt possible.

If you're lucky enough to have some combination of high salary and moderate cost of living that you can max out all available savings options and still prepay your mortgage, then go for it! But the majority of zealous mortgage killers are unwittingly shooting themselves in the foot. For someone like me who was single, lived in a HCOLA, and never earned over 100k*, the fact that I'm now FIRE, with a stockpile of money is still a bit surreal. No, amazingly surreal. Every single freedom-filled** day.

I am forever grateful to the long-ago boyfriend who opened my steadfastly blind eyes to this concept. Wherever he is, I'm sure he hit FIRE long ago. Wherever he is, I thank him for helping me reach FIRE, too. I hang around here to help others do what he did for me. Just doin' my part to pay it forward.

*I have reported elsewhere on this forum that broke the $100k mark once in my career.  A recent visit to the Social Security website has disproved that recollection. Which makes the size of my current stache even more unbelievable. This shit works, people!

** Those of you who have read my musings elsewhere (including my sorely-needs-an-update journal) may recall that my MIL has ALZ and lives with us. I still feel I live a freedom-filled life with many choices, because we have a big stache and so does she. We have the freedom to have her live with us (and pay cash for a clown house that suits our famiy's needs), because there is plenty of money. We make our choices based on what's best for our situation, not because it's all our finances will allow. That freedom is endlessly liberating. I want everyone to experience it.

Thanks for sharing your story!  It's great to get insight into other peoples stories and how investing long term has given them so many options.

The psychology behind investing is absolutely fascinating to me.  Especially the fear of the market going down when that is the exact time those who are still in the accumulation phase should be extremely excited for discounted stocks.  I've been investing over paying down our "mortgages" (only 1 mortgage at a time) for about 6 years now and the level of confidence that I have in my investment strategy has only grown over that time.  I've seen a couple of dips of 10-20% in the market and with every dip, I have only gained the confidence that the market will return to previous highs eventually and the best action is to keep on investing.  It has actually gotten to the point that I get excited when I start to see signs of correction because I know the best possible scenario for us would be a 3-6 year correction where we can get stocks at a great discount while we are still contributing to investments.

I feel like those in the mortgage payoff club may not understand just how valuable it is to invest through a correction, downturn, volatility, whatever you want to call it.  High volatility can actually help boost long term returns while in the accumulation phase and if they decide to throw money at their mortgage during these times, it will have a huge effect on their portfolio over the long term.  And this doesn't even include the tax benefits you can get from harvesting losses during a downturn.... VTI to VOO anyone? Cough, cough...

The following graphs are a great example of the power of investing through a downturn.  Short example but great.  I hope to be able to invest through a larger downturn like you were able to do someday...  It will come, just have to stay patient and ready.


VTI through the latest dip.

(https://i.imgur.com/6Y3SxDS.jpg?1)

PC NW while investing through the dip which has not fully recovered yet.

(https://i.imgur.com/NPePoAn.jpg?1)

VTI Discount at time of NW recovery to the previous high.  Still, almost a 10% discount when my NW recovered!

(https://i.imgur.com/6YkpJAv.jpg?1)


All of this to say that the farther and longer the dip, the higher the recovery as long as you invest through it.

Your story was great cause I feel like it gave me a glimpse into my future if I stick to the path I am currently on.  Very encouraging and thanks again for sharing!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 20, 2019, 01:24:01 PM
Love your charts @FIreDrill!

I like sharing my story, because even I can't believe how well this stuff works, and I'm six years post-FIRE. Pinch me, I must be dreaming.

It's so frustrating that we've effectively been banned from posting on the mortgage payoff thread(s). Over here, we're mostly preaching to the choir. We aren't the hard-headed ones (the way I was) that need to learn the lesson. By the time they figure it out, they will be many years away from this place and wishing one of two things. That they didn't have to work so long or that they had saved more money. Your primary home won't pay its own maintenance, taxes or utilities, nor will it buy groceries or cover your medical bills.

Carry on, smart mortgage holders...

Oh yeah, my primary house may have been purchased for cash, but we still have mortgages on four other properties. Long live cheap, tax deductible mortgages!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIREstache on April 20, 2019, 01:28:16 PM

I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades.  It was a great feeling of accomplishment at the time.  Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 20, 2019, 01:30:23 PM

I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades.  It was a great feeling of accomplishment at the time.  Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
Hmmm, how many years after you paid off the house did you continue to work?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIREstache on April 20, 2019, 01:49:09 PM

I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades.  It was a great feeling of accomplishment at the time.  Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
Hmmm, how many years after you paid off the house did you continue to work?

15 since the last one, but the loan was pretty small to begin with because I put so much down.  The interest rate was a lot higher than it is today.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 20, 2019, 01:50:43 PM

I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades.  It was a great feeling of accomplishment at the time.  Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
I definitely see the advantage of paying off the mortgage before firing in order to get aca subsidies.  I also can acknowledge that your rate was probably far higher than what most of us have today.

I think my biggest concern with the mortgage payoff crew right now is that most are doing this because it "feels good".  The whole premise of FI is doing things that don't necessarily feel good in order to become FI.

As an investor, making decisions based on feelings is a horrible idea and it's why most people underperform the market.  "Oh man stocks are high, I should pull out now".  Then they miss the next 20% run up and get back into the market and loose all that gain.  Making the decision to pay off a low rate mortgage because it feels good makes me believe that they will not do as well as us once they actually get into the investing stage.  Fear will have more power over their decisions and it will likely translate to poor investment decisions and a AA tilted much heavier towards bonds and lower returns.  The thing I love most about invest instead of paying off the mortgage is that I have a head start on concurring that fear.  Market volatility has been teaching me valuable lessons with my very real money.  My stock fear level is much lower than it was 6 years ago.  We already have a head start on conquering this fear compared to the pay off your mortgage club.

If someone said they were going to change there AA from 90/10 to 30/70 because they feel like the market is going to stagnate or correct, we would all be ripping them apart.  But apparently paying down the cheapest debt you will ever aquire in you lifetime because it feels good is totally fine...  I just don't get it.

Also, I'm really not trying to say you did the wrong thing.  You probably did the right thing looking at the rates around when you paid off your home.  But with today's rates, it's a totally different story and equation to run.

Another disclaimer, I believe having a paid off mortgage when you FIRE can be a very good move. My main complaint is with people that have a long timeline for investing and achieving FIRE.

Sent from my moto g(6) using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 20, 2019, 03:42:30 PM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html

The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.

Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.

The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate.  Because you need to account for inflation.  So 4%-2% = 2%.  Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage.  That's a pretty freaking low bar.

In order to beat 4%, you need to get better than 4% returns in your alternative investment. Inflation has practically nothing to do with it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 20, 2019, 04:38:52 PM

I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades.  It was a great feeling of accomplishment at the time.  Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
Hmmm, how many years after you paid off the house did you continue to work?

15 since the last one, but the loan was pretty small to begin with because I put so much down.  The interest rate was a lot higher than it is today.
Sorry, my question wasn't specific enough. Are you FIRE? If so, for how long?
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on April 20, 2019, 04:53:31 PM
Wow, I love this thread even more than "Top is in". Thank you Dicey.

PS.....hope Boarder is doing fine as well
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on April 20, 2019, 05:21:25 PM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html

The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.

Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.

The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate.  Because you need to account for inflation.  So 4%-2% = 2%.  Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage.  That's a pretty freaking low bar.

In order to beat 4%, you need to get better than 4% returns in your alternative investment. Inflation has practically nothing to do with it.

Historically stocks with dividends reinvested will return about 9%.  Then people say you must count for inflation and so they subtract 2 or 3 percent to get “real returns”.  So if you do that for stock returns you need to do it for the mortgage interest too, so it’s a consistent comparison. 

Or if you don’t want to include inflation in any of the calculations then 9% return for stocks really crushes 4% for paying the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 20, 2019, 05:51:11 PM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html

The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.

Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.

The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate.  Because you need to account for inflation.  So 4%-2% = 2%.  Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage.  That's a pretty freaking low bar.

In order to beat 4%, you need to get better than 4% returns in your alternative investment. Inflation has practically nothing to do with it.

Historically stocks with dividends reinvested will return about 9%.  Then people say you must count for inflation and so they subtract 2 or 3 percent to get “real returns”.  So if you do that for stock returns you need to do it for the mortgage interest too, so it’s a consistent comparison. 

Or if you don’t want to include inflation in any of the calculations then 9% return for stocks really crushes 4% for paying the mortgage.

True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIREstache on April 20, 2019, 10:05:32 PM

I've paid off some home mortgages, it's been many years back, so I've owned my home for nearly two decades.  It was a great feeling of accomplishment at the time.  Since I don't have a mortgage payment, I'll be able to keep my taxable income low during FIRE to qualify for nice ACA subsidies if the ACA is still around next year.
Hmmm, how many years after you paid off the house did you continue to work?

15 since the last one, but the loan was pretty small to begin with because I put so much down.  The interest rate was a lot higher than it is today.
Sorry, my question wasn't specific enough. Are you FIRE? If so, for how long?
I'm not FIRE yet.  Hopefully, in one year if all goes well.  So at that point, my answer will be 16 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 21, 2019, 07:14:55 AM
Well looky here, something interesting on Yahoo Finance:

https://finance.yahoo.com/news/pete-planner-pay-off-mortgage-100006133.html

The author has an interesting way of phrasing the decision: The known or the unknown. It’s been the fork in the road since the beginning of time.

Perhaps its this fear of the unknown that keeps many taking what is generally the more lucrative path. I see this crop up in discussions all the time (e.g. "I know what my finances will look like if I pay off the mortgage, but I just don't know what things will look like if I invest instead"). I've never personally had a problem with that kind of uncertainty, relying on history and probability to bolster my decision. But it's a big obstacle for others.

The funny thing is, the "unknown" stock returns don't even have to beat your 4% mortgage rate.  Because you need to account for inflation.  So 4%-2% = 2%.  Your "unknown stock returns" only have to beat 2% in order to beat paying off the mortgage.  That's a pretty freaking low bar.

In order to beat 4%, you need to get better than 4% returns in your alternative investment. Inflation has practically nothing to do with it.

Historically stocks with dividends reinvested will return about 9%.  Then people say you must count for inflation and so they subtract 2 or 3 percent to get “real returns”.  So if you do that for stock returns you need to do it for the mortgage interest too, so it’s a consistent comparison. 

Or if you don’t want to include inflation in any of the calculations then 9% return for stocks really crushes 4% for paying the mortgage.

True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.

Is that true in this case?   I'll admit that this one hurts my sleepy head.

If you are paying off your mortgage in the future with inflated dollars, you are getting an inflation benefit on the principal and the interest. 

But if you pay it off with today's dollars, you aren't.   It seems like I'm getting the benefit of inflation by paying it off later.   Correspondingly, deflation would be a bitch.


Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 23, 2019, 08:02:15 AM
-SNIP-

True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.

Is that true in this case?   I'll admit that this one hurts my sleepy head.

If you are paying off your mortgage in the future with inflated dollars, you are getting an inflation benefit on the principal and the interest. 

But if you pay it off with today's dollars, you aren't.   It seems like I'm getting the benefit of inflation by paying it off later.   Correspondingly, deflation would be a bitch.

I find it's illustrative sometimes to use extreme examples to try to show a point. Let's assume you have a mortgage with a 15% interest rate, and a crystal ball showing that inflation is going to be 15% (nobody else has access to this crystal ball, so to them inflation is going to be a future mystery). In this case, does it make sense to not pay off the mortgage because of the gonzo inflation? Well, we know historically that stocks do not correlate well with inflation*; in other words, there's no formula where expected stock returns equal x % plus (y times inflation %). So your expected returns on your money, even given the shitty level of inflation, is either going to be the expected returns from equity or the 15% return from your mortgage (assuming you have enough liquid assets to where you aren't going to lose your house and your job at the same time). Granted, if I had this crystal ball I'd probably load up on TIPS. :)

*A study was linked to in one of these threads that shows equities might have a delayed correlation with inflation over a long period of time (decade). A decade is also the amount of time where sequence of returns risk is very real, so I think "waiting it out" would not be a great option.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 23, 2019, 08:11:02 AM
-SNIP-

True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.

Is that true in this case?   I'll admit that this one hurts my sleepy head.

If you are paying off your mortgage in the future with inflated dollars, you are getting an inflation benefit on the principal and the interest. 

But if you pay it off with today's dollars, you aren't.   It seems like I'm getting the benefit of inflation by paying it off later.   Correspondingly, deflation would be a bitch.

I find it's illustrative sometimes to use extreme examples to try to show a point. Let's assume you have a mortgage with a 15% interest rate, and a crystal ball showing that inflation is going to be 15% (nobody else has access to this crystal ball, so to them inflation is going to be a future mystery). In this case, does it make sense to not pay off the mortgage because of the gonzo inflation? Well, we know historically that stocks do not correlate well with inflation*; in other words, there's no formula where expected stock returns equal x % plus (y times inflation %). So your expected returns on your money, even given the shitty level of inflation, is either going to be the expected returns from equity or the 15% return from your mortgage (assuming you have enough liquid assets to where you aren't going to lose your house and your job at the same time). Granted, if I had this crystal ball I'd probably load up on TIPS. :)

*A study was linked to in one of these threads that shows equities might have a delayed correlation with inflation over a long period of time (decade). A decade is also the amount of time where sequence of returns risk is very real, so I think "waiting it out" would not be a great option.

But the interest on the mortgage is only on the principle balance and thus gets smaller every year.
The prices at 15% inflation year after year are compounding, so paying off the mortgage would be really, really cheap after a few years.

Isn't that right?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 23, 2019, 08:48:52 AM
-SNIP-

True. Either subtract inflation for both or don't. It wasn't clear in your original statement that you were considering real returns, as many (most?) graphs and reasoning around here generally refer to nominal returns.

Is that true in this case?   I'll admit that this one hurts my sleepy head.

If you are paying off your mortgage in the future with inflated dollars, you are getting an inflation benefit on the principal and the interest. 

But if you pay it off with today's dollars, you aren't.   It seems like I'm getting the benefit of inflation by paying it off later.   Correspondingly, deflation would be a bitch.

I find it's illustrative sometimes to use extreme examples to try to show a point. Let's assume you have a mortgage with a 15% interest rate, and a crystal ball showing that inflation is going to be 15% (nobody else has access to this crystal ball, so to them inflation is going to be a future mystery).

Ok, you've got me scratching my head with this example.
Here's what I see, adding some numbers to your hypothetical. 
Suppose you take out a $200k loan at 15% with a 30 year note in 2019.  At the same time inflation would be 15% per year. The PI portion will be $2,528/month, and with that obscenely high interest rate in the first few years you will pay off < 1% of the principle.
But in real (2019 dollars) terms it looks like this:
Monthly PI payment (2019 dollars)

So... what are you trying to emphasize here? 
From what I see, the monthly payment is cut in half in 5 years, and by year 15 I am paying essentially nothing in PI (~9% of the original).  Would I throw excess funds to get rid of this mortgage sooner?  heck no! And that is considering that even after 15 years of payments I would still have >$180k of the original $200k remaining (about 90% of the principle).
Genuinely curious...
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on April 23, 2019, 09:19:43 AM
Yeah the inflation example is a boon to the mortgage debtor to my mind (I mean hyperinflation sucks for everyone but just confining the analysis to this one decision). 

You also have the one-way call option on inflation with the gov't subsidized 30 year fixed rate loan.  If I obtain my fixed rate loan when inflation expectations are 2% (and nominal rates are ~3%) the bank can't move the rate up if short term rates go to 15% a couple of years later.  Alternatively, if we had deflation like in 2009 and rates crater, the mortgage debtor has the option to refinance (not totally without risk, but to me it is about the probabilities). 

It does makes sense to compare apples to apples (either nominal or real expected future rates) for the analysis on the front end; 10% nominal historical returns on stocks versus 4% nominal or 8% versus 2%, as an example. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 23, 2019, 09:38:05 AM
When we're investing, we should be looking at our investment alternatives. I agree that the mortgage value and payment would both diminish in value fairly quickly at 15% inflation. But in this case, if we received historical stock returns (let's use 10% for easy calculations), the purchasing power of that equity would be diminishing even faster.

Another way to look at it, we're paying $30,000 per year in interest at the beginning of the mortgage (15%). If we had the $200,000 to pay it off immediately, we could either get an immediate return of $30,000 per year on those funds, or we could invest it in equities and expect to earn $20,000 in the first year. In the second year, we'd have that $30,000 per year (plus principal payments) invested into the stock market earning 3,000 per year plus the $30k from interest savings (for $33k total), whereas the alternative all equities investment would earn $22k. I imagine you can see where this is going. Here's the table showing that if you immediately paid off the mortgage, you'll eventually end up $1.75M richer than investing instead (granted, $1.75M would be equivalent to $20,000 if 15% inflation were to continue uninterrupted for 30 years).

 POTM     DPOYM
 $-                       $200,000.00
 $2,528.89     $201,666.67
 $5,078.85     $203,347.22
 $7,650.07     $205,041.78
 $10,242.71     $206,750.46
 $12,856.95     $208,473.38
 $15,492.99     $210,210.66
 $18,150.98     $211,962.42
 $20,831.13     $213,728.77
 $23,533.61     $215,509.84
 $26,258.62     $217,305.76
 $29,006.33     $219,116.64
(......................................)
 $5,617,432.48     $3,902,172.68
 $5,666,773.31     $3,934,690.78
 $5,716,525.31     $3,967,479.87

At this point, the home is paid off and you're clearly ahead by paying off the mortgage. In this scenario, you would break even in your equities account in about 11 years (of course you're ahead on day two due to the equity in your home).

All of this is to show that inflation doesn't matter when investing in two different assets with little correlation to inflation. Since inflation affects both equally, it should essentially drop out of the equation and you should consider risks and expected returns in deciding where to invest.

ETA: Here's the full annual table:

Year    POTM             DPOYM
0    $-                       $200,000.00
1    $31,776.94     $220,942.61
2    $66,881.34     $244,078.19
3    $105,661.63     $269,636.37
4    $148,502.72     $297,870.82
5    $195,829.84     $329,061.79
6    $248,112.72     $363,518.86
7    $305,870.30     $401,584.03
8    $369,675.86     $443,635.13
9    $440,162.69     $490,089.52
10    $518,030.42     $541,408.30
11    $604,051.91     $598,100.82
12    $699,080.98     $660,729.79
13    $804,060.83     $729,916.84
14    $920,033.45     $806,348.67
15    $1,048,149.91     $890,783.91
16    $1,189,681.85     $984,060.63
17    $1,346,034.02     $1,087,104.63
18    $1,518,758.31     $1,200,938.69
19    $1,709,569.09     $1,326,692.67
20    $1,920,360.26     $1,465,614.73
21    $2,153,224.01     $1,619,083.74
22    $2,410,471.64     $1,788,622.97
23    $2,694,656.46     $1,975,915.16
24    $3,008,599.14     $2,182,819.30
25    $3,355,415.72     $2,411,389.00
26    $3,738,548.54     $2,663,892.94
27    $4,161,800.36     $2,942,837.35
28    $4,629,372.18     $3,250,990.87
29    $5,145,904.88     $3,591,412.10
30    $5,716,525.31     $3,967,479.87
Title: Re: DONT Payoff your Mortgage Club
Post by: Mississippi Mudstache on April 23, 2019, 09:41:14 AM
I finally get to participate in this thread. We've been paying down our mortgage pretty aggressively for two years, because we bought with a 10% down payment and I was eager to ditch the PMI. As we got close to the 20% threshold, I phoned the bank to ask about getting PMI removed and they informed me that my loan had mandatory PMI for 11 years, regardless of my equity (which is something that was never clarified for me during the mortgage-shopping process).

So instead, I took advantage of the current low interest rates and re-financed. I was able to drop the interest rate modestly (4.25% to 4.125%), but better yet I was able to nix the PMI for the next 9 years at a savings of $2000/year. And since I recast the mortgage for 30 years, I now have a longer term for which to enjoy the benefits of massive inflation hedge :)
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 23, 2019, 09:47:18 AM
I finally get to participate in this thread. We've been paying down our mortgage pretty aggressively for two years, because we bought with a 10% down payment and I was eager to ditch the PMI. As we got close to the 20% threshold, I phoned the bank to ask about getting PMI removed and they informed me that my loan had mandatory PMI for 11 years, regardless of my equity (which is something that was never clarified for me during the mortgage-shopping process).

So instead, I took advantage of the current low interest rates and re-financed. I was able to drop the interest rate modestly (4.25% to 4.125%), but better yet I was able to nix the PMI for the next 9 years at a savings of $2000/year. And since I recast the mortgage for 30 years, I now have a longer term for which to enjoy the benefits of massive inflation hedge :)
Congratulations! Nice move and welcome to the club :)

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on April 23, 2019, 09:51:18 AM
If 15% inflation materialized (it has to be expected to be priced in to the 30 year mortgage rates), equity securities would almost certainly have to re-price to discount inflation expectations and to provide a reasonable expectation of a positive real equity risk premium.  Like in the late 70's and early 80's; so you would probably be looking at 15% mortgage versus stocks with earnings yields of like 20%.
 
But yeah if you make the assumption of mortgage rates at 15% and you set the stock returns for the same period at the average over the prior 100 years (~10%) you would come out ahead.

It's not really any different than assuming equity returns over the next 30 years are only 2% nominal so it is better to pay off my 4% mortgage with additional funds.  Either way you are making a bet based on probabilities. 

But if rates are low by historical standards, to me the one-way option on rates and future inflation makes the decision easy.  Heads I win...tails, I refinance.

Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 23, 2019, 12:30:56 PM
I think that you are assuming a much higher than historical inflation (and a mortgage rate that reflects a pretty accurate appraisal of future inflation) with only average expected equity returns.  If 15% inflation materialized, equity securities would almost certainly have to re-price to discount inflation expectations and to provide a reasonable expectation of a positive real equity risk premium.  Like in the late 70's and early 80's; so you would probably be looking at 15% mortgage versus stocks with earnings yields of like 20%.
 
But yeah if make the assumption of mortgage at 15% and you set the stock returns for the same period at the average over the prior 100 years you would come out ahead.

It's not really any different than assuming equity returns over the next 30 years are only 2% nominal so it is better to pay off my 4% mortgage with additional funds.  Either way you are making a bet based on probabilities. 

But if rates are low by historical standards to me the one-way option on rates and inflation makes the decision easy.

I agree with a lot of what you're saying. I am a proud member of the DPOYM club (under most circumstances). However, historical data shows that equities don't re-price immediately but have a very delayed reaction (and actually tend to do very poorly in nominal terms during the immediate inflationary years). Let's take actual numbers from the 70's and compare it to our hypothetical $200k mortgage at 15% interest. Here's what we get if we start at the beginning of the inflationary period of the 1970's (around 1966, though it's debatable).
Spoiler: show
8 years breakeven in equities (not even considering principal).


Year           Inflation   Return    POTM             DPOYM
1/1/1966   -              -             $0                  $200,000.00
1966    3.50%   -9.97%    $28,833.75     $180,058.09
1967    3.00%   23.80%    $69,655.43     $222,917.26
1968    4.70%   10.81%    $109,176.22     $247,025.45
1969    6.20%   -8.24%    $129,274.79     $226,667.17
1970    5.60%   3.56%    $164,765.48     $234,739.12
1971    3.30%   14.22%    $220,701.53     $268,121.72
1972    3.40%   18.76%    $295,287.40     $318,408.92
1973    8.70%   -14.31%    $281,213.21     $272,850.82
1974    12.30%   -25.90%    $234,790.48     $202,177.59
1975    6.90%   37.00%    $357,611.62     $276,973.46
1976    4.90%   23.83%    $476,796.68     $342,979.00
1977    6.70%   -6.98%    $472,805.31     $319,040.08
1978    9.00%   6.51%    $534,915.90     $339,807.31
1979    13.30%   18.52%    $667,136.30     $402,737.89
1980    12.50%   31.74%    $914,015.62     $530,547.75
1981    8.90%   -4.70%    $900,668.21     $505,599.32
1982    3.80%   20.42%    $1,118,021.08     $608,837.93
1983    3.80%   22.34%    $1,401,491.17     $744,835.00
1984    3.90%   6.15%    $1,518,908.06     $790,613.62
1985    3.80%   31.24%    $2,028,427.36     $1,037,562.97
1986    1.10%   18.49%    $2,436,729.38     $1,229,455.87
1987    4.40%   5.81%    $2,609,598.34     $1,300,920.71
1988    4.40%   16.54%    $3,074,008.58     $1,516,056.48
1989    4.60%   31.48%    $4,076,680.94     $1,993,238.04
1990    6.10%   -3.06%    $3,981,634.72     $1,932,156.23
1991    3.10%   30.23%    $5,220,410.05     $2,516,340.63
1992    2.90%   7.49%    $5,643,097.11     $2,704,908.35
1993    2.70%   9.97%    $6,237,406.52     $2,974,507.96
1994    2.70%   1.33%    $6,350,657.44     $3,013,947.58
1995    2.50%   37.20%    $8,748,787.55     $4,134,991.37

(Apologies for the crappy table formatting.)
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 23, 2019, 12:33:03 PM
I finally get to participate in this thread. We've been paying down our mortgage pretty aggressively for two years, because we bought with a 10% down payment and I was eager to ditch the PMI. As we got close to the 20% threshold, I phoned the bank to ask about getting PMI removed and they informed me that my loan had mandatory PMI for 11 years, regardless of my equity (which is something that was never clarified for me during the mortgage-shopping process which I didn't know because l didn't read the document before I signed it).
Fixed that for you.

The realtors and lawyers comment that my wife and I are pretty much the only people they know who actually read those documents before we sign them.

Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 23, 2019, 12:41:09 PM
Looks like in the 30-year period discussed (1966-1995), a 6% mortgage would have been about the breakeven point.

Year     Inflation   Return    POTM     DPOYM
1/1/1966   -       -               $0                $200,000.00
1966    3.50%   -9.97%    $13,671.83     $180,058.09
1967    3.00%   23.80%    $33,027.86     $222,917.26
1968    4.70%   10.81%    $51,767.06     $247,025.45
1969    6.20%   -8.24%    $61,297.01     $226,667.17
1970    5.60%   3.56%    $78,125.30     $234,739.12
1971    3.30%   14.22%    $104,647.97     $268,121.72
1972    3.40%   18.76%    $140,013.65     $318,408.92
1973    8.70%   -14.31%    $133,340.22     $272,850.82
1974    12.30%   -25.90%    $111,328.39     $202,177.59
1975    6.90%   37.00%    $169,565.34     $276,973.46
1976     4.90%   23.83%    $226,078.20     $342,979.00
1977    6.70%   -6.98%    $224,185.65     $319,040.08
1978    9.00%   6.51%    $253,636.04     $339,807.31
1979    13.30%   18.52%    $316,329.75     $402,737.89
1980    12.50%   31.74%    $433,390.20     $530,547.75
1981    8.90%   -4.70%    $427,061.38     $505,599.32
1982    3.80%   20.42%    $530,121.55     $608,837.93
1983    3.80%   22.34%    $664,531.89     $744,835.00
1984    3.90%   6.15%    $720,206.36     $790,613.62
1985    3.80%   31.24%    $961,800.33     $1,037,562.97
1986    1.10%   18.49%    $1,155,401.07     $1,229,455.87
1987    4.40%   5.81%    $1,237,368.72     $1,300,920.71
1988    4.40%   16.54%    $1,457,573.75     $1,516,056.48
1989    4.60%   31.48%    $1,933,001.48     $1,993,238.04
1990    6.10%   -3.06%    $1,887,934.31     $1,932,156.23
1991    3.10%   30.23%    $2,475,312.76     $2,516,340.63
1992    2.90%   7.49%    $2,675,734.31     $2,704,908.35
1993    2.70%   9.97%    $2,957,532.42     $2,974,507.96
1994    2.70%   1.33%    $3,011,231.54     $3,013,947.58
1995    2.50%   37.20%    $4,148,330.35     $4,134,991.37
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on April 23, 2019, 01:39:50 PM
Yeah, I mean you can find cuts where long-term treasury bonds (which is really the same thing as prepaying a gov't guaranteed fixed 30 year mortgage give or take a ~100 bps spread) outperformed stocks.  Seems like one should probably be looking at CAGRs for rolling 30 year periods and getting a win loss rate, but I think that data is already in "stocks for the long run" and "triumph of the optimists." 

It was a lot tougher decision in the early 80's with the potential 18% upside/prepayment payoff; but of course the reason mortgage rates were so high and stocks were so cheap was that stagflation was projected forward to infinity.  [Just like no-flation is right now.] 
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 23, 2019, 02:56:23 PM
Looks like a 15% mortgage would have been about the right breakeven point in 1982, a period that included fairly mild inflation.

Year     Inflation   Return    POTM           DPOYM
1/1/1982   -          -           $-                $200,000.00
1982    3.80%   20.42%    $33,444.93     $240,838.11
1983    3.80%   22.34%    $74,651.55     $294,634.49
1984    3.90%   6.15%    $110,519.00     $312,743.15
1985    3.80%   31.24%    $180,125.87     $410,428.94
1986    1.10%   18.49%    $246,592.31     $486,336.04
1987    4.40%   5.81%    $292,154.70     $514,605.40
1988    4.40%   16.54%    $373,324.81     $599,706.69
1989    4.60%   31.48%    $525,952.00     $788,465.47
1990    6.10%   -3.06%    $539,716.15     $764,303.33
1991    3.10%   30.23%    $737,832.80     $995,389.24
1992    2.90%   7.49%    $824,607.71     $1,069,981.00
1993    2.70%   9.97%    $938,655.80     $1,176,626.56
1994    2.70%   1.33%    $981,649.50     $1,192,227.70
1995    2.50%   37.20%    $1,382,766.42     $1,635,679.16
1996    3.30%   22.68%    $1,730,179.34     $2,006,666.99
1997    1.70%   33.10%    $2,338,301.52     $2,670,947.07
1998    1.60%   28.34%    $3,035,574.81     $3,427,838.81
1999    2.70%   20.89%    $3,703,080.95     $4,143,754.97
2000    3.40%   -9.03%    $3,397,601.63     $3,769,498.53
2001    1.60%   -11.85%    $3,023,542.70     $3,322,822.03
2002    2.40%   -21.97%    $2,386,403.56     $2,592,929.35
2003    1.90%   28.36%    $3,097,736.58     $3,328,175.21
2004    3.30%   10.74%    $3,462,496.20     $3,685,713.62
2005    3.40%   4.83%    $3,660,970.03     $3,863,898.61
2006    2.50%   15.61%    $4,265,256.72     $4,467,152.02
2007    4.10%   5.48%    $4,530,373.66     $4,712,163.49
2008    0.10%   -36.55%    $2,899,216.36     $2,989,757.27
2009    2.70%   25.94%    $3,685,416.82     $3,765,157.81
2010    1.50%   14.82%    $4,264,231.39     $4,323,195.33
2011    3.00%   2.10%    $4,384,376.01     $4,413,912.17
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on April 23, 2019, 03:46:28 PM
So instead, I took advantage of the current low interest rates and re-financed. I was able to drop the interest rate modestly (4.25% to 4.125%), but better yet I was able to nix the PMI for the next 9 years at a savings of $2000/year. And since I recast the mortgage for 30 years, I now have a longer term for which to enjoy the benefits of massive inflation hedge :)

Woohoo!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 23, 2019, 05:08:18 PM
When we're investing, we should be looking at our investment alternatives. I agree that the mortgage value and payment would both diminish in value fairly quickly at 15% inflation. But in this case, if we received historical stock returns (let's use 10% for easy calculations), the purchasing power of that equity would be diminishing even faster.

[snip]


I have no idea what relevance such an example has on this discussion, or to the real world.  Basically what you are saying is that if real returns are negative for 30 years and less than the mortgage rate a person should pay off their mortgage.  Ok, sure.  But what kind of assumptions are those? A thirty year recession? Banks lending at rates which perpetually lose money?
I  don't see what point you are trying to make here.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 23, 2019, 06:16:04 PM
When we're investing, we should be looking at our investment alternatives. I agree that the mortgage value and payment would both diminish in value fairly quickly at 15% inflation. But in this case, if we received historical stock returns (let's use 10% for easy calculations), the purchasing power of that equity would be diminishing even faster.

[snip]


I have no idea what relevance such an example has on this discussion, or to the real world.  Basically what you are saying is that if real returns are negative for 30 years and less than the mortgage rate a person should pay off their mortgage.  Ok, sure.  But what kind of assumptions are those? A thirty year recession? Banks lending at rates which perpetually lose money?
I  don't see what point you are trying to make here.

Did you read the rest of my posts? The point I was making today is that future inflation is irrelevant to the question of whether or not to pay off the mortgage. We considered high inflation scenarios and low inflation scenarios, both made up and actual historical examples. In fact, in the historical examples considered, high inflation encouraged mortgage payment, whereas low inflation encouraged investment in equities (though I hesitate to consider inflation as the biggest causal factor). I do give credit to CorpRaider for making the point about keeping higher interest mortgages as an interest rate hedge, but this is still irrelevant to inflation.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 23, 2019, 06:32:00 PM
I'm not asking about your other posts here, I'm asking about the hypothetical scenario you gave, which you prefaced by saying "I find it's illustrative sometimes to use extreme examples to try to show a point."
I don't understand what point you are trying to make by assuming a 30 year recession and market returns that are always less than your mortgage.  Sure, if A is always > B, then invest in A, particularly if you know the outcomes beforehand, as in the scenario. 
But...
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on April 24, 2019, 06:02:57 AM
I think Nereo is right.  Seems like the hypo is basically stating a tautology (or something). 

RE inflation:  I think inflation comes into play when it is unexpected/not accurately priced into the mortgage rate at the time the fixed rate is established. 
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 24, 2019, 07:07:10 AM
I've always thought that a fixed rate mortgage is an inflation hedge.  As long as income will generally rise with inflation, the mortgage becomes cheaper to pay off with the inflated currency.   A high inflation year, provided your income caught up, would only make the following year's payments even cheaper.

Now, there may be a lag of a year before the pay or the rental income increases and that's not good.   Someone living paycheck to paycheck would be hurting big time with any inflation, much less high inflation.   That's why we have emergency funds and FU money.   It acts as a built-in buffer for this kind of problem.

Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 24, 2019, 09:41:09 AM
The purpose of the hypothetical was to show that there is no mechanism by which high inflation might affect the decision of whether to pay off the mortgage or invest in equities (as seemed to be indicated by some posts). This seems to trip up some people because they think future mortgage payments will be cheaper in real terms (which is true), but the alternative investment in equities will be cheapened by a similar percentage, making inflation a wash. If I misread those posts and everybody understands that inflation is irrelevant to the question of whether to invest or pay off the mortgage, I apologize.

High inflation would affect the decision of whether to buy or rent, but that is a different question.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 24, 2019, 11:43:28 AM
The purpose of the hypothetical was to show that there is no mechanism by which high inflation might affect the decision of whether to pay off the mortgage or invest in equities (as seemed to be indicated by some posts). This seems to trip up some people because they think future mortgage payments will be cheaper in real terms (which is true), but the alternative investment in equities will be cheapened by a similar percentage, making inflation a wash. If I misread those posts and everybody understands that inflation is irrelevant to the question of whether to invest or pay off the mortgage, I apologize.

High inflation would affect the decision of whether to buy or rent, but that is a different question.

Inflation is a wash, yes.  That is the whole point.  People in the POYMC state that you need to reduce investment earnings by inflation but then turn around and DON'T reduce the mortgage rate by that same inflation percentile.

In other words, they use the inflation adjusted market returns but then don't inflation-adjust the mortgage.  If you apply inflation to one, you have to apply it to the other, hence the reason its not really part of the calculation at all because they cancel each other out.

S&P 500 with dividends reinvested and without inflation since 1910 is 9.758%.
S&P 500 with dividends reinvested and with inflation since 1910 is 6.570%...  Whice some then use to adjust the 'when to pay it off' formula.
(Source:  https://dqydj.com/sp-500-return-calculator/)

3.5% margin (typically) is a pretty wide gap that changes the math by millions of dollars.  Thats why we are so adamant that people realize the math and do it accurately.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 24, 2019, 04:21:39 PM
I've always thought that a fixed rate mortgage is an inflation hedge.  As long as income will generally rise with inflation, the mortgage becomes cheaper to pay off with the inflated currency.   A high inflation year, provided your income caught up, would only make the following year's payments even cheaper.

That's the way I view it as well.  The dollar amount of the payment remains the same.   So why use fully valued dollars to save tiny, inflated dollars in the future?   Your wages are increasing with inflation (hopefully), so the payment is effectively becoming smaller and smaller on its own.   Even with modest amounts of inflation that monster $1500 mortgage today will seem pretty darn tame in 20 years.   

Works the same way in the withdrawal phase.  The WR increases with inflation, but the mortgage payment doesn't.  FIRECalc simulations confirm that holding a low interest, long term mortgage increases portfolio survivability.  The reason is that inflation is portfolio killer.   1966 was bad year due to following years of stagnant stock values and high inflation.  To survive periods like that you either need a higher initial portfolio value, and/or the ability to lower your WR.   Holding a low interest, long term mortgage in inflationary times does just that. 

Usual caveats which need to be repeated every page or so:  Of course, it is possible to come up with a scenario where paying off a mortgage makes sense and every has different circumstances, financial situations, etc. etc. etc.  And in this discussion we're talking long term, low interest mortgages, blah, blah, blah.   
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 25, 2019, 01:29:13 PM
I've always thought that a fixed rate mortgage is an inflation hedge.  As long as income will generally rise with inflation, the mortgage becomes cheaper to pay off with the inflated currency.   A high inflation year, provided your income caught up, would only make the following year's payments even cheaper.

That's the way I view it as well.  The dollar amount of the payment remains the same.   So why use fully valued dollars to save tiny, inflated dollars in the future?   Your wages are increasing with inflation (hopefully), so the payment is effectively becoming smaller and smaller on its own.   Even with modest amounts of inflation that monster $1500 mortgage today will seem pretty darn tame in 20 years.   

Works the same way in the withdrawal phase.  The WR increases with inflation, but the mortgage payment doesn't.  FIRECalc simulations confirm that holding a low interest, long term mortgage increases portfolio survivability.  The reason is that inflation is portfolio killer.   1966 was bad year due to following years of stagnant stock values and high inflation.  To survive periods like that you either need a higher initial portfolio value, and/or the ability to lower your WR.   Holding a low interest, long term mortgage in inflationary times does just that. 

Usual caveats which need to be repeated every page or so:  Of course, it is possible to come up with a scenario where paying off a mortgage makes sense and every has different circumstances, financial situations, etc. etc. etc.  And in this discussion we're talking long term, low interest mortgages, blah, blah, blah.

Regarding the bolded part: I think you misread a lot of what I posted. 1966 was probably one of the few years where it made sense (in retrospect) to pay off the entirety of your mortgage loan even at 30 years duration (though I'm not positive on mortgage interest rates (I can't locate great data going back that far), they seem by correlation to 10-year treasuries to be above the calculated breakeven point of 6%). Inflation doesn't matter, because stocks do not correlate well with inflation (in fact there's been a negative correlation with really high interest rates, increasing sequence of return risks).

Let's put it another way: you discuss the benefit of the mortgage payment staying constant while other prices rise with inflation, thereby increasing your odds to success. What you discount is that by keeping the mortgage, you usually are increasing your initial withdrawal rate, thereby negating this benefit and increasing the sequence of returns risk (because your highest withdrawals are at the beginning of retirement, at the same time sequence of returns is most potent).

ETA: This brings us back full circle to the other hypothetical mortgage mentioned earlier in this thread (the one amortized to rise with inflation): https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg2242045/#msg2242045 (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg2242045/#msg2242045).
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 25, 2019, 03:34:34 PM
Regarding the bolded part: I think you misread a lot of what I posted. 1966 was probably one of the few years where it made sense (in retrospect) to pay off the entirety of your mortgage loan even at 30 years duration (though I'm not positive on mortgage interest rates (I can't locate great data going back that far), they seem by correlation to 10-year treasuries to be above the calculated breakeven point of 6%). Inflation doesn't matter, because stocks do not correlate well with inflation (in fact there's been a negative correlation with really high interest rates, increasing sequence of return risks).

I think you are misunderstanding what I wrote:

Quote from: Telecaster
And in this discussion we're talking long term, low interest mortgages, blah, blah, blah.

About the last 50 times I wrote out that caveat I'd say "today's low interest rates" but I realized that makes the advice dated.   So let me fix that.  I mean about 4%-ish on a 30-year fixed.  I'm not talking about the possibility that DPOTM works in all cases and all scenarios.   BTW, I didn't see anyone voice any basic disagreement to your premise, including me.

Anyway in the 1966 scenario, as I stated, I was talking about withdrawals, not accumulation like you used in your examples.  I've fiddled with this extensively in cFIRESIM and what you find is that because you start with a higher portfolio value, and the mortgage payment is fixed  (sometimes people forget to check the "fixed" box), the portfolio value success improves.    That's just what happens.   When I was looking at it, I was assuming I was partway into a 30-year fixed, and the decision would be to payoff the mortgage all at once with some long-ish period remaining on the mortgage  vs.  hold the mortgage in retirement.   That's a pretty real world decision for a lot of people. 

There is a guy named Mike Golio who wrote a book on the topic of retirement.  He's been pretty active on the Internet over the years, and he came with an elegant way to frame this issue (paraphrasing and going from memory).  I mention this because he came up with this illustration:     If someone offered a 30-year loan at zero percent interest, would you take it?   The answer is no brainer! 

How about 1%  Back up the truck!
2% Sure!
3% 
.
.
7%  This one is starting to get iffy.  I'd have to have a clear for the money.
.
.
15%  I'd have to be desperate for the money
.
.
25%  No way!   I'd rather live in my car. 

We're pretty close to no brainer!/back up the truck at the moment.  If we were at "Desperate!"  then mortgage payoff is a different conversation.  I've never seen anyone dispute that notion. 

Usual caveats which need to be repeated every post:  Of course, it is possible to come up with a scenario where paying off a mortgage makes sense and every has different circumstances, financial situations, etc. etc. etc.  And in this discussion we're talking long term, 4%-ish  mortgages, blah, blah, blah.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on April 25, 2019, 03:56:21 PM
Anyway in the 1966 scenario, as I stated, I was talking about withdrawals, not accumulation like you used in your examples.  I've fiddled with this extensively in cFIRESIM and what you find is that because you start with a higher portfolio value, and the mortgage payment is fixed  (sometimes people forget to check the "fixed" box), the portfolio value success improves.    That's just what happens.   When I was looking at it, I was assuming I was partway into a 30-year fixed, and the decision would be to payoff the mortgage all at once with some long-ish period remaining on the mortgage  vs.  hold the mortgage in retirement.   That's a pretty real world decision for a lot of people. 

Just to clarify, I'm also talking withdrawals. During accumulation, people should be taking more risk and trying to maximize expected returns. Anyone without a giant stash and who's early in the accumulation game shouldn't consider paying off their mortgage at these rates (or even up to 10% if they aren't maxing tax-deferred assets). Once you approach retirement, the strategy should shift toward minimizing the possibility of running out of money, and the calculus changes to emphasize sequence of returns risk.

I've run a lot of cFIREsim scenarios myself (you might have seen this post: https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733)). I think this post cuts to the heart of the question (though there are certainly other factors involved, this gives a good idea of some of the tradeoffs involved).
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 26, 2019, 11:57:05 AM
Another payday comes and goes....

726 to 401k
269 to HSA
605 to Espp (Minimum 15% discount. Profits will be taken right away at end of offering period)
462 to Taxable Brokerage

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719
4/26/19   - $411,264

12mo change = 79,478

Goal is to get our 12mo rolling change to 100k consistantly which should be doable in the next year as investment contributions increase. 



Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 07, 2019, 07:35:11 AM
Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much to do but wait.

So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on May 07, 2019, 08:34:55 AM
Well, I sign on a refinance Thursday, which will free up ~$1,600 in June and an additional $92/month to invest going forward.

So I've got that going for me, which is nice.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on May 07, 2019, 08:53:37 AM
Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much too do but wait.

So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.

In 12 1/2 years when my 15 year fixed rate 2.75% mortgage runs it's course, I'm going over to the other thread and post "I paid off my mortgage!"   Hell, why not?  It will still feel just as great as if I did it today.  :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 07, 2019, 08:58:47 AM
Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much too do but wait.

So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.

In 12 1/2 years when my 15 year fixed rate 2.75% mortgage runs it's course, I'm going over to the other thread and post "I paid off my mortgage!"   Hell, why not?  It will still feel just as great as if I did it today.  :)
It will feel better, I promise.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on May 07, 2019, 06:19:57 PM
Ugh, just over 2 years left on my 2.5% mortgage.

I really ought to have a good discussion with the wife about a cashout refi.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 08, 2019, 07:15:03 AM
It took patience, but I eventually got my wife to sign on to my 5/1 ARM plan. It can be done.

Of course, now I'm in the adjustable rate period, and wife wants to move. So maybe it's backfiring ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 08, 2019, 07:22:17 AM
It took patience, but I eventually got my wife to sign on to my 5/1 ARM plan. It can be done.

Of course, now I'm in the adjustable rate period, and wife wants to move. So maybe it's backfiring ;-)
Only if she wants a more expensive house :-p
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 09, 2019, 07:37:10 AM
Without wanting to derail the thread:

Goals of our move are:

We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 09, 2019, 01:12:39 PM
Without wanting to derail the thread:

Goals of our move are:
  • reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
  • improve the school situation
  • Keep quality/size of house at least the same

We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.
I totally think it's relevant. And I was making  joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.

I come from a land where the goal of homeownership came at a cost of HALF of my take-home pay. But I believe in quality of life in the present day, as strongly as I believe in planning for the future. Real estate paved my path to FIRE; it worked out in the end. It sounds like your reasons are solid, so no criticism from this quarter.

Hmm, maybe it would be fair to say that not prepaying your mortgage will enable you make this move comfortably. That puts us all back on track now!
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on May 09, 2019, 01:24:07 PM
Ha! Yes, but I did sign myself up for the dream stove.....
Title: Re: DONT Payoff your Mortgage Club
Post by: zoochadookdook on May 09, 2019, 02:56:25 PM
Hey all. Just locked in a C/O refinance 30 year (had to do it this way as my property had no lien/was paying off a loan my father took).

4.25 %/30 30 year. Monthly Payment is 570. add on 330 for prop taxes/insurance.

I owe 113,000, appraisal said 190k

Financial situation:

Take home: 22/hr/40 week around 2800 month (side hustle another 2-300 here and there).
assets: 62K in savings/27K ROTH ira vanguard
debts 13200 in student loans no interest yet

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on May 09, 2019, 03:23:27 PM
Boglehead Harry Sit has an interesting post about off his own mortgage.   He points out very soberly that there is perhaps no financial advantage to doing so*  Worth a read. 

After I paid off my mortgage, although I stopped paying interest to the bank, my total housing cost isn’t going down. In some ways my total housing cost will increase.

The interest portion of the mortgage payments was indeed an expense. It did stop, but I also increased another cost: the opportunity cost.

https://thefinancebuff.com/paid-off-mortgage-housing-cost-not-down.html

*Sit is very smart guy, but he's from the Michael Kitces school (also a very smart guy) that volatility equals risk, which is a common academic definition.    Therefore, according to this line of thought, paying down your mortgage lowers your risk.  I firmly disagree that volatility and risk are the same thing.   Risk is the chance of losing money.  Having liquid assets that can be sold to pay the mortgage in times of illness or job loss reduces the chance of losing your house. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 09, 2019, 11:29:44 PM
Ha! Yes, but I did sign myself up for the dream stove.....
I lovingly call bullshit, sister. You earned that sucker, and it will entice you to cook at home even more.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on May 10, 2019, 06:06:14 AM
Ha! Yes, but I did sign myself up for the dream stove.....
I lovingly call bullshit, sister. You earned that sucker, and it will entice you to cook at home even more.

I will have to cook at home 100 times at $100 to earn that sucker.  Hmmm....maybe that should be a challenge to myself.  Cook at home for 100 days other than vacations?  Once we actually have a refrigerator to store food....Closing in 5 days!
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on May 10, 2019, 06:15:34 AM
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Your rate is below 5%, and seeing your age - your time horizon is long. Don't put a penny toward paying it down early. Invest.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 10, 2019, 07:20:17 AM
Just a brief check-in: another month, another mortgage payment sent in. I rebalanced all of my investment accounts this week (this is a quarterly habit of mine), and most of them gained 12%-18% since mid-January. Majorly covering the spread over the next several years of a mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on May 10, 2019, 08:30:53 AM
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 10, 2019, 10:00:30 AM
I happened to notice that mortgage rates have fallen substantially over the past year. Are any of you brave souls looking into refinancing?
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on May 10, 2019, 10:03:40 AM
I happened to notice that mortgage rates have fallen substantially over the past year. Are any of you brave souls looking into refinancing?

I signed on a refinance yesterday. P&I went from $1,572 to $1,480, only extending the length by a year. I've already added that difference to my 401k.
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on May 10, 2019, 10:37:14 AM
can you really get a 15 yr mortgage when you buy a home ?
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on May 10, 2019, 10:58:19 AM
can you really get a 15 yr mortgage when you buy a home ?

Yes-yes you can.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 10, 2019, 11:24:07 AM
At least ask your lender to quote you a rate on a 15-year. The payments will be substantially higher, but the interest rate could be 100 basis points or more lower.

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on May 10, 2019, 12:11:03 PM
can you really get a 15 yr mortgage when you buy a home ?

Yes-yes you can.

Uh, yeah, of course you can. Was that a trick question? We got a 15-year loan at 3.125% when we bought our house. The 30 year option was also attractive (3.875%) but I don't expect to be here long enough to benefit from the longer term/lower payments.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on May 10, 2019, 12:48:28 PM
can you really get a 15 yr mortgage when you buy a home ?

Yes-yes you can.

Uh, yeah, of course you can. Was that a trick question? We got a 15-year loan at 3.125% when we bought our house. The 30 year option was also attractive (3.875%) but I don't expect to be here long enough to benefit from the longer term/lower payments.
10 year and 5 year mortgages are a thing, too, though the benefits you reap from holding a 30 year mortgage are largely non-existent with a 5 year mortgage. 
Title: Re: DONT Payoff your Mortgage Club
Post by: zoochadookdook on May 10, 2019, 01:50:10 PM
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).


I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on May 10, 2019, 02:11:22 PM
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).


I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on May 10, 2019, 08:06:33 PM
Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much to do but wait.

So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.
Yep.. I'll peak over there every once in a while and the mindsets can be interesting. People congratulating others for not being a "Slave" to their mortgage anymore.

I'm just glad I'm not a "slave" to emotionally based investment choices.....

Anyways...

Another payday has come and gone.  Trying hard to fight the market swings and stay above 400k invested.

726 to 401k
269 to HSA
605 to ESPP
462 to Taxable Brokerage

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719
4/26/19   - $411,264
5/10/19   - $408,897

12mo change = 69,267

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: zoochadookdook on May 10, 2019, 09:30:11 PM
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).


I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.

got it-so my mortgage is 4.25/student loans are 4.125-which means by that standard I should be paying the minimum payment on both and throwing everything excess into taxable accounts?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on May 10, 2019, 09:32:00 PM
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).


I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.

got it-so my mortgage is 4.25/student loans are 4.125-which means by that standard I should be paying the minimum payment on both and throwing everything excess into taxable accounts?

Minimum payment THAT REDUCES THE PRINCIPAL.   I've read that some student loans have minimum payments that don't even cover all the interest.
Title: Re: DONT Payoff your Mortgage Club
Post by: zoochadookdook on May 10, 2019, 09:41:34 PM
I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153).


I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.
That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.

got it-so my mortgage is 4.25/student loans are 4.125-which means by that standard I should be paying the minimum payment on both and throwing everything excess into taxable accounts?

Minimum payment THAT REDUCES THE PRINCIPAL.   I've read that some student loans have minimum payments that don't even cover all the interest.

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on May 11, 2019, 12:46:11 PM

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.

A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?
Title: Re: DONT Payoff your Mortgage Club
Post by: zoochadookdook on May 11, 2019, 01:39:03 PM

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.

A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?

each one has different rates-one I mean total is like 4.2 or so If i don't pay either. If i pay the 5.05 one the 11k will be at like 3.9%.

 Just got hired out of school 2 months ago. 22 Hourly 40 hours a week/w2 with no 401k or healthcare offered. In 4 months they will review and possibly direct hire me. Prior to this I was self employed. Puts me at like 45k/year although this year more like 38 due to start date.

I have 27k in my roth (vanguard target date 2060) with 3200 remaining cont. for 2019.

Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on May 11, 2019, 07:48:53 PM

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.

A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?

each one has different rates-one I mean total is like 4.2 or so If i don't pay either. If i pay the 5.05 one the 11k will be at like 3.9%.

 Just got hired out of school 2 months ago. 22 Hourly 40 hours a week/w2 with no 401k or healthcare offered. In 4 months they will review and possibly direct hire me. Prior to this I was self employed. Puts me at like 45k/year although this year more like 38 due to start date.

I have 27k in my roth (vanguard target date 2060) with 3200 remaining cont. for 2019.

So the plus if you don't have a 401k option available from your employer is that you can contribute and deduct Traditional IRA without an income cap: https://www.irs.gov/retirement-plans/ira-deduction-limits (https://www.irs.gov/retirement-plans/ira-deduction-limits). However, in your case you look like you'll be in the 12% tax bracket, keeping in mind the 12k standard deduction for filing single: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2018 (https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2018). For the 12% tax bracket, I'm borderline in advising people to invest in Traditional or Roth IRA, since it is likely you'll be making much more money down the road and be in a higher tax bracket. If I was advising myself, I'd probably suggest Traditional rather than Roth, but wouldn't hold it against you if you chose Roth. Traditional is like getting stocks on sale at your combined federal and state income tax rates, so it works out to a pretty big deal.

Since it looks like you're maxing the available tax-advantaged space you have available (which is a very good thing), you can consider whether to put money into paying off the loans or into taxable. If you choose to pay off the loans, definitely pay highest interest rate first. Your highest loan is roughly 5%, which in my opinion is borderline for what I would want to pay off versus investing in a taxable account given the current state of affairs. So again, it's up to you. Keep in mind at your tax bracket dividends won't be taxed and you can still tax loss harvest if the stock market goes south (not to mention you'd establish some liquidity), so perhaps I'd lean toward a taxable account if I were in your shoes.

So to answer your original question: In your situation (low liquidity, relatively low loan interest rates, low tax bracket), I'd recommend paying the minimum payment on all your loans and investing any excess money in taxable (also research tax loss harvesting (TLH)). I would also consider changing from Roth to Traditional for your IRA. Finally, it sounds like you might be in a good position to look around for a higher paying job in the near future. Keep using Vanguard, but pick funds that are different from what you use in your IRA (necessary for TLH), and I'd recommend starting with a fund with a TLH good partner (for example S&P 500 and Total Stock Market make good TLH partners).
Title: Re: DONT Payoff your Mortgage Club
Post by: iOlly on May 12, 2019, 01:07:04 AM
Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 12, 2019, 09:46:29 AM
Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage
Great link, thank you! The illustration cracked me up. We're coming to the end of a year-long flip project. I might print that out and frame it. I'll hang it in our office to look at if when we start hankering to do another.

And of course the flip has a mortgage. We bought it just as rates spiked. The interest rate is 5.1%, egads! <--- Don't worry, our credit's fine. That's a non-owner occ rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 13, 2019, 08:24:00 AM
Without wanting to derail the thread:

Goals of our move are:
  • reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
  • improve the school situation
  • Keep quality/size of house at least the same

We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.
I totally think it's relevant. And I was making  joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.

I come from a land where the goal of homeownership came at a cost of HALF of my take-home pay. But I believe in quality of life in the present day, as strongly as I believe in planning for the future. Real estate paved my path to FIRE; it worked out in the end. It sounds like your reasons are solid, so no criticism from this quarter.

Hmm, maybe it would be fair to say that not prepaying your mortgage will enable you make this move comfortably. That puts us all back on track now!

I went into a 5 BR house in which each of the kids' bedrooms had a private bath. I'm pretty bad at mustache-ing compared to some of you, but I can not imagine purchasing that degree of luxury for my own family; I think it would warp our 4-yo old forever. Asking price $580,000. I shudder to think about what that would buy in your area, Dicey.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on May 13, 2019, 09:20:56 AM

I went into a 5 BR house in which each of the kids' bedrooms had a private bath. I'm pretty bad at mustache-ing compared to some of you, but I can not imagine purchasing that degree of luxury for my own family; I think it would warp our 4-yo old forever. Asking price $580,000. I shudder to think about what that would buy in your area, Dicey.

In just a few short years I've gone from one of the regions with the highest home prices (SF Bay area) to one of the lowest (rural northern New England).  When I was in California my very modest 2br/1.5bath, 900 sqft home was appraised at $740k.  It needed a ton of repairs/maintenance, and hadn't been renovated since the 1980s. Recently in my new locale I've watched two homes, newly renovated, 3br/2bath ~2,000 sqft plus detached garage sell for under $150k on several acres of land.

Twice the house, in much better condition, for 1/5th the price. Basically more than a 10x difference in price-per-square-foot.   It boggles my mind how much of a difference there can be between different locales.
Title: Re: DONT Payoff your Mortgage Club
Post by: zoochadookdook on May 13, 2019, 10:03:17 AM

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.

A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?

each one has different rates-one I mean total is like 4.2 or so If i don't pay either. If i pay the 5.05 one the 11k will be at like 3.9%.

 Just got hired out of school 2 months ago. 22 Hourly 40 hours a week/w2 with no 401k or healthcare offered. In 4 months they will review and possibly direct hire me. Prior to this I was self employed. Puts me at like 45k/year although this year more like 38 due to start date.

I have 27k in my roth (vanguard target date 2060) with 3200 remaining cont. for 2019.

So the plus if you don't have a 401k option available from your employer is that you can contribute and deduct Traditional IRA without an income cap: https://www.irs.gov/retirement-plans/ira-deduction-limits (https://www.irs.gov/retirement-plans/ira-deduction-limits). However, in your case you look like you'll be in the 12% tax bracket, keeping in mind the 12k standard deduction for filing single: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2018 (https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2018). For the 12% tax bracket, I'm borderline in advising people to invest in Traditional or Roth IRA, since it is likely you'll be making much more money down the road and be in a higher tax bracket. If I was advising myself, I'd probably suggest Traditional rather than Roth, but wouldn't hold it against you if you chose Roth. Traditional is like getting stocks on sale at your combined federal and state income tax rates, so it works out to a pretty big deal.

Since it looks like you're maxing the available tax-advantaged space you have available (which is a very good thing), you can consider whether to put money into paying off the loans or into taxable. If you choose to pay off the loans, definitely pay highest interest rate first. Your highest loan is roughly 5%, which in my opinion is borderline for what I would want to pay off versus investing in a taxable account given the current state of affairs. So again, it's up to you. Keep in mind at your tax bracket dividends won't be taxed and you can still tax loss harvest if the stock market goes south (not to mention you'd establish some liquidity), so perhaps I'd lean toward a taxable account if I were in your shoes.

So to answer your original question: In your situation (low liquidity, relatively low loan interest rates, low tax bracket), I'd recommend paying the minimum payment on all your loans and investing any excess money in taxable (also research tax loss harvesting (TLH)). I would also consider changing from Roth to Traditional for your IRA. Finally, it sounds like you might be in a good position to look around for a higher paying job in the near future. Keep using Vanguard, but pick funds that are different from what you use in your IRA (necessary for TLH), and I'd recommend starting with a fund with a TLH good partner (for example S&P 500 and Total Stock Market make good TLH partners).

Ok so the benifits of not having a employer 401k are no cap on how much I can contribute? Traditional Ira is benificial in that you are able to contribute more up front (pre tax) but the profits are taxed when withdrawing. Roth is post tax but is capped per year/no taxes on capital. What is the downside of a roth? You can't contribute if you make x amount? I guess I'm wondering why switch from roth to traditional unless I know I'm going to be making the limit in the very near future (do you have to switch over in a time frame?)

The only space I have available is a Roth ira unless you count HSA as it (which I'm trying to verify a plan-shopping is like the wild west here...).

I think I plan on paying off the 5.05% at 2200 with vanilla cards funded by a credit card (to hit a 500/back after 3k spent bonus). This will put the arp of the other 11k at 4.1% which I will make the minimum payments on. 

Investing I value high liquidity/availability to a degree. I do have low interest loans/4.25 116k/4.1 11k and a low tax bracket for at least this year. I'm trying to figure out THL better (from what I'm reading you can sell for a loss, wait 30 days, then buy the same/similar investment and it saves you taxes as it's taken off your income as a loss?). Does it just count towards losses based on contributions that year or is it net?


My plan right now is to max the roth for 2019 (3200), finish the house refinance this week, figure out a healthcare plan and learn how much makes sense to go to HSA monthly, leave 15k+10k (emergency and side business funds) in ally, and invest the other $35k. From what you saide I should look at funds (within vanguard). Should I be looking for a mix or just 100% stocks (I know stocks are riskier but mixing funds=more fees and the like). Eying just the VSTAX or such.

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on May 13, 2019, 12:12:30 PM
Quote
What is the downside of a roth? You can't contribute if you make x amount? I guess I'm wondering why switch from roth to traditional unless I know I'm going to be making the limit in the very near future (do you have to switch over in a time frame?)

The downside for many people with a Roth is that they are in a higher tax right now during their earning years compared to where they expect to be during their retirement years.  Ergo, a Roth would have them pay more taxes now to save less on taxes later. 

Also, a popular strategy is to convert funds from a tIRA to a Roth slowly in retirement to get the best of both worlds (called an IRA Conversion Ladder (https://rootofgood.com/roth-ira-conversion-ladder-early-retirement/)).

And of course not everyone makes under the cap to contribute to a Roth ($193k AGI if filing jointly)
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on May 13, 2019, 01:12:07 PM
Ok so the benifits of not having a employer 401k are no cap on how much I can contribute? Traditional Ira is benificial in that you are able to contribute more up front (pre tax) but the profits are taxed when withdrawing. Roth is post tax but is capped per year/no taxes on capital. What is the downside of a roth? You can't contribute if you make x amount? I guess I'm wondering why switch from roth to traditional unless I know I'm going to be making the limit in the very near future (do you have to switch over in a time frame?)

No. There are income limits for IRA contributions if you are covered by an employer's retirement plan.  In other words, if you make too much money you can't make a deductible IRA contribution.  Your income is below that threshhold though, so you don't have to worry about it for now.   

The rule of thumb is that a traditional IRA is better if you have high income (and corresponding high taxes) and a Roth is better with low income.   You are in a grey area where it is hard to say which one is the better choice. 
Title: Re: DONT Payoff your Mortgage Club
Post by: letsdoit on May 13, 2019, 02:25:31 PM
i'm in the grey area re: income
i often wonder the same Roth vs traditional
i've read both sides.
so  i split it 50-50
Title: Re: DONT Payoff your Mortgage Club
Post by: zoochadookdook on May 13, 2019, 02:44:50 PM
Here I was thinking the roth was the clear cut option....

Ok so A traditional I take a deduction yearly-so even though earnings are taxed you save off years of taxes...

However-the cap for a traditional is like 64k vs the cap for a roth is 123k?

https://investorjunkie.com/38369/roth-ira-vs-traditional-ira/
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on May 13, 2019, 02:50:07 PM
Sorry we've derailed the conversation here....

Ok so the benifits of not having a employer 401k are no cap on how much I can contribute?

Unfortunately, no, your IRA contribution limit is capped at $6k just like for everyone else. However, there is no income cap for how much of that you can deduct (which is irrelevant in your case, because as Telecaster has mentioned your income is nowhere near that limit).

I'm trying to figure out THL better (from what I'm reading you can sell for a loss, wait 30 days, then buy the same/similar investment and it saves you taxes as it's taken off your income as a loss?). Does it just count towards losses based on contributions that year or is it net?

We have lots of advice to give in this area and others, but it might be worthwhile to start a case study thread to discuss all of these questions and more.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 13, 2019, 05:38:12 PM
Without wanting to derail the thread:

Goals of our move are:
  • reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
  • improve the school situation
  • Keep quality/size of house at least the same

We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.
I totally think it's relevant. And I was making  joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.

I come from a land where the goal of homeownership came at a cost of HALF of my take-home pay. But I believe in quality of life in the present day, as strongly as I believe in planning for the future. Real estate paved my path to FIRE; it worked out in the end. It sounds like your reasons are solid, so no criticism from this quarter.

Hmm, maybe it would be fair to say that not prepaying your mortgage will enable you make this move comfortably. That puts us all back on track now!

I went into a 5 BR house in which each of the kids' bedrooms had a private bath. I'm pretty bad at mustache-ing compared to some of you, but I can not imagine purchasing that degree of luxury for my own family; I think it would warp our 4-yo old forever. Asking price $580,000. I shudder to think about what that would buy in your area, Dicey.

Just for grins, I searched. The best I could find for $580k is a 2+2, 1114 sf condo with $410 HOA. At $529k there is a 2+2+Den, 1124SF $350. Both are old, have carports and are adjacent to commuter rail lines. And yes, those are asking prices. Things are still selling for over asking here. I suspect the second one is a "bait" price. If I remember, I'll report back when it sells.

ETA: Damn, that was fast! The second one just went pending.
Title: Re: DONT Payoff your Mortgage Club
Post by: iOlly on May 14, 2019, 12:12:00 AM
Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage
Great link, thank you! The illustration cracked me up. We're coming to the end of a year-long flip project. I might print that out and frame it. I'll hang it in our office to look at if when we start hankering to do another.

And of course the flip has a mortgage. We bought it just as rates spiked. The interest rate is 5.1%, egads! <--- Don't worry, our credit's fine. That's a non-owner occ rate.


We built 5 years ago and I still feel like that :).
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on May 14, 2019, 02:30:56 PM
Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage

I tried to follow this link but it is password protected.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on May 23, 2019, 11:37:24 AM
Question to the Brain Trust:

TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?

Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on May 23, 2019, 11:48:15 AM
Question to the Brain Trust:

TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?

Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?

It's definitely not a "no cost" loan. It's going to cost $6k, plus the interest on $6k over the life of the loan.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on May 23, 2019, 12:00:34 PM
Question to the Brain Trust:

TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?

Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?
How long are you planning on staying in the house? As solon points out, there is a cost - they're just rolling the usual fees into the balance. The longer you stay, the more it makes sense - saving .875% on the 300K balance will swamp the cost of the 6K + 3.75% eventually, but if you're going to sell in a year or 2, not a good move.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 23, 2019, 12:03:14 PM
Is there a change in the term, too? I'm having trouble matching those numbers.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on May 23, 2019, 12:13:07 PM
Is there a change in the term, too? I'm having trouble matching those numbers.

No change in term, both are 30 years. Original balance was $304K, monthly payment is $1562 (P&I) + 420 (Taxes) = $1982. We currently owe just over $302K. New Loan would be $308K for monthly payment of $1426 (P&I) + $420 (taxes) = $1846. I hope I did my math correct :)

I understand the no cost is really adding the costs to the balance hence my quotations :). I was just more curious if it was worth saving $$ if I had no immediate out of pocket costs.

Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on May 23, 2019, 12:14:19 PM
Question to the Brain Trust:

TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?

Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?
How long are you planning on staying in the house? As solon points out, there is a cost - they're just rolling the usual fees into the balance. The longer you stay, the more it makes sense - saving .875% on the 300K balance will swamp the cost of the 6K + 3.75% eventually, but if you're going to sell in a year or 2, not a good move.

That is a great question. We did just buy this house, so I do not have an answer how long we will stay; but that is definitely a good point I need to consider further.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on May 23, 2019, 12:23:42 PM
Question to the Brain Trust:

TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?

Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?

Two things:
1) Generally speaking the "monthly savings" number is misleading. Your refinance would have a new 30-year term and your current mortgage is something less then that. So you'd be paying less per month, for longer. Not particularly useful for deciding if it's a good decision unless the "less per month" is important because you need more cash now. In your case however you've only had this mortgage for 6 months, so the term extension is not that big of a difference.

2) You'd be paying $6k to lower your interest rate by 0.875%.
302000 * .04625 / 12 = 1163.96 interest you'd pay next month without a refinance
308000 * .0375 / 12 = 962.5 interest you'd pay next month with a refinance plus 6000 / 30 / 12 = $16.67 extra principle payment you'd have to make every month for the lifetime of the loan to adjust for the $6k cost = $979 interest + principal difference

So you're saving about $185 of interest in your first month, but that number will decrease over the lifetime of the loan as the principle decreases. But for the first few years it's close enough for an estimate. So you'd have to stay in your house with this mortgage for about 6000 / 185 = 32.4 months to break even.

I'd say go for it if you think you're going to stay in the house longer than 3 years, otherwise don't bother.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 23, 2019, 12:34:11 PM
Second question: how certain are you that rates won't fall further?
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on May 23, 2019, 12:51:33 PM
Second question: how certain are you that rates won't fall further?

Ha! Well, with this climate we are in... I will just never know. As much as the Fed/central bank has declared no further interest rate increases for this year, as of now, we will not know until the actual meetings every few weeks, if this will continue to hold true. So, I cannot with any bit of certainty think that the interest rates will continue to fall. :)

We sold our house in December and it had a 3.25% rate.... Oy, I miss giving up that rate.   

Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on May 23, 2019, 12:52:05 PM
Second question: how certain are you that rates won't fall further?

That's not much different from trying to time the stock market is it? Also, how much lower than 3.75% are you expecting 30-year rates to get? My rate is an astonishingly-low 2.5%, but that's the 10-year rate on a 10/1 ARM. At the time 30-year Fixed rates were about the same, 3.5% or so.

It all does come down to how long you're going to stay in the house though, or more specifically how long you're going to keep this mortgage with the house. If you're going to be refinancing every 6 months chasing lower rates then you'll never make up the cost.
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on May 23, 2019, 12:53:50 PM
Question to the Brain Trust:

TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?

Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?

Two things:
1) Generally speaking the "monthly savings" number is misleading. Your refinance would have a new 30-year term and your current mortgage is something less then that. So you'd be paying less per month, for longer. Not particularly useful for deciding if it's a good decision unless the "less per month" is important because you need more cash now. In your case however you've only had this mortgage for 6 months, so the term extension is not that big of a difference.

2) You'd be paying $6k to lower your interest rate by 0.875%.
302000 * .04625 / 12 = 1163.96 interest you'd pay next month without a refinance
308000 * .0375 / 12 = 962.5 interest you'd pay next month with a refinance plus 6000 / 30 / 12 = $16.67 extra principle payment you'd have to make every month for the lifetime of the loan to adjust for the $6k cost = $979 interest + principal difference

So you're saving about $185 of interest in your first month, but that number will decrease over the lifetime of the loan as the principle decreases. But for the first few years it's close enough for an estimate. So you'd have to stay in your house with this mortgage for about 6000 / 185 = 32.4 months to break even.

I'd say go for it if you think you're going to stay in the house longer than 3 years, otherwise don't bother.

Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.

Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on May 23, 2019, 01:02:02 PM
Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.

By the way generic advice when buying a home is that you're better off renting if you stay less than 5 years due solely to the transaction costs of buying/selling. I get that in this case you weren't expecting to be this uncertain. However it's something for you to think about for next time.
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on May 23, 2019, 01:09:06 PM
Thinking about cash-out refi to get back to 5/1 leverage, if rates go much lower...
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on May 23, 2019, 01:26:36 PM
Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.

By the way generic advice when buying a home is that you're better off renting if you stay less than 5 years due solely to the transaction costs of buying/selling. I get that in this case you weren't expecting to be this uncertain. However it's something for you to think about for next time.

If you talk to my husband, he would tell you he would die in this house, so yes, he would be here longer than 5 years.  Uh, me, I am having a very hard period of adjustment. It's freaking cold up here, BTW.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 23, 2019, 04:21:54 PM
Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.

By the way generic advice when buying a home is that you're better off renting if you stay less than 5 years due solely to the transaction costs of buying/selling. I get that in this case you weren't expecting to be this uncertain. However it's something for you to think about for next time.

If you talk to my husband, he would tell you he would die in this house, so yes, he would be here longer than 5 years.  Uh, me, I am having a very hard period of adjustment. It's freaking cold up here, BTW.
Maybe work like hell to get to FIRE, then move somewhere warmer? Or be a snowbirds between two low cost areas?

If you even think you might stay five years, then my vote is do it. If you move in less time, the "loss" won't be horribly significant.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 24, 2019, 08:11:04 AM
Second question: how certain are you that rates won't fall further?

That's not much different from trying to time the stock market is it? Also, how much lower than 3.75% are you expecting 30-year rates to get? My rate is an astonishingly-low 2.5%, but that's the 10-year rate on a 10/1 ARM. At the time 30-year Fixed rates were about the same, 3.5% or so.

It all does come down to how long you're going to stay in the house though, or more specifically how long you're going to keep this mortgage with the house. If you're going to be refinancing every 6 months chasing lower rates then you'll never make up the cost.

I'd say mortgage rate selection is more like worrying about "market timing" during the 3-5 years surrounding retirement. It's a big amount of money relative to your net worth, rather than the little drips that we are conditioned to invest monthly.

And closing costs are large, much larger than the fees associated with investing in today's retail investing market place.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 30, 2019, 09:42:00 AM
I know that many of you are 100% VTI, and there's quite a bit of discussion about stock investing with all that fiscal space you created with your mortgage.

But I happened to see this interesting blog post from Financial Samurai about using bonds instead of stocks:

https://www.financialsamurai.com/the-case-for-buying-bonds-living-for-free-and-other-benefits/ (https://www.financialsamurai.com/the-case-for-buying-bonds-living-for-free-and-other-benefits/)
Title: Re: DONT Payoff your Mortgage Club
Post by: Blahhhh456 on May 30, 2019, 02:37:14 PM
Awesome! Thank you for the breakdown in point two. I am sensing I need to figure out if we are going to stay in this house for longer than 3 years. We moved from NC to MA and it is quite an adjustment I was not prepared for.

By the way generic advice when buying a home is that you're better off renting if you stay less than 5 years due solely to the transaction costs of buying/selling. I get that in this case you weren't expecting to be this uncertain. However it's something for you to think about for next time.

If you talk to my husband, he would tell you he would die in this house, so yes, he would be here longer than 5 years.  Uh, me, I am having a very hard period of adjustment. It's freaking cold up here, BTW.
Maybe work like hell to get to FIRE, then move somewhere warmer? Or be a snowbirds between two low cost areas?

If you even think you might stay five years, then my vote is do it. If you move in less time, the "loss" won't be horribly significant.

Thanks Dicey!! We are certainly working towards FIRE in 5.5 years and taking the mortgage with us along for the ride. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on June 01, 2019, 05:53:16 AM
Mortgage officially acquired!  30yr fixed rate, 4.25%, for $219,450.  Monthly payment $1525.07 including PMI and escrow for tax and insurance.  Here we go!
Title: Re: DONT Payoff your Mortgage Club
Post by: protostache on June 01, 2019, 09:41:26 AM
Mortgage officially acquired!  30yr fixed rate, 4.25%, for $219,450.  Monthly payment $1525.07 including PMI and escrow for tax and insurance.  Here we go!

Nice! You might consider dropping the escrow when you're able. The bank might make you wait until you get rid of PMI. I like having a stable, consistent payment to budget around. With escrow I found that the bank did not do a good job guesstimating and so our payment changed every year. Now we just pay taxes and insurance out of cash flow when they're due.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 01, 2019, 10:23:40 AM
Now we just pay taxes and insurance out of cash flow when they're due.



"Seriously you must jest! How can anyone possibly afford to pay for any housing costs out of pocket!?" - Mainstream Financial News
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 01, 2019, 07:15:14 PM
Now we just pay taxes and insurance out of cash flow when they're due.
"Seriously you must jest! How can anyone possibly afford to pay for any housing costs out of pocket!?" - Mainstream Financial News
The smart ones who feather their own nest before giving truckloads of moolah to the bank prematurely, that's who!
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on June 02, 2019, 05:33:22 AM
Mortgage officially acquired!  30yr fixed rate, 4.25%, for $219,450.  Monthly payment $1525.07 including PMI and escrow for tax and insurance.  Here we go!

Nice! You might consider dropping the escrow when you're able. The bank might make you wait until you get rid of PMI. I like having a stable, consistent payment to budget around. With escrow I found that the bank did not do a good job guesstimating and so our payment changed every year. Now we just pay taxes and insurance out of cash flow when they're due.

Thanks for the tip, we'll definitely look into it.  I suspect since this is our first mortgage, they won't trust us to know how to pay bills properly yet, but in a few years they should realize better!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 03, 2019, 07:50:20 AM
I'll give a +1 to the Don't payoff your taxes through escrow club. Just write the check, once a year. You're a mustachian, this should be no big problem for you.

If you need help, we can turn the posts here into a contest to see who's setting the most money aside in a savings account to pay their tax bill.
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on June 03, 2019, 07:52:51 AM
I'll give a +1 to the Don't payoff your taxes through escrow club. Just write the check, once a year. You're a mustachian, this should be no big problem for you.

If you need help, we can turn the posts here into a contest to see who's setting the most money aside in a savings account to pay their tax bill.

Oh, I'm not at all worried about saving up for taxes, our property tax isn't even very high.  But the bank required the escrow account as a condition of the mortgage, so I'll have to work with them to see if/when they'll allow us to drop the escrow and pay it ourselves.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 03, 2019, 08:27:09 AM
We actually had a situation where we were offered a lower interest rate to accept escrow. We showed up at closing, but they'd drawn up the paperwork to have no escrow AND the lower rate. Our closing attorney told us to just sign the papers and not worry about it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Villanelle on June 03, 2019, 08:40:37 AM
I've always been in the "don't pay it off camp" but I'm having doubts and need a sanity check.  I just realized that our mortgage balance is less than the amount available on our HELOC (which is also way less--6 figures--than our equity, so little chance of it being canceled).  Our HELOC is about 2.8% interest vs. 4.25 for the mortgage.  However, the HELOC only has about 6 years left on it (at which point it would need to be paid off in full, or perhaps rolled over into a newly issued HELOC, but surely with less favorable terms than we currently have) vs 12 for the mortgage, and it is adjustable.  (We can also lock it, but I'm not sure what that rate is and when I called, they were little help because they said they couldn't tell me that unless I had a balance, which is weird, but whatever.)  So if I paid off the mortgage with that money, I'd pay off the HELOC very aggressively.

What say you?  Leave it alone or shave off about a point and a half in interest and take on the risk of an adjustable rate, which would necessitate an aggressive pay off?

If it matters, the place is currently a rental and it's doubtful we'd ever live in it again.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 03, 2019, 12:09:19 PM
What about "both and"

Each month, as you pay toward your mortgage, borrow enough to offset principal on your HELOC, keeping your total loan balance steady during the next six years.

Put that extra into $VTI, then--six years later--you can withdraw the principal to slay your remaining balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on June 03, 2019, 02:46:06 PM
What about "both and"

Each month, as you pay toward your mortgage, borrow enough to offset principal on your HELOC, keeping your total loan balance steady during the next six years.

Put that extra into $VTI, then--six years later--you can withdraw the principal to slay your remaining balance.

Huh??

Could you explain a bit more?

Because this doesn't seem like a good time to borrow extra money to invest...
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on June 03, 2019, 04:11:08 PM
I've always been in the "don't pay it off camp" but I'm having doubts and need a sanity check.  I just realized that our mortgage balance is less than the amount available on our HELOC (which is also way less--6 figures--than our equity, so little chance of it being canceled).  Our HELOC is about 2.8% interest vs. 4.25 for the mortgage.  However, the HELOC only has about 6 years left on it (at which point it would need to be paid off in full, or perhaps rolled over into a newly issued HELOC, but surely with less favorable terms than we currently have) vs 12 for the mortgage, and it is adjustable.  (We can also lock it, but I'm not sure what that rate is and when I called, they were little help because they said they couldn't tell me that unless I had a balance, which is weird, but whatever.)  So if I paid off the mortgage with that money, I'd pay off the HELOC very aggressively.

What say you?  Leave it alone or shave off about a point and a half in interest and take on the risk of an adjustable rate, which would necessitate an aggressive pay off?

If it matters, the place is currently a rental and it's doubtful we'd ever live in it again.

I'd look at how adjustable the HELOC is.  There is usually a limit how fast they can adjust upwards.   I'd assume worst case scenario, and assume it will adjust upwards as fast as it can.  That's really the risk in this scenario. 

The next step is to do an A - B comparison.  You could kill the mortgage immediately, and presumably because the HELOC has lower interest, you could make the same payment and pay down the HELOC faster than you could the mortgage.  You just have to be reasonably sure of paying off the HELOC before you get into the danger zone of the HELOC possibly adjusting upwards.  That might require increasing your monthly payment, which means it probably isn't worth doing. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 03, 2019, 05:21:21 PM

Because this doesn't seem like a good time to borrow extra money to invest...

Why do you say this?  Interest rates are near historic lows... why is now not a good time?
Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on June 03, 2019, 06:23:22 PM
I'd look at how adjustable the HELOC is.  There is usually a limit how fast they can adjust upwards.   I'd assume worst case scenario, and assume it will adjust upwards as fast as it can.  That's really the risk in this scenario. 

Speaking of worst case scenarios- most HELOCs are callable and quite a few people had their financial lives ruined in the great recession by HELOCs called due. Personally for that reason, I would give preference to a fixed rate, non-callable mortgage over a HELOC any day and consider the extra percentage or two money well spent.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on June 03, 2019, 09:50:19 PM
Speaking of worst case scenarios- most HELOCs are callable and quite a few people had their financial lives ruined in the great recession by HELOCs called due. Personally for that reason, I would give preference to a fixed rate, non-callable mortgage over a HELOC any day and consider the extra percentage or two money well spent.

HELOCs are almost never called, but they can be frozen.   Since the OP apparently has a low LTV (given that his HELOC size could be larger than his mortgage) and presumably will continue to make payments on time, getting called is pretty remote.  If the OP can't make payments, then he would get foreclosed on anyway.

I agree, a 30-year fixed is the safest option.  The OP needs to evaluate the increased risk of a HELOC with the potential reward. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 04, 2019, 08:40:04 AM
What about "both and"

Each month, as you pay toward your mortgage, borrow enough to offset principal on your HELOC, keeping your total loan balance steady during the next six years.

Put that extra into $VTI, then--six years later--you can withdraw the principal to slay your remaining balance.

Huh??

Could you explain a bit more?

Because this doesn't seem like a good time to borrow extra money to invest...

Six years is a long enough time that $VTI will gain in share price, particularly if you're DCA'ing into it.

But keeping your HELOC balance fairly small will mitigate the risk associated with having the loan called. So I would literally tap the HELOC a few hundred $'s at a time, DCA the extra into VTI, and then--when the loan term is up--have a big enough pot to pay off whatever is due.
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on June 17, 2019, 02:58:31 PM
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?


One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.

Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.

If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.

If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on June 17, 2019, 03:07:22 PM
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?


One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.

Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.

If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.

If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.

Has Ross heard of an equity line of credit?

And you are forgetting something very important, which is the human aspect.  Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough."  Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people.  Don't underestimate how tempting a big pot of money is to many, many people (most people?).

Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."

Your advice doesn't make a lot of sense to me, to be honest.  If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity?  Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc.   And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage?  You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly.  Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced.  So they are getting a solid return IF THAT is their goal.  The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: never give up on June 17, 2019, 03:16:21 PM
I find it interesting how mortgage products differ between countries. Do you not have mortgage payment holidays or mortgage overpayment borrow back features in your mortgages? The former lets someone take a few months off from paying a mortgage, useful in a job loss scenario, where the latter keeps overpayments in a separate reserve that can be borrowed back if needed. This is also useful in a job loss scenario.
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on June 17, 2019, 04:34:56 PM
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?


One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.

Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.

If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.

If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.

Has Ross heard of an equity line of credit?

And you are forgetting something very important, which is the human aspect.  Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough."  Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people.  Don't underestimate how tempting a big pot of money is to many, many people (most people?).

Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."

Your advice doesn't make a lot of sense to me, to be honest.  If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity?  Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc.   And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage?  You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly.  Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced.  So they are getting a solid return IF THAT is their goal.  The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.

Ross represents the pay off your mortgage club, yes. He's the one I'm trying to convince to change sides (without him realizing I'm doing that). Mr. White represents one small step in the right direction. I just want him to see that the two scenarios are the same, except that one is better.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on June 17, 2019, 04:53:05 PM
I find it interesting how mortgage products differ between countries. Do you not have mortgage payment holidays or mortgage overpayment borrow back features in your mortgages? The former lets someone take a few months off from paying a mortgage, useful in a job loss scenario, where the latter keeps overpayments in a separate reserve that can be borrowed back if needed. This is also useful in a job loss scenario.

Lol, no, no, we don't. Sounds delightful though.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on June 17, 2019, 06:58:23 PM
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?


One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.

Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.

If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.

If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.

Has Ross heard of an equity line of credit?

And you are forgetting something very important, which is the human aspect.  Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough."  Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people.  Don't underestimate how tempting a big pot of money is to many, many people (most people?).

Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."

Your advice doesn't make a lot of sense to me, to be honest.  If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity?  Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc.   And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage?  You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly.  Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced.  So they are getting a solid return IF THAT is their goal.  The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.

Ross represents the pay off your mortgage club, yes. He's the one I'm trying to convince to change sides (without him realizing I'm doing that). Mr. White represents one small step in the right direction. I just want him to see that the two scenarios are the same, except that one is better.

But your Mr. White is not better.  It's bad advice.  And both are squarely in the payoff your mortgage club, period.  The don't pay off your mortgage club is about holding the mortgage as long as possible and seeking higher returns elsewhere.  Your own advice suggests a safe investment with a similar interest rate as the mortgage, with the goal of paying it off in the same time frame.  That's not good advice.  Just put it towards the mortgage, as they appear to be doing, if that is the goal.

If you want to sell your friends on the "don't" pay off your mortgage club, then you need to sell them on keeping the mortgage for the duration, and that low cost index funds, over the same duration, are highly likely to produce a much higher return.  But they really need to understand what that means, it's not the best solution for everyone.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on June 17, 2019, 07:13:34 PM
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?


One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.

Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.

If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.

If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.

Has Ross heard of an equity line of credit?

And you are forgetting something very important, which is the human aspect.  Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough."  Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people.  Don't underestimate how tempting a big pot of money is to many, many people (most people?).

Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."

Your advice doesn't make a lot of sense to me, to be honest.  If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity?  Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc.   And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage?  You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly.  Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced.  So they are getting a solid return IF THAT is their goal.  The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.

Ross represents the pay off your mortgage club, yes. He's the one I'm trying to convince to change sides (without him realizing I'm doing that). Mr. White represents one small step in the right direction. I just want him to see that the two scenarios are the same, except that one is better.

But your Mr. White is not better.  It's bad advice.  And both are squarely in the payoff your mortgage club, period.  The don't pay off your mortgage club is about holding the mortgage as long as possible and seeking higher returns elsewhere.  Your own advice suggests a safe investment with a similar interest rate as the mortgage, with the goal of paying it off in the same time frame.  That's not good advice.  Just put it towards the mortgage, as they appear to be doing, if that is the goal.

If you want to sell your friends on the "don't" pay off your mortgage club, then you need to sell them on keeping the mortgage for the duration, and that low cost index funds, over the same duration, are highly likely to produce a much higher return.  But they really need to understand what that means, it's not the best solution for everyone.

In the event of job loss, it's far better to be liquid than not.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 17, 2019, 10:52:31 PM
Dear @EngagedToFIRE,
You have stumbled into the DPOYM Club, wherein you may not argue with the basic assumption of the thread. Why? Because we are not allowed to present any other POV over on the Pay Off Your Mortgage thread. They wanted to celebrate their decision(s) with their fingers in their ears, saying, "La la la, I can't hear you", and the moderators agreed, so this thread was established. Therefore, you may not come here and tell us we're wrong. You can ask questions, and think and learn. If you choose to make a different decision for yourself, the other thread will welcome you with open arms. Over there, you can talk all the smack you want about this group, because we won't be there to see what is being said, but please do not do that here.
Sincerely,
Dicey
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on June 18, 2019, 08:17:02 AM
He sort of has a point though.  The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years.  Also, maybe add in a meth den popping up next door.  :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on June 18, 2019, 08:29:21 AM
I'm slowly trying to break through to a couple I know, who are good friends, who are convinced paying the mortgage off RIGHT NOW is the best way to go. I put together a little story, deliberately trying to keep it simple. How could I improve it?


One person, we'll call him Ross, decided he wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he has another $1,500 per month he could put toward the principle. This will get his mortgage paid off in about 8 years.

Another person, we'll call him Mr. White, also wanted to pay off his mortgage as quickly as possible. His normal payment was $1,000, and he also had another $1,500, but instead of sending it to the bank, he put it in a safe investment that he maintained control of. Because the interest on this investment is the same as his mortgage rate, he will have enough to pay off his mortgage in 8 years. His plan is to pay the mortgage in one lump sum when his invested balance equals the remaining principle balance on the mortgage.

If Ross suffers a job loss in year 5, he still has a mortgage payment due next month. He has no "mortgage repayment fund" and the bank will offer him no leniency because of his accelerated payments over the last 5 years.

If Mr. White suffers a job loss in year 5, he still has a mortgage payment due next month, but he has 5 years worth of mortgage payments saved up. He can weather a much longer period of unemployment than Ross can.

Has Ross heard of an equity line of credit?

And you are forgetting something very important, which is the human aspect.  Maybe your friends would be more likely to blow through their saved up funds for some sort of drummed up nonsensical reason... "Well, we can afford the trip to Europe, we'll replace it fast enough."  Really, if the goal is to pay off in 8 years, thus accelerating the payoff, then maybe just putting the extra money in every month is right for these people.  Don't underestimate how tempting a big pot of money is to many, many people (most people?).

Regardless, it sounds like both scenarios are squarely in the "payoff your mortgage club."

Your advice doesn't make a lot of sense to me, to be honest.  If you are going to put it in a fund that generates the same return as the mortgage.. then the only point is liquidity?  Liquidity can be had with a HELOC, credit cards, brokerage account, emergency fund, etc.   And what sort of safe investment are you suggesting that would be a safer investment than paying off the mortgage?  You are suggesting one that has the same return, but almost certainly isn't as safe an investment as just paying the mortgage directly.  Keep in mind, as you put money towards the mortgage, the payment may stay the same, but interest is reduced.  So they are getting a solid return IF THAT is their goal.  The only reason I would suggest not going this route is to seek higher returns via an index fund, with the understanding that economic forces may mean waiting longer to pay off the mortgage if the time isn't right to cash it out in 8 years.

Ross represents the pay off your mortgage club, yes. He's the one I'm trying to convince to change sides (without him realizing I'm doing that). Mr. White represents one small step in the right direction. I just want him to see that the two scenarios are the same, except that one is better.

But your Mr. White is not better.  It's bad advice.  And both are squarely in the payoff your mortgage club, period.  The don't pay off your mortgage club is about holding the mortgage as long as possible and seeking higher returns elsewhere.  Your own advice suggests a safe investment with a similar interest rate as the mortgage, with the goal of paying it off in the same time frame.  That's not good advice.  Just put it towards the mortgage, as they appear to be doing, if that is the goal.

If you want to sell your friends on the "don't" pay off your mortgage club, then you need to sell them on keeping the mortgage for the duration, and that low cost index funds, over the same duration, are highly likely to produce a much higher return.  But they really need to understand what that means, it's not the best solution for everyone.

In the event of job loss, it's far better to be liquid than not.

HELOC.  MMM talks about exactly how to handle situations like this:  https://youtu.be/tFpJrqp0l_4?t=628

In fact, he actually recommends NOT selling shares for liquidity and instead, the HELOC is a better solution.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on June 18, 2019, 08:34:53 AM
He sort of has a point though.  The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years.  Also, maybe add in a meth den popping up next door.  :-)

Correct.  The examples suggest liquidity but are not necessarily any more liquid.  So the benefit is non existent.  It just didn't make any sense.  I'm not arguing at all about whether someone should pay off their mortgage, as both examples were literally "pay off your mortgage early in 8 years"...
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on June 18, 2019, 08:55:15 AM
He sort of has a point though.  The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years.  Also, maybe add in a meth den popping up next door.  :-)

Correct.  The examples suggest liquidity but are not necessarily any more liquid.  So the benefit is non existent.  It just didn't make any sense.  I'm not arguing at all about whether someone should pay off their mortgage, as both examples were literally "pay off your mortgage early in 8 years"...

His hypothetical operated under the fictitious assumption that the mortgage interest rate is the same as the market interest rate. I believe the annualized market rate has been ~9%, whereas current mortgage rates are less than half that. If we include that in the scenario, then Mr. White's in a much better position.

To throw the numbers in, let's say they both currently owe $240k on their mortgage at 4% and have 20.5 years left on their mortgages (original principal balance of $300k).

Ross puts $1,500/month toward the mortgage and pays his house off in 8 years, 3 months, over 12 years faster than he would have with minimum payments.

Mr. White puts $1,500/month in the S&P 500. On the day that Ross paid off his mortgage, Mr. White still owes $168.6k on his, but has nearly $209.8k in that investment account. He could pay off the house in one fell swoop and have an extra $41k. Of course, we hope that Mr. White will see that the money can work harder for him in the stock market and will continue to make minimum payments on the mortgage while throwing more money into his investments.
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on June 18, 2019, 09:26:26 AM
He sort of has a point though.  The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years.  Also, maybe add in a meth den popping up next door.  :-)

Correct.  The examples suggest liquidity but are not necessarily any more liquid.  So the benefit is non existent.  It just didn't make any sense.  I'm not arguing at all about whether someone should pay off their mortgage, as both examples were literally "pay off your mortgage early in 8 years"...

His hypothetical operated under the fictitious assumption that the mortgage interest rate is the same as the market interest rate. I believe the annualized market rate has been ~9%, whereas current mortgage rates are less than half that. If we include that in the scenario, then Mr. White's in a much better position.

To throw the numbers in, let's say they both currently owe $240k on their mortgage at 4% and have 20.5 years left on their mortgages (original principal balance of $300k).

Ross puts $1,500/month toward the mortgage and pays his house off in 8 years, 3 months, over 12 years faster than he would have with minimum payments.

Mr. White puts $1,500/month in the S&P 500. On the day that Ross paid off his mortgage, Mr. White still owes $168.6k on his, but has nearly $209.8k in that investment account. He could pay off the house in one fell swoop and have an extra $41k. Of course, we hope that Mr. White will see that the money can work harder for him in the stock market and will continue to make minimum payments on the mortgage while throwing more money into his investments.

Many people in the pay off your mortgage camp get nervous when you start talking about stock market returns. The stock market is something they don't understand well enough to have confidence in, I guess. You are correct, of course, that superior stock market returns over 30 years are a better return than the mortgage, but I'm having trouble convincing people (and Ross specifically) of that. Even if you show them the numbers, they just say, "Yeah, but that's not guaranteed!"

The original story was an attempt to leave returns off the table so we don't get stuck in the weeds. (Too many metaphors.) Right now, I only want to demonstrate that even if your goal is to eliminate your mortgage, you are still better off not sending the money to the mortgage company.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on June 18, 2019, 09:37:05 AM
He sort of has a point though.  The example really still results in prepayment of the mortgage and only emphasizes the liquidity advantage over a brief period, not expected excess returns from other sources stretched over 30 years.  Also, maybe add in a meth den popping up next door.  :-)

Correct.  The examples suggest liquidity but are not necessarily any more liquid.  So the benefit is non existent.  It just didn't make any sense.  I'm not arguing at all about whether someone should pay off their mortgage, as both examples were literally "pay off your mortgage early in 8 years"...

His hypothetical operated under the fictitious assumption that the mortgage interest rate is the same as the market interest rate. I believe the annualized market rate has been ~9%, whereas current mortgage rates are less than half that. If we include that in the scenario, then Mr. White's in a much better position.

To throw the numbers in, let's say they both currently owe $240k on their mortgage at 4% and have 20.5 years left on their mortgages (original principal balance of $300k).

Ross puts $1,500/month toward the mortgage and pays his house off in 8 years, 3 months, over 12 years faster than he would have with minimum payments.

Mr. White puts $1,500/month in the S&P 500. On the day that Ross paid off his mortgage, Mr. White still owes $168.6k on his, but has nearly $209.8k in that investment account. He could pay off the house in one fell swoop and have an extra $41k. Of course, we hope that Mr. White will see that the money can work harder for him in the stock market and will continue to make minimum payments on the mortgage while throwing more money into his investments.

Many people in the pay off your mortgage camp get nervous when you start talking about stock market returns. The stock market is something they don't understand well enough to have confidence in, I guess. You are correct, of course, that superior stock market returns over 30 years are a better return than the mortgage, but I'm having trouble convincing people (and Ross specifically) of that. Even if you show them the numbers, they just say, "Yeah, but that's not guaranteed!"

The original story was an attempt to leave returns off the table so we don't get stuck in the weeds. (Too many metaphors.) Right now, I only want to demonstrate that even if your goal is to eliminate your mortgage, you are still better off not sending the money to the mortgage company.

That's not at all what you wrote.  You said Mr. White would put his money in a "safe investment" with the "same return as his mortgage."  If the return is the same, then it makes no sense.  Leaving returns off the table essentially leaves the entire point off the table!  Instead you argued liquidity, and I'm assuming you did this with your friend as well.  That's just not good advice (see MMM video I posted above).  It's not going to resonate with your friends.  Simply because if your goal is to demonstrate it's better to not send the money to the bank for the mortgage, you haven't done that with the above scenario.

If the goal is paying off the mortgage in 8 years, an S&P 500 investment is hardly safe.  That's trying to time the market over a relatively short period of time.  If the goal is to invest in the S&P until both the market is up and you have enough to pay off the house, without a set time period, then it's probably good advice (and the advice I give, as well).

It seems your friends are in the pay off your mortgage club and you may be better served just letting them do that.  It can be a great idea for some people, depending on their financial discipline.  There is no right answer, neither club is right.  Your friends seem very interested in the lower risk, guaranteed returns of paying off their mortgage.  It's probably the right decision for them.  They are never going to see the light with long term stock investing without doing a LOT more reading and learning, and even then, there is the "unknown" that is difficult for a lot of people.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 18, 2019, 09:47:25 AM
No, holding money in a 'safe investment' (e.g. bonds)  is not the same as paying down your mortgage, even if the respective interest rates are comparable.  In the former you have your NW divided between two categories, your home (because you are still making minimum payments) and your 'safe investment'.  In the latter you have a higher percentage of your NW tied to your home.  Earlier you made the point for a HELOC, and indeed that can be one of several strategies to handle unexpected expenses/life emergencies.  However, as has been pointed out multiple times, HELOCs are often frozen during recessions, and their interest rates mirror prime + x%: they're a reliable option as long as the 'emergency' isn't coming during a downturn in the broader economy or during periods of higher interest rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on June 18, 2019, 11:25:25 AM
The don't pay off your mortgage club is about holding the mortgage as long as possible and seeking higher returns elsewhere.  Your own advice suggests a safe investment with a similar interest rate as the mortgage, with the goal of paying it off in the same time frame.  That's not good advice.
While you are correct about the optimum, a key DPYM principle is that a mortgage that is paid down, but not paid off, is not as flexible as having the funds in a liquid investment so it does not provide the security that most in the Payoff Your Mortgage club seek. Paying down the mortgage is sub-optimal AND the emotional reason (security) people argue that they don't care that it is sub-optimal is an illusion.

Do you not have mortgage payment holidays or mortgage overpayment borrow back features in your mortgages? The former lets someone take a few months off from paying a mortgage, useful in a job loss scenario, where the latter keeps overpayments in a separate reserve that can be borrowed back if needed. This is also useful in a job loss scenario.
Yes, if US mortgages had these features, paying the mortgage down early would provide the security many seek; however, I bet we wouldn't have low long term fixed rates if we did have those features. Imagine the investor holding a mortgage with a fixed rate below the current going rates that has 100k of extra principle payments made on it being required to allow the 100k to be borrowed back at the original fixed rates. HELOC is pretty much as close to this style of mortgage that we have. HELOC rates are generally not fixed and the lender can freeze the line of credit, preventing the borrower from borrowing more. Lenders are more likely to freeze a HELOC at the time when the borrower most needs financial flexibility.
Title: Re: DONT Payoff your Mortgage Club
Post by: never give up on June 18, 2019, 12:16:12 PM
I see yes, thanks robertsd. In having those features most mortgages in the UK can only be fixed for two, three or five years. Personally I would rather have the long term fixed rate with less features/flexibility than the way it is here, but the differences are interesting.
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on June 18, 2019, 12:22:08 PM
Yeah I get it Salon.  Makes sense if that is your goal/feature you are trying to highlight. 

I also agree the HELOC is not an equivalent substitute for the liquid investments; if you've lost your job (or lending has dried up in a financial crisis, or your house won't appraise because the town factory shut down...thus you lost your job) you might not qualify for a HELOC.


Based on all the information I've gleaned via UK housing rental/slumlord shows on Netflix, I feel that your housing laws are in serious need of revision.  haha. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on June 18, 2019, 01:21:56 PM
Yeah I get it Salon.  Makes sense if that is your goal/feature you are trying to highlight. 

I also agree the HELOC is not an equivalent substitute for the liquid investments; if you've lost your job (or lending has dried up in a financial crisis, or your house won't appraise because the town factory shut down...thus you lost your job) you might not qualify for a HELOC.


Based on all the information I've gleaned via UK housing rental/slumlord shows on Netflix, I feel that your housing laws are in serious need of revision.  haha.

The bolded part is exactly right.  HELOCs tend to dry up at the exact moment when you need them the most.  If you put all your $$ toward the mortgage and you lose your job, you're screwed.  On the other hand, if you've saved/invested it, then you are much less likely to lose your home in the even of job/income loss. 

The fact that you actually get higher returns from something like indexing is just gravy, IMO. 

But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year.  I'll tell you what - all those "early payments" did NOT MATTER to the bank.  They only cared about whether I could keep paying.  When I couldn't they were very prepared to take possession of the property.  Luckily I found work at the very last minute but it was pretty damn close. 

Best to stay liquid, IME. 
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on June 18, 2019, 02:26:35 PM
But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year.  I'll tell you what - all those "early payments" did NOT MATTER to the bank.  They only cared about whether I could keep paying.  When I couldn't they were very prepared to take possession of the property.  Luckily I found work at the very last minute but it was pretty damn close. 

Best to stay liquid, IME.

All those extra payments just meant it was easier for the bank to get it's money back out of the deal.   If they were short on cash your house would go to the top of the foreclosure list as it could be more quickly sold for way less than it was worth.

I agree with you completely!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 18, 2019, 08:03:21 PM
But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year.  I'll tell you what - all those "early payments" did NOT MATTER to the bank.  They only cared about whether I could keep paying.  When I couldn't they were very prepared to take possession of the property.  Luckily I found work at the very last minute but it was pretty damn close. 

Best to stay liquid, IME.

All those extra payments just meant it was easier for the bank to get it's money back out of the deal.   If they were short on cash your house would go to the top of the foreclosure list as it could be more quickly sold for way less than it was worth.

I agree with you completely!
Whew, @tyort1, I am so glad you didn't lose your house! Some people join this club because they get the math, others, like me, learned because a smart person gently but persistently pounded it into their hard heads. Still others lived through an experience that was scary as hell. I'm glad your story doesn't have a sad ending. I'm even more glad that you were willing to share your real life experience and hard earned wisdom. Thank you.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 19, 2019, 01:24:16 AM
But then again I've been in a situation where I was out of work for almost a year and nearly lost my house because I'd "paid down my mortgage", and I didn't have enough saved to buffer more than a year.  I'll tell you what - all those "early payments" did NOT MATTER to the bank.  They only cared about whether I could keep paying.  When I couldn't they were very prepared to take possession of the property.  Luckily I found work at the very last minute but it was pretty damn close. 

Best to stay liquid, IME.

All those extra payments just meant it was easier for the bank to get it's money back out of the deal.   If they were short on cash your house would go to the top of the foreclosure list as it could be more quickly sold for way less than it was worth.

I agree with you completely!
Whew, @tyort1, I am so glad you didn't lose your house! Some people join this club because they get the math, others, like me, learned because a smart person gently but persistently pounded it into their hard heads. Still others lived through an experience that was scary as hell. I'm glad your story doesn't have a sad ending. I'm even more glad that you were willing to share your real life experience and hard earned wisdom. Thank you.

The above wasn't directed specifically at me, but I'd say that I'm in this club for all three reasons.  At this point I 'get the math' - but only after some very patient people, including both my parents and people on this forum, took a great deal of time to help explain the multi-faceted reasons why it was in my own best self interests not to overpay a mortgage.  I also lived through the mortgage crisis in one of the hardest hit areas in the country.  We wound up ok because we had some significant financial buffers and because - thank god - neither of us lost our income during that time.  But at one point we counted 40 foreclosures in our immediate neighborhood, and personally knew dozens of people who couldn't make their mortgage payments because they had lost one or both of their incomes, and they didn't have additional investments to draw from.  Many had been over-paying their mortgage because they "just want it gone" and because they had bought into the RE line that their home "was the best investment they could make". 

Home prices dropped 40% in our immediate area but it was largely irrelevant - there were so many foreclosures that the market was saturated, but due to the credit crisis few banks were willing to extend a loan to anyone.  This resulted in so few buyers that people trying to sell their home for a six-figure loss still couldn't make the sale. A couple who lived behind us had been making mortgage payments for about four years, overpaying a bit each month "to save on interest".  Over a series of increasingly depressing conversations we learned that despite putting down a healthy downpayment and (over)paying the mortgage some 50 consecutive months they were in a precarious spot, as they had lost half their income but their home was suddenly five-figures underwater.  They needed to move to get a new job but couldn't sell and lacked the capital to start renting elsewhere.  They had bought near the top of the market but thought they were doing everything right.  Ultimately his parents helped bail them out, and their home was sold after being on the market for about 18 months.  It finally sold for a loss of about $185k IIRC six years after they had purchased it.  This was in a HCOL area and the home was nothing fancy - your typical modest 'starter home'.  Sadly they probably could have weathered that storm if they had ~$75k in other investments to draw from during that whole poo-storm. But they didn't and once they got behind a few months on teh rent they were stuck in a debt spiral they couldn't get out of.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kronsey on June 19, 2019, 04:18:35 PM
This was/is one of my favorite topics. I have appreciated those who have continued to pound into our heads the math reasons why it doesn't make any sense to prepay 99.9% of the time. This thread helped me change my mind on my own mortgage strategy and for that I am forever grateful.

Now I'm asking for some advice (and a little bit of a case study) as I go down the refi road. I think I know the right answers, but I want to pound it into my own head one more time :) Here are the specifics of my situation:

Current mortgage balance - $152,500 (everything will be round numbers for simplicity). Current mortgage rate = 4.375% on a 30 year fixed rate note. Taxes and insurance escrowed at $219/month. Currently paying PMI of $45/month. I believe the house was appraised at $169,000 at time of purchase. So total payment is $778 (PI) + $219 (TI) + $45 (PMI)  = $1,042/mo.

I've received refi quotes of 3.375% (roughly 3.475% APR) for 15 years & 3.625% (roughly 3.75% APR) for 30 years.

All in closing costs would be $1,900 - $2,000 which includes a few small credits/discounts from the bank. A house in our cul de sac that is 100% identical to ours (same floor plan and even interior finishes) sold for $189,000 a month or so ago, so I feel safe assuming our appraisal will come back around $185,000 or slightly higher. If that is the case, I plan on eliminating our PMI and refinancing at $148,000. So my total out of pocket will be the $4,500 (difference between $152,500 and $148,000) + $2,000 in closing costs = $6,500.

My all in monthly payment (PITI) on the 30 year note would come to $893/month roughly.

My all in monthly payment (PITI) on the 15 year note would come to $1,248/month roughly.

I would agree with the theme of this thread that I should take the $355/month difference between the two and invest it in the stock market, but I actually plan on retiring in around 15 years and the substantial reduction in cash outflow by not having a mortgage payment would be a huge relief. Also - if I take the $355 and invest in a taxable account (all pre-tax space is already maxed out), I am nervous of the potential income consequences as I heavily rely on showing limited income on my tax return for health insurance purposes. HI is such a ticking time bomb that I don't want to place all my bets on the ACA though.

Basically I understand that investing the $355/month provides much more flexibility and potential for the market to eclipse 3.75%, but knowing the mortgage would be retired in 15 years feels more"safe" for some reason.

Also - I don't itemize my deductions and probably never will, so any potential tax benefit doesn't apply to my situation.

I'm leaning toward the 30 year refi, but emotionally I want to go with the 15 year refi.

Now help me make the best decision :)
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on June 19, 2019, 04:29:46 PM
If you did the 30 year refi and invested that extra money at an annualized market rate of 9%, would the amount in that account be more than your mortgage balance after 15 years? I think that's the simplest way to answer it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kronsey on June 19, 2019, 04:50:33 PM
If you did the 30 year refi and invested that extra money at an annualized market rate of 9%, would the amount in that account be more than your mortgage balance after 15 years? I think that's the simplest way to answer it.

Yeah - of course if the market consistently returned 9%, I would have way more money and be able to easily payoff the remaining mortgage after 15 years. I already conceded that I THINK the market will outpace 3.75%, my PRIMARY concern is those investments kicking off enough income that would derail some of my income tax planning for HI purposes. That really is the only thing holding me back. Fear of increased income from that growing taxable account that screws up my APTC.

I do recognize trying to plan for something as fluid and jacked up as our healthcare system is foolish and a waste of time, but I have to make some sort of decision which amounts to a guess on whether I think the potential investment gains could impact my ability to get heavily discounted health insurance. I'm self employed with a chronic disease. I have to plan for a future which could change at any time (the HI marketplace) and that produces worry/fear/anxiety. 

Hope that better explains why I have a dilemma and why it isn't just as simple as trusting the market will outpace the mortgage interest rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on June 19, 2019, 04:53:30 PM
If the goal is paying off the mortgage in 8 years, an S&P 500 investment is hardly safe.  That's trying to time the market over a relatively short period of time.  If the goal is to invest in the S&P until both the market is up and you have enough to pay off the house, without a set time period, then it's probably good advice (and the advice I give, as well).

i would like people here to pull me from the dark side of POYMC.

outstanding 30 year loan amount of $304k. 25 years left. 3.325%. PI = $1525/mo.

we sold a rental property and have $185k in cash (in addition to other reserve funds) that is earmarked for investments.

we were going to purchase some additional rentals in higher cap areas, and calc'd that we'd get about 6% ROI after all expenses. some deals fell through, so here we are.

i looked into recasting our mortgage using the $185k as a one time payment. this would reduce PI to $575/mo, or a net increase in cash flow of $950/mo. this is a 6.1% rate of return, if i'm doing math right (12*950/185000).

we would mostly likely, but not certainly POM within a few years if some cards fall right at work. 401k and roths are maxed out. i like the idea of increased cash flow, even if long term return on stocks is possible to be higher. my market-timing-gut says that we're not seeing 7% returns for averaged over the next 5 years (all hail thorstache), so i the mortgage is killed off in 5 years, it seems like a win.

agree or disagree?
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on June 19, 2019, 06:01:43 PM
i would like people here to pull me from the dark side of POYMC.

outstanding 30 year loan amount of $304k. 25 years left. 3.325%. PI = $1525/mo.

we sold a rental property and have $185k in cash (in addition to other reserve funds) that is earmarked for investments.

we were going to purchase some additional rentals in higher cap areas, and calc'd that we'd get about 6% ROI after all expenses. some deals fell through, so here we are.

i looked into recasting our mortgage using the $185k as a one time payment. this would reduce PI to $575/mo, or a net increase in cash flow of $950/mo. this is a 6.1% rate of return, if i'm doing math right (12*950/185000).

we would mostly likely, but not certainly POM within a few years if some cards fall right at work. 401k and roths are maxed out. i like the idea of increased cash flow, even if long term return on stocks is possible to be higher. my market-timing-gut says that we're not seeing 7% returns for averaged over the next 5 years (all hail thorstache), so i the mortgage is killed off in 5 years, it seems like a win.

agree or disagree?

If you don't recast your mortgage, you have something vastly more valuable than cash flow, namely cash.    You can invest it in the market or however you like and if the rental market turns around you'll have accessible resources such that you can re-enter it if an attractive deal comes up later. 

Also, the proper comparison timeline is 25 years (the amount remaining on your mortgage).   Beating 3.325% over that time frame is as close to a sure thing as you will get in life.   

Title: Re: DONT Payoff your Mortgage Club
Post by: Kronsey on June 19, 2019, 06:48:35 PM

...the proper comparison timeline is 25 years (the amount remaining on your mortgage).   Beating 3.325% over that time frame is as close to a sure thing as you will get in life.


And as has been mentioned before, if you can't outpace 3.325% over the next 25 years from investing, you will have way bigger problems than a paid off mortgage (our economy would have been in the toilet for 2.5 decades).

I am still firmly in the camp of invest with an eye towards complete mortgage elimination once you have the funds. You lose all flexibility with a refi and cutting your mortgage balance in half

What if you lose you job and can't afford the $575/mo?

And if you answer "well I'm a talented bloke who could easily scratch together $525/mo" then I would respond that you'd probably be able to scratch together  $1,525/month.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on June 20, 2019, 05:47:12 AM

...the proper comparison timeline is 25 years (the amount remaining on your mortgage).   Beating 3.325% over that time frame is as close to a sure thing as you will get in life.


And as has been mentioned before, if you can't outpace 3.325% over the next 25 years from investing, you will have way bigger problems than a paid off mortgage (our economy would have been in the toilet for 2.5 decades).

I am still firmly in the camp of invest with an eye towards complete mortgage elimination once you have the funds. You lose all flexibility with a refi and cutting your mortgage balance in half

What if you lose you job and can't afford the $575/mo?

And if you answer "well I'm a talented bloke who could easily scratch together $525/mo" then I would respond that you'd probably be able to scratch together  $1,525/month.

I'm also in the "invest with an eye towards complete mortgage elimination once you have the funds" club.  However, the difference between $525/mo and $1525/mo is drastic.  $525/mo you can live comfortably with almost any full time job.  $1525 is a struggle if not nearly impossible.  Just ask anyone who makes $15/hr what an extra $1,000/mo mortgage would mean!

My personal advice, based on your last few comments, would be to take the 30 year and invest the leftover (and as much as you can).  This will then allow you to pay it off early on your own terms if you change your mind.  The interest difference is minimal enough to make the 30 year more enticing, especially with the extra cash flow.  You can still pay it off in 15 years if you wanted.  I think you are more of a pay off club person, with caveats.  And that's really ok.  Give yourself options by going with the 30 year, as you may find yourself much more "do not pay off" down the line.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on June 20, 2019, 07:16:52 AM
What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on June 20, 2019, 09:55:06 AM
What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

Is it the $185k you're thinking of putting into the house?  If so, then the math is easy, from a "safety from liquidity" standpoint.  You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k.  That's 10 years of payments you can make even with zero income. 

If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575.  It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on June 20, 2019, 06:43:00 PM
What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

Is it the $185k you're thinking of putting into the house?  If so, then the math is easy, from a "safety from liquidity" standpoint.  You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k.  That's 10 years of payments you can make even with zero income. 

If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575.  It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.

$575 can be paid with any minimum wage job.  That's hardly risky.  And if someone is disabled and unable to work, $575 is well within average disability benefits as well.  There is simply no reason why $575 would be risky.  That's the type of monthly bill people dream of.  It nearly eliminates the risk.  You can do anything, work anywhere, and get by just fine.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 21, 2019, 01:11:00 AM
What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

Is it the $185k you're thinking of putting into the house?  If so, then the math is easy, from a "safety from liquidity" standpoint.  You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k.  That's 10 years of payments you can make even with zero income. 

If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575.  It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.

$575 can be paid with any minimum wage job.  That's hardly risky.  And if someone is disabled and unable to work, $575 is well within average disability benefits as well.  There is simply no reason why $575 would be risky.  That's the type of monthly bill people dream of.  It nearly eliminates the risk.  You can do anything, work anywhere, and get by just fine.
The principle works, no matter how much the mortgage is, that's why. RWD's example did not include any gains on the $185k. It would be reasonable for almost any investment to double in ten years time, so in actuality, the money would last far longer.

As for EngagedToFIRE's sunny optimism, let's say the reason you can't work is because you are diagnosed with cancer. Let's say you have decent insurance, 80/20 perhaps, and a smallish deductible, let's call it $5k. And you're even lucky enough to qualify for disability benefits. Not having to worry about how you're going to pay for your treatment, keep the roof over your head, including taxes, insurance, food, gas, etc. is priceless. Far-fetched you say? Dunno, it happens every day. People get injured on the job. People have to quit their jobs to take care of ailing family members every day. It's not so far fetched as you might think. Oh, and those numbers I used? Mine, when it happened to me. Fortunately, I made a full recovery and managed to stay out of debt. Many are not so lucky.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 28, 2019, 10:36:24 AM
I admit, I get a little skeevy when the thread that celebrates doing the less optimal thing crops up in my feed too often. Similarly, I don't (should that be "DONT"?) love it when this thread goes fallow for too long. I realize that doing something simple like making your regular old mortgage payment and socking the rest away in investments may not seem crow-worthy, but it's good to hear from folks who are making the wise decision to stay the course.

I'm making this post to drag our little thread back up to the surface, where it so rightly belongs. Mortgage rates have been  dropping steadily of late. Is anyone thinking about doing a re-fi to lower their rate or to take cash out? Just curious. Maybe you're on a low information diet. Maybe you don't know rates are dropping. In which case, you're welcome.

That's all I've got for now. Hope y'all are enjoying your summer.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on June 28, 2019, 10:48:09 AM
I admit, I get a little skeevy when the thread that celebrates doing the less optimal thing crops up in my feed too often. Similarly, I don't (should that be "DONT"?) love it when this thread goes fallow for too long. I realize that doing something simple like making your regular old mortgage payment and socking the rest away in investments may not seem crow-worthy, but it's good to hear from folks who are making the wise decision to stay the course.

I'm making this post to drag our little thread back up to the surface, where it so rightly belongs. Mortgage rates have been  dropping steadily of late. Is anyone thinking about doing a re-fi to lower their rate or to take cash out? Just curious. Maybe you're on a low information diet. Maybe you don't know rates are dropping. In which case, you're welcome.

That's all I've got for now. Hope y'all are enjoying your summer.
Rates have a little further to go for us to refinance again.  The no brainer refinpoint for us is 3.25 with no points and estimated 3k closing costs.  With the expected fed rate cut, it may be possible which would have us doing a second refi this year.  Break even on the numbers above would be 12mo.  We are continuing to invest money and watch rates, if the right opportunity comes up to refi to 3.25 and drop some money to remove PMI we may do it.  All depends on how the numbers play out though.  It's great having a decent stache to have these different options :)

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 28, 2019, 11:06:43 AM

I'm making this post to drag our little thread back up to the surface, where it so rightly belongs. Mortgage rates have been  dropping steadily of late. Is anyone thinking about doing a re-fi to lower their rate or to take cash out? Just curious. Maybe you're on a low information diet. Maybe you don't know rates are dropping. In which case, you're welcome.

We're itching to buy a home, but we have to wait until some job prospects play out.  Might not be for a year until we cna pull the trigger.  It is frustrating to see rates so low and worry that you might not be able to take advantage of them. 
meanwhile, we paid our mortgage minimum once again on our home (now rented) in Canada.  2.49%
Title: Re: DONT Payoff your Mortgage Club
Post by: Kierun on June 28, 2019, 02:29:37 PM
Off and on I've considered looking at a VAIRRL but also wavering on whether or not we'll stay in our current place beyond 1-2 years.  If not, then probably end up selling the place, making the refi a loser. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 29, 2019, 10:08:56 AM
Off and on I've considered looking at a VAIRRL but also wavering on whether or not we'll stay in our current place beyond 1-2 years.  If not, then probably end up selling the place, making the refi a loser.
That's an important consideration. Wise move.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on June 30, 2019, 08:32:47 AM
What if you lose you job and can't afford the $575/mo?

Then hopefully you didn't spend all that money you were saving/investing by not paying extra on the mortgage and can live comfortably without an income for years.

Is it the $185k you're thinking of putting into the house?  If so, then the math is easy, from a "safety from liquidity" standpoint.  You invest the $185k, if you lost your job, that $185k could pay the mortgage for 121 months using that $185k.  That's 10 years of payments you can make even with zero income. 

If you put the $185k into the house, your ability to pay the mortgage drops to zero, and you have to try to cashflow/save future earnings to try to cover the $575.  It's a lower payment, but also a lot more risky because you've sunk all your cash into a single asset, and an asset that's very un-liquid at that.

$575 can be paid with any minimum wage job.  That's hardly risky.  And if someone is disabled and unable to work, $575 is well within average disability benefits as well.  There is simply no reason why $575 would be risky.  That's the type of monthly bill people dream of.  It nearly eliminates the risk.  You can do anything, work anywhere, and get by just fine.
The principle works, no matter how much the mortgage is, that's why. RWD's example did not include any gains on the $185k. It would be reasonable for almost any investment to double in ten years time, so in actuality, the money would last far longer.

As for EngagedToFIRE's sunny optimism, let's say the reason you can't work is because you are diagnosed with cancer. Let's say you have decent insurance, 80/20 perhaps, and a smallish deductible, let's call it $5k. And you're even lucky enough to qualify for disability benefits. Not having to worry about how you're going to pay for your treatment, keep the roof over your head, including taxes, insurance, food, gas, etc. is priceless. Far-fetched you say? Dunno, it happens every day. People get injured on the job. People have to quit their jobs to take care of ailing family members every day. It's not so far fetched as you might think. Oh, and those numbers I used? Mine, when it happened to me. Fortunately, I made a full recovery and managed to stay out of debt. Many are not so lucky.

There are many practical benefits of outrageous optimism. 
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on June 30, 2019, 10:27:38 AM
It's been way too long since I've updated my little investment tracker here so I thought it would be best to fill in the last couple weeks of data.

726 to 401k
269 to HSA
605 to ESPP
462 to Taxable Brokerage

Investment Tracking
1/1/19     - $327,708
1/18/19   - $354,622
2/1/19    - $361,270
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719
4/26/19   - $411,264
5/10/19   - $408,897
5/24/19   - $401,664
6/7/19     - $412,268
6/21/19   - $427,153

YTD Change              = 99,645
Trailing 12mo change = 83,146

Our goal is to get our trailing 12mo change to 100,000 consistently.  Then we will focus harder on 100k in contributions per year which should be achievable in 2020 with a full year of higher incomes and bonuses.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 01, 2019, 04:39:38 AM
I mentioned this over in a Race to thread.  While the main reason I DPYMC is the opportunity cost of not having that money in the market, I also do it for the deduction. 

As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.  Also as a single person, I think it is way more common to still itemize as the standard Deduction is only $12,000 where $10,000 of that can be State and Local Taxes.     

So yes, I keep a mortgage for the tax destructibility.  This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 01, 2019, 05:50:04 AM
I mentioned this over in a Race to thread.  While the main reason I DPYMC is the opportunity cost of not having that money in the market, I also do it for the deduction. 

As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.  Also as a single person, I think it is way more common to still itemize as the standard Deduction is only $12,000 where $10,000 of that can be State and Local Taxes.     

So yes, I keep a mortgage for the tax destructibility.  This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.

How were you doing a Roth with that income?
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on July 01, 2019, 07:56:48 AM
As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.

This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.

How were you doing a Roth with that income?

I don't think there are any income limits for contributing to a Roth 401k, only a Roth IRA.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 01, 2019, 08:20:26 AM
Yes, no income limits on a Roth 401k. 

I do the Roth now because of other aspects in my financial life which make it make sense.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 01, 2019, 11:20:32 AM
About to fix this major problem we have - a paid off house. Bank says so long as we take occupancy within 60 days of closing, they can do an owner-occupied loan, so we're looking to close in early August. Currently living a long way away from this house and renting it out but we're moving back in October. Question:

30 year at 4%

15 year at 3.125%

I'm thinking the 30 year because 4% is still very cheap and 15 extra years of compounding is a big deal. I recall that the breakeven is something like 7-8 years in the house. Does that seem right to y'all?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 01, 2019, 11:24:40 AM
About to fix this major problem we have - a paid off house. Bank says so long as we take occupancy within 60 days of closing, they can do an owner-occupied loan, so we're looking to close in early August. Currently living a long way away from this house and renting it out but we're moving back in October. Question:

30 year at 4%

15 year at 3.125%

I'm thinking the 30 year because 4% is still very cheap and 15 extra years of compounding is a big deal. I recall that the breakeven is something like 7-8 years in the house. Does that seem right to y'all?
Rates have been dropping, so shop around for a better rate than 4%. And absolutely take the 30. Still works in your favor if you keep investing, which you will, of course. Congratulations!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 01, 2019, 11:50:48 AM
Definitely shop around. I'm seeing 0 point refi's in my area at 3.5.

Also, right now I would consider doing a 6 to 10 month dollar cost average into the market with a large sum like that.  Just to mitigate some initial risk.  Just my opinion though.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 01, 2019, 12:06:45 PM
Definitely shop around. I'm seeing 0 point refi's in my area at 3.5.

Also, right now I would consider doing a 6 to 10 month dollar cost average into the market with a large sum like that.  Just to mitigate some initial risk.  Just my opinion though.

Sent from my moto g(6) using Tapatalk
Lowest I'm seeing on bankrate for a 30 year is 3.75% - it is probably a smaller loan than most are thinking. Maybe $125K loan - will depend on the appraisal. Still a mid-6 figure difference in 30 years, with conservative assumptions.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on July 01, 2019, 12:30:02 PM
I'm 3 years into a 30 year fixed 3.75% mortgage. Purchased with 95% LTV and $56 PMI. I can request PMI removal based on appreciation, paying $300 for a BPO that must show 75% LTV. Based on lowest algorithmic estimate I've found (bottom of a tight Zestimate range) I'm currently at 73% LTV. If BPO comes back short of what I need, I would have up to 120 days to reduce the balance to cancel PMI based on the valuation. I estimate that within that period we could reduce the balance by about 4%. I'm trying to decide when to pull the trigger and request the BPO. One reason to wait is that Habitat for Humanity may bring Rock the Block to our neighborhood in September - we've applied to have some front yard landscaping improvements which could improve curb appeal.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 01, 2019, 01:30:39 PM
I'm 3 years into a 30 year fixed 3.75% mortgage. Purchased with 95% LTV and $56 PMI. I can request PMI removal based on appreciation, paying $300 for a BPO that must show 75% LTV. Based on lowest algorithmic estimate I've found (bottom of a tight Zestimate range) I'm currently at 73% LTV. If BPO comes back short of what I need, I would have up to 120 days to reduce the balance to cancel PMI based on the valuation. I estimate that within that period we could reduce the balance by about 4%. I'm trying to decide when to pull the trigger and request the BPO. One reason to wait is that Habitat for Humanity may bring Rock the Block to our neighborhood in September - we've applied to have some front yard landscaping improvements which could improve curb appeal.


Curb appeal helps sell a properly valued house faster than one without it, but it doesn't typically add much (if any) to the value of the house.   That's my take on it.   


If you can easily handle any likely appraisal shortfall then the sooner the better.  Paying for your own insurance isn't fun but at least you get some value out of it.  PMI is just you paying for someone else's insurance and that sucks.

Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on July 01, 2019, 02:55:18 PM
Curb appeal helps sell a properly valued house faster than one without it, but it doesn't typically add much (if any) to the value of the house.   That's my take on it.   


If you can easily handle any likely appraisal shortfall then the sooner the better.  Paying for your own insurance isn't fun but at least you get some value out of it.  PMI is just you paying for someone else's insurance and that sucks.
If Curb appeal is unlikely to factor in to a BPO, then I agree, sooner is better. I'm confident that we could pay down the principal enough to get PMI removed if the valuation comes back 3% below our target (5% below Zestimate). While I don't want to pay PMI any longer than needed, the $2k I've paid thus far provided the opportunity to get into the market years earlier than I otherwise would have; so overall it has been worthwhile.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on July 01, 2019, 07:23:00 PM
Taking recommendations for lenders - seriously looking at a cashout refi to reset to 30 years.

Unfortunately, Texas makes it an expensive PITA. Best I can find so far is 3.75% with $4.2k in closing costs. Ugh.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 02, 2019, 06:51:46 AM
As a single person making in the $150,000-$180,000 range, I flirt with the 32% marginal tax bracket (157,000) in the US.

This all came up when I was talking to my Financial Advisor about if I was going to need to switch back to the Traditional 401k vs the Roth options I've been taking the last few years.

How were you doing a Roth with that income?

I don't think there are any income limits for contributing to a Roth 401k, only a Roth IRA.

Gotcha.  Learn something new everyday.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 02, 2019, 07:11:52 AM
Another month, another scheduled mortgage payment.  More importantly, I added up the dividends in my taxable account for the first six months of the year, they now "pay" my mortgage and my insurance.    Also 3% of my property taxes, goal is to see if they pay the entire PITI at RE.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on July 02, 2019, 12:04:48 PM
I'm firmly in this club. But just before I really truly saw the light, I refinanced to a 15-year mortgage. It's got an unreal interest rate (2.75% fixed) so I don't regret the decision too much. I have about 12.5 years left on it. Balance is $243k.

Any thoughts about whether I should consider refinancing into a 30-year? What are the primary considerations in making that decision?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 02, 2019, 12:30:58 PM
I'm firmly in this club. But just before I really truly saw the light, I refinanced to a 15-year mortgage. It's got an unreal interest rate (2.75% fixed) so I don't regret the decision too much. I have about 12.5 years left on it. Balance is $243k.

Any thoughts about whether I should consider refinancing into a 30-year? What are the primary considerations in making that decision?

Got that same 2.75% fixed, 15yr rate about the same time.   Just sent a payment in today, we're down to 2 years.    I'm paying about $140 a month extra just so I can see the balance go down $1000 a month.   Helps me stay motivated not to pay it off faster because I can see progress each month. :)


1) Will you actually invest the difference between the payments?  Because if you won't, the answer is "No, don't do it."

2) Will your investments provide a higher average return, such as the 10% average returns from the US stock market?   Or less volatile returns like a 4% or higher fixed return?   Or will they produce more income than you would save in interest payments?   

3) Will you need the lower payments to do other things that you value much more than having the house paid off in 12.5 years?

4) Will having those lower house payments for another 30 years impact your FIRE plans in a bad way?
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on July 02, 2019, 01:14:33 PM
I'm firmly in this club. But just before I really truly saw the light, I refinanced to a 15-year mortgage. It's got an unreal interest rate (2.75% fixed) so I don't regret the decision too much. I have about 12.5 years left on it. Balance is $243k.

Any thoughts about whether I should consider refinancing into a 30-year? What are the primary considerations in making that decision?

Look at the dollar amount of interest you pay each month.    That's the number you want to reduce.   In theory, you want to push the principal payment as far into the future as you can.   
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on July 02, 2019, 05:59:23 PM

Got that same 2.75% fixed, 15yr rate about the same time.   Just sent a payment in today, we're down to 2 years.    I'm paying about $140 a month extra just so I can see the balance go down $1000 a month.   Helps me stay motivated not to pay it off faster because I can see progress each month. :)


1) Will you actually invest the difference between the payments?  Because if you won't, the answer is "No, don't do it."

2) Will your investments provide a higher average return, such as the 10% average returns from the US stock market?   Or less volatile returns like a 4% or higher fixed return?   Or will they produce more income than you would save in interest payments?   

3) Will you need the lower payments to do other things that you value much more than having the house paid off in 12.5 years?

4) Will having those lower house payments for another 30 years impact your FIRE plans in a bad way?

Thanks, @SwordGuy and @Telecaster ! All good thoughts.

I currently pay only $568 in interest each month, and it looks like that would really balloon if I went to a 30-year right now.

I don't have any particular need for the lower payments, other than wanting to do more investing. But at this point we're doing $60,000/year in pre-tax investing, plus mortgage and student-loan paydown, so it's maybe not imperative to invest more.

On the timing, the 12.5 years remaining is actually very convenient as that almost matches the point when I'll be able to retire from government with full lifetime health benefits.

So I'm thinking that unless rates go down it's not worth refinancing.

thanks again!


MP
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 02, 2019, 06:14:04 PM

Got that same 2.75% fixed, 15yr rate about the same time.   Just sent a payment in today, we're down to 2 years.    I'm paying about $140 a month extra just so I can see the balance go down $1000 a month.   Helps me stay motivated not to pay it off faster because I can see progress each month. :)


1) Will you actually invest the difference between the payments?  Because if you won't, the answer is "No, don't do it."

2) Will your investments provide a higher average return, such as the 10% average returns from the US stock market?   Or less volatile returns like a 4% or higher fixed return?   Or will they produce more income than you would save in interest payments?   

3) Will you need the lower payments to do other things that you value much more than having the house paid off in 12.5 years?

4) Will having those lower house payments for another 30 years impact your FIRE plans in a bad way?

Thanks, @SwordGuy and @Telecaster ! All good thoughts.

I currently pay only $568 in interest each month, and it looks like that would really balloon if I went to a 30-year right now.

I don't have any particular need for the lower payments, other than wanting to do more investing. But at this point we're doing $60,000/year in pre-tax investing, plus mortgage and student-loan paydown, so it's maybe not imperative to invest more.

On the timing, the 12.5 years remaining is actually very convenient as that almost matches the point when I'll be able to retire from government with full lifetime health benefits.

So I'm thinking that unless rates go down it's not worth refinancing.

thanks again!


MP

I agree.
Title: Re: DONT Payoff your Mortgage Club
Post by: Say What? on July 03, 2019, 07:38:40 AM
Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 03, 2019, 08:42:38 AM
Keep the 2.75%!

If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 03, 2019, 09:33:31 AM
Keep the 2.75%!

If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.
This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on July 03, 2019, 11:06:04 AM
Keep the 2.75%!

If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.
This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.

Thanks, @Dicey and @talltexan ! I think this is right. Currently it seems that I would be going up quite a bit on the rate.

So far, just shy of three years into DPOYM (and MMM) I've gone from $300k mortgage and about $50k invested to $243k mortgage and $250k invested. And those two numbers are diverging by about $6.5k per month. With every passing month the mortgage becomes less and less of a worry. Definitely feels like the right path!
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on July 03, 2019, 11:09:47 AM
Keep the 2.75%!

If rates fall further over the next year, you might be in a position in which you can approach that with a 30-year. I doubt you can right now.
This. Plus keep on throwing everything else you can into investments. In the long run, you won't be sorry.

Thanks, @Dicey and @talltexan ! I think this is right. Currently it seems that I would be going up quite a bit on the rate.

So far, just shy of three years into DPOYM (and MMM) I've gone from $300k mortgage and about $50k invested to $243k mortgage and $250k invested. And those two numbers are diverging by about $6.5k per month. With every passing month the mortgage becomes less and less of a worry. Definitely feels like the right path!

There's something incredibly powerful when your investments grow past the balance of your mortgage.  Looking at your investment balance and realizing "Hey, I could pay off my ENTIRE mortgage right now, if I wanted to".  It's really cool. 
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 03, 2019, 07:08:16 PM
There's something incredibly powerful when your investments grow past the balance of your mortgage.  Looking at your investment balance and realizing "Hey, I could pay off my ENTIRE mortgage right now, if I wanted to".  It's really cool.

It's even cooler when you realize you can do that AND still be FIRED. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on July 03, 2019, 09:22:53 PM
There's something incredibly powerful when your investments grow past the balance of your mortgage.  Looking at your investment balance and realizing "Hey, I could pay off my ENTIRE mortgage right now, if I wanted to".  It's really cool.

It's even cooler when you realize you can do that AND still be FIRED. :)

At that point you officially have 1st world problems like "Oh man, what do I do with ALL MY MONEY?"  Haha.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on July 05, 2019, 08:33:09 AM
Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!

Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 05, 2019, 10:22:06 AM
Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!

Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
If I were to attempt this, I would advise myself to select just one person to prosthelytize to. I'd spend the rest of my time teaching pigs to sing.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 05, 2019, 11:15:11 AM
Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!

Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
If I were to attempt this, I would advise myself to select just one person to prosthelytize to. I'd spend the rest of my time teaching pigs to sing.

Which do you think you can accomplish faster?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 05, 2019, 06:55:44 PM
Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!

Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
If I were to attempt this, I would advise myself to select just one person to prosthelytize to. I'd spend the rest of my time teaching pigs to sing.

Which do you think you can accomplish faster?
Rhetorical question. Notice the first word, "If", lol!
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on July 06, 2019, 06:52:43 AM
For the average person, paying off your mortgage is still a pretty good decision.

Most folks on this forum can decide "$1k in investments or mortgage principle" but many people will take that instead to be "$1k in mortgage principle or random toys."
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on July 06, 2019, 07:02:53 AM
That's why I love these forums. Most folks here are way beyond "average". The optimal choice is clearly explained and then it's up to us to do what we decide with that information.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 06, 2019, 07:46:59 AM
For the average person, paying off your mortgage is still a pretty good decision.

Most folks on this forum can decide "$1k in investments or mortgage principle" but many people will take that instead to be "$1k in mortgage principle or random toys."
You are 100% right about the bolded part, ender. I think it's clear that mustachians do things differently. It's understood here that this only works if you're socking as much as possible into investments. In fact, it's also understood that we don't just "save" money, we invest it. A parallel is the rent vs. buy conundrum. The renters are supposed to invest the difference they're saving by not owning, but there's not a lot of that going on in the general population, either.

That's why I love these forums. Most folks here are way beyond "average". The optimal choice is clearly explained and then it's up to us to do what we decide with that information.
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 06, 2019, 08:02:15 AM
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.
I don't agree that's true.   There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more.  Any more being the operative word.  They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."

Other than that, the entire forum is fair game for this message.  I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.

What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one.   So a nudge might be more appropriate than a face-punch. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on July 06, 2019, 08:09:11 AM
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.
I don't agree that's true.   There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more.  Any more being the operative word.  They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."

Other than that, the entire forum is fair game for this message.  I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.

What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one.   So a nudge might be more appropriate than a face-punch. :)

On this, I have a friend who is wiling to go to ERE levels of cheapness (he's beyond any semblance of "frugal"). His wife is much more onboard with paying down a mortgage vs investing as a goal, so they put more down on their house than he would like. Even though he knows he'd rather invest.

Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 06, 2019, 08:30:30 AM
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.

You got that right!

I **know** the math.  I **like** the math.  But I **love** not owing money to anyone.

Our current mortgage is a 15 year fixed 2.75% rate.  We have 12 years to go.   

Before finding this thread, it was our plan to buy our current house, sell our old paid-off house, and then pay off our current house. 

I've sold 2 houses, each of which netted enough to pay off the mortgage.  I inherited enough to pay off the mortgage.  So far, I've managed to invest instead of pay it off.

I sold a 3rd house using owner financing and the buyer is expected to refinance to a cheaper rate this month.  (Good bye to the 6% interest I'm earning. :( )   That one will be enough to pay off our mortgage.

I really want to pay off the mortgage and not have it anymore.   But I know it's silly to do that from a financial point of view.  We'll see what we end up doing.

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 06, 2019, 09:20:45 AM
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.

You got that right!

I **know** the math.  I **like** the math.  But I **love** not owing money to anyone.

I get how throwing money into an already large investment account can feel like tossing buckets of water into a small lake.  But here's the thing about owing money - our society runs on debt, and you literally cannot escape it, nor should we want to. 
There's the obvious -- even after paying off your mortgage you still owe taxes in perpetuity. But that money in your investment account is shares owed to you, which (hopefully) are invested in companies who owe a debt to your investment fund tied to their future profits.  If you still work your company owes you money until ever pay period, and they owe money to teh bank, and the bank to their investors. Every transaction you make involves debt, often across multiple parties. Further, other people want you to owe money to them, and they also want to owe money to you.  All within reason, of course - too much or too high a rate and it can become parasitic, but on level it's what makes our system run
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 06, 2019, 09:26:22 AM
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.
I don't agree that's true.   There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more.  Any more being the operative word.  They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."

Other than that, the entire forum is fair game for this message.  I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.

What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one.   So a nudge might be more appropriate than a face-punch. :)
This thread was started in February of 2017. How many folks have joined the forum and that thread since then? It's one of a very few places where balanced discussion is forbidden. "Here we can only celebrate this potentially sub-optimal thing." Now hold on, I completely agree that for some, it's not a sub-optimal decision, but imagine a thread celebrating your low mpg ICE vehicle.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 06, 2019, 09:42:20 AM
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.
I don't agree that's true.   There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more.  Any more being the operative word.  They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."

Other than that, the entire forum is fair game for this message.  I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.

What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one.   So a nudge might be more appropriate than a face-punch. :)
This thread was started in February of 2017. How many folks have joined the forum and that thread since then? It's one of a very few places where balanced discussion is forbidden. "Here we can only celebrate this potentially sub-optimal thing." Now hold on, I completely agree that for some, it's not a sub-optimal decision, but imagine a thread celebrating your low mpg ICE vehicle.

That thread contains plenty of Don't Pay Off Your Mortgage messages in it.  The info is in that thread.  It's all over the rest of the thread.

Lots of people celebrate travel on this forum and many folks cheer them on because it makes them happy to travel.   Other people get happy by paying down their mortgage.  At least the folks paying down their mortgage are making a better financial choice than the travellers are... :)
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 06, 2019, 09:51:32 AM
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.

You got that right!

I **know** the math.  I **like** the math.  But I **love** not owing money to anyone.

I get how throwing money into an already large investment account can feel like tossing buckets of water into a small lake.  But here's the thing about owing money - our society runs on debt, and you literally cannot escape it, nor should we want to. 
There's the obvious -- even after paying off your mortgage you still owe taxes in perpetuity. But that money in your investment account is shares owed to you, which (hopefully) are invested in companies who owe a debt to your investment fund tied to their future profits.  If you still work your company owes you money until ever pay period, and they owe money to teh bank, and the bank to their investors. Every transaction you make involves debt, often across multiple parties. Further, other people want you to owe money to them, and they also want to owe money to you.  All within reason, of course - too much or too high a rate and it can become parasitic, but on level it's what makes our system run

I think it's because for decades putting money in broker accounts is so abstract -- there are no stock certificates to hold in one's hands -- but writing a mortgage payment check is a visceral thing that seems more real.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 06, 2019, 10:21:59 AM
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.

You got that right!

I **know** the math.  I **like** the math.  But I **love** not owing money to anyone.

Our current mortgage is a 15 year fixed 2.75% rate.  We have 12 years to go.   

Before finding this thread, it was our plan to buy our current house, sell our old paid-off house, and then pay off our current house. 

I've sold 2 houses, each of which netted enough to pay off the mortgage.  I inherited enough to pay off the mortgage.  So far, I've managed to invest instead of pay it off.

I sold a 3rd house using owner financing and the buyer is expected to refinance to a cheaper rate this month.  (Good bye to the 6% interest I'm earning. :( )   That one will be enough to pay off our mortgage.

I really want to pay off the mortgage and not have it anymore.   But I know it's silly to do that from a financial point of view.  We'll see what we end up doing.
SwordGuy, you remember we have no mortgage on our primary clown house, right? I differ a bit from B42's position in that I believe one doesn't have to keep rolling a mortgage into perpetuity. We did something along the lines of what you just described. In your case, I 100% agree that paying that sucker off is a very reasonable option, primarily because you followed the Order of Investment and did all the things right. Or enough of the things right to get you to where you are. You have hit your number first, then paid off (or could pay off) the mortgage. You're a textbook case of why the Order of Investment works. Congratulations on your success!

All I want is for people to understand the compound value of money and to know that if they choose to pay off the mortgage first so they can theoretically have more money to invest later, they are choosing a path that is going to require them to work longer. That's the opposite of what we're supposedly here for.

The usual disclaimers apply: this primarily applies to US based, deductible, low, fixed rate interest mortgages, affordably priced  homes, etc. In places where these things are not true, it's a different conversation.
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on July 06, 2019, 11:24:33 AM
Lots of people celebrate travel on this forum and many folks cheer them on because it makes them happy to travel.   Other people get happy by paying down their mortgage.  At least the folks paying down their mortgage are making a better financial choice than the travellers are... :)

Travel is the sacred cow of this forum though. Can't blaspheme it!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 06, 2019, 02:56:17 PM
Depending on the psychology paying down a mortgage can be a lot more motivating than adding to a $500k investment account, too.

You got that right!

I **know** the math.  I **like** the math.  But I **love** not owing money to anyone.

I get how throwing money into an already large investment account can feel like tossing buckets of water into a small lake.  But here's the thing about owing money - our society runs on debt, and you literally cannot escape it, nor should we want to. 
There's the obvious -- even after paying off your mortgage you still owe taxes in perpetuity. But that money in your investment account is shares owed to you, which (hopefully) are invested in companies who owe a debt to your investment fund tied to their future profits.  If you still work your company owes you money until ever pay period, and they owe money to teh bank, and the bank to their investors. Every transaction you make involves debt, often across multiple parties. Further, other people want you to owe money to them, and they also want to owe money to you.  All within reason, of course - too much or too high a rate and it can become parasitic, but on level it's what makes our system run

I think it's because for decades putting money in broker accounts is so abstract -- there are no stock certificates to hold in one's hands -- but writing a mortgage payment check is a visceral thing that seems more real.

Interesting.  I suppose it is for many.  Only I've never written an actual mortgage payment check.  Not once. I don't even own any checks.  Basically everything is abstract for me.... my paycheck gets direct deposited into my account minus contributions to my 403(b) and HSA.   My mortgage, rent and monthly investments all get subtracted from my account on given days.  Ditto for credit cards.  I periodically check and see that my mortgage balance has gone down and my investment accounts have gone up (or at least the # of shares I own ;-).  But it's all just numbers shifting from column to column.  Maybe if the bank was physically knocking at my door (or at least calling me monthly) and I had to hand over cash or write a check it might feel differently.

It was set up this way when I took out my loan - I would have to do some research to figure out where I'd even mail a check to...
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 06, 2019, 03:30:58 PM
I think it's because for decades putting money in broker accounts is so abstract -- there are no stock certificates to hold in one's hands -- but writing a mortgage payment check is a visceral thing that seems more real.

Interesting.  I suppose it is for many.  Only I've never written an actual mortgage payment check.  Not once.

I have never written a mortgage payment check either. It's always been an automated payment. The few times I've paid extra principal I also did it electronically.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 07, 2019, 07:04:45 AM

If you owe $800 a month for your mortgage, that means you need $240,000 to cover the mortgage post-FIRE (assuming you are working with the 4% SWR).  If that 240k is more than what is left to pay off your mortgage, you could very well come out ahead switching to focus on paying down the mortgage.  The math could be close in many places depending on what you think market returns will be.  But for me, the tipping point will be when I can comfortably cover my non-mortgage costs.

Maybe this is not a new idea and has been addressed in the thread already, haha.  But it only recently occurred to me!

This assumption is erroneous; even paying the minimum, your mortgage will disappear eventually, and absent refinancing it will be gone in less than 30 years.  The original trinity study examined withdraw rates over 30 year periods, with withdraws pegged to inflation (maintaining purchasing power).  To put it simply, if you have only 10 or 15 years you can use a much greater WR to cover the mortgage than 4%; sol did a meta-analysis earlier in this thread, but a quick run through FireCalc shows you could use a 11% WR to support 10 years remaining on your mortgage and have an even higher chance of success than 4% over 30 years.  To use your example if your mortgage was $800/mo you would need just $87k to support mortgage payments for the next decade, plus whatever you need for living expenses going forward.

There are two reasons why such a high WR will work - 1) the timeframe is much shorter (here 10 years instead of 30) and 2) your mortgage payment does not increase, so your WR for this portion of your expenses (the PI of your mortgage) will not increase with inflation.

Of course money is fungible, so this segregating of accounts is more for mental comprehension than anything. If you want $40k/year in living expenses plus enough to cover an $800 mortgage for another 10 years and are comfortable with the level of risk in a 'normal' 4% WR strategy you will need a total investment portfolio of $1.087MM, not $1.24MM.  Further, historically over 93% of periods would have had a sizeable amount left in this 'mortgage sinking fund' after the final payment, in roughly half the portfolio would have at least $50k remaining - hardly chump change. 



Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 07, 2019, 04:34:19 PM

If you owe $800 a month for your mortgage, that means you need $240,000 to cover the mortgage post-FIRE (assuming you are working with the 4% SWR).  If that 240k is more than what is left to pay off your mortgage, you could very well come out ahead switching to focus on paying down the mortgage.  The math could be close in many places depending on what you think market returns will be.  But for me, the tipping point will be when I can comfortably cover my non-mortgage costs.

Maybe this is not a new idea and has been addressed in the thread already, haha.  But it only recently occurred to me!

This assumption is erroneous; even paying the minimum, your mortgage will disappear eventually, and absent refinancing it will be gone in less than 30 years.  The original trinity study examined withdraw rates over 30 year periods, with withdraws pegged to inflation (maintaining purchasing power).  To put it simply, if you have only 10 or 15 years you can use a much greater WR to cover the mortgage than 4%; sol did a meta-analysis earlier in this thread, but a quick run through FireCalc shows you could use a 11% WR to support 10 years remaining on your mortgage and have an even higher chance of success than 4% over 30 years.  To use your example if your mortgage was $800/mo you would need just $87k to support mortgage payments for the next decade, plus whatever you need for living expenses going forward.

There are two reasons why such a high WR will work - 1) the timeframe is much shorter (here 10 years instead of 30) and 2) your mortgage payment does not increase, so your WR for this portion of your expenses (the PI of your mortgage) will not increase with inflation.

Of course money is fungible, so this segregating of accounts is more for mental comprehension than anything. If you want $40k/year in living expenses plus enough to cover an $800 mortgage for another 10 years and are comfortable with the level of risk in a 'normal' 4% WR strategy you will need a total investment portfolio of $1.087MM, not $1.24MM.  Further, historically over 93% of periods would have had a sizeable amount left in this 'mortgage sinking fund' after the final payment, in roughly half the portfolio would have at least $50k remaining - hardly chump change.

Hmm, interesting reply.  I wish I was more savvy with firecalc. 

Once my mortgage is paid off, I’d only need around $22,000 a year to support my lifestyle comfortably.  That means $550,000 at a 4% SWR.

But my mortgage is $993.  I only recently bought property once it occurred to me that I need a place to live post-FIRE as the perpetual travel thing doesn’t appeal to me as a forever solution, haha.  For simplicity’s sake, lets assume I get no more raises or changes to my savings rate, etc...in the coming years and we just have a steady 7% return and no changes to my income or savings rate.

I would hit FI on my non-mortgage needs in just a bit over four years (4 years 2 months based on the Mad Fientist’s calculator).  But I’d still have about 25.5 years left on my mortgage, haha.  To include the $993 mortgage payment, I’d be at 7 years countdown to FIRE. 34 months difference (4 years 2 months versus 7 years) is not a huge difference if I am liking my job alright, but how do I figure the splitting of the difference like you are talking about since that mortgage expense would only be for 25 years and not forever and maybe trim some time off to hit full FIRE?

edit: typos

Check out cFireSim.com (http://cFireSim.com)   It has the features you need.   (The save function wasn't working last time I checked, but other than that it works fine.)   It's very easy to add income or expenses with start and end dates.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr Mark on July 07, 2019, 05:31:39 PM

If you owe $800 a month for your mortgage, that means you need $240,000 to cover the mortgage post-FIRE (assuming you are working with the 4% SWR).  If that 240k is more than what is left to pay off your mortgage, you could very well come out ahead switching to focus on paying down the mortgage.  The math could be close in many places depending on what you think market returns will be.  But for me, the tipping point will be when I can comfortably cover my non-mortgage costs.

Maybe this is not a new idea and has been addressed in the thread already, haha.  But it only recently occurred to me!

This assumption is erroneous; even paying the minimum, your mortgage will disappear eventually, and absent refinancing it will be gone in less than 30 years.  The original trinity study examined withdraw rates over 30 year periods, with withdraws pegged to inflation (maintaining purchasing power).  To put it simply, if you have only 10 or 15 years you can use a much greater WR to cover the mortgage than 4%; sol did a meta-analysis earlier in this thread, but a quick run through FireCalc shows you could use a 11% WR to support 10 years remaining on your mortgage and have an even higher chance of success than 4% over 30 years.  To use your example if your mortgage was $800/mo you would need just $87k to support mortgage payments for the next decade, plus whatever you need for living expenses going forward.

There are two reasons why such a high WR will work - 1) the timeframe is much shorter (here 10 years instead of 30) and 2) your mortgage payment does not increase, so your WR for this portion of your expenses (the PI of your mortgage) will not increase with inflation.

Of course money is fungible, so this segregating of accounts is more for mental comprehension than anything. If you want $40k/year in living expenses plus enough to cover an $800 mortgage for another 10 years and are comfortable with the level of risk in a 'normal' 4% WR strategy you will need a total investment portfolio of $1.087MM, not $1.24MM.  Further, historically over 93% of periods would have had a sizeable amount left in this 'mortgage sinking fund' after the final payment, in roughly half the portfolio would have at least $50k remaining - hardly chump change.

Awesome. I do like such nice 'counter intuitive/dogma' analyses. Well done.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 07, 2019, 06:19:00 PM
The optimal choice is clearly explained only on threads like this one. On this very forum, here is no provision for anything but backslapping on any thread that celebrates paying off the mortgage early. How will thise revelers ever kniw that there's an easier option that might well result in faster, fatter FIRE? Kind of odd, given the purpose of this forum.
I don't agree that's true.   There is a "We're paying off our mortgage early!" thread whose members have asked not to be bothered by this info any more.  Any more being the operative word.  They clearly said, "We've heard both arguments, we've made our choice, don't rain on our parade any more."

Other than that, the entire forum is fair game for this message.  I routinely see others pointed to this thread when they write they are prioritizing paying off their mortgage early.

What's important to remember is that paying off the mortgage early isn't a bad decision, it's a sub-optimal one.   So a nudge might be more appropriate than a face-punch. :)

I'd say it's even questionable if it's sub-optimal.  That just implies the wrong thing in my opinion.  It may very well be optimal for many people.  Who knows what their credit is like, what their interest rates are, etc.  There is also the benefits of asset protection with homesteads in some States.  The market isn't without risk.  But a mortgage is essentially a sure thing.  So what is that risk worth to some people?  If I had a 2.5% mortgage, I'd say probably well worth the risk of investing in the market.  If I had a 5.75% mortgage and unable to refi, I might not think so.  Just saying, everyone is in very different scenarios, so the implication that one is better than the other is unfair.  I'd almost like to see a "help me decide if I should or shouldn't pay off" type approach.  But whatever.
Title: Re: DONT Payoff your Mortgage Club
Post by: Say What? on July 08, 2019, 06:55:27 AM
Hello everyone. I just wanted to thank you all for this information. I just bought my first house a couple of months ago and was definitely planning to make extra payments each month to pay it off quicker. Thanks to all of the wisdom and patient walkthroughs of the math in this thread I've learned the error of my ways and will happily join the DPOYM club. :)

Now, to see if I can share this knowledge with my Dave Ramsey following friends and family!

Good luck with that. My bro-in-law who is a Dave fan, had his own accountant ask him why he was making extra mortgage payments and told him he should stop. But, but, Dave says....
Haha, yeah. I made a few mentions of the idea this weekend. The responses were that they just feel better paying extra. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on July 08, 2019, 10:08:40 AM
Once my mortgage is paid off, I’d only need around $22,000 a year to support my lifestyle comfortably.  That means $550,000 at a 4% SWR.

But my mortgage is $993.  I only recently bought property once it occurred to me that I need a place to live post-FIRE as the perpetual travel thing doesn’t appeal to me as a forever solution, haha.  For simplicity’s sake, lets assume I get no more raises or changes to my savings rate, etc...in the coming years and we just have a steady 7% return and no changes to my income or savings rate.

I would hit FI on my non-mortgage needs in just a bit over four years (4 years 2 months based on the Mad Fientist’s calculator).  But I’d still have about 25.5 years left on my mortgage, haha.  To include the $993 mortgage payment, I’d be at 7 years countdown to FIRE. 34 months difference (4 years 2 months versus 7 years) is not a huge difference if I am liking my job alright, but how do I figure the splitting of the difference like you are talking about since that mortgage expense would only be for 25 years and not forever and maybe trim some time off to hit full FIRE?

edit: typos
So in 4 years 2 months (give or take whatever volatility contributes) you will be FI except for your mortgage. At that point you could just keep saving the same way you have been until you reach $550,000 + your current mortgage balance. Assuming your current mortgage is at 4% interest (lower rates would mean slightly higher balance) that balance should be about $190,300 with 25.5 years to go - far less that the $297,900 needed to pay $993/mo at a 4% SWR.
Title: Re: DONT Payoff your Mortgage Club
Post by: AnxietyFly on July 09, 2019, 11:28:11 AM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 09, 2019, 11:32:15 AM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.
May be in the wrong thread - what you should do is cash-out refinance to the max you can get on a 30 year term at the still low rates . . . and invest the 90K or so you'll then have available to you.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 09, 2019, 11:55:17 AM


My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

God I hope you are joking.....

Having no plans to leave is even more reason to ride the mortgage as long as possible.  The optimal strategy would be to cash out refi to a 30 year at 80% Ltv and invest the 77k (approx).  Your payment would barely go up so cash flow shouldn't be an issue.

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Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 09, 2019, 12:26:29 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

God I hope you are joking.....

He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 09, 2019, 06:10:42 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

Why would you post this in a thread titles "DONT Payoff your Mortgage Club"?  You apparently  have no intention of being part of the club.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 09, 2019, 06:54:35 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

God I hope you are joking.....

He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
Don't get me wrong, I think Dave is great for getting people out of total financial illiteracy.  But you can't take his advice blindly.  A lot of it is sub-optimal when comparing to the FI related paths.  Dave focuses on embracing the emotion behind financial decisions and making a path based off those emotions while I think you should overcome the emotion in order to make the most optimal path.  I think a huge part of this thread is overcoming emotion based financial decisions for mathimatical based decisions.  It's a place where we can encourage overcoming emotions while the other thread leans into the emotions.
The main thing that bothers me is when people blindly follow his advice without questioning anything.  I don't know if AnxietyFly does follow him blindly but regardless, it should never be done in any situation regarding finance or life.

Still not sure why AnxietyFly felt the need to drop that post in this thread. Unless they really just want to pick a fight.

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Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 09, 2019, 07:49:44 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

God I hope you are joking.....

He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
Don't get me wrong, I think Dave is great for getting people out of total financial illiteracy.  But you can't take his advice blindly.  A lot of it is sub-optimal when comparing to the FI related paths.  Dave focuses on embracing the emotion behind financial decisions and making a path based off those emotions while I think you should overcome the emotion in order to make the most optimal path.  I think a huge part of this thread is overcoming emotion based financial decisions for mathimatical based decisions.  It's a place where we can encourage overcoming emotions while the other thread leans into the emotions.
The main thing that bothers me is when people blindly follow his advice without questioning anything.  I don't know if AnxietyFly does follow him blindly but regardless, it should never be done in any situation regarding finance or life.

Still not sure why AnxietyFly felt the need to drop that post in this thread. Unless they really just want to pick a fight.

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I sometimes think Dave may be more "correct" in focusing on the emotional aspect.  People are emotional beings.  The more I talk to others about MMM type strategies, the more I realize that so many people really need the emotional version more than the mathematical version.  Some people "get it" like those here, but dang, so many are straight up emotional.  I can think of several friends off the top of my head.  They tell me they want to save and be FI, etc.  We'll talk about very specific things they are doing wrong, nothing crazy - going out to lunch every day, for example.  They'll totally get it, they'll read MMM.... and then every single day they still go out to eat and they continue to have this "well, it's just $5" attitude about it. The math doesn't sink in no matter what you say.  At the same time, I'll hear about paying off credit cards and being more mindful of that.  So they seem capable of the Ramsey approach (they've never even heard of Ramsey, funny enough) but totally incapable of following the MMM approach, which to us, is incredibly common sense.  It's weird.

Ramsey may be on to something with his approach.  We all know people who just never seem to "get it" the MMM way.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 09, 2019, 08:11:25 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

God I hope you are joking.....

He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
Don't get me wrong, I think Dave is great for getting people out of total financial illiteracy.  But you can't take his advice blindly.  A lot of it is sub-optimal when comparing to the FI related paths.  Dave focuses on embracing the emotion behind financial decisions and making a path based off those emotions while I think you should overcome the emotion in order to make the most optimal path.  I think a huge part of this thread is overcoming emotion based financial decisions for mathimatical based decisions.  It's a place where we can encourage overcoming emotions while the other thread leans into the emotions.
The main thing that bothers me is when people blindly follow his advice without questioning anything.  I don't know if AnxietyFly does follow him blindly but regardless, it should never be done in any situation regarding finance or life.

Still not sure why AnxietyFly felt the need to drop that post in this thread. Unless they really just want to pick a fight.

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I sometimes think Dave may be more "correct" in focusing on the emotional aspect.  People are emotional beings.  The more I talk to others about MMM type strategies, the more I realize that so many people really need the emotional version more than the mathematical version.  Some people "get it" like those here, but dang, so many are straight up emotional.  I can think of several friends off the top of my head.  They tell me they want to save and be FI, etc.  We'll talk about very specific things they are doing wrong, nothing crazy - going out to lunch every day, for example.  They'll totally get it, they'll read MMM.... and then every single day they still go out to eat and they continue to have this "well, it's just $5" attitude about it. The math doesn't sink in no matter what you say.  At the same time, I'll hear about paying off credit cards and being more mindful of that.  So they seem capable of the Ramsey approach (they've never even heard of Ramsey, funny enough) but totally incapable of following the MMM approach, which to us, is incredibly common sense.  It's weird.

Ramsey may be on to something with his approach.  We all know people who just never seem to "get it" the MMM way.

When I was young I thought Woody Allen films were really funny.  They had all these crazy, neurotic, over-emotional people in them.  Crazy funny!

Then I grew up and went out into the world of work and discovered that people like that are not only a real thing, there are gobs of them out there. 

Emotional decision making appears to be the norm, not an aberration.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 10, 2019, 07:20:55 AM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

God I hope you are joking.....

He's "a big follower" of Dave Ramsey, sadly I doubt it's a joke.
Don't get me wrong, I think Dave is great for getting people out of total financial illiteracy.  But you can't take his advice blindly.  A lot of it is sub-optimal when comparing to the FI related paths.  Dave focuses on embracing the emotion behind financial decisions and making a path based off those emotions while I think you should overcome the emotion in order to make the most optimal path.  I think a huge part of this thread is overcoming emotion based financial decisions for mathimatical based decisions.  It's a place where we can encourage overcoming emotions while the other thread leans into the emotions.
The main thing that bothers me is when people blindly follow his advice without questioning anything.  I don't know if AnxietyFly does follow him blindly but regardless, it should never be done in any situation regarding finance or life.

Still not sure why AnxietyFly felt the need to drop that post in this thread. Unless they really just want to pick a fight.

Sent from my moto g(6) using Tapatalk

I sometimes think Dave may be more "correct" in focusing on the emotional aspect.  People are emotional beings.  The more I talk to others about MMM type strategies, the more I realize that so many people really need the emotional version more than the mathematical version.  Some people "get it" like those here, but dang, so many are straight up emotional.  I can think of several friends off the top of my head.  They tell me they want to save and be FI, etc.  We'll talk about very specific things they are doing wrong, nothing crazy - going out to lunch every day, for example.  They'll totally get it, they'll read MMM.... and then every single day they still go out to eat and they continue to have this "well, it's just $5" attitude about it. The math doesn't sink in no matter what you say.  At the same time, I'll hear about paying off credit cards and being more mindful of that.  So they seem capable of the Ramsey approach (they've never even heard of Ramsey, funny enough) but totally incapable of following the MMM approach, which to us, is incredibly common sense.  It's weird.

Ramsey may be on to something with his approach.  We all know people who just never seem to "get it" the MMM way.

When I was young I thought Woody Allen films were really funny.  They had all these crazy, neurotic, over-emotional people in them.  Crazy funny!

Then I grew up and went out into the world of work and discovered that people like that are not only a real thing, there are gobs of them out there. 

Emotional decision making appears to be the norm, not an aberration.

Correct.  Think about advertising, marketing, political campaigns, etc.  I have a feeling most of the people here are not the target audience for their messaging.  Because we see it and think "are people really this stupid?" - but in reality, yes, yes they are - and it's a majority of them.
Title: Re: DONT Payoff your Mortgage Club
Post by: AnxietyFly on July 10, 2019, 04:59:55 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

Why would you post this in a thread titles "DONT Payoff your Mortgage Club"?  You apparently  have no intention of being part of the club.

It was a bad decision to reply in this thread. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 10, 2019, 06:16:13 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

Why would you post this in a thread titles "DONT Payoff your Mortgage Club"?  You apparently  have no intention of being part of the club.

It was a bad decision to reply in this thread.
Dunno, it could turn out to be quite a fortuitous accident. Feel free to hang out here, read through the thread and ask questions. It just might change your financial future for the better.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 10, 2019, 06:40:05 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

Why would you post this in a thread titles "DONT Payoff your Mortgage Club"?  You apparently  have no intention of being part of the club.

It was a bad decision to reply in this thread.
Hahaha.

Just cash out refinance, invest, and everything will be ok. ;)

Run some numbers and mess around with cfiresim to project different scenarios.  I am curious though... Do you have much in investments and have you been investing for any significant length of time?  Are you confident in the market and the 4% rule for long term withdrawals?  I could totally see how someone that is not familiar with index investing would not feel comfortable doing a strategy like this. At that point its more about getting into the market and building confidence in your investment plan.  Then come to the dark side and invest your home equity... Buahaha :)

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Title: Re: DONT Payoff your Mortgage Club
Post by: AnxietyFly on July 10, 2019, 07:39:44 PM
My house is worth $190,000 which I owe $75,000 on a 15 year fixed. There are 12 years remaining on the 2.99% rate. I'm trying to pay it off within the next two years or before my 42nd birthday. I really enjoy my home and location with no plans to move.

Why would you post this in a thread titles "DONT Payoff your Mortgage Club"?  You apparently  have no intention of being part of the club.

It was a bad decision to reply in this thread.
Hahaha.

Just cash out refinance, invest, and everything will be ok. ;)

Run some numbers and mess around with cfiresim to project different scenarios.  I am curious though... Do you have much in investments and have you been investing for any significant length of time?  Are you confident in the market and the 4% rule for long term withdrawals?  I could totally see how someone that is not familiar with index investing would not feel comfortable doing a strategy like this. At that point its more about getting into the market and building confidence in your investment plan.  Then come to the dark side and invest your home equity... Buahaha :)

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I should be fine considering my net worth hitting one million  as early as next year. I've only averaged about 65k per year in earnings.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 10, 2019, 07:58:29 PM
Sure. As long as your net worth isn't in Bitcoin and blow.

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Title: Re: DONT Payoff your Mortgage Club
Post by: AnxietyFly on July 10, 2019, 08:58:07 PM
Sure. As long as your net worth isn't in Bitcoin and blow.

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Three fund strategy. 20% bonds, 20% intl, and 60% s&p. I use index funds mostly through my 401k.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on July 11, 2019, 05:53:13 AM
Sure. As long as your net worth isn't in Bitcoin and blow.

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Three fund strategy. 20% bonds, 20% intl, and 60% s&p. I use index funds mostly through my 401k.

Don't listen to FIreDrill. The appropriate investment allocation is 40% Bitcoin, 40% blow, and 20% beanie babies.
Title: Re: DONT Payoff your Mortgage Club
Post by: Car Jack on July 11, 2019, 07:03:12 AM
Sure. As long as your net worth isn't in Bitcoin and blow.

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We can't neglect the shopping club investment grade coins.  With 15 micro grams of real 24K gold!  (I worked out the value to be about a nickle, I think).  But hey!  It's real gold!
Three fund strategy. 20% bonds, 20% intl, and 60% s&p. I use index funds mostly through my 401k.

Don't listen to FIreDrill. The appropriate investment allocation is 40% Bitcoin, 40% blow, and 20% beanie babies.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 11, 2019, 07:53:40 AM
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.

We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.
Title: Re: DONT Payoff your Mortgage Club
Post by: AnxietyFly on July 11, 2019, 08:35:00 AM
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.

We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.

Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 11, 2019, 08:45:27 AM
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.

We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.

Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
Maybe that's because you haven't read through this thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on July 11, 2019, 09:41:36 AM
I guess what people on this thread are trying to say, AnxietyFly, is that if you want to be gazelle intense, you should not pay off the mortgage. You should drag the mortgage out as long as possible, and aggressively invest every spare penny.

Do the math for yourself and see how it works out. If you have any questions about how to do the math, I know people here will be happy to help you.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 11, 2019, 09:47:54 AM
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.

We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.

Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.

I get that.  We did the same with out last house.  Got a 15yr mortgage and paid it off in less than 10.  Towards the end we were making 3 payments a month.   Felt great!  Very liberating!

Our current house is on a 15 yr, 2.75% rate.   I still remember those feelings.  I want to pay it off.

But I've already passed up 4 opportunities to just pay it off in full.   

1) We chose to keep our taxable investment account instead of cashing it out to pay off the mortgage.  Glad we did, the balance increase over the last 4 years has been about 1/3 of what the mortgage was.

2) Inherited some money from my mom when she passed.   We invested that money instead.   Glad we did. :)

3) Sold my mom's house.   Invested that money instead.   One is a rental property whose profit is about 1/3 of the P&I payment on our home each month.  One is to help a friend start up their own renovation business.   I'll start getting that money back this fall.   I'm currently looking for more deals.   Put in 3 bids this week.  Got outbid on two, one's still active.   Looking at a 4th that would do the same.   Basically, for the same amount of money I could own my own house in full, or have a mortgage on my house and own 3 rental houses in full, which will pay my mortgage.   Used that money to make a charitable house purchase.

4) Sold my old house.  Invested that money instead.

And opportunity #5 is coming up this month:

5) We did a charitable house purchase and sold it with owner financing.  They're in the process of refinancing this month.   Recycling that money into another charitable house and 2 rentals.  Looks like I'll have made about $8,000 on my charitable house due to the owner financing.  Only 5.33% return on a good deed, which isn't bad. I wasn't even trying to make money on that one. :)

I'm so much better off having invested instead of paying that mortgage off.

I still **want** to do it.  I've just learned, thru this thread, that I'm better off not doing it when I have a really cheap fixed rate mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: AnxietyFly on July 11, 2019, 10:12:31 AM
I guess what people on this thread are trying to say, AnxietyFly, is that if you want to be gazelle intense, you should not pay off the mortgage. You should drag the mortgage out as long as possible, and aggressively invest every spare penny.

Do the math for yourself and see how it works out. If you have any questions about how to do the math, I know people here will be happy to help you.

Solon, I have been gazelle intense on investing the last 22 years. For example, my net worth has increased about 120k per year the last few years. I'm still investing but also paying off the house now. I really don't need to spare every penny because I have compound interest doing the heavy lifting.  Would it be better mathematically invest instead of payoff the house, maybe but my goal is to pay off the house.
Title: Re: DONT Payoff your Mortgage Club
Post by: AnxietyFly on July 11, 2019, 10:16:05 AM
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.

We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.

Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
Maybe that's because you haven't read through this thread.

I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 11, 2019, 10:32:42 AM
I guess what people on this thread are trying to say, AnxietyFly, is that if you want to be gazelle intense, you should not pay off the mortgage. You should drag the mortgage out as long as possible, and aggressively invest every spare penny.

Do the math for yourself and see how it works out. If you have any questions about how to do the math, I know people here will be happy to help you.

Solon, I have been gazelle intense on investing the last 22 years. For example, my net worth has increased about 120k per year the last few years. I'm still investing but also paying off the house now. I really don't need to spare every penny because I have compound interest doing the heavy lifting.  Would it be better mathematically invest instead of payoff the house, maybe but my goal is to pay off the house.
I get it that you invested first and now you want to pay off the house. I'm cool with that, now that you have shared this additional information. What you may not realize is that the thread that celebrates mortgage payoff focuses mainly on that goal, to the exclusion of all others, in many cases. Further, they will tolerate no discussion of other points of view, hence the formation of this thread. If we can't go there, why are you here? We've been pretty tolerant of your comments in this thread, but I'm very curious why you remain, if your mind is made up. It's fine if your goal is to pay off your house, but you have come to the place that is least likely to celebrate and support your decision. Why is that?

Oh, and we have a cross-post:

I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt. 
If that's not you, again, why are you here? Surely you are not trolling us? Some of us are willing to "accept debt" in order to shorten the number of days until FIRE. If you want to have to work longer and use more of your own dollars instead of compound interest, you are free to do so. But coming here with snide remarks will not produce the result you desire. It could result in you being identified as a troll. Typically, trolls are not kindly regarded on this site.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 11, 2019, 10:34:07 AM
I guess what people on this thread are trying to say, AnxietyFly, is that if you want to be gazelle intense, you should not pay off the mortgage. You should drag the mortgage out as long as possible, and aggressively invest every spare penny.

Do the math for yourself and see how it works out. If you have any questions about how to do the math, I know people here will be happy to help you.

Solon, I have been gazelle intense on investing the last 22 years. For example, my net worth has increased about 120k per year the last few years. I'm still investing but also paying off the house now. I really don't need to spare every penny because I have compound interest doing the heavy lifting.  Would it be better mathematically invest instead of payoff the house, maybe but my goal is to pay off the house.

You are doing great!  This is just a thread specifically full of people who believe keeping mortgages is a good thing so you are getting the expected responses.  It is a good thing for some, not for others.  Keep doing what works for you.  I paid off mine (both of them) as well and don't regret it even a tiny bit.  I'm ok with the potential missed opportunity of earning more in the market.  Feels too damn good being debt free and that has a monetary value for me, and you too, apparently.  Worth it's price.

But yeah, I agree with the previous comment that you are probably on the wrong thread if you just want to discuss paying off your mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 12, 2019, 09:46:27 AM
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.

We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.

Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
Maybe that's because you haven't read through this thread.

I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.

you are accepting debt by owning a house. You will have to pay that debt - in the form of taxes and obligatory insurance - in perpetuity regardless of whether you pay off your mortgage or not.  What you are really considering with regard to paying off a mortgage is whether you would rather have less debt with less money, or more debt with more money.  That and what proportion of your net worth do you feel comfortable with being tied to your home.
Traditionally these are referred to as assets and liabilities.  It is a mistake to believe that your housing liabilities will disappear once you have paid off your mortgage.  Likewise not all assets are equal in their volatility and appreciation potential.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 12, 2019, 03:28:14 PM
@AnxietyFly , I have to admit, posting about a 2.99% rate is what we like around here.

We wish you success in pursuing your financial goals. If you are open to arguments about putting more money toward investments, and decelerating your mortgage pay-off, please give us a chance.
Talltexan - thank you for the feedback. Right now, I am going gazelle speed on paying down the house. I doubt right now I'll change my mind.
Maybe that's because you haven't read through this thread.

I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.

you are accepting debt by owning a house. You will have to pay that debt - in the form of taxes and obligatory insurance - in perpetuity regardless of whether you pay off your mortgage or not.  What you are really considering with regard to paying off a mortgage is whether you would rather have less debt with less money, or more debt with more money.  That and what proportion of your net worth do you feel comfortable with being tied to your home.
Traditionally these are referred to as assets and liabilities.  It is a mistake to believe that your housing liabilities will disappear once you have paid off your mortgage.  Likewise not all assets are equal in their volatility and appreciation potential.
❤❤❤❤❤❤ @nereo, you're a badass rockstar. Awesome explanation!
Title: Re: DONT Payoff your Mortgage Club
Post by: Peach on July 13, 2019, 09:49:10 AM
I was raised with the concept that you should never have debt.  Mortgage debt, while acceptable, was something one tried to pay down as quickly as possible.  Many years ago when I bought my first home, if you found an interest rate of 10% on a mortgage, you were lucky.  Of course you wanted to pay that off as quickly as possible because the interest was so high.  But that was a different time and things have changed.  It took me a very long time to adjust my thinking to realize that the credit market has changed dramatically since I was young. 

We are in the middle of a 15-year mortgage at 2.5%.  We even committed the cardinal sin of mortgages -- we have one in retirement. Although we don't bring in a lot of money monthly, we still manage to continue saving while having a great life.  And I haven't even tapped into Social Security yet.

We have no credit card debt, but I would not hesitate to use one of the balance transfer offers with very low rates should we need to make a major purchase. I prefer it to taking from savings and always pay it off in full before the 0% ends.  So far we've put on a new roof, replaced the heat pump, paid for doggie operations, and replaced the fence this way.  The savings/investment accounts remain untouched and continue to grow.

I can certainly understand why paying off a mortgage early is the goal of many.  I also understand why some might feel particularly uneasy having a mortgage while in retirement.  All I can say is that having a very low rate mortgage has worked well for us in retirement.  Once I got over the "can't have any debt" thing, I learned how to use the extremely low interest rates to our advantage. With such a low rate, the only way we'll pay off our mortgage early will be if we move.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 13, 2019, 06:09:06 PM
I was raised with the concept that you should never have debt.  Mortgage debt, while acceptable, was something one tried to pay down as quickly as possible.  Many years ago when I bought my first home, if you found an interest rate of 10% on a mortgage, you were lucky.  Of course you wanted to pay that off as quickly as possible because the interest was so high.  But that was a different time and things have changed.  It took me a very long time to adjust my thinking to realize that the credit market has changed dramatically since I was young. 

We are in the middle of a 15-year mortgage at 2.5%.  We even committed the cardinal sin of mortgages -- we have one in retirement. Although we don't bring in a lot of money monthly, we still manage to continue saving while having a great life.  And I haven't even tapped into Social Security yet.

We have no credit card debt, but I would not hesitate to use one of the balance transfer offers with very low rates should we need to make a major purchase. I prefer it to taking from savings and always pay it off in full before the 0% ends.  So far we've put on a new roof, replaced the heat pump, paid for doggie operations, and replaced the fence this way.  The savings/investment accounts remain untouched and continue to grow.

I can certainly understand why paying off a mortgage early is the goal of many.  I also understand why some might feel particularly uneasy having a mortgage while in retirement.  All I can say is that having a very low rate mortgage has worked well for us in retirement.  Once I got over the "can't have any debt" thing, I learned how to use the extremely low interest rates to our advantage. With such a low rate, the only way we'll pay off our mortgage early will be if we move.

Certain financial transactions carry social stigmas.  Carrying debt on a loan is one.  A prenuptial contract is another.  We are often encouraged to act emotionally towards financially decisions ("kill the debt!"  "prenups are tacky!") even though every economist will urge objectivity in place of emotional decision making when it comes to money.

One of the things I have learned from these forums is that debt is unavoidable in our society, and in fact necessary for its operation.  We trade debt a hundred different ways every month - from our employers to our banks to our various purchases.  What matters is whether that debt is sensible and manageable.
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on July 13, 2019, 06:27:07 PM


I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.

It's very short-sighted not to accept debt.  Using certain kinds of debt can make you wealthier than if you become completely debt-free. 

In other words, what's a more important goal to you?  Minimizing debt or maximizing wealth?  Because that's what this discussion boils down to.  Me, I'd prefer to maximize my wealth.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on July 13, 2019, 09:20:29 PM
not poking a bear here, but is there anything similar to SORR with the DPOYMC mentality? like, someone could kill their mortgage off, in say 5 years, and during that 5 year period stocks were flat or down? would you come out ahead long term?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 13, 2019, 10:30:44 PM
not poking a bear here, but is there anything similar to SORR with the DPOYMC mentality? like, someone could kill their mortgage off, in say 5 years, and during that 5 year period stocks were flat or down? would you come out ahead long term?

But isn't the best time to buy stocks when they are down? 

Then, when they go back up, you own way more shares than you otherwise would.

In a perfect stock investing world for me, stocks would stay low all thru my accumulation phase and then catch up to the historical average rate of return right before I retire.   I would be way richer that way because I would own lots more shares.


Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on July 13, 2019, 11:29:21 PM
not poking a bear here, but is there anything similar to SORR with the DPOYMC mentality? like, someone could kill their mortgage off, in say 5 years, and during that 5 year period stocks were flat or down? would you come out ahead long term?

But isn't the best time to buy stocks when they are down? 

Then, when they go back up, you own way more shares than you otherwise would.

In a perfect stock investing world for me, stocks would stay low all thru my accumulation phase and then catch up to the historical average rate of return right before I retire.   I would be way richer that way because I would own lots more shares.

how about: now, in 2019, after historic bull run. let's say stocks go flat for 2 years, then plunge come reelection of a (D) (everyone's theory, i guess), and don't recover to 2019 levels until 2027. IOW - TOP IS IN?
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on July 14, 2019, 04:20:49 AM
how about: now, in 2019, after historic bull run. let's say stocks go flat for 2 years, then plunge come reelection of a (D) (everyone's theory, i guess), and don't recover to 2019 levels until 2027. IOW - TOP IS IN?

Who is "everyone"? If anything, the data shows better market performance under Democrats, at least since Reagan.

https://www.cnn.com/interactive/2019/business/stock-market-by-president/index.html

Back on topic: Getting quotes for a cashout refi back to 30 years. Best I'm seeing is 3.75% with ~$4k closing costs. Texas does make cashout refi more expensive ( a bit higher rate) due to our legislative weirdness about the "homestead"
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 14, 2019, 05:22:10 AM
not poking a bear here, but is there anything similar to SORR with the DPOYMC mentality? like, someone could kill their mortgage off, in say 5 years, and during that 5 year period stocks were flat or down? would you come out ahead long term?

This has been discussed in this thread earlier, but the short(er) answer to your question is that the faster you can pay down your mortgage and then transition to saving, the less of an advantage there is to not paying down your mortgage.  However, there's a few things to unpack in that statement. 
First (and most importantly) - if you are prioritizing paying off the mortgage ahead of any and all savings, you are at your most vulnerable during that period of payoff.  The worst possible situation you can be in is for a crisis to emerge while you are paying off the mortgage and you lack the additional savings to pay for it. 

Second, not paying off the mortgage still holds an edge even with very short pay-off periods (e.g. 5 years) - in other words under most historical scenarios it still wins out. Five years is still a really long time not to be adding to your inestment accounts and not paying off your mortgage wins out in an overwhelming majority of scenarios; it's really not until you get into sub 2 year timeperiods when the 'advantage' to not paying off your mortgage becomes somethng close to a coin flip. 

Third, it's basically impossible to know what the market and interest rates will do in the next five years.  Choosing to pay down your mortgage because you think stocks are overvalued is another form of market timing.

Finally, the equation tilts heavily towards not paying off your mortgage if doing otherwise casues you to ignore your tax-advantaged accounts.  If paying down your mortgage means you cannot fully max out your 401(k) and IRA and HSA accounts, it will almost certainly lose out over the long haul.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 14, 2019, 09:55:33 AM


I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.

It's very short-sighted not to accept debt.  Using certain kinds of debt can make you wealthier than if you become completely debt-free. 

In other words, what's a more important goal to you?  Minimizing debt or maximizing wealth?  Because that's what this discussion boils down to.  Me, I'd prefer to maximize my wealth.

Yes Debt is a "risk" but so is doing something like becoming an entrepreneur and building a business.  Those who become truly wealthy and stay wealthy do so by taking risks.  They are all calculated risks but risks none the less. 
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 14, 2019, 04:15:31 PM
Do the members of the no early pay-off club have an orthodox opinion on when refinancing makes sense?

I am at 3.75% right now and could go slightly sower, but we are talking to around 3.625%, so it doesn't seem worth the transaction cost.

Is there generally a "rule" or "guideline" on this like there is for everything else?  Only if you can lower .5% or 1% or something?  Or is it just a matter of looking at the break-even point for the transaction cost and going from there?

edit: typos

Find an online mortgage calculator (like Karl's Mortgage Calculator) and test out both scenarios.   Then you'll know which is better, provided you also pay attention to when/if you may sell and move.
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on July 14, 2019, 04:17:11 PM
how about: now, in 2019, after historic bull run. let's say stocks go flat for 2 years, then plunge come reelection of a (D) (everyone's theory, i guess), and don't recover to 2019 levels until 2027. IOW - TOP IS IN?

You can test this with cfiresim.

With $1M and a $100k mortgage,

Take $40k spending minus the mortgage represented as an annual non-CPI expense.

Compare that to a $36k pull from $900k, representing a paid off mortgage.

cfiresim is sticky for me but it does seem to better to keep the mortgage (there are fewer failures). This is because a few of the late-60s high-inflation failures disappear due to the mortgage being an inflation hedge.


The results will differ in a low-inflation crash environment. That's when market timing comes into play, as nereo noted. Are you certain that a low-inflation market crash will happen soon? Or will QED come back to haunt us? Or are we halfway through a long-term boom that'll last 25 years like Australia's?
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on July 14, 2019, 04:46:48 PM


I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.

It's very short-sighted not to accept debt.  Using certain kinds of debt can make you wealthier than if you become completely debt-free. 

In other words, what's a more important goal to you?  Minimizing debt or maximizing wealth?  Because that's what this discussion boils down to.  Me, I'd prefer to maximize my wealth.

Yes Debt is a "risk" but so is doing something like becoming an entrepreneur and building a business.  Those who become truly wealthy and stay wealthy do so by taking risks.  They are all calculated risks but risks none the less.

Not sure if you're agreeing with me or disagreeing. 

Mortgage debt is about as low-risk as it gets.  Hurrying to pay off a 2.5 to 3.5% mortgage isn't lowering your risk, if anything it is increasing it. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 14, 2019, 05:57:54 PM


I've read through the first page and understand the concept. Sounds like a good strategy for people willing to accept debt.

It's very short-sighted not to accept debt.  Using certain kinds of debt can make you wealthier than if you become completely debt-free. 

In other words, what's a more important goal to you?  Minimizing debt or maximizing wealth?  Because that's what this discussion boils down to.  Me, I'd prefer to maximize my wealth.

Yes Debt is a "risk" but so is doing something like becoming an entrepreneur and building a business.  Those who become truly wealthy and stay wealthy do so by taking risks.  They are all calculated risks but risks none the less.

Not sure if you're agreeing with me or disagreeing. 

Mortgage debt is about as low-risk as it gets.  Hurrying to pay off a 2.5 to 3.5% mortgage isn't lowering your risk, if anything it is increasing it.

Agreeing, even at low rates it is a "risk" (not a very big one granted) but generally rewards come from taking risks either big or small.
Title: Re: DONT Payoff your Mortgage Club
Post by: aetheldrea on July 14, 2019, 06:15:32 PM
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.

If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.

However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.

It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.

Folks, don't pay off your mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on July 14, 2019, 06:41:25 PM
Started seriously looking at a cashout refi to get back to that nice 30 year mortgage and dump more into the market. Winnowed a bunch of providers, best deal I can find is 3.75% and ~$4k closing costs.

Unfortunately, Texas has some weirdness with cashout refi, so rates tend to be a bit higher.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on July 14, 2019, 06:58:23 PM
Do the members of the no early pay-off club have an orthodox opinion on when refinancing makes sense?

I am at 3.75% right now and could go slightly sower, but we are talking to around 3.625%, so it doesn't seem worth the transaction cost.

Is there generally a "rule" or "guideline" on this like there is for everything else?  Only if you can lower .5% or 1% or something?  Or is it just a matter of looking at the break-even point for the transaction cost and going from there?

edit: typos

Looking at the breakeven point is probably the smartest way. 

My basic rule of thumb is if I can save $100/month in interest it is worth it to refinance. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 15, 2019, 10:21:18 AM
Do the members of the no early pay-off club have an orthodox opinion on when refinancing makes sense?

I am at 3.75% right now and could go slightly sower, but we are talking to around 3.625%, so it doesn't seem worth the transaction cost.

Is there generally a "rule" or "guideline" on this like there is for everything else?  Only if you can lower .5% or 1% or something?  Or is it just a matter of looking at the break-even point for the transaction cost and going from there?

edit: typos

Looking at the breakeven point is probably the smartest way. 

My basic rule of thumb is if I can save $100/month in interest it is worth it to refinance.
In addition to looking at the payment difference, important to look at any cash you could take out. Lower interest rate is a positive. Additional money to invest today is a positive as well.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 16, 2019, 12:26:18 AM
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.

If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.

However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.

It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.

Folks, don't pay off your mortgage.
OMG, I'm so sorry this happened to you. Now I'm dying to know the rest of the story. What happened next?
Title: Re: DONT Payoff your Mortgage Club
Post by: aetheldrea on July 16, 2019, 06:44:18 PM
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.

If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.

However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.

It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.

Folks, don't pay off your mortgage.
OMG, I'm so sorry this happened to you. Now I'm dying to know the rest of the story. What happened next?
Eventually the condo was completely paid off, and we lived there for another year or so without a mortgage payment before moving into a rental that we actually fit in (lots of kids). Eventually we sold it. Having it paid off made it no hurry to clean it out and put it on the market, which also probably cost us a shit-ton of money, but was very low stress. Still in a rental now, hopefully someday my kids will feel like leaving home, and then we might be looking at buying again, but a reasonably sized place.

End result is that I will have to work a couple extra years to reach FI, just like most people that pay off their mortgage early :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 17, 2019, 08:10:01 AM
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.

If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.

However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.

It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.

Folks, don't pay off your mortgage.

This is always house hindsight works.  The good bet, historically, is don't pay off your mortgage.  But you couldn't possibly know the future at the time.  All sorts of scenarios are possible where it was better for you to pay off your mortgage, though obviously less likely.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 17, 2019, 08:27:23 AM
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.

If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.

However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.

It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.

Folks, don't pay off your mortgage.

This is always house hindsight works.  The good bet, historically, is don't pay off your mortgage.  But you couldn't possibly know the future at the time.  All sorts of scenarios are possible where it was better for you to pay off your mortgage, though obviously less likely.

There are serious advantages to "having a paid off mortgage".   That is a very different situation than "having a mortgage and working to pay it off early."


Having a paid off mortgage provides financial safety by lowering your fixed monthly expenses.

Putting extra money into your mortgage early (but not paying it off) decreases financial safety because one still has the same fixed monthly living expenses and has fewer financial reserves to deal with serious financial problems.   It does, however, make the company who holds your mortgage safer as the less you owe on it, the easier it will be for them to get their money back in a foreclosure sale.

Now, an interest rate of 9.375% like my first mortgage is so high that it's worth the risk to pump lots of money into it.
An interest rate of 2.75% like my current mortgage is so low that it's not.

It really just depends on the rate of the mortgage, the rate of other long term investments, how much of a financial cushion one has and the stability of one's income.  (Never overestimate the latter.  Stuff happens.)
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 17, 2019, 09:02:01 AM
I'll share my bad experience with paying off a mortgage. We bought a crappy condo at the very peak of the market, October 2006. Middle of 2008 we received an unexpected and very much unwanted windfall. Stuck in a fairly high rate mortgage that we couldn't refinance because of 2nd and 3rd mortgage complications. Housing prices are starting to drop, no idea how bad it is going to get. Used most of the windfall to pay down, but not pay off the mortgage. Doing so "saved" around 200k in mortgage interest, probably the worst financial decision of my life.

If I had invested that money in a total stock market index fund instead, I would be at least 160k richer today. I calculated this back in December and the stock market is way up since then, so the real number is probably closer to 200k.

However, in alternate reality land, a more likely outcome would have been that, without so much equity in that place, we would have walked away from that crappy condo that we didn't much like and didn't really fit in any more, and bought a 500k house that today would be worth 900k.

It sucked being stuck in that house. Prepaying the mortgage without paying it off was a huge increase in risk of total financial disaster. It wasn't just a personal decision that no one can criticize. It was a terrible decision that worked out badly. Probably most mortgage prepayment events, if examined, would also be seen to be terrible ideas.

Folks, don't pay off your mortgage.

This is always house hindsight works.  The good bet, historically, is don't pay off your mortgage.  But you couldn't possibly know the future at the time.  All sorts of scenarios are possible where it was better for you to pay off your mortgage, though obviously less likely.

There are serious advantages to "having a paid off mortgage".   That is a very different situation than "having a mortgage and working to pay it off early."


Having a paid off mortgage provides financial safety by lowering your fixed monthly expenses.

Putting extra money into your mortgage early (but not paying it off) decreases financial safety because one still has the same fixed monthly living expenses and has fewer financial reserves to deal with serious financial problems.   It does, however, make the company who holds your mortgage safer as the less you owe on it, the easier it will be for them to get their money back in a foreclosure sale.

Now, an interest rate of 9.375% like my first mortgage is so high that it's worth the risk to pump lots of money into it.
An interest rate of 2.75% like my current mortgage is so low that it's not.

It really just depends on the rate of the mortgage, the rate of other long term investments, how much of a financial cushion one has and the stability of one's income.  (Never overestimate the latter.  Stuff happens.)

Fully agreed. Not much more to add :)
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on July 17, 2019, 10:45:46 AM
There is a chance that a paid down (but not paid off) mortgage can be recast to reduce the monthly payments. I'm not sure how common it is to have a borrower option to recast in a mortgage contract; but if your mortgage has such a clause the risk of lower liquidity without lower fixed monthly expenses is greatly reduced.
Title: Re: DONT Payoff your Mortgage Club
Post by: aetheldrea on July 18, 2019, 10:15:36 AM
This is always house hindsight works.  The good bet, historically, is don't pay off your mortgage.  But you couldn't possibly know the future at the time.  All sorts of scenarios are possible where it was better for you to pay off your mortgage, though obviously less likely.
I would call it hindsight if the less likely outcome occurred.

In my case, the more likely outcome happened and I have less money than I would have if I hadn’t put that money towards the mortgage.

Like if I went to the roulette table and put my money on black and red came up, I wouldn’t say, oh well, hindsight is 20/20. That is just a bad idea, because the odds are that you lose.
Title: Re: DONT Payoff your Mortgage Club
Post by: Luz on July 19, 2019, 02:56:16 PM
HOW TO CALCULATE THE SAVINGS BY NOT PAYING DOWN YOUR MORTGAGE (using the previous post as an example)
Let
B = Mortgage balance [$160,000]
P = Mortgage payment (should be principle and interest only, exclude property taxes, property insurance, PMI, or anything else in escrow) [1,645]
N = number of payments remaining [120 = 10 x 12]
IM = EFFECTIVE Interest rate on your mortgage [.0433]
II = Interest rate on investments [Assuming .07 per year]

Calculate M= Monthly Investment Interest rate = (1+II)^(1/12) = 1.07^.0833333 = 1.0056541

If you don't know P, you can either go to a calculator on the internet or in Excel Type in =-PMT(0.0433/12,120,160000) to get the answer.

Deciding between a payoff assumes you have $160,000 lying around to extinguish the mortgage.  The question is what is the difference at the end of 10 years between:
1) Leaving the $160,000 invested and regular making mortgage payments.
2) Paying off the $160,000 and immediately investing the newfound $1,645 each month at the investment rate.

Option 1 is easy to calculate.  At the end of 10 years you have 160,000 x 1.07^10 = $314,744.
Option 2 is more convoluted.  The first $1,645 payment grows by 1.07^10.  The second $1,645 payment grows by 1.07^9.917, etc.  The total is $282,973.

Here's how you calculate it:  P x M x (M^N - 1) / (M - 1)
= 1,645 x 1.0056541 x (1.0056541^120 - 1) / (1.0056541 - 1)
= 1,654.30 x (1.96714 - 1) / 0.0056541
= 1,654.30 x 0.96714 / 0.0056541 (bit of rounding error) 

The difference here is $31,771.  Lower than other people's situations because (1) it's only a ten year mortgage, and (2) the interest rate is closer to 7% than many other people's mortgages.  But for some people that could be easily be a year's worth of expenses, so prepaying your mortgage could delay your FIRE date by a year in this instance.

One other thing you should take into account is the effective interest rate of your mortgage.  For those of us in the US that can deduct the interest rate on our mortgages (not everyone necessarily gets a benefit from this, you should check), that interest probably lowers your state and federal taxes.  This calculation isn't so simple because we automatically qualify for a standard deduction, so if you aren't already filing a Schedule A you might not see a full benefit.

Hope that helps.  If you can't be bothered to do the calculation, post your information here and I will try to help.  People with (1) longer mortgages and (2) lower interest rates and going to find more benefit in not paying down early.  I did this calculation for someone else on the forum and the difference was nearly TWO HUNDRED THOUSAND DOLLARS!

7% is the investment figure MMM has thrown around on the site, but you are welcome to tweak it depending on your age and risk tolerance.  Any mustachian this involved in making their finances go longer sooner owes it to themselves to do this calculation before paying down their mortgage.

Can you run my hypothetical numbers? I don't have a mortgage, but am someone who had a family member drowning in debt their whole life and I therefore have made it my goal to pay off any kind of debt lightning fast. I'm seeing this logic though and am willing to change my mindset.

I also stay home with the baby right now and we live on 1 low income. We wouldn't get a house until my early to mid forties, after a few other goals are met. I'm also finding that apartment living works well for us right now in that we're still not settled down and appreciate not having to come up with the costs related to home ownership (maintenance, for example). Having a 30 year mortgage that's not paid off early would mean we'd pay it off 10 years after traditional retirement age, though (we will likely not RE, which I'm fine with). Does this logic still stand for our situation?

Our rough numbers may be: between $200,000-$250,000 house; 20% down, monthly principle/interest payment $765-$955, 4% interest rate, depending on what 30% my husband's income ends up being at that time (to cover principle, interest, taxes, and insurance- and preferably closing costs and maintenance, but that's unlikely).
Title: Re: DONT Payoff your Mortgage Club
Post by: aetheldrea on July 19, 2019, 05:45:17 PM
Can you run my hypothetical numbers? I don't have a mortgage, but am someone who had a family member drowning in debt their whole life and I therefore have made it my goal to pay off any kind of debt lightning fast. I'm seeing this logic though and am willing to change my mindset.

I also stay home with the baby right now and we live on 1 low income. We wouldn't get a house until my early to mid forties, after a few other goals are met. I'm also finding that apartment living works well for us right now in that we're still not settled down and appreciate not having to come up with the costs related to home ownership (maintenance, for example). Having a 30 year mortgage that's not paid off early would mean we'd pay it off 10 years after traditional retirement age, though (we will likely not RE, which I'm fine with). Does this logic still stand for our situation?

Our rough numbers may be: between $200,000-$250,000 house; 20% down, monthly principle/interest payment $765-$955, 4% interest rate, depending on what 30% my husband's income ends up being at that time (to cover principle, interest, taxes, and insurance- and preferably closing costs and maintenance, but that's unlikely).
Since you don't have a mortgage or (it sounds like) extra money to either invest or put towards your mortgage, this kind of calculation really doesn't apply to you.

If you get to the place where you do have a mortgage and have some extra money, you would be much better off following the Investment Order thread, and maximize contributions to tax-advantaged accounts before putting money toward a low interest rate mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Luz on July 19, 2019, 10:12:36 PM
Can you run my hypothetical numbers? I don't have a mortgage, but am someone who had a family member drowning in debt their whole life and I therefore have made it my goal to pay off any kind of debt lightning fast. I'm seeing this logic though and am willing to change my mindset.

I also stay home with the baby right now and we live on 1 low income. We wouldn't get a house until my early to mid forties, after a few other goals are met. I'm also finding that apartment living works well for us right now in that we're still not settled down and appreciate not having to come up with the costs related to home ownership (maintenance, for example). Having a 30 year mortgage that's not paid off early would mean we'd pay it off 10 years after traditional retirement age, though (we will likely not RE, which I'm fine with). Does this logic still stand for our situation?

Our rough numbers may be: between $200,000-$250,000 house; 20% down, monthly principle/interest payment $765-$955, 4% interest rate, depending on what 30% my husband's income ends up being at that time (to cover principle, interest, taxes, and insurance- and preferably closing costs and maintenance, but that's unlikely).
Since you don't have a mortgage or (it sounds like) extra money to either invest or put towards your mortgage, this kind of calculation really doesn't apply to you.

If you get to the place where you do have a mortgage and have some extra money, you would be much better off following the Investment Order thread, and maximize contributions to tax-advantaged accounts before putting money toward a low interest rate mortgage.

We have $6,000 extra a year (for now while husband is in school and before I go back to work) and are working on the Investment Order.
Are you saying that everyone who bought their homes in this thread did so after they filled all the Investment Order buckets every year? Or just that's what they should have done (house purchase comes after ER, 401K Match, HSA/ROTH/401K Max and 529 contribution)?
So once we exceed $55,000 savings per year, we should put further savings toward a house down-payment? And rather than paying off the house early, we should use the excess of $55,000 to then invest in regular, non-tax advantaged accounts?
If I'm understanding this correctly, I'd still love to see the calculation of not paying off that hypothetical house early. To see if there'd be a big difference in our case.
I don't see why the calculation wouldn't apply, unless you've already made up your mind that it's out of our reach. And by the way... I think you meant to say "WHEN you get to the place...".  I'm getting some snooty vibes from this club! Just let me in, already!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 20, 2019, 12:23:26 AM
I'm getting some snooty vibes from this club! Just let me in, already!
Nah, we're passionate, but not snooty-tooty. I'm actually the one who suggested starting this thread to the late, great boarder42, and...wait for it...we (my husband and I, not b42) paid cash for our house, so I don't even have a mortgage.* But we wouldn't have been able to do this if we hadn't started out with houses and mortgages that we didn't pay off early, at the expense of other savings and investing. I just want people to understand the math before they decide how to manage their mortgage. It seems a simple thing, but it's surprisingly contentious. There is no perfect answer, however the better answer (IMO) is not the sound bite that "debt is bad" or "kill the mortgage" are. It's more nuanced, and requires a little higher level of financial understanding. Nothing a good mustachian can't handle. Plus, that's what this thread is for. Helping people make the most optimal decision, one mortgage at a time. So, welcome, Luz!

*I am not against mortgages. In fact, my name is on four of them, just not on our primary home.
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on July 20, 2019, 04:47:18 AM
Can you run my hypothetical numbers? I don't have a mortgage, but am someone who had a family member drowning in debt their whole life and I therefore have made it my goal to pay off any kind of debt lightning fast. I'm seeing this logic though and am willing to change my mindset.

I also stay home with the baby right now and we live on 1 low income. We wouldn't get a house until my early to mid forties, after a few other goals are met. I'm also finding that apartment living works well for us right now in that we're still not settled down and appreciate not having to come up with the costs related to home ownership (maintenance, for example). Having a 30 year mortgage that's not paid off early would mean we'd pay it off 10 years after traditional retirement age, though (we will likely not RE, which I'm fine with). Does this logic still stand for our situation?

Our rough numbers may be: between $200,000-$250,000 house; 20% down, monthly principle/interest payment $765-$955, 4% interest rate, depending on what 30% my husband's income ends up being at that time (to cover principle, interest, taxes, and insurance- and preferably closing costs and maintenance, but that's unlikely).
Since you don't have a mortgage or (it sounds like) extra money to either invest or put towards your mortgage, this kind of calculation really doesn't apply to you.

If you get to the place where you do have a mortgage and have some extra money, you would be much better off following the Investment Order thread, and maximize contributions to tax-advantaged accounts before putting money toward a low interest rate mortgage.

We have $6,000 extra a year (for now while husband is in school and before I go back to work) and are working on the Investment Order.
Are you saying that everyone who bought their homes in this thread did so after they filled all the Investment Order buckets every year? Or just that's what they should have done (house purchase comes after ER, 401K Match, HSA/ROTH/401K Max and 529 contribution)?
So once we exceed $55,000 savings per year, we should put further savings toward a house down-payment? And rather than paying off the house early, we should use the excess of $55,000 to then invest in regular, non-tax advantaged accounts?
If I'm understanding this correctly, I'd still love to see the calculation of not paying off that hypothetical house early. To see if there'd be a big difference in our case.
I don't see why the calculation wouldn't apply, unless you've already made up your mind that it's out of our reach. And by the way... I think you meant to say "WHEN you get to the place...".  I'm getting some snooty vibes from this club! Just let me in, already!

Of course not everyone waited to buy a house until after filling all other buckets.  What priority you place on saving for a downpayment will depend on your situation - what is the rent vs buy calculation in your area?  How much do you value ownership?  Are you willing/able to DIY house projects or do you need to save extra for hiring things done?  Or do you have enough spare cashflow to do those things without impacting savings?  Etc.

We saved for a downpayment after maxing both DH and my IRAs, my 401k, an HSA, and more than enouch to DH's 403b to get full matching.  We couldn't afford to max all retirement accounts and still have extra left over every month.

The reason it's difficult to do a calculation before you actually have a mortgage, is you don't know what the inputs will be - what interest rate will you have?  How much will you need to borrow?  What's the required monthly payment, and how much is Principle vs interest (not counting taxes/insurance)?  Will you be paying PMI?  How much extra will you have to either pay off or invest each month?  Once you are actually facing the choice of pay the mortgage on schedule vs pay the mortgage early (rather than get a mortgage or not get a mortgage, very different question), it is much easier to show the math on the two alternatives.

If you want to run hypothetical numbers, I suggest careful reading to understand the math, so you can do it yourself.  However, note that the calculation you quoted is for the difference between paying off all at once vs investing, i.e. it is assuming you have a chunk of money lying around that is equal to the remaining balance on your mortgage.  In your hypothetical example, that's not the case, so the math would be different.
Title: Re: DONT Payoff your Mortgage Club
Post by: Luz on July 20, 2019, 07:49:54 AM
Quote
Of course not everyone waited to buy a house until after filling all other buckets.  What priority you place on saving for a downpayment will depend on your situation - what is the rent vs buy calculation in your area?  How much do you value ownership?  Are you willing/able to DIY house projects or do you need to save extra for hiring things done?  Or do you have enough spare cashflow to do those things without impacting savings?  Etc.

So part of this conversation is really rent v buy and if someone is better off completely filling the investment buckets before purchasing a house (math-wise, and not taking the emotional value considerations into account)? I've often heard that a house is an expense, not an investment so I'm curious about where in the Investment Order lineup FI'er's calculate when this purchase would be a wise move.

Quote
The reason it's difficult to do a calculation before you actually have a mortgage, is you don't know what the inputs will be - what interest rate will you have?  How much will you need to borrow?  What's the required monthly payment, and how much is Principle vs interest (not counting taxes/insurance)?  Will you be paying PMI?  How much extra will you have to either pay off or invest each month?  Once you are actually facing the choice of pay the mortgage on schedule vs pay the mortgage early (rather than get a mortgage or not get a mortgage, very different question), it is much easier to show the math on the two alternatives.

I would assume that most of us on this thread run the numbers prior to taking action. Sure, it's a guess, but playing with hypothetical situations lets me see the parameters I'm working with. And I may decide, once the numbers are in, that purchasing a house is not a wise move, or that paying it off early is actually the better way (especially given that I thought having a paid for house before the traditional retirement age was something to shoot for- if I get a 30 year mortgage past the age of 35, I'll have mortgage payments in retirement). But I need to project a bit in order to figure that out. So...my projections are roughly: Interest Rate: 4%. Down payment: $50,000. No PMI. Monthly Principle and Interest Payment (not including taxes, insurance, maintenance etc): $955 (not sure on principle v interest at this point, but that wasn't required for the calculation offer on this thread). Extra to invest each month: possibly $1000-3000, depending on all the other numbers I run about our situation.

Quote
However, note that the calculation you quoted is for the difference between paying off all at once vs investing, i.e. it is assuming you have a chunk of money lying around that is equal to the remaining balance on your mortgage.  In your hypothetical example, that's not the case, so the math would be different.

Is there a calculation for the latter? I'm guessing that the numbers for investment v mortgage payoff would then be less exciting if it's done by chipping away v lump sum.

@runewell, would you be so kind as to weigh in? 

Title: Re: DONT Payoff your Mortgage Club
Post by: Luz on July 20, 2019, 07:55:38 AM
Quote
I just want people to understand the math before they decide how to manage their mortgage.

Awesome! That's what I'm here for!

So I'm curious, why did you pay cash for the mortgage on your primary home?
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on July 20, 2019, 11:32:56 AM
So part of this conversation is really rent v buy and if someone is better off completely filling the investment buckets before purchasing a house (math-wise, and not taking the emotional value considerations into account)? I've often heard that a house is an expense, not an investment so I'm curious about where in the Investment Order lineup FI'er's calculate when this purchase would be a wise move.

I think the proper way to look at it is that housing is an expense and whether you rent or buy, you still have a housing expense, so it doesn't fall into the investment order bucket.   It falls in the spending bucket.  Part of decision includes the notion that owning a home is a lifestyle choice, which is one of those intangible things you have to figure in.   Some people may or may not wish to own a home even if it isn't the most cost effective thing to do.  Having a own and a garden is important to me, so I'd pay extra to have that.   Other people might not want to deal with the maintence or being tied to a property. 

Many people like this rent vs. buy calculator:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
Title: Re: DONT Payoff your Mortgage Club
Post by: Luz on July 20, 2019, 02:02:51 PM
I'm getting some snooty vibes from this club! Just let me in, already!
Nah, we're passionate, but not snooty-tooty. I'm actually the one who suggested starting this thread to the late, great boarder42, and...wait for it...we (my husband and I, not b42) paid cash for our house, so I don't even have a mortgage.* But we wouldn't have been able to do this if we hadn't started out with houses and mortgages that we didn't pay off early, at the expense of other savings and investing. I just want people to understand the math before they decide how to manage their mortgage. It seems a simple thing, but it's surprisingly contentious. There is no perfect answer, however the better answer (IMO) is not the sound bite that "debt is bad" or "kill the mortgage" are. It's more nuanced, and requires a little higher level of financial understanding. Nothing a good mustachian can't handle. Plus, that's what this thread is for. Helping people make the most optimal decision, one mortgage at a time. So, welcome, Luz!

*I am not against mortgages. In fact, my name is on four of them, just not on our primary home.

Ok, never mind my question of why you paid off your primary home mortgage. I just read your answer earlier in the thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 22, 2019, 08:54:33 AM
I should mention that we're not debt fiends here. I've seen people from this thread in other places on the MMM forum advocating that people not finance cars and quickly pay off credit card debt.

The US Mortgage environment is simply in this one place (where it's really only been for about nine years), where the contrarian path seems like it ought to be appealing for long term wealth-building.

I, myself, actually enjoy listening to Dave Ramsey even.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on July 22, 2019, 11:49:54 AM
If rates revert back to the historical average, we could board up this thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 22, 2019, 11:59:24 AM
If rates revert back to the historical average, we could board up this thread.
Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right?  Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest

Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on July 22, 2019, 12:10:21 PM
If rates revert back to the historical average, we could board up this thread.
Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right?  Well shortly after getting their mortgage you could by CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest

True. My first real job in the early 90's offered a savings account with a guaranteed minimum 10% return. Bonkers indeed.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr Mark on July 22, 2019, 07:11:23 PM
If rates revert back to the historical average, we could board up this thread.

A big part of this play is dependent in access to these magical 15 or 30 year fixed noncallable yet refinancable if rates drop, nominal  loans in US$.

In most other countries these don't exist. And not at like sub4% rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 23, 2019, 12:25:04 AM
If rates revert back to the historical average, we could board up this thread.
Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right?  Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest
When I was saving the down payment for my first house, I put it in CD's. I think the best rate I got was 15.8%. I also remember being elated to get a mortgage on another property for (only) 7%! That was in about 1996.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 23, 2019, 08:12:00 AM
If rates revert back to the historical average, we could board up this thread.
Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right?  Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest

My parents love to tell me that they were such industrious workers that they could count on receiving 3-4% raises every year.

If you stretch to buy a house, but lock in fixed payments, having 10% more income to make those payments (two years later) is a really good thing.

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on July 23, 2019, 08:23:24 AM
A big part of this play is dependent in access to these magical 15 or 30 year fixed noncallable yet refinancable if rates drop, nominal  loans in US$.

In most other countries these don't exist. And not at like sub4% rates.
Even if the rate is only fixed for 10 years, that's plenty of time to be worth investing. I've recently heard of a 1.9% 10 year fixed in the UK (and a 1.5% rate fixed for 2 years on a 30 year amortization schedule - as long as rates stay low shopping the loan every few years isn't bad, but you do take on the risk that rates increase).

When I was saving the down payment for my first house, I put it in CD's. I think the best rate I got was 15.8%. I also remember being elated to get a mortgage on another property for (only) 7%! That was in about 1996.
High interest rates in the 80's and 90's were part of what motivated me to be a saver.

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???
That's in the ballpark of my PI payment on a 2/1 in a less affluent area of Sacramento. Borrowed about $167k on a 30 year fixed at 3.75%. Could easily see that on a 3/2 in a LCOL area.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kronsey on July 23, 2019, 09:58:04 PM

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???
That's in the ballpark of my PI payment on a 2/1 in a less affluent area of Sacramento. Borrowed about $167k on a 30 year fixed at 3.75%. Could easily see that on a 3/2 in a LCOL area.
[/quote]

The PI on my current house is around there. With taxes, insurance, and PMI, I'm only at $1,041/month.

A few houses ago (long story), my PITI was sub $700 month. Purchased in 2013. Purchase price was $88,000. Yearly taxes were sub $1k. Insurance was $600/yr or so. It was a foreclosure but was in good shape. We put around $5,000 into remodeling it, but most of that was our preferences, not necessity. It was 1,600 sq ft, 3 beds, 2.5 baths and even had a small office space. Two car attached garage.

We sold it a few years later for $125,000 or so. Probably worth $135,000 today. Man I miss that house. Probably the dumbest financial mistake I've made in the last decade or so.

Long story short - RE is still cheap in my area. In exchange, you have a bunch of $15/hr jobs. If you can find lucrative employment or profitable self-employmenr, you can really speed up the FI race.

Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 24, 2019, 07:20:22 AM

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???
That's in the ballpark of my PI payment on a 2/1 in a less affluent area of Sacramento. Borrowed about $167k on a 30 year fixed at 3.75%. Could easily see that on a 3/2 in a LCOL area.

The PI on my current house is around there. With taxes, insurance, and PMI, I'm only at $1,041/month.

A few houses ago (long story), my PITI was sub $700 month. Purchased in 2013. Purchase price was $88,000. Yearly taxes were sub $1k. Insurance was $600/yr or so. It was a foreclosure but was in good shape. We put around $5,000 into remodeling it, but most of that was our preferences, not necessity. It was 1,600 sq ft, 3 beds, 2.5 baths and even had a small office space. Two car attached garage.

We sold it a few years later for $125,000 or so. Probably worth $135,000 today. Man I miss that house. Probably the dumbest financial mistake I've made in the last decade or so.

Long story short - RE is still cheap in my area. In exchange, you have a bunch of $15/hr jobs. If you can find lucrative employment or profitable self-employmenr, you can really speed up the FI race.
[/quote]

This sounds a lot like our second home location.  You can definitely find 3/2's in that price range still.  But you aren't going to be finding a 6 figure job, locally.  Only if you can work remotely would it be a great option.  Even $15/hr is probably a bit rich for that area.  We struggle with the idea of moving our business there sometimes just to take advantage of the super LCOL and even cheaper workforce, which would massively accelerate our savings.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on July 24, 2019, 07:41:43 AM
Our last house, which had an original loan of $200k and a 3.75% interest rate, had a P&I payment of $926. I hate that we went up so much in home price when we moved. That extra $500 or so per month invested would be so nice.

I think at that interest rate, it would only take a loan amount of ~$170k to get the payment that low, which is more than reasonable in low to mid COL areas.
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on July 24, 2019, 08:06:58 AM
@Luz

I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.

The decision of IF to purchase a house is totally separate from the decision to pay early or not.  I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly

After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)

After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72

If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator).  Not necessarily the best ones, but the first ones I found :P

Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.

Hope that helps.

ETA: Fixed typos.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kronsey on July 24, 2019, 06:09:18 PM
This sounds a lot like our second home location.  You can definitely find 3/2's in that price range still.  But you aren't going to be finding a 6 figure job, locally.  Only if you can work remotely would it be a great option.  Even $15/hr is probably a bit rich for that area.  We struggle with the idea of moving our business there sometimes just to take advantage of the super LCOL and even cheaper workforce, which would massively accelerate our savings.

I agree - the six figure jobs are tough to come by if you don't work in very specific fields/occupations. But you highlighted the best option available (IMHO) - self-employment/business ownership. I believe it is just as easy to build a profitable business in a LCOL metro area as a high cost (some business models wouldn't fit this bill - but there are always exceptions).

That is basically my plan to achieve FIRE really quickly. I am self-employed in a good niche that isn't hampered by lower pay for the work performed. The LCOL is just gravy on top at this point.
Title: Re: DONT Payoff your Mortgage Club
Post by: aetheldrea on July 24, 2019, 06:24:28 PM
And by the way... I think you meant to say "WHEN you get to the place...".  I'm getting some snooty vibes from this club! Just let me in, already!
Sorry, I was thinking that living on one low income meant there wasn’t a lot of room for extra savings. Glad to be corrected, good on you!
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on July 24, 2019, 07:58:46 PM
Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 24, 2019, 08:03:21 PM
Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.

Because regular middle class people they know will understand paying off a mortgage, but they'll have a different attitude about buying the bonds.   
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 25, 2019, 11:21:02 AM
Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.

Can't all debt payoffs and investments be celebrated?  Does VTSAX have exclusive rights to celebrations?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 25, 2019, 11:36:00 AM
Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.

Can't all debt payoffs and investments be celebrated?  Does VTSAX have exclusive rights to celebrations?
Sure, if they're done optimally.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 25, 2019, 02:07:17 PM
My posts on this thread speak for themselves.

Still, I believe we ought to celebrate individuals taking control of their lives and finances and achieving mastery. Whatever your audacious goal is--even if it's not one I would choose--I pat you on the back.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on July 25, 2019, 02:56:47 PM
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
Title: Re: DONT Payoff your Mortgage Club
Post by: Teachstache on July 25, 2019, 03:04:22 PM
If rates revert back to the historical average, we could board up this thread.
Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???

We're those people. We live in a Midwestern city of 250,000+ and we own a 1955 3 bed/3 bath ranch that, when we had a mortgage on it cost us $584 per month as a 30 year mortgage. We paid it off in 5 years & 4 months.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on July 25, 2019, 03:16:33 PM
@Luz

I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.

The decision of IF to purchase a house is totally separate from the decision to pay early or not.  I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly

After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)

After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72

If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator).  Not necessarily the best ones, but the first ones I found :P

Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.

Hope that helps.

ETA: Fixed typos.

I guess this answers how much is it worth to have the peace of mind of having a paid off mortgage - about $900k in this case.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 25, 2019, 03:40:28 PM
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.

:)

Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 25, 2019, 03:50:02 PM
@Luz

I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.

The decision of IF to purchase a house is totally separate from the decision to pay early or not.  I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly

After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)

After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72

If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator).  Not necessarily the best ones, but the first ones I found :P

Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.

Hope that helps.

ETA: Fixed typos.

I guess this answers how much is it worth to have the peace of mind of having a paid off mortgage - about $900k in this case.

You don't know that.  You can't see the future.  That's based on projected, possible, maybe, probably, but not sure market returns.  It's almost certainly assuming average returns over that first 10 years.  But who knows?  Look at the NIKKEI over the last 30 years....   You just never know.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on July 25, 2019, 06:45:20 PM
@Luz

I'm not the best at math, so someone else might be able to give a more nuanced explanation, but here's a go with the numbers you gave.

The decision of IF to purchase a house is totally separate from the decision to pay early or not.  I recommend throwing some numbers into a good rent vs buy calculator like this one: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Using your projected numbers of:
4% interest rate
$200,000 mortgage balance (assuming 50k DP = 20%)
$955 monthly payment
$1000 extra available monthly

After 30 years of paying on schedule:
Mortgage balance = $0
Investment balance = $2,289,274.30 (based on a basic compounding calculator, 10% interest pre-inflation)

After paying 1k/month extra on mortgage, payoff occurs after 10.5 years, then invest 1955/month for 19.5 years:
Mortgage balance = 0$
Investment balance = $1,333,5002.72

If you want to play with more numbers, I used this mortgage payoff calculator to find when payoff would occur (https://www.daveramsey.com/mortgage-payoff-calculator) and this compound interest calculator (https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator).  Not necessarily the best ones, but the first ones I found :P

Note that you should use pre-inflation returns for the investment returns, because the mortgage payment does not rise with inflation.

Hope that helps.

ETA: Fixed typos.

I guess this answers how much is it worth to have the peace of mind of having a paid off mortgage - about $900k in this case.

You don't know that.  You can't see the future.  That's based on projected, possible, maybe, probably, but not sure market returns.  It's almost certainly assuming average returns over that first 10 years.  But who knows?  Look at the NIKKEI over the last 30 years....   You just never know.

Are you planning to FIRE on the 4% rule?  Because it depends upon these assumptions being correct. 

Hell, in order to come out ahead the market doesn't even have to return 9%, it only has to return more than your mortgage interest rate.  So is the market going to return 9% over the next 10 years?  Probably.  Is it going to return more than 4% (most people's mortgage rate), almost certainly. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on July 25, 2019, 08:16:06 PM
Why do people celebrate mortgage payoffs, but not celebrate making 6-figure purchases of VCIT? (Vanguard Intermediate-Term Corporate Bond Fund). Those are, like, different versions of the same thing. Neither is more worthy of celebration.

Can't all debt payoffs and investments be celebrated?  Does VTSAX have exclusive rights to celebrations?
Yesterday we went out to a restaurant to eat ramen (!) and paid $34 (!!) for two bowls and a noodle refill including tip (!!!). I just did the math, and I could get better results by eating at the ramen restaurant 19 times per month for 10 years straight as I would by paying off my 150k mortgage balance. Also eating ramen is less risky than paying off the mortgage because I could get hit by a big ass truck ;) tomorrow and have enjoyed all the ramen before I went, whereas paying off a mortgage would be delayed gratification that depends on a long string of being alive.

Therefore, I must start a thread to celebrate ramen, because it is a better investment than paying off a mortgage!

Who said VTSAX? Are you just making things up?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 26, 2019, 02:43:34 AM
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 26, 2019, 05:57:14 AM
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.

Doesn't sound like a facepunch to me.  In fact, it's very much celebrated on this site.  If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok.  Just own it yourself because YOU think it's sub-optimal.
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on July 26, 2019, 08:12:45 AM

You don't know that.  You can't see the future.  That's based on projected, possible, maybe, probably, but not sure market returns.  It's almost certainly assuming average returns over that first 10 years.  But who knows?  Look at the NIKKEI over the last 30 years....   You just never know.

oh the NIKKEI argument. its a TRUMP CARD. WINNER.

whats the mortgage interest rate in Japan?
for a 35 year mortgage its just over 1% 0.85% for a variable rate.

(just to save you having to look it up)

and the average return with dividends reinvested in the NIKKEI for the past 35 years... 3.24%

so sure - lets look at the NIKKEI.. and whats your point?

The interest rate in Japan hasn't been above 2% since 1995. even when it was high here in the 80% they maxed at under 10%.

Th nikkei argument is bullshit - especially when talking about mortgages. Even if it wasn't who the hell is investing only in japan and getting a 30 year US mortgage?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 26, 2019, 08:27:06 AM
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.

Doesn't sound like a facepunch to me.  In fact, it's very much celebrated on this site.  If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok.  Just own it yourself because YOU think it's sub-optimal.
You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.

There is a colossal difference between paying off a mortgage AFTER achieving FI, when one can do it in one lump sum, (or just pay cash up front), and throwing everything at the mortgage before funding every tax-favored retirement vehicle that's available to you. If you are FI, and don't want to have a mortgage, that's your decision. You do know we paid cash for our primary home, right? And that we have four other properties with mortgages? And we're FI & FIRE? Yeah, totally not hiding.

More importantly, this thread exists to thoroughly discuss this topic so that one can made the most optimal decision for their situation. You are not required to post contrarian views. There are plenty of other threads for that. Instead of snarking at me, you could shorten the number of years you have to work and the number of dollars you have to earn to attain your freedom by studying the Investment Order and following it to the best of your ability. While you're at it, be sure to bone up on the Forum Rules, especially Rule #1.

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 26, 2019, 08:37:21 AM


Th nikkei argument is bullshit - especially when talking about mortgages. Even if it wasn't who the hell is investing only in japan and getting a 30 year US mortgage?

The Nikkei is such a special example, and a non-standard one at that.  I think a lot of counter-arguments hang their hat on "oh, but the neikki went sideways... the lost decade(s)... it's proof all market projections must be suspect!!"

historical context is important.  The Nikkei (and Japan's GPD, ofr that matter) was not just in the toilet but flushed down the drain and in a septic tank somewhere after WWII.  It was in way worse shape than even Germany or Italy.  Entering the 1960s Japan's GDP was behind Canada - a country with 1/5th the population.  Remarkable for a country that had been a world power just a generation earlier and had been one of the more advanced civilizations for centuries.

Then Japan roared back.  It rebuilt, and its recovery was in part paved by a lot of western technological advances that they were able to capitalize on.  And lazy pundants looked at that growth from the 70s and 80s and made some predictions that in hindsight were bonkers.  Go back to financial articles from the late 80s/early 90s and most we absolutely certain Japan would eclipse the US before the end of the century. Of course they missed the mark.  What Japan (and the Nikkei) did was return to where Japan would otherwise have been had their economy not been bombed back to the stone-age and then trampled on by foreign boots. They never eclipsed the US in market size - which is not surprising given they have 1/3 the population and almost 1/5th the workforce (demographics play huge in developed economies).   Even their so-called "lost decade" wasn't that bad, considering the living standard for the median Japanese continued to improve, loans were incredibly affordable (as UnleashHell has already stated) and the national savings rate stayed in the double-digits.

The strength investing int he SP500 (and using that as your benchmark over the past century or so) is that those companies tend to be very large, diversified and pan-global, and exist within a regulated framework.  One could probably get similar results investing in the 500 largest european companies today - though historical data for those haven't been compiled for things like FireCalc. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on July 26, 2019, 09:27:19 AM
Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years".  Which is, of course, a variation of market timing, and we all know how bad that is. 

Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit.  Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure.  In fact it's the opposite.  Paying extra toward the mortgage is actually very, very risky. 

A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID. 

Keep following that strategy until you are fully FI.  Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"?  If you don't, then pay it off.  If you do, then keep the extra $$ invested.  Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI. 
Title: Re: DONT Payoff your Mortgage Club
Post by: CorpRaider on July 26, 2019, 12:10:58 PM
Yeah, the lost decade was coming off a CAPE of ~100.  Japan is cheap now, on most metrics.  If they could clean up the corporate governance/unleash some capitalism forces like the U.S. (maybe with some liberalization of immigration and/or robotics replacing some human capital, we could see a repeat of the U.S. from the 1980s. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 26, 2019, 12:22:58 PM
Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years".  Which is, of course, a variation of market timing, and we all know how bad that is. 

Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit.  Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure.  In fact it's the opposite.  Paying extra toward the mortgage is actually very, very risky. 

A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID. 

Keep following that strategy until you are fully FI.  Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"?  If you don't, then pay it off.  If you do, then keep the extra $$ invested.  Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.

I think this is a good plan.   I do wonder how many people who have a 'home sinking fund' decide to eliminate their mortgage after becoming fully FI for two reasons; 1) a decade or so into a fixed-rate mortgage that payment looks pretty insignificant after inflation and increases in property taxes, and 2) once you've got a hefty six-figures in an VTSAX account it can be tough to watch that evaporate into a home you've lived in for years and already consider 'yours'.

My parents started a home sinking fund decades ago with the intent to follow this plan.  Now that account has enough money in it that the dividends alone are paying the mortgage (they did a couple of cash-Refis for lower rates, and plugged the money back into the account).  In another decade the mortgage will be gone and they should have an account with well over $1MM in it, which has been segregated from their comfy retirement portfolio.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 26, 2019, 05:51:05 PM
Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years".  Which is, of course, a variation of market timing, and we all know how bad that is. 

Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit.  Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure.  In fact it's the opposite.  Paying extra toward the mortgage is actually very, very risky. 

A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID. 

Keep following that strategy until you are fully FI.  Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"?  If you don't, then pay it off.  If you do, then keep the extra $$ invested.  Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.

I think this is a good plan.   I do wonder how many people who have a 'home sinking fund' decide to eliminate their mortgage after becoming fully FI for two reasons; 1) a decade or so into a fixed-rate mortgage that payment looks pretty insignificant after inflation and increases in property taxes, and 2) once you've got a hefty six-figures in an VTSAX account it can be tough to watch that evaporate into a home you've lived in for years and already consider 'yours'.

My parents started a home sinking fund decades ago with the intent to follow this plan.  Now that account has enough money in it that the dividends alone are paying the mortgage (they did a couple of cash-Refis for lower rates, and plugged the money back into the account).  In another decade the mortgage will be gone and they should have an account with well over $1MM in it, which has been segregated from their comfy retirement portfolio.
I see they got your smarts.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on July 27, 2019, 10:19:00 AM
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.

Doesn't sound like a facepunch to me.  In fact, it's very much celebrated on this site.  If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok.  Just own it yourself because YOU think it's sub-optimal.
You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.

There is a colossal difference between paying off a mortgage AFTER achieving FI, when one can do it in one lump sum, (or just pay cash up front), and throwing everything at the mortgage before funding every tax-favored retirement vehicle that's available to you. If you are FI, and don't want to have a mortgage, that's your decision. You do know we paid cash for our primary home, right? And that we have four other properties with mortgages? And we're FI & FIRE? Yeah, totally not hiding.

More importantly, this thread exists to thoroughly discuss this topic so that one can made the most optimal decision for their situation. You are not required to post contrarian views. There are plenty of other threads for that. Instead of snarking at me, you could shorten the number of years you have to work and the number of dollars you have to earn to attain your freedom by studying the Investment Order and following it to the best of your ability. While you're at it, be sure to bone up on the Forum Rules, especially Rule #1.

This is spot on.

I absolutely intend to pay my mortgage off early because between pensions and tax advantaged accounts, we will retire with far more money than we need and don't want to buy any more properties.

The mortgage will then just be a convenient place to dump excess money, plus I'm in Canada, so no magical US mortgages here. I might end up paying it off just to avoid the hassle of renewing it every 3-5 years.

That's a very very different reality from prioritizing prepaying a mortgage during accumulation though, especially at the expense of tax advantaged accounts.

It's fine to make an emotional decision, but it's critical to understand the actual increase of risk and cost of those emotional decisions.

One of my most respected FI community friends paid off her mortgage early and she fully and completely understood/understands the risks and costs of her decision and she has no regrets.

There's absolutely no judgement here of paying off mortgages early, many of us have/intend to. There is, however, heavy criticism of emotional financial decisions made with near total disregard for the very real increased risks and costs.

I *just* made a real estate decision that will likely cost me hundreds of thousands of dollars. I had a choice between two properties: one that is a smart and frugal choice that I love vs one that is a brilliant investment that I did not want to live in.

I made an emotional choice that will cost me hundreds of thousands of dollars, and I'm 100% okay with it. My choice is still frugal and savvy compared to wasteful over spending, but I'm not about to pretend that it's anywhere close as smart a financial move as the other place would have been.

Emotional decisions are valid...when they're fully informed.

ETA: I talked a good friend into buying the other place, and he loves it, and has no plans to pay down his mortgage ;)
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 28, 2019, 06:31:07 PM
If rates revert back to the historical average, we could board up this thread.
Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right?  Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest

My parents love to tell me that they were such industrious workers that they could count on receiving 3-4% raises every year.

If you stretch to buy a house, but lock in fixed payments, having 10% more income to make those payments (two years later) is a really good thing.

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???

Quick look, if I were to refinance my current balance (about $165,000) my mortgage payment would be about $720 on a 30 year loan.  For a 3/2 house.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 28, 2019, 06:43:47 PM
If rates revert back to the historical average, we could board up this thread.
Maybe, maybe not. Mortgage rates don’t operate in a vacuum. My parents love to tell me about their 9.9% mortgage back in the late 70s. Sounds horrible. Right?  Well shortly after getting their mortgage you could buy CDs that had yields of 12% - which is bonkers to think about now. So even with a mortgage near the double digit mark they could get a fixed return even better than that. Oh, and when rates were that high the interest deduction suddenly mattered a great deal, as >80% of your early payments was interest

My parents love to tell me that they were such industrious workers that they could count on receiving 3-4% raises every year.

If you stretch to buy a house, but lock in fixed payments, having 10% more income to make those payments (two years later) is a really good thing.

Incredibly, my parents bought a 3/2 house nowhere special in 1987, and their monthly payment was $773. It wouldn't surprise me if there at people on this thread who are paying $773/month today for a 3/2 house somewhere???

Quick look, if I were to refinance my current balance (about $165,000) my mortgage payment would be about $720 on a 30 year loan.  For a 3/2 house.
If I had used a mortgage instead of cash on the last 3/2 house I bought, my mortgage would have been $280 for P&I, had it been for personal use.

The one I close on next month is a 4/2 with 2500+ sq ft finished space and probably 1000 sq ft unfinished would be the same, had it also been for personal use..


Title: Re: DONT Payoff your Mortgage Club
Post by: fuzzy math on July 29, 2019, 10:57:19 AM
Been toying around with refinancing for well over a year. Need to do it through my credit union because my name is still on a federal program blacklist til 3/2020, despite the foreclosure having fallen off my credit report 6 months ago.

Home balance is $156k. Current mortgage is a 15 yr FHA (12.5 yrs remain) with apr of 3.625%. Put down 20% to get out of PMI asap, but found out really late in the process that PMI is mandatory for 10 yrs of the loan, regardless of balance. Didn't fully think through the ramifications of putting down 20% despite having PMI because I hadn't found this thread at that point. PMI payment is $56 a month.

Have spoken with bank, and gotten online app link to refi. Home should have appreciated $10k or so since purchase, and we will most likely cash out refi back to 80% LTV. My spouse wants to keep the money liquid, I'd rather sock it away in work sponsored retirement accounts since we have nearly $90k in tax free space between our employers. It would allow us to significantly lower our tax bill for 2019, and would make up for an old 457b that I was forced to cash out upon leaving an old employer.

I was reading this thread and got excited again about going through with the refi. Went back to the bank site and their loans have gone up 1/8 of a point, which really irritated me. I was hoping that with the fed decision coming tomorrow that they'd be headed the other way. I think I need to wait a few weeks to see what the bank does. Currently they're 3.75% for a 30 yr, 3.5% for a 20 r and 3.5%for a 15 yr. The 20 yr rate remains unchanged, but the 15 and 30 yr rates went up. Jerks.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 29, 2019, 01:13:50 PM
Most arguments for paying off the mortgage early have some underlying form of "I don't think the market is going to return 9% over the next xx years".  Which is, of course, a variation of market timing, and we all know how bad that is. 

Look, many of the people in this thread (like myself) were people that had paid early on a mortgage but our 'extra payments' were not enough to pay it off, only enough to reduce the principal a bit.  Then we faced job loss or instability and realized that all those extra payments didn't do jack to make us more secure.  In fact it's the opposite.  Paying extra toward the mortgage is actually very, very risky. 

A safer approach is to take the $$ you would have paid extra toward the mortgage, drop it into VTSAX or whatever your favorite index fund is, build your actual wealth to a higher level, faster, and then if SHTF you are LIQUID. 

Keep following that strategy until you are fully FI.  Once you are fully FI, THEN that's a great time to evaluate "do I still want a mortgage"?  If you don't, then pay it off.  If you do, then keep the extra $$ invested.  Either way, you've minimized risk during the accumulation phase and minimized the # of years it'll take you to reach FI.

This is exactly the approach I recommend.  It's still clearly POYM, but hell no to extra payments.  Lump sum approach.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on July 29, 2019, 01:21:06 PM
Yeah, shitting on other people for celebrating being debt free in the threads they make is a real dick move.

It's one thing to shit on someone for spending more than they make, but doing it because they choose a path that is slightly less optimized in favor of a psychological gain is pretentious.
I respectfully disagree. This is the forum which is an offshoot of a blog whose creator freely distributes facepunches to anyone who dares to behave sub-optimally.

You're welcome to your opinion, but consider where you are before casting aspersions. See also: Rule #1.

"Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book."
- Mr Money Mustache.

Doesn't sound like a facepunch to me.  In fact, it's very much celebrated on this site.  If you think it's ok to facepunch people for celebrating being debt free, then don't hide behind MMM as the reason it's ok.  Just own it yourself because YOU think it's sub-optimal.
You will no doubt be surprised to learn that I happen to agree with your selective quote, because I understand the context. I am not sure you do.

There is a colossal difference between paying off a mortgage AFTER achieving FI, when one can do it in one lump sum, (or just pay cash up front), and throwing everything at the mortgage before funding every tax-favored retirement vehicle that's available to you. If you are FI, and don't want to have a mortgage, that's your decision. You do know we paid cash for our primary home, right? And that we have four other properties with mortgages? And we're FI & FIRE? Yeah, totally not hiding.

More importantly, this thread exists to thoroughly discuss this topic so that one can made the most optimal decision for their situation. You are not required to post contrarian views. There are plenty of other threads for that. Instead of snarking at me, you could shorten the number of years you have to work and the number of dollars you have to earn to attain your freedom by studying the Investment Order and following it to the best of your ability. While you're at it, be sure to bone up on the Forum Rules, especially Rule #1.

Pointing out that MMM himself has no issue with paying off a mortgage is being a jerk?  Wow.  Your little attack on me, assuming I'm not FI, is more "jerkish" than anything I've posted.  I don't have to work at all.  I'm doing great, thanks.

My point, and it's fair, is that MMM has said that paying off a mortgage isn't terrible.  And that was DIRECTLY in response to a comment that we are on the MMM site and face punches are in order for paying off a mortgage.  That's not being a jerk, sorry.  Only pointing out what MMM has actually written.

I have actually said paying off a mortgage is rarely the best decision.
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on July 31, 2019, 11:36:28 AM
I'll probably get banned from this "payoff" thread after this comment:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968 (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968)
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 31, 2019, 11:43:17 AM
I'll probably get banned from this "payoff" thread after this comment:

[urlhttps://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968][/url]

Ok... my thought is that this thread and the other thread are both motivational "clubs" organized for a specific purpose.  I'd be happy to see more from over there come and join us, but it's probably not the best thread to throw stones in. 
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on July 31, 2019, 11:46:52 AM
I'll probably get banned from this "payoff" thread after this comment:

fixed link (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968)

Frankly, you should be.
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on July 31, 2019, 11:48:50 AM
I'll probably get banned from this "payoff" thread after this comment:

[urlhttps://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payment-club-$75k-starting-current-balance-of-$50k-$99k/msg2428968/#msg2428968][/url]

Ok... my thought is that this thread and the other thread are both motivational "clubs" organized for a specific purpose.  I'd be happy to see more from over there come and join us, but it's probably not the best thread to throw stones in.

I'm "paying off my mortgage" also.  Just as slowly as possible.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on July 31, 2019, 11:49:24 AM
That's called being a troll, and it's not something you should brag about. They've made it very clear that they don't want to hear the DPOYM side of the argument in that thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: CarolinaGirl on July 31, 2019, 04:50:56 PM
That's called being a troll, and it's not something you should brag about. They've made it very clear that they don't want to hear the DPOYM side of the argument in that thread.

^This!! 

Why do people have to poop on other people’s parades?!  Per MMM it’s a win-win situation either way.  WHY all the hate?  If someone is asking your opinion, then yeah explain how one way is more optimal, else let them be proud of moving toward the finish line. 


“The Mustachian Way is flexible enough that it will make us all rich relatively quickly, so there is no need to lock on to one particular strategy as The Only Way To Do It.”  MMM

https://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/






Title: Re: DONT Payoff your Mortgage Club
Post by: DeniseNJ on August 01, 2019, 12:02:36 PM
A few sincere questions:
Now that state and local taxes are only federally deductible up to 10K, if you can't itemize and deduct your mortgage interest, has anybody changed their minds about hanging on to a mortage?

Also, along the lines of all the admittedly great arguments for not paying off the mortgage, would you recommend to increase your mortgage?  Basically leverage your house to reinvest in stocks.  This is just borrowing money at a low interest rate to invest it for a higher return--you pay back the loan and keep the difference, like cc churning.  Would you take out a personal loan at a lower rate than you think the market will return?

If you spend 500K on a house or 500K on stocks, you could borrow against either to buy more investmensts I suppose.  But most people borrow to buy houses, yet they don't generally borrow to buy stock.  I guess bc it's considered risky.  But your house could go underwater just like your stocks could tank in value.  So why isn't getting a "mortgage" to buy stock a thing for most people?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 01, 2019, 12:19:17 PM
A few sincere questions:
Now that state and local taxes are only federally deductible up to 10K, if you can't itemize and deduct your mortgage interest, has anybody changed their minds about hanging on to a mortage?

I have not.  To me, interest deductions were rarely applicable and when they were they were merely icing on the cake.  The real benefit from not paying off oyur mortgage at an accelerated rate is that there are much better things to do with your money (particularly true if you have 'head-space' in your tax-advantaged accounts).

Also, along the lines of all the admittedly great arguments for not paying off the mortgage, would you recommend to increase your mortgage?  Basically leverage your house to reinvest in stocks.  This is just borrowing money at a low interest rate to invest it for a higher return--you pay back the loan and keep the difference, like cc churning.  Would you take out a personal loan at a lower rate than you think the market will return?
I believe that - when done systematically and intelligently, refinancing your home and using the proceeds for investments is a great use of your assets.  What worries me a great deal is when someone's NW is >>50% primary residence. There is so much that can go wrong there, and so little that can be done when things go south.  Personally I strive to have < 25% of my total NW in my home, and as I pay down my mortgage it's easy for that to get skewed. 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 01, 2019, 07:06:23 PM
Another month another minimum payment. I calculate that the amount we are paying in interest on this mortgage is roughly 3% of our annual income.

We got this mortgage in 2016 with an interest rate of 3.125%. Since then the S&P 500 has returned 13.9% annualized. So far it has been overwhelmingly the correct decision to make minimum payments.

Car loan is a similar story at 1.69% acquired in 2018. S&P 500 at 8.9% annualized since.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 08, 2019, 06:34:21 AM
Rates are dropping again. Ten-year yield down in the 1.6-range. What a time to be alive!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 08, 2019, 06:43:01 AM
Rates are dropping again. Ten-year yield down in the 1.6-range. What a time to be alive!

wrote a parallel thread about it, but we're house hunting right now and going through the process of getting a verified mortgage.  So far we've gotten a 30y fixed at 3.625%.  Oddly, the rates for 15y aren't substantially better (I think the lowest we were quoted was 3.4% - not something we're interested in). 5/1 ARMs are considerably higher than 30y fixed, if that makes any sense at all.
The yield on the 30 day is better than on the 10 year.  bonkers.

What a time to be alive indeed. 

Looking forward to paying off this mortgage as slooooooowly as humanly possible.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on August 08, 2019, 09:01:17 AM
Rates are dropping again. Ten-year yield down in the 1.6-range. What a time to be alive!

wrote a parallel thread about it, but we're house hunting right now and going through the process of getting a verified mortgage.  So far we've gotten a 30y fixed at 3.625%.  Oddly, the rates for 15y aren't substantially better (I think the lowest we were quoted was 3.4% - not something we're interested in). 5/1 ARMs are considerably higher than 30y fixed, if that makes any sense at all.
The yield on the 30 day is better than on the 10 year.  bonkers.

What a time to be alive indeed. 

Looking forward to paying off this mortgage as slooooooowly as humanly possible.

Hmm, makes me wonder if I should consider refinancing my house, it's currently at 4%
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 08, 2019, 09:20:32 AM
DH and I actually had a conversation about this last night. When the flip house sells, we'll be back down to three rentals with well-seasoned mortgages. We might pull a mortgage on our primary, just to grab a chunk of cheap money. Interesting conundrum.

What we're definitely not going to do is use the proceeds from the flip house to pay off any rental mortgages.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 09, 2019, 12:49:11 PM
Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 10, 2019, 10:33:54 AM
Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?
Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 10, 2019, 11:00:43 AM
Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?
Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?
We just refinanced through Accelin Loans and it was a pretty good experience.  I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate.  3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 10, 2019, 11:10:05 AM
Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?
Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?
We just refinanced through Accelin Loans and it was a pretty good experience.  I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate.  3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)

Sent from my moto g(6) using Tapatalk
What rate did you get? When we've tried to shop rates, it's been a fucking nightmare.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 10, 2019, 11:21:40 AM
Dicey, you're in CA, so these are high-price properties. Do you think you'd be able to take out something like an interest-only mortgage to try to stabilize your pay down of principal?
Hmmm, I've used an I/O loan before, so I certainly see their value, but I'm not sure i fully understand the bolded part. Tell me more, please. Now that 30 year fixed is down to 3.6%, the temptation is growing. Also, who do you guys like for low-cost, low(-ish) hassle mortgages?
We just refinanced through Accelin Loans and it was a pretty good experience.  I usually just get a couple quotes and have them bid against each other and then work with whoever gives me the best rate.  3.25% at 0 points is my next threshold for refinancing so I've been paying close attention to rates lately. Hoping they can dip a bit more :)

Sent from my moto g(6) using Tapatalk
What rate did you get? When we've tried to shop rates, it's been a fucking nightmare.
We paid "some" points and got 3.875 earlier this year. Breakeven on the refinance is 18 months so there is a high likelihood that it will pay off.  I usually shop via bankrate website, get a couple quotes, and then see if any of the lenders can beat the best quote.  We were somewhat limited because pmi is apart of our payment so getting a great rate with low pmi can be a challenge. I think Accelin is offering 3.875 with no points right now and 3.5 with.5 points. I've seen some lenders advertised 3.5 with 0 points over the last couple days so it may be possible to get that rate in the comings weeks.  This also depends on the area and loan amount though.

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: tralfamadorian on August 10, 2019, 05:24:27 PM
I’ve been helping an older family member through the refi process (from an soon to expire ARM to a 30yr) and 3.875%/0pts was also the best I could get for her.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on August 10, 2019, 09:33:48 PM
I'm seeing 3.875 for a cashout refi in Texas, which tends to raise the rates a bit over other states and a non-cashout refi due to our overbearing legislature making all these silly restrictions...
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 10, 2019, 11:30:43 PM
I'm seeing 3.875 for a cashout refi in Texas, which tends to raise the rates a bit over other states and a non-cashout refi due to our overbearing legislature making all these silly restrictions...
I'm not sure how they categorize a new first on a paid for house, because I've never had a paid for house before we bought this one. I'm not sure it's treated as favorably as an acquisition loan. In a way it is a cash-out loan, but not in the typical sense. Anybody have any experience getting a mortgage on a free & clear house? Where is boarder42 when you need him?*

*Rhetorical question. I hope he's out on his boat, in front of his lake-front house, enjoying a beer. Cheers, b42!
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on August 11, 2019, 07:56:24 AM
I'm seeing 3.875 for a cashout refi in Texas, which tends to raise the rates a bit over other states and a non-cashout refi due to our overbearing legislature making all these silly restrictions...
I'm not sure how they categorize a new first on a paid for house, because I've never had a paid for house before we bought this one. I'm not sure it's treated as favorably as an acquisition loan. In a way it is a cash-out loan, but not in the typical sense. Anybody have any experience getting a mortgage on a free & clear house? Where is boarder42 when you need him?*

*Rhetorical question. I hope he's out on his boat, in front of his lake-front house, enjoying a beer. Cheers, b42!

At least here in Texas, I was told that it didn't matter if the house was already owned free and clear - but that was just one lender. I haven't investigated extensively.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on August 11, 2019, 03:16:52 PM
So I'm thinking fairly seriously about refinancing.

I'm in year 3 of a 15-year fixed @ 2.75%.

Just got quoted a 30-year fixed @ 3.5%.

Making this switch would reduce monthly payment by about $840.

I would apply some of the difference (about $300/month) to fully maxing out pre-tax retirement savings (401a, 457, and solo 401k) at over $60k per year. The rest would go to paying down some medium-interest student-loan debt (5.4%).

Seems like a decent idea to me but am very interested to hear thoughts from the hive mind!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 11, 2019, 03:48:23 PM


So I'm thinking fairly seriously about refinancing.

I'm in year 3 of a 15-year fixed @ 2.75%.

Just got quoted a 30-year fixed @ 3.5%.

Making this switch would reduce monthly payment by about $840.

I would apply some of the difference (about $300/month) to fully maxing out pre-tax retirement savings (401a, 457, and solo 401k) at over $60k per year. The rest would go to paying down some medium-interest student-loan debt (5.4%).

Seems like a decent idea to me but am very interested to hear thoughts from the hive mind!

I think it's a pretty solid move assuming the entire 840/mo savings goes towards investments or high interest debt payoff.  How large is the student loan debt and how much money do you have available in non tax advantaged accounts? It may be a good idea to start building your taxable brokerage investment accounts as well in order to give you more flexibility in the event of a downturn. 

I'm weird though and would rather have 50k debt at 4% interest while also holding a 50k taxable portfolio versus having no debt and no taxable portfolio.  Having a large amount of money available at anytime really makes me feel more secure compared to having no money and no debt. All of this being said assuming debt interest rate is sub 5% and the monthly payments are easily manageable.



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Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on August 11, 2019, 04:18:15 PM
I think it's a pretty solid move assuming the entire 840/mo savings goes towards investments or high interest debt payoff.  How large is the student loan debt and how much money do you have available in non tax advantaged accounts? It may be a good idea to start building your taxable brokerage investment accounts as well in order to give you more flexibility in the event of a downturn. 

I'm weird though and would rather have 50k debt at 4% interest while also holding a 50k taxable portfolio versus having no debt and no taxable portfolio.  Having a large amount of money available at anytime really makes me feel more secure compared to having no money and no debt. All of this being said assuming debt interest rate is sub 5% and the monthly payments are easily manageable.

The student loan is only $7300. We currently have $0 in non-tax-advantaged accounts. I would happily start building those up as well. All monthly debt payments are easily manageable, since we are already putting about $60k into pre-tax investments every year.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 11, 2019, 05:01:14 PM


I think it's a pretty solid move assuming the entire 840/mo savings goes towards investments or high interest debt payoff.  How large is the student loan debt and how much money do you have available in non tax advantaged accounts? It may be a good idea to start building your taxable brokerage investment accounts as well in order to give you more flexibility in the event of a downturn. 

I'm weird though and would rather have 50k debt at 4% interest while also holding a 50k taxable portfolio versus having no debt and no taxable portfolio.  Having a large amount of money available at anytime really makes me feel more secure compared to having no money and no debt. All of this being said assuming debt interest rate is sub 5% and the monthly payments are easily manageable.

The student loan is only $7300. We currently have $0 in non-tax-advantaged accounts. I would happily start building those up as well. All monthly debt payments are easily manageable, since we are already putting about $60k into pre-tax investments every year.

I'd say go for it max your tax deferred accounts and start hammering your taxable accounts.  Once you get them built up you can easily take a little bit and drop it on the student loans.  You're really only sacrificing .75% for a term extension of 18 years which will improve investable cash flow and greatly increase your odds of  beating that puny mortgage rate on an average yearly basis with the new term length given you invest the money in the market.

With average market growth of 9.6% the 840/mo invested would come out to about 230k over 12 years or by the time your current 15 year term is up.  Even with low returns at 4% it would be around 160k by the end of the term.  And none of this takes into account the tax savings you will get on the 300/mo tax deferred contributions.

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Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 12, 2019, 08:26:27 AM
How does your interest payment per month change?

I feel like rates will continue dropping, and being sub-3 is pretty special. It has a decent chance of being lower than inflation.
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on August 22, 2019, 06:48:43 AM
I now have another house. and another mortgage. thats 3 mortgages and I'm not overpaying on any of them. Thats how I win right?



oh expect I hope to pay the lowest interest one off in full this year...!!!


Its a long story...
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 22, 2019, 06:58:13 AM
I now have another house. and another mortgage. thats 3 mortgages and I'm not overpaying on any of them. Thats how I win right?

oh expect I hope to pay the lowest interest one off in full this year...!!!

Its a long story...
I've been following that story and just commented on the topic over in your shiny new journal. I figured that was your plan. Once the mortgage has been vanquished, is The X required to take over payment of the taxes and insurance? If so, I'm with you: I'd kill that sucker asap. If the T&I are tied in to spousal or offspring support, I might arrange the flight pattern so they all end at about the same time. Bigger jolt upon landing for The X seems like a good thing, but maybe I'm just being petty ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on August 22, 2019, 07:52:12 AM
I now have another house. and another mortgage. thats 3 mortgages and I'm not overpaying on any of them. Thats how I win right?

oh expect I hope to pay the lowest interest one off in full this year...!!!

Its a long story...
I've been following that story and just commented on the topic over in your shiny new journal. I figured that was your plan. Once the mortgage has been vanquished, is The X required to take over payment of the taxes and insurance? If so, I'm with you: I'd kill that sucker asap. If the T&I are tied in to spousal or offspring support, I might arrange the flight pattern so they all end at about the same time. Bigger jolt upon landing for The X seems like a good thing, but maybe I'm just being petty ;-)


that IS petty. I would never think like that.
T&I is no longer my responsibility once I pay off the mortgage. I have just over 3 years to clear that debt according to the agreement.

The insurance gets paid each September.  Taxes in November.
The final CS payment is next July............
I think I may be in a position to clear that mortgage in the first half of next year......
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldy on August 27, 2019, 08:13:25 AM
Well I have now completely switched sides and reduced my overpayment to $4 to make my payment an even $1300.  The rest of that money that I used to put towards my 2.5% 5/1 ARM is now going into my after tax investments.  With rates becoming low again I suspect I will be refinancing in the future and will just ride out a 15 or 30 yr term.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 27, 2019, 08:16:11 AM
Looks like I'll be signing a 30y fixed at 3.65% next week.  Looking forward to not paying that sucker off any faster than absolutely necessary.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 27, 2019, 08:36:50 AM
Looks like I'll be signing a 30y fixed at 3.65% next week.  Looking forward to not paying that sucker off any faster than absolutely necessary.

Congrats! I've been following your journal, glad to hear this saga may finally be coming to an end!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 27, 2019, 03:22:23 PM
I have a buddy that I talk finances with a lot. We have been keeping an eye on mortgage rates and I found what appeared to be a crazy good rate for a streamlined VA 30 yr refi.  He just locked in at 3.25% with 1800 credit towards closing. His break even will be 6.5 months with 1100 in closing costs.

I'm just slightly jealous he will have a better rate than me now ;)

If you are VA eligible AimLoan has some crazy good rates.  30yr at 2.75% if you want to pay some points up front and 3.125% with no points.

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Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 28, 2019, 01:30:50 AM
I have a buddy that I talk finances with a lot. We have been keeping an eye on mortgage rates and I found what appeared to be a crazy good rate for a streamlined VA 30 yr refi.  He just locked in at 3.25% with 1800 credit towards closing. His break even will be 6.5 months with 1100 in closing costs.

I'm just slightly jealous he will have a better rate than me now ;)

If you are VA eligible AimLoan has some crazy good rates.  30yr at 2.75% if you want to pay some points up front and 3.125% with no points.

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Wow!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 28, 2019, 09:23:22 AM
Fantastic rates, guys!

The bond market continues to be kind to homebuyers, delivering the lowest ten-year yields since early 2016.
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on August 28, 2019, 11:08:56 AM
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldy on August 28, 2019, 03:03:00 PM
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.

I just looked into it but I really dislike the amount of information you need to give them so they can pass it on to their "partners".  I'm a much bigger fan of Zillow and Aimloans.com who will give you a rate quote based on your cursory information and not require your contact info unless you want to move forward.  I once signed up through lending tree and was amazed at the flood of mortgage solicitors on the phone and email and I suspect that Credible is the same.  Aimloans has the best rates I have seen outside of some USAA products.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on August 28, 2019, 04:29:12 PM
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.

I just looked into it but I really dislike the amount of information you need to give them so they can pass it on to their "partners".  I'm a much bigger fan of Zillow and Aimloans.com who will give you a rate quote based on your cursory information and not require your contact info unless you want to move forward.  I once signed up through lending tree and was amazed at the flood of mortgage solicitors on the phone and email and I suspect that Credible is the same.  Aimloans has the best rates I have seen outside of some USAA products.

Isn't the whole draw for credible that they DON'T pass it on to partners?  They import the lending formulas and keep it all in house.  I haven't used it, but that's the impression I got from MMM's description of the service.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldy on August 28, 2019, 09:22:11 PM
Anyone try Credible that MMM gave a shout out to on Twitter recently? I was looking at refinancing at the beginning of summer, but decided to hold off given 1) two vacations and 2) a sense that the momentum was going to be downward for interest rates through the rest of the year.

I just looked into it but I really dislike the amount of information you need to give them so they can pass it on to their "partners".  I'm a much bigger fan of Zillow and Aimloans.com who will give you a rate quote based on your cursory information and not require your contact info unless you want to move forward.  I once signed up through lending tree and was amazed at the flood of mortgage solicitors on the phone and email and I suspect that Credible is the same.  Aimloans has the best rates I have seen outside of some USAA products.

Isn't the whole draw for credible that they DON'T pass it on to partners?  They import the lending formulas and keep it all in house.  I haven't used it, but that's the impression I got from MMM's description of the service.

Here is what their terms and conditions say.  I didn’t see the MMM tweet but this seems no different than the other lending brokers to me unless I’m missing something (entirely possible).


1) By using our Service you agree to receive calls and SMS messages from us and our Providers, including telemarketing calls, auto-dialed calls and texts and pre-recorded voice messages

5) Your contact information will be shared with Providers


Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on August 29, 2019, 08:03:30 AM
Isn't the whole draw for credible that they DON'T pass it on to partners?  They import the lending formulas and keep it all in house.  I haven't used it, but that's the impression I got from MMM's description of the service.

Here is what their terms and conditions say.  I didn’t see the MMM tweet but this seems no different than the other lending brokers to me unless I’m missing something (entirely possible).


1) By using our Service you agree to receive calls and SMS messages from us and our Providers, including telemarketing calls, auto-dialed calls and texts and pre-recorded voice messages

5) Your contact information will be shared with Providers

Right, that means they'll give 3rd parties your email address / phone number so that they can contact you. The supposed difference is that the "other guys" also give out all the financial info you provide.
Title: Re: DONT Payoff your Mortgage Club
Post by: DeniseNJ on August 29, 2019, 08:49:40 AM
Isn't the whole draw for credible that they DON'T pass it on to partners?  They import the lending formulas and keep it all in house.  I haven't used it, but that's the impression I got from MMM's description of the service.

Here is what their terms and conditions say.  I didn’t see the MMM tweet but this seems no different than the other lending brokers to me unless I’m missing something (entirely possible).


1) By using our Service you agree to receive calls and SMS messages from us and our Providers, including telemarketing calls, auto-dialed calls and texts and pre-recorded voice messages

5) Your contact information will be shared with Providers

Right, that means they'll give 3rd parties your email address / phone number so that they can contact you. The supposed difference is that the "other guys" also give out all the financial info you provide.
I did all the Creditable info and have not had any solicitations--just an email maybe two or three times from Creditble asking if I still wanted to refi.  I went to the point of getting all the quotes and now have to decide which to go with and apply.  No calls or texts and no emails from anyone else.  I agree about Lending Tree--that was awful.
Title: Re: DONT Payoff your Mortgage Club
Post by: EngagedToFIRE on August 29, 2019, 09:26:45 AM
MMM's comments were on his latest blog post, I'll just paste it here.  If the terms from Credible clearly state that you will get telemarketing calls because they sell your contact information, then MMM needs to update the blog accordingly, because he is giving out misleading information regarding the Credible product.

Quote
Watchful readers may have noticed I also mentioned this company on Twitter recently. After a few months of skepticism that the world needed yet another financial company, I was convinced by some conversations with the people running it and a Zoom video of the customer experience from a senior employee, with some very candid commentary on their design choices.

I like it because they import the lending models from their large supply of hooked-up finance companies, then run the rate comparisons on their own server rather than farming out your personal information to each separate lender. It saves you from filling out multiple applications when collecting rates, and also saves you from getting on everyone’s spam list (they don’t sell your contact information, which is a rare thing among loan search engines).

It was a hard model for them to get going, because the banks naturally want to have your information so they can spam you.  But now that they have a growing presence in the market, lenders are forced to come through Credible to get access to this pool of qualified people. After enough testing with people I knew, I found the experience is worth recommending.
Title: Re: DONT Payoff your Mortgage Club
Post by: sisto on August 29, 2019, 12:24:20 PM
I have been working with credible and have not gotten any unsolicited calls or emails. I just checked out the VA recommendation above, fingers crossed I can get that. Currently in a 15yr Vs with Quicken. 5 years in at 3.25. Been waiting awhile now for a good 30 year rate. Should save over $800/month
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on August 29, 2019, 12:35:59 PM
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change. 
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on August 29, 2019, 12:47:21 PM
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change.

Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on August 29, 2019, 01:42:24 PM
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change.

Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.

I'm not going to rehash too deeply here, but it is more than just emotional: Once you reach FI, and would like to RE, it often makes financial sense to pay off the mortgage (though at 2.75%, I'm not sure I could part with such a gift). Reducing expenses at retirement often reduces SORR, even if it also reduces expected return.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on August 29, 2019, 02:53:19 PM
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change.

Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.

I'm not going to rehash too deeply here, but it is more than just emotional: Once you reach FI, and would like to RE, it often makes financial sense to pay off the mortgage (though at 2.75%, I'm not sure I could part with such a gift). Reducing expenses at retirement often reduces SORR, even if it also reduces expected return.

That's quite right.

Not in my case, but it's very good general advice.

We have essentially zero sequence of returns risk from the market.   If we stay on budget we only need to pull $10,000 (total) out of the market over the next two years.  By then our rental income will fill in the gap and we'll have a 0% SWR.   Or, we could just spend down non-stock/bond assets instead for a 0% withdrawal rate now. 

I expect to have a negative SWR rate by 2022 at the latest.  We retired about 15 months ago.

I over-engineered our FIRE.  We have a mentally handicapped daughter who can't recover from any mistake we make in setting her up financially after we pass on, so I make no apologies for doing so. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on August 29, 2019, 03:05:16 PM
Just starting year 4 of our 15 year, 2.75% fixed rate mortgage.   So far, I've managed to avoid paying it off in full 4 different times as various lump sum monies came my way.

Still bugs me to have it.   I don't think that emotional side of it will ever change.

Once you are FI, and the process of paying it off would not drop you below FI, it makes sense to me to prioritize paying it off. At some point, additional money doesn't benefit you as much. So it might make sense to take the emotional gain when you get an influx of money instead of the "financially optimal" decision.

I'm not going to rehash too deeply here, but it is more than just emotional: Once you reach FI, and would like to RE, it often makes financial sense to pay off the mortgage (though at 2.75%, I'm not sure I could part with such a gift). Reducing expenses at retirement often reduces SORR, even if it also reduces expected return.

That's quite right.

Not in my case, but it's very good general advice.

We have essentially zero sequence of returns risk from the market.   If we stay on budget we only need to pull $10,000 (total) out of the market over the next two years.  By then our rental income will fill in the gap and we'll have a 0% SWR.   Or, we could just spend down non-stock/bond assets instead for a 0% withdrawal rate now. 

I expect to have a negative SWR rate by 2022 at the latest.  We retired about 15 months ago.

I over-engineered our FIRE.  We have a mentally handicapped daughter who can't recover from any mistake we make in setting her up financially after we pass on, so I make no apologies for doing so.

No apologies necessary. Everyone should run their own race. Congrats, you can't lose when your plan is essentially bulletproof, and I'm sure your daughter will benefit from your foresight.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 19, 2019, 07:02:40 AM
Things have been quiet on this thread lately. I just saw this today and thought I'd post it here. Anyone have any experience with this program?


https://www.yahoo.com/finance/news/costco-mortgage-program-worth-exploring-135350178.html
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 19, 2019, 07:10:27 AM
I'm officially re-joining this thread with the purchase of our new (old) home.  3.7%, 30 year note (fixed).  No desire to pay that sucker off early.  My only regret is that had we waited another 10-14 days we likely could have gotten the rate down to 3.6%.  C'est la vie
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on September 19, 2019, 07:19:03 AM
I just refinanced from 15-year to 30-year. 30-year rate is 3.5%. New payment is $865 less than the old.

Also refinanced my remaining $7k in student loans - was at 5.6%, now at 3.2%, through Earnest. Extended the payoff period to 5 years and the payment went down $100/month.

So now I can max out my wife's solo 401k to ~$33k/year (have been at about $29k last couple of years). Also have been maxing out 457 and 403b. Those are all pre-tax. Time to look further down in the investment order post!
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on September 19, 2019, 07:37:22 AM
Given the current interest rates, I've considered refinancing (I even went through the process with Navy Federal but it seems my agent sucks and won't respond to me). That being said, I think there's a not-insignificant probability I may leave this house in the not-too-distant future, which means I have a strong desire to minimize fees at the expense of a possibly higher interest rate. Has anyone gotten or is aware of companies that offer low fees in this manner*?

*If it isn't clear, rolling in fees wouldn't be helpful in this situation, even if it gives the illusion of low fees.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 19, 2019, 08:34:29 AM
Bond yields climbing this week, you guys may wind up glad you closed when you did. The talltexan family is getting quoted a 3.875 for 30-years (with no points)
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on September 19, 2019, 09:17:44 AM
Given the current interest rates, I've considered refinancing (I even went through the process with Navy Federal but it seems my agent sucks and won't respond to me). That being said, I think there's a not-insignificant probability I may leave this house in the not-too-distant future, which means I have a strong desire to minimize fees at the expense of a possibly higher interest rate. Has anyone gotten or is aware of companies that offer low fees in this manner*?

*If it isn't clear, rolling in fees wouldn't be helpful in this situation, even if it gives the illusion of low fees.

I didn't end up using them, but when I got quotes from Credible, they gave a wide array of options all along the spectrum of fees and APRs.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on September 20, 2019, 06:54:02 PM
Given the current interest rates, I've considered refinancing (I even went through the process with Navy Federal but it seems my agent sucks and won't respond to me). That being said, I think there's a not-insignificant probability I may leave this house in the not-too-distant future, which means I have a strong desire to minimize fees at the expense of a possibly higher interest rate. Has anyone gotten or is aware of companies that offer low fees in this manner*?

*If it isn't clear, rolling in fees wouldn't be helpful in this situation, even if it gives the illusion of low fees.

Depending what your current rate a Home Equity Loan is more commonly available at slightly higher rates and no (or very low) fees. My CU has a HEL at 3.95% if it's a first mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: DeedlesSci on September 23, 2019, 04:13:42 PM
Joining the club. We just took off our extra mortgage payment and are now going to devote that money to a 457 account. We are far enough down on our amortization table that we will have the mortgage paid off the same year we plan to retire. We would prefer to not have a mortgage at retirement, but want to have more of our cash flow now going to investments.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 25, 2019, 01:24:26 PM
Joining the club. We just took off our extra mortgage payment and are now going to devote that money to a 457 account. We are far enough down on our amortization table that we will have the mortgage paid off the same year we plan to retire. We would prefer to not have a mortgage at retirement, but want to have more of our cash flow now going to investments.
Welcome!
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on September 26, 2019, 06:39:03 AM
Joining the club. We just took off our extra mortgage payment and are now going to devote that money to a 457 account. We are far enough down on our amortization table that we will have the mortgage paid off the same year we plan to retire. We would prefer to not have a mortgage at retirement, but want to have more of our cash flow now going to investments.

This is the right move for most people given today's mortgage interest rates. You're getting those investments in your tax-deferred account on sale by the percentage of your combined tax bracket. So even if the stock market dropped 25% next year (assuming your combined tax bracket is close to 25%) and then continued its upward march at 10% annually, you would be breaking even at the start and then making the difference between 10% and your mortgage rate. Hard to lose on those terms.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 26, 2019, 08:14:24 AM
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 26, 2019, 08:27:20 AM
@SwordGuy That's why we've formed this group of like-minded mortgage maintainers. It's easier to trust in your logic when a group of like-minded people will help you hold the line. Why don't you share with us where you're investing the non-mortgage portion of your FI money?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 26, 2019, 08:54:23 AM
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."
The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)

If you tend to be a worrier you're always going to find something to worry about. If it's not the taxes, it's the utilities, or the insurance or the roof in winter or the HVAC in August. Having more money than you ever imagined possible eases far more worries than killing off the mortgage will.

HOWEVER, if you've already hit your number and you have enough beyond that to erase the mortgage, it's harder to justify keeping it. I get that. Paying off the mortgage isn't the worst decision, provided that you make it at the right time. In your situation, I wouldn't necessarily disagree with paying it off. Shocker, I know.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on September 26, 2019, 09:01:10 AM
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

I just don't conceptualize my mortgage as debt, I look at it as rent-control. I may choose to wipe it out by retirement, I may not, I'll decide that in the future, but at this point, I really just accept it as a housing expense, like my condo fees and property taxes. For this place, all of those monthly costs are less than rent would be, so even if I never built any equity, I would still come out way ahead.

If I were you, I would examine the emotional reasons behind why it bothers you, and why you are struggling to be okay with math you trust. There's no such thing as just being "debt-averse", there has to be some emotional basis for that aversion, so determine what that basis is and why it bothers you.

As Dicey said though, just paying it off is really no big deal if you aren't doing it at the major expense of your retirement accounts. At a certain point in the game though, it's practically irrelevant if you do or don't.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on September 26, 2019, 09:09:37 AM
I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

We should hijack that moniker:

"For today's Asset Allocation meeting, we'll discuss with SwordGuy the pros and cons of paying off his mortgage versus investing it in tax-deferred equities. Step one: Admitting that the instinct to pay off debt is a healthy one, though being able to use intellect to overcome instinct when circumstances favor debt is the path to wisdom."
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 26, 2019, 09:28:52 AM
I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

We should hijack that moniker:

"For today's Asset Allocation meeting, we'll discuss with SwordGuy the pros and cons of paying off his mortgage versus investing it in tax-deferred equities. Step one: Admitting that the instinct to pay off debt is a healthy one, though being able to use intellect to overcome instinct when circumstances favor debt is the path to wisdom."

You win the internet for today!
Title: Re: DONT Payoff your Mortgage Club
Post by: Kronsey on September 26, 2019, 09:34:14 AM

I just don't conceptualize my mortgage as debt, I look at it as rent-control. I may choose to wipe it out by retirement, I may not, I'll decide that in the future, but at this point, I really just accept it as a housing expense, like my condo fees and property taxes. For this place, all of those monthly costs are less than rent would be, so even if I never built any equity, I would still come out way ahead.

If I were you, I would examine the emotional reasons behind why it bothers you, and why you are struggling to be okay with math you trust. There's no such thing as just being "debt-averse", there has to be some emotional basis for that aversion, so determine what that basis is and why it bothers you.


Great advice. I held off on pulling the trigger on a refi in part because I think rates may still go slightly lower and in part because I couldn't decide between 10, 15, and 30 year refis. I have a small mortgage balance (around $150K) and the difference in payment wasn't huge. But one of my goals has always been to be debt free once FiREd. I've been trying to explore the reasons why I feel that way.

We had a lot of lean years when we first got married. My wife also had a good amount of student loans with nothing to show for it. I think the appeal of being "debt free" was simply my emotions trying to convince me that if times got really lean again, a lower paying job would be able to cover all our bills. ---> Therefore "debt free" was the best move. We also had some lean years growing up, and I saw the financial stress/strain that put on my parents.

I also think it has been pounded into our heads as "good financial advice". An understanding of our monetary system would lead to exactly the opposite conclusion and is what this thread is about. View your mortgage as a rent controlled place to live where you can paint the walls and fix the landscaping how you like it. The only portion of your "rent" payment that can increase is taxes and insurance. I'm trying to pound this into my head as I hope mortgages go to sub 3.5% for 30 refis here before year end.

I'm glad I've rejoined the AA meeting.

Hi, I'm Kronsey. I have illogical feelings and emotions surrounding debt...
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on September 26, 2019, 10:40:01 AM
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

Not to make light of your struggle, really, but I don't think many of us would try to talk someone that's FIRE and can pay off a mortgage in full immediately from doing it. It's the people who want to accelerate paying it off at the expense of savings that get the facepunches. Prepayments that turn a 30year into a 20 years, or a 15year into 10 years, are potentially dangerous if a family is not also saving a substantial percentage of their income.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 26, 2019, 10:53:02 AM
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."

I was thinking about this today - specifically why so many people have such a strong desire to "just have it gone" when it comes to the mortgage, regardless of the terms or other options.  Obviously I don't fall into that camp

Anyhow, I have a hypothesis that many people who "just want it gone" think this way because every month they see money leaving their account and they automatically think "if only I could put that money towards something else!" And they think this every single month with every payment.

 In a way they are discounting a previous purchase bought on credit in favor of a current (or future) one.  Analytically the problem with this is there's never the option of just not having a mortgage while not parting with a lot of money in order to not have it.  Or more simply, you have to spend money to get rid of a mortgage in order to be able to have money more money to spend on other things.  So it's circular logic of course. 

Anyway, that's my thinking...
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 26, 2019, 11:08:08 AM
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."
The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)

If you tend to be a worrier you're always going to find something to worry about. If it's not the taxes, it's the utilities, or the insurance or the roof in winter or the HVAC in August. Having more money than you ever imagined possible eases far more worries than killing off the mortgage will.

HOWEVER, if you've already hit your number and you have enough beyond that to erase the mortgage, it's harder to justify keeping it. I get that. Paying off the mortgage isn't the worst decision, provided that you make it at the right time. In your situation, I wouldn't necessarily disagree with paying it off. Shocker, I know.

Everyone has had great points, as expected!

We FIRED 17 months ago.   We have multiple sources of passive income (rental houses, rental farm land and social security) as well as our stock and bond stash.   This year we needed a 0.34% WR from our stash to cover our budgeted expenses.  Next year it will drop to 0% as the income from our last two rental houses kicks in and I go on SS.   We'll actually have a significant budget surplus not counting any RMDs or any other stock/bond withdrawals.

So there's no burning financial need to pay it off early before I retire or to lower our WR to a safe level.  But there's also no burning financial need to amass more wealth either.

We used to be very poor and it was sometimes a real struggle to have the cash to pay bills when we needed it.   That was decades ago but some things stick with you. 

The other thing is that stocks are, in some ways, just funny money, not real money.   It's this abstract thing I buy and hold and do very little with otherwise.    But writing that mortgage check is very real, each and every month.   I know that's silly but feelings are what they are.

Part of it is that I've felt constrained with our current budget the last year because we've had a lot of one-off or occasional expenses all showing up (broken leg, injured ankle and knee, wife and I got really sick, replaced my 19 year old car, etc.     So that mortgage check coming out of our checkbook each month was even more noticeable.  I would have cash-flowed more of tthat rather than draw down on savings. 

Staying the course and paying the minimum pays off the mortgage in 11 years and 10 months.

Putting our budget surplus to work on it pays it off in 4 years.

Putting our budget surplus and the RMDs on it pays it off in 2 1/2 years.

Actually making a 4% stash withdrawal two years in a row (as opposed to 0% otherwise) plus the budget surplus pays it off in 14 payments.  That would only be done if stocks stayed at or above their current levels.

And if stocks went on sale at 30% off, I would be buying stocks instead of paying off the mortgage early, with no qualms whatsoever!
 





 

   
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on September 26, 2019, 01:38:20 PM
I know all the math but I'm struggling with not paying off my mortgage early.  It just bugs me to have it.    I've managed not to pay it off in full three times in the last three years, when various events brought in enough cash to do it with.     But it's getting harder each time. 

I feel like I'm at an AA meeting,

"Hi, I'm SwordGuy and I'm debt averse."
The biggest problem with prepaying a mortgage is when people do it at the expense of other saving/investing. Not getting your employer's match on your 401k? Not maxing out every tax-deferred option you qualify for? Have a low, fixed rate on an affordable house? Don't have a fat EF to see you through should the shit hit the fan? Then you have no business prepaying the mortgage, much less crowing about it on a site dedicated to optimizing every single green soldier in order to reach FI and retire early. (I know you don't do this, SG, but those threads are far more active than this one, which is a shame, IMO.)

If you tend to be a worrier you're always going to find something to worry about. If it's not the taxes, it's the utilities, or the insurance or the roof in winter or the HVAC in August. Having more money than you ever imagined possible eases far more worries than killing off the mortgage will.

HOWEVER, if you've already hit your number and you have enough beyond that to erase the mortgage, it's harder to justify keeping it. I get that. Paying off the mortgage isn't the worst decision, provided that you make it at the right time. In your situation, I wouldn't necessarily disagree with paying it off. Shocker, I know.

Everyone has had great points, as expected!

We FIRED 17 months ago.   We have multiple sources of passive income (rental houses, rental farm land and social security) as well as our stock and bond stash.   This year we needed a 0.34% WR from our stash to cover our budgeted expenses.  Next year it will drop to 0% as the income from our last two rental houses kicks in and I go on SS.   We'll actually have a significant budget surplus not counting any RMDs or any other stock/bond withdrawals.

So there's no burning financial need to pay it off early before I retire or to lower our WR to a safe level.  But there's also no burning financial need to amass more wealth either.

We used to be very poor and it was sometimes a real struggle to have the cash to pay bills when we needed it.   That was decades ago but some things stick with you. 

The other thing is that stocks are, in some ways, just funny money, not real money.   It's this abstract thing I buy and hold and do very little with otherwise.    But writing that mortgage check is very real, each and every month.   I know that's silly but feelings are what they are.

Part of it is that I've felt constrained with our current budget the last year because we've had a lot of one-off or occasional expenses all showing up (broken leg, injured ankle and knee, wife and I got really sick, replaced my 19 year old car, etc.     So that mortgage check coming out of our checkbook each month was even more noticeable.  I would have cash-flowed more of tthat rather than draw down on savings. 

Staying the course and paying the minimum pays off the mortgage in 11 years and 10 months.

Putting our budget surplus to work on it pays it off in 4 years.

Putting our budget surplus and the RMDs on it pays it off in 2 1/2 years.

Actually making a 4% stash withdrawal two years in a row (as opposed to 0% otherwise) plus the budget surplus pays it off in 14 payments.  That would only be done if stocks stayed at or above their current levels.

And if stocks went on sale at 30% off, I would be buying stocks instead of paying off the mortgage early, with no qualms whatsoever!

Then stop over thinking it and do whatever you want.

I was going to ask if your monthly mortgage payment amount is enough to crunch your cash flow in tough times, and it sounds like it is. This can really motivate the urge to be rid of it. See, our mortgage payment is only about 5% of our after tax income, so we don't even really notice it. My income is variable and it varies per month more than our mortgage.

Your issue is that although the math favours investing, you would probably rather gnaw your own arm off rather than cash in some of those investments in tough times if it came to that, hence why paying off the mortgage *feels* like such a better option, because not paying it off, if the payment is large enough, could necessitate actually using some of your capital....*GASP*!!!

It's not silly to give credence to the feelings behind your financial motivations, in fact, it's critical to understand and respect your own feelings, because ALL financial decisions are just feelings. Sure, there's math and numbers behind them, but what those number represent are feeeeeeeelings.
Disregard them at your own peril.

Examine those feelings, look rationally at the options available to you to manage those feelings, and move confidently forward with a plan that actually fits your personal goals and risk tolerances.

The DPOYM club is all about feelings, we are all about respecting that feeling that paying off the mortgage would be nice, and we do our best to quantify what that feeling is worth, and then compare it to the computed cost of that transaction and decide if the trade off is worth it.

We don't choose this path because the numbers are better for investing, we choose this path because the particular numbers in our particular cases, combined with the increased risk isn't worth the value that the nice feeling would give us.
That's what we harp on over and over, is really looking at the feelings involved and deciding if they're worth it.

If they're worth it for you, then cool, they're worth it for you. Go nuts.
If they aren't...then what is fueling the dissonance, because that means you are somehow in conflict with your own motivations and risk tolerances, and that's actually a serious issue that you should internally address, because that means your compass is fucked up.
Title: Re: DONT Payoff your Mortgage Club
Post by: BlueHouse on September 26, 2019, 01:49:45 PM
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!



This is....not true.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 26, 2019, 02:37:17 PM

I was going to ask if your monthly mortgage payment amount is enough to crunch your cash flow in tough times, and it sounds like it is. This can really motivate the urge to be rid of it. See, our mortgage payment is only about 5% of our after tax income, so we don't even really notice it. My income is variable and it varies per month more than our mortgage.

The P&I component of the mortgage is 19.5% of our budgeted expenses of $75k.   The full PITA is 30%.

Compared to our income, if we use a 0% SWR, those percentages would be 15.6% and 23.9% respectively.

If I actually took a 4% SWR, it would be 9.4% or 14.5% respectively.   

Your issue is that although the math favours investing, you would probably rather gnaw your own arm off rather than cash in some of those investments in tough times if it came to that, hence why paying off the mortgage *feels* like such a better option, because not paying it off, if the payment is large enough, could necessitate actually using some of your capital....*GASP*!!!

I think you are right.   Really right.

If they aren't...then what is fueling the dissonance, because that means you are somehow in conflict with your own motivations and risk tolerances, and that's actually a serious issue that you should internally address, because that means your compass is fucked up.

I think it really is the emotional dissonance over pulling things out of capital.   All my life that's been a big no-no unless I had to or it was for an investment.

It really bothered me to see the cash reserve going down even though that's its purpose.    The last 6 years we were working we had our expenses so low compared to our income that we could cashflow darn near anything we would be likely to do.  If one month's surplus income wouldn't handle it the next month's surely would.   Because our income is artificially low because we're not taking out the 4%, it feels like our financial position isn't as secure.    And that's what's driving this unease.

Thank you all very much!   It's nice to be able to talk this thru with people who understand the situation and the options.

Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on September 26, 2019, 04:51:23 PM
Someone here recommended this book:

Debt 1st 5,000 Years (https://smile.amazon.com/Debt-Updated-Expanded-First-Years-ebook/dp/B00Q1HZMCW/ref=sr_1_1?crid=1IPVTW1OJAA59&keywords=debt+first+5000+years&qid=1569534081&sprefix=debt+fir%2Caps%2C189&sr=8-1)

I don't want to get into it too much, but the author talks quite a bit about the philosophy of debt, and how much of our society, even common words refer or relate to debt.  For example the word redemption:

mid-14c., "deliverance from sin," from Old French redemcion (12c.) and directly from Latin redemptionem (nominative redemptio) "a buying back, releasing, ransoming" (also "bribery"), noun of action from past participle stem of redimere "to redeem, buy back,"

In other words, being delivered from sin is essentially equal to not being in debt.  At least literally.  Many other words in English and other languages follow the same pattern. 

I think it is normal, human desire to not want to be in debt. In the POYM board, many people say it makes them feel better to pay off the mortgage.  I believe them,and even agree with them to a certain extent.   But not everything that feels good, is good.   I do agree though, with Dicey's comment that once you get everything else squared away it is probably fine.   The flipside though, is that once you get everything else squared away, you portfolio will be so large you won't need to or really even care.  That's where I am.   I'd rather be writing checks to myself than the bank at this point.  When I was staring down the barrel of 30 years of mortgage payments I felt differently. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 26, 2019, 06:12:56 PM
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!


This is....not true.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on September 27, 2019, 10:37:28 AM
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!


This is....not true.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on September 27, 2019, 10:41:22 AM
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!


This is....not true.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.

Really? Consider this my monthly contribution to boost the page count. As if page count relates somehow to credibility.

(still sitting here quietly paying off my mortgage as slowly as possible and not regretting it)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 27, 2019, 10:59:43 AM
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!


This is....not true.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.
I never even open that thread any more. Much as I think it's nuts to promote such a one-sided perspective, I was asked to leave it alone and I have. I find it hilarious that someone over there is paying attention to our page count. It does give me hope. Thanks for sharing that, @DadJokes.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on September 27, 2019, 11:08:28 AM
#doitforthepagecount

Sent from my moto g(6) using Tapatalk

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 27, 2019, 11:16:28 AM
Looking forward to another minimum payment in four days.

post_count++;
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on September 27, 2019, 11:54:01 AM
I'm OK with asking us not to rain on the parade of people who are celebrating achieving a worthy (though sub-optimal) goal. I was less OK with @FrugalToque intervention as a moderator in another recent thread:

Dicey may have been a bit harsh in her tone, but you're the one who brought up the subject in a way that implied that your method was optimal.

[MOD NOTE:  No, the OP didn't.  The OP was criticising the ignorant "mortgage-hold" people in his circle of friends who blew their money.  The OP did not criticise the "mortgage-holders" in general or either of you in particular.  And while this isn't a journal entry, you've made your point and we can let it be from here on.

Thank you.]

People who will go to their grave telling me that it's mathematically stupid to pay off my mortgage
His words sound like implication that it's optimal to pay off the mortgage to me. I agree that the point has been made. I don't think anything in any of my posts comes off as an attack on the OP. I agree that nothing he posted was an attack on me or Dicey.

Ok, I took the incorrect path to FIRE and if I had optimized I could have accomplished this 1-2 years earlier. Cool. I'm not going to lose much sleep over it.

Your time might be better spent educating those who are not already FIRE.
You cruised to FIRE so fast that I'm sure it wasn't a big difference (probably no more than a year). For those of us like Dicey (past) and I (present) working towards FIRE on more modest income, the difference can be quite a bit larger.

Not everyone who reads this thread has reached FIRE.
Title: Re: DONT Payoff your Mortgage Club
Post by: REatc on September 27, 2019, 12:02:48 PM
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? I’m asking since I we have a pretty high interest rate by today’s standards, looked into refinancing and it’ll be 4 years to break even. We will be moving in 4ish years.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 27, 2019, 12:25:03 PM
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? I’m asking since I we have a pretty high interest rate by today’s standards, looked into refinancing and it’ll be 4 years to break even. We will be moving in 4ish years.

I follow the Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153)

Based on the current 10-year treasury note yield at 4.688% and above I will pay down a loan instead of investing in a taxable brokerage account. At 6.688% and above I will forgo even investing in tax-advantaged accounts to pay extra on the loan.
Title: Re: DONT Payoff your Mortgage Club
Post by: DeniseNJ on September 27, 2019, 01:33:31 PM
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? I’m asking since I we have a pretty high interest rate by today’s standards, looked into refinancing and it’ll be 4 years to break even. We will be moving in 4ish years.

I follow the Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153)

Based on the current 10-year treasury note yield at 4.688% and above I will pay down a loan instead of investing in a taxable brokerage account. At 6.688% and above I will forgo even investing in tax-advantaged accounts to pay extra on the loan.
Living in Mississippi this might not matter, but in NJ you may also cosider the effect of state taxes only being federally tax deductible to 10K.  My income tax and property tax are well over that amount but if I can only deduct to 10K, then my interest isn't going to be deductable, so I'm still getting the same 24K deduction that I would get without the house.  Might not be a huge effect but that used to be a selling point, that the interest was tax deductible and now basically it's not.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 27, 2019, 02:02:32 PM
I am pretty sure we have been deducting some mortgage interest on our state taxes here. It's just not a consequential amount. Our interest rate (3.125%) is much lower the the above mentioned thresholds so I don't even really think about it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 27, 2019, 02:17:04 PM
I'm OK with asking us not to rain on the parade of people who are celebrating achieving a worthy (though sub-optimal) goal. I was less OK with @FrugalToque intervention as a moderator in another recent thread:

Dicey may have been a bit harsh in her tone, but you're the one who brought up the subject in a way that implied that your method was optimal.

[MOD NOTE:  No, the OP didn't.  The OP was criticising the ignorant "mortgage-hold" people in his circle of friends who blew their money.  The OP did not criticise the "mortgage-holders" in general or either of you in particular.  And while this isn't a journal entry, you've made your point and we can let it be from here on.

Thank you.]

People who will go to their grave telling me that it's mathematically stupid to pay off my mortgage
His words sound like implication that it's optimal to pay off the mortgage to me. I agree that the point has been made. I don't think anything in any of my posts comes off as an attack on the OP. I agree that nothing he posted was an attack on me or Dicey.

Ok, I took the incorrect path to FIRE and if I had optimized I could have accomplished this 1-2 years earlier. Cool. I'm not going to lose much sleep over it.

Your time might be better spent educating those who are not already FIRE.
You cruised to FIRE so fast that I'm sure it wasn't a big difference (probably no more than a year). For those of us like Dicey (past) and I (present) working towards FIRE on more modest income, the difference can be quite a bit larger.

Not everyone who reads this thread has reached FIRE.
I find the mods to be mostly pretty damn remarkable. This time, I didn't fully agree with FT's interpretation of what FD said, but I didn't think FD was worth any additional effort on my part, so I deliberately avoided further comment. Haters gonna hate. I'd rather help people that are interested in learning.

While I was out in the world since commenting earlier, I was thinking about that page count factoid. Given that we started this thread well  after that one, I guess it's safe to say we're gaining on 'em!
Title: Re: DONT Payoff your Mortgage Club
Post by: dreadmoose on September 27, 2019, 03:00:29 PM
Just checking in to show support for the club. Another couple dozen minimum bi-weekly payments have come and gone.

If anything I'm leaning harder into selling the house to get the rest of the equity back into the market. Renting what I need has tipped into cheaper than owning for now.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on September 27, 2019, 05:30:16 PM
You realize that's pretty much how this thread got started? Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!


This is....not true.
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.

And to think that, in the other thread, someone recently complained that we had almost caught up to them in page count.

Oh, noes!
Title: Re: DONT Payoff your Mortgage Club
Post by: BlueHouse on September 27, 2019, 06:00:14 PM
Alas, 'tis completely true. I still have the messages. I suggested B42 start this thread when we were asked to bug off the other one. I still don't get it, but I respect the mods' request. And look how robust this thread has become, even if the late, great B42 is no longer with us.
You misunderstood me. 
Quote
Believe it or not, there is actually another thread where discussion is not allowed. Posters may only encourage each other's potentially sub-optimal decisions. Anyone who suggested they do the math first was firmly ejected. Imagine that!
THIS part is NOT true.  Discussion was always allowed and encouraged.  All perspectives had been thrashed about thoroughly. 
To go on about how other people behaved, when it's just not true is really frustrating.  No one was ever asked to leave because of their opinion.  You were asked to leave because you would not accept anyone else's opinion and you would not stop arguing your perspective.  It was downright rude.  And now you re-frame the issue.  It was never about the math.  It was about respecting other people's choices.   
Yes, I think you have behaved badly and I think you still behave terribly every time you misrepresent what happened.  Respect that other people have reasons for making the choices they make, and then you'll have no quarrel from me. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on September 27, 2019, 06:27:23 PM
Sounds like a lot of reframing from BlueHouse here...
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 27, 2019, 06:50:39 PM
Just read some/most of this thread. Amazing content. I do have a question or two, to the devote DPOYM followers.
At what interest rate today would you pay off your mortgage early or as fast as possible? There has to be a number right? I’m asking since I we have a pretty high interest rate by today’s standards, looked into refinancing and it’ll be 4 years to break even. We will be moving in 4ish years.

In general I follow the Investment Order.
However, it's important to note that mortgage rates don't operate in a vacuum.  In the early 1980s 30y mortgages could be 10% or even higher.  So you'd think it would be a no brainer to pay that off ASAP, right?  well coinciding with those astronomically high rates were bonds that were returning 12-15%. 

Point is you need to look at the whole macroeconomic picture.  One reason why the Investment Order doesn't give an absolute %, but is tied to the 10year treasury note.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 30, 2019, 01:01:30 PM
This would require a major sell off in long-term bonds, but I wouldn't mind buying a bond with a higher yield than the mortgage in lieu of paying off the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: BlueHouse on September 30, 2019, 02:26:59 PM
Sounds like a lot of reframing from BlueHouse here...

LOL.  Love the pun. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 30, 2019, 03:04:05 PM
This would require a major sell off in long-term bonds, but I wouldn't mind buying a bond with a higher yield than the mortgage in lieu of paying off the mortgage.

As would I.  It's all conjecture what the future holds, but 10y treasury yields were above 5% in the early 2000s and in the mid 3.x% as early as last year.  If 30 years is our timeframe, we've had rates as high as 8%.  Maybe we'll never go above 4% again, but I suspect we will again, and soon.  At which point the tax savings plus additional yield will far outstrip my 3.7% mortgage, and with even less risk.

It's hard to go backwards with a mortgage.  You can't unpay an overpayment, and while you can use a ReFi or HELOC, with fees and higher rates its rarely as good.  Prepaying your mortgage isn't just about the current enviornment, but about likely future environments.  It's hard for me to envision a scenario at our current sub 4% mortgage rates where it makes financial sense.
Title: Re: DONT Payoff your Mortgage Club
Post by: REatc on September 30, 2019, 08:31:45 PM
What do you guys think about 5.125%? That’s what mine is, which is more than the 10yr treasury+3%. And interestingly enough, the other day when I threw some cash into VTSAX I looked at my return so far, it was 5.1%.

Maybe a hedge strategy for a while?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 30, 2019, 08:39:47 PM
What do you guys think about 5.125%? That’s what mine is, which is more than the 10yr treasury+3%. And interestingly enough, the other day when I threw some cash into VTSAX I looked at my return so far, it was 5.1%.

Maybe a hedge strategy for a while?

Can you refinance? If not then you should max your tax-advantaged space first then pay extra on the mortgage with anything left over.
Title: Re: DONT Payoff your Mortgage Club
Post by: REatc on October 01, 2019, 06:22:42 AM
We looked into refinancing, not worth it. It’ll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but I’m leaning towards POYM at the 5.125% rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 01, 2019, 09:42:38 AM
What do you guys think about 5.125%? That’s what mine is, which is more than the 10yr treasury+3%. And interestingly enough, the other day when I threw some cash into VTSAX I looked at my return so far, it was 5.1%.

Maybe a hedge strategy for a while?
We looked into refinancing, not worth it. It’ll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but I’m leaning towards POYM at the 5.125% rate.

One major factor is whether you have available tax-advantaged 'head-space,' and what your current tax bracket is.  If you are not maxing out your IRA/401(k)/HSA, that greatly tilts the equation towards funding those first before paying off a mortgage, even at 5.125%.  Put another way, the savings on your tax bill (and the tax-free growth) will eclipse the interest you pay on your loan.

If you have no additional tax-advantaged space you fall into the "in-between" gap.  I certainly expect >3.5% real returns on my money over decade+ timescales (which is about what your rate will be minus current inflation).   
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on October 01, 2019, 08:29:21 PM
We looked into refinancing, not worth it. It’ll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but I’m leaning towards POYM at the 5.125% rate.
Having readily available cash made the move to this house so much less stressful than what I see other people go through (including my co-worker currently) - we just bought the new house, put down 10%, did a 10% second mortgage/80% conventional, moved everything, got the other house ready to sell (mostly painting, replaced the remaining original outlets, plus new bedroom carpets). Once it sold, we paid off the second mortgage.

Sure the rate on the second was "high" - but we didn't have it long.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 02, 2019, 09:08:47 AM
We looked into refinancing, not worth it. It’ll take 4 years to break even, and we will be moving in 4 years. I was surprised about that. We could shop around for a better rate, but I’m leaning towards POYM at the 5.125% rate.
Having readily available cash made the move to this house so much less stressful than what I see other people go through (including my co-worker currently) - we just bought the new house, put down 10%, did a 10% second mortgage/80% conventional, moved everything, got the other house ready to sell (mostly painting, replaced the remaining original outlets, plus new bedroom carpets). Once it sold, we paid off the second mortgage.

Sure the rate on the second was "high" - but we didn't have it long.

This is what we're doing. I'm so relieved to not be living in a house with kids and an animal and having to prep for showings.
Title: Re: DONT Payoff your Mortgage Club
Post by: sisto on October 02, 2019, 09:34:53 AM
I have learned so much from this turnover the years. Unfortunately I found out about this thread right after refinancing into a 15 year loan. My rate was 3.25 on a VA loan so bad to stay that course for a while. By staying up on topics around the forum I saw some good advice and good rates. I'm about to close on a refi VA streamline at 2.75 which will drop my payment in half. Originally I was in the camp of I need my house paid off to have less money going out. The math proved that the 30 year is better. I am on track to Fire in 2021 and will do it with the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on October 04, 2019, 09:38:50 AM
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on October 04, 2019, 09:51:39 PM
I just wanted to say "Thanks!!!" again.   It's been a week since you all chipped in with some good advice and I'm really feeling mellow about the whole topic.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 07, 2019, 09:21:41 AM
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

These numbers don't sound like US numbers?
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on October 07, 2019, 09:39:47 AM
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

These numbers don't sound like US numbers?

No, they are swedish.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 07, 2019, 11:10:07 AM
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

These numbers don't sound like US numbers?

No, they are swedish.


I have not encountered a 40-year mortgage before.  When living in Canada we had a 25year - which is typical for that country.

If I had your loan I would love it like a cute kitten.  Someone (the bank) gave you a crap-ton of money and wants very little in return.
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on October 07, 2019, 11:27:18 AM
It is interesting to see the difference in rates. I have signed a 40 year mortgage for my new apartment with a variable interestrate of 1,59 % and 30 % of the interest is tax deductible. I hate the loan but it does not make sense mathwise to pay the loan faster with the current rates. I have put a 20 % downpayment.

These numbers don't sound like US numbers?

No, they are swedish.


I have not encountered a 40-year mortgage before.  When living in Canada we had a 25year - which is typical for that country.

If I had your loan I would love it like a cute kitten.  Someone (the bank) gave you a crap-ton of money and wants very little in return.

If you count the amount I am paying it off every month it should be a 50 year mortgage. After you pay it down to 50 % of the value of the apartment you can stop the paydown and only pay the interest. People see the mortgage more like a rent here. It is not something most of the people pay off.

Today the rate is so low you can’t really justify to pay it off so I just have to live with it. It is like my government subsidized studentloan with an interestrate of 0,16 %. Annoying but no point to pay off faster.

Title: Re: DONT Payoff your Mortgage Club
Post by: FIRE@50 on October 07, 2019, 01:13:44 PM
Plina, how often will the rate reset? How much is it allowed to move at each reset date? Is there an overall cap rate?
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on October 08, 2019, 10:02:33 AM
Plina, how often will the rate reset? How much is it allowed to move at each reset date? Is there an overall cap rate?

You can choose the time period that you want to have the rate for up to 10 years. I have chosen what we call a variable rate so the rate is determined every three months. I can always fix the rate for the whole loan or parts of the loan for a certain timeperiod. There is no cap rate but the rate is depending on the interestrate set by our central bank. You can see my current options below. I think it has changed once during the last couple years up 0,25 % but mostly it has gone down since I bought my first apartment. Because the interest rate is pretty much the same from 3 months up to 5 years I see now point in fixing it because if you sell your apartment you have to pay interest for the remaining period in a fixed rate. If the interestrates started to increase then I would probably consider fixing at least a part of the loans.

3 months - 1.64%
1 year -      1.59%
2 years - 1.54%
3 year -1.54%
4 year -1.59%
5 years -1.64%
7 Years - 1.89%
10 year - 2.29%
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on October 08, 2019, 10:43:35 AM
At the request of @talltexan https://forum.mrmoneymustache.com/welcome-to-the-forum/pay-off-3-38-mortgage-on-reduced-income-(not-fire-yet)/ (https://forum.mrmoneymustache.com/welcome-to-the-forum/pay-off-3-38-mortgage-on-reduced-income-(not-fire-yet)/) I'm posting in this thread.

We had been throwing extra $ at our 4.125% 30-year fixed mortgage but refinanced in May to a 10-year ARM with a 3.375% rate.  We may recast but I don't plan to throw more at it due to reduced income. 

I've compared average 30-year mortgage rates with 10 year annualized S&P returns based on starting year.  Based on that, since 1990 the only time you would have been better off paying off a mortgage early, or paying cash for a house, is between 1999 and 2002, and it's a wash between 2003 and 2008.  One could compare 30 year returns, but most people don't stay in their homes for 30 years anymore.   

On the recasting note, it makes zero sense if you've been accelerating principal on your existing mortgage and are a few years into it.  It makes more sense if you're only a year or two in and haven't been paying it down IMHO. 

Historical S&P Returns: https://fourpillarfreedom.com/heres-how-the-sp-500-has-performed-since-1928/
30-year Fixed Rates since 1971: http://www.freddiemac.com/pmms/pmms30.html
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 08, 2019, 11:19:38 AM
Glad to have you, @Mako52 !

I think you'll really enjoy paying that nice, lower rate. I think in the other discussion thread I recall that your loan balance was still over $450,000, so you should be saving $4k a year in interest costs, going forward.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 08, 2019, 11:21:27 AM
On the recasting note, it makes zero sense if you've been accelerating principal on your existing mortgage and are a few years into it.  It makes more sense if you're only a year or two in and haven't been paying it down IMHO.

Did you mean refinancing instead of recasting?  The benefit of the recast (amortizing a reduced principal over the remaining term, resulting in lower monthly P&I) is proportional to the amount you've paid down the principal ahead of the original amortization schedule.  For someone who has paid down the principal aggressively and/or over several years or more, recasting could reduce the monthly P&I payment to a small fraction of the original amount.

If you haven't paid extra toward the principal, then recasting is a null operation no matter how long you've had your mortgage.  In fact the mortgage company won't let you recast unless you have paid extra, since it's pointless.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on October 08, 2019, 11:40:31 AM
On the recasting note, it makes zero sense if you've been accelerating principal on your existing mortgage and are a few years into it.  It makes more sense if you're only a year or two in and haven't been paying it down IMHO.

Did you mean refinancing instead of recasting?  The benefit of the recast (amortizing a reduced principal over the remaining term, resulting in lower monthly P&I) is proportional to the amount you've paid down the principal ahead of the original amortization schedule.  For someone who has paid down the principal aggressively and/or over several years or more, recasting could reduce the monthly P&I payment to a small fraction of the original amount.

If you haven't paid extra toward the principal, then recasting is a null operation no matter how long you've had your mortgage.  In fact the mortgage company won't let you recast unless you have paid extra, since it's pointless.

i agree BIH.

we did a recast a few months ago after a LS payment of $190k on a $320k balance. rate 3.375% on 30yr loan. cut off $950/mo in P&I.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on October 08, 2019, 12:21:51 PM
@Bird In Hand - we looked at recasting the 4.125% last year and it made no sense for us.  7 years into the 30 year mortgage our payment term had been cut from 360 months to 315 months due to extra principal payments over those 7 years.  If we had recast, it would have taken us out to our original loan payoff date in 2042 instead of the year 2038 we were on track for.  That's probably why Wells Fargo sent a "consider this option very carefully" letter.....but didn't explain why. 

As an example, if we had recast with $25,000 on the $450,000(ish) loan value, at our desired move date in 2028, even though we would have saved $48k in payments between 2019 and 2028 due to a reduced monthly payment, our mortgage balance would have been $25k higher in 2028.  The mortgage balance is higher because you're paying a smaller monthly amount, AND it seems the principal/interest ratio is adjusted in the lender's favor because the recast extends the loan back to the loan's original payoff date. 

If I didn't analyze this correctly, please let me know.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on October 08, 2019, 12:45:39 PM
@Bird In Hand - we looked at recasting the 4.125% last year and it made no sense for us.  7 years into the 30 year mortgage our payment term had been cut from 360 months to 315 months due to extra principal payments over those 7 years.  If we had recast, it would have taken us out to our original loan payoff date in 2042 instead of the year 2038 we were on track for.  That's probably why Wells Fargo sent a "consider this option very carefully" letter.....but didn't explain why.

That makes perfect sense: your early principal payments over the first 7 years had shifted the effective payoff date to almost 4 years earlier, from ~2042 up to ~2038.  The recast would have amortized the remaining principal over the remainder of the original term -- 2019 out through 2042.  So from your perspective it appeared that you were going backwards...adding 4 more years onto the loan.  But really it was those 4 years (or the early principal payments that resulted in shaving 4 years off the original loan, depending on how you look at it) that allowed the recast P&I to be smaller than your original P&I.

From my point of view, you exchanged your low-rate (4.125% is pretty darn good) 30 year term for a slightly-better-rate 10 year term.  The true DPYM play would have probably been to recast your mortgage and pay the minimum out through 2042, or refinance (preferably cash-out) to a new 30 year term at < 4.125%.  But don't sweat it -- I'm sure the DPYMC will still accept you here if you keep that 3.375% 10 year ARM and don't pay any more additional principal.  :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on October 08, 2019, 12:55:37 PM
Thanks.  All I know is that it gives us $800 a month over the next 9 years to (1) improve cash flow, (2) invest elsewhere with hopefully a better RoI than 3.38%.  I'm aware that this refi will increase our mortgage balance in 2028 compared to the prior mortgage, and I'm not too concerned about giving up the post-2029 borrowing rate security because we both want to be out of the house and area and on a beach somewhere by then. 

Again, we haven't planned on staying in the house beyond 2038 or 2042 so we never would have paid off the original loan anyway :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 08, 2019, 03:34:25 PM
Thanks.  All I know is that it gives us $800 a month over the next 9 years to (1) improve cash flow, (2) invest elsewhere with hopefully a better RoI than 3.38%.  I'm aware that this refi will increase our mortgage balance in 2028 compared to the prior mortgage, and I'm not too concerned about giving up the post-2029 borrowing rate security because we both want to be out of the house and area and on a beach somewhere by then. 

Again, we haven't planned on staying in the house beyond 2038 or 2042 so we never would have paid off the original loan anyway :-)
Works for me! In fact, anything works for me as long as you 've done the math and have a plan. Ding, ding, we have a winner! Welcome aboard the good ship DPOYM, Mako52.
Title: Re: DONT Payoff your Mortgage Club
Post by: mustardstew on October 09, 2019, 03:55:26 PM
Been reading this thread with interest (HA!)... I'm totally sold on not paying down early, at the expense of paying off other debts and investing...

 I finally signed to refinance into a 30-year 3.125% VA IRRRL. I had a good loan anyway (3.75%), but lowered my payment $100!  I'll gladly pay $720/mo for housing in the Triangle! This payment is prolly $250+ below what I'd pay for rent in my house .  I will need some SERIOUS incentive to move.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 10, 2019, 08:07:06 AM
Don't compare your payment to imputed rent.

Compare the interest portion of your payment to imputed rent. Principal stays yours.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 10, 2019, 08:40:38 AM
Don't compare your payment to imputed rent.

Compare the interest portion of your payment to imputed rent. Principal stays yours.

I'd say compare interest & taxes plus maintenance to imputed rent.  Still a much more honest comparison than mortgage to imputed rent.
Title: Re: DONT Payoff your Mortgage Club
Post by: DeniseNJ on October 10, 2019, 02:19:00 PM
Don't compare your payment to imputed rent.

Compare the interest portion of your payment to imputed rent. Principal stays yours.

I'd say compare interest & taxes plus maintenance to imputed rent.  Still a much more honest comparison than mortgage to imputed rent.
You also have to consider the interest the principle would be earning if it wasn't in your house but in a financial instrument.  But maybe that's canceled out by equity build up?
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 18, 2019, 11:50:53 AM
About to correct one of the largest financial mistakes I've made this week. We're moved back into our paid-off house, and we're doing a cash-out refinance.

Has me thinking - there will be about $3,000 in costs associated with the refinance. How do you factor that in to the decision to refinance. Right now, for us, it is a no-brainer. But in 5-10 years, maybe we'll have another $50K - $100K of equity we could pull out. Easy to figure based on an interest-rate savings, but what if the interest rate is the same or has even gone up a bit?
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on October 18, 2019, 12:03:54 PM
Interest-only loan?

Or just wash, rinse, repeat. We cash out refinanced in 2015, I actually immediately regretted it a little, as the markets had a small slide and the portion that we had invested (about 1/3 of the cash out, the other 2/3 paid off student loans) didn't recover value until nearly 18 months later. But now looking back, that period is a pretty small blip, and I've started to feel the itch to do it again.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 18, 2019, 12:28:58 PM
Interest-only loan?

Or just wash, rinse, repeat. We cash out refinanced in 2015, I actually immediately regretted it a little, as the markets had a small slide and the portion that we had invested (about 1/3 of the cash out, the other 2/3 paid off student loans) didn't recover value until nearly 18 months later. But now looking back, that period is a pretty small blip, and I've started to feel the itch to do it again.
Wash, rinse repeat - it is a 30 year. Not at the level of doing a 5 or 10 year arm.
Title: Re: DONT Payoff your Mortgage Club
Post by: Car Jack on October 18, 2019, 12:53:33 PM

In general I follow the Investment Order.
However, it's important to note that mortgage rates don't operate in a vacuum.  In the early 1980s 30y mortgages could be 10% or even higher.  So you'd think it would be a no brainer to pay that off ASAP, right?  well coinciding with those astronomically high rates were bonds that were returning 12-15%. 

Point is you need to look at the whole macroeconomic picture.  One reason why the Investment Order doesn't give an absolute %, but is tied to the 10year treasury note.

When we bought our house in 1985, we got an adjustable rate mortgage for 13.8%.  We left for a couple years for grad school, renting out that house and bought another nearby the grad school.  While there, I had extra money since my employer was paying full boat at the school plus my salary.  I took out a 6 month CD at 10% for $10k.  I might have taken out 2....can't remember.  After returning, we sold that first house, plus sold the one near the grad school and bought our current house as the economy was going in the toilet.  We took a fixed 30 year at about 10% (1992).  We refi'd maybe 3 times with zero cost refi's. 

So while mortgage rates were high, so were rates of returns on savings.

None of this reflects on whether to pay off a mortgage or not.  (Sorry...I paid mine off in 2002).  Having money to pay or invest is fairly unusual.  Not blowing everything is somewhat unusual.  Both sides of this mortgage payoff question are way ahead of most people, who save nothing.
Title: Re: DONT Payoff your Mortgage Club
Post by: DanceIntoTheFIRE on October 20, 2019, 10:31:16 PM
I'm sure this post is on one of the prior 37 pages, but I may want to lock in a rate before I have a chance to read them all. I'd be grateful for a pointer to the appropriate posts.

What is the outlook of 15 v 30 after FIRE? I will likely quit megacorp next year and do odd jobs for a few years. I wouldn't be saving the difference, rather I wouldn't be withdrawing the difference.

options:
(1) stay in 2.9% mortgage for another 12 years
(2) refi to 3.7% 30 year, reducing monthly cash required by $1000

My spreadsheet seems too simple to be accurate.
* start with 250k
* either pay 30k/year for 12 years and end with 0 or pay 18k per year for 30 years and end up with ~80k based on 7%.

Am I oversimplifying? A lower withdrawl in the first 12 years will reduce SORR, is that right?

Thanks for helping this newb! I've been all about the saving and am just now looking at optimizing cash flow and withdrawl strategies.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on October 21, 2019, 09:03:06 AM
What is the outlook of 15 v 30 after FIRE? I will likely quit megacorp next year and do odd jobs for a few years. I wouldn't be saving the difference, rather I wouldn't be withdrawing the difference.
Many people prefer to remove the mortgage from the SORR altogether by paying it off altogether at FIRE. If you've reached FIRE, then it shouldn't matter that you could accumulate more by carrying a low interest mortgage; you already have enough. Also if you do get hit with a poor sequence of returns, you can leverage your equity as part of the plan to build your portfolio back up.

On the other hand, if your FIRE budget is close to bare bones (or you just can't help yourself from optimizing the size of the pile of wealth you leave when you die) then it might make sense to carry a mortgage in FIRE. I'd likely keep looking at 30 year mortgages in this case.
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on October 21, 2019, 09:04:05 AM
I'm sure this post is on one of the prior 37 pages, but I may want to lock in a rate before I have a chance to read them all. I'd be grateful for a pointer to the appropriate posts.

What is the outlook of 15 v 30 after FIRE? I will likely quit megacorp next year and do odd jobs for a few years. I wouldn't be saving the difference, rather I wouldn't be withdrawing the difference.

options:
(1) stay in 2.9% mortgage for another 12 years
(2) refi to 3.7% 30 year, reducing monthly cash required by $800

My spreadsheet seems too simple to be accurate.
* start with 250k
* either pay 30k/year for 12 years and end with 0 or pay 18k per year for 30 years and end up with ~80k based on 7%.

Am I oversimplifying? A lower withdrawl in the first 12 years will reduce SORR, is that right?

Thanks for helping this newb! I've been all about the saving and am just now looking at optimizing cash flow and withdrawl strategies.

Your numbers aren't quite adding up. If the monthly cash flow difference is $800 per month, then the annual difference would be $9,600, not $12,000. Using these numbers, it looks like the return at which the two would break even is about 7.5% (higher returns favor the 30-year refinance).

But yes, your spreadsheet is a bit too simplistic, and SORR would favor the longer-term mortgage. Alternatively, SORR may also favor paying off the mortgage entirely right now. Let me look for my post on the topic and I'll edit this post with a link.

ETA: Here's my post on the topic: https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733). Note that a 30-year mortgage at the interest rate you've been offered would historically give a better chance of success (though not by much), but these graphs also assume historical stocks returns; if you think the future will likely look like the past, go for the 30-year mortgage, but if you absolutely want to minimize risk, paying off might be the best bet.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 21, 2019, 01:06:34 PM
You've already got a rate that's 2.9%.

If you can, wait a few more months to see if rates come down. Moving to a 30-year fixed at 3.3% or 3.4% seems better than climbing all the way up to 3.7%
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 24, 2019, 10:31:27 AM
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.

This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 24, 2019, 10:51:12 AM
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.

This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.
Yeah, it's a total pain in the ass. I was a huge fan of Liar's Loans, because I was a commission-only manufacturer's rep, a category that the mortgage world completely fails to comprehend. Eventually, LL's were simply a sanity saver.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 24, 2019, 10:59:42 AM
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.

This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.

I was pretty annoyed at the verification process I had to undergo through underwriting our latest loan.  Much of it lacked any sound logic, and seemed to be box-checking.  For example, we had to transfer a 'good-faith deposit' from one account to another in a certain time frame, and then we had to get proof that it came from another one of our accounts, adn then get proof that it came from an investment we sold, and then get proof that we had contributed into that account over a period of many years from our paychecks.  All for a rather paltry sum when compared to the larger mortgage, which in turn was much less than our life's savings and only about 2x our annual income (with great credit!).   So I was both surprised and fairly annoyed to be constantly asked to verify and document various buckets of money  when there was never any question that we had the income, history and savings for this particular mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on October 24, 2019, 11:17:27 AM
Starting to understand how the "no-doc" mortgage became a thing. Refinancing, closing on Friday, and they're still asking for documents. Latest is "1099's for 2018 tax return". Apparently the return that was e-filed is not good enough by itself.

This is for a loan with an under $600 payment when they can verify my monthly income is much, much higher than that just by looking at the transactions in my bank account, which they can do easily considering it is the same bank. Seems like the tax returns, copies of my contract, credit reports, and bank records should be plenty of documentation to justify this loan - not exactly a huge risk for the bank here. But no, gotta have those 1099s too.

I refinanced back in the height of the mortgage craziness, and I actually got a stated income loan.  I think I had to provide some docs, but not very many.  Got a good interest rate too.  I'm self-employed, so I think they preferred not to see anything from me.  The really weird part is that the mortgage broker had a CPA, who verified my stated income was "plausible" given my profession.   

Then I bought a rental at the bottom of the market in 2010.  Holy crap.  The bank was about as paranoid as you could possibly imagine.  They went through about six months of bank statements and made me write an explanation for every deposit over about $1000.  Crazy.   Bank of America, by the way.  They were nothing but a pain in the ass for the whole process. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 28, 2019, 12:35:06 PM
At closing on the refinance Friday the attorney asked what we were doing with the dough, and we were honest - "we're going to fund the 401K and IRAs for 2019 and 2020 - basically invest all of it within the next 2 months". The guy called it a "power move" - perhaps a member of this club? 2 more days until the money shows up from our power move.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 28, 2019, 12:40:55 PM
At closing on the refinance Friday the attorney asked what we were doing with the dough, and we were honest - "we're going to fund the 401K and IRAs for 2019 and 2020 - basically invest all of it within the next 2 months". The guy called it a "power move" - perhaps a member of this club? 2 more days until the money shows up from our power move.

Waiting for our home to close and to do exactly this.  Sadly I left my job with a 403(b) and we've already funded our IRAs for 2019, but we could be well positioned to max everything out in Jan or Feb 2020.

That would be a nice feeling - and the first time ever we've hit the cap on all our tax-advantaged accounts
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on October 28, 2019, 01:46:18 PM
Buying yourself a little more freedom, doesn't get much powerful than that!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 30, 2019, 09:04:18 AM
We're already moving things into the new house, but I got a nice letter about the ARM on my old house. Rate indexed to LIBOR is being revised down from 5.0% back to 4.25%. Thank you, UK voters!
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on October 30, 2019, 04:59:09 PM
We're already moving things into the new house, but I got a nice letter about the ARM on my old house. Rate indexed to LIBOR is being revised down from 5.0% back to 4.25%. Thank you, UK voters!

That's fabulous!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 31, 2019, 06:44:39 AM
The experience of having so much money trapped in one house while buying another has reinforced for me that DNPYM club is the club for me!

Once we get the old house sold, we can watch bond rates continue to fall and refinance the shit out of the new house.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 31, 2019, 06:49:44 AM
The experience of having so much money trapped in one house while buying another has reinforced for me that DNPYM club is the club for me!

Once we get the old house sold, we can watch bond rates continue to fall and refinance the shit out of the new house.
I like the way you think!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 31, 2019, 09:26:57 AM
@Dicey , the sum of our two mortgages together is only $550K, which wouldn't even provoke a deep breath in the markets where you own real estate.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 31, 2019, 09:35:28 AM
@Dicey , the sum of our two mortgages together is only $550K, which wouldn't even provoke a deep breath in the markets where you own real estate.
Hmm.. the sum of our two mortgages is about half that at present. Even if we considered the starting balance of both we were well under $400k combined (and the mortgages were taken out 8 years apart).
The magnitude of difference between various markets always astounds me.  Our current home is slightly larger than my sister's place, and our yard is about 4x the size.  Yet her's is worth about 5x what ours is in her VHCOL area.  I used to live there too.  Certainly don't miss making $3,000 payments on a shoebox 900sqft house each month.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 31, 2019, 10:34:11 AM
@Dicey , the sum of our two mortgages together is only $550K, which wouldn't even provoke a deep breath in the markets where you own real estate.
Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.

Continuing in that vein, the flip side is the expensive home has appreciated way more in the last seven years than the other three combined. The rentals just poke along at about the rate of inflation, which is why we haven't purchased another one there in over three years. If you can't buy substantially below market, it just doesn't make sense.

I just did the math. Our primary home is worth $550k more than we bought it for in 2013. Insane is right, @nereo.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on October 31, 2019, 04:03:37 PM
Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.
You make it sound like a north/south issue. Sure, Bay Area is crazy but there are some crazy areas in SoCal too.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 31, 2019, 06:42:22 PM
Actually, that would buy a whole fancy house where we have our rentals (SoCal). It's just where we live (NorCal) that is so crazy. We would gladly live in any of our rentals in their fancy senior community. It cracks us up that our single primary home is "worth" more than all three rentals combined.
You make it sound like a north/south issue. Sure, Bay Area is crazy but there are some crazy areas in SoCal too.
Not at all. There was a big, fat hint there. Most "fancy senior communities" aren't located in Metro LA.  And believe it or not, I live in a comparatively "affordable" part of the Bay Area. Insane, but cheap-ish compared to the Peninsula or The City.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on November 01, 2019, 09:15:38 AM
Not at all. There was a big, fat hint there. Most "fancy senior communities" aren't located in Metro LA.  And believe it or not, I live in a comparatively "affordable" part of the Bay Area. Insane, but cheap-ish compared to the Peninsula or The City.
Yeah, at $1000+/sq. ft. those places are crazy (4-6 times as expensive as central valley cities). I guess the biggest difference about the Bay Area vs. SoCal is that the commercial centers aren't the most expensive places to live in SoCal. SoCal's most desirable beach communities compete with The City and Peninsula for crazy housing prices, but they aren't thought of as jobs centers of the region.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 01, 2019, 09:24:46 AM
god, I've always hated the phrase "The City" when people were talking about SF.  And I used to live just south of the Bay Area.
Want to make someone from San Francisco mad?  Just start calling it "San Fran". :-P
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 01, 2019, 09:34:58 AM
god, I've always hated the phrase "The City" when people were talking about SF.  And I used to live just south of the Bay Area.
Want to make someone from San Francisco mad?  Just start calling it "San Fran". :-P
The late, great, Herb Caen is credited for that designation. He was still alive when I moved to the Bay Area and I loved his columns. My first landing place in NorCal was Noe Valley. There was definitely an "otherness" about San Francisco that made the moniker seem utterly appropriate, so I don't mind it at all. Now, "Cali" for California drives me nuts.
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on November 01, 2019, 11:01:09 AM
I lived in the Bay Area as a kid for 3 years, my mom is from SF, and I still use "the City" to refer to SF specifically, and was actually just thinking about how odd that is when I last did so a few weeks ago while talking to a friend who had visited there this summer.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on November 01, 2019, 01:09:14 PM
Just made the 1st payment today on my shiny new mortgage. Just finished a no cost refi down to 3.75%, lowering my interest a point and cutting a couple hundred off the monthly payment.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 01, 2019, 03:59:08 PM
Apparently making a $56K transaction (2019 soloK) will get you call from e-Trade trying peddle their premium services. So far, managed to buy on the best day since the re-finance funds hit the account, so that's fun I guess.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on November 01, 2019, 05:39:30 PM
Cashout refi approved. Total cost of $32, rate is 3.95% Credit union calls it a Home Equity Loan, so whatever. Going to put a chunk of it in the market via Chase this time with their low cost brokerage, because they're going to pay me $1k for setting up a Sapphire Checking and putting $75k in (investments count, just not retirement accounts)

(Cashouts in Texas are about 0.25% above elsewhere because of dumb onerous state laws)
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 03, 2019, 08:53:49 AM
Cashout refi approved. Total cost of $32, rate is 3.95% Credit union calls it a Home Equity Loan, so whatever. Going to put a chunk of it in the market via Chase this time with their low cost brokerage, because they're going to pay me $1k for setting up a Sapphire Checking and putting $75k in (investments count, just not retirement accounts)

(Cashouts in Texas are about 0.25% above elsewhere because of dumb onerous state laws)
Curious how the cost was so low. Same bank?

I had like $3,000 in closing costs on ours. Our house was paid-off, so I think that's what screwed us - almost as much paperwork as a purchase. Florida also has pretty high document tax rates, from what I gather.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on November 03, 2019, 01:16:27 PM
Cashout refi approved. Total cost of $32, rate is 3.95% Credit union calls it a Home Equity Loan, so whatever. Going to put a chunk of it in the market via Chase this time with their low cost brokerage, because they're going to pay me $1k for setting up a Sapphire Checking and putting $75k in (investments count, just not retirement accounts)

(Cashouts in Texas are about 0.25% above elsewhere because of dumb onerous state laws)
Curious how the cost was so low. Same bank?

Like I said - classified as a "home equity loan" - those are often available with low/no closing costs.  This one is fixed rate and 30 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: 401Killer on November 04, 2019, 11:18:41 AM
Need some advice...

Remaining mortgage = ~$47k @ 5.25%
All other debt = $0
Investments = $300k
House = $190k
40 Years old with retire date of ~50y/o.
Currently maxing out my 401K and Roth IRA limits.

House payment = ~$432/mo, currently paying $1500/mo to kill it.

With an interest rate as high as 5.25% is it a bit more grey area to decide to reduce my house payment to just drop in VTSAX or something? Or is it still very worth reducing my extra payments and investing it? Should I split the extra payments a bit or just go the full amount?

I assume I know your answer but just wanted you guys to see my numbers before assuming the answer. The rate is high as I just bought the home and didn't pay extra points as I was going to kill the principle in a few years anyway.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 04, 2019, 11:28:58 AM
Personally?  I'd see if I could do a cash-refi at somewhere at/under 4% (in line with current refi rates).  I'd try to pull out $150k, and invest it all.  Your monthly payment would be ~$900, which is less than the amount you are currently dumping into your mortgage, giving you a net positive cash-flow of about $600/mo ($7,200/year).


...that's what I'd do in your circumstance.  Take advantage of cheap credit and reduce your home equity exposure (currently you've got 34% of your NW tied to your home).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 04, 2019, 11:33:53 AM
Need some advice...

Remaining mortgage = ~$47k @ 5.25%
All other debt = $0
Investments = $300k
House = $190k
40 Years old with retire date of ~50y/o.
Currently maxing out my 401K and Roth IRA limits.

House payment = ~$432/mo, currently paying $1500/mo to kill it.

With an interest rate as high as 5.25% is it a bit more grey area to decide to reduce my house payment to just drop in VTSAX or something? Or is it still very worth reducing my extra payments and investing it? Should I split the extra payments a bit or just go the full amount?

I assume I know your answer but just wanted you guys to see my numbers before assuming the answer. The rate is high as I just bought the home and didn't pay extra points as I was going to kill the principle in a few years anyway.
Wait! Did you just say you put way over 50% down on the home and that's the best rate they could offer you? Something's missing here.

Also, will you be eligible for any kind of pension or anything that you haven't mentioned? What did you cash out to put so much down on the house?
Title: Re: DONT Payoff your Mortgage Club
Post by: 401Killer on November 04, 2019, 11:43:03 AM
Need some advice...

Remaining mortgage = ~$47k @ 5.25%
All other debt = $0
Investments = $300k
House = $190k
40 Years old with retire date of ~50y/o.
Currently maxing out my 401K and Roth IRA limits.

House payment = ~$432/mo, currently paying $1500/mo to kill it.

With an interest rate as high as 5.25% is it a bit more grey area to decide to reduce my house payment to just drop in VTSAX or something? Or is it still very worth reducing my extra payments and investing it? Should I split the extra payments a bit or just go the full amount?

I assume I know your answer but just wanted you guys to see my numbers before assuming the answer. The rate is high as I just bought the home and didn't pay extra points as I was going to kill the principle in a few years anyway.
Wait! Did you just say you put way over 50% down on the home and that's the best rate they could offer you? Something's missing here.

Also, will you be eligible for any kind of pension or anything that you haven't mentioned? What did you cash out to put so much down on the house?

It was the sale of my old home that was paid off. I was only able to put down 5% on the new home as my old one was not sold yet and I didn't want to lose the new one. I was then able to rerack my new loan with a $110k payment after being in the new house for 3 months. The loan keeps the original start date but just simply reset the monthly payments with the new principle. We did the numbers and with my plans to pay all the extra cash it was not really worth buying points to get the lower rates. My previous loan was 2.99% and my home credit score is in the 815 to 825 range.

I looked at my loan calculator sheet, if I keep my payments at $1500 I'll pay $4,700 in interest total. If I drop that to $1000/mo I'll pay $6,775 in interest. So savings only 2k in interest but be able to invest $500/mo over those 4 years to pay the mortgage off would be $24,000 invested.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 04, 2019, 11:45:09 AM
Not in the US maybe? 5.25% is very high, even with only 5% down.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 04, 2019, 11:50:15 AM
I'm still confused... a credit score over 800, more than $300k in investments, and a 75% equity stake in your home... why is your interest rate so high?  I just financed a similar mortgage for 3.7% with no points.
Title: Re: DONT Payoff your Mortgage Club
Post by: 401Killer on November 04, 2019, 11:54:51 AM
I don't know then, maybe they took advantage of me as I thought it was a good deal at the time considering my plans to kill the principle. Probably my mistake not knowing...

So I guess the question still stands though, reduce all extra payments or a portion to invest?

With only $47k remaining on the loan the interest paid with how much extra I'm putting down is only a few grand in interest. It does not seem to be enough of a balance to refinance to a lower rate if I can pay it off in 3 years regardless.

I'm personally leaning towards dropping it to $1,000/mo and dropping the $500 in VG.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 04, 2019, 12:08:41 PM

So I guess the question still stands though, reduce all extra payments or a portion to invest?


Definitely reduce all payments, but you are a prime candidate for a cash-refinance*, which could give you a very large amount to invest coupled with a very low interest rate.

*based on the info you have provided.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 04, 2019, 12:09:43 PM
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on November 04, 2019, 12:31:41 PM
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.

Recognize that by doing that you would be increasing your monthly expenses -- and this isn't the beginning of a long market climb.   

You have to balance potential greater returns with the potentially greater losses.

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 04, 2019, 12:41:03 PM
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.

Recognize that by doing that you would be increasing your monthly expenses -- and this isn't the beginning of a long market climb.   

You have to balance potential greater returns with the potentially greater losses.

Except s/he wouldn’t.  The current rate is so high that monthly expenses could be reduced while transferring a lot of cash out of home equity.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on November 04, 2019, 01:07:02 PM
Cash out refinance makes the most sense to me - bump your investments up by 30-50% in one fell swoop. Take the cheap money and hold on to it as long as you can.

Recognize that by doing that you would be increasing your monthly expenses -- and this isn't the beginning of a long market climb.   

You have to balance potential greater returns with the potentially greater losses.

Good point!

Except s/he wouldn’t.  The current rate is so high that monthly expenses could be reduced while transferring a lot of cash out of home equity.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kierun on November 08, 2019, 08:21:42 PM
Just squeaked in below 380k and about 192 payments left @ 3.125%.  May end up paying it off lump sum towards the end as we reach FI since it'll knock off 30k/year in expenses, but more than likely will ride it out til maturity.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 09, 2019, 05:20:16 AM
Just squeaked in below 380k and about 192 payments left @ 3.125%.  May end up paying it off lump sum towards the end as we reach FI since it'll knock off 30k/year in expenses, but more than likely will ride it out til maturity.

What would be the reason(s) for paying off a rate so low?
Will lower monthly expenses offset the less money you have in investments?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 11, 2019, 07:24:51 AM
@Kierun what's your timetable to reach FI?
Title: Re: DONT Payoff your Mortgage Club
Post by: Kierun on November 11, 2019, 07:22:29 PM
Just squeaked in below 380k and about 192 payments left @ 3.125%.  May end up paying it off lump sum towards the end as we reach FI since it'll knock off 30k/year in expenses, but more than likely will ride it out til maturity.

What would be the reason(s) for paying off a rate so low?
Will lower monthly expenses offset the less money you have in investments?
Haven't done the actual math yet since it's like 15+ years down the road.  Thinking mostly to just reduce the amount needed yearly and looking at it from a tax perspective, but no idea what taxes will look like in 15 years, ago (autocorrect) so mostly why it's just a thought on the back burner.

@Kierun what's your timetable to reach FI?
Guesstimating 2032 for stretch goal but maybe closer to 2035.  Quite a bit aways still. So nothing's really solid, semper gumby and all that.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on November 11, 2019, 07:32:21 PM
Paid off one mortgage because we sold ;)
Long story, not the intended plan, but shit happens.

We only put 5% down on the new place, I'm in Canada, different system and more down didn't make sense. Once we have 20% equity though, I'll consider switching it to an LOC mortgage.

Do you guys have those in the US?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 11, 2019, 10:13:45 PM
Paid off one mortgage because we sold ;)
Long story, not the intended plan, but shit happens.

We only put 5% down on the new place, I'm in Canada, different system and more down didn't make sense. Once we have 20% equity though, I'll consider switching it to an LOC mortgage.

Do you guys have those in the US?
Not really.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on November 18, 2019, 11:48:25 AM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on November 18, 2019, 11:56:44 AM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.

It also makes sense to look at your income level post retirement and keep it as low as possible for things like health insurance subsidies.  For example, my mortgage payment is $2200 per month.  That's $26,400 per year.  If I need an additional $40k per year to cover all expenses, that means I have to take out $66,400 per year to cover all costs.  However, if I pay off my mortgage when I retire, then I only have to take out $40k per year to cover all expenses.  I'm not sure what the cutoffs will be when I retire, but it seems likely that $40k is more likely to qualify for a subsidy than $66k. 

That said, I agree with you - it makes zero sense to pay off the mortgage during accumulation phase.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kierun on November 18, 2019, 12:34:32 PM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.

It also makes sense to look at your income level post retirement and keep it as low as possible for things like health insurance subsidies.  For example, my mortgage payment is $2200 per month.  That's $26,400 per year.  If I need an additional $40k per year to cover all expenses, that means I have to take out $66,400 per year to cover all costs.  However, if I pay off my mortgage when I retire, then I only have to take out $40k per year to cover all expenses.  I'm not sure what the cutoffs will be when I retire, but it seems likely that $40k is more likely to qualify for a subsidy than $66k. 

That said, I agree with you - it makes zero sense to pay off the mortgage during accumulation phase.
I'm thinking along the same train of thought as my PI is >$2500/mo so knocking off $30k/yr would go a long way for required income post FI.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on November 18, 2019, 12:35:35 PM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.

I plugged and played with a handful of different dates to payoff the mortgage.

My "expected" date of FI is currently July 2034. By toying with when I payoff the mortgage, I was able to get it to as early as June 2033 (my original calculation of 15 months had wrong payoff amount). I could pay it off as early as July 2032 to get that result (or later) to get the same result.

How I would access those funds without huge taxes is a different story.
Title: Re: DONT Payoff your Mortgage Club
Post by: jps on November 18, 2019, 02:36:08 PM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.

Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 18, 2019, 02:47:48 PM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.

Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.

The equity of your primary home is excluded from FAFSA calculations.  Should you own a secondary home - that is not.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on November 18, 2019, 02:55:46 PM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.

Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.

From the FAFSA website:

Quote
Investments do not include the home in which the student’s parents live, the value of life insurance, ABLE accounts, retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.) or cash, savings, and checking accounts already reported in question 88.

Some schools may use calculations other than FAFSA that do a better job of determining a family's ability to pay. If that ends up being the case (we're talking 18+ years from now), we'll be fine. We'll probably provide some aid, depending on the cost of attendance, but I had planned on him being able to pay his own way through school as his parents did.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on November 19, 2019, 08:12:51 AM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.

Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.

From the FAFSA website:

Quote
Investments do not include the home in which the student’s parents live, the value of life insurance, ABLE accounts, retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.) or cash, savings, and checking accounts already reported in question 88.

Some schools may use calculations other than FAFSA that do a better job of determining a family's ability to pay. If that ends up being the case (we're talking 18+ years from now), we'll be fine. We'll probably provide some aid, depending on the cost of attendance, but I had planned on him being able to pay his own way through school as his parents did.

This is off topic, but don't forget about the value of an HSA if you are looking to do the college and early retirement FAFSA gaming....it's double blind for FAFSA for now.  You can put in $7K/year for a couple, then save up the receipts and not actually take the money out until Jr. is in college....the FAFSA doesn't count that reimbursement of your expenses as income, and you can still have some extra spending $ during the college years.  I think this method works best with only children.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on November 19, 2019, 08:16:02 AM
So, while looking at some long term college planning for the kid, I found a time when it makes sense to pay off the mortgage.

Once I approach FI, taking a lump sum out of investments and paying the mortgage off in one fell swoop reduces my investment gains, but it reduces my annual expenses so much that it would actually push me into financial independence about 15 months earlier.

On top of that, reducing my expenses by paying off the mortgage while being retired reduces the EFC on the FAFSA calculation. That falls under the unethical ways to save money category, but it's something to keep in mind.

That said, during accumulation years, it still makes sense to pay off the mortgage as slowly as possible, and the calculation I made would still reduce long-term portfolio value, but it should get me to FI faster.

Do assets owned not count as part of the FAFSA? I feel like I've just recently heard about some schools looking at your assets as part of that shindig but don't know enough about it. Something to keep in mind if your kid wants to go somewhere that looks at your total assets.

From the FAFSA website:

Quote
Investments do not include the home in which the student’s parents live, the value of life insurance, ABLE accounts, retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.) or cash, savings, and checking accounts already reported in question 88.

Some schools may use calculations other than FAFSA that do a better job of determining a family's ability to pay. If that ends up being the case (we're talking 18+ years from now), we'll be fine. We'll probably provide some aid, depending on the cost of attendance, but I had planned on him being able to pay his own way through school as his parents did.

This is off topic, but don't forget about the value of an HSA if you are looking to do the college and early retirement FAFSA gaming....it's double blind for FAFSA for now.  You can put in $7K/year for a couple, then save up the receipts and not actually take the money out until Jr. is in college....the FAFSA doesn't count that reimbursement of your expenses as income, and you can still have some extra spending $ during the college years.  I think this method works best with only children.

Yeah, I was reading that too. Up to this point, we've paid medical bills out of the HSA since we're not yet maxing out all of our retirement accounts, but we will have to re-evaluate with that.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kierun on November 19, 2019, 11:49:09 AM
Looks like we're in the wrong club!  https://www.forbes.com/sites/kotlikoff/2019/11/18/prepaying-your-mortgage-is-a-huge-financial-winner/#5adb26005bf3
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on November 19, 2019, 12:01:29 PM
Looks like we're in the wrong club!  https://www.forbes.com/sites/kotlikoff/2019/11/18/prepaying-your-mortgage-is-a-huge-financial-winner/#5adb26005bf3

Quote from: forbes
I then entered an alternative profile in which the couple follows Uncle Jim’s advice and a) borrows $360,000 for 30 years on their house at the then-prevailing 4.15 percent mortgage rate and b) invest the proceeds in 30-year Treasuries yielding the then prevailing 30-year bond rate of 2.45 percent.

Shocker! Borrowing at 4.15% to invest at 2.45% is not a good idea!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 19, 2019, 12:05:50 PM
Looks like we're in the wrong club!  https://www.forbes.com/sites/kotlikoff/2019/11/18/prepaying-your-mortgage-is-a-huge-financial-winner/#5adb26005bf3

One of the worst pseudo-financal articles I've read in a while.  Good lord...  The government paying you 2.3% for treasury bonds is not the same thing as a bank giving you money to buy a house at 3.7%.  Does this author not understand risk, debt, or even the concept of leverage??

What idiot leverages their home at 3.7% only to take out treasury bonds paying 2.3%??  And for that matter how paranoid does one have to be to put their entire savings in long term bonds?  A 0/100 allocation?  Good lord...
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 19, 2019, 03:07:45 PM
There was another one along these lines today as well. No one seems to understand the time value of money, i.e. compound interest. Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less, plus your payment stays the same while your income typically goes up over time. Then there's leverage. Put a small amount down and get a much larger number working for you.

Much as we welcome everyone, it seems not everyone can earn a place in the DPOYM Club. My congratulations to everyone who has found their way here.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on November 19, 2019, 04:07:23 PM
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.
Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 19, 2019, 04:46:51 PM
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.
Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I'm about to make the first P&I payment on my brand new mortgage. That will cost me $579 2019 dollars. Fast forward 30 years when I make my last payment. It will cost me $579 2049 dollars. 2049 dollars, barring an economic calamity in the interim, will be worth less than 2019 dollars.  I can come up with that without too much trouble working for minimum wage today - should be even easier in 2049.

That is what Dicey's point is. Sure, the interest is likely to be more than the inflation, but I also have $121,000 2019 dollars I can invest right now - I'm not trying to beat inflation with the loan interest, I'm trying to beat the loan interest with investment returns.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 19, 2019, 06:34:32 PM
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.
Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I'm about to make the first P&I payment on my brand new mortgage. That will cost me $579 2019 dollars. Fast forward 30 years when I make my last payment. It will cost me $579 2049 dollars. 2049 dollars, barring an economic calamity in the interim, will be worth less than 2019 dollars.  I can come up with that without too much trouble working for minimum wage today - should be even easier in 2049.

That is what Dicey's point is. Sure, the interest is likely to be more than the inflation, but I also have $121,000 2019 dollars I can invest right now - I'm not trying to beat inflation with the loan interest, I'm trying to beat the loan interest with investment returns.
DingDingDing! We have a winner. That is exactly what i meant. Thanks for elaborating, @dandarc.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 20, 2019, 07:03:14 AM
I've mentioned this before, but thought I'd repeat...
My retired parents like to joke that they are 41 years into a 30 year mortgage, and only have about ten years left before it's paid off.  Currently the taxes on their home are about 2x the Principle + Interest portion of their payments... because: inflation and appreciation.

They did two big cash ReFis along the way, both of which lowered their rate and boosted their savings while keeping their payment basically the same (only the term was extended).  In 1978 when they took out the mortgage it was roughly 1/3 of my father's salary. His income steadily increased over the next 3 decades (both as COLA raises and through promotions) while the payment stayed locked. 

...I wonder if they will have a 'mortgage payoff celebration' and burn their mortgage when it's finally eliminated - 15+ years after they retired.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 20, 2019, 07:15:48 AM
I've mentioned this before, but thought I'd repeat...
My retired parents like to joke that they are 41 years into a 30 year mortgage, and only have about ten years left before it's paid off.  Currently the taxes on their home are about 2x the Principle + Interest portion of their payments... because: inflation and appreciation.

They did two big cash ReFis along the way, both of which lowered their rate and boosted their savings while keeping their payment basically the same (only the term was extended).  In 1978 when they took out the mortgage it was roughly 1/3 of my father's salary. His income steadily increased over the next 3 decades (both as COLA raises and through promotions) while the payment stayed locked. 

...I wonder if they will have a 'mortgage payoff celebration' and burn their mortgage when it's finally eliminated - 15+ years after they retired.
Apple, meet tree. Smart strategies certainly do bear repeating. Thanks for sharing.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on November 20, 2019, 10:11:00 AM
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.
Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 20, 2019, 12:03:08 PM
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.
Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.

I will be very surprised if we don't see inflation tick above 3% for at least several quarters (if not consecutive years) over the next three decades. 
We've had ultra-low inflation for so long that there's an entire generation of adults who have never really experienced it. Memories are short.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on November 20, 2019, 12:09:18 PM
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.
Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.

I will be very surprised if we don't see inflation tick above 3% for at least several quarters (if not consecutive years) over the next three decades. 
We've had ultra-low inflation for so long that there's an entire generation of adults who have never really experienced it. Memories are short.

You're right. It's very difficult for me to comprehend a world where inflation is higher than 2%. I just kind of feel like the Fed can manipulate rates to keep it low indefinitely at this point, but I'm probably wrong there.

Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on November 20, 2019, 12:26:28 PM
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.
Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.

I will be very surprised if we don't see inflation tick above 3% for at least several quarters (if not consecutive years) over the next three decades. 
We've had ultra-low inflation for so long that there's an entire generation of adults who have never really experienced it. Memories are short.

You're right. It's very difficult for me to comprehend a world where inflation is higher than 2%. I just kind of feel like the Fed can manipulate rates to keep it low indefinitely at this point, but I'm probably wrong there.

Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.
The Federal Reserve targets an average of 2%/year. Long term, I wouldn't expect much variance from that. 2009-2016 averaged quite a bit less, so I'm sure they'd be fine with 2.5% or more for a while to make up for low inflation in those years; and of course there is the possibility that the Federal Reserve is unable to maintain inflation targets and accomplish other monetary policy goals.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on November 20, 2019, 01:45:24 PM
Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.

Only 9 posts away, you say?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 20, 2019, 01:54:05 PM
Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.

Only 9 posts away, you say?
I think it's only eight now.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 20, 2019, 02:03:10 PM
Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.

Only 9 posts away, you say?
I think it's only eight now.
I studiously avoid that thread, but I just looked it up. They have almost a four year head start on us. Very impressive!

Seven.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on November 20, 2019, 02:42:37 PM
Edit: we're only ~11 posts from catching the Mortgage Payoff Club thread.

Only 9 posts away, you say?
I think it's only eight now.
I studiously avoid that thread, but I just looked it up. They have almost a four year head start on us. Very impressive!

Seven.

To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on November 20, 2019, 02:59:49 PM
To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...

While I agree with this statement if you don't have enough saved up to pay off your mortgage in one shot, once you do then the two options are quite comparable in difficulty.

Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on November 20, 2019, 03:05:18 PM
To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...

While I agree with this statement if you don't have enough saved up to pay off your mortgage in one shot, once you do then the two options are quite comparable in difficulty.

Doesn't require a penny of savings to write this in a forum thread entry, "Don't pay off your mortgage early." 

But it takes a lot of money to actually pay off a mortgage, early or not.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on November 20, 2019, 04:22:31 PM
Scheduled for closing Saturday on our 30-year cashout refi, with $32 in costs. Yay credit union!

It's only going to be ~50% LTV to avoid closing costs.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on November 20, 2019, 04:23:24 PM
Oh, and we're only 2 posts behind at this point ;)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 20, 2019, 04:38:05 PM
To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...

While I agree with this statement if you don't have enough saved up to pay off your mortgage in one shot, once you do then the two options are quite comparable in difficulty.

Doesn't require a penny of savings to write this in a forum thread entry, "Don't pay off your mortgage early." 

But it takes a lot of money to actually pay off a mortgage, early or not.
Not sure what the relevance of this undisputed truth is. No one's verifying anything that's being reported on either thread.

Frankly, my goal is only for people to make the most informed decision possible. It's damn hard to find information on this topic, and a lot of what's out there is just plain wrong.

For example, there is nothing inherently wrong with keeping a mortgage in retirement. As mustachians, by the time we get to FIRE, we typically have enough to smite the mortgage many times over. So much of the standard advice is biased toward the people who can't find a way to save anything. Obviously not the case in our this minority (but mighty) crowd.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on November 20, 2019, 05:29:46 PM
To be fair, it's a lot harder to pay off a mortgage than it is to say "don't pay off your mortgage quickly"...

While I agree with this statement if you don't have enough saved up to pay off your mortgage in one shot, once you do then the two options are quite comparable in difficulty.

Doesn't require a penny of savings to write this in a forum thread entry, "Don't pay off your mortgage early." 

But it takes a lot of money to actually pay off a mortgage, early or not.
Not sure what the relevance of this undisputed truth is. No one's verifying anything that's being reported on either thread.

Frankly, my goal is only for people to make the most informed decision possible. It's damn hard to find information on this topic, and a lot of what's out there is just plain wrong.

For example, there is nothing inherently wrong with keeping a mortgage in retirement. As mustachians, by the time we get to FIRE, we typically have enough to smite the mortgage many times over. So much of the standard advice is biased toward the people who can't find a way to save anything. Obviously not the case in our this minority (but mighty) crowd.

word!
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on November 21, 2019, 10:35:04 AM
Since we refinanced 6 months ago to a 10-year $450k ARM at 3.375%, I thought I'd pose the question here. 

We plan to be out of this house (and HCOL area) in 2028. 

If closing costs are going to be around $1,000, should we switch to a 20-year fixed at 3.25%?  Main advantage is the security of knowing we're locked in 2029 and beyond if we stay here. 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on November 21, 2019, 10:55:06 AM
Since we refinanced 6 months ago to a 10-year $450k ARM at 3.375%, I thought I'd pose the question here. 

We plan to be out of this house (and HCOL area) in 2028. 

If closing costs are going to be around $1,000, should we switch to a 20-year fixed at 3.25%?  Main advantage is the security of knowing we're locked in 2029 and beyond if we stay here.

Would that increase or decrease your monthly payment amount? On the interest front it would save you a bit for your expected timeline in addition to locking in the rate for more years but I'm worried it would come with a higher opportunity cost (higher payments).
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on November 21, 2019, 02:00:41 PM
Since we refinanced 6 months ago to a 10-year $450k ARM at 3.375%, I thought I'd pose the question here. 

We plan to be out of this house (and HCOL area) in 2028. 

If closing costs are going to be around $1,000, should we switch to a 20-year fixed at 3.25%?  Main advantage is the security of knowing we're locked in 2029 and beyond if we stay here.

Sorry for posting twice: Who's offering closing costs of $1k on a loan that size?
Title: Re: DONT Payoff your Mortgage Club
Post by: DeniseNJ on November 21, 2019, 03:28:59 PM
I just refied.  So happy.  3.375% on a 30 yr fixed out of an ARM and HELOC.  I used to want to pay it off, but reading here, not so much.  The only benefit to paying it off is saving the interest.  But the interest isn't that much so what's the point.  The interest isn't tax deductible anymore now that my income and property tax are 2 or 3 times the allowable tax deductable limit of 10K.  The house will go up in value or it won't regardless whether I pay the mortgage or not.  The equity is mine when I sell.  When interest rates were way higher like twice as high and it was tax deductible then it made more sense but not now, not at all.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on November 21, 2019, 04:22:59 PM
The interest isn't tax deductible anymore now that my income and property tax are 2 or 3 times the allowable tax deductable limit of 10K.
Do you mean that your total deductibles are less than the standard deduction now that SALT deduction is capped at 10k? Mortgage interest is not subject to that cap (there is a limit on how much mortgage principle qualifies for tax deductible interest).
Title: Re: DONT Payoff your Mortgage Club
Post by: 401Killer on November 22, 2019, 08:06:00 AM
Well, I'm happy to report that I have now basically removed all of my extra payments on the house and have made the min initial $3k investment into VBTLX to up my bond %. I'm now up to about a 46% savings rate!!! I was adding about $1067 extra a month on my mortgage and now it's all going to be dumped into VG.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on November 22, 2019, 08:15:50 AM
Congrats!
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on November 22, 2019, 01:32:16 PM
Well, I'm happy to report that I have now basically removed all of my extra payments on the house and have made the min initial $3k investment into VBTLX to up my bond %. I'm now up to about a 46% savings rate!!! I was adding about $1067 extra a month on my mortgage and now it's all going to be dumped into VG.

sweet!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 25, 2019, 09:42:00 AM
My new mortgage got sold to a buyer.

First payment is due this Sunday, so I sent some check into the void. Hopefully it gets to the right place, and everything gets recorded properly. I'd forgotten how nerve-wracking those early days of a mortgage can be.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 25, 2019, 09:57:41 AM
My new mortgage got sold to a buyer.

My new mortgage was sold THREE TIMES before I made the FIRST PAYMENT!!
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on November 25, 2019, 09:58:14 AM
Brand new 30 year mortgage signed, funds should hit the account by Friday. Credit union is keeping it inhouse. :D

First payment is January.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 25, 2019, 10:03:26 AM
Loan hasn't been sold yet, but the lender wants me to sign "amended closing documents" at a higher rate than they sent me 3 days before closing and I signed at closing. Granted, the rate they sent me 4 days before closing is this higher rate, but I figured "must have ticked down".

Whole thing has me thinking hard about changing banks. Been working with this bank for over 10 years, and our prior 2 mortgages were very easy, but since this bank was acquired by a larger regional bank a couple of years ago, things have gone to shit.

Deal changed on this mortgage I don't know how many times between the first inquiry (mostly the timing of when they could do an owner-occupied loan - wound up closing over 2 months later than when I was originally told we could), and now they want to change the interest rate a month after closing on the loan.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 25, 2019, 10:03:43 AM
Brand new 30 year mortgage signed, funds should hit the account by Friday. Credit union is keeping it inhouse. :D

First payment is January.
Congratulations!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 25, 2019, 10:10:00 AM
Loan hasn't been sold yet, but the lender wants me to sign "amended closing documents" at a higher rate than they sent me 3 days before closing and I signed at closing. Granted, the rate they sent me 4 days before closing is this higher rate, but I figured "must have ticked down".

Whole thing has me thinking hard about changing banks. Been working with this bank for over 10 years, and our prior 2 mortgages were very easy, but since this bank was acquired by a larger regional bank a couple of years ago, things have gone to shit.

Deal changed on this mortgage I don't know how many times between the first inquiry (mostly the timing of when they could do an owner-occupied loan - wound up closing over 2 months later than when I was originally told we could), and now they want to change the interest rate a month after closing on the loan.
I saw this on another thread. No way would I agree to this. Don't sign anything. Find the contact info for the top execs, threaten to use it and/or actually do so. Someone's trying to pull a fast one. Who knows how many others they've done this to? You have the strength and resources to make that shit stop.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 25, 2019, 10:43:02 AM
My wife pointed out that it could be a simple typo. 3.875% vs. 3.75%. Still, what is the point of all of the stupid waiting periods around closing if you can just change the interest rate on the loan after the fact.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on November 25, 2019, 12:11:49 PM
My wife pointed out that it could be a simple typo. 3.875% vs. 3.75%. Still, what is the point of all of the stupid waiting periods around closing if you can just change the interest rate on the loan after the fact.

If you've got docs that say they promised 3.75%, you're golden.   If the docs you have from them say 3.875%, you probably owe that.   I'll wager that you signed an agreement that you would cooperate in fixing mistakes because that's part of the standard boilerplate mortgage agreements I've seen.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 26, 2019, 08:14:34 AM
On my mortgage, the difference between 3.75 and 3.875 would be about $75/month.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 26, 2019, 09:29:18 AM
You must have a nicer house than we do - $9-10 / month in our case. Will be interesting to see if they drop it or not - a friend who is a real estate lawyer told me "in my professional opinion, you should tell them to fuck off", which was my initial reaction as well.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on November 26, 2019, 10:13:34 AM
You must have a nicer house than we do
Or he lives in an area where houses are much more expensive. Plenty of places where a modest single family home might have a ~700k mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kierun on November 26, 2019, 10:39:42 AM
BLUF:  Same guy from last article, this time stating why it's better to prepay the mortgage vs contribute to your 401k, not worth your time to read if you already know he's full of something.

https://www.forbes.com/sites/kotlikoff/2019/11/25/does-prepaying-your-mortgage-beat-contributing-to-your-401k/#25c4adcf63bc

*insert cartoon meme of head exploding*
Title: Re: DONT Payoff your Mortgage Club
Post by: Boofinator on November 26, 2019, 10:59:22 AM
BLUF:  Same guy from last article, this time stating why it's better to prepay the mortgage vs contribute to your 401k, not worth your time to read if you already know he's full of something.

https://www.forbes.com/sites/kotlikoff/2019/11/25/does-prepaying-your-mortgage-beat-contributing-to-your-401k/#25c4adcf63bc

*insert cartoon meme of head exploding*

Quote
Yes, I know that most of us aren't investing our 401(k) (or similar retirement-account assets) just in Treasury bonds that have an equal maturity to that of our mortgage. But we still need to compare pre-paying our mortgage with investing our 401(k) money in precisely such Treasury bonds. The reason is that such bonds have the same risk characteristics as our mortgages.

Um, the universe does allow for comparing risky and non-risky investments. And over long-enough time horizons, those "risky" investments tend to be less risky than the "risk-free" ones.

Charlatanism is alive and well.
Title: Re: DONT Payoff your Mortgage Club
Post by: DeniseNJ on November 27, 2019, 11:56:57 AM
The interest isn't tax deductible anymore now that my income and property tax are 2 or 3 times the allowable tax deductable limit of 10K.
Do you mean that your total deductibles are less than the standard deduction now that SALT deduction is capped at 10k? Mortgage interest is not subject to that cap (there is a limit on how much mortgage principle qualifies for tax deductible interest).
Yes, with 10k for salt I’d need more than 14k in deductions and my mortgage interest and any other deductions aren’t that much. But my salt are about 20-25 k alone so adding in interest would have been well over the standard for mfj
Title: Re: DONT Payoff your Mortgage Club
Post by: DeniseNJ on November 27, 2019, 12:01:02 PM
Basically ppl without a mortgage are getting the same standard deduction as me so I don’t have lower taxes by I pay mortgage interest
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 27, 2019, 12:16:51 PM
Basically ppl without a mortgage are getting the same standard deduction as me so I don’t have lower taxes by I pay mortgage interest

Either you are explaning this in an odd way, or you aren't looking at things appropriately. 
Don't focus on what other "people without a mortgage" get for their standard deduction (which is - as the name implies - standardized).  Instead, look at your own individual tax situation.

Yes, by holding a mortgage you will pay interest.  That is a given. What is important is how your assets ($) differ over the course of your mortgage term if you paid it off vs kept the mortgage but contributed extra money towards investments (particularly tax-advantaged accounts).  Often you won't gain a mortgage interest tax deduction because of the reasons you listed, but you might lower your taxable burden considerably by being able to invest more in your 401(k), IRA, HSA etc.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on November 27, 2019, 12:38:08 PM
I can't pay off my mortgage with pre-tax dollars.  But I CAN invest in my 401k with pretax dollars.  That alone is a no brainer for the $18k that I can into a 401k every year.  The fact that I get an employer match for another $6k to get to $24k per year makes it a double no brainer. 

Add to that the fact that my investments yield an average of 8% return over the long term and paying the mortgage only nets me 3.9% and it's a triple no brainer!
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldy on November 28, 2019, 07:52:21 AM
Need some input from this group.  I currently have a 5/1 arm at 2.5% that is going to adjust in just over a year to 2.00% above 12mo libor rates.  My original plan was to pay it off before it adjusted but now I’m starting to drink the koolaid and see the value in securing a low rate and paying it off as slowly as possible.  My current note is 163k on 300k house.

The best loans I can find right now are
3.5% 30yr with 2600 closing costs
3% 15yr with 2200 closing costs
Alternatively I could just let it ride and pay a 4% rate but not need to pay closing costs.
Or I could pay it off.

What would you do?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 28, 2019, 08:14:14 AM
I can't pay off my mortgage with pre-tax dollars.  But I CAN invest in my 401k with pretax dollars.  That alone is a no brainer for the $18k that I can into a 401k every year.  The fact that I get an employer match for another $6k to get to $24k per year makes it a double no brainer. 

Add to that the fact that my investments yield an average of 8% return over the long term and paying the mortgage only nets me 3.9% and it's a triple no brainer!
@Tyson, this is perhaps the most succinct explanation of DPOYM I've ever seen. Brilliant! If I could make a sticky of a single post, this one would get my vote. I think I'll post it over on the "Best Post" thread, because it deserves to be read and understood far and wide. Thank you!
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on November 28, 2019, 08:22:20 AM
See if you can get points back with a higher fixed rate.

I just did a cashout refi* locking in 3.95% for 30 years with basically nothing in closing costs.

*Texas makes cashout refi a PITA, rates tend to be a bit higher than elsewhere.
Title: Re: DONT Payoff your Mortgage Club
Post by: ItsALongStory on November 28, 2019, 08:55:13 AM
Need some input from this group.  I currently have a 5/1 arm at 2.5% that is going to adjust in just over a year to 2.00% above 12mo libor rates.  My original plan was to pay it off before it adjusted but now I’m starting to drink the koolaid and see the value in securing a low rate and paying it off as slowly as possible.  My current note is 163k on 300k house.

The best loans I can find right now are
3.5% 30yr with 2600 closing costs
3% 15yr with 2200 closing costs
Alternatively I could just let it ride and pay a 4% rate but not need to pay closing costs.
Or I could pay it off.

What would you do?

I love keeping the flexibility of the lower payment and would personally opt for the 3.5%. It may make it a more compelling rental property option in the future as well. If you feel so inclined then feel free to pay off a bit extra each month but given the thread we're in I think there is little risk of that happening.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 28, 2019, 08:56:02 AM
Need some input from this group.  I currently have a 5/1 arm at 2.5% that is going to adjust in just over a year to 2.00% above 12mo libor rates.  My original plan was to pay it off before it adjusted but now I’m starting to drink the koolaid and see the value in securing a low rate and paying it off as slowly as possible.  My current note is 163k on 300k house.

The best loans I can find right now are
3.5% 30yr with 2600 closing costs
3% 15yr with 2200 closing costs
Alternatively I could just let it ride and pay a 4% rate but not need to pay closing costs.
Or I could pay it off.

What would you do?
I agree with @TomTX. Keep shopping.

A 30 year mortgage that you can pay off on any schedule you choose gives you the most flexibility.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldy on November 28, 2019, 11:04:49 AM
By adjusting the points I can get a zero closing cost 30yr loan for 3.875% or a 15 for 3.5%
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 28, 2019, 12:24:47 PM
By adjusting the points I can get a zero closing cost 30yr loan for 3.875% or a 15 for 3.5%
That's just moving the pea under another shell. Keep shopping, there should be better deals out there.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on November 28, 2019, 04:47:01 PM
I can't pay off my mortgage with pre-tax dollars.  But I CAN invest in my 401k with pretax dollars.  That alone is a no brainer for the $18k that I can into a 401k every year.  The fact that I get an employer match for another $6k to get to $24k per year makes it a double no brainer. 

Add to that the fact that my investments yield an average of 8% return over the long term and paying the mortgage only nets me 3.9% and it's a triple no brainer!
@Tyson, this is perhaps the most succinct explanation of DPOYM I've ever seen. Brilliant! If I could make a sticky of a single post, this one would get my vote. I think I'll post it over on the "Best Post" thread, because it deserves to be read and understood far and wide. Thank you!

*blushes* - Thanks man!
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 01, 2019, 09:19:37 AM
Loan hasn't been sold yet, but the lender wants me to sign "amended closing documents" at a higher rate than they sent me 3 days before closing and I signed at closing. Granted, the rate they sent me 4 days before closing is this higher rate, but I figured "must have ticked down".

Whole thing has me thinking hard about changing banks. Been working with this bank for over 10 years, and our prior 2 mortgages were very easy, but since this bank was acquired by a larger regional bank a couple of years ago, things have gone to shit.

Deal changed on this mortgage I don't know how many times between the first inquiry (mostly the timing of when they could do an owner-occupied loan - wound up closing over 2 months later than when I was originally told we could), and now they want to change the interest rate a month after closing on the loan.
I saw this on another thread. No way would I agree to this. Don't sign anything. Find the contact info for the top execs, threaten to use it and/or actually do so. Someone's trying to pull a fast one. Who knows how many others they've done this to? You have the strength and resources to make that shit stop.
They're in trouble now - my wife is pissed off. The latest issue - I tried to make our first payment via the bill pay at the same bank.  Loan officer happened to email me the day that the bill pay was withdrawn from our account, so I asked. Response was approximately "should be fine - might take a week to post." response. That payment appears to have been rejected, but of course not until they are closed for the holiday weekend. So I'll probably go in person to the bank tomorrow and write a physical check because apparently it is 1993. Appears they cannot accept a payment through their own website for a loan at the very same bank.

And they're losing a customer - we're looking for a new bank probably after the first of the year. You'd think a larger bank would have better basic banking systems - more resources available and more to be gained with some automation, but apparently not in this case.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on December 01, 2019, 11:32:49 AM
As an update, funds hit the account Friday - so I set up an ACH pull from Chase (getting that sweet Sapphire Banking $1,000 bonus by using their discount brokerage) - and stupid Chase flags it as fraud. Not only do I have to discuss it with Chase, identify myself thoroughly and let them know that yes, I did initiate the ACH - they insisted on getting my CU on a 3-way call to make sure the money was in the account. Because apparently they don't trust me to transfer money INTO their bank.

I'm now super happy that I'll be gouging Chase for that $1k. Plus a $300 savings account signup bonus.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 01, 2019, 12:36:56 PM
As an update, funds hit the account Friday - so I set up an ACH pull from Chase (getting that sweet Sapphire Banking $1,000 bonus by using their discount brokerage) - and stupid Chase flags it as fraud. Not only do I have to discuss it with Chase, identify myself thoroughly and let them know that yes, I did initiate the ACH - they insisted on getting my CU on a 3-way call to make sure the money was in the account. Because apparently they don't trust me to transfer money INTO their bank.

I'm now super happy that I'll be gouging Chase for that $1k. Plus a $300 savings account signup bonus.
There are so many mustachian warm fuzzies here. $1300 is a pretty good hourly wage for the bullshit they're putting you through.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 02, 2019, 09:33:46 AM
You must have a nicer house than we do
Or he lives in an area where houses are much more expensive. Plenty of places where a modest single family home might have a ~700k mortgage.

Or I could have made a mathematical mistake :-)

Housing in Charlotte isn't super expensive, my neighborhood is maybe only $135 a square foot.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on December 02, 2019, 11:18:05 AM
That alone is a no brainer for the $18k that I can into a 401k every year.
19k in 2019 and 19,500 in 2020. Don't forget to up your contributions to match the new limits each year (18k was the 2017 limit).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 02, 2019, 12:22:09 PM
That alone is a no brainer for the $18k that I can into a 401k every year.
19k in 2019 and 19,500 in 2020. Don't forget to up your contributions to match the new limits each year (18k was the 2017 limit).
Thanks for the reminder, @robartsd! I noticed that, too, but let it pass. We're significantly older; a different number applies. I always make a mental adjustment when someone quotes another figure. It's good to remind people to double check their withholding, especially now, while there's still time to correct before year end.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 03, 2019, 09:48:23 AM
I've been living in the ARM adjustment period for twelve payments.

Just got my bill for payment #13, and...my rate got adjusted downward! Slicing $73/month off of my payment (I forgot to look at the P/I breakdown). How'ya like me now?
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on December 03, 2019, 10:01:56 AM
Nice! We have a 10/1 ARM, but are still 5.5 years away from entering the adjustment period. Just realized you almost never hear about people being in that situation, at least around here, it's mostly just the horror stories during the Great Recession, and then people who use ARMs and then refinance before it adjusts, which makes sense given the trend towards falling rates since 2009. Of course, it was only like 6 years ago that I discovered MMM, and our financial picture has changed so positively since then, so it's a little hard to imagine what it'll be like for us in 5.5 years, but I'm guessing we'll have enough abundance to just pay it off completely if the adjustment and/or refinance options are both prohibitively expensive, which means it will be truly just an optimization problem, and not an actual true financial problem that we'll be dealing with then.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 03, 2019, 11:57:32 AM
When you look at the numbers, signing up for our ARM in 2013 was the absolute right decision.

There was an irrational part of me that felt like a total idiot and couldn't sleep the night I got the letter with our new rate in late 2018. The numbers hold up, though!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 04, 2019, 01:28:39 AM
When you look at the numbers, signing up for our ARM in 2013 was the absolute right decision.

There was an irrational part of me that felt like a total idiot and couldn't sleep the night I got the letter with our new rate in late 2018. The numbers hold up, though!
Congratulations! I had an ARM way back when. It was tied to a great index, but still, it was adjustable and conventional wisdom said fixed rate was better. I refied into a fixed rate loan when rates dropped for the supposed "security". With the advantage of hindsight, it was a huge mistake. It was one of those loans that would have been far cheaper to keep. Whoda thunk? Fortunately, the road to FIRE has considerable margin for error, and I finally managed to get there, but hanging onto that loan would have led to some serious bragging rights.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 04, 2019, 07:07:13 AM
Hopefully we'll have the property with that loan attached sold by spring.

In today's market ARMs are terrible. banks are asking you to accept a higher rate now than the 30-year fixed and also bear the risk.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 05, 2019, 10:08:49 AM
Hey!  We hit the mainstream.   Fidelity article cautiously points out not paying off the mortgage might be a good idea:

https://www.fidelity.com/viewpoints/personal-finance/extra-mortgage-payment
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 05, 2019, 10:10:52 AM
Awfully close timing to when this thread crossed the "Pay off your mortgage" one in post count.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 05, 2019, 10:12:56 AM
Hey!  We hit the mainstream.   Fidelity article cautiously points out not paying off the mortgage might be a good idea:

https://www.fidelity.com/viewpoints/personal-finance/extra-mortgage-payment
I just wish the subtitle read: Paying off the mortgage early doesn't make financial sense for some most people.

Of course, I have to acknowledge that many (most?) people wind up spending anything 'extra' from their paycheck, so in that one regard it makes sense...
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 07, 2019, 03:09:42 PM
Baby steps.  The realization that 10% > 4% is slowly starting to sink in. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 08, 2019, 11:57:00 AM
Hey!  We hit the mainstream.   Fidelity article cautiously points out not paying off the mortgage might be a good idea:

https://www.fidelity.com/viewpoints/personal-finance/extra-mortgage-payment
Overall, I love this article. The biggest flaw is using the example of a person who is nearing retirement. The younger you are, the more impact saving and investing first is going to have.

Also, this article sparked an observation related to the point about the emotional "thrill" of paying off a mortgage (as well as the "drag" of carrying Mortgage Debt). Most people simply cannot fathom paying off such a huge purchase, so they think it's going to feel amazing to pay it off. In my experience, people are even less able to imagine that saving and investing steadily in their younger years will make them rich. They eventually will have the amount of their mortgage several (or many) times over invested in their very own accounts! Nope, too hard to believe.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kem on December 12, 2019, 01:59:10 PM
A compelling reason to pay off the mortgage (and student loan) early

Note that right now, with children in our lives, our full fat FIRE number is a tad high through choice.
With that shameful glance aside

Full Fat Fire including Cashflow to cover P&I&Fees: $1,194,159
Full Fat Fire including Debt Balance, sans Debt Cashflow:  $967,507
Full Fat Fire sans debt payments: $729,462

As such, my swr portfolio may be nearly 20% smaller at the point of debt payoff versus waiting to hit the cashflow to cover the debt.
So it may make sense to pay off the mortgage early - only if it is being paid in a lump sum at the time of Full-FIRE

:P

Edit:
Mortgage is 30 years fixed - I just refied to 3.785%
Student loan is 20 years fixed - I refied about a year ago to 5.01%
.
I have a spreadsheet I update monthly with these sliding scales.
The assumptions change drastically if RE includes another source of income
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on December 12, 2019, 02:23:27 PM
As such, my swr portfolio may be nearly 20% smaller at the point of debt payoff versus waiting to hit the cashflow to cover the debt.

You know you don't need to cover the full cash flow of your debt payments, right? They are finite.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 12, 2019, 02:38:32 PM
Here's a philosophical question:

I'm a big fan of the the 30 year fixed, for the simple reason...it's fixed for 30 years.

But I'm looking at an investment property and the mortgage broker suggested a 5/1 interest only ARM.   A product I had never really thought about it much depth before.
 Obviously, the cash flow is much better through the first five years.  And isn't it interest only sort of the ultimate never pay off your mortgage?   Obviously, there is a potential time bomb out there where you may have to refinance.  Aside from that, what are the other downsides? 
Title: Re: DONT Payoff your Mortgage Club
Post by: chasesfish on December 12, 2019, 02:40:37 PM
By adjusting the points I can get a zero closing cost 30yr loan for 3.875% or a 15 for 3.5%

I would float and keep watching rates Libor + 2% should be 3.5% anyways.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 12, 2019, 03:52:18 PM
A compelling reason to pay off the mortgage (and student loan) early

Note that right now, with children in our lives, our full fat FIRE number is a tad high through choice.
With that shameful glance aside

Full Fat Fire including Cashflow to cover P&I&Fees: $1,194,159
Full Fat Fire including Debt Balance, sans Debt Cashflow:  $967,507
Full Fat Fire sans debt payments: $729,462

As such, my swr portfolio may be nearly 20% smaller at the point of debt payoff versus waiting to hit the cashflow to cover the debt.
So it may make sense to pay off the mortgage early - only if it is being paid in a lump sum at the time of Full-FIRE

:P

You are missing a whole bunch of info for this post to be informative one way or the other
Title: Re: DONT Payoff your Mortgage Club
Post by: Kem on December 12, 2019, 04:38:00 PM
Mortgage is 30 years fixed - I just refied to 3.785%
Student loan is 20 years fixed - I refied about a year ago to 5.01%
.
I have a spreadsheet I update monthly with these sliding scales.
The assumptions change drastically if RE includes another source of income

I do understand that the cashflow of the debt payments are finite - as the term nears the skew changes in favour of not paying off early and the math becomes a great deal more fun to determine if it makes sense to pay off early in a lump sum.  I think for most scenarios this does NOT make sense, however if the investment pool has reached a certain size and the term is still rather far out, I believe it can actually reduce one's time to FIRE via lump sum payment.

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 13, 2019, 12:24:24 PM
Here's a philosophical question:

I'm a big fan of the the 30 year fixed, for the simple reason...it's fixed for 30 years.

But I'm looking at an investment property and the mortgage broker suggested a 5/1 interest only ARM.   A product I had never really thought about it much depth before.
 Obviously, the cash flow is much better through the first five years.  And isn't it interest only sort of the ultimate never pay off your mortgage?   Obviously, there is a potential time bomb out there where you may have to refinance.  Aside from that, what are the other downsides?

I have not invested in property, only ever owned my own home.

When I was buying my previous house, the 5/1 ARM was a very compelling product, as it came with a 3.0% APR, versus 4 1/8 for the 30-year fixed. Are you able to get a much lower rate for this 5/1 arm?

I think of it as being compensated up-front in order to bear more risk beginning with that 61st payment. So--when evaluating this investment--determine the maximum risk (i.e. loan balance) you're willing to bear at a higher interest rate, and then plan accordingly.
Title: Re: DONT Payoff your Mortgage Club
Post by: chasesfish on December 13, 2019, 03:44:16 PM
Here's a philosophical question:

I'm a big fan of the the 30 year fixed, for the simple reason...it's fixed for 30 years.

But I'm looking at an investment property and the mortgage broker suggested a 5/1 interest only ARM.   A product I had never really thought about it much depth before.
 Obviously, the cash flow is much better through the first five years.  And isn't it interest only sort of the ultimate never pay off your mortgage?   Obviously, there is a potential time bomb out there where you may have to refinance.  Aside from that, what are the other downsides?

I have not invested in property, only ever owned my own home.

When I was buying my previous house, the 5/1 ARM was a very compelling product, as it came with a 3.0% APR, versus 4 1/8 for the 30-year fixed. Are you able to get a much lower rate for this 5/1 arm?

I think of it as being compensated up-front in order to bear more risk beginning with that 61st payment. So--when evaluating this investment--determine the maximum risk (i.e. loan balance) you're willing to bear at a higher interest rate, and then plan accordingly.

I'm going to second what TallTexan said - it really depends on the difference between the short/long term.

I went with a 7/1 ARM on my last house, it was the difference between a 2.875% rate or a 3.75% rate on a 30 year.  The ARM also could only go up by 2% per 7 year reset.  Under my worse case scenario, I would pay 4.875% for years 8-14 on a much lower loan balance.  The breakeven under the worse case scenario said I wouldn't be better off with the 30 year until something around year 11.

That and most people don't live in a house for 30 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on December 13, 2019, 05:26:55 PM
I went with a 7/1 ARM on my last house, it was the difference between a 2.875% rate or a 3.75% rate on a 30 year.  The ARM also could only go up by 2% per 7 year reset.  Under my worse case scenario, I would pay 4.875% for years 8-14 on a much lower loan balance.  The breakeven under the worse case scenario said I wouldn't be better off with the 30 year until something around year 11.

That and most people don't live in a house for 30 years.
I thought a 7/1 ARM adjusts annually after the first 7 years. I think you did it right in your analysis: adjusting up 2% every 7 years I get a break even in terms of total interest paid early in year 15.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 13, 2019, 07:49:11 PM
I get the 5/1 vs. 30 fixed arguments.  As I mentioned, I'm on the side of the 30-year fixed for residential.   My question/thought is how to properly think about the 5/1 interest only for investment.    Interest only is sort of the ultimate DPYM, right?  It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future. 
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on December 13, 2019, 09:22:56 PM
I get the 5/1 vs. 30 fixed arguments.  As I mentioned, I'm on the side of the 30-year fixed for residential.   My question/thought is how to properly think about the 5/1 interest only for investment.    Interest only is sort of the ultimate DPYM, right?  It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.

A 5/1 would enable an investor to build up a repair fund for a buy-and-hold faster by putting more money in their pocket sooner.   

With the potential time-bomb of rising interest rates later, of course.   

Or to put in less money for a property being bought for appreciation with the intent to sell within 5 years (or thereabouts).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 14, 2019, 02:42:48 AM
I get the 5/1 vs. 30 fixed arguments. As I mentioned, I'm on the side of the 30-year fixed for residential. My question/thought is how to properly think about the 5/1 interest only for investment. Interest only is sort of the ultimate DPYM, right? It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.

A 5/1 would enable an investor to build up a repair fund for a buy-and-hold faster by putting more money in their pocket sooner.   

With the potential time-bomb of rising interest rates later, of course.   

Or to put in less money for a property being bought for appreciation with the intent to sell within 5 years (or thereabouts).
In my neck of the woods, lenders require 25% down on investment properties and charge at least 50 basis points more than the owner occupied rate. We purchase investment properties with the same buy-and-hold approach that we use for equities. At current rates, a 5/1 (or any other ARM) just isn't worth the risk.
Title: Re: DONT Payoff your Mortgage Club
Post by: chasesfish on December 21, 2019, 10:02:25 AM
I get the 5/1 vs. 30 fixed arguments.  As I mentioned, I'm on the side of the 30-year fixed for residential.   My question/thought is how to properly think about the 5/1 interest only for investment.    Interest only is sort of the ultimate DPYM, right?  It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.

A 5/1 would enable an investor to build up a repair fund for a buy-and-hold faster by putting more money in their pocket sooner.   

With the potential time-bomb of rising interest rates later, of course.   

Or to put in less money for a property being bought for appreciation with the intent to sell within 5 years (or thereabouts).

The investor also has the benefit of rates going up = better economy = likely better rents
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on January 02, 2020, 08:43:53 AM
"Power move" completed today - front-loaded 2020 IRAs and 2020 SoloK with funds remaining from the refinance. Probably would have been better to go taxable back in October, but this way comes with the benefit of zero-stress on getting these accounts funded in time for 2020.

Had another thought on a source of cheap money. Chase has had 0% interest for ~14 months balance transfer offers ever since I've had any cards with them - 5+ years at this point. 4% one time fee. Bank of america seems to have had the same deal going since I've had one of their cards last year, except a lower fee of 3%.

My thought is I could get $20K in funds pretty easily - $10K from Chase, $10K from BofA. Set to auto-pay minimum payment. Then when around 14 months comes closer, pay the accounts off with a balance transfer to the other one. Rinse and repeat. Borrowing at ~3-4% annually until those offers stop coming in. Could do even more money if I can get BofA to increase credit limit - key is to have another bank to pay off via balance transfer with. If I could get them all the way up to the combined chase limits, that's around $120K total. Would be more complicated due to limits on amount of each balance transfer, so would likely be spread out over several months.

Think I need to think through the issues on this - maybe will try it in a few months.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on January 02, 2020, 01:10:53 PM
"Power move" completed today - front-loaded 2020 IRAs and 2020 SoloK with funds remaining from the refinance. Probably would have been better to go taxable back in October, but this way comes with the benefit of zero-stress on getting these accounts funded in time for 2020.

Had another thought on a source of cheap money. Chase has had 0% interest for ~14 months balance transfer offers ever since I've had any cards with them - 5+ years at this point. 4% one time fee. Bank of america seems to have had the same deal going since I've had one of their cards last year, except a lower fee of 3%.

My thought is I could get $20K in funds pretty easily - $10K from Chase, $10K from BofA. Set to auto-pay minimum payment. Then when around 14 months comes closer, pay the accounts off with a balance transfer to the other one. Rinse and repeat. Borrowing at ~3-4% annually until those offers stop coming in. Could do even more money if I can get BofA to increase credit limit - key is to have another bank to pay off via balance transfer with. If I could get them all the way up to the combined chase limits, that's around $120K total. Would be more complicated due to limits on amount of each balance transfer, so would likely be spread out over several months.

Think I need to think through the issues on this - maybe will try it in a few months.

It's all good times until the bill comes due and something has gotten in the way of repaying it...
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on January 02, 2020, 01:18:24 PM
It's all good times until the bill comes due and something has gotten in the way of repaying it...
Right. While I'd be trying to keep the debt outstanding indefinitely, it really is a ~1 year loan that I'm just hoping to roll over annually at low cost.

At $20K, shouldn't be too hard to just re-pay it if it came to that. At $120K, that would potentially be more difficult. If investments had worked out well over whatever the time frame is, then it would be easier down the road due to the whole "have more money" part of it. Would also impact credit score with the higher outstanding balance.

Like everything, gotta figure out the balance of the risks and benefits. I may keep this idea as a back-pocket thing in case I ever start to fall behind on the tax-advantaged accounts again.
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on January 02, 2020, 05:50:59 PM
I'm 3+ years into juggling about $50k in 0% credit card debt.  I was savagely mocked here for doing this but it's been hugely beneficial to my financial health.

Obviously, if you miss a payment or otherwise screw up, it could be very costly.  But we're smarter than that here in MMM-land.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 03, 2020, 06:35:19 AM
@Pizzabrewer I think I remember your other thread (DON'T Payoff your Credit Cards).

It sounds like things have worked out for you, which is great. It doesn't mean we were wrong and that there was not risk, but it sounds like you've managed it. I borrowed money against a taxable investment account as a substitute for selling investments, and--so far--it's worked out for me, too. But no one is pretending those loans have the desirable features of a 30-year fixed rate mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 03, 2020, 10:07:01 PM
Always makes me happy to see updates to this thread. Carry on, noble mustachians!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 07, 2020, 06:48:10 AM
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 07, 2020, 06:54:30 AM
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.
Title: Re: DONT Payoff your Mortgage Club
Post by: nburns on January 07, 2020, 10:11:26 AM
Bought a house about 15 months ago. 30 yr mortgage at 4.875%.  Recently refinanced to another 30 year mortgage but at 3.5%.  Never paying it off early!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 07, 2020, 12:51:08 PM
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.

Indeed the option to re-invest the gains into the mutual funds was available. I'm opting to pay down the loan balance instead.

But that loan does not share some of the most favorable characteristics of a 30-year fixed rate mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 07, 2020, 01:11:08 PM
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.

Indeed the option to re-invest the gains into the mutual funds was available. I'm opting to pay down the loan balance instead.

But that loan does not share some of the most favorable characteristics of a 30-year fixed rate mortgage.
Hmmm, still doesn't seem like something for which you need to seek absolution ;-). Just seems smart to me, which is exactly what's making me wonder what I'm missing.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on January 07, 2020, 01:31:55 PM
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.

I read it as a follow up to:
I'm 3+ years into juggling about $50k in 0% credit card debt.  I was savagely mocked here for doing this but it's been hugely beneficial to my financial health.

Obviously, if you miss a payment or otherwise screw up, it could be very costly.  But we're smarter than that here in MMM-land.

@Pizzabrewer I think I remember your other thread (DON'T Payoff your Credit Cards).

It sounds like things have worked out for you, which is great. It doesn't mean we were wrong and that there was not risk, but it sounds like you've managed it. I borrowed money against a taxable investment account as a substitute for selling investments, and--so far--it's worked out for me, too. But no one is pretending those loans have the desirable features of a 30-year fixed rate mortgage.

In addition to mortages, Pizzabrewer and talltexan are admitting to using other sources of low cost leverage that carry risks many of us who choose not to pay off a mortgage would not accept. Talltexan pointed out that what Pizzabrewer was doing was more risky than the mortgages we celebrate in this thread, but followed up to confess that he's done something that is also more risky.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 07, 2020, 01:44:37 PM
It's true. It's fair.

Risk is also about unit time. I plan on maintaining my five-figure balance on a variable rate LoC for a period of 4-6 mo's. Obviously, the equity that will come with the sale of the old house will have to be put to work, I'll keep the group here posted.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fiddler on January 09, 2020, 03:12:57 AM
Hi,

New Dutch home-owner checking in. 

Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.

The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%

As our mortgage payments drop slightly every month, we want to invest the freed up cash. I've tried to visualize our options in the attachment. I've calculated that after 227 months our remaining mortgage would be equal to the invested amount (green line meets purple line). The other options include investing the mortgage deductible (hypotheekrenteaftrek, HRA).

Do you guys know any online calculators where I can check my predictions?


Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 09, 2020, 06:49:44 AM
Hi,

New Dutch home-owner checking in. 

Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.

The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%

As our mortgage payments drop slightly every month, we want to invest the freed up cash. I've tried to visualize our options in the attachment. I've calculated that after 227 months our remaining mortgage would be equal to the invested amount (green line meets purple line). The other options include investing the mortgage deductible (hypotheekrenteaftrek, HRA).

Do you guys know any online calculators where I can check my predictions?
I can't answer your question, sorry. Just posting to say I'm impressed with how reasonable your system looks. Wow.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on January 09, 2020, 07:17:03 AM
Hi,

New Dutch home-owner checking in. 

Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.

The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%

As our mortgage payments drop slightly every month, we want to invest the freed up cash. I've tried to visualize our options in the attachment. I've calculated that after 227 months our remaining mortgage would be equal to the invested amount (green line meets purple line). The other options include investing the mortgage deductible (hypotheekrenteaftrek, HRA).

Do you guys know any online calculators where I can check my predictions?

I don't know of one that is coded to auto-magically handle those calculations.   
But here are two options that might help with a bit of work on your part.

Excel has a mortgage amortization template that you can use to create a new document.   If you add data fields for the loan-to-value and interest rate columns, and modify the interest calculation column to use that data instead of a fixed rate, it will work for you.   Perhaps there is a Dutch Excel user group that's already done that for you?

Karl's Mortgage Calculator   https://www.drcalculator.com/mortgage/ (https://www.drcalculator.com/mortgage/) handles variable rates but they are date based, not balance based.    It shows you enough information that you can figure out what dates to use to set the rates.    It would be off if you were paying extra principal but, given this thread, we know you won't do that!
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on January 09, 2020, 12:07:28 PM
The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%
I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.

Since your loan structure pays off principle at a constant rate, if you assume that MV remains constant at 300.000, it is easy to calculate when you would cross each LTMV threshold (95% 15 payments, 85% 51 payments, 65% 124 payments, 55% 160 payments). Adjusting the MV to 305.000 it becomes 95% 9 payments, 85% 46 payments, 65% 120 payments, 55% 157 payments).
Title: Re: DONT Payoff your Mortgage Club
Post by: UncleX on January 10, 2020, 01:04:32 AM
I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.

Some Dutch lenders may require professional evaluation, but most will likely accept WOZ-value. This is the value of property determined by the municipality and used to calculate property tax and such. It is usually a bit lower than real market value though (10-20%).

My guess is that most lenders will probably only take remaining principal into account when calculating LTMV. In that case, you should contact them if WOZ-value has risen enough to lower your interest rate. In addition, if market value rises fast, a professional evaluation may pay for itself in no time.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fiddler on January 10, 2020, 05:27:32 AM
I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.

Some Dutch lenders may require professional evaluation, but most will likely accept WOZ-value. This is the value of property determined by the municipality and used to calculate property tax and such. It is usually a bit lower than real market value though (10-20%).

My guess is that most lenders will probably only take remaining principal into account when calculating LTMV. In that case, you should contact them if WOZ-value has risen enough to lower your interest rate. In addition, if market value rises fast, a professional evaluation may pay for itself in no time.

Our mortgage supplier requires a professional evaluation, costs are ~€500. Getting a new appraisal might be worth considering after we finish our remodeling, depending on the housing market at that time. With the housing shortage in the Randstad, WOZ-values are lagging severely behind market prices.
Title: Re: DONT Payoff your Mortgage Club
Post by: BECABECA on January 14, 2020, 09:37:13 AM
Found MMM just before buying my current house nearly 4 years ago. I’ve been committed to making my financial decisions now strictly on the math. So I’m not prepaying any of this loan.

Loan amount: $680k (original); $540k (current balance)
Loan term: 3.0% for 15yrs (11.25yrs left)
Monthly payment: $4696

According to the equations in the beginning of this thread, assuming 7% return in the market, not prepaying my mortgage is estimated to net me $407k over the 15 year term.

However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2020, 09:41:23 AM

However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.

Keep it up!  As the loan becomes smaller (both through normal amortization and through inflation) your taxable accounts will continue to grow.  Once you hit the halfway point it doesn’t take much longer for the mortgage to be “much smaller” than investments.  ...and then you can consider a cash-ReFi :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 14, 2020, 10:00:20 AM

However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.

Keep it up!  As the loan becomes smaller (both through normal amortization and through inflation) your taxable accounts will continue to grow.  Once you hit the halfway point it doesn’t take much longer for the mortgage to be “much smaller” than investments.  ...and then you can consider a cash-ReFi :-)
Awesome job! + 3% is very impressive! Good for you for grabbing it and holding on to it as long as possible.
Title: Re: DONT Payoff your Mortgage Club
Post by: BECABECA on January 14, 2020, 10:23:50 AM

However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.

Keep it up!  As the loan becomes smaller (both through normal amortization and through inflation) your taxable accounts will continue to grow.  Once you hit the halfway point it doesn’t take much longer for the mortgage to be “much smaller” than investments.  ...and then you can consider a cash-ReFi :-)

I actually started thinking about that yesterday. At a 70% loan to appraisal ratio, I think I could get $1,000,000 loan. That’d give me 460k cash out now. At 3.5% over 30 years it’d be roughly the same monthly payment amount that I currently have.

However, DW is still working so it’s easy to keep the loan payments now, since it’s covered by her salary and we have health insurance through her employer so we don’t need to have our annual income low for ACA. I want her to retire right away but she is still enjoying work and talks like she wants to keep working for at least 5 more years. I always assumed I’d pay off the mortgage in full the day she retired to mitigate SORR.

Hmm, I guess it’s time for me to hit cfiresim and start running some scenarios.
Title: Re: DONT Payoff your Mortgage Club
Post by: terrifictim on January 14, 2020, 12:41:39 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.

Another post to show the power of this approach. When I first joined this club (Oct 2017) I had $202k in loan remaining and a NW of $309k. Since then my loan has only dropped to $190k, but my NW has jumped to $680k, and my asset allocation between real estate and investment is much closer to 50%. And I have a great deal of confidence now knowing that I have more than $300k in liquid + liquidish accounts that I could turn to if it hits the fan. Thanks @B42 and @Dicey and all others who are enthusiastic about this.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 14, 2020, 12:45:08 PM
Co-worker just shared with me that her brother is getting a VA loan, buying a house in the $490,000 range with very little down and a rate below 3.3%. Great time to be taking on smart debt!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 14, 2020, 05:27:29 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.

Another post to show the power of this approach. When I first joined this club (Oct 2017) I had $202k in loan remaining and a NW of $309k. Since then my loan has only dropped to $190k, but my NW has jumped to $680k, and my asset allocation between real estate and investment is much closer to 50%. And I have a great deal of confidence now knowing that I have more than $300k in liquid + liquidish accounts that I could turn to if it hits the fan. Thanks @B42 and @Dicey and all others who are enthusiastic about this.
In another part of my life, the shit totally hit the fan today. You have no idea how much your kind words are appreciated. Thanks @terrifictim, @BECABECA , and all the other cool cats who keep this thread active and relevant for people who want to learn about how to use mortgages to supercharge their paths to FIRE. I love all of youse, as my dear old dad used to say.

Disclaimer: For the gazillionth time, it's no sin to pay off your mortgage, if it's the best possible financial decision for your situation. If you've mastered the Investment Order and you're really making a math-based decision, you'll get no quarrels from Dicey.

https://forum.mrmoneymustache.com/investor-alley/investment-order/
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2020, 05:29:16 PM
Sorry to hear your week hasn’t gone well, @Dicey - been a hard week for us here, too.

...but we again paid the minimum on our mortgage, and again contributed as much as we could towards taxable accounts.  Slowly building wealth in New England.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 15, 2020, 07:22:55 AM
Lately I've become something of a "financial priest" at work, with several people coming to me for advice with the refinances. I have the toughest time telling them whether to go for 15-year or 30-year. The spread in rates they're being quoted is 0.75%, but I'm also experiencing acutely how hard it is to get your principal back out of a property.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 15, 2020, 07:44:36 AM
Lately I've become something of a "financial priest" at work, with several people coming to me for advice with the refinances. I have the toughest time telling them whether to go for 15-year or 30-year. The spread in rates they're being quoted is 0.75%, but I'm also experiencing acutely how hard it is to get your principal back out of a property.
IMO, the best answer is the 30 gives you the most flexibility. You can always double up on payments, but paying only half makes the big ol' bank a wee bit cranky...

Not saying you "should" double up, just that you "could".
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 15, 2020, 08:19:10 AM
When I was deciding on my own mortgage (in September of last year), spread was only 3/8 %, made the choice for the 30-year very easy.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on January 15, 2020, 09:49:18 AM
Big fan of the 30 fixed as well.   
Title: Re: DONT Payoff your Mortgage Club
Post by: BECABECA on January 15, 2020, 10:01:36 AM
It really depends on the person you’re advising. If you’re sure they’re going to take the difference in monthly payment amount and invest it in stock indexes, then yes 30 year. But if they’re going to use it to put in a cash savings account or worse inflate their current lifestyle, then 15 year.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 15, 2020, 10:02:20 AM
BIL had a similar question.  I used an online calculator to show him what doubled-up payments on a 30y looked like vs the 15y.  The difference wasn’t much, despite the ~0.5% spread.  What sold him on the 30 year was when I ran a third scenario showing him how the money spent NOT on extra mortgage payments but contributing to their tIRA would lower their taxes by close to $2k.  So the actual money they got to “keep” (either in home equity or in retirement accounts) was far greater each year than going with a 15y.
Title: Re: DONT Payoff your Mortgage Club
Post by: moonpalace on January 17, 2020, 01:37:15 PM
After 5 years of not paying extra on my mortgage, my stash has now comfortably surpassed my mortgage balance. When we started MMM stash was about $240k less than the mortgage. Come to think of it, stash now surpasses (mortgage + student loans) too. Feels pretty darn amazing!!

Thank you, @Dicey and others (@boarder42 RIP) who keep this thread alive!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 17, 2020, 05:44:24 PM
After 5 years of not paying extra on my mortgage, my stash has now comfortably surpassed my mortgage balance. When we started MMM stash was about $240k less than the mortgage. Come to think of it, stash now surpasses (mortgage + student loans) too. Feels pretty darn amazing!!

Thank you, @Dicey and others (@boarder42 RIP) who keep this thread alive!
Hot damn! Congratulations!
Title: Re: DONT Payoff your Mortgage Club
Post by: freya on January 17, 2020, 07:27:31 PM
Late to the party but joining the thread anyway....

When I bought my first place, I threw all the taxable savings I could at the mortgage, I just wanted to slaughter the thing.  That was reasonable at the time, when my rate was 6%.  But now that it's 3.875% (30 year fixed), I can't justify paying it off early.

Absolutely investing the money is better, but there's more.  As a single tax filer in a high income tax state, I get to itemize deductions - which means I get to deduct not only most of the mortgage interest, but also all charitable donations.  Also my coop (like many others) has an underlying mortgage and I get to deduct that interest as well.

Nice that the new tax law did us high tax state single filers this little favor, to compensate for us otherwise getting creamed.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on February 08, 2020, 11:57:57 AM
I made my 90th minimum mortgage payment this month.  I haven't paid a single cent extra towards it.  When I was looking at houses, I was worried about the debt and even considered 15 year loans.  I was thinking I'd pay it off early once I had a little cash/investment cushion saved up.  I looked at those calculators that showed you how much interest you'd pay over 30 years and thought it'd be smart to pay it off so I could save myself from wasting all that money on interest.  Luckily I stumbled upon MMM shortly thereafter when researching opening a taxable account at Vanguard.  Reading MMM and then the forums convinced me to keep paying the minimum and invest as much as possible.  I was pretty risk adverse, so it's really a good thing that the market didn't crash on me right away and has instead gone up consistently since then.  It's given me the confidence to be a long-term investor and I think I'm now ready to withstand the drops without panicking.  I've only been tested a few times, but so far so good.  Now that I've experienced the upside, I'm more accepting of the downside that comes with it.

I'm very lucky to have bought at pretty much the perfect time with 3.5% interest rate for 30yrs and reasonable house prices.  My house has appreciated at least $75k if not closer $100k since I bought it.  The PITI payment on my 3 bed, 2 bath, 1500 sq. ft. house is less than it'd cost to rent a 1 bedroom apartment.  And I've been dumping all excess cash into the stock market.  If I had decided to put all extra money towards my mortgage instead, I'm sure I'd have a paid off house by now, but I'd be hundreds of thousands of dollars poorer.  I sleep very well at night knowing I have more than enough in my taxable account now to pay off my mortgage.  Even before I did, I didn't lose any sleep over it.  You have to live somewhere and my house is cheaper than renting.  I've always equated mortgage to rent rather than thinking about it as a debt which helps I think.

Not paying off my mortgage has skyrocketed me towards FI, and I should be able to FIRE in a couple years.  I understand possibly paying off your mortgage once you've reached FI and want a little more stability and possibly have ACA income limits to keep in mind.  But in the accumulation stage, it makes absolutely no sense to pay off a mortgage of 4-5% or less.  Especially if you're doing so instead of maxing out tax-advantaged accounts.  We should not accept that paying off your mortgage is as "equally good" as paying the minimum and investing the difference (in the case of long-term, low fixed-rate mortgages).  In the large majority of the cases, it's not.  You're betting against yourself when you do this and almost guaranteeing that you will work longer.  So thanks to boarder42 (RIP) for starting this awesome thread and to Dicey and others for continuing to spread the truth around these forums.  I'm sure some minds are being changed whether they speak up or not.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on February 08, 2020, 12:07:33 PM
That's awesome,  @Vapour ! We're at exactly half that having just made the 45th minimum payment this month.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on February 08, 2020, 12:21:35 PM
I'm sure some minds are being changed whether they speak up or not.

Absolutely!    Had I not seen this thread I would have poured money into my last house to pay it off early.   Instead, I put that money to work.   We ended up much better off.

Now that we're FIRED with a very healthy margin, we're going to pay off the new mortgage quickly.   Partly just to simplify our life but mostly so we take our SWR to 0%.  That way, we know there will be a lot more left to support our mentally handicapped daughter when we pass away.

Title: Re: DONT Payoff your Mortgage Club
Post by: ender on February 08, 2020, 01:47:35 PM
Current mortgage rates are absurd.

Absurdly cheap.

I'm torn on the emotional aspect vs math aspects here though. We sold our house and having no mortgage (temporarily) feels so relieving! But... so would another $300k in the bank or whatever price we'll end up buying with a mortgage.

But if we have a 3.375% mortgage, which is apparently what Redfin is offering for 30 years right now... holy low rate batman.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 10, 2020, 07:50:07 AM
Is anyone seeing sub-3 for the 15-year?
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on February 10, 2020, 10:43:43 AM
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on February 10, 2020, 11:00:18 AM
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

Like almost everything in personal finance, it varies from person to person.

I've also found that failure rates are lower with a paid-off mortgage in retirement. It will make ACA subsidies and college financial aid for our child easier to obtain as well.

With that in mind, we will aim to pay off our mortgage in a lump sum around the time we retire. Where that lump sum will come from is currently unknown, since we don't even max out all of our tax-advantaged investments right now.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on February 10, 2020, 11:15:00 AM
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

For us, ACA is a non-starter.   It just wasn't possible for us to get our countable income low enough to get a subsidy (without giving away a lot of property and assets, which we sure as heck aren't going to do.)

I'll preface this by saying that for most folks, particularly younger folks, think LONG and HARD before you pay off a low interest, fixed rate, non-callable mortgage early instead of investing the difference.   Don't let emotion get in the way of making the best decision.

At the moment, we have TWO mortgages in FIRE.   (We bought a new house in mid-January.)

The original plan was to milk the mortgage for the rest of its lifespan, which was about 12 years when we FIRED.   We now owe about $145K on it.

But I got tired of it, so we decided to pay it off over a 3-4 year time span.

Then we found a dream house at a good price and we bought it.  New mortgage is $230K.

We're selling a non-profit flip-house in a few months that will hopefully take the new mortgage down by $62K if the buyer can get a bank loan.   If not, we'll do owner financing and pump the payments into the new mortgage.

We'll now sell our old house ASAP, hopefully by summer, and roll over the recovered equity into our new mortgage.   That will cut it by another $100K to $125K.   (150K in my dreams!)

RMDs over the next two Januaries and some extra principal payments after our old house sells should get us paid off within 20 to 36 months.   I'll be glad to be rid of them.

In principle, we would make more money by keeping the new mortgage.

In reality, we would have to watch our spending much more closely than we like to.    I would rather be rich and feel rich than be rich and feel poor because I have to watch every single penny (like we did when we were actually poor).   Paying off the mortgage gives us a bunch of discretionary spending for travel, tools, date nights, or whatever and it does it while we're still young enough to enjoy it.

My target is to be mortgage free in 25 months.

Now, some of you may be chuckling because I've just given an emotional reason for paying off our own mortgage early after advising others, particularly younger folks, to think hard before doing so.

The difference is (a) we're already rich, (b) we're already FIRED, (c) we and our kids won't need even more money than we have,  and (d) we're not young, not by a long shot.   Even the die-hard don't pay off your mortgage early folks agreed it was reasonable for us to pay off our old mortgage early (before we got a new one), and it had an interest rate that was a lot lower than our current one.
Title: Re: DONT Payoff your Mortgage Club
Post by: seaniemac on February 10, 2020, 11:25:12 AM
I want to refinance my mortgage to take advantage of lower rates and need opinions. I was going to refi into a 15 year @ 3% until I found this thread.
House Value - $190K
Mortgage Balance - $127,400
Rate - 4.875%
Remaining months - 229
RE max date of 13.33 years away- me 47 years old wife 55. Wihe gets a 20 year teacher pension worth 40% of salary.
But after thinking/ reading/ learning more and more about FIRE I am now thinking of RE in 5 years - when wife is eligible for a 12 year teacher pension with medical, so...

I was going to refi into a 15 year @ 3% until I found this thread.
Now I am totally thinking of switching gears, refiing into a 30 year @ 3.375% and investing into a taxable account. My question is do I pay 1.375 points (150k * 1.375 = $2,062) to pull out $20k or forego the points and just refi the balance?
Thanks in advance for the help,
Sean


   



Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 10, 2020, 12:18:00 PM
So, paying $2,060 will let you have $20,000 more cash in hand, but your loan balance is that much higher. Isn't that paying 10% for a one time chance to borrow from yourself?

I'm used to seeing a point-paid to lower the interest rate, but this sounds different.

3 3/8 sounds pretty dang good.
Title: Re: DONT Payoff your Mortgage Club
Post by: seaniemac on February 10, 2020, 01:18:21 PM
I know right 3 3/8 sounds too good to be true.  The cash-out aspect has me really puzzled. 
Title: Re: DONT Payoff your Mortgage Club
Post by: freya on February 10, 2020, 02:38:38 PM
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it:  the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter.  Over a 30 year loan lifetime you should realize something close to the historical average.

This is assuming you actually do invest the money rather than spend it or sock it into cash.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 10, 2020, 05:01:56 PM
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it:  the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter.  Over a 30 year loan lifetime you should realize something close to the historical average.

This is assuming you actually do invest the money rather than spend it or sock it into cash.
As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home.  By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house).  Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0.  Until that point I won’t fall into the trap that so many do - being house rich and cash poor.

Title: Re: DONT Payoff your Mortgage Club
Post by: freya on February 11, 2020, 07:36:13 AM
Until that point I won’t fall into the trap that so many do - being house rich and cash poor.

True.  We are presuming, though, that OP has a good amount of liquid savings or he wouldn't be talking about retiring in 5 years.

The best reason to pay off the mortgage before retiring is to minimize the withdrawals from tax-deferred accounts to accomplish two things:  1) avoiding income taxes, and 2) staying under the Obamacare threshold.  It sounds like #2 will not be a concern, so it's more about #1.  OP, you might consider plugging some numbers into the iORP calculator to get an idea of what your tax burden is likely to be in retirement with and without the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 11, 2020, 08:05:09 AM
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it:  the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter.  Over a 30 year loan lifetime you should realize something close to the historical average.

This is assuming you actually do invest the money rather than spend it or sock it into cash.
As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home.  By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house).  Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0.  Until that point I won’t fall into the trap that so many do - being house rich and cash poor.

I would argue that a plan to avoid this includes building up skills to enable rapid selling of a home or establishing a LoC with minimal hassle and stress.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on February 11, 2020, 08:36:01 AM
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on February 11, 2020, 08:37:19 AM
Bought a house about 15 months ago. 30 yr mortgage at 4.875%.  Recently refinanced to another 30 year mortgage but at 3.5%.  Never paying it off early!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 11, 2020, 09:51:22 AM
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it:  the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter.  Over a 30 year loan lifetime you should realize something close to the historical average.

This is assuming you actually do invest the money rather than spend it or sock it into cash.
As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home.  By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house).  Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0.  Until that point I won’t fall into the trap that so many do - being house rich and cash poor.

I would argue that a plan to avoid this includes building up skills to enable rapid selling of a home or establishing a LoC with minimal hassle and stress.

I agree that having a LoC pre-established is a good strategy, but i”m less convinced about relying on being able to rapidly sell a home.  Twice now I’ve wound up in locations where selling a home took a year or more even after making it down way below what the recent market value was.  Once was during the ‘Great Recession when foreclosures were everywhere and buyers with credit were scarce.  More recently when our neighborhood got an influx of new construction home that a builder in bankruptcy dumpers on the market.
Ironically my sister has the opposite problem - her neighborhood has seen double-digit growth for a decadr, but with one of the smallest units around she can’t afford to stay without tripling her commute or uprooting their family.

Then of course there’s the mobility question - if one sells their home they have to either uproot or find something in the area that’s cheaper.

Regardless, my take-home has been to avoid having my home be a substantial part of my net worth, and to never assume selling a home can be done quickly and/or at whatever the current market rates are going for.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on February 11, 2020, 09:56:40 AM
At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.

While I can certainly appreciate the psychological benefits of having a paid off mortgage, is it really more convenient? As it is, my mortgage is in direct deposit with taxes and insurance being paid through an escrow account. With a paid off mortgage, I'll have to pay the insurance and taxes myself. Admittedly, it will only be a few checks per year, but it's still more than I'm writing now.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on February 11, 2020, 10:03:36 AM
Regardless, my take-home has been to avoid having my home be a substantial part of my net worth, and to never assume selling a home can be done quickly and/or at whatever the current market rates are going for.

This is a great point.  My only experience selling a home was during the real estate crash, and that really sucked.  It took over a year, and added a ton of stress to our lives at a time that we could least afford it.  It worked out well in the end (we netted $250k), but the experience has made me extremely wary about counting on home equity as a "sure thing" when it comes to selling.

Our home (paid off as of last week -- sorry, wrong club! :D) is worth about the same as we paid for it 12+ years ago.  It represents an ever-shrinking portion of our net worth, currently about 20%.  It will probably be more like 15% by the time we retire.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bird In Hand on February 11, 2020, 10:10:02 AM
While I can certainly appreciate the psychological benefits of having a paid off mortgage, is it really more convenient? As it is, my mortgage is in direct deposit with taxes and insurance being paid through an escrow account. With a paid off mortgage, I'll have to pay the insurance and taxes myself. Admittedly, it will only be a few checks per year, but it's still more than I'm writing now.

As you say, a few checks a year is not really a big deal.  In my case it was two checks (twice yearly for taxes).  The home insurance is deducted electronically just like our car insurance.  I have a couple other thoughts about eliminating escrow here (https://forum.mrmoneymustache.com/share-your-badassity/waived-our-mortgage-escrow-account/).

A few times we had trouble with the escrow company not disbursing the tax money at the appropriate time or to the appropriate location.  That caused some stress, and it made me carefully scrutinize the escrow activity twice a year at tax time.  That was certainly not convenient, and I rather prefer to have the matters in my own hands so I know it's being taken care of correctly.

Depending on your state, you may have a small amount of interest on your escrow account, and that implies a small mental burden at tax time.

Overall I think it's a wash.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on February 11, 2020, 11:34:59 AM
At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.

While I can certainly appreciate the psychological benefits of having a paid off mortgage, is it really more convenient? As it is, my mortgage is in direct deposit with taxes and insurance being paid through an escrow account. With a paid off mortgage, I'll have to pay the insurance and taxes myself. Admittedly, it will only be a few checks per year, but it's still more than I'm writing now.

I hear ya. Maybe I'm also wondering how minimizing expenses & income will help with things like ACA. Haven't really thought it through at this point but the stash will be so far beyond bare bones that it really won't matter either way.
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on February 11, 2020, 12:12:26 PM
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.

If only 2-3 years, I'm sure I'd do the same.  If we do 30 year mortgage- we'll still have 15+ to go when we FIRE, so the tax burden even at reduced LTCG rates would be significant.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on February 11, 2020, 05:37:58 PM
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.

If only 2-3 years, I'm sure I'd do the same.  If we do 30 year mortgage- we'll still have 15+ to go when we FIRE, so the tax burden even at reduced LTCG rates would be significant.
I'm currently planning to keep my mortgage in FIRE.  Then again, my mortgage is more in the $7500 range per year, so it's not a huge burden.  If at any point it makes sense to pay it off, I'd be fine with that as well.  I don't think it will make a huge difference for me either way.  I'll also be young enough that I'm planning to get private insurance the first several years of FIRE since the cost will still be reasonable.  This will allow me to convert more Traditional money to Roth and harvest some cap gains.  I do have a hard time wrapping my head around how to optimize income to reduce taxes and keep ACA subsidies in early retirement.  I plan to have enough of a buffer that I don't need ACA subsidies at least in the early years.

You're worried about a LTCG hit, but keep in mind that you only pay taxes on the money earned, not the principal you put in.  If you only have a 5-7 year timeframe (where you mentioned paying your mortgage down and you could instead invest), you won't have a ton of capital gains to pay on anything you invest.  And if you do, it means you're paying more taxes because you earned more money so you're still coming out way ahead.

Based on what you said (payments of $20k per year, 15 years left at FIRE), I assumed a $375k mortgage at 3.5% for 30 years.  Assume you start paying extra 10 years in (5 years from FIRE), you'd have to pay an extra $3600/month for 5 years to get the mortgage to 0 in those 5 years.  If instead you invested that $3600/mo at 5%, you'd have $245,842 in 5 years, of which $29,842 would be capital gains.  If you paid 15% tax, you'd still have $241,365 after paying taxes.  Paying normal mortgage payments, your balance would be $235,551 at that time.  So after paying taxes, you'd be ahead by $5814.  If you're in the 20% cap gains bracket, you'd still be ahead ~$4300.  At a 10% rate of return and 20% tax, you'd be $32.5k ahead.  This is all assuming you pay off your mortgage the day you retire.  Obviously, there is a risk of losing money over the 5 years as well, so you'll have to decide if it's worth the additional risk to you.  But I don't think LTCG tax is a good reason to start paying off your mortgage instead of investing 5-7 years out from FIRE.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 12, 2020, 07:58:13 AM
Our family is now on the sell-side, these low rates are hopefully going to make a lot of buyers think they can suddenly afford to pay more for our house.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 12, 2020, 08:08:51 AM
Our family is now on the sell-side, these low rates are hopefully going to make a lot of buyers think they can suddenly afford to pay more for our house.
Hope you get a bidding war on your home.  Sadly, we’ve struggled to sell our previous residence, despite the uber-low rates.  Reminds me of the RE addage: all real-estate is local.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on March 02, 2020, 12:04:54 PM
We're at risk of falling off the front page. That would be a travesty!

We refinanced with a VA IRRL less than a year ago to a 30 year 3.875% loan.

However, rates look like they have gone so much lower that it might be worth it to refinance again. We'd have to stick with the VA loan, since I still wouldn't be able to get 20% equity to wipe out PMI (owe 309k - house is worth ~340k).

I really don't want to make my wife sit through the paperwork process again, however, I did find the following offer on Bankrate:

3.25%, reduces payment by $120 per month, and no closing costs.

That's just the online quote. We'll see what they can offer when they reach out to me.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 02, 2020, 12:07:13 PM
Be careful - "no closing costs" often means "closing costs are added to your loan balance". Although the math often still works, just something to be aware of.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on March 02, 2020, 02:07:08 PM
Be careful - "no closing costs" often means "closing costs are added to your loan balance". Although the math often still works, just something to be aware of.

With a VA loan, if you have at least a 10% disability rating, then you are exempt from funding fees.

Over the phone, the loan officer quoted me a 30 year VA loan at 2.875% (full 1% lower), with total fees (mostly title insurance & transfer tax) of $1,700. The payment would be about $200 less per month.

Sounds like a great deal so far. I guess I should wait on actual paperwork before getting too excited.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on March 02, 2020, 02:36:35 PM
I really don't want to make my wife sit through the paperwork process again, however, I did find the following offer on Bankrate: 3.25%, reduces payment by $120 per month, and no closing costs.

That's basically the loan I just refi-ed into. A 3.25% 30 year loan.

Online mortgage documents are great for disinterested spouses. After spending over an hour or two carefully reviewing the various documents to be signed, I asked my wife to look them over and sign. I think she spent about 45 seconds clicking through where her e-signature needed to be.

Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 02, 2020, 03:10:07 PM
I was just wondering about this thread.
Mortgage rates are hitting the bottom again in US. I am seeing 3% for 30 year fixed and 2.5% for 15 fixed.

Anyone wondering about cash out refinance to invest in market or elsewhere?

I have 100k equity in 15 year fixed mortgage. I am considering 30 year fixed cash out refinance to increase cashflow and put the equity(50k) to work. Anyone care to chime in on my logic. Thank you!
Title: Re: DONT Payoff your Mortgage Club
Post by: Kem on March 02, 2020, 03:55:19 PM
I believe 30 year fixed refi at a low interest rate is the only way to go - it frees up cashflow that can instead be invested. 

If you believe over the next 30 years your investments are going to average more than 3% (assuming thats what you snag)
And if the cash-out does not negatively impact your financials from a cashflow standpoint (going from 15 to 30 even with cash-out your flows may improve)
And if you can stomach investing 50K - and then sitting through a correction at some point without worry & without locking in unrealized losses

Then yes, this is IMHO a great use of capital via converting a non-productive asset into a productive one.

I did this in 2009, 2012, and again in 2019 all on the same home. 
I check the maths on this at regular intervals vs the lump sum payoff impact to FI numbers & In some cases paying off in lump sum can accelerate FI.
My top threshold is that any cash-out refi must have cashflows that allow for me to turn the home into a rental with $100/m cashflow after all expenses (ignoring deprecation & appreciation at point in time)
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 02, 2020, 05:10:24 PM
I was just wondering about this thread.
Mortgage rates are hitting the bottom again in US. I am seeing 3% for 30 year fixed and 2.5% for 15 fixed.

Anyone wondering about cash out refinance to invest in market or elsewhere?

I have 100k equity in 15 year fixed mortgage. I am considering 30 year fixed cash out refinance to increase cashflow and put the equity(50k) to work. Anyone care to chime in on my logic. Thank you!

Frustrates me that we got a 3.7% rate 6 months ago on our new (to us) property.  Rates will have to drop quite a bit further for it to be worth it to refinance, and frankly I’m skeptical they will go that low.  Happy to be proven wrong, though.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 03, 2020, 07:31:28 AM
I believe 30 year fixed refi at a low interest rate is the only way to go - it frees up cashflow that can instead be invested. 

If you believe over the next 30 years your investments are going to average more than 3% (assuming thats what you snag)
And if the cash-out does not negatively impact your financials from a cashflow standpoint (going from 15 to 30 even with cash-out your flows may improve)
And if you can stomach investing 50K - and then sitting through a correction at some point without worry & without locking in unrealized losses

Then yes, this is IMHO a great use of capital via converting a non-productive asset into a productive one.

I did this in 2009, 2012, and again in 2019 all on the same home. 
I check the maths on this at regular intervals vs the lump sum payoff impact to FI numbers & In some cases paying off in lump sum can accelerate FI.
My top threshold is that any cash-out refi must have cashflows that allow for me to turn the home into a rental with $100/m cashflow after all expenses (ignoring deprecation & appreciation at point in time)

Wow, three times cash-out refi in ten years in bull market. Sounds like it worked out great for you assuming its invested. Congratulations! 

Thank you for the insights.

It turns out best mortgage rates i have seen so far are 3.25% for cash-out refi vs 3% for just refi for 30 year fixed. Still a good rate.
It improves cash-flow by $200/m and 55K cash out.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kem on March 03, 2020, 07:57:32 AM
It took awhile for me to pull my act together after 'living' myself a nice american dream over the prior decade and as such I had a hole to climb then fill.

The first refi improved cashflow which was used to help eliminate some high-interest bad debt - however I still didn't have a gameplan as my financial advice sources were... terrible... and my cashflow was generally negative. 
 
The second refi was cashout and very minor cashflow improvement.  The cash-out eliminated some more bad debt.  At this point I had a fairly good starting plan to track/optimize spending and invest the difference.  I hadn't found FI literature, but I'd run enough math to know that a path towards FI was possible.  Within a couple of years I was checking refi for investing and was developing a fairly broad understanding of the markets (both stock & real estate).  I went from massive negative networth to a 50+% savings rate over this time constantly seeking efficiency improvements to spending, earnings, and investing.  I made mistakes, but learned a great deal.   

This last refi, the cash-out was invested.  The cashflow allowed, for the first time, a cashflow positive REI option.  I also stepped away from my historical industry to help build a business from scratch as my spending was optimal enough that my investments could cover years of an attempt.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on March 03, 2020, 08:40:09 AM
Frustrates me that we got a 3.7% rate 6 months ago on our new (to us) property.  Rates will have to drop quite a bit further for it to be worth it to refinance, and frankly I’m skeptical they will go that low.  Happy to be proven wrong, though.

I just refinanced a 3.7% 30-year loan down to 3.25% with a payback period of under 18 months. Are you sure it's not worth while? Yes, it's annoying that you refi-ed six months ago, but please don't let sunk costs impact your decision.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2020, 08:47:18 AM
Frustrates me that we got a 3.7% rate 6 months ago on our new (to us) property.  Rates will have to drop quite a bit further for it to be worth it to refinance, and frankly I’m skeptical they will go that low.  Happy to be proven wrong, though.

I just refinanced a 3.7% 30-year loan down to 3.25% with a payback period of under 18 months. Are you sure it's not worth while? Yes, it's annoying that you refi-ed six months ago, but please don't let sunk costs impact your decision.

Hmm... maybe I should re-think?  Wasn't a re-fi; this was the mortgage on our new place.
One factor working against us is that our mortgage overall is small ($140k) given the LCOL area.  So payments are already pretty low.  Going from 3.7% to 3.2% saves < $40/mo.  Not sure what our re-financing costs would be but given the fees on our origional morgage I'm guestimating about $2,900.  Which would be a payback period of 6.2 years.

problem is - our best guess is we'll be in this house for 5 more years... and possibly as few as 3.  So my rough-ass calculation of $2,900 in closing costs means rates would need to be below 3% for us to make it back in 4 years. 

Maybe I've way overestimated what it would cost to refinance.  Perhaps I'll make some inquiries.

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 03, 2020, 08:48:33 AM
@Kem, your story is one of the reasons I'm surprised that interest-only loans haven't become more popular. As mustachians, getting something like 40% down should be within reach, and we could just sit at that position in perpetuity.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2020, 08:51:48 AM
@Kem, your story is one of the reasons I'm surprised that interest-only loans haven't become more popular. As mustachians, getting something like 40% down should be within reach, and we could just sit at that position in perpetuity.

Could be wrong, but wasn't interest-only loans one of the things which was made much harder by Dodd-Frank, following all the craptastic loans made which led to the Great Recession? 
Title: Re: DONT Payoff your Mortgage Club
Post by: freya on March 03, 2020, 08:57:05 AM
https://www.washingtonpost.com/business/2020/03/03/economy-coronavirus-rate-cuts/

Wow.  Half a percent!!!   I can't wait to see what that does for mortgage rates.

Which brings me to a dilemma.  I'm getting my kitchen redone, so I could refinance not only the mortgage principle but also the renovation costs.  I had planned to pay cash, but...a refi would let me sink that cash into the market instead, probably during/just after a correction.  Should I do it???  My mortgage is currently 3.875% for an amount that's ~35-40% of my home value (I'd been paying it down aggressively).
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2020, 09:03:08 AM
https://www.washingtonpost.com/business/2020/03/03/economy-coronavirus-rate-cuts/

Wow.  Half a percent!!!

I can't wait to see what that does for mortgage rates.  A drop to the low 3%'s for a 30 year refinance would be amazing.  Can rates get down that low?
They have in the past.  Others are seeing rates down to 3.25% already.  IIRC five or six years ago one could get a 30y for 3.1% in my area, and 2.49% in Canada (where we previously lived).

Rates do tend to drop much more slowly, but rise quickly.  Banks calculate that the average 30y loan will last only ~7 years before the occupant either moves or refinances.  So the question becomes whether the bank can get more in interest from the mortgage loan or from bonds or similar low-risk investments on average over the next 7 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kem on March 03, 2020, 09:16:08 AM
@Kem, your story is one of the reasons I'm surprised that interest-only loans haven't become more popular. As mustachians, getting something like 40% down should be within reach, and we could just sit at that position in perpetuity.

I've considered it a number of times - however I could only find 5-7 year terms and with rates so low it has been... emotionally... hard to give up a 30 year lock reset.  If I could find a 30 year interest only loan below 4% interest - I would pounce.   

Instead, I've looked to optimize the home's capital and leave the asset in my control as a potential rental (not so much for cashflow, but for tax efficiency( deprecation ) & principal paydown opening the door for cheap future leverage).  Everytime I've run the numbers - so long as the property cashflows $150/month after expenses including a long term maintenance sinking fund (ignoring depreciation & appreciation) then the reward over vacancy/bad tennants/etc is in my favour. 

My view is that I never own the home anyway as the gov via taxation or eminent domain will always be the #1 lien holder - they sure like to give an illusion of home 'ownership'.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2020, 09:22:34 AM
@Kem, your story is one of the reasons I'm surprised that interest-only loans haven't become more popular. As mustachians, getting something like 40% down should be within reach, and we could just sit at that position in perpetuity.

I've considered it a number of times - however I could only find 5-7 year terms and with rates so low it has been... emotionally... hard to give up a 30 year lock reset.  If I could find a 30 year interest only loan below 4% interest - I would pounce.   

Instead, I've looked to optimize the home's capital and leave the asset in my control as a potential rental (not so much for cashflow, but for tax efficiency( deprecation ) & principal paydown opening the door for cheap future leverage).  Everytime I've run the numbers - so long as the property cashflows $150/month after expenses including a long term maintenance sinking fund (ignoring depreciation & appreciation) then the reward over vacancy/bad tennants/etc is in my favour. 

My view is that I never own the home anyway as the gov via taxation or eminent domain will always be the #1 lien holder - they sure like to give an illusion of home 'ownership'.

I guess I've never understood or bought-into this notion of permanent, irrevocable ownership of a piece of land.  Seems enormously presumptuous as a species and as a culture to think 'this is my land forever'. 

I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on March 03, 2020, 09:28:49 AM
Hmm... maybe I should re-think?  Wasn't a re-fi; this was the mortgage on our new place.
One factor working against us is that our mortgage overall is small ($140k) given the LCOL area.  So payments are already pretty low.  Going from 3.7% to 3.2% saves < $40/mo.  Not sure what our re-financing costs would be but given the fees on our origional morgage I'm guestimating about $2,900.  Which would be a payback period of 6.2 years.

It definitely pays to shop around and play mortgage lenders off each other. Try and find one that will try to skip the appraisal (~$400), and waive some of their fees.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kem on March 03, 2020, 09:40:59 AM
I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.

Some of those mid 1920 NYC apartment dwellers found out --- they simply never moved --- and their landlords let the properties rot around them.

...

Out of kicks and giggles – I just gave Credible a shot.

Currently I have 79.2% LTV, so a fresh cash-out 8-9 months after the last refi isn’t going to happen.  I am a couple months over the last refi break even & pay 935.77 P&I & 344.76 escrow at 3.875%.

For $796 out of pocket I can drop to 3.375 for $873 P&I … and this is on a sliding scale all the way down to $4,438 out of pocket at 2.875% for $820 P&I.

At the low end I’d save 63/month, so the break even (ignoring future value of out-of-pocket) is 13 months.

At the high end I’d save $114/month, with a break even of 39 months.  Meh.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2020, 11:09:41 AM
I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.

Some of those mid 1920 NYC apartment dwellers found out --- they simply never moved --- and their landlords let the properties rot around them.
Not what I meant.  The landlords still owned the property.
It's meant to be a thought exercise, nothing more...
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 03, 2020, 11:46:10 AM
I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.
The Disney Vacation Club actually works that way. Timeshare, so not so much "at much lower levels", but if you read the contract, it is actually a ~50 year lease. But "renting on a very long term to inhabit a property" is exactly what "owners" are doing in that program. So I guess this idea works at a very small, niche scale at least.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 04, 2020, 12:30:04 PM
It turns out best mortgage rates i have seen so far are 3.25% for cash-out refi vs 3% for just refi for 30 year fixed. Still a good rate.
It improves cash-flow by $200/m and 55K cash out.

I tried and failed to convince DW that cash-out refi was a good idea. So we are moving forward with 30 year fixed refinance instead.

Just locked in 2.875% for 30 year fixed refi - a reference interest rate if you are in same boat. Good luck!

Our mortgage payment will be down by 40%. Now I have a good problem of how to automate this freed up cash-flow to investments.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 04, 2020, 12:58:54 PM
That. Is a fantastic rate. Takes my breath away. A full $300/month less than what I would pay.

What state do you live in? perhaps that rate is not available to every state.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 04, 2020, 01:52:16 PM
That. Is a fantastic rate. Takes my breath away. A full $300/month less than what I would pay.

What state do you live in? perhaps that rate is not available to every state.
It probably does depend on the state.

Here is my advice if you are looking for good rates. Skip big banks and big mortgage lenders like quicken. Go for smaller regional mortgage lending companies and credit unions.
Title: Re: DONT Payoff your Mortgage Club
Post by: MasterStache on March 04, 2020, 02:36:51 PM
We just locked in 3.25% for a 30 year fixed refinance yesterday. Down from 4%. We don't have a large mortgage but still saves us $110/month. Closing cost is only $700. Used a local broker that was highly recommended by multiple people. Thought about cash out refi but our goal was to lower our monthly payment. We also plan to move in about 8 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 04, 2020, 02:49:03 PM
We just locked in 3.25% for a 30 year fixed refinance yesterday. Down from 4%. We don't have a large mortgage but still saves us $110/month. Closing cost is only $700. Used a local broker that was highly recommended by multiple people. Thought about cash out refi but our goal was to lower our monthly payment. We also plan to move in about 8 years.

Dayam!  That's a sweet rate. 
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on March 04, 2020, 02:52:10 PM
i'm surprised rates aren't lower.

i locked in 3.375% for 30 years in jan 2015. i think 10-year rate was at 1.68 or somewhere thereabouts.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 04, 2020, 03:18:22 PM
i'm surprised rates aren't lower.

i locked in 3.375% for 30 years in jan 2015. i think 10-year rate was at 1.68 or somewhere thereabouts.

As I said, mortgage rates take a notoriously long time to drop relative to bonds. The lag can be several months. When bonds go up, though, they follow in near lockstep.
Title: Re: DONT Payoff your Mortgage Club
Post by: MasterStache on March 04, 2020, 04:48:48 PM
i'm surprised rates aren't lower.

i locked in 3.375% for 30 years in jan 2015. i think 10-year rate was at 1.68 or somewhere thereabouts.

I did get a couple quotes at 3% but closing cost were north of 2.5K. After doing the math it made more sense to take the 3.25% and only pay $700 in closing cost. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 04, 2020, 06:30:16 PM
https://www.washingtonpost.com/business/2020/03/03/economy-coronavirus-rate-cuts/

Wow.  Half a percent!!!   I can't wait to see what that does for mortgage rates.

Which brings me to a dilemma.  I'm getting my kitchen redone, so I could refinance not only the mortgage principle but also the renovation costs.  I had planned to pay cash, but...a refi would let me sink that cash into the market instead, probably during/just after a correction.  Should I do it???  My mortgage is currently 3.875% for an amount that's ~35-40% of my home value (I'd been paying it down aggressively).
I would totally do it. Just don't let the scope of the kitchen reno creep with all that new money!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 05, 2020, 05:28:29 AM
So the question is when to start the refi process?  I can drop about 3/4 of a percent depending. I’m thinking of waiting at least a week, but should it be 2or three weeks at this point.
Title: Re: DONT Payoff your Mortgage Club
Post by: MasterStache on March 05, 2020, 05:57:40 AM
So the question is when to start the refi process?  I can drop about 3/4 of a percent depending. I’m thinking of waiting at least a week, but should it be 2or three weeks at this point.

There is always risk in waiting. I'm not sure anyone can give you a definitive answer.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 05, 2020, 06:06:28 AM
So the question is when to start the refi process?  I can drop about 3/4 of a percent depending. I’m thinking of waiting at least a week, but should it be 2or three weeks at this point.

There is always risk in waiting. I'm not sure anyone can give you a definitive answer.

Yup, it's a crap shoot.  Continued global concern in the markets can push investors to US Treasuries and hold them at historic lows (i.e.. ~1% for 10y). Or the picture can brighten just oh-so-little with the fed's rate cut and some slowing disease transmission rates and we may have already hit bottom here.  It's impossible to know for certain.

My take?  If the math is in your favor to refinance now, do it.  You'll lock in a rate that's in the low 3.x%s - which is historically low.  Maybe you'll miss out on another 0.1-0.3% further drop, but maybe not.  The only reason I'm waiting is that my rate drop would be ~0.35% and with closing costs my ROI would be uncomfortably close to how long we plan on staying in this house (4-5 years).
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on March 05, 2020, 07:18:00 AM
Seeing 2.8% for a 15 year refi in my neck of the woods. May pull the trigger if it gets closer to 2.5%.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 05, 2020, 07:43:43 AM
It turns out best mortgage rates i have seen so far are 3.25% for cash-out refi vs 3% for just refi for 30 year fixed. Still a good rate.
It improves cash-flow by $200/m and 55K cash out.

I tried and failed to convince DW that cash-out refi was a good idea. So we are moving forward with 30 year fixed refinance instead.

Just locked in 2.875% for 30 year fixed refi - a reference interest rate if you are in same boat. Good luck!

Our mortgage payment will be down by 40%. Now I have a good problem of how to automate this freed up cash-flow to investments.

Please post the following information when referencing a particular refi deal:

Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 05, 2020, 09:36:56 AM

Please post the following information when referencing a particular refi deal:

Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not

Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Title: Re: DONT Payoff your Mortgage Club
Post by: BlueHouse on March 05, 2020, 11:52:21 AM
I wonder how our attitudes might change if we instead had no ownership but merely paid rent (albeit at much lower levels) to inhabit a property, with decadal time-frames.
The Disney Vacation Club actually works that way. Timeshare, so not so much "at much lower levels", but if you read the contract, it is actually a ~50 year lease. But "renting on a very long term to inhabit a property" is exactly what "owners" are doing in that program. So I guess this idea works at a very small, niche scale at least.
Leaseholds seem to work in the UK. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 05, 2020, 05:06:51 PM

Please post the following information when referencing a particular refi deal:

Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not

Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no

Thanks! Sounds like a great deal.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 05, 2020, 09:09:28 PM
Man, these awesome looking rates and the drop in the stock market have me thinking of refinancing.  I'm just not sure that it makes sense in my case, considering I'm already at a 3.5% rate.  I don't want my monthly payment to go up much, so I'd be able to take out $30-35k (to invest) and extend my mortgage ~7.5yrs by starting a new 30yr.  I'm sure I'd come out ahead, but I'm also considering RE in ~2yrs.  At that point, I don't even know if I'll stay in this house when I'm not tied down to a job.  I might buy an RV or van and travel for a while or re-locate to a nicer area.  If there were no closing costs, I'd definitely jump on it.  But it just seems like it'd take too long to break-even going from 3.5% to 3ish%.  Maybe I'll wait and see if they drop even further.

WWB42D (What would boarder42 do)?  I'm sure he's already working on his own cash-out refinance :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 05, 2020, 09:12:16 PM

Please post the following information when referencing a particular refi deal:

Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not

Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Would you mind sharing who your lender is?  I'm also in the midwest and this seems like an awesome deal with a really good rate and low closing costs.  I've done just a little searching online and I'm not finding anything quite this good.  Congrats to you!
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 05, 2020, 09:22:35 PM
Leaseholds seem to work in the UK.

Here too, but lenders won't touch them unless the leasehold expires after the loan term. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 06, 2020, 05:04:03 AM
Found this on another thread. Thanks, @Duke03.


https://www.rbfcu.org/rates

Click on the promo Refinance.... you can get an 11 year for 2.45%.... FYI closing cost will be about $1100 as long as you have at least 10% equity.... You're Welcome!!


Thank you. this is a great rate.

I don't seem to be able to join online as they won't even accept my zip code (in CT) as a valid one.
I'll make a call tomorrow and see what they say.

Call them they can do a mortgage any where.  They are the largest credit union in Texas and are awesome to deal with.  I've had 3 mortgages with them no issues at all.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 06, 2020, 08:38:47 AM

Please post the following information when referencing a particular refi deal:

Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not

Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Would you mind sharing who your lender is?  I'm also in the midwest and this seems like an awesome deal with a really good rate and low closing costs.  I've done just a little searching online and I'm not finding anything quite this good.  Congrats to you!

Sorry, I went with small regional player, very close to home. I want to keep it private. Luckily was able to lock in when interest rates hit 2.875 30 year fixed very briefly. Now they are back in range between 3% - 3.25%. Seems like they can change multiple times in a day.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 06, 2020, 09:26:47 AM

Please post the following information when referencing a particular refi deal:

Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not

Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Would you mind sharing who your lender is?  I'm also in the midwest and this seems like an awesome deal with a really good rate and low closing costs.  I've done just a little searching online and I'm not finding anything quite this good.  Congrats to you!

Sorry, I went with small regional player, very close to home. I want to keep it private. Luckily was able to lock in when interest rates hit 2.875 30 year fixed very briefly. Now they are back in range between 3% - 3.25%. Seems like they can change multiple times in a day.

I wend with a small regional player with a branch a mile from my home.
What happened?  Before I made the *first payment* they sold my loan to another bank, who sold it to a third player.  Now I'm with some company in California (opposite coast).  Go figure.

Don't assume that just because you go with a local bank it will stay that way. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 06, 2020, 12:15:06 PM

Please post the following information when referencing a particular refi deal:

Term
Interest rate
Closing costs <-------
State/location <---------
Cashout or not

Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Would you mind sharing who your lender is?  I'm also in the midwest and this seems like an awesome deal with a really good rate and low closing costs.  I've done just a little searching online and I'm not finding anything quite this good.  Congrats to you!

Sorry, I went with small regional player, very close to home. I want to keep it private. Luckily was able to lock in when interest rates hit 2.875 30 year fixed very briefly. Now they are back in range between 3% - 3.25%. Seems like they can change multiple times in a day.
Totally understand.  Great job on securing such a low rate.  I guess mortgage rates are just as volatile as the market these days.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 06, 2020, 09:22:50 PM
I wend with a small regional player with a branch a mile from my home.
What happened?  Before I made the *first payment* they sold my loan to another bank, who sold it to a third player.  Now I'm with some company in California (opposite coast).  Go figure.

Don't assume that just because you go with a local bank it will stay that way.
Hey, there's nothing wrong with California![snirt]

Not to rub it in, but for the benefit of others, be sure to ask that question during or even before you begin the loan application process.

FWIW, all but one of our loans are with a local lender who doesn't resell. We have one with Chase. They just sold it, but they're still going to be servicing the loan, so nothing's changed. Go figure.

Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 07, 2020, 07:00:03 AM
I wend with a small regional player with a branch a mile from my home.
What happened?  Before I made the *first payment* they sold my loan to another bank, who sold it to a third player.  Now I'm with some company in California (opposite coast).  Go figure.

Don't assume that just because you go with a local bank it will stay that way.
Hey, there's nothing wrong with California![snirt]

Not to rub it in, but for the benefit of others, be sure to ask that question during or even before you begin the loanapplication process.

FWIW, all but one of our loans are with a local lender who doesn't resell. We have one with Chase. They just sold it, but they're still going to be servicing the loan, so nothing's changed. Go figure.

Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.

Hey, I love California.  LIved there for 10 years, and my sister and her family are (and will almost certainly remain)  there.

My point was merely that we went with a local lender because it gave us a local branch we could walk into if we had a problem and talk with a person vis-a-vis, and their quote was on par with many other lenders.  Turns out we never had a single opportunity to use that local branch.

Yeah... we should have specifically asked for a provision that they not re-sell our loan (or at least asked about their policy).  Live and learn.

To be fair we’ve had no problems with the company that now owns our loan - 6 payments in and things are going as they should.
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on March 07, 2020, 09:09:48 AM
Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.

This is actually why we're considering not escrowing this time around, just to avoid dealing with the pain that might be.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 07, 2020, 09:21:58 AM
Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.

This is actually why we're considering not escrowing this time around, just to avoid dealing with the pain that might be.
DH adamantly prefers this. Therefore, when taxes are due on four properties, it is a huge chunk of change. It hurts to write those checks, even though we're savers and always have plenty of cash. Just for grins, our tax bill is in excess of $26k per year. Yay for California high-priced real estate.
Title: Re: DONT Payoff your Mortgage Club
Post by: MasterStache on March 07, 2020, 01:06:03 PM
Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.

This is actually why we're considering not escrowing this time around, just to avoid dealing with the pain that might be.
DH adamantly prefers this. Therefore, when taxes are due on four properties, it is a huge chunk of change. It hurts to write those checks, even though we're savers and always have plenty of cash. Just for grins, our tax bill is in excess of $26k per year. Yay for California high-priced real estate.
Our broker gave us the option of not escrowing without any additional fees. I have never done that before but since our last mortgage company kept screwing it up, I am choosing to pay everything myself this time around. Just have to remember to put that money to the side.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 07, 2020, 02:24:28 PM
Once you don't have an escrow account, it's no big deal if your loan sells, but I remember what a pain in the ass it can be. My first home loan must have been sold at least six times. It sucked.

This is actually why we're considering not escrowing this time around, just to avoid dealing with the pain that might be.
DH adamantly prefers this. Therefore, when taxes are due on four properties, it is a huge chunk of change. It hurts to write those checks, even though we're savers and always have plenty of cash. Just for grins, our tax bill is in excess of $26k per year. Yay for California high-priced real estate.
Our broker gave us the option of not escrowing without any additional fees. I have never done that before but since our last mortgage company kept screwing it up, I am choosing to pay everything myself this time around. Just have to remember to put that money to the side.

We own 9 houses and only 2 of them are mortgaged and under escrow.  So when September comes along, writing those 7 checks hurts!      We set aside income from the rental properties for the taxes and insurance, and only spend the money on us after those two costs are covered for the year.   It takes about 4 months rent to cover the properties that are rent-ready.    The rest have those costs added in as part of the renovation costs.  I prepay the insurance for a year first thing when I buy them and make sure to set aside tax money on non-rented properties from the rented property profits.
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on March 07, 2020, 06:10:23 PM
We're considering going for a refinance to take advantage of the lower rates - just debating if it's worth the hassle when we're already busy chasing down the roofer, getting some electrical work scheduled, and rushing to get the garden ready by last frost.  We only bought last June, so our rate isn't awful, and we wouldn't be extending our term by much, but dealing with the bank was a massive hassle originally, so I'm waffling on if we want to deal with all that again when we're already busy.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 09, 2020, 09:40:20 AM
If you're busy now, I have a feeling rates will stay low for a little while. The pressure is on FRB to cut, not raise. Bond market has fallen far below the yields that were supporting mortgage rates in the mid 3's (ten-year treasury yield was 0.43% at one point this morning). I'd feel secure letting mortgage rates catch up to these conditions.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 09, 2020, 09:55:27 AM
We're considering going for a refinance to take advantage of the lower rates - just debating if it's worth the hassle when we're already busy chasing down the roofer, getting some electrical work scheduled, and rushing to get the garden ready by last frost.  We only bought last June, so our rate isn't awful, and we wouldn't be extending our term by much, but dealing with the bank was a massive hassle originally, so I'm waffling on if we want to deal with all that again when we're already busy.

I would ask myself how many hours of work is a ReFi likely to take, and then look at how much money I would save over the next 1 and 3 years over my current rate.  Lowering your payment by $65/mo might not seem worth the hassle, but that could be $2,360 over the next three years.
Important of course to consider refinancing costs and what that does to the equation.

If you're busy now, I have a feeling rates will stay low for a little while. The pressure is on FRB to cut, not raise. Bond market has fallen far below the yields that were supporting mortgage rates in the mid 3's (ten-year treasury yield was 0.43% at one point this morning). I'd feel secure letting mortgage rates catch up to these conditions.

I think this is entirely possible.  Rates always fall slowly but rise sharply.  Even if the 10y note bottomed out today and held there, mortgage rates would continue to drop for a few more weeks.  Of course they could always rebound tomorrow...
;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on March 09, 2020, 10:05:37 AM
We're considering going for a refinance to take advantage of the lower rates - just debating if it's worth the hassle when we're already busy chasing down the roofer, getting some electrical work scheduled, and rushing to get the garden ready by last frost.  We only bought last June, so our rate isn't awful, and we wouldn't be extending our term by much, but dealing with the bank was a massive hassle originally, so I'm waffling on if we want to deal with all that again when we're already busy.

From my experiences, refi-ing tends to be a lot less of a hassle than getting the original loan to buy the property. The biggest hassle for me so far has been getting all the documentation needed. I'd say I've spent 4-6 hours on the process to hopefully save $100 a month.
Title: Re: DONT Payoff your Mortgage Club
Post by: MasterStache on March 09, 2020, 10:32:42 AM
We're considering going for a refinance to take advantage of the lower rates - just debating if it's worth the hassle when we're already busy chasing down the roofer, getting some electrical work scheduled, and rushing to get the garden ready by last frost.  We only bought last June, so our rate isn't awful, and we wouldn't be extending our term by much, but dealing with the bank was a massive hassle originally, so I'm waffling on if we want to deal with all that again when we're already busy.

From my experiences, refi-ing tends to be a lot less of a hassle than getting the original loan to buy the property. The biggest hassle for me so far has been getting all the documentation needed. I'd say I've spent 4-6 hours on the process to hopefully save $100 a month.
+1
I think it took me and the wifey maybe an hour to gather everything the broker needed. Now we are in waiting mode. 
Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on March 09, 2020, 10:54:22 AM
I'm in.  We just locked in our refi at . . . {drum roll} . . . 2.5%. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 09, 2020, 10:56:59 AM
I'm in.  We just locked in our refi at . . . {drum roll} . . . 2.5%.

30 year??  Fixed??!!
Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on March 09, 2020, 11:01:46 AM
10 year fixed.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 09, 2020, 11:06:53 AM
10 year fixed.
oh.  Well that's a horse of a different colour.
Still, great rate!
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 09, 2020, 01:28:05 PM
"Sinking mortgage rates prompt lenders to add resources, inflate advertised rates"

https://www.bankrate.com/mortgages/sinking-mortgage-rates-prompt-lenders-to-add-resources/
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on March 09, 2020, 04:18:40 PM
Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 09, 2020, 08:33:36 PM
You guys and your rates are killing me! We don't have a mortgage on our primary home*. I am dying to pull cash out of it, but if you have no mortgage and you want to get one, it's considered a cash-out re-fi and typically they cost a bit more. Definitely a MPP, but it's yet another reason to always carry a big, fat mortgage and never prepay it!!!

*The rates we have on our rentals are pretty good. There's no evidence that a re-fi on them would be worth the time or trouble yet, but we're watching and waiting. However, if we pull were to pull cash out of our primary home, what kind of impact will it have on our ability to re-fi the rentals if the Non-Owner Occ rates go down? And...what if we find another house to flip?? So many questions, so many MPP's.

Reason #11,987 not to prepay your mortgage. This could happen to YOU! Although if you're on this thread, it's less likely, but still...be warned!
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 09, 2020, 09:31:06 PM
Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.
What are the closing costs?  I'd be real tempted to lock it in if it's ~3% with low/no closing costs.  Also, how much would you be saving going to 2.99%?  If it's a big drop in your rate and you'll save a lot per month, it's probably worth going ahead with it now to ensure an awesome rate.  Even if it goes lower, you really can't complain about 2.99% for 30 years!!  Obviously, the risk in waiting is that it jumps back up.  But with the way things are looking now, it seems like rates are being kept a little higher due to the massive demand and the suddenness of all this.  I'm thinking we may see things go slightly lower once this latest batch of refinances has been processed (at least weeks, maybe months?).  Then again, the market may be doing better by that time and maybe rates will head back up.

Or in other words: ¯\_(ツ)_/¯
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 09, 2020, 09:37:44 PM
How are people finding lenders with such good deals?  Do you throw your info out onto one of the sites that sends it on to a million more sites where you get contacted until the end of time?  Go with whoever has your current loan?  Check with a mortgage broker? Local credit union? Online bank/lender?  So many options!

Ideally I'd like to find a no or low cost 30yr for 3% or less.  Or pay closing costs for a rate of ~2.75% or less.  I've never refinanced before as I have an awesome 3.5% rate since I purchased my house.  I've been keeping an eye on rates but the lowest published ones seem to be around 3-3.125%.  I'm thinking I'll wait a few weeks until the dust starts to settle and then start giving my info out to more places to see what's the best I can do.  Just not sure what the best approach is.

If anyone has any recommendations in MN, I'd appreciate it!
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 09, 2020, 09:49:47 PM
You guys and your rates are killing me! We don't have a mortgage on our primary home*. I am dying to pull cash out of it, but if you have no mortgage and you want to get one, it's considered a cash-out re-fi and typically they cost a bit more. Definitely a MPP, but it's yet another reason to always carry a big, fat mortgage and never prepay it!!!
Do it!! Then you can truly belong in the DPOYM club! :)  JK.  You always belong and I appreciate your championing for mortgages even when you don't have one yourself (on your primary home).

But seriously, this opportunity won't come around often.  Even if there are higher rates for a cash out refi, it's worth some serious consideration.  Especially with all the stocks you could buy now at a large discount!
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on March 10, 2020, 05:57:44 AM
Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.
What are the closing costs?  I'd be real tempted to lock it in if it's ~3% with low/no closing costs.  Also, how much would you be saving going to 2.99%?  If it's a big drop in your rate and you'll save a lot per month, it's probably worth going ahead with it now to ensure an awesome rate.  Even if it goes lower, you really can't complain about 2.99% for 30 years!!  Obviously, the risk in waiting is that it jumps back up.  But with the way things are looking now, it seems like rates are being kept a little higher due to the massive demand and the suddenness of all this.  I'm thinking we may see things go slightly lower once this latest batch of refinances has been processed (at least weeks, maybe months?).  Then again, the market may be doing better by that time and maybe rates will head back up.

Or in other words: ¯\_(ツ)_/¯

Total closing costs came out to $1,700, and my payment will drop by $200/month. I went ahead and locked it in.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 10, 2020, 06:00:38 AM
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all.  So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy.  Anyone know if this fear is plausible?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 10, 2020, 06:44:09 AM
No rush here. I think rates are going to stay low at least through the election.
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on March 10, 2020, 06:46:46 AM
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all.  So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy.  Anyone know if this fear is plausible?

I was trying to get Chase to match an offer last week and it took them much longer than normal - the mortgage broker there said they were swamped.

Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on March 10, 2020, 07:33:28 AM
If it's that bad, I would think that at some point supply/demand would kick in, and banks would raise rates little just to balance out the workload.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 10, 2020, 08:28:32 AM
Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.
What are the closing costs?  I'd be real tempted to lock it in if it's ~3% with low/no closing costs.  Also, how much would you be saving going to 2.99%?  If it's a big drop in your rate and you'll save a lot per month, it's probably worth going ahead with it now to ensure an awesome rate.  Even if it goes lower, you really can't complain about 2.99% for 30 years!!  Obviously, the risk in waiting is that it jumps back up.  But with the way things are looking now, it seems like rates are being kept a little higher due to the massive demand and the suddenness of all this.  I'm thinking we may see things go slightly lower once this latest batch of refinances has been processed (at least weeks, maybe months?).  Then again, the market may be doing better by that time and maybe rates will head back up.

Or in other words: ¯\_(ツ)_/¯

Total closing costs came out to $1,700, and my payment will drop by $200/month. I went ahead and locked it in.

That is a excellent rate. Congrats!

Its hard to time it perfectly, as long as rate is close to 3% for 30 year fixed, I would get it over with. Its likely difference of few dollars a month.

I had to remind myself of what I was trying to achieve with refinance, other than slightly better interest rate. My intent was to increase monthly liquid cash-flow and set ourselves for greater flexibility incase of jobloss or need to take career break.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kem on March 10, 2020, 09:17:24 AM
Only fixed debt
Student Loan Refi 39.4K - Closed
~18 year @ 5.01% with Earnest
_20 year @ 4.48% with Commonbond
Zero out of pocket
$31/m cashflow improvement

Mortgage Ref 197.2K – In Que
~29 year @ 3.875% with Wells Fargo (assigned from NAF) $935 P&I
_30 year @ 3.375% with TopFlightFinancial $865 P&I
-$2,100 loan costs (including appraisal, title, etc)
-$1,694 for other (including escrow hazard insurance, escrow property taxes, prepaid interest, recording fee, etc)
+$1,646 existing escrow liquidation
-2,052 if I have to fund escrow
-0,947 if I do not have to fund escrow (Attempting to move away from the escrow if possible)
$80/m cashflow improvement 

Notes, Switched careers last year and took a significant reduction in base salary, plus lived off of my stash for 4.5 months.  Credit score 820.

Between the 2, that is 33K less I need invested to support the debt… and over the term not only saves ~25K in interest, but likely leaves me with ~100K in additional portfolio value.


The more cashflow I can free-up on the path to FI, the quicker I can get there – and for the most part so long as the rates are under 5% I will likely refi multiple times on that path.  I will then pay the debt off when the threshold is hit where my FI is achieved sooner than the support levels required for holding the debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 10, 2020, 04:24:14 PM
Lock in a 2.99% or float? I think rates might get lower, but I’d still be pretty thrilled with a sub 3% rate.
What are the closing costs?  I'd be real tempted to lock it in if it's ~3% with low/no closing costs.  Also, how much would you be saving going to 2.99%?  If it's a big drop in your rate and you'll save a lot per month, it's probably worth going ahead with it now to ensure an awesome rate.  Even if it goes lower, you really can't complain about 2.99% for 30 years!!  Obviously, the risk in waiting is that it jumps back up.  But with the way things are looking now, it seems like rates are being kept a little higher due to the massive demand and the suddenness of all this.  I'm thinking we may see things go slightly lower once this latest batch of refinances has been processed (at least weeks, maybe months?).  Then again, the market may be doing better by that time and maybe rates will head back up.

Or in other words: ¯\_(ツ)_/¯

Total closing costs came out to $1,700, and my payment will drop by $200/month. I went ahead and locked it in.
That sounds like a pretty good deal.  I probably would've locked that in too.  I mean, you can't really go wrong with a mortgage rate less than 3%.  I had a 5 year CD that ended last year that was paying 3%.  30 years is a really long time and I'm sure we'll get there again where CDs/bonds/savings are yielding higher.  It's pretty awesome that we can lock in such low rates for a long-ass time.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 10, 2020, 04:33:19 PM
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all.  So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy.  Anyone know if this fear is plausible?
I don't have any first-hand experience, but from what I've been reading, that kind of seems to be the case right now.  I think lenders have been so flooded over the last 3 weeks with so many re-finances that they're keeping rates higher.  I saw PenFed go from ~3% last week to 2.875% briefly yesterday all the way up to 3.5% today.  That's a big spread.  I thought about jumping on it when it was 2.875% but missed it by the time I got home.  So I think I'll just wait until things settle down a little.  That may not end up being the right approach, but my rate is pretty good as it is so I won't be heartbroken if I miss out.
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on March 10, 2020, 05:30:22 PM
yep, the rbfcu.org 11 year refi rate actually went up today to 2.55. hoping the rates drop in the near future.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 10, 2020, 07:38:15 PM
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all.  So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy.  Anyone know if this fear is plausible?
I don't have any first-hand experience, but from what I've been reading, that kind of seems to be the case right now.  I think lenders have been so flooded over the last 3 weeks with so many re-finances that they're keeping rates higher.  I saw PenFed go from ~3% last week to 2.875% briefly yesterday all the way up to 3.5% today.  That's a big spread.  I thought about jumping on it when it was 2.875% but missed it by the time I got home.  So I think I'll just wait until things settle down a little.  That may not end up being the right approach, but my rate is pretty good as it is so I won't be heartbroken if I miss out.

You didn't miss anything.    Unless you were one of the folks who got thru to their folks right away, they were overwhelmed.  I've been trying to talk to them since last week.   No luck, even if I was willing to wait on the phone all day.
Title: Re: DONT Payoff your Mortgage Club
Post by: Jack0Life on March 10, 2020, 10:04:58 PM
One worry I have is that in a few weeks there might be so many people trying to refinance that they won’t be able to process them all.  So when we go to refinance (should rates keep falling) we might get turned down simply because they will be too busy.  Anyone know if this fear is plausible?
I don't have any first-hand experience, but from what I've been reading, that kind of seems to be the case right now.  I think lenders have been so flooded over the last 3 weeks with so many re-finances that they're keeping rates higher.  I saw PenFed go from ~3% last week to 2.875% briefly yesterday all the way up to 3.5% today.  That's a big spread.  I thought about jumping on it when it was 2.875% but missed it by the time I got home.  So I think I'll just wait until things settle down a little.  That may not end up being the right approach, but my rate is pretty good as it is so I won't be heartbroken if I miss out.

Yeah I saw 2.675 this morning for their 7/1 ARM. Came home tonight and its 3.0 right now.
Those guys are swamped right now.
I've dealt with them 3 times already. Those guys are a PITA.
My 3rd time I think I had the dumbest loan processor ever. I gave up on her and went with another bank.
I'd rather not deal if them again if I had my way.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 11, 2020, 09:46:10 AM
Rates seem to be ticking back up, even with self servicing mortgage lenders.
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on March 11, 2020, 10:41:58 AM
AimLoans went from 3.125% 30y fixed on Monday to 3.5% yesterday and today.

Website is running pretty slow too, so they must be swamped.

Currently building home scheduled for completion in June/July- fingers crossed rates stay low, go lower.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on March 12, 2020, 10:02:05 AM
I wend with a small regional player with a branch a mile from my home.
What happened?  Before I made the *first payment* they sold my loan to another bank, who sold it to a third player.  Now I'm with some company in California (opposite coast).  Go figure.

Don't assume that just because you go with a local bank it will stay that way.
Mortgages get sold all the time. Larger originators might retain the servicing of the loan which makes the sale of the mortgage far less visible to the borrower, but the loan itself is still very likely sold.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on March 12, 2020, 12:13:59 PM
Despite having a significantly lower P&I payment for my new mortgage, my total payment isn't going to change that significantly. It appears that my current mortgage company has not been adjusting the escrow payment as needed. I should be paying much more, and I currently have a huge negative escrow balance.

I requested to pay it myself with the new company, but apparently this company doesn't allow that with VA loans.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 12, 2020, 12:21:54 PM
yep, the rbfcu.org 11 year refi rate actually went up today to 2.55. hoping the rates drop in the near future.

Yeah, their site has a note that they are swamped with mortgages. Purchase mortgages are getting priority.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 12, 2020, 03:08:28 PM
Banks are raising rates because they can't handle all the business.  I hope that after the initial log jam gets sorted out rates will come back down.  No guarantee on that of course. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Brother Esau on March 12, 2020, 04:40:57 PM
Banks are raising rates because they can't handle all the business.  I hope that after the initial log jam gets sorted out rates will come back down.  No guarantee on that of course.

yeah, heard that as well... was almost ready to pull the trigger
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on March 13, 2020, 01:08:11 PM
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no
Interestingly I found out that there is no appraisal required for my home because fannie mae accepted home value we gave on the application. Likely saves few hundred bucks.

On the other hand looks like rates have gone up quite a bit in just few days.
Beyond the loan demand aspect for the lenders, I wonder if the liquidity issues lenders are facing that Fed recognized and is dealing with for the short term lending have anything to do with it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 13, 2020, 02:17:06 PM
^ Very possibly.  I've heard there is a huge shortage of cash as businesses are forced to tap into lines of credit. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 13, 2020, 07:32:24 PM
Banks are raising rates because they can't handle all the business.  I hope that after the initial log jam gets sorted out rates will come back down.  No guarantee on that of course.

yeah, heard that as well... was almost ready to pull the trigger

I have some acquaintances high up in banking. They say that they have been seeing 4x-10x normal daily volumes for mortgages.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 16, 2020, 08:10:33 AM
Banks are raising rates because they can't handle all the business.  I hope that after the initial log jam gets sorted out rates will come back down.  No guarantee on that of course.

yeah, heard that as well... was almost ready to pull the trigger

I have some acquaintances high up in banking. They say that they have been seeing 4x-10x normal daily volumes for mortgages.

When too many people apply for loans all at once, the labor becomes the constraint. There just aren't enough PEOPLE to process these loans, so the price goes up.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 16, 2020, 08:18:11 AM
Banks are raising rates because they can't handle all the business.  I hope that after the initial log jam gets sorted out rates will come back down.  No guarantee on that of course.

yeah, heard that as well... was almost ready to pull the trigger

I have some acquaintances high up in banking. They say that they have been seeing 4x-10x normal daily volumes for mortgages.

When too many people apply for loans all at once, the labor becomes the constraint. There just aren't enough PEOPLE to process these loans, so the price goes up.

And there is scrambling to try and set up secure work from home...
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 16, 2020, 08:22:08 AM
Banks are raising rates because they can't handle all the business.  I hope that after the initial log jam gets sorted out rates will come back down.  No guarantee on that of course.

yeah, heard that as well... was almost ready to pull the trigger

I have some acquaintances high up in banking. They say that they have been seeing 4x-10x normal daily volumes for mortgages.

When too many people apply for loans all at once, the labor becomes the constraint. There just aren't enough PEOPLE to process these loans, so the price goes up.

Huh.
Well the Fed has set rates near zero, and there's a new round of QE, so I expect the yield on T-notes to stay at rock-bottom prices for the foreseeable future (many months at least).  Hopefully there will be time in the months ahead to take advantage and refinance.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 16, 2020, 07:01:03 PM
PenFed is back down to 3.625% today from 4% Friday.  So maybe things will start to head lower again.  Obviously the coronavirus might have an impact on lenders' ability to give out loans, so that's another unknown here.  With all the craziness going on, refinancing isn't at the top of my priority list.  If rates get back to ~3%, I'll start taking a look again.  If we don't get there because the virus quickly stops spreading and the economy is great again, well I'll call that a win :)
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 16, 2020, 08:47:16 PM
PenFed is back down to 3.625% today from 4% Friday.  So maybe things will start to head lower again.  Obviously the coronavirus might have an impact on lenders' ability to give out loans, so that's another unknown here.  With all the craziness going on, refinancing isn't at the top of my priority list.  If rates get back to ~3%, I'll start taking a look again.  If we don't get there because the virus quickly stops spreading and the economy is great again, well I'll call that a win :)

I tried to get one of their sub-2.8% rates but didn't contact them quickly enough.  They were swamped and still haven't responded.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 16, 2020, 09:46:09 PM
PenFed is back down to 3.625% today from 4% Friday.  So maybe things will start to head lower again.  Obviously the coronavirus might have an impact on lenders' ability to give out loans, so that's another unknown here.  With all the craziness going on, refinancing isn't at the top of my priority list.  If rates get back to ~3%, I'll start taking a look again.  If we don't get there because the virus quickly stops spreading and the economy is great again, well I'll call that a win :)

I tried to get one of their sub-2.8% rates but didn't contact them quickly enough.  They were swamped and still haven't responded.
So you signed up last Monday when rates were low and still haven't heard back?  Wow, I guess they really are swamped.  Let me know when you hear back.  I'm curious if they offer you a better rate than listed because you applied so long ago when rates were much lower.  Also curious what their closing fees are, if you or anyone else has an idea.  Does anyone know if they do no-cost refinancing for a higher interest rate?  They seem to have some of the lowest rates, but wondering if the closing costs make it a no-go.  Then again, that's only if they respond to you in the first place!!

For now, I'll just use them as a gauge for rates overall, since at least they post it and have some of the lowest rates I've seen. I guess when they get to around 3.25% apply and maybe I'll hit sub 3% by the time they get back to me?  Is mortgage refinance timing as bad as market timing?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 16, 2020, 09:51:38 PM
PenFed is back down to 3.625% today from 4% Friday.  So maybe things will start to head lower again.  Obviously the coronavirus might have an impact on lenders' ability to give out loans, so that's another unknown here.  With all the craziness going on, refinancing isn't at the top of my priority list.  If rates get back to ~3%, I'll start taking a look again.  If we don't get there because the virus quickly stops spreading and the economy is great again, well I'll call that a win :)

I tried to get one of their sub-2.8% rates but didn't contact them quickly enough.  They were swamped and still haven't responded.
So you signed up last Monday when rates were low and still haven't heard back?  Wow, I guess they really are swamped.  Let me know when you hear back.  I'm curious if they offer you a better rate than listed because you applied so long ago when rates were much lower.  Also curious what their closing fees are, if you or anyone else has an idea.  Does anyone know if they do no-cost refinancing for a higher interest rate?  They seem to have some of the lowest rates, but wondering if the closing costs make it a no-go.  Then again, that's only if they respond to you in the first place!!

For now, I'll just use them as a gauge for rates overall, since at least they post it and have some of the lowest rates I've seen. I guess when they get to around 3.25% apply and maybe I'll hit sub 3% by the time they get back to me?  Is mortgage refinance timing as bad as market timing?

I'll be sure to post here when I find out.   In the past closing costs have been minimal.    Sometimes they are waived if the loan remains in effect for 2 or 3 years, but I forget whether that's just HELOCs or included refinancing.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on March 20, 2020, 10:30:35 PM
In times like these, I wake up every day thankful that I have $150,000 cash instead of an extra $600 per month.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 20, 2020, 11:12:10 PM
In times like these, I wake up every day thankful that I have $150,000 cash instead of an extra $600 per month.
Amen, Radagast! I started a thread in praise of a big, fat EF, and of course someone posted that they were happy their house was paid off. I refrained from asking if they had done it before or after reaching FI, because I didn't want to derail the thread.

After we sold our last flip project, we couldn't find any deals that made sense, so we're sitting on a huge pile of cash and damn grateful to be in this position. A paid off house is fine, just as long as you have another big pile o'money to draw from in case the shit hits the fan. Unfortunately, some people are so focused fixated on "Killing The Mortgage" that other valuable things, like EFs, get the short shrift.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on March 21, 2020, 07:51:32 AM
We refinanced with Loan Depot spring 2019 into a 3.375 10/1 ARM.  The opportunity to refi to a 30yr fixed at 3.375 with a few hundred bucks back to us happened early last month.   Uploaded all the required info immediately, have not heard anything.  I am sure they are completely swamped.

I am REALLY glad we didn't pay off the mortgage in this environment.  People who think having no mortgage will save them fail to account for all the other ongoing cash expenses of life.  Personal property tax is one of our biggest monthly expenses. 

ETA 4/16/20:    We closed on the 30yr 3.25 fixed on 4/13. (same late negotiation got us an extra 1/8)  If you look at historic 30-year mortgages, that's pretty low, especially considering we didn't have out-of-pocket closing costs.  Only a handful of times have 30 years been below 3.5%. http://www.freddiemac.com/pmms/pmms30.html (http://www.freddiemac.com/pmms/pmms30.html)
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 22, 2020, 09:13:54 AM
We refinanced with Loan Depot spring 2019 into a 3.375 10/1 ARM.  The opportunity to refi to a 30yr fixed at 3.375 with a few hundred bucks back to us happened early last month.   Uploaded all the required info immediately, have not heard anything.  I am sure they are completely swamped.

I am REALLY glad we didn't pay off the mortgage in this environment.  People who think having no mortgage will save them fail to account for all the other ongoing cash expenses of life.  Personal property tax is one of our biggest monthly expenses.

Cashout?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 24, 2020, 06:14:40 AM
Is it worth re-examining the fundamentals of the DNPYM club now that we're in a bear market?

I could imagine my wife opening up our investment account statements, pointing out that we've lost (on paper) more money than the balance on our mortgage, and me having to explain that actually staying in this much debt to own more of the assets that are sinking is the right course.
Title: Re: DONT Payoff your Mortgage Club
Post by: Rufus.T.Firefly on March 24, 2020, 06:36:30 AM
Is it worth re-examining the fundamentals of the DNPYM club now that we're in a bear market?

I could imagine my wife opening up our investment account statements, pointing out that we've lost (on paper) more money than the balance on our mortgage, and me having to explain that actually staying in this much debt to own more of the assets that are sinking is the right course.

If we were paying off our mortgage rapidly, we would have less cash on hand and be in a far more tenuous situation than we are presently. The real risk scenario at this present moment is for those who are cash poor, are laid off and default on their mortgage. The DYPYM method hedges heavily against that risk assuming you've put aside some of your investments into readily accessible accounts. In the worst-case scenario for DYPYM, one would need to sell some of their investments at the bottom and realize a bit of the paper loss to keep the house. But that seems like a small price to pay compared to a default.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 24, 2020, 07:36:58 AM
The acronym is DPOYM. It stands for "Don't Pay Off Your Mortgage". I believe it could have benefited from an "E" for "Early" at the end, but it's a little late for that now.

Simply put, if you fill all of your retirement savings buckets before you choose to kill the mortgage, you will need to earn and invest fewer dollars to reach the goal of FIRE. See: MMM's Shockingly Simple Math post and the Investment Order sticky:

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153
(This is the US version. The consideration factors are different if your mortgage interest is not tax deductible.)

Just for fun, check out reply #3 on this thread, by the late, great Boarder42.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/


And @Rufus.T.Firefly has got it right. A house will always require payment of taxes, utilities, and upkeep.
In that vein, here's another related discussion:

https://forum.mrmoneymustache.com/share-your-badassity/in-praise-of-big-fat-emergency-funds/
Title: Re: DONT Payoff your Mortgage Club
Post by: paulkots on March 24, 2020, 07:37:16 AM
I don’t think that’s a fair judgement. I read both threads and see that both groups believe in and have decent EFs. The difference is one group uses the low interest rate to invest while the other pays off the mortgage.

As of know, it seems that we will be in for some hurting for a while. After this panic, the reality of slower business or even worse will set in. 


Sent from my iPhone using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 24, 2020, 07:57:05 AM
I don’t think that’s a fair judgement. I read both threads and see that both groups believe in and have decent EFs. The difference is one group uses the low interest rate to invest while the other pays off the mortgage.

As of know, it seems that we will be in for some hurting for a while. After this panic, the reality of slower business or even worse will set in. 

Sent from my iPhone using Tapatalk
If you do read both threads, you will know that I'm not against paying off mortgages. You will also know that on the Mortgage Payoff thread, the focus is merely on doing/celebrating it. Discussion about whether it's the most effective way to reach FI is not allowed, hence the formation of the DPOYM thread.

And yes, a shocking number of people "killing the mortgage" do not understand the tradeoff(s) they're making. Putting retirement savings after paying off the mortgage is far less efficient. And MMM is all about efficiency. Killing the mortgage, but not getting your employer's full match? Not maxing out your 401k/Roth/HSA (if eligible)? Don't understand the magic of compound interest? Then you're probably leaving a lot of money on the table. Want to learn more before you make your mortgage payoff decision? You won't find that conversation on the Payoff thread, because it's not allowed.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 24, 2020, 08:21:38 AM
I don’t think that’s a fair judgement. I read both threads and see that both groups believe in and have decent EFs. The difference is one group uses the low interest rate to invest while the other pays off the mortgage.

As of know, it seems that we will be in for some hurting for a while. After this panic, the reality of slower business or even worse will set in. 

Sent from my iPhone using Tapatalk
If you do read both threads, you will know that I'm not against paying off mortgages. You will also know that on the Mortgage Payoff thread, the focus is merely on doing/celebrating it. Discussion about whether it's the most effective way to reach FI is not allowed, hence the formation of the DPOYM thread.

And yes, a shocking number of people "killing the mortgage" do not understand the tradeoff(s) they're making. Putting retirement savings after paying off the mortgage is far less efficient. And MMM is all about efficiency. Killing the mortgage, but not getting your employer's full match? Not maxing out your 401k/Roth/HSA (if eligible)? Don't understand the magic of compound interest? Then you're probably leaving a lot of money on the table. Want to learn more before you make your mortgage payoff decision? You won't find that conversation on the Payoff thread, because it's not allowed.

A shocking number of people throwing all available cash into paying off the mortgage early "for safety" don't realize that they don't get the safety UNTIL the mortgage is paid off.    They start basking in that "SAFETY" feeling the moment they start paying it down fast and hard.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fire2025 on March 24, 2020, 08:33:04 AM
I have never really thought about this before, but I realized it might be interesting to people. I also read both threads, because I live in a house split down the middle of both threads.  Ha Ha!!!

My SO's paid cash for his half of our house.  He was close to FIRE and wanted the extra benefit of a paid off house. 

I'm a late comer to FIRE, and to grown-up jobs, so I used leverage to buy my half of our house.  I could have used everthing I had saved to buy my half of the house, but decided leverage was the better choice for me, because I was still in accumulation. 

Getting my mortgage was an interesting saga because he had no credit history, not bad credit obviously, just none.  That's been fixed. 

Currently we are both not working: SO (FIRE'd) me (laid off), but we both feel financially very secure.

I can easily make my mortgage and living expenses on unemployment and have a fair EF.  But I also have a large amount of assets. 

I get that those assets are down (on paper), but I have been saving for longer than three years, more like a decade, so some of those assets are still up.  I'm still very happy to have those assets instead of a paid off house and no assets.  I understand that doesn't have to be the two choices, but my income is not as large as some people on the site.  I prefer my fixed 30 year mortgage and every extra penny going to the market. 

Leverage for the win, for me.  The other guy, in the house, does things different.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 24, 2020, 09:43:00 AM
Thank you for your candor, @Fire2025

Was this impasse on the handling of the mortgage part of why you have not joined finances with your SO?
Title: Re: DONT Payoff your Mortgage Club
Post by: Fire2025 on March 24, 2020, 10:52:36 AM
Thank you for your candor, @Fire2025

Was this impasse on the handling of the mortgage part of why you have not joined finances with your SO?

No, separate finances just works for us, we've been together for over 2 decades, so if it's not broken.... 

We got priced out of a rental, we had been in for a very long time.  We ran the numbers and decided to buy into the market somewhat quickly, to avoid the 30% and then 60% rent increases, so we didn't have time to fix the credit issue before we bought.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 24, 2020, 11:03:51 AM
A shocking number of people throwing all available cash into paying off the mortgage early "for safety" don't realize that they don't get the safety UNTIL the mortgage is paid off.    They start basking in that "SAFETY" feeling the moment they start paying it down fast and hard.

i would argue that true "SAFETY" doesn't come for these people until several years after their mortgage has been paid off and they have had a chance to plow the improved cash-flow into more liquid investments.  Even then (as has been hammered home in 40+ pages of this thread) it is exceedingly unlikely that they will ever match those that prioritized tax-advantaged savings over throwing all available resources at a mortgage.

FWIW, I'm not against someone paying down their mortgage - prudently.  There are even circumstances when it can be beneficial (e.g. to improve cash-flow close to retirement when tax-advantaged space is no longer available).  I'm against the emotional reaction to not holding a mortgage, which I think it at best misguided and more likely completely counterproductive.

ETA: Fixed typos and auto-correct mistakes.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 24, 2020, 11:24:27 AM
A shocking number of people throwing all available cash into paying off the mortgage early "for safety" don't realize that they don't get the safety UNTIL the mortgage is paid off.    They start basking in that "SAFETY" feeling the moment they start paying it down fast and hard.

i would argue that true "SAFETY" doesn't come for these people until several years after they mortgage has been paid down and they have had a chance to plow the improved cash-flow into more liquid investments.  Even then (as has been hammered home in 40+ pages of this thread) it is exceedingly unlikely that they will ever match those that prioritized tax-advantaged savings over throwing all available resources at a mortgage.

FWIW, I'm not against someone paying down their mortgage - prudently.  There are even circumstances when it can be beneficial (i.e. to improve cash-flow close to retirement when tax-advantaged space is no longer available).  I'm against the emotional reaction to not holding a mortgage, which I think it at best misguided and more likely completely counterproductive.
Awww, I love you guys! Thanks for staying and sharing the message.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 24, 2020, 08:31:26 PM
Is it worth re-examining the fundamentals of the DNPYM club now that we're in a bear market?

I could imagine my wife opening up our investment account statements, pointing out that we've lost (on paper) more money than the balance on our mortgage, and me having to explain that actually staying in this much debt to own more of the assets that are sinking is the right course.

I mean, in hindsight, sure I wish I had lump sum paid off my mortgage in January or February 2020.  Then I could have gotten a new mortgage now with lower rates and started investing it while stocks are down.  Or I could have just sold all my stocks and sat on cash until we hit the bottom and bought in again.  But unfortunately, I can't predict the future.  So instead, I based my decisions logically on past data and math.  We all know that past performance is no guarantee of future results.  But the best we can do is make decisions as if it were true.  And sometimes we'll be wrong.  That's life.  If you (generic you) can't handle your investments losing 50% and that would trigger you to sell at the bottom, then yeah, you should probably pay off your mortgage instead.

The fundamentals have not changed.  Now is the absolute worst time to try and change course.  A bear market is the best time to invest instead of paying off your mortgage.  I could still pay off my mortgage with my investment account, but now I'd be locking in those losses.  I have a large EF and investment account to ride out this downturn because I've been investing for the last 8 years, so I'm not worried.  I probably could have hit FIRE in 2 years and now it may take longer.  But that's a risk I was taking being in the stock market.  And I'm more worried about my health and the health of my family and the millions of people affected in terrible ways by this crisis.  I still firmly believe that investing in lieu of paying long-term low fixed rate debts (<4%, 30year) is the best way to achieve wealth in the long-term.  Yeah, it hurts a little right now.  With the entire world seemingly going on lockdown, things might really be different this time.  All my investments might go to 0.  But then I think we all have bigger problems and whether or not I technically own my house is not going to matter.

I also have peace of mind in times like these by living well below my means.  My mortgage is now around 8% of my monthly gross income.  That's due to inflation over the years and raises since I bought my house, along with good timing when I bought.  Freeing up that monthly payment just isn't a priority for me.  If I lose my job, it doesn't take all that much for me to scrape together something to pay my mortgage.  If I had a $2-3k mortgage, I might think differently about it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 24, 2020, 08:35:39 PM
Hey @SwordGuy did you ever hear back from PenFed?  Looks like their rates have been getting lower again but they were also over 4% recently as well.  They're really all over the place.  Just curious if it's really taking over 2 weeks for them to get back to people and what kind of rates they're offering to those who applied weeks ago.  Thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 24, 2020, 09:11:31 PM
Hey @SwordGuy did you ever hear back from PenFed?  Looks like their rates have been getting lower again but they were also over 4% recently as well.  They're really all over the place.  Just curious if it's really taking over 2 weeks for them to get back to people and what kind of rates they're offering to those who applied weeks ago.  Thanks!

Haven't heard a damn thing from them.  Tried a couple of times and I just get shunted a queue.

7/1 ARMs still had a great rate on the first 7 years, which is more than I need to pay it off.  :(
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 24, 2020, 09:39:04 PM
Hey @SwordGuy did you ever hear back from PenFed?  Looks like their rates have been getting lower again but they were also over 4% recently as well.  They're really all over the place.  Just curious if it's really taking over 2 weeks for them to get back to people and what kind of rates they're offering to those who applied weeks ago.  Thanks!

Haven't heard a damn thing from them.  Tried a couple of times and I just get shunted a queue.

7/1 ARMs still had a great rate on the first 7 years, which is more than I need to pay it off.  :(
Dang that sucks.  I knew they were busy, but I'd think they'd at least have had time to talk to you by now.   Have you checked with any other lenders?  I wonder if it's just PenFed not answering or if all lenders are just  too busy right now for new applicants.  With the current state of the country, I guess I can understand that things have slowed down, along with the rush of applications before things got so bad.  Hopefully things get better soon on all fronts and mortgage rates stay low.  Thanks for the update.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 24, 2020, 09:57:44 PM
Hey @SwordGuy did you ever hear back from PenFed?  Looks like their rates have been getting lower again but they were also over 4% recently as well.  They're really all over the place.  Just curious if it's really taking over 2 weeks for them to get back to people and what kind of rates they're offering to those who applied weeks ago.  Thanks!

Haven't heard a damn thing from them.  Tried a couple of times and I just get shunted a queue.

7/1 ARMs still had a great rate on the first 7 years, which is more than I need to pay it off.  :(
Dang that sucks.  I knew they were busy, but I'd think they'd at least have had time to talk to you by now.   Have you checked with any other lenders?  I wonder if it's just PenFed not answering or if all lenders are just  too busy right now for new applicants.  With the current state of the country, I guess I can understand that things have slowed down, along with the rush of applications before things got so bad.  Hopefully things get better soon on all fronts and mortgage rates stay low.  Thanks for the update.

Checked with other lenders, didn't seem to have great rates anymore. :(
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 25, 2020, 12:38:22 PM
All set to close on the sale of our old house this Friday (barring a catastrophe, and, tbh, this seems like the week a catastrophe could happen).

Proceeds from the house will mostly pay back a margin loan, leaving us at 78% LTV on the new house and no other debt. Current rate 3 7/8. Hoping to be able to refinance and improve that late this year.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 25, 2020, 12:57:25 PM
All set to close on the sale of our old house this Friday (barring a catastrophe, and, tbh, this seems like the week a catastrophe could happen).

Proceeds from the house will mostly pay back a margin loan, leaving us at 78% LTV on the new house and no other debt. Current rate 3 7/8. Hoping to be able to refinance and improve that late this year.
What a rough time to be making a transition. Fingers (and everything else) crossed that it goes through!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 26, 2020, 08:12:46 AM
Update: dropped off signed, notarized, papers at closing office.

Filled out wiring instructions form. God, I hope I got those numbers right.
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on March 26, 2020, 08:45:53 AM
Update: dropped off signed, notarized, papers at closing office.

Filled out wiring instructions form. God, I hope I got those numbers right.

lol, I hear ya, I am buying a house tomorrow and just did the wire transfer too xD
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 26, 2020, 11:11:44 AM
I'm listening to a podcast about Iran-Contra (called "Fiasco"; it's fabulous), and the host made the claim that the Sultan of Brunei agreed to donate something like $20 million to the Contra cause. Reagan's secretary transposed two digits in the wire transfer, so the money went to the wrong Swiss bank account, and was beyond the reach of Brunei, the US, and the contras forever.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 26, 2020, 12:05:28 PM
I'm listening to a podcast about Iran-Contra (called "Fiasco"; it's fabulous), and the host made the claim that the Sultan of Brunei agreed to donate something like $20 million to the Contra cause. Reagan's secretary transposed two digits in the wire transfer, so the money went to the wrong Swiss bank account, and was beyond the reach of Brunei, the US, and the contras forever.
um... how does this connect to the thread?  I missed the link somewhere...
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on March 26, 2020, 12:38:02 PM
Update: dropped off signed, notarized, papers at closing office.

Filled out wiring instructions form. God, I hope I got those numbers right.

lol, I hear ya, I am buying a house tomorrow and just did the wire transfer too xD
I'm listening to a podcast about Iran-Contra (called "Fiasco"; it's fabulous), and the host made the claim that the Sultan of Brunei agreed to donate something like $20 million to the Contra cause. Reagan's secretary transposed two digits in the wire transfer, so the money went to the wrong Swiss bank account, and was beyond the reach of Brunei, the US, and the contras forever.
um... how does this connect to the thread?  I missed the link somewhere...

I mean, it's a little bit of a tangent, but it's nothing to get bent out of shape about.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 26, 2020, 12:46:52 PM
@sherr if you connect several posts of mine, you'll see that I've been super leveraged during a period from October until (hopefully) tomorrow while owning two houses. At our peak, my wife and I were carrying debt of about 320% of our annual income. It's possible our HCOL posters don't think this is extreme, but we are anxious to get back down to one house and simplify our lives and finances, while slowly paying down the remaining mortgage.

Also, my wife works for a major producer of aircraft engines, so--if she loses her job--that % might move the other way.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on March 26, 2020, 12:51:42 PM
@sherr if you connect several posts of mine, you'll see that I've been super leveraged during a period from October until (hopefully) tomorrow while owning two houses. At our peak, my wife and I were carrying debt of about 320% of our annual income. It's possible our HCOL posters don't think this is extreme, but we are anxious to get back down to one house and simplify our lives and finances, while slowly paying down the remaining mortgage.

Also, my wife works for a major producer of aircraft engines, so--if she loses her job--that % might move the other way.

I know, I was disagreeing with @nereo that this was off topic. The specific tangent about transposed wire transfer numbers was a tangent, but like I said, nothing to get bent out of shape about.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 26, 2020, 01:15:49 PM
I'm listening to a podcast about Iran-Contra (called "Fiasco"; it's fabulous), and the host made the claim that the Sultan of Brunei agreed to donate something like $20 million to the Contra cause. Reagan's secretary transposed two digits in the wire transfer, so the money went to the wrong Swiss bank account, and was beyond the reach of Brunei, the US, and the contras forever.
um... how does this connect to the thread?  I missed the link somewhere...
Despite the explanation below, I didn't get it either, so it's not just nereo.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 26, 2020, 01:29:30 PM
Maybe the link is "whatever you do, double-check your figures before you send bitcoin to pay off your mortgage?"
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 26, 2020, 01:40:06 PM
@sherr if you connect several posts of mine, you'll see that I've been super leveraged during a period from October until (hopefully) tomorrow while owning two houses. At our peak, my wife and I were carrying debt of about 320% of our annual income. It's possible our HCOL posters don't think this is extreme, but we are anxious to get back down to one house and simplify our lives and finances, while slowly paying down the remaining mortgage.

Also, my wife works for a major producer of aircraft engines, so--if she loses her job--that % might move the other way.

I know, I was disagreeing with @nereo that this was off topic. The specific tangent about transposed wire transfer numbers was a tangent, but like I said, nothing to get bent out of shape about.

I wasn’t getting bent out of shape. I just wasn’t following the train of thought, and was hoping someone could connect the Dots for me. Didn’t seem to be an odd request

I think I’ve got it now - thanks for the PMs.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 26, 2020, 01:43:23 PM
sending Bitcoin to pay off the mortgage would actually be kinda normal compared to other things. Stock market gaining 5% while Bitcoin stays basically the same is kinda disorienting.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 26, 2020, 01:56:19 PM
sending Bitcoin to pay off the mortgage would actually be kinda normal compared to other things. Stock market gaining 5% while Bitcoin stays basically the same is kinda disorienting.
But if you send it to the wrong wallet, it is gone with no recourse. One of the features of bitcoin is the permanence of the transaction and another one is the anonymity.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on March 26, 2020, 02:09:13 PM
sending Bitcoin to pay off the mortgage would actually be kinda normal compared to other things. Stock market gaining 5% while Bitcoin stays basically the same is kinda disorienting.
But if you send it to the wrong wallet, it is gone with no recourse. One of the features of bitcoin is the permanence of the transaction and another one is the anonymity.

Right, but no one manually types out the bitcoin wallet address. It's copy-and-pasted, or encoded in a QR code. As opposed to a when I did a wire transfer I had to write down the account / routing number on a piece of paper, double check it, carry it to my banker who manually typed it in, and double-check it again.

I wasn’t getting bent out of shape. I just wasn’t following the train of thought, and was hoping someone could connect the Dots for me. Didn’t seem to be an odd request

Okay, sorry for misinterpreting you.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 30, 2020, 12:24:15 PM
I'm wondering if any of you are planning on taking advantage of the mortgage abeyance plans that are being rolled out? One of our rentals was financed as a second home (the bank insisted on doing it that way, despite full disclosure), so I suppose technically we could, but we have no plans to. All of our tenants are fine, so we expect no interruptions or turnover, plus we have ample reserves. I don't want to start a new thread, so I'm asking our little group, because I know most of you still have mortgages :-)

Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 30, 2020, 12:30:38 PM
I'm wondering if any of you are planning on taking advantage of the mortgage abeyance plans that are being rolled out? One of our rentals was financed as a second home (the bank insisted on doing it that way, despite full disclosure), so I suppose technically we could, but we have no plans to. All of our tenants are fine, so we expect no interruptions or turnover, plus we have ample reserves. I don't want to start a new thread, so I'm asking our little group, because I know most of you still have mortgages :-)

I believe that keeping one's word when one is (a) able to and (b) it will not impoverish one's family is the right thing to do.  And when it comes to (b), it's the right thing to do what one can to make amends to the other party.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 30, 2020, 02:05:06 PM
I'm wondering if any of you are planning on taking advantage of the mortgage abeyance plans that are being rolled out? One of our rentals was financed as a second home (the bank insisted on doing it that way, despite full disclosure), so I suppose technically we could, but we have no plans to. All of our tenants are fine, so we expect no interruptions or turnover, plus we have ample reserves. I don't want to start a new thread, so I'm asking our little group, because I know most of you still have mortgages :-)

I believe that keeping one's word when one is (a) able to and (b) it will not impoverish one's family is the right thing to do.  And when it comes to (b), it's the right thing to do what one can to make amends to the other party.
I totally agree. In fact, I'm not too happy about the stimulus check that's on its way. Don't need it, don't want it, not even sure what would happen if we didn't cash it...

OTOH, the mortgage abeyance, as I understand it, is not forgiveness, it just lets you push back any missed payments to the end of the mortgage. The drawback would be that you are paying less interest in the current year. If I'm incorrect, please feel free to advise me gently.

I don't think this has anything to do with keeping one's word.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 30, 2020, 02:21:40 PM
We're donating our stimulus check, and probably more, to some local charities. +1 to "don't need it". Only reason we qualify is I'm good at math and have organized our lives to be very tax-efficient.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 31, 2020, 07:34:41 AM
We're donating our stimulus check, and probably more, to some local charities. +1 to "don't need it". Only reason we qualify is I'm good at math and have organized our lives to be very tax-efficient.

I have read that the stimulus check is really just and advance on next year’s taxes the way it is written, so don’t get too excited when it comes....
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 31, 2020, 07:36:52 AM
I'm wondering if any of you are planning on taking advantage of the mortgage abeyance plans that are being rolled out? One of our rentals was financed as a second home (the bank insisted on doing it that way, despite full disclosure), so I suppose technically we could, but we have no plans to. All of our tenants are fine, so we expect no interruptions or turnover, plus we have ample reserves. I don't want to start a new thread, so I'm asking our little group, because I know most of you still have mortgages :-)

I believe that keeping one's word when one is (a) able to and (b) it will not impoverish one's family is the right thing to do.  And when it comes to (b), it's the right thing to do what one can to make amends to the other party.
I totally agree. In fact, I'm not too happy about the stimulus check that's on its way. Don't need it, don't want it, not even sure what would happen if we didn't cash it...

OTOH, the mortgage abeyance, as I understand it, is not forgiveness, it just lets you push back any missed payments to the end of the mortgage. The drawback would be that you are paying less interest in the current year. If I'm incorrect, please feel free to advise me gently.

I don't think this has anything to do with keeping one's word.

It's something we are thinking about, though I don't know what the final details will be.  I'm unexpectedly unemployed, and probably unemployable for the next several months because all colleges and universities (my most likely employers) are shut down through summer.  Spouse is working and we can live on her income, but only by flexing all of our frugality muscles.  We have ample savings but I don't want to deplete that further, particularly when the markets are down. We still havent' sold our previous home and with the local government shut down we really can't at present (long, complicated story).  And in the middle of all this we are waist-deep in remodeling project for the home we are currently living in.
So 3 months abeyance could give us some much needed cash-flow.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 31, 2020, 09:22:32 AM
We're donating our stimulus check, and probably more, to some local charities. +1 to "don't need it". Only reason we qualify is I'm good at math and have organized our lives to be very tax-efficient.

I have read that the stimulus check is really just and advance on next year’s taxes the way it is written, so don’t get too excited when it comes....
I'd say you read incompletely. They created a new refundable tax credit for this - so for the vast majority of people, while what you wrote is technically true, next year's taxes are reduced by the amount of the payment, so at the end of the day the net result is you have $1200 or $2400 or more if you have kids in your pocket.

The tax credit is technically based on 2020 income, but they are paying it out in advance based on your 2019 or 2018 income tax return. If your AGI (important to know exactly what they mean by "income" - in this case AGI) is up to $150K for married filing jointly on 2019 return, they send you the money. If it turns out your 2020 AGI is over that figure, you settle up at tax time.

Actually the mechanism is very similar to ACA premium tax credits - estimate income, pay the credit early, settle up at tax time with actual figures.

https://www.nytimes.com/article/coronavirus-stimulus-package-questions-answers.html
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 31, 2020, 09:24:51 AM
Back on topic - my "power move" from October isn't looking so great right now. Still having $70-100K more liquidity is helpful at calming the nerves, even though I have a <$600 payment that wasn't there before I did that.
Title: Re: DONT Payoff your Mortgage Club
Post by: TexasRunner on April 02, 2020, 11:19:52 AM
Small Milestone, just got an email back from the bank:  $181.00 Per Month PMI is now gone!

We are slow-walking the mortgage, but most likely will not ever re-balance into a longer loan (IE if we get a great rate, may rebalance into a time frame of however many months we have left).

Very much enjoying the liquidity we have right now as we haven't paid any extra into the mortgage in several years.  I WOULD be worried about a job loss if I had paid extra into the mortgage but not enough to pay it off completely.

Keep up the good work guys!

(Also, several more boring, minimum payments have been made)...
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 02, 2020, 11:25:16 AM
Back on topic - my "power move" from October isn't looking so great right now. Still having $70-100K more liquidity is helpful at calming the nerves, even though I have a <$600 payment that wasn't there before I did that.
Wait! 70,000 divided by 600/month is nearly ten years of mortgage payments, not counting even minimal interest. Where is the problem?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 02, 2020, 11:39:19 AM
We finally managed to close on the sale of our old home.

112 K in proceeds, but we have almost that much in small loans (that got us through the two mortgage period) to pay off.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 02, 2020, 11:47:16 AM
We finally managed to close on the sale of our old home.

112 K in proceeds, but we have almost that much in small loans (that got us through the two mortgage period) to pay off.
Congratulations to you and to @TexasRunner!
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on April 02, 2020, 02:13:59 PM
Back on topic - my "power move" from October isn't looking so great right now. Still having $70-100K more liquidity is helpful at calming the nerves, even though I have a <$600 payment that wasn't there before I did that.
Conversely, I'm happy we did our (moderate) cashout refi at the end of November - I locked up the cash for a few months getting $1,300 in signup bonuses from Chase and never got around to investing it. Mortgage is back out to a 30 year term, total costs were under $50 IIRC, monthly payment dropped from >$900 to <$600.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 07, 2020, 09:21:33 AM
Despite the two house overlap. we got a 30-year fixed mortgage at 3.88%, no PMI or anything, so we don't have to manage any active banking steps right now. Our house is more than ample for the additional use it's getting now, but not so burdensome that I'm worried about keeping up the payments for it if my wife loses her (aerospace) job.

It's possible that later in 2020 we'll have the opportunity to refinance and lower that rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on April 14, 2020, 09:44:10 AM
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no

After a month and half of loan processing, we closed on the refinance. Lenders seem to be slammed with demand still.

With lender credits and no appraisal required, actual closing costs came about couple hundred bucks if you disregard contributions to escrow  e.t.c. Even though its not cash out refinance, we will end up with few thousand dollars back in our pocket.

This will reduce our monthly payments by 43%. In these uncertain times in case of income loss our emergency fund will stretch much longer.

We are directing increased cash flow to taxable investments. I have to look into ways to automate this process.

Thanks to many of you that have been contributing your wisdom here.

Cheers to achieving greater freedom!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 14, 2020, 09:53:08 AM
Boo-yah!!!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 14, 2020, 11:38:28 AM
@achvfi that is a nice rate. Do you have an extensive relationship with that bank?
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on April 14, 2020, 12:10:24 PM
@achvfi that is a nice rate. Do you have an extensive relationship with that bank?

Its a small local credit union, that prefers to do their own servicing. I have been a member for a while but no special relationship.

I lucked out on timing when I was looking for refinancing options. Interest rates hit that level for brief period of time, I called their mortgage department to ensure that they lock in the rate for my application before the rates change. I had the funds readily available in their account required for refundable lock in fees.

I haven't seen the rates go down that level since.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 16, 2020, 09:29:42 AM
We refinanced with Loan Depot spring 2019 into a 3.375 10/1 ARM.  The opportunity to refi to a 30yr fixed at 3.375 with a few hundred bucks back to us happened early last month.   Uploaded all the required info immediately, have not heard anything.  I am sure they are completely swamped.

I am REALLY glad we didn't pay off the mortgage in this environment.  People who think having no mortgage will save them fail to account for all the other ongoing cash expenses of life.  Personal property tax is one of our biggest monthly expenses. 

ETA 4/16/20:    We closed on the 30yr 3.25 fixed on 4/13. (same late negotiation got us an extra 1/8)  If you look at historic 30-year mortgages, that's pretty low, especially considering we didn't have out-of-pocket closing costs.  Only a handful of times have 30 years been below 3.5%. http://www.freddiemac.com/pmms/pmms30.html (http://www.freddiemac.com/pmms/pmms30.html)
Congratulations!
Title: Re: DONT Payoff your Mortgage Club
Post by: dreadmoose on April 16, 2020, 12:05:21 PM
I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on April 16, 2020, 01:19:49 PM
I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 16, 2020, 01:33:27 PM
I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.
@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.

The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.

I sincerely hope you can see the difference. Make your decision knowing your personal circumstances, with full knowledge of what it's going to cost you. It's not about ethics at all, it's about m-o-n-e-y. @dreadmoose clearly understands that.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on April 16, 2020, 02:25:19 PM
The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.
because on this very thread, there are many people getting praise for refinancing into a new 30 year long, reducing their monthly payments, but extending the life of the loan considerably in some cases.
Title: Re: DONT Payoff your Mortgage Club
Post by: dreadmoose on April 16, 2020, 03:46:12 PM
I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.
@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.

The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.

I sincerely hope you can see the difference. Make your decision knowing your personal circumstances, with full knowledge of what it's going to cost you. It's not about ethics at all, it's about m-o-n-e-y. @dreadmoose clearly understands that.

I believe any type of misinformation provided to say that COVID has caused us financial distress would be unethical as it currently has not. I would not apply for benefits that require me to say that.

This is not the Government mandated mortgage deferral system but something put out by MCAP over a month ago saying they were simply waiving the $90 fee for mortgage payment skips that have always been available on my mortgage.

There was nothing required to qualify and neither the Gov't (taxpayers) or the bank are losing any money off this transaction.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 16, 2020, 05:12:00 PM
Would the bank charge you fees on a technicality or on your mistake?  Do they view your business in anything other than a business transaction?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 16, 2020, 08:38:19 PM
The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.
because on this very thread, there are many people getting praise for refinancing into a new 30 year long, reducing their monthly payments, but extending the life of the loan considerably in some cases.
Gee, you make it sound like that's a bad thing ;-) Please remember which thread you're commenting on. It's quite generally agreed in this club that following the Investment Order is the most expedient way to FIRE, not killing the mortgage at the expense of everything else. Drawing out the cheap, fixed-rate, tax-deductible mortgage and investing every penny of the difference is totally different than avoiding regularly scheduled mortgage payments that you could otherwise afford to make.

The only way those two things are related is if the mortgage holder invests the full amount of the skipped mortgage payment(s) into something that's likely to out earn the interest paid on the mortgage. Skipping payments entirely comes at a price. As long as people fully understand that, they're free to do whatever they want. Hell they can do whatever they they want anyway. It's just that one way is faster to FIRE than the other.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on April 21, 2020, 07:54:30 AM
It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.

It almost doesn't feel worth it.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on April 21, 2020, 09:19:02 AM
It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.

It almost doesn't feel worth it.
Um, why are you doing escrow? You should still be able to get out of it.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on April 21, 2020, 09:24:19 AM
It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.

It almost doesn't feel worth it.
Um, why are you doing escrow? You should still be able to get out of it.

Not with my current servicer or the company I'm using to refinance - I asked.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 21, 2020, 09:43:48 AM
After 11 years escrow-free, I finally found a loan-servicer that basically bribed me to set up an escrow account, and it coincided with moving the property tax office to a location much farther away from my work. It's been really freeing so far. I don't miss setting aside those monthly amounts writing the big check. It just feels like two more things I don't have to do.

And escrow refunded me two months worth of payments, so they're trying hard to keep the balance down to a responsible amount.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on April 21, 2020, 09:45:42 AM
It's taken nearly two months, but we are finally closing this week. P&I will be dropping by ~$150/month. However, since my current servicer hasn't changed my escrow payment to reflect actual costs, my new escrow payment is going to be $120 higher.

It almost doesn't feel worth it.
Um, why are you doing escrow? You should still be able to get out of it.

Not with my current servicer or the company I'm using to refinance - I asked.

Its a requirement to have escrow with my lender as well.

Hopefully your escrow payment will be right sized by next year when new loan servicer recalculates it.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on April 21, 2020, 11:38:35 AM
After 11 years escrow-free, I finally found a loan-servicer that basically bribed me to set up an escrow account, and it coincided with moving the property tax office to a location much farther away from my work. It's been really freeing so far. I don't miss setting aside those monthly amounts writing the big check. It just feels like two more things I don't have to do.

Every year we use the property tax payment for some easy CC signup bonuses, clearing at least $500 a year. Sure, there's a fee to the county tax office - but it's swallowed by the bonus.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on April 21, 2020, 12:09:50 PM
Hopefully your escrow payment will be right sized by next year when new loan servicer recalculates it.
I'd write to the servicer pointing out that the costs the escrow account is expected to pay have decreased and asking the to do a new escrow analysis to adjust the payment. I can't find anything indicating that they have to perform a new analysis upon request rather than wait until the next scheduled annual analysis, but it couldn't hurt to ask.

After 11 years escrow-free, I finally found a loan-servicer that basically bribed me to set up an escrow account, and it coincided with moving the property tax office to a location much farther away from my work. It's been really freeing so far. I don't miss setting aside those monthly amounts writing the big check. It just feels like two more things I don't have to do.

Every year we use the property tax payment for some easy CC signup bonuses, clearing at least $500 a year. Sure, there's a fee to the county tax office - but it's swallowed by the bonus.
And sometimes you can time your payments for tax purposes by making a payment due in the spring before the end of December (SALT deduction cap has reduced the usefulness of this strategy).
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 29, 2020, 08:07:30 AM
Six payments made.

Three hundred fifty-four payments to go.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 29, 2020, 08:09:14 AM
Six payments made.

Three hundred fifty-four payments to go.

Nine payments on our current mortgage (3.7%).  Thanking my lucky stars we didn't dump more money in given where rates and the economy are right now.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 29, 2020, 09:47:28 AM
Six payments made.

Three hundred fifty-four payments to go.

Nine payments on our current mortgage (3.7%).  Thanking my lucky stars we didn't dump more money in given where rates and the economy are right now.
You guys are rock stars!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 29, 2020, 01:25:42 PM
Eh, my rate is 3 7/8.

I think I'm more in "local guy who plays guitar for free at restaurant" territory than rock star territory, @Dicey .
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 29, 2020, 01:34:34 PM
Eh, my rate is 3 7/8.

I think I'm more in "local guy who plays guitar for free at restaurant" territory than rock star territory, @Dicey .

...still, if i”m in the area I’ll be at the bar listening with a beer in hand.
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on May 04, 2020, 03:55:20 PM
Thoughts on buying points from the DPOYM club?

We're in final stages of home build, so spoke with broker today.

They are offering a 1% credit, either to use towards closing costs or to buy points.

Rate quote today was 3.375 or 3.125 (using credit for point).  Breakeven calculator shows ~49 months.

Given that rates are so low, should I consider that? 

Otherwise, the credit towards closing will just be more i can put in taxable.  No plans to make any extra payments.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on May 04, 2020, 05:58:35 PM
Points are paying money upfront for a lower rate. Typically you need to stay in the house for several years to recoup the upfront cost, and even longer if you assume that those funds could have provided more than a 0% real return (Easy enough if you still have tax advantage space).

Ask yourself - how many years do I need to keep the mortgage to break even, and many years would it take if you earned, say, 5% per year in opportunity cost?  Is that likely to happen?
Title: Re: DONT Payoff your Mortgage Club
Post by: freya on May 13, 2020, 06:19:57 PM
I got a 3.25% refinance, 30 year fixed, from Chase.  It's not the 2.875% that another poster reported, but then I've got a coop apartment which is usually a bit higher rate.  When I got the loan terms, I saw that 0.6% points had been tacked on to the original closing cost estimate.  I complained about this and they took off the points - and let me keep that rate!  On its website, Chase is quoting 3.25% with closer to 1% points. 

I wasn't aware you could bargain with a big bank, but if your credit & assets look good to the bank it seems that you can.  Worth a try.  Don't let them make you pay points.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 13, 2020, 09:22:48 PM
Congratulations, @freya!
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on May 15, 2020, 04:26:46 AM
I suppose this fits here but I hadn't thought about it til now.

My mortgage provider offered to waive all fees on up to 2 payment skips to help with the uncertainty around the Pandemic.

Interest still accrues of course but as this thread proves repeatedly I have better things to do with my cash flow so I immediately signed up and invested the payments instead.

It seems odd that I can only skip 2 of my bi-weekly payments when if I was monthly I could do two months but the gift horse's mouth is pretty clean either way.

If they start extending this I can never ever pay off my 2.19% mortgage, the dream.
i have considered this as well, but others on these forums seem to think this is unethical. so, i'm on the fence.
@kenmoremmm : Hell, no it's not unethical!! You may have missed the point. It isn't "free" money, the bank is just kicking your payments down the road. It's either going to be tacked on to the end of your mortgage or collected in installments at some point in the future.

The mustachian response is if you haven't lost your job or don't have one because you're FIRE, and you have plenty of reserves, why would you want to add to the length of your loan? The bank isn't "giving" you anything. Some would say the banks are happy to do it because you are going to pay more interest over the life of the mortgage.

I sincerely hope you can see the difference. Make your decision knowing your personal circumstances, with full knowledge of what it's going to cost you. It's not about ethics at all, it's about m-o-n-e-y. @dreadmoose clearly understands that.

I believe any type of misinformation provided to say that COVID has caused us financial distress would be unethical as it currently has not. I would not apply for benefits that require me to say that.

This is not the Government mandated mortgage deferral system but something put out by MCAP over a month ago saying they were simply waiving the $90 fee for mortgage payment skips that have always been available on my mortgage.

There was nothing required to qualify and neither the Gov't (taxpayers) or the bank are losing any money off this transaction.

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 15, 2020, 05:44:23 AM
[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 15, 2020, 06:19:01 AM
Plina's rate sounds like it's from a country outside US, but I must admit I'm starting to see rates that make me think it's time to explore what a refi could do. Gearing up for payment #7 out of 360.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 15, 2020, 07:16:49 AM
Plina's rate sounds like it's from a country outside US, but I must admit I'm starting to see rates that make me think it's time to explore what a refi could do. Gearing up for payment #7 out of 360.
I'm a fan of re-fis when rates are falling, but don't you already have a pretty good rate?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 15, 2020, 07:35:12 AM
We're sitting at 3 7/8 on the house we bought last fall (this is a 30-year term). We recently learned someone filed a fraudulent tax return for us, so I'm suddenly a little gun-shy about taking on another project where there will be documents flying around all over the place.

But lowering that to 3.0 will save us $200/month in interest, which is worth considering.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on May 15, 2020, 07:38:07 AM
We're sitting at 3 7/8 on the house we bought last fall (this is a 30-year term). We recently learned someone filed a fraudulent tax return for us, so I'm suddenly a little gun-shy about taking on another project where there will be documents flying around all over the place.

But lowering that to 3.0 will save us $200/month in interest, which is worth considering.

How did you find out about the fraudulent tax return?  We use Credit Karma to monitor credit inquiries, but I don't know/think it would catch a tax return (maybe?)

Would love to refi to ~3.0% but the fact that I keep changing jobs with periods of being unemployed is making that decision harder, even though spouse makes more than enough to cover the mortgage alone, plus our savings.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 15, 2020, 07:43:46 AM
Lol, it won't sound very mustachian, but our accountant advised us when he attempted to file on our behalf. We had to fill out the form 14039 and send in a paper return. Would have been nice to get that refund sooner, but we have enough margin that we can survive the delay.

I see paying an accountant to do our taxes as a purchase of marital harmony.
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on May 15, 2020, 10:01:46 AM
[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 15, 2020, 10:10:49 AM
[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on May 15, 2020, 12:20:01 PM
[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.

Sorry, the text was not clear. The iPad changes words as it is set on swedish. It does not extend the length of the mortgage. The end date is the same. It is a 40-year term so when it is in the end I am close to 80 years. Considering that I don’t plan to live in this apartment that long I am not that worried about interestrates in years 2058-2059. I might have made a different decision if I saw this as a forever apartment. Also there is no way to predict interestrates a couple of years in to the future. I look at them once a year and decide if I want to keep a variable rate that can change every three months or if I want to lock them for a time period. I have had the interestrate locked one year during the last five years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 15, 2020, 12:33:51 PM
[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.

Sorry, the text was not clear. The iPad changes words as it is set on swedish. It does not extend the length of the mortgage. The end date is the same. It is a 40-year term so when it is in the end I am close to 80 years. Considering that I don’t plan to live in this apartment that long I am not that worried about interest rates in years 2058-2059. I might have made a different decision if I saw this as a forever apartment. Also there is no way to predict interes trates a couple of years in to the future. I look at them once a year and decide if I want to keep a variable rate that can change every three months or if I want to lock them for a time period. I have had the interest rate locked one year during the last five years.
Wow, our loans are a lot simpler than yours are. Something to be grateful for. Thanks for the clarification. Typically, the bigger your stache is, the less this kind of minutiae (tiny details) actually matters. The real killer is when people who are just starting out become determined to pay off the mortgage at all costs, and at the expense of all other savings. That doesn't sound like your situation at all.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on May 15, 2020, 08:39:25 PM
At the suggestion of a couple of members, reposting this from another thread.

My recent experience has made me do a 180 on my view on this topic. For the past decade we had a 15 year mortgage outside NYC (Westchester) with property taxes over 3% of assessed value. So our mortgage was high at $4500 (all-in). But my spouse and I had good jobs, and I was looking to pay the mortgage off early and retire early. Then last Nov I was laid off and everything changed. I instantly wished we had a 30 year mortgage and I hadn't prepaid so much. My package would have let us swing the house for about 1.5 years, but we saw this as the perfect opportunity to get out of NY and move to Charlotte for my new job. We are building a new house, and I plan to get a 30 year with a rate hopefully under 3%. House is about same value but all-in mortgage will be a much more manageable $2500. I'll never prepay or do a 15 year again, and who knows we may never move again with rates so low! Our investments are enough to let us carry this mortgage into retirement too.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 18, 2020, 06:47:37 AM
@rmorris50 , welcome to the DNPYM club, and welcome to Charlotte.

During "Business as Usual" times, I was embarrassed to call what we have here traffic, I think you will be surprised at how wonderful it is here. May I ask what part of the city you're building? Our family chose Huntersville (just north of the city) for access to kids' activities and schools.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on May 18, 2020, 09:23:45 AM
@rmorris50 , welcome to the DNPYM club, and welcome to Charlotte.

During "Business as Usual" times, I was embarrassed to call what we have here traffic, I think you will be surprised at how wonderful it is here. May I ask what part of the city you're building? Our family chose Huntersville (just north of the city) for access to kids' activities and schools.

Thanks, I'm loving it so far, even though I haven't been able to explore as much as I want. Actually, my spouse and I are building in Smallwood, very close (west) of Uptown. We wanted to below close to all that Uptown has to offer, as well at the baseball and football stadium, and we don't have kids. So for us this area made sense. Lot's of revitalization going on in the areas around Uptown, it's exciting to see. I did check out Harrisburg and Hundersville, it just felt kinda far from Uptown.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 18, 2020, 09:52:57 AM
Indeed I drove through there a lot when I was looking for a back-roads route along Rozelle's Ferry road, you're going to like it there, with very easy access to the downtown amenities
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on May 18, 2020, 12:50:05 PM
[Snip]

I was debating if to cancel the amortizations for 6 or 18 months because it is not a financial necessity. The pause in amortization is a result of a national decision that allows the banks to temporarily stop the amortizations on loans. The only requirement for doing it is if you have financial difficulties to pay your mortgage or you are worried about your finances. I would not have been comfortable lying about financial difficulties but I can honestly say I am worried about my finances and the time it takes for me to reach FI. :) So I applied and got the stop until the end of next year. During that time I will invest the amount, If I beat my mortgage rate of 1,59 % it is a success.

Wow, that's some rate! Is it tax deductible? If you cancel the amortization, is the clock still ticking on the length of the loan? I'm not sure where you are, but I'm guessing that fantastic rate is only locked in for a short-ish number of years.

As talltexan pointed out it is outside US, in Sweden. It is tax deductible so I get 30 % back. The clock is ticking on the length of the loan. Actually the rate is a variable rate. The maximum time you can look your rate for is 10 years for 2,13 % at my current bank. Today you can lock my current rate for 5 years but I don’t see any reason to lock the rate for that time because if you want to sell your apartment during that time you also have to pay the difference until the end of the period. I have the flexibility to take some increases and basically this is the highest rate I have paid during the last five years.
Thanks, Plina. I was pretty sure that was the case, because of the use of a comma in the interest rate. You didn't answer my question: Does skipping payments stop the clock on the length of the mortgage? What if you give up paying your mortgage for as long as 18 months, but when your term is up, rates have increased considerably? Have you lost 18 low-interest months? It would be something to consider when deciding to take advantage of this situation or not.

Sorry, the text was not clear. The iPad changes words as it is set on swedish. It does not extend the length of the mortgage. The end date is the same. It is a 40-year term so when it is in the end I am close to 80 years. Considering that I don’t plan to live in this apartment that long I am not that worried about interest rates in years 2058-2059. I might have made a different decision if I saw this as a forever apartment. Also there is no way to predict interes trates a couple of years in to the future. I look at them once a year and decide if I want to keep a variable rate that can change every three months or if I want to lock them for a time period. I have had the interest rate locked one year during the last five years.
Wow, our loans are a lot simpler than yours are. Something to be grateful for. Thanks for the clarification. Typically, the bigger your stache is, the less this kind of minutiae (tiny details) actually matters. The real killer is when people who are just starting out become determined to pay off the mortgage at all costs, and at the expense of all other savings. That doesn't sound like your situation at all.

They don't seem to be simpler to me. :) I could probably pay of my mortgage in ten years but I really don't want to put all my savings in an apartment. Especially because I know that I don't want to stay in forever. I have realized during the years that I value more the flexibility to have cash or investments that can be turned to cash. You can also add the fact that I am not dependent of my work if I don't have everything tied to an apartment.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on May 19, 2020, 02:04:43 PM
They don't seem to be simpler to me. :) I could probably pay of my mortgage in ten years but I really don't want to put all my savings in an apartment. Especially because I know that I don't want to stay in forever. I have realized during the years that I value more the flexibility to have cash or investments that can be turned to cash. You can also add the fact that I am not dependent of my work if I don't have everything tied to an apartment.
I take it that if you have locked your rate and sell during your lock period, you pay a penalty based on the difference in interest rates. Does this mean you pay extra to sell during your lock period if rates have lowered since your lock (but not if they are the same or higher)?

While some of our mortgages do have a penalty for paying off the balance in the first few years, the penalty is not dependent on the rates at the time you pay off the loan. Overall, the decision to lock rates or not does not sound all that different from deciding if it is a good idea to refinance to one of our adjustable rate loans (which typically have rates locked for the first few years then adjusted annually thereafter).
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on May 20, 2020, 10:00:29 AM
They don't seem to be simpler to me. :) I could probably pay of my mortgage in ten years but I really don't want to put all my savings in an apartment. Especially because I know that I don't want to stay in forever. I have realized during the years that I value more the flexibility to have cash or investments that can be turned to cash. You can also add the fact that I am not dependent of my work if I don't have everything tied to an apartment.
I take it that if you have locked your rate and sell during your lock period, you pay a penalty based on the difference in interest rates. Does this mean you pay extra to sell during your lock period if rates have lowered since your lock (but not if they are the same or higher)?

While some of our mortgages do have a penalty for paying off the balance in the first few years, the penalty is not dependent on the rates at the time you pay off the loan. Overall, the decision to lock rates or not does not sound all that different from deciding if it is a good idea to refinance to one of our adjustable rate loans (which typically have rates locked for the first few years then adjusted annually thereafter).

You pay to cover the loss the bank makes as you don’t pay interest the whole period. It seems to be some complicated calculation based on financial regulations that I don’t really understand. It seems to be based on the time left on the locked rate and the rate that the bank can borrow money for +1%.

Your refinacing process seems to be a real paper battle. If I don’t change mortgage provider I get a paper home every year that asks If I want to lock the rate or not. If I want to lock the rate I can send in the paper or do it in one minut through their website and it is done. If I don’t want to lock it, I don’t need to do anything.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on May 21, 2020, 05:13:27 PM
Your refinacing process seems to be a real paper battle. If I don’t change mortgage provider I get a paper home every year that asks If I want to lock the rate or not. If I want to lock the rate I can send in the paper or do it in one minut through their website and it is done. If I don’t want to lock it, I don’t need to do anything.
Agree that refinancing is a paper battle. Also often comes with up-front costs (sometimes these costs are rolled into the loan balance; sometimes they are absorbed by the lenders in exchange for a higher interest rate, usually coupled with early payoff penalties).
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on May 27, 2020, 02:16:42 AM
Filed an application to my bank today to cancel the regular payments on my mortgage, effectively making it an interest-only mortgage so guess that makes me a member of this club with some extra frosting on top. I have made the regular payments so far but with the current very low interest rates (mine is, as per the standard here, a floating rate mortgage) currently at around 1.3%. and interest payments are tax dedeuctable giving an effective interest rate of just above 1%. With inflation around 2% the real rate is negative and I'm happy to let inflation eat it up at a slow and steady pace.

My loan-to-value ratio is low and my debt to income - ratio low as well so I'd rather shovel the extra cash in a more productive direction for the foreseeable future.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 27, 2020, 06:16:00 AM
That sounds amazing, @habaneroNorway !
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on May 27, 2020, 06:38:52 AM
That sounds amazing, @habaneroNorway !

Plan was to keep the regular payments, maybe also throw a small little extra at it monthly just for the feeling of it, but after the slaying of interest rates due to Covid-19 it got to the point where it frankly doesn't even make sense to make the regular payments. You can now even get higher deposit rates in a our-version-of-FDIC-bank higher than mortgage rates so you could actually arb it by maxing out the mortgage and sticking the money in a government-guaranteed bank account.
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on June 03, 2020, 01:15:38 PM
Got the paperwork from the bank today and signed it and returned it so guess it's all sorted out then. Was quite shocked they actually did this by paper but guess there is some legal stuff requiring them to do it by snail mail and not on-line secure signing. Well, whatever.

This will reduce my monthly mortage bill from around 1300 dollars / month (some of it tax deductible) to a whopping 285 dollars (same amount tax deductible as before). So after tax I pay all of 220 dollars on my mortgage while inflation chews away at the principal. Sweet.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 03, 2020, 02:30:57 PM
@habaneroNorway you are the LeBron James of the DNPYM club!
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on June 03, 2020, 03:05:01 PM
The mortgage system here is very different from the US - adjustable-rate mortgages are the standard and you have to actively opt for a fixed rate and very few people do and if you do its generally fixed for a maximum of 10 years (mostly due to the interest rate market, there isn't much trading beyond 10 years). The rules are that if a bank announces a change in the interest rate it's effective 6 weeks from giving notice. One of the plus points of floating rate mortgages is you can prepay or increase pretty much any way you like with no fees as there the rate is never out of sync with the prevailing market. The downside is that it fluctuates and you dont have any protection if rates start increasing. They haven't done so in any meaningful way for ages so staying floating has worked out fine. Normally you need a pretty low loan-to-value-ratio to apply for an interest-only mortgage, but this regulation is temporarily suspended to help people who are out of work due to Covid-19-regulations. I have applied under the regular rules as my mortgage is not that high anyway so I would have been granted it in any case.

I could increase my mortgage but to quote the great philosopher Warren Buffet "why risk something I don't want for something I don't need" or how he put it. I've never been a fan of leveraged investing and have no intention of starting doing it now. If you nitpick you can say not repaying the mortgage is sort of the same as leveraged investing, but it isn't really as it will never put you in a situation where your bank/broker forces you to liquidate. I view it as a stupid low cost of housing at current rate levels, the debt is easily manegable and inflation will erode the real debt burden given time.

While the refinancing option is a sweet feature of US mortgages as it can be viewed as a one-way bet (refinance if rates drop a lot, do nothing if they increase) it comes as a price. If you had a 30y mortgage in the US with no refinancing option the rate would be approximately 0.50% lower than with refinancing option.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 04, 2020, 05:40:05 AM
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on June 04, 2020, 05:48:21 AM
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.

See your point, but for me the notional is at a size where it is easily managable and part of the extra interest cost in case of a rate hike will be offset by higher deposit rates on my cash position anyway. And you have the vaguer point that low rates generally mean the ecoonomy is doing worse so there is an element of a natural hedge in there, but I'd be the first to admit that's pushing a point quite far.

Currently I can get FDIC-insured deposit rates higher than my mortgage rate so that point alone makes it pointless to pay down the balance, but that's not a normal situation and it might not last for very long.

And as we all know, if SHTF in your personal life liquidity is a lot more useful than a bit lower mortgage balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on June 04, 2020, 11:27:03 PM
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.

Or being able to refinance for a longer period of time. I am in Canada and most people lock in their mortgage rate for 5 years while they pay it off over 25 years.  I too was concerned about a rate jump at renewal time. But worst case, your 20y mortgage becomes a 25y mortgage again. You could keep your mortgage forever.... 
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on June 05, 2020, 12:50:20 AM
Yes, but if it's an interest-only then extending it doesnt really do much to the monthly payments anyway as there are no balance payments. Otherwise it's much the same here - standard mortgage is 25 or 30 years, but rate locks generally only available up to 10 years and most take much shorter lock which I personally don't really see the point in.

Im not denying I have more exposure to rates going up but I 1) see no plausible way that would happen anytime some and 2) if so happens I wont have a problem with it and it won't really affect my net interest cost anyway as floating deposit rates will go up as well. So in that sense I'm fairly neutral on the actual level of mortgage rates. The other side of the balance sheet, my cash position offers me ample liquidity, a safety net, reduces portfolio volatility, provides positive carry vs my mortgage at mom. The purpose of my mortgage balance at mom is to be devoured by inflation.

On another note - there is a very high probability wage growth will be very low for some time so real wages might well go down so to what extent the actual burden get smaller when rates get very low is also open for debate.
Title: Re: DONT Payoff your Mortgage Club
Post by: iOlly on June 13, 2020, 12:11:31 AM
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.
That is my plan, we’re on 5-year fixed deals. Due to sort another next year. Not over-paying. When the remaining mortgage balance is less significant, we’ll go to an adjustable rate (called a Tracker in the UK) and just let it run. For now, I take a lot of comfort in knowing what I am on the hook for each month.

Should caveat the above by saying we built our forever home, and have no plans to move, ever.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on June 13, 2020, 11:26:45 AM
Working on another refinance now.  Locked in at 2.85% 30yr with 0 points and about 2700 closing plus escrow.  Appraisal was waived as well.  Comes out to a 8 month break even after running all the numbers.

Current rate - 3.5%
New rate - 2.85%
State - Washington
Loan amount - 590k
Term - 30yr Conventional
Closing costs - 2700 (not including escrow)

Seems too good to be true but we will see....

Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on June 13, 2020, 01:02:05 PM
what are the 2700 bucks in closing costs?
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on June 13, 2020, 05:33:39 PM
Wish  I could find a deal like that. I've tried several times in the last couple months, but no joy.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on June 14, 2020, 12:08:27 AM
what are the 2700 bucks in closing costs?

Mostly origination fees and title insurance. But the rate they quoted me had a decent amount of point pay down that they waived.  I got all the initial paperwork and everything looks legit but time will tell.  If they try to bait and switch me I'll just walk away.  I have not seen anything near this rate for my area and refinance amount so I'm hoping it works out.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 01, 2020, 04:17:01 PM
So with rates dropping I shopped around some more and got another competing offer for the following.

596k
30yr
2.75%
0 points
0 lender fees
Appraisal waiver
566 lender credit towards escrow.
Washington state

So essentially they will pay me 566 to refinance from 3.5% to 2.75%. I told them I am shopping around but we locked the rate.  I'll be taking this offer to the other lender and asking them to beat it and the new lender was totally fine knowing I was using them as a bargaining chip.

It's getting crazy out there....
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on July 01, 2020, 06:01:30 PM
Woah, who is your lender?  I live in WA and I'm not seeing rates like that.  But I don't owe a lot, so perhaps that makes my loan less attractive.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 01, 2020, 07:03:37 PM
Woah, who is your lender?  I live in WA and I'm not seeing rates like that.  But I don't owe a lot, so perhaps that makes my loan less attractive.

I'm not seeing rates like this on bankrate for my balance either but if you find the right lender or two it seems you can get some crazy good offers and some competition going.

The first lender is Caliber and the second is LoanDepot.

So far LoanDepot has been a better customer experience so I may just go with them if Caliber gives me any issues.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on July 02, 2020, 12:21:58 AM
wow, crazy that caliber came in so low. we had checked with them 6 years ago and they were easily 3/8 to 1/2 point higher than most big name banks.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on July 02, 2020, 01:32:40 AM
Woah, who is your lender?  I live in WA and I'm not seeing rates like that.  But I don't owe a lot, so perhaps that makes my loan less attractive.

I'm not seeing rates like this on bankrate for my balance either but if you find the right lender or two it seems you can get some crazy good offers and some competition going.

The first lender is Caliber and the second is LoanDepot.

So far LoanDepot has been a better customer experience so I may just go with them if Caliber gives me any issues.

Just finished a refinance and discovered a boglehead thread too late (https://www.bogleheads.org/forum/viewtopic.php?f=2&t=289559)

You don't need to start at the beginning. Lots of good info on current rates and deals.  With the knowledge there I think I could have gotten a few basis points lower. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on July 05, 2020, 08:47:46 AM
Just emailed my credit union requesting they adjust my mortgage to current rates. Let's see what they do!

Unfortunately in Texas, I can't refi again until around Thanksgiving.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on July 05, 2020, 08:54:22 PM
Just emailed my credit union requesting they adjust my mortgage to current rates. Let's see what they do!

Unfortunately in Texas, I can't refi again until around Thanksgiving.

That's one of those things that should totally work but probably won't. 
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on July 07, 2020, 10:40:25 AM
I just want to make sure I'm not missing something obvious:

I would like to pay off the mortgage before I stop working. The cash flow difference of not having a mortgage payment reduces risk more than having that extra money in the market when I actually stop working (but not a day prior). The reduced expenses should also make college financial aid & ACA subsidies easier to acquire. The common advice seems to be to take a lump sum out of a taxable brokerage and pay it off in one fell swoop.

However, our household income is not high enough that we are maxing out all tax-advantaged retirement accounts. We are currently filling ~$49,000 out of $77,600 available space. As such, we would have to reduce investing in a combination of 401(k)s & Roth IRAs by about $11k/yr to have enough in a taxable brokerage by the time we are FI to pay off the remaining mortgage at that time (12 years, $220k FV, 8% gains).

Alternatively, we could continue as we are, and once we are 2-3 years from FI, stop all retirement investing and put everything toward the mortgage. We would probably still invest enough to keep taxes reasonable, extending our timeline by a year or so, but that's it. Since my wife (currently) likes her job, she may continue working for a couple years anyway, which would allow for more maneuvering.

What are everyone's thoughts on these two options, and is there another option I'm missing?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on July 07, 2020, 10:54:11 AM
I just want to make sure I'm not missing something obvious:

I would like to pay off the mortgage before I stop working. The cash flow difference of not having a mortgage payment reduces risk more than having that extra money in the market when I actually stop working (but not a day prior). The reduced expenses should also make college financial aid & ACA subsidies easier to acquire. The common advice seems to be to take a lump sum out of a taxable brokerage and pay it off in one fell swoop.

However, our household income is not high enough that we are maxing out all tax-advantaged retirement accounts. We are currently filling ~$49,000 out of $77,600 available space. As such, we would have to reduce investing in a combination of 401(k)s & Roth IRAs by about $11k/yr to have enough in a taxable brokerage by the time we are FI to pay off the remaining mortgage at that time (12 years, $220k FV, 8% gains).

Alternatively, we could continue as we are, and once we are 2-3 years from FI, stop all retirement investing and put everything toward the mortgage. We would probably still invest enough to keep taxes reasonable, extending our timeline by a year or so, but that's it. Since my wife (currently) likes her job, she may continue working for a couple years anyway, which would allow for more maneuvering.

What are everyone's thoughts on these two options, and is there another option I'm missing?

How old will you be at retirement?   My first thought is to treat the Roth's as your payoff fund and max those out then you can withdraw any contributions tax free upon reaching FI and if you are at retirement age you can take all out without tax.

I would probably use the Roth but only withdraw it to pay the monthly mortgage and keep as much invested as possible assuming a low mortgage rate.  You may be able to pay the mortgage via Roth contributions for several years and then be able to take earnings tax free to continue paying the mortgage when you are at retirement age, kinda like a bridge so all withdrawals are tax free..  This should keep your taxable income low.

Hopefully that makes sense...

Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on July 07, 2020, 10:55:03 AM
What are everyone's thoughts on these two options, and is there another option I'm missing?

Do I read that correctly, that you're still 12 years away from FIRE? That's a long enough timeframe where it makes no sense to me for you to start saving in a taxable account for the eventual mortgage payoff. Do the optimal thing for now and keep on putting the extra money in your 401k.

Who knows, maybe 5 years from now you'll be making enough to max out your tax-advantaged accounts *and* save for the mortgage payoff. The worst case is that you'll pause your tax-advantaged investing for a few years to pay the mortgage off, like you outline, which is not really that bad, but by forgoing the tax-advantaged investing now you'd merely be choosing to lock in the worst case.
Title: Re: DONT Payoff your Mortgage Club
Post by: Stubblestache on July 07, 2020, 11:07:00 AM
In the UK, just locked in a 5 year mortgage at under 2%! No way would it make sense to pay that down rather than invest
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on July 07, 2020, 11:12:44 AM
What are everyone's thoughts on these two options, and is there another option I'm missing?

Do I read that correctly, that you're still 12 years away from FIRE? That's a long enough timeframe where it makes no sense to me for you to start saving in a taxable account for the eventual mortgage payoff. Do the optimal thing for now and keep on putting the extra money in your 401k.

Who knows, maybe 5 years from now you'll be making enough to max out your tax-advantaged accounts *and* save for the mortgage payoff. The worst case is that you'll pause your tax-advantaged investing for a few years to pay the mortgage off, like you outline, which is not really that bad, but by forgoing the tax-advantaged investing now you'd merely be choosing to lock in the worst case.

That's the option I'm leaning toward. The largest downside with it is that I'll be paying a lot more in taxes under that scenario. Going with the first option increases my tax liability, but all of that extra money that I'm not hiding from the government is taxed at 12%. If I delay to the point where I have to significantly reduce retirement investing in favor of a taxable brokerage, then I'll some of that money will be taxed at 22%.

I don't see a significant pay raise as likely due to the fact that we both work for the government. Pay raises are fairly predictable, and neither of us plan on leaving.

However, 12 years is a long time. We will almost certainly move at least once during that time. Once FI, we may even end up selling the house and not repurchasing. It's also not outside the realm of possibility that I'll get an inheritance in that time that could be used to pay off the mortgage. There are a lot of variables; I'm just a planner who likes to plan out every little detail.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 07, 2020, 07:59:41 PM
I just want to make sure I'm not missing something obvious:

I would like to pay off the mortgage before I stop working. The cash flow difference of not having a mortgage payment reduces risk more than having that extra money in the market when I actually stop working (but not a day prior). The reduced expenses should also make college financial aid & ACA subsidies easier to acquire. The common advice seems to be to take a lump sum out of a taxable brokerage and pay it off in one fell swoop.
I think there's a little secret here. The common advice is that you could pay it off in one fell swoop, but you probably won't. (Shhhh!) Reasons: in 12 years, your income will likely rise, your assets will be earning assets of their own, and your mortgage payment will have stayed the same. It will be a smaller chunk of your budget than it is now. It will most likely not be as much a percentage of your net worth either. So, while you could pay it off, chances are pretty good that you'll like the big investment account way more than you mind your dwindling mortgage balance. Seems crazy and backwards, but it really does happen.

Also, you want as much of your money to be accruing compound interest as long as possible, so @sherr's idea of accelerating pay down at the very end, basically just as you get to FI, is definitely worth further consideration.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on July 08, 2020, 07:09:49 AM
Also, you want as much of your money to be accruing compound interest as long as possible, so @sherr's idea of accelerating pay down at the very end, basically just as you get to FI, is definitely worth further consideration.

It was not my idea, I was just restating one of the options DadJokes had listed. The fact that he'd be paying an extra 10% tax if he goes full-bore mortgage-payoff at the end is significant, but perhaps a hybrid approach is optimal: start 5 years out or something and contribute enough to tax-advantaged accounts to drop down to the lower tax bracket, and then the rest to the mortgage.

But I agree in general, 12 years is long enough away that there's no point in making detail plans yet. Who knows how inflation, interest rates, income, house moves, and his general financial state will change in that amount of time.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on July 08, 2020, 11:14:43 AM
I just want to make sure I'm not missing something obvious:

I would like to pay off the mortgage before I stop working. The cash flow difference of not having a mortgage payment reduces risk more than having that extra money in the market when I actually stop working (but not a day prior). The reduced expenses should also make college financial aid & ACA subsidies easier to acquire. The common advice seems to be to take a lump sum out of a taxable brokerage and pay it off in one fell swoop.

However, our household income is not high enough that we are maxing out all tax-advantaged retirement accounts. We are currently filling ~$49,000 out of $77,600 available space. As such, we would have to reduce investing in a combination of 401(k)s & Roth IRAs by about $11k/yr to have enough in a taxable brokerage by the time we are FI to pay off the remaining mortgage at that time (12 years, $220k FV, 8% gains).

Alternatively, we could continue as we are, and once we are 2-3 years from FI, stop all retirement investing and put everything toward the mortgage. We would probably still invest enough to keep taxes reasonable, extending our timeline by a year or so, but that's it. Since my wife (currently) likes her job, she may continue working for a couple years anyway, which would allow for more maneuvering.

What are everyone's thoughts on these two options, and is there another option I'm missing?
Another way to improve cash flow when you reach FIRE is to refinance to a new 30 year mortgage just before you stop working (assuming rates are favorable at the time). Get your payments as low as you can then pay as scheduled until you have a tax efficient way to pay off the balance. Could always hold extra bonds roughly equivalent to the mortgage in your tax advantaged accounts to provide a similar sequence of returns mitigation as paying off the mortgage would provide. Not quite as effective at reducing realized income during retirement, but nearly as effective at reducing sequence of returns risk.

You say you are both government workers. Do you not expect to have healthcare benefits as part of your government retirement package? If so, ACA concerns may not be applicable to your situation. Yes, if you need to realize income from tax deferred accounts in order to make your mortgage payments, this could have an influence on the availability of financial aid.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on July 12, 2020, 09:09:45 AM
Just emailed my credit union requesting they adjust my mortgage to current rates. Let's see what they do!

Unfortunately in Texas, I can't refi again until around Thanksgiving.

That's one of those things that should totally work but probably won't.
It didn't. They won't modify until the 12 month refi restriction from the state is gone.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 17, 2020, 06:58:22 PM
I must confess, I might “pay off” my mortgage next year. I’m considering moving to San Francisco next year for about 4 years.  If I do I will sell my house (no cost to me with a work relocation package).  I’ll rent in SF because I don’t see myself living there long term but it sounds fun for the short turn.  What’s worse than not paying off your mortgage renting am I right?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 18, 2020, 01:49:40 PM
I suppose it all depends on how firm that 4-year time table is, right? If 4 could become seven, you have a different best course than if 4 could become nine months.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 18, 2020, 03:49:37 PM
I suppose it all depends on how firm that 4-year time table is, right? If 4 could become seven, you have a different best course than if 4 could become nine months.

The 4 is pretty firm.  I’ll be eligible to retire with a federal pension at the end of 4.  There is no reason for me to stay longer. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 19, 2020, 09:28:04 AM
I must confess, I might “pay off” my mortgage next year. I’m considering moving to San Francisco next year for about 4 years.  If I do I will sell my house (no cost to me with a work relocation package).  I’ll rent in SF because I don’t see myself living there long term but it sounds fun for the short turn.  What’s worse than not paying off your mortgage renting am I right?
If you're going to sell it, why sink the cash into paying off the mortgage? Or do you mean that selling the property will "pay off" the mortgage?

BTW, just read that rents are down over 10% in SF and parts of Silly Valley, as workers figure out they can get more space for less elsewhere. With no commute, they're finding that more space is needed when working from home. While that stat may not be completely accurate, it could mean that finding a place to live in The City may become slightly easier, if not cheaper.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 19, 2020, 01:17:02 PM
I must confess, I might “pay off” my mortgage next year. I’m considering moving to San Francisco next year for about 4 years.  If I do I will sell my house (no cost to me with a work relocation package).  I’ll rent in SF because I don’t see myself living there long term but it sounds fun for the short turn.  What’s worse than not paying off your mortgage renting am I right?
If you're going to sell it, why sink the cash into paying off the mortgage? Or do you mean that selling the property will "pay off" the mortgage?

BTW, just read that rents are down over 10% in SF and parts of Silly Valley, as workers figure out they can get more space for less elsewhere. With no commute, they're finding that more space is needed when working from home. While that stat may not be completely accurate, it could mean that finding a place to live in The City may become slightly easier, if not cheaper.

Dicey sell the house and pay it off.  I don’t like the house enough to want to return to it after 4 years and it does not make sense as a rental.  Likely with rents going down I may consider a 2 bedroom to rent now.  I’m waiting at least one transfer cycle to se if I still like the idea of such a move.  It is kind of drastic and since I don’t need to do it I should think on it for more than 2 weeks.  If by some miracle the spot is no longer open no harm.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tig_ on July 21, 2020, 02:11:27 PM
Hey all, just curious, whats your thinking on trying to get to 20% equity during a refinance? I think I read some stuff up thread that this might be a more complicated issue than simply asking the question.  I put down 10% and am going to look in to refinancing later this week/next week (on vacation currently).  I'd rather keep the extra cash in case of major furloughs and invest it later if I get lucky....
30yr fixed, FHA, 4.375%, MIP = $37.38
Original Loan: $160,200; Outstanding Balance: ~$154,200
Not using all tax-advantaged space.
My guess is that you would say not to bother, but didn't really get a clear sense up thread on where you all stood on the 20% thing...
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on July 21, 2020, 02:29:48 PM
Putting 20% down on a mortgage will:
1) potentially qualify you for a lower interest rate
2) mean that you don't have to pay PMI / MIP
3) mean that your monthly payment is lower, because you only have 80% of the cost of the house to pay back over the next 30 years instead of 90%.

3 is probably mostly a wash for people in this forum, however having lower monthly payments can matter if your cash flow is very tight (or if you get furloughed for example).

But 1 and especially 2 can be significant. It changes the math, potentially to the point where the "guaranteed return" of paying off the mortgage can start making sense.

What's best for you specifically depends on your situation and the rate quotes you're getting, as you say you may need the extra money for your furlough emergency fund and you're willing to pay some PMI for the privilege. I'd say though that at least you want to ensure that your new loan allows you to cancel PMI once you reach 80% equity, so that you have the option of paying it down a little in the future to get rid of the PMI payment. And check the specific terms to ensure they don't need a re-appraisal if you're just using the original home value and not using appreciation as part of the 80% equity calculation.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 22, 2020, 06:14:06 AM
It sounds like you're worried about a job separation, so I'd go with whatever can get the deal done the fastest.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tig_ on July 22, 2020, 10:10:00 AM
Thanks for the feedback.  Concern about job separation ebbs and flows.  IF it happens it won't happen for at least 4-5 months, it's pretty unlikely for my position/overall employer, and if it happens I'll be able to tap into 457.  So... it's an overly cautious thing that's in the back of my mind, but more likely that we'll get 5 furlough days at Christmas or something that would be spread over over the year paycheck wise.

But thanks!  Sounds like no real clear answer, but keep my ear to the ground about furloughs and try to get it done asap.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 22, 2020, 11:45:48 AM
I don't think rates will change quickly. I'd base timing more on your own situation to be able to display your personal data for maximum credit-worthiness.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tig_ on July 22, 2020, 06:12:24 PM
hmm interesting. good to know.  That was kind of my thought when the big rush happened...
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 23, 2020, 07:15:46 AM
It seems like refinance rates are higher than purchase rates right now. Is this common?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 23, 2020, 08:22:51 AM
It seems like refinance rates are higher than purchase rates right now. Is this common?
Yup. Just one more thing to consider if/when you're rushing to pay off a mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on July 24, 2020, 11:47:26 PM
It seems like refinance rates are higher than purchase rates right now. Is this common?

One of those frustrating “we will give new clients a better deal than existing clients” situations.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on July 25, 2020, 06:55:39 AM
It seems like refinance rates are higher than purchase rates right now. Is this common?

In Texas? Always. Thanks to the nanny state of Texas making refi such a PITA beyond what the Feds require.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on July 26, 2020, 12:26:56 AM
It seems like refinance rates are higher than purchase rates right now. Is this common?

In Texas? Always. Thanks to the nanny state of Texas making refi such a PITA beyond what the Feds require.

Love Texans describing Texas as a "nanny state".   
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on July 26, 2020, 07:58:18 AM
It seems like refinance rates are higher than purchase rates right now. Is this common?

In Texas? Always. Thanks to the nanny state of Texas making refi such a PITA beyond what the Feds require.

Love Texans describing Texas as a "nanny state".

You would think that they would have started to figure out that a whole lot of Texans need a public health nanny, but I guess it will take five or ten or fifty times as many sick and dead Texans before they take the clue.   So much winning.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on July 27, 2020, 06:56:38 AM
Question for the DPOYM folks.   P&I of our 30yr mortgage is roughly 20% of our expenses (not including state and Federal taxes, as they fluctuate every year due to variable income).  After mortgage and food expenses, property tax on the home is the biggest expense. If we pay off our mortgage we lock up a large amount of capital but still have a ton of other expenses that don't go away. 

Do you consider how much your mortgage payment is compared to your income when you consider whether to pay it off? 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 27, 2020, 07:21:10 AM
Question for the DPOYM folks.   P&I of our 30yr mortgage is roughly 20% of our expenses (not including state and Federal taxes, as they fluctuate every year due to variable income).  After mortgage and food expenses, property tax on the home is the biggest expense. If we pay off our mortgage we lock up a large amount of capital but still have a ton of other expenses that don't go away. 

Do you consider how much your mortgage payment is compared to your income when you consider whether to pay it off?

In short and in general, paying off a mortgage never makes sense if you have available tax-advantaged space you aren't utilizing (e.g. IRAs, 401(k), HSA).  After that, the longer it takes to pay off your mortgage under an accelerated time-frame the less likely you are to come out ahead paying it off early.

So:  If you are already maxing out your tax-advantaged accounts AND you can pay off your mortgage in just a couple of years, it probably won't be a big difference either way. Such people are already on 'Step 7' of the Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/). BUT if it requires not funding your retirement accounts AND/OR it will take 5+ years to complete your accelerated payoff, then it's incredibly unlikely that you will be better off making extra mortgage payments.

Bottom line: money is fungible.  What would extra money payments otherwise go towards? When in doubt, defer to the Investment Order.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 27, 2020, 08:22:13 AM
It seems like refinance rates are higher than purchase rates right now. Is this common?

In Texas? Always. Thanks to the nanny state of Texas making refi such a PITA beyond what the Feds require.

Love Texans describing Texas as a "nanny state".

You would think that they would have started to figure out that a whole lot of Texans need a public health nanny, but I guess it will take five or ten or fifty times as many sick and dead Texans before they take the clue.   So much winning.

Despite having lived more of my life in Texas than in any other state, none of my four mortgages were obtained there.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 29, 2020, 06:28:11 AM
This weekend... we will be...  *drumroll*  ...making another minimum payment!!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 29, 2020, 06:31:09 AM
I sent my payment in as well. Also sent an e-mail to our mortgage broker from October 2019, letting her know that I thought we were ready to refinance. She suggested that coming down 100 basis points might be possible. I will share all the juicy details with this group.
Title: Re: DONT Payoff your Mortgage Club
Post by: cryptoroger on August 05, 2020, 09:34:25 AM
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K

We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.

I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.

Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.

Note, my wife just got laid off, so i also don't mind having a lower monthly payment.

What do you think?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 05, 2020, 09:53:19 AM
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K

We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.

I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.

Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.

Note, my wife just got laid off, so i also don't mind having a lower monthly payment.

What do you think?

Have you shopped around to multiple lenders?  I think you may be able to get a slightly lower rate.  LoanDepot will usually best any estimate by at least 500.

Im a fan of lowering monthly debt obligations and increasing available assets that are fairly liquid like investments in a taxable brokerage account so I would def go for it.  I try to stay away from paying closing costs because if rates continue to tank then that is a sunk cost.  You can always refi again in 6 months if rates are substantially lower.
Title: Re: DONT Payoff your Mortgage Club
Post by: cryptoroger on August 05, 2020, 10:09:34 AM
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K

We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.

I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.

Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.

Note, my wife just got laid off, so i also don't mind having a lower monthly payment.

What do you think?

Have you shopped around to multiple lenders?  I think you may be able to get a slightly lower rate.  LoanDepot will usually best any estimate by at least 500.

Im a fan of lowering monthly debt obligations and increasing available assets that are fairly liquid like investments in a taxable brokerage account so I would def go for it.  I try to stay away from paying closing costs because if rates continue to tank then that is a sunk cost.  You can always refi again in 6 months if rates are substantially lower.

wow no i didn't...i'm surprised as these rates seemed pretty good.  I'll try Loan Depot though, thank you!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 05, 2020, 10:12:06 AM
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K

We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.

I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.

Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.

Note, my wife just got laid off, so i also don't mind having a lower monthly payment.

What do you think?

Have you shopped around to multiple lenders?  I think you may be able to get a slightly lower rate.  LoanDepot will usually best any estimate by at least 500.

Im a fan of lowering monthly debt obligations and increasing available assets that are fairly liquid like investments in a taxable brokerage account so I would def go for it.  I try to stay away from paying closing costs because if rates continue to tank then that is a sunk cost.  You can always refi again in 6 months if rates are substantially lower.

wow no i didn't...i'm surprised as these rates seemed pretty good.  I'll try Loan Depot though, thank you!

They are def competitive rates but you never know.  I am locked into a no cost refi at 2.75 right now for a 30yr conventional. I think I got around 3500 in lender credits for this rate which will cover lender fees and even part of my escrow.
Title: Re: DONT Payoff your Mortgage Club
Post by: cryptoroger on August 05, 2020, 10:30:15 AM
So i'm about four years into a 30 year fixed loan at 3.375%, original loan was $494K

We actually paid a big chunk of mortgage (i know i know...my wife is very risk averse) so we are at $405K now.

I can get a new 30 year at 2.865% with no fees or a new 30 year at 2.625% with $2000 in closing costs.

Aside from saving on the interest, we would also cut down principal pmt significantly due to reduction in principal balance, so ultimately payment drops by around $500 in 2.865 scenario.

Note, my wife just got laid off, so i also don't mind having a lower monthly payment.

What do you think?

Have you shopped around to multiple lenders?  I think you may be able to get a slightly lower rate.  LoanDepot will usually best any estimate by at least 500.

Im a fan of lowering monthly debt obligations and increasing available assets that are fairly liquid like investments in a taxable brokerage account so I would def go for it.  I try to stay away from paying closing costs because if rates continue to tank then that is a sunk cost.  You can always refi again in 6 months if rates are substantially lower.

wow no i didn't...i'm surprised as these rates seemed pretty good.  I'll try Loan Depot though, thank you!

They are def competitive rates but you never know.  I am locked into a no cost refi at 2.75 right now for a 30yr conventional. I think I got around 3500 in lender credits for this rate which will cover lender fees and even part of my escrow.

yeah that 2.865 loan includes a $2500 lender credit, but i'd love 2.75 at 3500! Nice work.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on August 14, 2020, 05:23:59 AM
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.


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Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on August 14, 2020, 06:27:41 AM
I have failed.
I paid off not one but 2 mortgages!!!! I beg forgiveness!

however they were ones i was paying on the former marital home as part of the divorce settlement agreement - i had no equity attached to them and I also had to pay house insurance and property tax as part of the deal. That's now gone too.

Now to refinance the current house mortgage that I got a year ago - as soon as the 2 mortgages show as paid from my record.
the refi will be a 30year and as low a rate as I can get.
Title: Re: DONT Payoff your Mortgage Club
Post by: LWYRUP on August 14, 2020, 06:51:41 AM
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.


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Amazing!  @ender I know you were looking for this rate to see who the lender was.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on August 14, 2020, 07:22:34 AM
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.


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Amazing!  @ender I know you were looking for this rate to see who the lender was.
It’s with Fairway. I’ve always used Chase before so I don’t much about Fairway reputationally.


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Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 14, 2020, 08:43:39 AM
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.


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Amazing!  @ender I know you were looking for this rate to see who the lender was.
It’s with Fairway. I’ve always used Chase before so I don’t much about Fairway reputationally.
At that rate, who cares? This is particularly true if you don't do an impound account. @UnleashHell, come in please..

BTW, under the circumstances, UH, those were not "your" mortgages, so I again I offer my heartiest Ccongratulations! For anyone who might be confused by this, I highly recommend Unleash Hell's always-interesting journal.
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on August 14, 2020, 08:48:53 AM
thanks @Dicey to be clear - I also held assets that matched the mortgages - at the time of that agreement.
Now I'm Just down to two 30 year mortgages!!
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on August 14, 2020, 08:49:56 AM
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.


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Amazing!  @ender I know you were looking for this rate to see who the lender was.
It’s with Fairway. I’ve always used Chase before so I don’t much about Fairway reputationally.
At that rate, who cares? This is particularly true if you don't do an impound account. @UnleashHell, come in please..

BTW, under the circumstances, UH, those were not "your" mortgages, so I again I offer my heartiest Ccongratulations! For anyone who might be confused by this, I highly recommend Unleash Hell's always-interesting journal.
I am putting down 20%. Is it common for lenders to drop the impound if asked? I’ve never thought to do this. What are pros and cons? No escrow then and not worry about lender messing up paying? But them it’s not nice one pmt. but i like the idea of no impound if possible, I think....


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Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 14, 2020, 09:35:36 AM
So with rates dropping I shopped around some more and got another competing offer for the following.

596k
30yr
2.75%
0 points
0 lender fees
Appraisal waiver
566 lender credit towards escrow.
Washington state

So essentially they will pay me 566 to refinance from 3.5% to 2.75%. I told them I am shopping around but we locked the rate.  I'll be taking this offer to the other lender and asking them to beat it and the new lender was totally fine knowing I was using them as a bargaining chip.

It's getting crazy out there....

Just signed the paperwork on this refi yesterday.  Funds should be distributed early next week.

Congrats to everyone taking advantage of these low rates! Our next refinance threshold will be 2-2.5% for a 30yr.

We bought our house a little over two years ago and our mortgage payment has dropped by 20% since then which is crazy and lucky for us since we live in a HCOL area.  Just gives us more money to dump into the market!

Happy Friday all!
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on August 14, 2020, 09:40:29 AM
.25% up front charge if I don’t want to have an escrow account. UGH doesn’t seem worth it.


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Title: Re: DONT Payoff your Mortgage Club
Post by: LWYRUP on August 14, 2020, 09:42:25 AM
.25% up front charge if I don’t want to have an escrow account. UGH doesn’t seem worth it.


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A lot of times you can just call them up a year later and get them to waive it then.

I'm closing with escrows just because it's easier to process for the lender (it makes them feel safer) and then after closing I'll probably waive them. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on August 14, 2020, 12:35:16 PM
I am putting down 20%. Is it common for lenders to drop the impound if asked? I’ve never thought to do this. What are pros and cons? No escrow then and not worry about lender messing up paying? But them it’s not nice one pmt. but i like the idea of no impound if possible, I think....

Pro: Mortgage payment never changes.
Pro: More direct control/oversight on taxes/insurance getting paid
Pro: Excellent method of spend for getting signup bonuses on premium credit cards.

Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on August 14, 2020, 01:00:27 PM
I am putting down 20%. Is it common for lenders to drop the impound if asked? I’ve never thought to do this. What are pros and cons? No escrow then and not worry about lender messing up paying? But them it’s not nice one pmt. but i like the idea of no impound if possible, I think....

Pro: Mortgage payment never changes.
Pro: More direct control/oversight on taxes/insurance getting paid
Pro: Excellent method of spend for getting signup bonuses on premium credit cards.
I’ll close with an escrow and look to drop in the future. Between the cost and the making the close smoother with the lender, seems the better way to go.


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Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 14, 2020, 04:05:58 PM
.25% up front charge if I don’t want to have an escrow account. UGH doesn’t seem worth it.


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That's 100% bullshit. I'd want to get up in someone's bidness to get a straight answer on that one. What? I'm doing something that's LESS work for you and you want to charge me more? I'd at least call around to a few other lenders.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on August 14, 2020, 08:04:27 PM
.25% up front charge if I don’t want to have an escrow account. UGH doesn’t seem worth it.


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That's 100% bullshit. I'd want to get up in someone's bidness to get a straight answer on that one. What? I'm doing something that's LESS work for you and you want to charge me more? I'd at least call around to a few other lenders.
While I with ya in spirit, I have so much other stuff going on in my life and I am not so anti-escrow that I’ll let this slide. Maybe if the bank were to call in an “impound” account instead I’d throw a fit ;-)


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Title: Re: DONT Payoff your Mortgage Club
Post by: RainyDay on August 17, 2020, 08:51:20 AM
So with rates dropping I shopped around some more and got another competing offer for the following.

596k
30yr
2.75%
0 points
0 lender fees
Appraisal waiver
566 lender credit towards escrow.
Washington state

So essentially they will pay me 566 to refinance from 3.5% to 2.75%. I told them I am shopping around but we locked the rate.  I'll be taking this offer to the other lender and asking them to beat it and the new lender was totally fine knowing I was using them as a bargaining chip.

It's getting crazy out there....

Just signed the paperwork on this refi yesterday.  Funds should be distributed early next week.

Congrats to everyone taking advantage of these low rates! Our next refinance threshold will be 2-2.5% for a 30yr.

We bought our house a little over two years ago and our mortgage payment has dropped by 20% since then which is crazy and lucky for us since we live in a HCOL area.  Just gives us more money to dump into the market!

Happy Friday all!

Wow!  We refinanced back in April/May to a 20 year with a 2.875%.  I was SO excited!  We had only been ~3 years into a 30 year, and our overall payment only went up about $65 a month.  And now rates are even lower.  You guys are inspirational!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 17, 2020, 09:16:41 AM
Pulling paperwork together for my refi, I had to literally climb stairs and run the scanner (page-by-page) to get paper statements onto an old desktop computer in the upstairs. Do I get extra mustachian points for using a 2008 desktop to apply for my 2020-bond-market mortgage?
Title: Re: DONT Payoff your Mortgage Club
Post by: Jack0Life on August 18, 2020, 12:28:41 AM
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.


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Where from ??
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 18, 2020, 07:52:26 AM
My wife said some mortgage rule change went into effect over the weekend and rates popped back up. Can any of you confirm this?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on August 18, 2020, 07:59:11 AM
My wife said some mortgage rule change went into effect over the weekend and rates popped back up. Can any of you confirm this?

Just looked on Pen Fed's site and they have the lowest I've ever seen, 2.25% for a 15 year and 2.5% for a 30 year.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on August 18, 2020, 09:24:19 AM
I locked in a 30-yr fix yesterday at 2.49%, no points. Say what? I’m still in disbelief. I am never pre-paying that puppy.


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Where from ??
Fairway, locked on 8/14


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Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on August 18, 2020, 09:25:28 AM
My wife said some mortgage rule change went into effect over the weekend and rates popped back up. Can any of you confirm this?
My broker alluded to this last Friday, she locked me in at 2.5 30yr fixed and said market popped back up very shortly thereafter


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Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on August 18, 2020, 12:19:26 PM
My wife said some mortgage rule change went into effect over the weekend and rates popped back up. Can any of you confirm this?

I think refinances will be tacked with additional .25% in fees starting in September I believe. They don’t affect loans in process
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 19, 2020, 10:40:15 AM
So with rates dropping I shopped around some more and got another competing offer for the following.

596k
30yr
2.75%
0 points
0 lender fees
Appraisal waiver
566 lender credit towards escrow.
Washington state

So essentially they will pay me 566 to refinance from 3.5% to 2.75%. I told them I am shopping around but we locked the rate.  I'll be taking this offer to the other lender and asking them to beat it and the new lender was totally fine knowing I was using them as a bargaining chip.

It's getting crazy out there....

Just signed the paperwork on this refi yesterday.  Funds should be distributed early next week.

Congrats to everyone taking advantage of these low rates! Our next refinance threshold will be 2-2.5% for a 30yr.

We bought our house a little over two years ago and our mortgage payment has dropped by 20% since then which is crazy and lucky for us since we live in a HCOL area.  Just gives us more money to dump into the market!

Happy Friday all!

Funds are distributed and I officially have a 2.75% 30yr mortgage!

I was just comparing our first mortgage on this house to our latest refinance and our first mortgage we were paying 28.5k in interest per year and 9.3k in principle with a 4.75% rate two years ago.  Now we are paying 16.5k in interest and 13.2k in principle per year.  Such a crazy difference.... If we ever get down to 2.25% we will be paying more principal pay down than interest on a yearly basis which would be crazy.  Let's hope rates go lower for refi #4! 😂
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on August 19, 2020, 07:09:38 PM
I've got rate FOMO.  Pulled the trigger too early... but now it's too late.  Congrats to those who got the magic window.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 19, 2020, 07:25:21 PM
I am playing with fire the other direction, @dragoncar. Received quotes today, but Mrs. TallTexan just feeling so overwhelmed by the joint demands of work and kids' school that she doesn't want to make a move right now (No disagreement with me). Of course part of me is worried that our window will close, but the logical part of me knows these are not decisions that you rush.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 19, 2020, 10:26:53 PM
I've got rate FOMO.  Pulled the trigger too early... but now it's too late.  Congrats to those who got the magic window.

Hey, rates could go lower.  You never know!
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on August 19, 2020, 10:55:11 PM
I am playing with fire the other direction, @dragoncar. Received quotes today, but Mrs. TallTexan just feeling so overwhelmed by the joint demands of work and kids' school that she doesn't want to make a move right now (No disagreement with me). Of course part of me is worried that our window will close, but the logical part of me knows these are not decisions that you rush.

Hey, rates could go lower.  You never know!

I don't know why, but my gut says rates will stay low/lower over the next year.  My refinancing process was relatively simple but still a pain.  It's just not a pleasant thing to be constantly responding to document requests.  That's like... a job.  I can understand why you wouldn't want to deal with it.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 19, 2020, 11:34:39 PM
I am playing with fire the other direction, @dragoncar. Received quotes today, but Mrs. TallTexan just feeling so overwhelmed by the joint demands of work and kids' school that she doesn't want to make a move right now (No disagreement with me). Of course part of me is worried that our window will close, but the logical part of me knows these are not decisions that you rush.

Hey, rates could go lower.  You never know!

I don't know why, but my gut says rates will stay low/lower over the next year.  My refinancing process was relatively simple but still a pain.  It's just not a pleasant thing to be constantly responding to document requests.  That's like... a job.  I can understand why you wouldn't want to deal with it.

I have the same feeling about rates.  I think the 30yr will hover between 2.25 and 3.5 for a year or two.  I sure hope they go lower but we will see.  I've gotten pretty use to the refi process so it usually takes me a couple hours to gather all the necessary documents and then it's usually just waiting on underwriters but it can be time consuming at times.  It's kinda like a game for me so I don't mind lol
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on August 22, 2020, 12:16:46 PM
Just locked in to  refinance a recent 30yr fixed 3.25% into a 30yr 2.625%.   Seems like a no brainer but who knows whether rates will rise or continue to fall. 

With the lender credit the net net cost is around $300, if you add A + B + C + E costs in the loan disclosure and compare to lender credits in J. 

Interest savings between now and expected move date: $19.7k

Decrease in mortgage balance at expected move date: $8.8k

Reduction in P&I payments between now and expected move date: $15.7k
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on August 22, 2020, 12:36:13 PM
Funds are distributed and I officially have a 2.75% 30yr mortgage!

Damn...I'm envious.

I wonder if I can get a refi based on rental income alone.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on August 25, 2020, 03:13:35 PM
Quick question for the DPOYM brain trust:

I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month,  so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on August 25, 2020, 03:46:54 PM
Quick question for the DPOYM brain trust:

I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month,  so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?

I am not sure that is normal, and I think is bad advise. Do not skip any payments. You will get back any excess payments back including interest, principle and escrow. Usually new loan is calculated based on payoff statement you get from previous lender.

You probably already know this, but looks like the rate you are signing up seems little high for current rates we are seeing. I understand YMMV.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on August 25, 2020, 03:59:27 PM
Quick question for the DPOYM brain trust:

I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month,  so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?

I am not sure that is normal, and I think is bad advise. Do not skip any payments. You will get back any excess payments back including interest, principle and escrow. Usually new loan is calculated based on payoff statement you get from previous lender.

You probably already know this, but looks like the rate you are signing up seems little high for current rates we are seeing. I understand YMMV.


Agree. Do not cancel your payments until you see a 0.00 balance on the mortgage that you are refinancing away from.  Worst case you overpay and get it back eventually.  If you cancel, the worst case is a missed payment and then messing up your credit for years to come potentially.

Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on August 25, 2020, 04:32:32 PM
Quick question for the DPOYM brain trust:

I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month,  so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?

I am not sure that is normal, and I think is bad advise. Do not skip any payments. You will get back any excess payments back including interest, principle and escrow. Usually new loan is calculated based on payoff statement you get from previous lender.

You probably already know this, but looks like the rate you are signing up seems little high for current rates we are seeing. I understand YMMV.

Yeah, it felt like a weird option.

FYI, the rate look high because it is a typo, it will be a 2.875  =D
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on August 25, 2020, 04:54:57 PM
Quick question for the DPOYM brain trust:

I'm about to sign off on a refi (30yr @ 3.875% with a nice lender credit) on 9/3. The lender sent loan officer was asking me some final questions and one was about pending payments. I said that I will have a payment going through at the beginning of the month,  so the balance would change and he said to me that since we are doing the refi within a few days that I should just skip my upcoming September payment with my current lender. Thoughts?

I am not sure that is normal, and I think is bad advise. Do not skip any payments. You will get back any excess payments back including interest, principle and escrow. Usually new loan is calculated based on payoff statement you get from previous lender.

You probably already know this, but looks like the rate you are signing up seems little high for current rates we are seeing. I understand YMMV.


Agree. Do not cancel your payments until you see a 0.00 balance on the mortgage that you are refinancing away from.  Worst case you overpay and get it back eventually.  If you cancel, the worst case is a missed payment and then messing up your credit for years to come potentially.

I wouldn’t skip a payment entirely, but most mortgages have a 15 day grace period where you aren’t considered to have missed the payment.  I might not pay on the 1st, and make sure the loan is paid off before the 15th.  If on the 10th or so you’ve run into closing issues make the payment electronically.  That’s just me though

The point being, if the mortgage is paid off on September 5th, the bank will treat the incoming funds first as a payment for September and then apply the remaining funds to the mortgage balance.  You won’t have actually missed the payment, it will just have come from the title company, and within the grace period
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on August 26, 2020, 06:55:32 AM
I wouldn’t skip a payment entirely, but most mortgages have a 15 day grace period where you aren’t considered to have missed the payment.  I might not pay on the 1st, and make sure the loan is paid off before the 15th.  If on the 10th or so you’ve run into closing issues make the payment electronically.  That’s just me though

The point being, if the mortgage is paid off on September 5th, the bank will treat the incoming funds first as a payment for September and then apply the remaining funds to the mortgage balance.  You won’t have actually missed the payment, it will just have come from the title company, and within the grace period

Hmm, so I looked into this and I do have the 15 day grace period. I checked my account and compared to the closing disclosure and it would seem you're correct, the projected payoff amount for my loan is equal to my Sept payment + the remaining balance, so it would seem that the Sept payment is rolled into the refi. Interesting.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on August 27, 2020, 06:46:46 AM
FYI, the rate look high because it is a typo, it will be a 2.875  =D
Awesome!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 03, 2020, 12:59:30 AM
If you had about $900k equity in your house, and could get 2.6% interest on a new loan, would you refinance and take some cash out?  Our home equity is almost 50% of our net worth.

I've always been in the pay of the mortgage asap and stay mortgage-free group, but with rates this low, we're very tempted.  We're also a little nervous to have so much $ tied up in the house.

Bat signal to @Dicey !
I'd have to know a lot more about your finances to determine if you should pull cash out, but you should probably refi your existing mortgage asap. Is this a 15 or 30 year loan? What's your current rate?
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on September 03, 2020, 05:57:43 AM
Is it possible to get a mortgage in the US than cannot be refinanced? Is that a product which exists at all?
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on September 03, 2020, 09:37:49 AM
Is it possible to get a mortgage in the US than cannot be refinanced? Is that a product which exists at all?

Sort of.  In some circumstances a loan can have a pre-payment penalty.  You can still refinance, but there can be substantial fees associated with that.   Those are pretty rare and not legal in every state. 
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on September 03, 2020, 11:33:13 AM
Is it possible to get a mortgage in the US than cannot be refinanced? Is that a product which exists at all?

Sort of.  In some circumstances a loan can have a pre-payment penalty.  You can still refinance, but there can be substantial fees associated with that.   Those are pretty rare and not legal in every state.
Federal law restricts prepayment penalties. Some loans aren't allowed them at all. Those that can have them are limited to 2% of the loan amount in the first two years and 1% of the loan amount in the third year. After three years, no US home mortgage can have a prepayment penalty. Lenders are also required to provide an option without prepayment penalty along side the offer with prepayment penalty. Of course many states impose further restrictions.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 03, 2020, 01:58:21 PM
If you had about $900k equity in your house, and could get 2.6% interest on a new loan, would you refinance and take some cash out?  Our home equity is almost 50% of our net worth.

I've always been in the pay of the mortgage asap and stay mortgage-free group, but with rates this low, we're very tempted.  We're also a little nervous to have so much $ tied up in the house.

Bat signal to @Dicey !
I'd have to know a lot more about your finances to determine if you should pull cash out, but you should probably refi your existing mortgage asap. Is this a 15 or 30 year loan? What's your current rate?
@Dicey - Here is the full picture:  our house is actually paid off, a refi cash-out is the option to tap into the equity.  House value appx. $975k, maybe up to $1m.  We're thinking taking out $500k at 2.6% on a 30-yr fixed loan. 

We would like to relocate to a different state for dh's work in the next couple of years and we would like to buy a house there (3 dogs, like to have our own place, etc.)  The plan would be to get a mortgage on this house to have cash on hand to buy a house when we move.  This house would become a rental and the rent would be more than enough to cover all costs, including mortgage payment.  We do not want to sell this house at this time.  After reading some of the posts on here I'm even thinking that when we buy the other house we try to get a loan there as well if the rates are good.  Then we could invest some of the cash.  We have no debt at this time.

What do you think?  Smart, or stupid, idea?  :)

It sounds like you're proposing going into debt for a goal that may be a few years away. Given the mortgage you're describing, you're probably a very high ($300K+) income household. I can understand the hope to qualify for a mortgage while you still have that income and the property is still a primary residence, if you plan to retire before the end of the economic cycle.

An alternative that may simplify your life would be just to prepare with a home equity line of credit (to be kept at near $0 balance until your move), and pair that with some aggressive saving out of that large income you have.

Do you believe you're behind on saving for retirement and need to catch up with some more skin in the market? People believe rates would shoot up in 2013, yet we're back today just as low.
Title: Re: DONT Payoff your Mortgage Club
Post by: wildbeast on September 09, 2020, 10:18:33 AM
If you had about $900k equity in your house, and could get 2.6% interest on a new loan, would you refinance and take some cash out?  Our home equity is almost 50% of our net worth.

I've always been in the pay of the mortgage asap and stay mortgage-free group, but with rates this low, we're very tempted.  We're also a little nervous to have so much $ tied up in the house.

Bat signal to @Dicey !
I'd have to know a lot more about your finances to determine if you should pull cash out, but you should probably refi your existing mortgage asap. Is this a 15 or 30 year loan? What's your current rate?
@Dicey - Here is the full picture:  our house is actually paid off, a refi cash-out is the option to tap into the equity.  House value appx. $975k, maybe up to $1m.  We're thinking taking out $500k at 2.6% on a 30-yr fixed loan. 

We would like to relocate to a different state for dh's work in the next couple of years and we would like to buy a house there (3 dogs, like to have our own place, etc.)  The plan would be to get a mortgage on this house to have cash on hand to buy a house when we move.  This house would become a rental and the rent would be more than enough to cover all costs, including mortgage payment.  We do not want to sell this house at this time.  After reading some of the posts on here I'm even thinking that when we buy the other house we try to get a loan there as well if the rates are good.  Then we could invest some of the cash.  We have no debt at this time.

What do you think?  Smart, or stupid, idea?  :)

It sounds like you're proposing going into debt for a goal that may be a few years away. Given the mortgage you're describing, you're probably a very high ($300K+) income household. I can understand the hope to qualify for a mortgage while you still have that income and the property is still a primary residence, if you plan to retire before the end of the economic cycle.

An alternative that may simplify your life would be just to prepare with a home equity line of credit (to be kept at near $0 balance until your move), and pair that with some aggressive saving out of that large income you have.

Do you believe you're behind on saving for retirement and need to catch up with some more skin in the market? People believe rates would shoot up in 2013, yet we're back today just as low.

@talltexan - thank you for your reply.  I've been mulling this over.  We are not a high-income household.  In fact, relative to where we live, we would be considered a low-income household.  Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area.  We are okay on retirement savings.  The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 09, 2020, 10:31:56 AM

@talltexan - thank you for your reply.  I've been mulling this over.  We are not a high-income household.  In fact, relative to where we live, we would be considered a low-income household.  Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area.  We are okay on retirement savings.  The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.

We ran into the employment length issue while qualifying for our last mortgage.  Previously we had lived abroad for several years, and even though we had steller credit ratings, and even though we both had jobs that collectively were ~40% of the mortgage value, and even though we had far more in liquid assets than the amount we were seeking - some banks were hesitant to lend to us because we had just under 2 consecutive years of employment within the US.  Our continuous employment outside of the US counted for nothing.

Our ultimate lender made us jump through so many hoops... including getting letters from our employers testifying that they anticipated keeping us on indefinitely.
Title: Re: DONT Payoff your Mortgage Club
Post by: Kierun on September 09, 2020, 12:33:50 PM
I've been mulling this over.  We are not a high-income household.  In fact, relative to where we live, we would be considered a low-income household.  Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area.  We are okay on retirement savings.  The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.
I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.
Title: Re: DONT Payoff your Mortgage Club
Post by: wildbeast on September 09, 2020, 01:45:16 PM
I've been mulling this over.  We are not a high-income household.  In fact, relative to where we live, we would be considered a low-income household.  Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area.  We are okay on retirement savings.  The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.
I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.

That's interesting.  If that's the case, it would solve a lot of our concerns. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 09, 2020, 02:20:56 PM
I've been mulling this over.  We are not a high-income household.  In fact, relative to where we live, we would be considered a low-income household.  Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area.  We are okay on retirement savings.  The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.
I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.

That's interesting.  If that's the case, it would solve a lot of our concerns.

Having been through this recently (see above), what the banks seem to care about is whether you've been employed, not the number of times you have changed jobs.  If you have 5+ years where you can show on your taxes that you have earned above whatever threshold they want for a loan of a particular size, that's what matters.  It can be one job for 5 solid years or 10 different jobs over 5 years that collectively earned you a decent annual income.

Our problem was that, of the previous 5 years, we only had US taxable income in the most recent two.  We had foreign income and even tried to show that on our US taxes (Foreign Taxble Income Exemption) but that didn't fit their boxes.
Title: Re: DONT Payoff your Mortgage Club
Post by: wildbeast on September 10, 2020, 09:42:27 AM
I've been mulling this over.  We are not a high-income household.  In fact, relative to where we live, we would be considered a low-income household.  Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area.  We are okay on retirement savings.  The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.
I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.

That's interesting.  If that's the case, it would solve a lot of our concerns.

Having been through this recently (see above), what the banks seem to care about is whether you've been employed, not the number of times you have changed jobs.  If you have 5+ years where you can show on your taxes that you have earned above whatever threshold they want for a loan of a particular size, that's what matters.  It can be one job for 5 solid years or 10 different jobs over 5 years that collectively earned you a decent annual income.

Our problem was that, of the previous 5 years, we only had US taxable income in the most recent two.  We had foreign income and even tried to show that on our US taxes (Foreign Taxble Income Exemption) but that didn't fit their boxes.

This is excellent news!  Thank you, guys.  I've confirmed with a realtor that it's the case.  Huge relief.  So since we don't need to have cash on hand for that, it might not be wise to take out the loan.  Since no one said it's a good idea, I'm guessing people are just to polite to say it's a stupid idea.  I never knew mustachians to be so polite!  :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on September 10, 2020, 11:09:00 AM
I wouldn’t skip a payment entirely, but most mortgages have a 15 day grace period where you aren’t considered to have missed the payment.  I might not pay on the 1st, and make sure the loan is paid off before the 15th.  If on the 10th or so you’ve run into closing issues make the payment electronically.  That’s just me though

The point being, if the mortgage is paid off on September 5th, the bank will treat the incoming funds first as a payment for September and then apply the remaining funds to the mortgage balance.  You won’t have actually missed the payment, it will just have come from the title company, and within the grace period

Hmm, so I looked into this and I do have the 15 day grace period. I checked my account and compared to the closing disclosure and it would seem you're correct, the projected payoff amount for my loan is equal to my Sept payment + the remaining balance, so it would seem that the Sept payment is rolled into the refi. Interesting.

Thought I would provide an update for posterity: I went ahead and followed @dragoncar s plan and cancelled the ACH for the September payment. Closing was completed on 9/3 and I kept watch and see that my previous mortgage was paid off (after applying the 9/1 payment) on 9/8. There is an escrow balance that mostly matches what i expected to get back after the closing (minus small fees from OG lender) and the new mortgage is active and ready to start on 11/1. Woo!
Title: Re: DONT Payoff your Mortgage Club
Post by: terrifictim on September 10, 2020, 12:53:36 PM
Just completed my re-fi

188k
30yr
3.00%
0 points
Condo
No Escrow
$31 cash to close
Appraisal waiver
$1099 lender credit
California state
Used LenderFI

Dropped P&I payments from $1070/mth to $793/mth. Get to toss that extra $277/mth into the stock market which will hopefully turn into an extra $340,000 in 30 years :)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 10, 2020, 02:28:15 PM
I've been mulling this over.  We are not a high-income household.  In fact, relative to where we live, we would be considered a low-income household.  Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area.  We are okay on retirement savings.  The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.
I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.

That's interesting.  If that's the case, it would solve a lot of our concerns.

Having been through this recently (see above), what the banks seem to care about is whether you've been employed, not the number of times you have changed jobs.  If you have 5+ years where you can show on your taxes that you have earned above whatever threshold they want for a loan of a particular size, that's what matters.  It can be one job for 5 solid years or 10 different jobs over 5 years that collectively earned you a decent annual income.

Our problem was that, of the previous 5 years, we only had US taxable income in the most recent two.  We had foreign income and even tried to show that on our US taxes (Foreign Taxble Income Exemption) but that didn't fit their boxes.

This is excellent news!  Thank you, guys.  I've confirmed with a realtor that it's the case.  Huge relief.  So since we don't need to have cash on hand for that, it might not be wise to take out the loan.  Since no one said it's a good idea, I'm guessing people are just to polite to say it's a stupid idea.  I never knew mustachians to be so polite!  :)

You must have caught us on low-stress days.

Seriously, I think the difference between the two tracks will be minor as far as where you sit five years from now, and that's why we're not pushing you strongly. I think that because I think rates are going to stay low for a while.

You know when else I thought they'd stay low? October 2016. You've been warned.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 11, 2020, 10:28:57 AM
I've been mulling this over.  We are not a high-income household.  In fact, relative to where we live, we would be considered a low-income household.  Dh is in non-profit and I am retired, gross income is $80k per year and we live in a very HCOL area.  We are okay on retirement savings.  The fear on our end is that we would not be able to qualify for a decent mortgage if dh leaves his job and we have to qualify with a similar salary but with a brand new job, I understand that length of employment is a big issue on new loans.
I think lenders also will look at new employment as continuous if it's within the same field. They understand people change jobs frequently for career progression etc. It may not be as big an issue just because he's at company B for < 1 year, but has been in the same career field for 20+ years.
DSD and her family are in escrow on a new home. They are using the same lender they currently have. The person who is buying their old place is also using the same lender. DSD got a better job offer the same field in the middle of escrow! She checked with the lender and they're not concerned, so job change has been completed.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on September 14, 2020, 12:23:21 PM
2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow.  Good, or should I try for lower?  It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 14, 2020, 01:31:25 PM
2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow.  Good, or should I try for lower?  It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).
Holy shit, I'd grab that sucker with both hands!
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on September 14, 2020, 01:59:11 PM
2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow.  Good, or should I try for lower?  It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).
Holy shit, I'd grab that sucker with both hands!
Yep, that’s fantastic. Make sure they are not adding any points or costs into the loan.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on September 14, 2020, 02:03:49 PM
2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow.  Good, or should I try for lower?  It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).
Holy shit, I'd grab that sucker with both hands!

Grabbed.  It actually ended up being a $470 refund from the lender because of no appraisal required (old appraisal less than one year old in an appreciating area - house is now valued at $710K minimum).  We'll see how long it takes to close, but I am one happy cookie.

Well, there are origination fees et al, but the discount points make the fee total -$470.  When we close, our payments will go down $387/month, and no more escrow!  Win.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 14, 2020, 02:13:35 PM
2.5% 30 year fixed with Loan Depot today was quoted - no cost and no escrow.  Good, or should I try for lower?  It is way lower than my current 3.625% rate. Excellent credit, and lower LTV (under 70%).
Holy shit, I'd grab that sucker with both hands!

Grabbed.  It actually ended up being a $470 refund from the lender because of no appraisal required (old appraisal less than one year old in an appreciating area - house is now valued at $710K minimum).  We'll see how long it takes to close, but I am one happy cookie.

Well, there are origination fees et al, but the discount points make the fee total -$470.  When we close, our payments will go down $387/month, and no more escrow!  Win.
WooO-HoOO!!! I recommending spending the refund on yourself. You earned it, you badass!
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on September 14, 2020, 03:08:02 PM
Grabbed.  It actually ended up being a $470 refund from the lender because of no appraisal required (old appraisal less than one year old in an appreciating area - house is now valued at $710K minimum).  We'll see how long it takes to close, but I am one happy cookie.

Well, there are origination fees et al, but the discount points make the fee total -$470.  When we close, our payments will go down $387/month, and no more escrow!  Win.
WooO-HoOO!!! I recommending spending the refund on yourself. You earned it, you badass!
I didn't think lenders could offer a refund paid by negative points (they could refund an application fee intended to pay for an appraisal though).
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on September 14, 2020, 03:26:00 PM
Grabbed.  It actually ended up being a $470 refund from the lender because of no appraisal required (old appraisal less than one year old in an appreciating area - house is now valued at $710K minimum).  We'll see how long it takes to close, but I am one happy cookie.

Well, there are origination fees et al, but the discount points make the fee total -$470.  When we close, our payments will go down $387/month, and no more escrow!  Win.
WooO-HoOO!!! I recommending spending the refund on yourself. You earned it, you badass!
I didn't think lenders could offer a refund paid by negative points (they could refund an application fee intended to pay for an appraisal though).
They refunded the appraisal fee because I provided our prior within one year old appraisal.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 15, 2020, 06:58:22 AM
I don't know if this counts as an appraisal, but the house next door to us--identical floor plan--sold last month.

Unfortunately, I was disappointed at how low our old neighbors sold it. Thanks a lot, guys!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on September 15, 2020, 07:52:02 AM
All these crazy low refits make me jealous.  I’m likely to sell and move in the next 12 months so it doesn’t make sense foe me to look.  I console myself that at 3.75% my rate is still low, just not crazy low.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 15, 2020, 08:00:26 AM
All these crazy low refits make me jealous.  I’m likely to sell and move in the next 12 months so it doesn’t make sense foe me to look.  I console myself that at 3.75% my rate is still low, just not crazy low.

Yeah... similar for us.  We're suddenly uncertain whether we will remain here more than another year or two, and covid furlough (me) complicates any refinancing options for us.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 15, 2020, 01:04:15 PM
Eight years ago rates got really low, and--contemplating what the immediate future looked like--what started as a project to refinance resulted in me realizing that I would need to move. And a smart, strategic move is one of the few projects that rocket you forward faster than a refi-.

The two years after that move saw the TallTexan HH gain $300,000 in net worth.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 15, 2020, 01:45:34 PM
Eight years ago rates got really low, and--contemplating what the immediate future looked like--what started as a project to refinance resulted in me realizing that I would need to move. And a smart, strategic move is one of the few projects that rocket you forward faster than a refi-.

The two years after that move saw the TallTexan HH gain $300,000 in net worth.
Did you actually gain net worth or move your asset from real estate to cash?
Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on September 15, 2020, 01:56:05 PM
Someone explain to me the payoff or don't pay off the mortgage.

Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 15, 2020, 01:57:40 PM
Someone explain to me the payoff or don't pay off the mortgage.

Go to page one of this VERY THREAD and start reading.   It will become clear. :)

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 15, 2020, 02:35:05 PM
Someone explain to me the payoff or don't pay off the mortgage.

Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.

Agree with SwordGuy - you can learn a lot about the various (and substantial!) reasons by skimming over this thread from page 1.

As for Dave Ramsey (DR) - his approach is centered on emotional and behavioral attitudes towards money, with a hefty dose of a very specific variety of Christian morality.  That can be helpful to people who are otherwise very poor with their money, and for people who believe in his version of Jesus.  But from a strictly financial view, his advice is often sub-optimal, and at times downright contrary to a person's best financial interests (again, provided they already have some financial self control).

If you wrack up debt and spend every penny, his approach is not a bad one to follow.  For those of us that want to optimize every dollar we earn, his is not the path to follow.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 16, 2020, 05:55:53 AM
Someone explain to me the payoff or don't pay off the mortgage.

Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.

Agree with SwordGuy - you can learn a lot about the various (and substantial!) reasons by skimming over this thread from page 1.

As for Dave Ramsey (DR) - his approach is centered on emotional and behavioral attitudes towards money, with a hefty dose of a very specific variety of Christian morality.  That can be helpful to people who are otherwise very poor with their money, and for people who believe in his version of Jesus.  But from a strictly financial view, his advice is often sub-optimal, and at times downright contrary to a person's best financial interests (again, provided they already have some financial self control).

If you wrack up debt and spend every penny, his approach is not a bad one to follow.  For those of us that want to optimize every dollar we earn, his is not the path to follow.

Given enough time, investing each dollar in the place in which it has the highest return will cause you to build wealth the fastest.

Dave Ramsey urges people to pay down debt first, but there are many cases--particularly with mortgage debt in today's market--where those dollars will earn a higher return if put into risky investments than if they're used to accelerate debt paydown. This thread has ample debate about whether this path is riskier than the Dave Ramsey plan.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on September 16, 2020, 10:28:19 AM
Someone explain to me the payoff or don't pay off the mortgage.

Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.
Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on September 16, 2020, 10:56:07 AM
Someone explain to me the payoff or don't pay off the mortgage.

Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.

Thanks. I'm not that smart nor make enough to figure any of this out. We do want to move however, so, I'll probably just pay this thing until the day I die.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 16, 2020, 11:17:12 AM
Someone explain to me the payoff or don't pay off the mortgage.

Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.

Thanks. I'm not that smart nor make enough to figure any of this out. We do want to move however, so, I'll probably just pay this thing until the day I die.

If you actually take the time to read this thread, you might be surprised to learn how much you can learn.   Why be shackled by the prison bars you put on your own brain?
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on September 16, 2020, 12:23:16 PM
Someone explain to me the payoff or don't pay off the mortgage.

Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.

Thanks. I'm not that smart nor make enough to figure any of this out. We do want to move however, so, I'll probably just pay this thing until the day I die.
If you need more convincing that the best place to put whatever surplus you have is not extra mortgage payments, read this thread.

Otherwise, it's more important to learn what do do with your money instead. MDM's investment order thread is a great place to start learning what types of accounts to use. If you're a long way from FI, then you can just purchase a low cost total stock market index fund (or large cap index fund or target date fund) once you convince yourself that you are best off holding this investment even when it is going down (because you can't afford to not be holding it when it is going up). Later you can learn more about asset allocation strategies to preserve the wealth that you've accumulated (potentially adding bond funds, international funds, etc. to your investment mix).

Nothing wrong with keeping a low fixed rate mortgage until you die, plenty of people here plan to do that even though they know they don't have to.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 16, 2020, 12:46:44 PM

Nothing wrong with keeping a low fixed rate mortgage until you die, plenty of people here plan to do that even though they know they don't have to.

That's my plan... and my parents too.  They've got enough in investments to pay off their home several times over, but they get far more from having invested than they would having slightly lower monthly payments each month with no mortgage.

Assuming rates remain favorable, we'll refinance to stretch our term out another 30 years right before we retire, and pull out a good deal of the equity.
Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on September 16, 2020, 01:02:56 PM
Someone explain to me the payoff or don't pay off the mortgage.

Dave Ramsey talks all about get out of debt and pay off the mortgage. That would strap my cash flow significantly if I doubled up on my payments.
The key benefits are 1) investing has a significantly higher expected return than the interest rate (even after adjusting for risk) and 2) a lower (but not paid in full) mortgage balance does not provide any help should your income be reduced (mortgage payment still required; if you had invested instead of making extra payments, you could sell the investments to make required payments). In some cases there are additional tax related benefits to keeping the mortgage. Some here choose to carry a mortgage into FIRE due to reason 1 alone. Others choose to forgo unneeded returns and pay off the mortgage in full after reaching FI to reduce cash flow demands in retirement.

Thanks. I'm not that smart nor make enough to figure any of this out. We do want to move however, so, I'll probably just pay this thing until the day I die.
If you need more convincing that the best place to put whatever surplus you have is not extra mortgage payments, read this thread.

Otherwise, it's more important to learn what do do with your money instead. MDM's investment order thread is a great place to start learning what types of accounts to use. If you're a long way from FI, then you can just purchase a low cost total stock market index fund (or large cap index fund or target date fund) once you convince yourself that you are best off holding this investment even when it is going down (because you can't afford to not be holding it when it is going up). Later you can learn more about asset allocation strategies to preserve the wealth that you've accumulated (potentially adding bond funds, international funds, etc. to your investment mix).

Nothing wrong with keeping a low fixed rate mortgage until you die, plenty of people here plan to do that even though they know they don't have to.

For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 16, 2020, 01:10:38 PM

For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.

Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here.  In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 16, 2020, 01:37:45 PM
Hello! long time lurker have an important question. Please help!

I would like to refinance my mortgage- 5 years into the loan, 25 years left- currently is $122,000 balance 4% . total pmt $1023.00.
Bank offer 2.75% 15 yrs at $862 a month
                3.00% 20 yrs at $704 a month

Closing cost is $3,000 and they said it can be rollover into the mortgage, making it $125,000.  is this a good deal?

thank you in advance for your help!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 16, 2020, 01:52:40 PM
Hello! long time lurker have an important question. Please help!

I would like to refinance my mortgage- 5 years into the loan, 25 years left- currently is $122,000 balance 4% . total pmt $1023.00.
Bank offer 2.75% 15 yrs at $862 a month
                3.00% 20 yrs at $704 a month

Closing cost is $3,000 and they said it can be rollover into the mortgage, making it $125,000.  is this a good deal?

thank you in advance for your help!

A couple questions for you:
1) why are you not considering 30 year fixed rate mortgages?
2) will you plan on staying in your home for at least 18 months to recoup the $3k in closing costs?
3) Have you gotten multiple offers from different lenders?

Both of those scenarios have you paying LESS each month for a shorter term.  So it's a no brainer that either are much better than your current mortgage provided that you will be in your home through 2021.

But is it the BEST deal out there? Probably not.  I've seen 15 year fixed rates with no points and less closing costs for around 2.5%.  30 year terms are currently available for ~3.0% (the PI portion of your loan would be $527).  Given that you calculated $704/mo at 20 years it seems you aren't putting taxes and insurance into your monthjly figures.
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 16, 2020, 01:58:24 PM
Thank you for your reply!

I did consider 30 years also- its 3.125 % at $544 P&I
We plan on renting this home out next year and buy our forever home.

Which option is the best you think?

this is my second quote and I don't think I want anymore hard inquiries on my credit score...
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 16, 2020, 02:03:35 PM
Hello! long time lurker have an important question. Please help!

I would like to refinance my mortgage- 5 years into the loan, 25 years left- currently is $122,000 balance 4% . total pmt $1023.00.
Bank offer 2.75% 15 yrs at $862 a month
                3.00% 20 yrs at $704 a month

Closing cost is $3,000 and they said it can be rollover into the mortgage, making it $125,000.  is this a good deal?

thank you in advance for your help!

A couple questions for you:
1) why are you not considering 30 year fixed rate mortgages?
2) will you plan on staying in your home for at least 18 months to recoup the $3k in closing costs?
3) Have you gotten multiple offers from different lenders?

Both of those scenarios have you paying LESS each month for a shorter term.  So it's a no brainer that either are much better than your current mortgage provided that you will be in your home through 2021.

But is it the BEST deal out there? Probably not.  I've seen 15 year fixed rates with no points and less closing costs for around 2.5%.  30 year terms are currently available for ~3.0% (the PI portion of your loan would be $527).  Given that you calculated $704/mo at 20 years it seems you aren't putting taxes and insurance into your monthjly figures.



Thank you for your reply!

I did consider 30 years also- its 3.125 % at $544 P&I
We plan on renting this home out next year and buy our forever home.

Which option is the best you think?

this is my second quote and I don't think I want anymore hard inquiries on my credit score...
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 16, 2020, 02:10:59 PM
Hard inquires should not reduce your credit score if they are all grouped together within a limited time frame (+/- 1 month, I think).  The credit agencies simply view this as "shopping around".  Most hard inquires (or groups of hard inquires) will drop your score just ~5 points or so... even better, this dip typically lasts just a few months.

bottom line - getting the best quote will mean far more to you than worrying about a slight and temporary dip.


So... to get to your question.... I'd really see if 3.125% 30/yr is really the best deal out there.  Start by showing a perspective loan officer that number and asking how much lower s/he can go.  Should save you a lot of time and probably will get you a better rate.

If that's the best offer you can get, to me it's a no-brainer.  Take the 30year at 3.125%.  To me it's not worth it to lock yourself into a 15year term just to shave 0.625% off an already stupidly-low interest rate.  If you suddenly find yourself with a firehose of extra cash each month you can easily put that extra $288 you save by having a longer term directly to your mortgage and you will wind up with a fairly similar payoff schedule. 
Buuuutt.... the whole idea is that you can earn a much better return on your money elsewhere than you could paying down a fixed 3.125% mortgage (remember, inflation is your friend with fixed rate debt).
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on September 16, 2020, 02:13:22 PM
Thank you for your reply!

I did consider 30 years also- its 3.125 % at $544 P&I
We plan on renting this home out next year and buy our forever home.

Which option is the best you think?

this is my second quote and I don't think I want anymore hard inquiries on my credit score...


I would recommend taking 30 year option for flexibility it gives you with cashflow, if you have discipline to put savings on monthly cashflow to better use, like investments that may provide better returns.

Get as many quotes as you like, any number of quotes for mortgage finance within 15 days will be considered as just one inquiry.
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 16, 2020, 02:16:06 PM
Thank you for your reply!

I did consider 30 years also- its 3.125 % at $544 P&I
We plan on renting this home out next year and buy our forever home.

Which option is the best you think?

this is my second quote and I don't think I want anymore hard inquiries on my credit score...


I would recommend taking 30 year option for flexibility it gives you with cashflow, if you have discipline to put savings on monthly cashflow to better use, like investments that may provide better returns.

Get as many quotes as you like, any number of quotes for mortgage finance within 15 days will be considered as just one inquiry.

OK- THANK YOU SO MUCH!!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 16, 2020, 02:25:08 PM
Quote
We plan on renting this home out next year and buy our forever home.

Just saw this.  BE CAREFUL.
Many primary residence mortgages come with clauses that you will (duh) reside in the home and not use it as a rental for a fixed period of time (often at least 2 years, or 2/5 years).  Real estate mortgages tend to be as much as 0.5% higher because they carry more risk to the bank.

Now... you might be thinking "how will the bank know"... and they probably won't.  UNTIL you apply for another mortage for your 'forever home' - in which case they won't like seeing two SFH as primary residences.

Now one way to approach this is to just take out a normal mortgage since you intend to use it for a while as your primary residence, and then in a year or two ask the bank to adjust the contract to make it a rental property.  There's a reasonable chance they might not make a change to your interest rate if you have enough equity stored up... or it will just be a slight bump. 

Either way... read the fine print.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 16, 2020, 02:54:18 PM
Quote
We plan on renting this home out next year and buy our forever home.

Just saw this.  BE CAREFUL.
Many primary residence mortgages come with clauses that you will (duh) reside in the home and not use it as a rental for a fixed period of time (often at least 2 years, or 2/5 years).  Real estate mortgages tend to be as much as 0.5% higher because they carry more risk to the bank.

Now... you might be thinking "how will the bank know"... and they probably won't.  UNTIL you apply for another mortage for your 'forever home' - in which case they won't like seeing two SFH as primary residences.

Now one way to approach this is to just take out a normal mortgage since you intend to use it for a while as your primary residence, and then in a year or two ask the bank to adjust the contract to make it a rental property.  There's a reasonable chance they might not make a change to your interest rate if you have enough equity stored up... or it will just be a slight bump. 

Either way... read the fine print.
Agree with nereo.

They will find out via your insurance company if you have an impound account, yet another reason not to have one.

If you're going to rent it out long term, I agree a 30 year loan makes sense.

For latest loan news, paging @couponvan.
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 16, 2020, 03:05:24 PM
Quote
We plan on renting this home out next year and buy our forever home.

Just saw this.  BE CAREFUL.
Many primary residence mortgages come with clauses that you will (duh) reside in the home and not use it as a rental for a fixed period of time (often at least 2 years, or 2/5 years).  Real estate mortgages tend to be as much as 0.5% higher because they carry more risk to the bank.

Now... you might be thinking "how will the bank know"... and they probably won't.  UNTIL you apply for another mortage for your 'forever home' - in which case they won't like seeing two SFH as primary residences.

Now one way to approach this is to just take out a normal mortgage since you intend to use it for a while as your primary residence, and then in a year or two ask the bank to adjust the contract to make it a rental property.  There's a reasonable chance they might not make a change to your interest rate if you have enough equity stored up... or it will just be a slight bump. 

Either way... read the fine print.
Agree with nereo.

They will find out via your insurance company if you have an impound account, yet another reason not to have one.

If you're going to rent it out long term, I agree a 30 year loan makes sense.

For latest loan news, paging @couponvan.


OK, I see...

I would like to clarify some things.
Our forever home would be under hubs name only.  Current one is under mines only and we're going to rent it out next year.  If that makes any difference in the future when I rent the house out...
So, you're saying make sure the REFINANCE clause doesn't prohibit us to rent the house out in a year or two?
And, our agent friend stated that we could rent the house for $1,800- that's why I would to refinance to get the lowest and best rate for optimal cash flow...



Also
Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on September 16, 2020, 03:35:10 PM

For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.

Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here.  In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.

Well excuse me. I was following the Dave Ramsey Baby steps.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 16, 2020, 04:00:43 PM

For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.

Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here.  In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.

Well excuse me. I was following the Dave Ramsey Baby steps.

No, you weren't.  :)

You got the order wrong for Dave Ramsey's baby steps method.
This stuff isn't hard, but it's "particular".   Details matter.   

https://www.daveramsey.com/dave-ramsey-7-baby-steps
 (https://www.daveramsey.com/dave-ramsey-7-baby-steps)


Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on September 16, 2020, 04:03:18 PM

For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.

Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here.  In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.

Well excuse me. I was following the Dave Ramsey Baby steps.

No, you weren't.  :)

You got the order wrong for Dave Ramsey's baby steps method.
This stuff isn't hard, but it's "particular".   Details matter.   

https://www.daveramsey.com/dave-ramsey-7-baby-steps
 (https://www.daveramsey.com/dave-ramsey-7-baby-steps)

I know what the steps are. I have $1k+ in the bank. And have been diligent with paying debt down, $14k since March.

What did I miss?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 16, 2020, 04:06:51 PM

For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.

Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here.  In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.

Well excuse me. I was following the Dave Ramsey Baby steps.

No, you weren't.  :)

You got the order wrong for Dave Ramsey's baby steps method.
This stuff isn't hard, but it's "particular".   Details matter.   

https://www.daveramsey.com/dave-ramsey-7-baby-steps
 (https://www.daveramsey.com/dave-ramsey-7-baby-steps)

I know what the steps are. I have $1k+ in the bank. And have been diligent with paying debt down, $14k since March.

What did I miss?

"All debt" includes a mortgage, which we've assumed you have since you're on this thread.   The Baby Steps put paying off the mortgage as step #6 of 7.    3-6 months emergency fund is #3 of 7.    Details matter.



Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on September 16, 2020, 04:11:19 PM

For sure. Right now, I'm just focusing on hammering out all of my debt and then getting 3-6months living expenses covered. We plan to move in a few years to get out of the city.

Hard to know without more detailed information, but 'hammering out all debt' before you have 3-6 months living expenses (i.e. an "Emergency Fund") is likely backwards from what is advised here.  In fact, eliminating low-interest debt is pretty low on the Investment Order, for very good reasons.

Well excuse me. I was following the Dave Ramsey Baby steps.

No, you weren't.  :)

You got the order wrong for Dave Ramsey's baby steps method.
This stuff isn't hard, but it's "particular".   Details matter.   

https://www.daveramsey.com/dave-ramsey-7-baby-steps
 (https://www.daveramsey.com/dave-ramsey-7-baby-steps)

I know what the steps are. I have $1k+ in the bank. And have been diligent with paying debt down, $14k since March.

What did I miss?

"All debt" includes a mortgage, which we've assumed you have since you're on this thread.   The Baby Steps put paying off the mortgage as step #6 of 7.    3-6 months emergency fund is #3 of 7.    Details matter.

So I can't inquire on a thread and get my feelers out? Ok let me rephrase,  all debt except the mortgage, as typically spoken in the DR realm.

Better??
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 16, 2020, 05:25:12 PM
No one is trying to be hostile here, and sometimes it’s hard to judge tone over posts. Everyone involved is just trying to help and learn.

How people discuss debt is one of the big differences between this forum and the DR boards. Here “all debt” includes the mortgage, and the focus is a bit different (compare the “investment order” linked above to “DR’s Baby Steps”)

What matters with mortgages is whether you are using it as agreed on the note. It doesn’t matter if you split who holds each loan. If you aren’t living there r have rented it out, that could be a problem. Check first, or risk penalties.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 16, 2020, 05:43:16 PM
@NotBadForADad ,  Sorry, I'm not trying to be hostile.   I'm trying to make a point.

Details matter and you can learn the details.

This thread contains a host of information about why one would (or would not) want to focus on investing before paying down the mortgage or vice-versa.   

For most people with a low fixed rate 30 year mortgage, the DR baby steps #6 and #7 should be reversed for optimum wealth building and financial freedom.   And yes, there are exceptions.    The reasons why are buried in this thread as various folks have put forward their situations and folks have walked them thru their decision.

It's my belief that the time it takes to read thru this thread is time well spent.     We're talking the potential for serious money.



Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 16, 2020, 05:52:08 PM

What matters with mortgages is whether you are using it as agreed on the note. It doesn’t matter if you split who holds each loan. If you aren’t living there r have rented it out, that could be a problem. Check first, or risk penalties.
[/quote]

Thank you for your feedback and opinions...this was more complicated than I thought, unfortunately :(
What would YOU do if this was your situation?  Now, I think I just got confused.  Refinance but maybe unable to rent it out in the future or keep original mortgage and can rent it out since notes allow after 3 years...
You're right, we're all in this together and trying to help and learn from one another and I really appreciated your time and comment.

thank you.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 16, 2020, 07:44:57 PM
Hey I was wondering.... can anyone tell me?  Do details matter or not?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 16, 2020, 09:05:57 PM
Hey I was wondering.... can anyone tell me?  Do details matter or not?
Hey all, meet dragoncar, the funniest creature on this forum. He's also very smart and breathes FIRE. Don't fuck with him. As long as you're nice to him, no one will get hurt. Maybe.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on September 17, 2020, 03:34:18 AM

What matters with mortgages is whether you are using it as agreed on the note. It doesn’t matter if you split who holds each loan. If you aren’t living there r have rented it out, that could be a problem. Check first, or risk penalties.

Thank you for your feedback and opinions...this was more complicated than I thought, unfortunately :(
What would YOU do if this was your situation?  Now, I think I just got confused.  Refinance but maybe unable to rent it out in the future or keep original mortgage and can rent it out since notes allow after 3 years...
You're right, we're all in this together and trying to help and learn from one another and I really appreciated your time and comment.

thank you.
[/quote]

There are several questions I’d ask in addition to refinance questions.  As I don’t know if you should rent out your house.

1.  Do I want to be a landlord and why?
2.  Do I want to be a hands on landlord, if not do the numbers work if I hire a property manager.
3.  Do the numbers work as a rental on your current.  I don’t mean can I rent it for the PITI, but also factoring in vacancies and Maintence.  (Does it meet the 1% rule, property rents for at least 1% of the purchase price ie a 100k house rents for $1,000 a month).
4.  Also you mentioned DR, you know he would be yelling at you for considering that you are considering buying a second home with a mortgage while still in other debt right?  Especially when you don’t have a 3-6 month emergency fund.  Where are you getting you down payment let alone affording a new roof on your “new rental”
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 17, 2020, 05:36:39 AM
4.  Also you mentioned DR, you know he would be yelling at you for considering that you are considering buying a second home with a mortgage while still in other debt right? 
Fortunately, this is the Don't Pay Off Your Mortgage thread on the Mister Money Mustache Forum. We do things to optimize the path to FIRE. Here, we tend to yell at Dave Ramsey for the crappy investment advice he peddles.


Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 17, 2020, 06:19:27 AM

What matters with mortgages is whether you are using it as agreed on the note. It doesn’t matter if you split who holds each loan. If you aren’t living there r have rented it out, that could be a problem. Check first, or risk penalties.

Thank you for your feedback and opinions...this was more complicated than I thought, unfortunately :(
What would YOU do if this was your situation?  Now, I think I just got confused.  Refinance but maybe unable to rent it out in the future or keep original mortgage and can rent it out since notes allow after 3 years...
You're right, we're all in this together and trying to help and learn from one another and I really appreciated your time and comment.

thank you.

There are several questions I’d ask in addition to refinance questions.  As I don’t know if you should rent out your house.

1.  Do I want to be a landlord and why?
2.  Do I want to be a hands on landlord, if not do the numbers work if I hire a property manager.
3.  Do the numbers work as a rental on your current.  I don’t mean can I rent it for the PITI, but also factoring in vacancies and Maintence.  (Does it meet the 1% rule, property rents for at least 1% of the purchase price ie a 100k house rents for $1,000 a month).
4.  Also you mentioned DR, you know he would be yelling at you for considering that you are considering buying a second home with a mortgage while still in other debt right?  Especially when you don’t have a 3-6 month emergency fund.  Where are you getting you down payment let alone affording a new roof on your “new rental”
[/quote]

I appreciate your reply- to answer your question:

I always wanted to try. I Know the pros and cons and def will regret if I don’t take the risk. Basically, I’ll regret it if I don’t try something (one of those people :) ).
I don’t care about DR and this is the DON’T pay off your mortgage thread.
And I’m not sure how the assumption was made on me having no cash, emergency funds etc?...

Thanks

Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on September 17, 2020, 06:32:06 AM
9/17/20.......Just closed on a 2.625/30yr with Lenderfi.  If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350.  Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
 
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 17, 2020, 06:38:59 AM
9/17/20.......Just closed on a 2.625/30yr with Lenderfi.  If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350.  Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
 

Oh! How niceeee!
Congrats!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 17, 2020, 06:39:31 AM
9/17/20.......Just closed on a 2.625/30yr with Lenderfi.  If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350.  Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
 

That's awesome.  Kudos to you!
Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on September 17, 2020, 07:32:24 AM
9/17/20.......Just closed on a 2.625/30yr with Lenderfi.  If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350.  Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
 

How legitemate is this, I went to their site and they saying $1035/monthly, including insurance.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on September 17, 2020, 10:51:26 AM
9/17/20.......Just closed on a 2.625/30yr with Lenderfi.  If the escrow refund from Loan Depot (3.25/30) is what I expect, net out of pocket cost is $350.  Saves us $2900 in interest the first year alone and frees up future cash flow to diversify away from illiquid home equity.
 

How legitemate is this, I went to their site and they saying $1035/monthly, including insurance.
I'm not sure what you are asking here because the $1,035 monthly could mean anything.  We are using Loan Depot right now for a no cost 2.5% 30 year fixed refi (VA, excellent credit).  I've never used Lenderfi, but I have heard of it. Your rates are going to depend on your credit, loan amount, loan-to-value ratio, employment history, and income. The insurance inclusion payment amounts are usually just an estimate. Your own insurance and taxes will vary by location.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 17, 2020, 11:46:12 AM
I see some discussion above about Dave Ramsey and the baby-steps.

If you are reading this and committed to bringing order to your finances through the Dave Ramsey baby steps, please follow through at least to baby step #3 (full emergency fund). Bond yields will stay low for long enough for you to kill your non-mortgage debt.

Then come back to this thread. For planning your next ten years after you're out of debt, we think we're on to something.
Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on September 17, 2020, 12:13:03 PM
I see some discussion above about Dave Ramsey and the baby-steps.

If you are reading this and committed to bringing order to your finances through the Dave Ramsey baby steps, please follow through at least to baby step #3 (full emergency fund). Bond yields will stay low for long enough for you to kill your non-mortgage debt.

Then come back to this thread. For planning your next ten years after you're out of debt, we think we're on to something.

Sounds good. I created a case study as well.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on September 17, 2020, 07:23:21 PM

What matters with mortgages is whether you are using it as agreed on the note. It doesn’t matter if you split who holds each loan. If you aren’t living there r have rented it out, that could be a problem. Check first, or risk penalties.

Thank you for your feedback and opinions...this was more complicated than I thought, unfortunately :(
What would YOU do if this was your situation?  Now, I think I just got confused.  Refinance but maybe unable to rent it out in the future or keep original mortgage and can rent it out since notes allow after 3 years...
You're right, we're all in this together and trying to help and learn from one another and I really appreciated your time and comment.

thank you.

There are several questions I’d ask in addition to refinance questions.  As I don’t know if you should rent out your house.

1.  Do I want to be a landlord and why?
2.  Do I want to be a hands on landlord, if not do the numbers work if I hire a property manager.
3.  Do the numbers work as a rental on your current.  I don’t mean can I rent it for the PITI, but also factoring in vacancies and Maintence.  (Does it meet the 1% rule, property rents for at least 1% of the purchase price ie a 100k house rents for $1,000 a month).
4.  Also you mentioned DR, you know he would be yelling at you for considering that you are considering buying a second home with a mortgage while still in other debt right?  Especially when you don’t have a 3-6 month emergency fund.  Where are you getting you down payment let alone affording a new roof on your “new rental”

I appreciate your reply- to answer your question:

I always wanted to try. I Know the pros and cons and def will regret if I don’t take the risk. Basically, I’ll regret it if I don’t try something (one of those people :) ).
I don’t care about DR and this is the DON’T pay off your mortgage thread.
And I’m not sure how the assumption was made on me having no cash, emergency funds etc?...

Thanks
[/quote]

Sorry on the DR confused your question with NotBadForADad.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on September 22, 2020, 10:05:59 PM
Trying to join the refi bandwagon. I'm working with a local broker. Most of the common online discount mortgage brokers are not licensed and do not issue mortgages in my state limiting my options.

Current Loan: 22 years left, balance $230K, 30 year FRM @ 3.5%.

Quoted Rate: 30 year FRM at 2.625% with 0.4% points and a 60 day lock. Additional closing costs are about $6K which includes origination fee, appraisal, title insurance, settlement fee etc. These costs will be rolled over into the loan. Escrow for insurance and taxes are separate.

I checked Loan Depot and they offered a higher rate 2.99% with similar closing costs.

With this refi, if I continue making previous payments, I'd pay off the loan in 20.5 years. So this saves about 1.5 years of my current loan. (I do not intend to do this but providing this just for comparison).

Is this an OK rate? 

Lock it or wait? Thanks.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 23, 2020, 06:34:07 AM
ten-year treasury bills yielding 0.6% right now, not sure how low they can go. Will the 2.625% rate get you enough movement that you're happy?
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on September 24, 2020, 04:40:18 PM
ten-year treasury bills yielding 0.6% right now, not sure how low they can go. Will the 2.625% rate get you enough movement that you're happy?

Thanks. I did end up locking yesterday (30 day lock) for a 30 year FRM @ 2.5% with a small lender credit.
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 27, 2020, 05:41:51 PM
Hey everyone!

Quick update- I did locked in 2.75% 30 yrs with low closing cost/fee! :)

I have been thinking about future rental for the property- not sure if this thread is the right Thread to ask or if it should be in real estate investing instead... but here it goes:
  We’re trying to get gather as much information As possible on how to prep the house for it to be rental ready.
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front.  Are the renters responsible for caring for the yard or do we hire someone to care for it twice a week and roll the cost into the rental?

2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working.  Do we have to replace The stove completely?

3). The flooring in the kitchen needs to be replace.  Fortunately, we have family members that can assist us.  What kind of flooring you recommend for rentals that are long lasting and water proof?

What liabilities come into mind that we should be careful and aware of?


Thanks in advance!
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on September 27, 2020, 06:07:28 PM
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front.  Are the renters responsible for caring for the yard or do we hire someone to care for it twice a week and roll the cost into the rental?

Yes.   Or you mow it yourself.     In other words, it's how you want to offer it and whether the renter wants it that way.

2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working.  Do we have to replace The stove completely?

Yes or no.    Have you tried getting it repaired?     

Unless you specifically advertise it has a stove with only 3 of 4 burners working and that's how it's going to stay or you don't provide a stove at all, then yes, you are expected to provide a working stove.   Local laws might require the stove to be fully working regardless.

Frankly, if you provide a stove and it doesn't work properly, you're going to limit your potential renter pool.   And skew it to the worst of the worst, too.    Frankly, I wouldn't rent from a landlord who was too cheap to fix the stove unless I had no other choice.    And if I had no other choice, it's probably because I'm broke and desperate, neither of which are good renter material.

3). The flooring in the kitchen needs to be replace.  Fortunately, we have family members that can assist us.  What kind of flooring you recommend for rentals that are long lasting and water proof?

Nothing is water proof, you can only get water resitant.  Water will find it's own way given time.  :(

Linoleum is cheap and easy to install.    Tile is another option depending on the subflooring.
Partly it depends on the type of house and the neighborhood.   Sometimes you need to go more upscale.

What liabilities come into mind that we should be careful and aware of?
Ignorance.

Ignorance on the financials of how to calculate whether you're making a profit.

Ignorance on landlording laws in your state and locality.

Have you read some (hopefully many) of the resources listed on the RE sub-forum?
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 27, 2020, 06:17:30 PM
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front.  Are the renters responsible for caring for the yard or do we hire someone to care for it twice a week and roll the cost into the rental?

Yes.   Or you mow it yourself.     In other words, it's how you want to offer it and whether the renter wants it that way.

2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working.  Do we have to replace The stove completely?

Yes or no.    Have you tried getting it repaired?     

Unless you specifically advertise it has a stove with only 3 of 4 burners working and that's how it's going to stay or you don't provide a stove at all, then yes, you are expected to provide a working stove.   Local laws might require the stove to be fully working regardless.

Frankly, if you provide a stove and it doesn't work properly, you're going to limit your potential renter pool.   And skew it to the worst of the worst, too.    Frankly, I wouldn't rent from a landlord who was too cheap to fix the stove unless I had no other choice.    And if I had no other choice, it's probably because I'm broke and desperate, neither of which are good renter material.

3). The flooring in the kitchen needs to be replace.  Fortunately, we have family members that can assist us.  What kind of flooring you recommend for rentals that are long lasting and water proof?

Nothing is water proof, you can only get water resitant.  Water will find it's own way given time.  :(

Linoleum is cheap and easy to install.    Tile is another option depending on the subflooring.
Partly it depends on the type of house and the neighborhood.   Sometimes you need to go more upscale.

What liabilities come into mind that we should be careful and aware of?
Ignorance.

Ignorance on the financials of how to calculate whether you're making a profit.

Ignorance on landlording laws in your state and locality.

Have you read some (hopefully many) of the resources listed on the RE sub-forum?

Noted!  Thank you!
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on September 27, 2020, 07:08:24 PM
Around here, I commonly see stoves listed as fully working for around $100. Not all of the stoves, of course - but they commonly appear.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 27, 2020, 07:55:25 PM
Hey everyone!

Quick update- I did locked in 2.75% 30 yrs with low closing cost/fee! :) Congratulations!

I have been thinking about future rental for the property- not sure if this thread is the right Thread to ask or if it should be in real estate investing instead... but here it goes:
  We’re trying to get gather as much information As possible on how to prep the house for it to be rental ready.
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front.  Are the renters responsible for caring for the yard or do we hire someone to care for it twice a week monthand roll the cost into the rental? You are responsible. Pay a gardener or DIY, your choice. Yes, it should be included in your rent calculation, except the amount of rent you can get is based on the market, not your gardening bills.

2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working.  Do we have to replace The stove completely? Try You Tube and see if you can fix it yourself. Otherwise, Craigslist is your friend. Yes, everything must be in good working order.

3). The flooring in the kitchen needs to be replace.  Fortunately, we have family members that can assist us.  What kind of flooring you recommend for rentals that are long lasting and water proof? LVP, LVP, LVP. Nothing else holds a candle to it for cost/value/longevity, plus it's relatively easy to install. It is sold as "waterproof", but given enough water and time, nothing is completely waterproof. Make sure you install it correctly. Again, You Tube is your friend. Don't buy the cheapest stuff out there, unless it's cheap because it's on sale. Quality counts. 

What liabilities come into mind that we should be careful and aware of? Buy a Landlord Policy and Umbrella Insurance. Consider creating an LLC and/or a Trust. Screen the shit out of every prospective tenant. Use the internet and if there's any possible way, figure out where they're living now and put your eyeballs on it if you can. Find out why they're moving. Check all references. Ask for more if you think they're all set-ups. Don't take pets if you can help it. Don't take any pet without a substantial pet deposit and limiting the size/breed/number of dogs allowed. Insist on meeting the pet first. Make sure all of this is spelled out in the lease.


Thanks in advance!

It's cheap insurance to replace the water supply lines on the toilets and check all the connections under every sink and the dishwasher.

If you're taking the W/D, buy a nice used set and install them in the house. It will make your listing stand out. Nobody wants to go to a laundromat.

Once you have a tenant, be the best landlord ever. Insist they notify you immediately if anything breaks (put it in the lease) and then respond as soon as is humanly possible. The more you respond to their needs, the better care they take care of the place, in my experience. Assuming, of course, you've selected good tenants.


In addition, do whatever SwordGuy says.
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 28, 2020, 05:59:21 AM
Hey everyone!

Quick update- I did locked in 2.75% 30 yrs with low closing cost/fee! :) Congratulations!

I have been thinking about future rental for the property- not sure if this thread is the right Thread to ask or if it should be in real estate investing instead... but here it goes:
  We’re trying to get gather as much information As possible on how to prep the house for it to be rental ready.
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front.  Are the renters responsible for caring for the yard or do we hire someone to care for it twice a week monthand roll the cost into the rental? You are responsible. Pay a gardener or DIY, your choice. Yes, it should be included in your rent calculation, except the amount of rent you can get is based on the market, not your gardening bills.

2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working.  Do we have to replace The stove completely? Try You Tube and see if you can fix it yourself. Otherwise, Craigslist is your friend. Yes, everything must be in good working order.

3). The flooring in the kitchen needs to be replace.  Fortunately, we have family members that can assist us.  What kind of flooring you recommend for rentals that are long lasting and water proof? LVP, LVP, LVP. Nothing else holds a candle to it for cost/value/longevity, plus it's relatively easy to install. It is sold as "waterproof", but given enough water and time, nothing is completely waterproof. Make sure you install it correctly. Again, You Tube is your friend. Don't buy the cheapest stuff out there, unless it's cheap because it's on sale. Quality counts. 

What liabilities come into mind that we should be careful and aware of? Buy a Landlord Policy and Umbrella Insurance. Consider creating an LLC and/or a Trust. Screen the shit out of every prospective tenant. Use the internet and if there's any possible way, figure out where they're living now and put your eyeballs on it if you can. Find out why they're moving. Check all references. Ask for more if you think they're all set-ups. Don't take pets if you can help it. Don't take any pet without a substantial pet deposit and limiting the size/breed/number of dogs allowed. Insist on meeting the pet first. Make sure all of this is spelled out in the lease.


Thanks in advance!

It's cheap insurance to replace the water supply lines on the toilets and check all the connections under every sink and the dishwasher.

If you're taking the W/D, buy a nice used set and install them in the house. It will make your listing stand out. Nobody wants to go to a laundromat.

Once you have a tenant, be the best landlord ever. Insist they notify you immediately if anything breaks (put it in the lease) and then respond as soon as is humanly possible. The more you respond to their needs, the better care they take care of the place, in my experience. Assuming, of course, you've selected good tenants.


In addition, do whatever SwordGuy says.

Thanks Dicey!

1). Ok. Yes we’re probably leaning towards paying someone and that should be written in the lease agreement, correct?

2) Hub said he might can fix it- if not yes Craigslist seems to have a lot I agree

3) LVP sounds like a great option!  Thanks!  I originally wanted tile but it takes too much time to install and can crack as I’ve seen In homes.
 
The water supply line is a separate insurance that we need to purchase?
We’re not taking the L&D

Thanks.
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on September 28, 2020, 06:16:57 AM
Around here, I commonly see stoves listed as fully working for around $100. Not all of the stoves, of course - but they commonly appear.

Yes, we’re going to be looking if it can’t be fix.

Thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: By the River on September 28, 2020, 08:18:29 AM
We are refinancing and I thought I'd show how my wife’s thinking on the DPOYM has done a 180 over time.  Back story, we bought our first house right before turning 30 with a 30-year mortgage (and PMI).  My wife said at that time that we had to have the mortgage paid off before retiring but since everyone retires after 65 this wasn’t an issue.  (I’m sure she learned this from her parents).

Fast forward through a couple of moves, we bought our current house ten years ago when we were 47/46.  Again, she mentioned no mortgage in retirement.  At this time, I thought we could retire at 60, so negotiated that we would pay the house off in the years between working and taking social security to take advantage of tax brackets. This was acceptable.

In March/April 2020, her company’s 401K provider offered webinars to employees divided into different categories.  She took part of one for women nearing retirement.  I’m not sure if it was from the presenter or other employees but after, she told me that she learned that the mortgage didn’t need to be paid off, that it was just another debt.   

Two weeks ago, I told her the best refinance rate I found was 2.75% for 30 years.  She asked me what was the maximum we could borrow at that rate so we could invest the difference!   So, we’ve taken out cash to invest and will use all 30 years to repay. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2020, 09:06:50 AM
Hey everyone!

Quick update- I did locked in 2.75% 30 yrs with low closing cost/fee! :) Congratulations!

I have been thinking about future rental for the property- not sure if this thread is the right Thread to ask or if it should be in real estate investing instead... but here it goes:
  We’re trying to get gather as much information As possible on how to prep the house for it to be rental ready.
1) The yard is .25 acres. And has 2 big mature trees in the back and 2 medium trees in the front.  Are the renters responsible for caring for the yard or do we hire someone to care for it twice a week monthand roll the cost into the rental? You are responsible. Pay a gardener or DIY, your choice. Yes, it should be included in your rent calculation, except the amount of rent you can get is based on the market, not your gardening bills.

2). Our current stove is working fine, but one burner is not. Only 3 out of 4 burner is working.  Do we have to replace The stove completely? Try You Tube and see if you can fix it yourself. Otherwise, Craigslist is your friend. Yes, everything must be in good working order.

3). The flooring in the kitchen needs to be replace.  Fortunately, we have family members that can assist us.  What kind of flooring you recommend for rentals that are long lasting and water proof? LVP, LVP, LVP. Nothing else holds a candle to it for cost/value/longevity, plus it's relatively easy to install. It is sold as "waterproof", but given enough water and time, nothing is completely waterproof. Make sure you install it correctly. Again, You Tube is your friend. Don't buy the cheapest stuff out there, unless it's cheap because it's on sale. Quality counts. 

What liabilities come into mind that we should be careful and aware of? Buy a Landlord Policy and Umbrella Insurance. Consider creating an LLC and/or a Trust. Screen the shit out of every prospective tenant. Use the internet and if there's any possible way, figure out where they're living now and put your eyeballs on it if you can. Find out why they're moving. Check all references. Ask for more if you think they're all set-ups. Don't take pets if you can help it. Don't take any pet without a substantial pet deposit and limiting the size/breed/number of dogs allowed. Insist on meeting the pet first. Make sure all of this is spelled out in the lease.


Thanks in advance!

It's cheap insurance to replace the water supply lines on the toilets and check all the connections under every sink and the dishwasher.

If you're taking the W/D, buy a nice used set and install them in the house. It will make your listing stand out. Nobody wants to go to a laundromat.

Once you have a tenant, be the best landlord ever. Insist they notify you immediately if anything breaks (put it in the lease) and then respond as soon as is humanly possible. The more you respond to their needs, the better care they take care of the place, in my experience. Assuming, of course, you've selected good tenants.


In addition, do whatever SwordGuy says.

Thanks Dicey!

1). Ok. Yes we’re probably leaning towards paying someone and that should be written in the lease agreement, correct?

2) Hub said he might can fix it- if not yes Craigslist seems to have a lot I agree

3) LVP sounds like a great option!  Thanks!  I originally wanted tile but it takes too much time to install and can crack as I’ve seen In homes.
 
The water supply line is a separate insurance that we need to purchase?
We’re not taking the L&D

Thanks.
1. When we have a house for rent, we say "gardener included" in the listing. It's not specifically mentioned in the lease. But then, our rentals are in a Senior Community and nobody expects the tenants to maintain the landscaping...

2. The coil-type burners are easy to replace. The glass tops are a bit trickier to service, but not impossible.

3. We've had nothing but good experiences with LVP. I'll PM you a link to the last project we used it on.

Whoops! In this case, "cheap insurance" is just a figure of speech. Water supply lines are the flexible braided steel hoses that connect the water supply to the toilet or sink. They're fairly inexpensive and can cause a shitload of damage when they fail. Every homeowner should check and replace them periodically.

Finally, I don't understand your last sentence. What does that mean?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2020, 09:07:42 AM
We are refinancing and I thought I'd show how my wife’s thinking on the DPOYM has done a 180 over time.  Back story, we bought our first house right before turning 30 with a 30-year mortgage (and PMI).  My wife said at that time that we had to have the mortgage paid off before retiring but since everyone retires after 65 this wasn’t an issue.  (I’m sure she learned this from her parents).

Fast forward through a couple of moves, we bought our current house ten years ago when we were 47/46.  Again, she mentioned no mortgage in retirement.  At this time, I thought we could retire at 60, so negotiated that we would pay the house off in the years between working and taking social security to take advantage of tax brackets. This was acceptable.

In March/April 2020, her company’s 401K provider offered webinars to employees divided into different categories.  She took part of one for women nearing retirement.  I’m not sure if it was from the presenter or other employees but after, she told me that she learned that the mortgage didn’t need to be paid off, that it was just another debt.   

Two weeks ago, I told her the best refinance rate I found was 2.75% for 30 years.  She asked me what was the maximum we could borrow at that rate so we could invest the difference!   So, we’ve taken out cash to invest and will use all 30 years to repay.
Great story!
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on September 28, 2020, 04:39:51 PM
We are refinancing and I thought I'd show how my wife’s thinking on the DPOYM has done a 180 over time.  Back story, we bought our first house right before turning 30 with a 30-year mortgage (and PMI).  My wife said at that time that we had to have the mortgage paid off before retiring but since everyone retires after 65 this wasn’t an issue.  (I’m sure she learned this from her parents).

Fast forward through a couple of moves, we bought our current house ten years ago when we were 47/46.  Again, she mentioned no mortgage in retirement.  At this time, I thought we could retire at 60, so negotiated that we would pay the house off in the years between working and taking social security to take advantage of tax brackets. This was acceptable.

In March/April 2020, her company’s 401K provider offered webinars to employees divided into different categories.  She took part of one for women nearing retirement.  I’m not sure if it was from the presenter or other employees but after, she told me that she learned that the mortgage didn’t need to be paid off, that it was just another debt.   

Two weeks ago, I told her the best refinance rate I found was 2.75% for 30 years.  She asked me what was the maximum we could borrow at that rate so we could invest the difference!   So, we’ve taken out cash to invest and will use all 30 years to repay.
Good story, so long as she didn't get too much advice on HOW to invest it from the webinars.
Title: Re: DONT Payoff your Mortgage Club
Post by: By the River on September 29, 2020, 10:28:30 AM
Two weeks ago, I told her the best refinance rate I found was 2.75% for 30 years.  She asked me what was the maximum we could borrow at that rate so we could invest the difference!   So, we’ve taken out cash to invest and will use all 30 years to repay.
Good story, so long as she didn't get too much advice on HOW to invest it from the webinars.

No, we use them only because the 401K uses their funds.  We long ago agreed on ETFs for outside of 401K. 
Title: Re: DONT Payoff your Mortgage Club
Post by: wildbeast on October 02, 2020, 06:11:44 AM
@Dicey - which brands of LVP have you used?  I'm considering for kitchen.  Costco has Mohawk and Golden Arowana, any experience with either of those?

Thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: NotBadForADad on October 02, 2020, 06:42:06 AM
@Dicey - which brands of LVP have you used?  I'm considering for kitchen.  Costco has Mohawk and Golden Arowana, any experience with either of those?

Thanks!

For economy grade LVP, my brother and I always suggest Lifeproof from Home Depot. It's their higher end model, so installation is a little easier because the quality is better.

Trust me, I suggested this to my MILs landlord when I redid his condo and he went to another store and got their "Sale" LVP. (Which ended up being more expensive than Lifeproof). The install process was a PITA. The edges of the planks right out of the box were damaged on half of them. They wouldn't go together as smooth as other product I have installed. The T&G edges were so fragile they get chipping off. In the end it looked fine, but man it was a tough install.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 02, 2020, 07:04:18 AM
@Dicey - which brands of LVP have you used?  I'm considering for kitchen.  Costco has Mohawk and Golden Arowana, any experience with either of those?

Thanks!
One of those companies, I've never heard of, the other may have been printed on my paycheck for a number of years. Remember I've been FIRE for almost eight years, so only recognizing one name is possibly understandable. It slso means I left the industry before LVP really caught on.

The first time we installed LVP was about four years ago. It was a product from Lumber Liquidators to redo DSD's entire condo, and she chose it. We were skeptical but we fell in love. The most recent big job was last year. We wanted flooring with a sound deadening effect, so we went with Down's H20 from Flooring America, which is a cork-backed product made by Shaw. PM me if you want to see pictures.

IMO, a critical feature of LVP is edge quality. Every damn time I see LVP at Costco, I check it out. It's almost always a Mohawk product. The edges typically look brittle and there is usually visible damage already, which totally sucks, IMO. Usually the color selection isn't great either.

Brittle edges mean the durability will be compromised, as well as any waterproofing properties the product is purported to have. It also means more waste, which drives up the cost and the frustration when installing.

Other things to keep in mind: I hear from still-working friends that backorders are really high right now, and everyone's having price increases. Of course, those two issues are at play with all flooring options.

See also: @NotBadForADad's cross post, lol.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 02, 2020, 07:27:40 AM
Got the disclosures for my refinance (closing Monday). Mrs. TallTexan is a little bit wary about the handling of the escrow, but we're moving ahead. Grateful to have the large pot of cash available to get this done (although I'm horrified at what's happened in society that has caused it to build up from never going anywhere or hiring anyone to watch our son).
Title: Re: DONT Payoff your Mortgage Club
Post by: wildbeast on October 03, 2020, 10:28:36 AM
@Dicey - which brands of LVP have you used?  I'm considering for kitchen.  Costco has Mohawk and Golden Arowana, any experience with either of those?

Thanks!
One of those companies, I've never heard of, the other may have been printed on my paycheck for a number of years. Remember I've been FIRE for almost eight years, so only recognizing one name is possibly understandable. It slso means I left the industry before LVP really caught on.

The first time we installed LVP was about four years ago. It was a product from Lumber Liquidators to redo DSD's entire condo, and she chose it. We were skeptical but we fell in love. The most recent big job was last year. We wanted flooring with a sound deadening effect, so we went with Down's H20 from Flooring America, which is a cork-backed product made by Shaw. PM me if you want to see pictures.

IMO, a critical feature of LVP is edge quality. Every damn time I see LVP at Costco, I check it out. It's almost always a Mohawk product. The edges typically look brittle and there is usually visible damage already, which totally sucks, IMO. Usually the color selection isn't great either.

Brittle edges mean the durability will be compromised, as well as any waterproofing properties the product is purported to have. It also means more waste, which drives up the cost and the frustration when installing.

Other things to keep in mind: I hear from still-working friends that backorders are really high right now, and everyone's having price increases. Of course, those two issues are at play with all flooring options.

See also: @NotBadForADad's cross post, lol.

@Dicey - Thanks!  I found two stores nearby that sell that product so I'll go check it out.  And  I appreciate the feedback on the Costco products.  It's too bad; it seems they are trying to find a good supplier but not having too much luck.  Have you ever installed LVP on a floor with a crawl space?  I'm wondering if it will be stable enough to handle the expansion/contraction and movement of the wood subfloor; the rest of the house where we have crawl space is white oak.  We have one small area that is foundation and we put in a pergo-like laminate many years ago that has held up very well, but with slab there is no movement of the floor, plus the laminate is a lot more rigid. 

@NotBadForADad - Thanks for the recommend!  I will check it out.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 03, 2020, 06:40:09 PM
Yeah, our last project was over a crawl space. Very typical for California. What you do is allow for movement. You leave 1/4-1/3 inch around the perimeter of every room in the house. When you install the baseboards, you use a thin shim so they're not sitting hard against the floor. That way the floor moves slightly and doesn't buckle as the house breathes. You also need to allow the product to acclimate before you install it for best results.

And Costco seems to get most of their product from Mohawk, which is a major supplier. You have to be willing to pay a bit more for the quality and look you want. When Costco sells product, I think they look to hit a certain price point. So far, I'm just not seeing them hit the sweet spot of looks/quality/price.
Title: Re: DONT Payoff your Mortgage Club
Post by: FragglesRock666 on October 04, 2020, 10:54:49 AM
Hi, all! I've been lurking for a while getting caught up on the forum posts and decided to join in.
I just refinanced my house, and in between signing the paperwork and making my first payment on 10/1, I joined the "do NOT pay off your mortgage" team. Which means that I have a 20 year loan instead of a 30, but after seeing a discussion about this topic on the Reddit personal finance page, I mathed and came to the conclusion that at 3% interest, it makes zero sense to pay more on the mortgage. Even if you look at an extremely conservative estimate of 6% return in the stock market, that *still* beats my loan interest by double.
So I made my first mortgage payment this week, and did NOT pay extra.
Though due to the Covid, I've taken a big pay cut this year, while at the same time took over supporting my step dad, so nothing has gone into stocks as of yet while I work on re-balancing my budget.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 05, 2020, 06:20:07 AM
Sorry about the hit to your income, @FragglesRock666 , in what industry do you work?
Title: Re: DONT Payoff your Mortgage Club
Post by: FragglesRock666 on October 05, 2020, 01:41:32 PM
Sorry about the hit to your income, @FragglesRock666 , in what industry do you work?

I am an accountant, but my current employer is a string of retail stores.  We went from 61 stores to 7 in a matter of 2 weeks with the Covid.  We're back up to everything open, but I was down to 50% pay for a month before I was then furloughed for almost 3 months, and bonuses are based on sales, so... 
Thankfully, I had worked very hard the previous couple of years so that I have no non-mortgage debt, and a decent emergency fund. 
Title: Re: DONT Payoff your Mortgage Club
Post by: CarnivoreforLife on October 05, 2020, 05:08:57 PM
@Dicey
Sorry- I meant W&D
“Cheap insurance” figure of speech- lol got it! That is now on our to dos list as well.  Luckily, we already did it for the kitchen sink.

Thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fiddler on October 06, 2020, 03:29:17 AM
Hi,

New Dutch home-owner checking in. 

Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.

The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%


Just reached the 95% LTMV by making minimal payments and interest dropped to 2.25%.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 06, 2020, 06:12:15 AM
Dutch mortgages sound awesome!

Here in NC, just went yesterday and signed all the paperwork for our shiny, new 2.75% mortgage. First payment is due Dec. 1. Last payment will be due Nov. 1, 2050.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 06, 2020, 07:13:25 PM
Dutch mortgages sound awesome!

Here in NC, just went yesterday and signed all the paperwork for our shiny, new 2.75% mortgage. First payment is due Dec. 1. Last payment will be due Nov. 1, 2050.
Swe-e-e-et!
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on October 09, 2020, 10:27:46 PM
Thanks for all the good advice.   We bought a new home to live in back 2015.  The plan was to pay off the mortage quickly, with the bulk coming from the sale of my mom's house or our old house, whichever came first.

Then I learned about this thread and changed that plan.

We sold my mom's house and we invested the money.

We sold our old house and invested the money.

We sold a house we invested in and instead of paying off the mortgage we invested the money again.

Now, 5 years later, we're officially out of the don't pay off your mortgage club.    We bought a new home last January and as we sold off our prior home, plus some other properties, we paid off the mortgage with the proceeds.

Delaying paying off our mortgage for 5 years during this bull market meant we made a fair bit more money than we otherwise would have.   I'm willing to bet it was enough to cover the $100k down payment we made to buy our new home, one that suits us PERFECTLY.

We're already fired and cutting our annual expenses by paying off the mortgage greatly improves our quality of life, we no longer need to really worry about going over our budget now.    We've got plenty of fun money without even having to draw down our stash.  Yep, our planned SWR is NEGATIVE 1.4%.    That's about as safe as it gets in retirement. :)

Thankee kindly!

For those of you reading this thread, buried way back in the bowels of it, you'll find the discussion about whether we should pay it off or not in lots of detail.

Suffice it to say that the general agreement was, "It makes sense for you to pay it off IN YOUR PARTICULAR circumstances."

For most folks who are still trying to FIRE, the advice to delay paying off a low fixed-interest rate mortgage is the right thing to do.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 10, 2020, 05:16:47 AM
I've been following your progress all along and loved reading this recap.

Holding mortgages for many years enabled us to sell two homes and pay cash for our current one seven years ago, when we needed a larger, single-story home. Every time mortgage rates fall to new lows, I still pine for some of that sweet, cheap money. Alas, cash out re-fis typically cost more and have fewer tax advantages. I usually console myself by checking the investment account balances. Sometimes it works. MPP for sure.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 12, 2020, 08:31:51 AM
We appreciate your arguments for the cause, @Dicey !

My next payment isn't due until Dec. 1. Nice little side benefit of refinancing is that gap to rebuild cash reserves.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 12, 2020, 09:28:57 AM
I've been following your progress all along and loved reading this recap.

Holding mortgages for many years enabled us to sell two homes and pay cash for our current one seven years ago, when we needed a larger, single-story home. Every time mortgage rates fall to new lows, I still pine for some of that sweet, cheap money. Alas, cash out re-fis typically cost more and have fewer tax advantages. I usually console myself by checking the investment account balances. Sometimes it works. MPP for sure.

We are so frustrated to find ourselves ‘stuck’ in a situation where we might (possibly?) move in the next 3-6 months, so re-financing is off the table for now.  I look at our 3.7% loan (signed just over a year ago) and it feels so damn high compared to the rates that I am seeing.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 12, 2020, 11:02:03 AM
Stay the course, @nereo , and--if you're worried about interest rates--just watch a Chairman Powell speech or two, and I think you'll feel like your move will arrive in time.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on October 23, 2020, 08:02:09 PM
ten-year treasury bills yielding 0.6% right now, not sure how low they can go. Will the 2.625% rate get you enough movement that you're happy?

Thanks. I did end up locking yesterday (30 day lock) for a 30 year FRM @ 2.5% with a small lender credit.

Closed on the refi last week 30 year at 2.5%. Now I need to change my monthly contribution amount for the Vanguard Taxable account. Feels good to have done this.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 23, 2020, 09:02:05 PM
ten-year treasury bills yielding 0.6% right now, not sure how low they can go. Will the 2.625% rate get you enough movement that you're happy?

Thanks. I did end up locking yesterday (30 day lock) for a 30 year FRM @ 2.5% with a small lender credit.

Closed on the refi last week 30 year at 2.5%. Now I need to change my monthly contribution amount for the Vanguard Taxable account. Feels good to have done this.
Good job! We're amassing paperwork to start the re-fi process on all three of our rentals. Three at once has to be easier, right?
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 24, 2020, 09:18:24 AM
I've been considering refinancing since March when rates started to plummet. I got serious contacting several lenders in June but couldn't make the numbers work.  I keep hearing about people getting great rates, but I think my mortgage amount is too low and many of the good discount lenders don't have a license in my state.  So I'm quite jealous of all these people getting good deals like 30 years in the 2.5% or less range!!

I had basically given up, but continued to occasionally check online lenders that actually show rate and pricing info.  And I finally found a deal that at least makes sense for me, despite being terrible in comparison to what others are getting.  I owe around $110k currently at 3.5% with ~22 years left.  I locked in with LenderFI for 3.25% with no closing costs.  While the interest rate reduction isn't that great, it is no cost and resets me back to 30 years.  So my payment will be around $125 cheaper.  I'll be under $500 a month which will be sweet! 

LenderFI is nice because they'll show you exactly how much lender credit you'll get at each rate and how much the total closing costs will be without having to login/apply/share contact info.  They had really  terrible rates when I checked earlier (March-June) but started to make sense recently and yesterday was the best I'd seen so I jumped on it.  After I applied, I got the rate they advertised and they waived the appraisal (LTV easily <50%) which I was assuming they'd do.  It's all online so pretty easy but did talk to someone on the phone to lock.  They say they'll close within 30 days.  I'm still considering some other options to see if anyone can beat it.  We'll see if PenFed ever contacts me and I applied with a local broker as well.  If not, I'll be happy with what I got.  Gotta keep that low rate mortgage as long as I can!!
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on October 24, 2020, 01:56:47 PM
I've been considering refinancing since March when rates started to plummet. I got serious contacting several lenders in June but couldn't make the numbers work.  I keep hearing about people getting great rates, but I think my mortgage amount is too low and many of the good discount lenders don't have a license in my state.  So I'm quite jealous of all these people getting good deals like 30 years in the 2.5% or less range!!

Likewise, I'm just not seeing enough of a drop for my personal residence to make it worth it.  I am refinancing a rental property though. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on October 24, 2020, 02:04:11 PM
I had basically given up, but continued to occasionally check online lenders that actually show rate and pricing info.  And I finally found a deal that at least makes sense for me, despite being terrible in comparison to what others are getting.  I owe around $110k currently at 3.5% with ~22 years left.  I locked in with LenderFI for 3.25% with no closing costs.  While the interest rate reduction isn't that great, it is no cost and resets me back to 30 years.  So my payment will be around $125 cheaper.  I'll be under $500 a month which will be sweet! 

LenderFI is nice because they'll show you exactly how much lender credit you'll get at each rate and how much the total closing costs will be without having to login/apply/share contact info.  They had really  terrible rates when I checked earlier (March-June) but started to make sense recently and yesterday was the best I'd seen so I jumped on it.  After I applied, I got the rate they advertised and they waived the appraisal (LTV easily <50%) which I was assuming they'd do.  It's all online so pretty easy but did talk to someone on the phone to lock.  They say they'll close within 30 days.  I'm still considering some other options to see if anyone can beat it.  We'll see if PenFed ever contacts me and I applied with a local broker as well.  If not, I'll be happy with what I got.  Gotta keep that low rate mortgage as long as I can!!

Hm, looks like they're offering me 3% flat with $0 closing costs based on the website.

Can they do the closing entirely online too?
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 24, 2020, 04:50:42 PM
I had basically given up, but continued to occasionally check online lenders that actually show rate and pricing info.  And I finally found a deal that at least makes sense for me, despite being terrible in comparison to what others are getting.  I owe around $110k currently at 3.5% with ~22 years left.  I locked in with LenderFI for 3.25% with no closing costs.  While the interest rate reduction isn't that great, it is no cost and resets me back to 30 years.  So my payment will be around $125 cheaper.  I'll be under $500 a month which will be sweet! 

LenderFI is nice because they'll show you exactly how much lender credit you'll get at each rate and how much the total closing costs will be without having to login/apply/share contact info.  They had really  terrible rates when I checked earlier (March-June) but started to make sense recently and yesterday was the best I'd seen so I jumped on it.  After I applied, I got the rate they advertised and they waived the appraisal (LTV easily <50%) which I was assuming they'd do.  It's all online so pretty easy but did talk to someone on the phone to lock.  They say they'll close within 30 days.  I'm still considering some other options to see if anyone can beat it.  We'll see if PenFed ever contacts me and I applied with a local broker as well.  If not, I'll be happy with what I got.  Gotta keep that low rate mortgage as long as I can!!

Hm, looks like they're offering me 3% flat with $0 closing costs based on the website.

Can they do the closing entirely online too?

Not bad.  Better than my offer!  I think they send a notary to your house to sign the final papers.  I think that's how most of the online only lenders work.  I'll let you know in another 30 days or so assuming I stay with them.  So far I've done everything e-signing online and rate lock over the phone.

If you haven't already, check out the Bogleheads Mega Refinance thread: https://www.bogleheads.org/forum/viewtopic.php?f=2&t=289559&sid=4580c3c3a99b8b7c693cc646e14e9a6f&start=7500 (https://www.bogleheads.org/forum/viewtopic.php?f=2&t=289559&sid=4580c3c3a99b8b7c693cc646e14e9a6f&start=7500)
That's how I found out about LenderFI.  There are several other lenders that a lot of people are using there (Better, LoanDepot, Loan Cabin to name a few).  Lots of people there saying they're getting 2.5% or less on a no-cost 30 year and some seem to be making money via lender credits and on their 3rd or 4th refi of the year!  But then I'm pretty sure they all have much bigger balances than mine.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on October 24, 2020, 06:43:35 PM
Well, Nanny-State Texas won't let me refi more often than once a year anyway.

Frankly, they suck.

Anyway, thanks for the pointers - I'll have a look at the Bogleheads thread and contact LenderFI about no-contact closing, which should be totally doable since e-signatures have been legal for years. I've DocuSigned contracts for close to $1M each at work.
Title: Re: DONT Payoff your Mortgage Club
Post by: terrifictim on October 24, 2020, 09:30:39 PM
I just closed on a refi with LenderFI- 3.0% 30 years no closing costs. No issues with them, electronically signed all the documents leading up to the actual and then a notary came to my house. Took about an hour. They sold my loan to Amerihome. Overall happy with the experience.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on October 25, 2020, 10:09:23 PM

Good job! We're amassing paperwork to start the re-fi process on all three of our rentals. Three at once has to be easier, right?

This is a good time. Hopefully it all works out for you.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 26, 2020, 07:56:11 PM
I just closed on a refi with LenderFI- 3.0% 30 years no closing costs. No issues with them, electronically signed all the documents leading up to the actual and then a notary came to my house. Took about an hour. They sold my loan to Amerihome. Overall happy with the experience.

Good to hear!  Glad it went smoothly with them.  How long did it take from lock to close?  Less than 30 days?  Any issues with Amerihome?  My biggest worry is it being a pain to service my new loan.  As long as I can set up automatic payment from my checking account, I'll be happy.  I got out of escrow so at least don't have to worry about them screwing up that!

Today worked out well for me.  I got a call from PenFed this morning.  They were offering a rate of 2.875% for no points/no credit.  Cost ~$1300 with appraisal waived. Basically just title fees and taxes.  Then there's an option of $1150 lender credit for 0.25% higher or 3.125%.  So this basically brings it to no cost (well $150 but not bad).  Looked pretty good to me so I moved forward.  Had to apply on the phone which was annoying.  I didn't see an online option.  At least I'm a member already so that made it easier.  After ~30min on the phone, finally got locked in.  They said it could take 90 days to close!  I can still decide if I want 2.875% with the higher closing cost or 3.125% for basically no closing cost.  The breakeven would be around 4 years just from the interest difference.  Seems like too long to pay an extra $1150 up front for.  I like the no cost option since I'm ahead right away.  I'll have to think about it some more.  I'd come out ahead if I keep it long enough, but not sure that I'm that committed to this house.

So I'm assuming I'm going to go forward with PenFed and thinking about sending something to LenderFI to see if they can lower my 3.25% rate.  When not 30 minutes later, I get an e-mail from them saying my rate is locked at 3.125% at no closing costs!  Sweet!  I guess I wasn't really locked on Friday.  It was pretty late when I talked to them and never did receive any documentation but he told me I was locked.  Oh well.  At least it ended up working to my advantage.  I think I'll go with LenderFI since they can close earlier.  You can't refinance for 6 months after going with them, but they also have a nice deal where if rates drop 0.25% or more after that 6 months, they'll automatically reach out to you to refinance at zero cost.  It sounded like it was an ongoing thing too.  So that's a nice perk.  My lock is set to expire on Nov 20, so we'll see if they can actually meet that date.  If anything goes wrong, PenFed is slow enough that they'll be my backup.

Hope everyone else looking finds some good deals out there too!
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on October 27, 2020, 11:24:47 AM
Texas also. We started and then backed out of a refi that would have been an identical rate and terms to what we have now, but reset the 10y ARM block and reduce our monthly payment by 16% at a cost of $7k. Tried LenderFI just now to see, and got no loans being offered; maybe because we are in jumbo territory.
Title: Re: DONT Payoff your Mortgage Club
Post by: terrifictim on October 27, 2020, 11:49:28 AM
I just closed on a refi with LenderFI- 3.0% 30 years no closing costs. No issues with them, electronically signed all the documents leading up to the actual and then a notary came to my house. Took about an hour. They sold my loan to Amerihome. Overall happy with the experience.

Good to hear!  Glad it went smoothly with them.  How long did it take from lock to close?  Less than 30 days?  Any issues with Amerihome?  My biggest worry is it being a pain to service my new loan.  As long as I can set up automatic payment from my checking account, I'll be happy.  I got out of escrow so at least don't have to worry about them screwing up that!

Today worked out well for me.  I got a call from PenFed this morning.  They were offering a rate of 2.875% for no points/no credit.  Cost ~$1300 with appraisal waived. Basically just title fees and taxes.  Then there's an option of $1150 lender credit for 0.25% higher or 3.125%.  So this basically brings it to no cost (well $150 but not bad).  Looked pretty good to me so I moved forward.  Had to apply on the phone which was annoying.  I didn't see an online option.  At least I'm a member already so that made it easier.  After ~30min on the phone, finally got locked in.  They said it could take 90 days to close!  I can still decide if I want 2.875% with the higher closing cost or 3.125% for basically no closing cost.  The breakeven would be around 4 years just from the interest difference.  Seems like too long to pay an extra $1150 up front for.  I like the no cost option since I'm ahead right away.  I'll have to think about it some more.  I'd come out ahead if I keep it long enough, but not sure that I'm that committed to this house.

So I'm assuming I'm going to go forward with PenFed and thinking about sending something to LenderFI to see if they can lower my 3.25% rate.  When not 30 minutes later, I get an e-mail from them saying my rate is locked at 3.125% at no closing costs!  Sweet!  I guess I wasn't really locked on Friday.  It was pretty late when I talked to them and never did receive any documentation but he told me I was locked.  Oh well.  At least it ended up working to my advantage.  I think I'll go with LenderFI since they can close earlier.  You can't refinance for 6 months after going with them, but they also have a nice deal where if rates drop 0.25% or more after that 6 months, they'll automatically reach out to you to refinance at zero cost.  It sounded like it was an ongoing thing too.  So that's a nice perk.  My lock is set to expire on Nov 20, so we'll see if they can actually meet that date.  If anything goes wrong, PenFed is slow enough that they'll be my backup.

Hope everyone else looking finds some good deals out there too!

Mine was slightly over 30 days (7/10 locked to 8/24 signed final papers and 8/28 officially closed). Did not do escrow either. Overall happy with the process. No issues so far with Amerihome - they allow free automatic payments from checking account so doesn't appear to be an issue. They also play nicely with Mint and Personal Capital if you're using a financial aggregator.
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on October 27, 2020, 01:01:22 PM
Just checking in here- we closed on our new build in June at 3.375, and just locked this morning with LenderFi- 2.5% 30y fixed (no cost). I'm impressed how easy site is to upload documents and broker contact there seems to be great so far.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 27, 2020, 01:27:02 PM
We just refinanced last October, but this Lender-Fi has me wondering if it isn't time again. Their closing quote is great - has stamp taxes and everything.

Seems like we can go from 3.75% to 3.25%, and cash out $10K after about $2K in closing costs (that 8th of a point that takes it from "pay points" to "lender credit" is the big jump in the list of > $1,000.

I don't think we're quite to where this makes clear and obvious sense - save about $600 / year on the current loan balance, and the expected return less the interest on the additional $10K might be $500.

Maybe if the house appraises higher so we could cash out more it would be a better deal.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 27, 2020, 06:57:39 PM
Mine was slightly over 30 days (7/10 locked to 8/24 signed final papers and 8/28 officially closed). Did not do escrow either. Overall happy with the process. No issues so far with Amerihome - they allow free automatic payments from checking account so doesn't appear to be an issue. They also play nicely with Mint and Personal Capital if you're using a financial aggregator.
Thanks for sharing!  I have my doubts they can really close by 11/20, but I assume they'll extend the lock if it's their fault.  I uploaded all my docs immediately, so nothing should be held up on my end.  I guess we'll see how things go.  Thanks for the info on Amerihome too.  I don't know if my loan will end up there, but good to know you've had a decent experience with them so far.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 27, 2020, 07:01:59 PM
We just refinanced last October, but this Lender-Fi has me wondering if it isn't time again. Their closing quote is great - has stamp taxes and everything.

Seems like we can go from 3.75% to 3.25%, and cash out $10K after about $2K in closing costs (that 8th of a point that takes it from "pay points" to "lender credit" is the big jump in the list of > $1,000.

I don't think we're quite to where this makes clear and obvious sense - save about $600 / year on the current loan balance, and the expected return less the interest on the additional $10K might be $500.

Maybe if the house appraises higher so we could cash out more it would be a better deal.
Why are you cashing out $10k?  Seems like that's not really enough to be worth it.  Rates are quite a bit higher on cash outs from what I understand, so unless you're cashing out quite a bit ($50k maybe?), it doesn't seem worth it.  I didn't think LenderFI was doing cash out right now anyway.  That's what I heard and it never came up with any quotes for me when I tried quoting cash out.

If you only have enough equity to cash out $10k, personally I wouldn't bother.  I'd check their regular rates and see what it'd be without the cash out.  I'd guess you can do better than 3.75% with no costs.  If you can get lower than your current rate at no cost, you don't really have anything to lose.  Unless you really do want to cash out or look at refinancing somewhere else in the next 6 months.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on October 28, 2020, 12:12:17 AM
We just refinanced last October, but this Lender-Fi has me wondering if it isn't time again. Their closing quote is great - has stamp taxes and everything.

Seems like we can go from 3.75% to 3.25%, and cash out $10K after about $2K in closing costs (that 8th of a point that takes it from "pay points" to "lender credit" is the big jump in the list of > $1,000.

I don't think we're quite to where this makes clear and obvious sense - save about $600 / year on the current loan balance, and the expected return less the interest on the additional $10K might be $500.

Maybe if the house appraises higher so we could cash out more it would be a better deal.
Why are you cashing out $10k?  Seems like that's not really enough to be worth it.  Rates are quite a bit higher on cash outs from what I understand, so unless you're cashing out quite a bit ($50k maybe?), it doesn't seem worth it.  I didn't think LenderFI was doing cash out right now anyway.  That's what I heard and it never came up with any quotes for me when I tried quoting cash out.

If you only have enough equity to cash out $10k, personally I wouldn't bother.  I'd check their regular rates and see what it'd be without the cash out.  I'd guess you can do better than 3.75% with no costs.  If you can get lower than your current rate at no cost, you don't really have anything to lose.  Unless you really do want to cash out or look at refinancing somewhere else in the next 6 months.

It could be a limited cash out, which doesn't increase the rate.  I did like $10k in "cash out" but it wasn't really cash.  It paid for escrow deposit, insurance prepayments, etc.  So it's more like financing your next property tax payment than a pure cash out.  I already got that money back in cash from my insurance company, though, and will probably get the escrow deposit back as soon as I'm able to cancel escrow.  Or if you already have an escrow account you will get it back from your current lender quickly.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 28, 2020, 10:27:00 AM
Consistent with this thread's premise - if I'm refinancing, I want as large a loan as they will give me at a low, fixed rate for 30 years (I'd say longer, but that doesn't seem to be available). Right now, that looks like loan balance + about $10K. Suppose I won't know particulars until I try more thoroughly.

I've just been plugging in balance amounts up to 80% LTV into LenderFi - maybe their quote engine lacks the nuance for what I actually want to do.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 28, 2020, 10:34:09 AM
Ah - if you click "modify search", there is a cash-out option is available. Except it says "no loans avialable - try again". Was just excited to see a better quote tool - the closing costs seem to include filing fees, which are significant here relative to loan size.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 28, 2020, 07:17:36 PM
We just refinanced last October, but this Lender-Fi has me wondering if it isn't time again. Their closing quote is great - has stamp taxes and everything.

Seems like we can go from 3.75% to 3.25%, and cash out $10K after about $2K in closing costs (that 8th of a point that takes it from "pay points" to "lender credit" is the big jump in the list of > $1,000.

I don't think we're quite to where this makes clear and obvious sense - save about $600 / year on the current loan balance, and the expected return less the interest on the additional $10K might be $500.

Maybe if the house appraises higher so we could cash out more it would be a better deal.
Why are you cashing out $10k?  Seems like that's not really enough to be worth it.  Rates are quite a bit higher on cash outs from what I understand, so unless you're cashing out quite a bit ($50k maybe?), it doesn't seem worth it.  I didn't think LenderFI was doing cash out right now anyway.  That's what I heard and it never came up with any quotes for me when I tried quoting cash out.

If you only have enough equity to cash out $10k, personally I wouldn't bother.  I'd check their regular rates and see what it'd be without the cash out.  I'd guess you can do better than 3.75% with no costs.  If you can get lower than your current rate at no cost, you don't really have anything to lose.  Unless you really do want to cash out or look at refinancing somewhere else in the next 6 months.

It could be a limited cash out, which doesn't increase the rate.  I did like $10k in "cash out" but it wasn't really cash.  It paid for escrow deposit, insurance prepayments, etc.  So it's more like financing your next property tax payment than a pure cash out.  I already got that money back in cash from my insurance company, though, and will probably get the escrow deposit back as soon as I'm able to cancel escrow.  Or if you already have an escrow account you will get it back from your current lender quickly.

Yeah, that would make sense.  Taking a little higher loan balance to cover closing costs and prepaids is pretty common I think.  But it sounded like dandarc actually wants to take extra cash out which I don't think would be allowed via this method while still being considered rate and term.  Could be wrong though.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 28, 2020, 07:25:01 PM
Consistent with this thread's premise - if I'm refinancing, I want as large a loan as they will give me at a low, fixed rate for 30 years (I'd say longer, but that doesn't seem to be available). Right now, that looks like loan balance + about $10K. Suppose I won't know particulars until I try more thoroughly.

I've just been plugging in balance amounts up to 80% LTV into LenderFi - maybe their quote engine lacks the nuance for what I actually want to do.

Yes, the premise of the thread is to take as big of a mortgage as you can for as long as you can (as long as the interest rate is low which it is right now).  The problem with cash-out refinance is that they add quite a bit to your rate, at least from what I've seen.  It probably makes sense to take out a large sum and invest the difference over time.  But only cashing out $10k and having your entire loan balance subject to the higher interest rate doesn't seem worth it, unless you know you won't keep the loan that long (either moving or hope to refinance again in 6 months).  It does seem like how much you cash out does have some affect on how much rates rise, so it could potentially make sense.

Ah - if you click "modify search", there is a cash-out option is available. Except it says "no loans avialable - try again". Was just excited to see a better quote tool - the closing costs seem to include filing fees, which are significant here relative to loan size.

Yep, that's what I was referring to and why I said I didn't think they weren't doing cash outs.  I agree, the LenderFI tool is nice to get pretty accurate and detailed quotes with closing costs immediately, without giving any info which is great.  I hate the whole, "Call me, apply, let me run your credit" just to see they're not at all competitive.  I found that PenFed now has the same kind of quote tool on their website now too.  I didn't see it when I was looking before, but it's there now. You can go to: https://www.penfed.org/mortgage-center/mortgage-refinancing (https://www.penfed.org/mortgage-center/mortgage-refinancing) and click "Get My Rate."  They give the same breakdown of rates and closing costs and again, this is accurate since it's basically what I locked when I talked to someone.  PenFed does quote Cash Out so you can play with that.  You do have to be a PenFed member if you want to go with them but I think it's easy and anyone can join (might need to pay a small fee/donation).  I had some CDs with them years ago so I still had an account.
Title: Re: DONT Payoff your Mortgage Club
Post by: seeking_north on October 30, 2020, 10:04:43 AM
From Norway.. here is our plan.

We have $7500 after tax income each month.
We have a $290.000 fixed loan with 2.46% for 20 years (20 years is max fixed loan in Norway)
+ optional 10 years variable or fixed rate at the end.. (not sure until year 20)
We are planning on paying just the interest for the first 10 years, then if the bank allows another 10 years of just paying the interest.
We are investing everything else, which is around $3500 a month

01-10y : $580 pr month
10-20y : $580 or $1500
Year 20: Pay of entirely with invested funds..
20-30y : or refinance, or another fixed loan depending on interest at the time.

How does it sound?
Just paying of the interest for as long as possible, hopefully for 20 years, while inflation works in our favor, while investing as much as possible.


.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on October 30, 2020, 10:33:08 AM
From Norway.. here is our plan.

We have $7500 after tax income each month.
We have a $290.000 fixed loan with 2.46% for 20 years (20 years is max fixed loan in Norway)
+ optional 10 years variable or fixed rate at the end.. (not sure until year 20)
We are planning on paying just the interest for the first 10 years, then if the bank allows another 10 years of just paying the interest.
We are investing everything else, which is around $3500 a month

01-10y : $580 pr month
10-20y : $580 or $1500
Year 20: Pay of entirely with invested funds..
20-30y : or refinance, or another fixed loan depending on interest at the time.

How does it sound?
Just paying of the interest for as long as possible, hopefully for 20 years, while inflation works in our favor, while investing as much as possible.


.

Sit down and do the math if the market drops 40%  and stays that way for a couple of years right when the money is due in year 20.

If it's not disastrous, it's a good plan.  Otherwise, tweak until it's not disastrous.
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on November 09, 2020, 07:41:10 AM
Sit down and do the math if the market drops 40%  and stays that way for a couple of years right when the money is due in year 20.

Then the most obvious action would be to refinance the loan into another 20 or 30 years which is easy over here. As long as you have eligible collateral in form of a home with a value higher than the mortgage it is very hard to envision a scenario in which you have to pay down large amounts if you don't want to. The loan is probably gonna be pretty small compared to the value of the house due to inflation working for 20 years, unless something really bad happens to the housing market of course.

A lot can change between now and then of course, so the strategy is not without risk. The biggest is probably if realationship ends long before year 20 and they have to sell during a bad time in the housing market and are underwater on the mortgage. Mortgage interest is tax-deductible in Norway as well so the after-tax rate of the mortgage is 1.92%.

I would not do it myself. As mentioned earlier I only pay the interest on my mortgange now but 1) my mortgage is small relative to house value and income + I have enough safe assets to pretty much pay down the loan at any time if I want to as I am able to deposit money in FIDC-insured accounts at a higher interest rate than my mortgage rate.

But seeking_north has in a way been more prudent than most - taking a fixed rate mortgage is very unusual here, most banks only offer it up to 10 years and those few who lock in the interest rate generally does it for 3 years which is really pointless in my opinion.
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on November 12, 2020, 03:54:22 AM
Sit down and do the math if the market drops 40%  and stays that way for a couple of years right when the money is due in year 20.

Then the most obvious action would be to refinance the loan into another 20 or 30 years which is easy over here. As long as you have eligible collateral in form of a home with a value higher than the mortgage it is very hard to envision a scenario in which you have to pay down large amounts if you don't want to. The loan is probably gonna be pretty small compared to the value of the house due to inflation working for 20 years, unless something really bad happens to the housing market of course.

A lot can change between now and then of course, so the strategy is not without risk. The biggest is probably if realationship ends long before year 20 and they have to sell during a bad time in the housing market and are underwater on the mortgage. Mortgage interest is tax-deductible in Norway as well so the after-tax rate of the mortgage is 1.92%.

I would not do it myself. As mentioned earlier I only pay the interest on my mortgange now but 1) my mortgage is small relative to house value and income + I have enough safe assets to pretty much pay down the loan at any time if I want to as I am able to deposit money in FIDC-insured accounts at a higher interest rate than my mortgage rate.

But seeking_north has in a way been more prudent than most - taking a fixed rate mortgage is very unusual here, most banks only offer it up to 10 years and those few who lock in the interest rate generally does it for 3 years which is really pointless in my opinion.

If you sell before the end date of your fixed time period, dont you need to pay the interest difference if you can’t transfer the loan to your new house? At least in Sweden, that works as a deterrent for longer term fixed rates. My loans are all variable due to this reason. There is no real incentive in the difference in interest rates either. I have a rate of 1,63% and a after taxe rate after deductions of 1,14 %.
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on November 12, 2020, 05:23:41 AM
If you sell before the end date of your fixed time period, dont you need to pay the interest difference if you can’t transfer the loan to your new house? At least in Sweden, that works as a deterrent for longer term fixed rates. My loans are all variable due to this reason. There is no real incentive in the difference in interest rates either. I have a rate of 1,63% and a after taxe rate after deductions of 1,14 %.

Yes, the fixed rate loan will have to be closed out at market value, so you have to pay if remaining market rate is lower and opposite you are paid the value if remaining rate is higher than market rate.

Your last point is a very common mistake to make (not saying you make it...) - the point of having a fixed rate is not to have a rate higher or lower than the prevailing floating rate, it is having predictable cashflows on the mortgage for a long time. In my opinion a lot more people here should have fixed rate loans, even if it is rather likely to loose money in the long run. The weirdest misconception out here is that you are doomed to loose as you are "betting against the bank". A bank giving fixed rate mortgages has no opinion on the future direction of interest rate as it is irrelevant, the risk is easy for the bank to hedge out so it does not matter at all.

Also, closing out the loan at market rate, moving and entering into a new fixed rate at new market rate vs moving loan to another house does not really make any difference. Bar a few token fees the value of the two operations is the same.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 12, 2020, 07:16:03 AM
My check from the previous escroe account arrived the other day. I asked my MiL to lend me her lexus to drive to the bank because I wanted to carry that big check in a nice car.

Also she was parked behind me, she would have had to move it anyway.

Since this is MMM forum, I will acknowledge that finding a bank within biking radius is a long-term goal.

First payment on my shiny, new mortgage is due 12/1/2020.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on November 12, 2020, 07:23:27 AM
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875 locked
Closing costs ---> 300 appraisal + ~$1000 Title + ~$300 Misc fees - Potential Lender credits $700 
                          + refundable lock fee + fund escrow for next year
State/location ---> Midwest
Cashout? ---> no

I refinanced again, this time I pulled some cash out, leveraging up back to 75%. This time it cost me about $2000
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875
Closing costs ---> 450 appraisal + ~$1100 Title + ~$500 Misc fees + fund escrow for a year
State/location ---> Midwest
Cashout? ---> yes
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on November 12, 2020, 11:31:49 AM
If you sell before the end date of your fixed time period, dont you need to pay the interest difference if you can’t transfer the loan to your new house? At least in Sweden, that works as a deterrent for longer term fixed rates. My loans are all variable due to this reason. There is no real incentive in the difference in interest rates either. I have a rate of 1,63% and a after taxe rate after deductions of 1,14 %.

Yes, the fixed rate loan will have to be closed out at market value, so you have to pay if remaining market rate is lower and opposite you are paid the value if remaining rate is higher than market rate.

Your last point is a very common mistake to make (not saying you make it...) - the point of having a fixed rate is not to have a rate higher or lower than the prevailing floating rate, it is having predictable cashflows on the mortgage for a long time. In my opinion a lot more people here should have fixed rate loans, even if it is rather likely to loose money in the long run. The weirdest misconception out here is that you are doomed to loose as you are "betting against the bank". A bank giving fixed rate mortgages has no opinion on the future direction of interest rate as it is irrelevant, the risk is easy for the bank to hedge out so it does not matter at all.

Also, closing out the loan at market rate, moving and entering into a new fixed rate at new market rate vs moving loan to another house does not really make any difference. Bar a few token fees the value of the two operations is the same.

I know the point is to have a predictable cash flow. I prefer the flexibility and in the long run lower cost of a variable rate. I have enough flexibility in my finances to be able to deal with the changes and it is basically a couple clicks in the internet bank to get a fixed rate so it should not take more than a couple of minutes to get one if needed for some reason.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 12, 2020, 11:37:25 AM
Just to clarify, this thread mostly applies to US based mortgages. In places where long-ass, fixed rate mortgages are not the norm, the decision is much less clear-cut.
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on November 12, 2020, 11:46:54 AM
Just to clarify, this thread mostly applies to US based mortgages. In places where long-ass, fixed rate mortgages are not the norm, the decision is much less clear-cut.
Out of curiosity - can you even get a truly floating-rate mortage in the US or is that an oddity so rare it doesn't really exist? Mine over here is very standard per local customs which means 30 years, floating rate, bank can adjust mortgage raye at any time for any reason but has to give me 6 weeks notice (this requirement is by law). In real life the rate fluctuates with the central bank rate and by extension short-term money market rates. but there is no direct link.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 12, 2020, 12:00:32 PM
Just to clarify, this thread mostly applies to US based mortgages. In places where long-ass, fixed rate mortgages are not the norm, the decision is much less clear-cut.
Out of curiosity - can you even get a truly floating-rate mortage in the US or is that an oddity so rare it doesn't really exist? Mine over here is very standard per local customs which means 30 years, floating rate, bank can adjust mortgage raye at any time for any reason but has to give me 6 weeks notice (this requirement is by law). In real life the rate fluctuates with the central bank rate and by extension short-term money market rates. but there is no direct link.

Not sure what “truly” floating rate is. You can get very short lock in periods here but things still only adjust once per year, and they probably will still have limits on how much they adjust.  It’s not like you get charged daily interest at the prevailing rate
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 12, 2020, 12:01:46 PM
The last two times I've asked, the nominal rate on the ARM was the same as the 30-year fixed. It seemed like there was no premium for taking on that interest rate risk after the five year risk-free period was up, and I don't believe in bearing risk without receiving a premium.
Title: Re: DONT Payoff your Mortgage Club
Post by: Plina on November 12, 2020, 12:45:51 PM
My floating rate is locked for 3 months and I have to be notified if they are going to change the rate. The difference between the floating and the locked rate for 10 years is +0,3 % more for the locked rate.

A one year adjustment period would be considered locked here. It is the shortest locked period to chose.
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on November 12, 2020, 12:47:15 PM

Not sure what “truly” floating rate is. You can get very short lock in periods here but things still only adjust once per year, and they probably will still have limits on how much they adjust.  It’s not like you get charged daily interest at the prevailing rate

I meant more like the rate will adjust at some frequency for the entire life of the mortgage. If the adjustment is monthly or quarterly is off less importance, just that it is a floating rate mortgage for its entire life so you end up paying somewhere around some reference rate + some credit spread on top of it.

The mortgage market with Freddie & Fannie is very different from Europe and guess the end demand from investors is fixed rate instruments, but the refinancing option, sweet as it is when rates fall by a lot like they have now ain't cheap. Last figures I saw was that the 30y rate is roughly 0.50% higher than what it would be if you did not have tright to refinance at "no cost" if rates drop by enough to make it worthwhile given the associated costs.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on November 12, 2020, 04:53:51 PM
Out of curiosity - can you even get a truly floating-rate mortage in the US or is that an oddity so rare it doesn't really exist? Mine over here is very standard per local customs which means 30 years, floating rate, bank can adjust mortgage raye at any time for any reason but has to give me 6 weeks notice (this requirement is by law). In real life the rate fluctuates with the central bank rate and by extension short-term money market rates. but there is no direct link.

You can, in fact I've got one right now on an investment property.  In some circumstances they can be a good deal (mainly if you think you will sell your house in less than about seven years or so).  I really love the stability of the 30-fixed though.   
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on November 13, 2020, 09:42:25 PM
I closed today on my mortgage with LenderFI.

Balance: ~$114,000
Term: 30 year, fixed
Rate: 3.125%
Closing Cost: $0!  Lender credit covered them all.
Cash Out: No, but will get ~$100 back.  Loan balance is ~$200 high than current mortgage payoff.  $100 for pre-paid interest on new loan, $100 cash back to me.

The Good: LenderFI was pretty easy to work with.  Everything (until closing) was done online with e-signing and via e-mail communication for the most part which I prefer.  They were able to close exactly 3 weeks after I applied, which is much faster than the 3 months PenFed locked me for.  The rate is pretty decent considering my loan balance is pretty low.  Probably could have gotten 3% if I'd waiting a week.  Oh well.

The Bad: Things were a little stressful today.  They screwed up the loan amount on the closing disclosure they sent last night vs. a week ago.  Got it fixed, but it pushed back my scheduled closing time with the notary.  The notary who came to my house was a little flaky.  She was running late for the original time, then was over an hour late for the pushed back time.  It was pretty late by the time I finally finished signing the mountain of paperwork.  I asked them to send it to me for review earlier but of course they didn't so I rushed through it.  I have 3 days to cancel so will review it more in depth this weekend but it all seemed like standard stuff.

Hopefully it will get funded and my existing mortgage paid off next week.  I'll be happy to be done and looking forward to my sub $500 payment for another 30 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on November 14, 2020, 06:57:05 AM
Has anyone refi'd with loanDepot lately?  We were supposed to close yesterday, and it didn't happen. Our rate lock of 2.5% 30 year expired yesterday - we told them they needed to extend it for free to us, but haven't heard back yet whether that will happen.  They have literally had EVERYTHING they asked for since day 1.  Yesterday they asked for 5 more items and had all of them within 1.5 hours of their request (updated bank statements (2) , tax docs (3)).  The initial part of the process was fine. Getting in touch with someone after has been a PITA.  I've been following up for the past month because we planned to have solar installed before the end of the year and cannot proceed until our refi is finished.  They said Monday for closing.  It better still be 2.5% or lower.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on November 14, 2020, 12:33:21 PM
Has anyone refi'd with loanDepot lately?  We were supposed to close yesterday, and it didn't happen. Our rate lock of 2.5% 30 year expired yesterday - we told them they needed to extend it for free to us, but haven't heard back yet whether that will happen.  They have literally had EVERYTHING they asked for since day 1.  Yesterday they asked for 5 more items and had all of them within 1.5 hours of their request (updated bank statements (2) , tax docs (3)).  The initial part of the process was fine. Getting in touch with someone after has been a PITA.  I've been following up for the past month because we planned to have solar installed before the end of the year and cannot proceed until our refi is finished.  They said Monday for closing.  It better still be 2.5% or lower.

Dang, sorry you have been having issues with them.  I closed with LoanDepot about 2 months ago or so and it was a good experience for us.  Went smoothly and was comparable to all the other refinances we have done.  Hopefully they get their act together and you close soon.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on November 17, 2020, 09:10:56 AM
Thanks to the info on this thread and the Boglehead thread, I completed a refi with Lender Fi in September.
30 year fixed @ 3%, actual costs approx $800 in miscellaneous fees. Appraisal was waved, loan balance of $192,500.
Closing took just under 30 days, all online except for signing with a notary.
My ancient Acer finally died and so I did the entire process using my phone, scanning, printing, sending docs, kinda funny and amazing.
With the money I saved I bought a new Acer :-)
It's not the best terms I've seen but I was happy with it, it took quite a while to get my finances back in shape after an expensive divorce and some questionable (ie: bad) financial and life decisions in the ensuing years.
But that's fodder for a different post, right now I'm thrilled with the new terms and monthly savings of $480 per month, and if things play out I'll be looking to refi again in the spring at an even better rate!
Title: Re: DONT Payoff your Mortgage Club
Post by: AerynLee on November 17, 2020, 09:29:43 AM
Closed on our new house last month and while I had previously always figured I'd pay off our mortgage (after everything else was paid off and 401ks are maxed), I'm happy to let this one ride

Purchase price: $242,000
Down payment: $36,300 (we actually got a lower interest rate for doing 15% down instead of 20%)
Loan Amount: $205,700
Term: 30 years
Interest rate: 2.625%
PMI: $22/month until I pay off the $12k needed to get to a 80% LTV
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 17, 2020, 12:53:36 PM
holy forking shirtballs - 2.625% fixed for 30 years !?
Title: Re: DONT Payoff your Mortgage Club
Post by: AerynLee on November 17, 2020, 12:59:41 PM
holy forking shirtballs - 2.625% fixed for 30 years !?
Right?! And that was with no points. This should be long term home for us so I'm more than happy to just let that sucker ride other than maybe getting rid of the PMI
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on November 17, 2020, 02:52:09 PM
holy forking shirtballs - 2.625% fixed for 30 years !?
Right?! And that was with no points. This should be long term home for us so I'm more than happy to just let that sucker ride other than maybe getting rid of the PMI

Rates are awesome right now.   I'm getting greedy and hoping a 2.25% 30yr comes along over the next couple of months.  I'm at 2.75% right now but if we are able to get into 2.25% I would throw a little bit of cash at the principle to drop PMI and our mortgage payment would get to a place I never thought was possible when we first bought the house in our HCOL area.  We have already dropped our mortgage payment by 20% from when we first purchased 2 years ago but if the stars align and we get a 2.25% rate and drop PMI our payment will be down about 30% from our original purchase.  Talk about getting lucky with low rates and house appreciation.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 18, 2020, 12:03:24 AM
Off topic but... this is my first time with escrow (due to refi!).  How early do your services usually pay property taxes?  Like right before the due date?  I just don’t trust these guys and starting to get anxious.  Plan to drop this escrow BS ASAP
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 18, 2020, 06:09:48 AM
Why not enjoy the escrow and not having to think about something for once?

I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.

It's frustrating having them hold my money, but I gave myself permission to not think about it.
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on November 18, 2020, 07:37:51 AM
Off topic but... this is my first time with escrow (due to refi!).  How early do your services usually pay property taxes?  Like right before the due date?  I just don’t trust these guys and starting to get anxious.  Plan to drop this escrow BS ASAP

Depends on your mortgage company, but yeah Due Date, or I've even had one wait longer and pay right before the "pay by this day or else you'll incur a penalty" date (which is different). Yes it is annoying.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 18, 2020, 03:35:23 PM
Off topic but... this is my first time with escrow (due to refi!).  How early do your services usually pay property taxes?  Like right before the due date?  I just don’t trust these guys and starting to get anxious.  Plan to drop this escrow BS ASAP

Depends on your mortgage company, but yeah Due Date, or I've even had one wait longer and pay right before the "pay by this day or else you'll incur a penalty" date (which is different). Yes it is annoying.

Hmm.. we are already past the technical due date.  But not the penalty date

Why not enjoy the escrow and not having to think about something for once?

I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.

It's frustrating having them hold my money, but I gave myself permission to not think about it.

How could I possibly enjoy that?  It’s NON OPTIMAL. And I have to TRUST SOMEONE ELSE. 

It’s actually not that bad because they have to pay me 2% interest which ain’t bad these days
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on November 18, 2020, 03:38:14 PM
Depends on your mortgage company, but yeah Due Date, or I've even had one wait longer and pay right before the "pay by this day or else you'll incur a penalty" date (which is different). Yes it is annoying.

Hmm.. we are already past the technical due date.  But not the penalty date

Wells Fargo?
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 18, 2020, 11:35:49 PM
Depends on your mortgage company, but yeah Due Date, or I've even had one wait longer and pay right before the "pay by this day or else you'll incur a penalty" date (which is different). Yes it is annoying.

Hmm.. we are already past the technical due date.  But not the penalty date

Wells Fargo?

Servicer is the money source, which is basically owned by better mortgage.  They get... mixed reviews

Anyway if they don’t pay up soon I’ll contact them before the penalty date.  Their website says I don’t need to do anything with the tax bill.  I know I’m being irrationally paranoid but let me tell you about the time my garbage company tried to charge me late fees because they had been sending the bill to the wrong address (I had never dealt with them before so I didn’t know if they had a quarterly billing cycle or what)

To pull things back on topic I’m super jelly with the great rates you all got.  At one point I saw a “best” rate but I wasn’t fast/bold enough to snag it. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on November 19, 2020, 06:30:52 AM
Why not enjoy the escrow and not having to think about something for once?

I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.

It's frustrating having them hold my money, but I gave myself permission to not think about it.

I prefer not because our tax bill is due between 11/1 and 1/31 for no penalty. This lets me get 2 tax payments into one calendar year to maximize SALT deductions. I can't ensure it will work that way with escrow. Plus, we have no fee online payment with our county office, so I could care less where they are located.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on November 19, 2020, 01:39:28 PM
I prefer not because our tax bill is due between 11/1 and 1/31 for no penalty. This lets me get 2 tax payments into one calendar year to maximize SALT deductions. I can't ensure it will work that way with escrow. Plus, we have no fee online payment with our county office, so I could care less where they are located.
I wish I didn't have an escrow account when the deduction rules changed a few years back. I had plenty in my escrow account and the next major bill due from it was the April installment of my property taxes, but I couldn't get them to pay it early. Penalty date for the first installment on my property taxes is 12/10 so best I could do is 1.5 years of property tax in one tax year. If I also put two years of charitable giving into a tax year, I certainly could exceed the new standard deduction.

For now it doesn't matter as to me as I plan to defer enough 2020 & 2021 income in retirement savings to get my AGI below the threshold needed to qualify for the 50% Saver's Tax Credit. Will probably target AGI qualifying for only the 10% Saver's Tax Credit in 2022 or 2023 in order to replenish my savings buffer (my spend rate is a bit too high to stay under the required AGI indefinately); could look to maximize itemized deductions in the year I do that.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 19, 2020, 02:03:50 PM
Why not enjoy the escrow and not having to think about something for once?

I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.

It's frustrating having them hold my money, but I gave myself permission to not think about it.

I prefer not because our tax bill is due between 11/1 and 1/31 for no penalty. This lets me get 2 tax payments into one calendar year to maximize SALT deductions. I can't ensure it will work that way with escrow. Plus, we have no fee online payment with our county office, so I could care less where they are located.

This is a fantastic response! When the TCJA was passed in 2017, I figured out how to "pre-pay" several years' of church giving for the same reason.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 19, 2020, 03:54:21 PM
Update they paid it today so 3 weeks before the penalty date.  Handwringing for nothing!  Well just the regular enjoyment I get from handwringing

Why not enjoy the escrow and not having to think about something for once?

I stubbornly refused to do it for the first two houses I've owned (eleven years). Was not given the option for my current one (thirteen months, refinanced last month), but had the free cash to live my life while the escrow was doubled up. Our city moved their property tax office a lot farther from my workplace, so I stopped being able to walk over on my lunch break.

It's frustrating having them hold my money, but I gave myself permission to not think about it.

I prefer not because our tax bill is due between 11/1 and 1/31 for no penalty. This lets me get 2 tax payments into one calendar year to maximize SALT deductions. I can't ensure it will work that way with escrow. Plus, we have no fee online payment with our county office, so I could care less where they are located.

This is a fantastic response! When the TCJA was passed in 2017, I figured out how to "pre-pay" several years' of church giving for the same reason.

I did this too.  But is there really a problem prepaying your property tax bill outside of escrow if it helps your taxes?  Yes you will have to figure out how to get a refund, but usually the tax advantage is worth giving up even a years worth of returns (if you have to wait that long for an escrow reassessment)
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on November 19, 2020, 04:56:04 PM
I did this too.  But is there really a problem prepaying your property tax bill outside of escrow if it helps your taxes?  Yes you will have to figure out how to get a refund, but usually the tax advantage is worth giving up even a years worth of returns (if you have to wait that long for an escrow reassessment)
I suppose could have paid the property tax myself, but instead I made donations to my church early like talltexan (only 5 months worth in my case - my reserves were a bit lower than typical due to paying a sewer line replacement in August and burying my Dad in September that year). On January 1st, 2018, my bank accounts had barely enough to cover the bills scheduled to be paid a few days later. I could have been a bit more aggressive - I knew I had a paycheck sufficient to cover the bills that would be added to my account on the first business day of 2018.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on November 19, 2020, 10:30:42 PM
has anyone done a cash-out refi recently? if so, what rate and terms and with which lender? thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on November 20, 2020, 08:00:23 AM
has anyone done a cash-out refi recently? if so, what rate and terms and with which lender? thanks!
I refinanced again, this time I pulled some cash out, leveraging up back to 75%. This time it cost me about $2000
Type ---> Refinance
Term ---> 30 year fixed
Interest rate ---> 2.875
Closing costs ---> 450 appraisal + ~$1100 Title + ~$500 Misc fees + fund escrow for a year
State/location ---> Midwest
Cashout? ---> yes
@kenmoremmm, I closed couple weeks back. Lender is mutual of Omaha.
Title: Re: DONT Payoff your Mortgage Club
Post by: CupcakeGuru on November 20, 2020, 09:11:43 AM
has anyone done a cash-out refi recently? if so, what rate and terms and with which lender? thanks!

Just closed yesterday.
AimLoan
30 year 3% no points
credit of 760
normal fees of taxes, title etc $1300
waived appraisal
cashout - yes
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 20, 2020, 01:47:35 PM
Dropped payment 1/360 into the mail today on our shiny, new 2.75% loan. I have a co-worker who's at 2 7/8, Imma call him and flex on his pitiful ass.
Title: Re: DONT Payoff your Mortgage Club
Post by: Much Fishing to Do on November 20, 2020, 01:58:39 PM
Dropped payment 1/360 into the mail today on our shiny, new 2.75% loan. I have a co-worker who's at 2 7/8, Imma call him and flex on his pitiful ass.
Crazy, my dad still 'brags' about the 8.5% he got before it went to 11% in the late 70s.  On the flip side I am jealous of that 12% 5 year CD he got in 80 or so.....whole different math now
Title: Re: DONT Payoff your Mortgage Club
Post by: desert_phoenix on November 26, 2020, 08:06:32 PM
I just closed, going from 3.75% to 2.375%, 30-year fixed.  I could almost convince myself to think about paying down the higher rate early at a certain point. But this new one? I think I am good....Plus I pay it off in December of 2050. A nice, easy to remember date. The break even point for closing is in only 15 months!
Title: Re: DONT Payoff your Mortgage Club
Post by: fishnfool on November 26, 2020, 09:05:47 PM
We will soon be closing on a 20 year loan, owner occupied 2 unit property 2.875%  , O points , normal closing costs. Our current loan is at 4% with 25 years left, so feels like a no brainer to go for this refi...  :)
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 27, 2020, 01:38:36 AM
Hey guys, good news!  Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail.  So I can go back to worrying about when it will be paid.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 27, 2020, 03:55:42 PM
Hey guys, good news!  Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail.  So I can go back to worrying about when it will be paid.
Not positive, but I think postmark before due date qualifies as "on time" payment.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on November 27, 2020, 08:13:59 PM
Still waiting for closing on our loanDepot no cost refi at 2.5% 30 year...worst post signing customer service I have ever had. Crickets from anyone. They aren’t on my recommendation list. Fingers crossed we actually do finalize this Monday. We have wired $5,800 to them already. Sigh.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 27, 2020, 10:04:55 PM
Hey guys, good news!  Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail.  So I can go back to worrying about when it will be paid.
Not positive, but I think postmark before due date qualifies as "on time" payment.

This is true, as long as it actually arrives and has a postmark. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 27, 2020, 10:26:54 PM
Hey guys, good news!  Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail.  So I can go back to worrying about when it will be paid.
Not positive, but I think postmark before due date qualifies as "on time" payment.

This is true, as long as it actually arrives and has a postmark.
However, the stress they're causing you is bullshit. Why does a dragon have an impound account?
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 28, 2020, 02:35:40 AM
Hey guys, good news!  Tax assessor hasn't received the property tax payment yet so they must have sent it via... sniffs the mail.  So I can go back to worrying about when it will be paid.
Not positive, but I think postmark before due date qualifies as "on time" payment.

This is true, as long as it actually arrives and has a postmark.
However, the stress they're causing you is bullshit. Why does a dragon have an impound account?

It's self-inflicted unfortunately.  I saved perhaps a thousand in closing costs going with escrow

I know everything will be fine... this is what happens when I have nothing else to micromanage
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on December 04, 2020, 02:54:30 AM
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on December 04, 2020, 06:55:15 AM
Still waiting for closing on our loanDepot no cost refi at 2.5% 30 year...worst post signing customer service I have ever had. Crickets from anyone. They aren’t on my recommendation list. Fingers crossed we actually do finalize this Monday. We have wired $5,800 to them already. Sigh.
Annnd-payoff! IDK what was wrong with the loan processor at the back end, but it’s done and they are sending us $450 for our hassles. Sweet, although not a great return for the stress. On to adding Tesla solar panels to the roof. No more escrow=no more wondering if they are paying the taxes and bills on time. We have lumpy income, so the $900 less per month is going to feel even better. $1,700 escrow refund is due by the 13th.

Back to paying the minimum and investing the maximum. We might payoff in FIRE, but at 2.5% that’s hard to justify.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 04, 2020, 08:54:12 AM
That escrow refund sounds small enough that you can deposit it through your banking app, well done!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 04, 2020, 09:02:43 AM
In related news, we're scrapping the investment property re-fis. The rates are good enough to warrant the hassle, but the fees are insane. One lender DH spoke to suggested waiting until Spring, because last Spring, she was writing 3% loans with no fees on investment properties. Absent some miracle, that's our new plan. Our current rates are still good from a historical perspective. Sigh. What a nonproductive pain in the ass that was.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 04, 2020, 09:24:36 AM
"What a nonproductive pain in the ass that was." - mortgage research and 90% of 'all-hands meetings' described in one sentence. Well done.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on December 04, 2020, 10:26:00 AM
That stinks on the rates and fees for investment properties. At least all of the interest on those is deductible too.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on December 04, 2020, 11:58:34 AM
That escrow refund sounds small enough that you can deposit it through your banking app, well done!

I don’t know how I became so “trusted” but my bank allows me to deposit $100k a day. 
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on December 05, 2020, 11:19:16 AM
So I am starting to feel a little crazy because we keep on refinancing... I think this is our 4th refi in 2.5 years now.  Details on the rate we just locked in below.

585k
30yr
2.5%
0 points
0 lender fees
Appraisal waiver
Washington state
Current payment - 3170 - 30yr 2.75%
New payment - 2960
Fees not covered by lender - 1600
Break even - 8 months

What made this refinance really worth it was the appraisal waiver we received which put us across the 80% ltv threshold in order to drop PMI.  Next step 2%? Lol
Title: Re: DONT Payofur Mortgage Club
Post by: Dicey on December 05, 2020, 03:01:25 PM
That stinks on the rates and fees for investment properties. At least all of the interest on those is deductible too.
Funny, one lender suggested we take a loan out on our primary residence, which is mortgage-free. She helpfully suggested we could use that money to pay off all three rentals. I politely asked, "Why would I want to do that?" "It would be easier", said she. "For whom?" was my response, followed by, "You really don't know how taxes work, do you?"

When she called back with the rates and fees ($7k per and that was if we escrowed, which is not our preference.), she suggested it again, so I clarified that it made no sense to swap three fairly cheap, fully tax deductible mortgages for one non-tax deductible one*, just to shave off a point of interest. I'm sure she still didn't get it. Just like she isn't going to get our business...
 
*I realize that a very small amount would be tax deductible, but nowhere near enough for this proposition to make a whit of sense.

Title: Re: DONT Payoff your Mortgage Club
Post by: bownyboy on December 06, 2020, 02:00:52 AM
We originally took out at 25 year mortgage in 2009 fixed for five years at 3.99%

We overpaid for a couple of years before educating ourselves on investing in pensions and ISAs instead.

In 2015 we fixed for another five years this time at 2.44%.

Now we’ve just completed on another five years at 1.44% with a fee of £999.

In that time we’ve effectively become ‘mortgage neutral’ as we have more than enough investments to pay off the mortgage if we wanted.

Initially my wife was all for paying off the mortgage but she’s come round to the idea of us having liquidity available so we have choices.

Thanks to sites like this, cheers!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 06, 2020, 04:04:07 AM
Murray! Congratulations on your progress, bownyboy!

That's an autocorrect for "Hooray". Who the hell is Murray?
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on December 06, 2020, 05:02:33 AM
Was reading some responses in the MPP thread today, one included someone putting 70% down for a property with the idea of paying it off ASAP.  As I’ve mentioned, I could have bought my home in cash, I choose to take out just slightly lower than 80% in a mortgage (round loan number) in 2017 and invest the difference.  Went and looked at my Vanguard account today, with the crazy market it has a performance gain of 3.5 times more than the amount of mortgage payments I have made in 39 months.  Now I have added more than the difference of mortgage v non mortgage but choosing a mortgage is responsible for at least half of the gain.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 06, 2020, 12:49:44 PM
Was reading some responses in the MPP thread today, one included someone putting 70% down for a property with the idea of paying it off ASAP.  As I’ve mentioned, I could have bought my home in cash, I choose to take out just slightly lower than 80% in a mortgage (round loan number) in 2017 and invest the difference.  Went and looked at my Vanguard account today, with the crazy market it has a performance gain of 3.5 times more than the amount of mortgage payments I have made in 39 months.  Now I have added more than the difference of mortgage v non mortgage but choosing a mortgage is responsible for at least half of the gain.
Woot! Congratulations and thanks for the report!
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on December 06, 2020, 01:08:48 PM
Bought a new house back in 2015 with the intent that it was our forever home.   Enjoyed living there very much.
Prior house was already paid off, long before I heard of MMM or this thread.

About the same time we inherited some cash and a  house from my mom.

This thread taught me to invest instead of pay off the mortgage, so we didn't pay it off with the cash.   We invested it.
We also didn't pay it off when we sold her house.   Also invested it.
We also didn't pay it off when we sold our old home.   Also invested it.
We also didn't pay it off when we sold one of the houses we invested in.    Also invested the proceeds.

I **hated**, **hated**, **hated** not paying off the mortgage each and every one of those times.   But investing was a far better choice for the long term.

We found a truly awesome home 5 years after the last move and bought it.  We were already retired by now
We're now fired.   

We cashed out some of the invested profits for a large downpayment so we could get a mortgage.

We sold off some houses we bought to help others out plus our old house.   That time we paid off the mortgage.

It cut our living expenses by well over $50,000 a year to ditch both mortgages plus the other houses.    We now don't really have to ever worry about a sequence of returns risk and we actually have a positive cash flow in a normal year without taking into account any stock or bond sales or dividends.

It was the right thing to do for us.   We have plenty and we don't have to worry about a splurge now and then.   Money no longer feels tight.   We can budget a nice amount for charity and still have a budget surplus.

But if we hadn't invested all those other times, those profits wouldn't have been there.     Because they were in taxable accounts instead of IRAs or 401Ks (those were already maxed out), we didn't take the huge tax hit we would have if we had pulled that downpayment from our retirement accounts.

Not paying off our prior mortgage early was a great decision for us.     Paying off our last mortgage over a 10 month period was another great decision for us.   It improved our quality of life and made us more financially secure, plus it simplified our life a goodly bit.   

Thanks again for all the good advice on this thread!

Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on December 08, 2020, 12:18:13 PM
Closing on our LenderFi refi tomorrow, 41 days after initiation.

Loan: $499k (70% LTV, only put down 20% at closing in June- new construction)
Term: 30 fixed
Rate: 2.5%
Appraisal: $495
Cash to close: $250

Excited to hit the reset button already, savings will go to taxable.  Plan to FIRE in 12-15y, will decide then to payoff or keep loan- might relocate anyway.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 08, 2020, 11:46:48 PM
Closing on our LenderFi refi tomorrow, 41 days after initiation.

Loan: $499k (70% LTV, only put down 20% at closing in June- new construction)
Term: 30 fixed
Rate: 2.5%
Appraisal: $495
Cash to close: $250

Excited to hit the reset button already, savings will go to taxable.  Plan to FIRE in 12-15y, will decide then to payoff or keep loan- might relocate anyway.
Who's paying for the title insurance?
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on December 09, 2020, 11:46:56 AM

[/quote]
Who's paying for the title insurance?
[/quote]

Covered by lender credits
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on December 09, 2020, 01:05:27 PM
Not paying off our prior mortgage early was a great decision for us.     Paying off our last mortgage over a 10 month period was another great decision for us.   It improved our quality of life and made us more financially secure, plus it simplified our life a goodly bit.   
Thanks for Sharing. Another great story for this club in US. There is no one way to do personal finance.
Title: Re: DONT Payoff your Mortgage Club
Post by: August26th on December 09, 2020, 03:07:17 PM
Seems like an appropriate place to ask this question.... and I have not read every post in this very long thread so I apologize if this scenario has been covered. Would you do this refinance?

Current loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.

With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.

Would you bring almost 38K to save $446 per month? If I did this, I’d let this loan ride for the long term and put the extra into investments. Or is this silly thinking? I have a bunch of cash piled up, waiting to buy an investment property, so the 40K wouldn’t hurt.   

Best guess is that I am 8-10 years away from FIRE.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 09, 2020, 03:54:26 PM
Seems like an appropriate place to ask this question.... and I have not read every post in this very long thread so I apologize if this scenario has been covered. Would you do this refinance?

Current loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.

With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.

Would you bring almost 38K to save $446 per month? If I did this, I’d let this loan ride for the long term and put the extra into investments. Or is this silly thinking? I have a bunch of cash piled up, waiting to buy an investment property, so the 40K wouldn’t hurt.   

Best guess is that I am 8-10 years away from FIRE.
This is 100% NOT silly thinking.

I'd be tempted to wait until the current administration changes. I expect Biden will get rid of that stupid .5% refinance fee that just kicked in.

We're working on refis for a couple of rental properties and the fees we're being quoted are stupidly high right now. We're not sure what to do, but we're going to be pissed if we jump the gun. If we spend $4k per property that we ultimately don't have to, it's not going to feel good.

In your case, saving $446 a month is still pretty tempting, fees and all.

Another thought - investment properties typically require 25% down. Will you have enough left for a DP on a rental if you bring that much cash to this closing? Another way of looking at that amount of cash is it's just part of what you could have put down to buy the property initially, but didn't.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 10, 2020, 07:37:00 AM
$38,000 is a lot of extra money to put into the house to get an already low rate down even lower. There's no hurry to refinance IMHO because bond yields will stay low for a long time. Do you have the $38,000 set aside as cash, or would you be selling risky investments to access it?
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on December 10, 2020, 08:47:06 AM
Seems like an appropriate place to ask this question.... and I have not read every post in this very long thread so I apologize if this scenario has been covered. Would you do this refinance?

Current loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.

With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.

Would you bring almost 38K to save $446 per month? If I did this, I’d let this loan ride for the long term and put the extra into investments. Or is this silly thinking? I have a bunch of cash piled up, waiting to buy an investment property, so the 40K wouldn’t hurt.   

Best guess is that I am 8-10 years away from FIRE.
To me it seems like a no brainer.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on December 10, 2020, 11:30:53 AM
Current loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.

With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.
I'd be tempted to wait until the current administration changes. I expect Biden will get rid of that stupid .5% refinance fee that just kicked in.

We're working on refis for a couple of rental properties and the fees we're being quoted are stupidly high right now. We're not sure what to do, but we're going to be pissed if we jump the gun. If we spend $4k per property that we ultimately don't have to, it's not going to feel good.

In your case, saving $446 a month is still pretty tempting, fees and all.
Current interest: about $1582/mo
0.5% fee on new loan: about $2741
New loan interest: about $1084/mo

If the 0.5% fee goes away within about 5 months and interest rates don't increase, you'd be better off waiting. If the fee is in place for more than 6 months and the extra funds you bring wouldn't return much anyway, it would be better to do it now.
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on December 14, 2020, 04:10:12 AM
townhouse - pmi removed - helps with the rental income.
main house - refi going through now to reduce payments by 200 a month. Of course the escrow is wrong and needs to be boosted by 100 a month but its all coming out of reduced interest so I'm ok with that. another 30 years of the payment clock! here we go!!
Title: Re: DONT Payoff your Mortgage Club
Post by: CupcakeGuru on December 14, 2020, 09:18:36 AM
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.

I just closed a cash out refi with AimLoan. The application and documentation gathering process was very easy since you just upload everything to their website.

THE CLOSING WAS HORRIBLE. The Title Closing company sent a notary to my house to sign all the final paperwork. It took them 8 days to receive and review the paperwork. They kept "missing" documents even though we signed them all and kept asking us to re-sign and send to them. Aim blamed everything on the title closing company and the title company blamed Aim. They kept "switching" who my main contact was so I really had no idea who was running point.

Funding of the refi and paying off the old lender took 3 days. I had to call and email constantly to get status updates.

Overall ok especially since I did not pay any closing fees including appraisal, title insurance, attorney etc. I also received a $760 credit from Aim. All in, I only paid transfer title, recording fee, taxes and insurance which you would have to pay anyway. A+B+C=382
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on December 14, 2020, 03:06:24 PM
Lenderfi is now showing me no-cost rates that would drop my payment by about $150/mo.  Unfortunately I just loaded up my credit cards for points so it’s not a great time.  I was under the impression the FNMA adverse market fee would drive rates up, not down. 

To follow up on my escrow saga, the county did finally report receipt of the payment two days before it was due.  Like two weeks after it was sent.  I tend to blame the county for this, since they probably did receive it a while back and just didn’t process it quickly.  I always used to epay so it would report quickly.  Still annoying though
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on December 14, 2020, 03:07:45 PM
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.

I just closed a cash out refi with AimLoan. The application and documentation gathering process was very easy since you just upload everything to their website.

THE CLOSING WAS HORRIBLE. The Title Closing company sent a notary to my house to sign all the final paperwork. It took them 8 days to receive and review the paperwork. They kept "missing" documents even though we signed them all and kept asking us to re-sign and send to them. Aim blamed everything on the title closing company and the title company blamed Aim. They kept "switching" who my main contact was so I really had no idea who was running point.

Funding of the refi and paying off the old lender took 3 days. I had to call and email constantly to get status updates.

Overall ok especially since I did not pay any closing fees including appraisal, title insurance, attorney etc. I also received a $760 credit from Aim. All in, I only paid transfer title, recording fee, taxes and insurance which you would have to pay anyway. A+B+C=382

IMO if you used the title company selected by the lender, it’s their reputation on the line either way.  They shouldn’t default to using a title company that sucks
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 15, 2020, 04:57:19 AM
Lenderfi is now showing me no-cost rates that would drop my payment by about $150/mo.  Unfortunately I just loaded up my credit cards for points so it’s not a great time.  I was under the impression the FNMA adverse market fee would drive rates up, not down. 

To follow up on my escrow saga, the county did finally report receipt of the payment two days before it was due.  Like two weeks after it was sent.  I tend to blame the county for this, since they probably did receive it a while back and just didn’t process it quickly.  I always used to epay so it would report quickly.  Still annoying though
We pay property taxes in two counties. One cashed/recorded fairly quickly. It's been over two weeks and the other county hasn't cashed our check or acknowledged receipt of payment on their website. Kind of nerve wracking and we know we paid the bill. All of their epay options include hefty fees, so that option is out for us. Conclusion: paying property taxes sucks, no matter how it's done.
Title: Re: DONT Payoff your Mortgage Club
Post by: CupcakeGuru on December 15, 2020, 09:22:00 AM
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.

I just closed a cash out refi with AimLoan. The application and documentation gathering process was very easy since you just upload everything to their website.

THE CLOSING WAS HORRIBLE. The Title Closing company sent a notary to my house to sign all the final paperwork. It took them 8 days to receive and review the paperwork. They kept "missing" documents even though we signed them all and kept asking us to re-sign and send to them. Aim blamed everything on the title closing company and the title company blamed Aim. They kept "switching" who my main contact was so I really had no idea who was running point.

Funding of the refi and paying off the old lender took 3 days. I had to call and email constantly to get status updates.

Overall ok especially since I did not pay any closing fees including appraisal, title insurance, attorney etc. I also received a $760 credit from Aim. All in, I only paid transfer title, recording fee, taxes and insurance which you would have to pay anyway. A+B+C=382

IMO if you used the title company selected by the lender, it’s their reputation on the line either way.  They shouldn’t default to using a title company that sucks

I totally agree! But they had my signed loan paperwork, so I couldn't even stop the process since I had no confidence that they would honor the cancelation since it was past the 3 day cancellation notice period.

On a good note, I escalated my complaint throughout Aim and the title company after closing. I just received a $500 check from Aim as "compensation" for the delayed closing and all the other issues!
 
Title: Re: DONT Payoff your Mortgage Club
Post by: fishnfool on December 16, 2020, 09:22:17 AM
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.

Yes, we have used aimloan 2x's now and they are a very good company to work with and they also serviced my prior loan for 5 years without fail. We just did a refi and I think they are going to sell my loan this time. Not a big deal, but hoping that we don't have loancare again, they suck!
Title: Re: DONT Payoff your Mortgage Club
Post by: lepa71 on December 17, 2020, 02:35:10 PM
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.

I just closed with them on my refi with a cash-out on rental. It was fine. They had to extend the lock twice at no cost to me. They also agreed to reduce the rate because of the delay. Good communication.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 17, 2020, 04:38:58 PM
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.

I just closed with them on my refi with a cash-out on rental. It was fine. They had to extend the lock twice at no cost to me. They also agreed to reduce the rate because of the delay. Good communication.
What were the terms and fees for a non-owner occ loan?
Title: Re: DONT Payoff your Mortgage Club
Post by: lepa71 on December 19, 2020, 12:35:27 PM
anyone use https://www.aimloan.com/ to do a refi? it looks like their rates/fees are just slightly lower than lenderfi, which a lot of people here have used. i'm curious on experiences working with aimloan.

I just closed with them on my refi with a cash-out on rental. It was fine. They had to extend the lock twice at no cost to me. They also agreed to reduce the rate because of the delay. Good communication.
What were the terms and fees for a non-owner occ loan?

I'm not sure I understand the question. I did a cash-out so I have had to pay for more points. I think it was like .5 points. My principal was too low for other refi. For example, AIM was the only one who was giving me a refi. My principal was $135K at 5%. If I would just take regular refi, the AIM rate was 3.625% with about $5k for closing cost. I refied $235K at 3% same 15 years with closing something $7k included in the loan. Also paid an extra $300 for not having an escrow account. Now wondering if I should pay off the primary as it is only $93K and nobody wants to refi it reasonably.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on December 21, 2020, 02:14:06 PM
What were the terms and fees for a non-owner occ loan?

I'm not sure I understand the question. I did a cash-out so I have had to pay for more points. I think it was like .5 points. My principal was too low for other refi. For example, AIM was the only one who was giving me a refi. My principal was $135K at 5%. If I would just take regular refi, the AIM rate was 3.625% with about $5k for closing cost. I refied $235K at 3% same 15 years with closing something $7k included in the loan. Also paid an extra $300 for not having an escrow account. Now wondering if I should pay off the primary as it is only $93K and nobody wants to refi it reasonably.
Dicey wants to know about the terms of a refinance on a non-owner occupied (rental) home. She owns several rental properties and was looking into refinancing them recently, but the fees were high enough that she decided to hold off on the refinance.
Title: Re: DONT Payoff your Mortgage Club
Post by: lepa71 on December 21, 2020, 05:50:59 PM
Ok. Anybody can try it for themselves? https://www.aimloan.com/programs/get-rates?autorun=true&qid=1104774
Title: Re: DONT Payoff your Mortgage Club
Post by: sherr on December 22, 2020, 07:31:26 AM
Ok. Anybody can try it for themselves? https://www.aimloan.com/programs/get-rates?autorun=true&qid=1104774

That's actually a useful tool that I was unaware of, thanks for linking it. Most other rate quotes I've seen are hidden behind a "give us your email address / phone number so we can spam you to death" wall.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 10, 2021, 11:15:50 AM
This thread is a little quiet, because not paying off the mortgage eventually becomes kind of boring, at least in contrast to watching your investment balances explode.

Thought I'd check in to say we still haven't pulled the trigger on the rental re-fis. The interest rates are good, but the fees are insane! The payback time is far too long. So we wait and watch. The Aim website linked above is very useful.

Happy New Year to all you DPOYM-ers!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on January 10, 2021, 12:26:09 PM
This thread is a little quiet, because not paying off the mortgage eventually becomes kind of boring, at least in contrast to watching your investment balances explode.

Thought I'd check in to say we still haven't pulled the trigger on the rental re-fis. The interest rates are good, but the fees are insane! The payback time is far too long. So we wait and watch. The Aim website linked above is very useful.

Happy New Year to all you DPOYM-ers!

Happy New Year Dicey!

Investments for us were insane last year as well.  I shifted our allocation around in feb/march to give tech and growth stocks more weight and I also started putting a small portion into individual stock picks.  This was not a spur of the moment decision.  I had researched this possible allocation for about 5 months before jumping in but it happened to correspond with the covid crash.

Overall portfolio outperformed the SP500 and returned just shy of 38%.  Individual stock account returned 63%.  I am going to keep adding some new money to the stock-picking account so I can buy in when I find a new company that I believe in and the valuations look attractive to me.  I'll typically do 20-40 hours of research on a company before investing.  It's been a lot of fun learning different aspects of the market and individual stock investing.

I don't think I would have taken on the additional risk of individual stock picking without having a substantial amount of investments in our "normal" portfolio, and it turns out I love it.  The research, collaboration with people, financial analysis, technical analysis, it is all so fun and fascinating to me.  Not paying off the mortgage has been a great decision so far and I doubt we will ever pay it off once this next refi closes out at 2.5% 30yr term.  I love having the flexibility that a giant pile of investments brings, it has freed me up to try new things and that's what this is about.  Flexibility!

Happy New Year all!



Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 11, 2021, 06:40:45 AM
Beginning when the Democrats won the Georgia Senate seats last week ten-year yields have risen 20 basis points. The window may quickly close to get these remarkable rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 12, 2021, 10:41:18 AM
Beginning when the Democrats won the Georgia Senate seats last week ten-year yields have risen 20 basis points. The window may quickly close to get these remarkable rates.
aw man!  We couldn't refinance because we are in the process of selling, and we won't be ready to buy again for several months.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 12, 2021, 03:12:49 PM
If you're already under contract, your selling price was higher because of the low rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on January 12, 2021, 09:16:16 PM
If you're already under contract, your selling price was higher because of the low rates.
the housing market is most definitely not as dynamic as the daily interest rate changes.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on January 14, 2021, 10:23:39 PM
Happy New Year All!

This month was my first mortgage payment on my brand new 30 year mortgage.  Back to square one and happy about it :)

Not paying off my mortgage over that last 8+ years has been great!  I'm almost FI and will probably quit my day job sometime next year.  I wouldn't have gotten there quite so fast if I'd paid down the mortgage.  Mostly luck.  The stock market has been pretty damn great over the last 8 years.  Definitely better than my 3.5% mortgage.  Which is now refinanced at an even lower 3.125%.

For anyone that may be worried about a mortgage in retirement, don't forget that the 4% rule doesn't really apply for mortgages because you don't need to adjust for inflation annually, and also the mortgage will eventually be paid off (unless you keep refinancing!).  The way I think of it, I have my estimate of all expenses excluding the mortgage.  These are all expenses affected by inflation, so I calculate my FIRE number based on these expenses at ~3.5% WR (since I have a long potential retirement so 4% is a little too risky for me).  Then I add my expected remaining mortgage balance at planned FIRE date to this number, which I think should be pretty conservative.  I could theoretically pay off the mortgage in a lump sum on my FIRE date.  Or I could keep the money invested and be better off approximately 98% of the time (according to cFIREsim).  I think I'll take my chances.  :)

Example: $250k loan at 3%.  Payment is $1054/mo or $12,648/yr.
Plug this in cFIREsim for 30 years with "Not Inflation Adjusted" checked for spending plan.  Result is 98% success rate (2 of 118 failed), with a median balance of $409k, highest balance of $1.5M.  I think I'd rather have $409k and a paid off mortgage in 30 years rather than just a paid off mortgage now!
https://www.cfiresim.com/8daadb27-0d6a-496f-9506-5c48ffee4ed9 (https://www.cfiresim.com/8daadb27-0d6a-496f-9506-5c48ffee4ed9)

I'm sure I'm mostly preaching to the choir at this point, but I hope maybe some newcomers can be helped by thinking about mortgages in retirement in this way.  It sure helped me when I read it here on this forum somewhere many years ago!
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on January 15, 2021, 08:47:32 AM
@Vapour I really like your thinking about the mortgage and how it doesn't go up with inflation. 

I definitely think many retirees underestimate the amount of repairs and the cost of repairs for their homes.  My grandmother (95) bought a brand new house with a 50 year terra cotta tile roof in 1985 when they retired.  They assumed they'd NEVER have to replace the roof. Well, guess what?  50 year roofs really only last about 35 years. She's been patching it here and there, but she's going to need a new roof.  Her kitchen is 1985 come to call.  Her carpet is blue, and she still loves it.  But as the appliances die, it's hard to find replacements that fit 1985 cabinetry. Luckily she's got plenty of cash to pay for her roof and grandchildren that would help her out. BUT, a kitchen renovation is not something many retirees have in their budgets - which is why grandma's houses generally look like time warp photos.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 15, 2021, 08:58:26 AM
Roof replacements are simply much less disruptive to the family routine than a kitchen renovation.

Especially during COVID, I cannot contemplate having to work around no access to food storage or appliances for even a week.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on January 15, 2021, 09:11:31 AM
Roof replacements are simply much less disruptive to the family routine than a kitchen renovation.

Especially during COVID, I cannot contemplate having to work around no access to food storage or appliances for even a week.

You can't move the fridge into another room?     Us an electric skillet, a slow cooker and/or a grill?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 15, 2021, 09:41:10 AM
Old people's houses look the way because people stop seeing them and because humans like the familiar. Also, as energy wanes, one channels it to more mundane things like grocery shopping and meal prep. Then there's the fear of being ripped off by unscrupulous contractors. My 96-yead-old friend's kitchen still has the indoor/outdoor carpeting and Formica countertops she selected when they redid their kitchen in the mid-nineties. She's a multi-millionaire and more mustachian than me. She says the next owner can do whatever they want.
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on January 22, 2021, 07:07:39 AM
My old mortgage has just worked out that we are underpaying the escrow by about 150 a month and want us to increase payments by nearly 200 a month.

How about we get a new mortgage, get the escrow amount right, drop the rate and pay less per month than when we were underfunding it.

done and signed this morning - new 30 year mortgage.

I'm ok with this outcome.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 22, 2021, 07:12:36 AM
My old mortgage has just worked out that we are underpaying the escrow by about 150 a month and want us to increase payments by nearly 200 a month.

How about we get a new mortgage, get the escrow amount right, drop the rate and pay less per month than when we were underfunding it.

done and signed this morning - new 30 year mortgage.

I'm ok with this outcome.

Searching for potential downsides...  .... ...  none found.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 22, 2021, 03:35:43 PM
Way to go, Hellboy!
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on January 22, 2021, 08:54:40 PM
Nice work!

I'm glad I've never had to deal with escrow.  Twice a year, the county automatically deducts property taxes from my bank account.  They e-mail me a reminder so I can make sure I have enough in the account.  I always do since I don't like to let it get too low.  Once a year, I review my homeowners insurance policy and pay online via credit card which earns me cash back.  While I know escrow works for a lot of people, I much prefer to manage my money and payments myself.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 23, 2021, 11:06:34 PM
Well this is interesting. I had to share it with my DPOYM friends:

https://www.yahoo.com/finance/news/heres-celebrities-mortgages-build-wealth-230000559.html
Title: Re: DONT Payoff your Mortgage Club
Post by: Naomi on January 25, 2021, 01:56:42 AM
We are in the process of refinancing from 3.75% to 2.25%. Honestly, I didn't do any research into this other than what I've read on here. My co-worker told me he did it and our loans are about the same so I just called his guy and have done, I think, everything so far except for actually closing. Soon, I hope to have exact #s. Looks like our principal and interest is going to decrease from $1069 to $816.
Our monthly payment now, including escrow for insurance and taxes, is $1350.

We were a little over 3 years into this loan and have no plans on moving any time soon. It hurt a little bit to see the loan increase from $210,500 to $213,562 with the closing costs and fees, but I know that it makes sense in the long term (or I hope it does anyway).
The one part I really didn't understand was the payoff amount, I just assumed it would be the $210,500, but it was actually this:

Principal Balance: $210,500.00
Interest Due As Of 02/15/2021 $960.58
Recording Fees: $28.00
Release Costs: $22.50

I had already paid January's payment in December. I'm not sure when the first payment on the new loan will be. My co-worker ended up deferring 2 payments, so am guessing we will be told we can also.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 25, 2021, 07:40:37 AM
Thanks for the celebrity article.  It's interesting that it sounds as though these celebritues often finance something like 60% of the value of the property, far less than the amount of leverage us regular folks seem to be taking out.

When we were at the height of our leverage--already living in the new house and still preparing the old house for market--we had:

Assets:
$310,000 house
$465,000 house
$300,000 taxable investment account

Liabilities:
$372,000 mortgage
$175,000 mortgage
$90,000 margin loan against the taxable investment account

Just eye-balling the numbers, I guess that puts us in the neighborhood of 60% leverage. Perhaps Harry and Meghan and company would welcome us into their rarified club after all!
Title: Re: DONT Payoff your Mortgage Club
Post by: simonsez on January 25, 2021, 10:02:45 AM
Have lived in my current house coming up on 3 years and have refinanced twice (4.625 -> 3.750 -> 2.875).  I am guessing I will be keeping this mortgage for awhile.  2 payments down, 358 to go and in no hurry to speed up the process!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 25, 2021, 10:36:17 AM
Have lived in my current house coming up on 3 years and have refinanced twice (4.625 -> 3.750 -> 2.875).  I am guessing I will be keeping this mortgage for awhile.  2 payments down, 358 to go and in no hurry to speed up the process!
Slow and steady wins the race...
Title: Re: DONT Payoff your Mortgage Club
Post by: mistymoney on January 25, 2021, 02:04:18 PM
@Vapour I really like your thinking about the mortgage and how it doesn't go up with inflation. 

I definitely think many retirees underestimate the amount of repairs and the cost of repairs for their homes.  My grandmother (95) bought a brand new house with a 50 year terra cotta tile roof in 1985 when they retired.  They assumed they'd NEVER have to replace the roof. Well, guess what?  50 year roofs really only last about 35 years. She's been patching it here and there, but she's going to need a new roof.  Her kitchen is 1985 come to call.  Her carpet is blue, and she still loves it.  But as the appliances die, it's hard to find replacements that fit 1985 cabinetry. Luckily she's got plenty of cash to pay for her roof and grandchildren that would help her out. BUT, a kitchen renovation is not something many retirees have in their budgets - which is why grandma's houses generally look like time warp photos.

She's spry!
Title: Re: DONT Payoff your Mortgage Club
Post by: mistymoney on January 25, 2021, 02:37:39 PM
Feb is my first mortgage payment, closed right before christmas, so I am joining this group as well. my rate is 2.75% and I remember being happy at one point with a 7.75% rate. 90's.

Will be 83 when this is paid off, and I don't plan on getting another mortgage likely ever.

Not sure how I will plan on this? Either as a perma-payment in my fire number, or more likely as a lump sum equal to the mortgage balance as a separate bucket in my numbers and see how that plays out. Would love to have a separate account so I could watch that go up while balance goes down. Is anyone doing something like that?


Title: Re: DONT Payoff your Mortgage Club
Post by: doggyfizzle on January 25, 2021, 02:43:50 PM
Have lived in my current house coming up on 3 years and have refinanced twice (4.625 -> 3.750 -> 2.875).  I am guessing I will be keeping this mortgage for awhile.  2 payments down, 358 to go and in no hurry to speed up the process!

We've been in ours since 2013 and have followed a nearly identical interest rate trajectory of 4.75%/2013, 3.75%/2015, 2.875%/2020.  Monthly difference in payment has just been dumped into our taxable account and the results have been pretty incredible.  Looking forward to seeing the compounding of the extra $$ into the taxable over the next 355 payments.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 26, 2021, 07:08:49 AM
I had a nice phone call with a college friend. He was remarkably open about his finances (considering that we talk twice a year) and told me about his refinance (on a house that he'd bought in 2010).

Basically, he compared his payments to what he thought would be the rental revenue on the house if they were to move. I suppose this isn't novel, and probably carries downside risk if your forecast of rental values under-performs because of the same bad economy that's forcing you to move.

He's in the Austin area, so there's been nice appreciation as well. I'm sure he'll be fine.

Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on January 26, 2021, 06:55:31 PM
I had a nice phone call with a college friend. He was remarkably open about his finances (considering that we talk twice a year) and told me about his refinance (on a house that he'd bought in 2010).

Basically, he compared his payments to what he thought would be the rental revenue on the house if they were to move. I suppose this isn't novel, and probably carries downside risk if your forecast of rental values under-performs because of the same bad economy that's forcing you to move.

He's in the Austin area, so there's been nice appreciation as well. I'm sure he'll be fine.

FYI, that's a lousy way to decide whether a rental makes money or not.   It carries a lot more downside risk than that -- short and long term repairs, tax increases, vacancy, etc.   Rent should be compared against all expenses, not just PITI.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on January 26, 2021, 08:18:03 PM
Have lived in my current house coming up on 3 years and have refinanced twice (4.625 -> 3.750 -> 2.875).  I am guessing I will be keeping this mortgage for awhile.  2 payments down, 358 to go and in no hurry to speed up the process!

IT would seem that I made a new account and posted in my sleep. Strange.

Congrats SS!
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on January 27, 2021, 07:36:16 PM
We are in the process of refinancing from 3.75% to 2.25%. Honestly, I didn't do any research into this other than what I've read on here. My co-worker told me he did it and our loans are about the same so I just called his guy and have done, I think, everything so far except for actually closing. Soon, I hope to have exact #s. Looks like our principal and interest is going to decrease from $1069 to $816.
Our monthly payment now, including escrow for insurance and taxes, is $1350.

We were a little over 3 years into this loan and have no plans on moving any time soon. It hurt a little bit to see the loan increase from $210,500 to $213,562 with the closing costs and fees, but I know that it makes sense in the long term (or I hope it does anyway).
The one part I really didn't understand was the payoff amount, I just assumed it would be the $210,500, but it was actually this:

Principal Balance: $210,500.00
Interest Due As Of 02/15/2021 $960.58
Recording Fees: $28.00
Release Costs: $22.50

I had already paid January's payment in December. I'm not sure when the first payment on the new loan will be. My co-worker ended up deferring 2 payments, so am guessing we will be told we can also.

2.25% is a great rate if this is a 30 year loan!  Congrats!

Mortgage interest is paid in arrears.  So if you make a payment Jan 1st, it is for interest accrued in December.  That's why when you re-finance you essentially skip a month of payments but do pay some pre-paid interest at closing.  Sounds like you might skip 2 months if you're not making a Feb payment on your current mortgage but closing on your re-finance in mid Feb.

You can calculate the daily interest on your loan by taking the principal amount and multiplying it by the interest rate, then dividing by 365.  This is valid until you make another principal payment.  So $210,500 * 3.75% / 365 = $21.63.  If you're not making a Feb payment, I think you'd have 31 days (Jan) + 15 days (Feb) = 46 days of interest accrued by 2/15/21.  So I think your interest due should be $21.63 * 46 = $995.  If you are making a Feb payment to your existing mortgage, their quoted interest is way too high, but otherwise looks pretty close for closing mid Feb.  Maybe it's because you're closing/payoff is planned for the 15th which is the end of the grace period usually, but I'm surprised you're not making a Feb 1 payment to your current mortgage.  I closed on Nov 13 (payoff ~Nov 18) and still made a Nov 1 payment to my old mortgage.

I would assume your first payment on the new mortgage would be April 1 if you close mid Feb.  You'll pay pre-paid interest for Feb 15-28 as part of closing.  Then all of March's interest will be included in the April 1 payment.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on January 27, 2021, 07:45:00 PM
Feb is my first mortgage payment, closed right before christmas, so I am joining this group as well. my rate is 2.75% and I remember being happy at one point with a 7.75% rate. 90's.

Will be 83 when this is paid off, and I don't plan on getting another mortgage likely ever.

Not sure how I will plan on this? Either as a perma-payment in my fire number, or more likely as a lump sum equal to the mortgage balance as a separate bucket in my numbers and see how that plays out. Would love to have a separate account so I could watch that go up while balance goes down. Is anyone doing something like that?

I talked about this not too long ago in this thread: https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg2774144/#msg2774144 (https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg2774144/#msg2774144)
I plan on the bucket approach like you mentioned.  FIRE # = (All expenses other than mortgage / SWR) + Mortgage balance at FIRE. I do not plan on literally having a separate account for the mortgage balance.  It's more of a mental bucket approach for me.  I have too many different accounts (pre-tax, Roth, taxable) that it doesn't make sense to try and pull the mortgage payments only from one.  I should conveniently have enough Roth principal that I can pull out to pay my mortgage until I'm 59.5 and can withdraw earnings.  This is important because the Roth principal I'm allowed to pull out will not adjust with inflation and neither will my mortgage.  Then I can focus on keeping the rest of my expenses/withdrawals under 200% FPG so I can get cheap healthcare.  Of course, that's only until I move or go back to work or something and it all goes out the window...
Title: Re: DONT Payoff your Mortgage Club
Post by: Naomi on January 29, 2021, 02:49:53 AM
Thanks @Vapour for that additional information. Yes, it is a 30 year loan. I didn't make the February payment because I just got paid today
and we signed this ppw on the 27th.

Closing Date 02/01/2021
Disbursement Date 02/05/2021

It looks like we are closing very soon and I didn't want to have the ppw need to be adjusted again. Like I said this is my first time doing this and I've done everything through texting and e-mail, so I'm just kind of going with it.
The way you explained the interest makes sense. The #s changed  little since I first posted. The loan is still $213,562.

Closing Costs went from $2121 to $1789 and payoff $211,511 to $211, 403.
Cash to Close From Borrower box was checked for $70 and now To Borrower box is checked for $370.

Does that mean we will get $370?

We got the closing paperwork yesterday through e-mail and the #s changed just a little bit more. We close today at 4 pm.

Closing Costs went from $1789 to $1750 and payoff $211,511 to $211, 467.
Cash to Close From Borrower box was checked for $70 and now To Borrower box is checked for $345.

And it looks like our first payment is due 1 Apr.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 29, 2021, 11:40:33 AM
Thanks @Vapour for that additional information. Yes, it is a 30 year loan. I didn't make the February payment because I just got paid today
and we signed this ppw on the 27th.

Closing Date 02/01/2021
Disbursement Date 02/05/2021

It looks like we are closing very soon and I didn't want to have the ppw need to be adjusted again. Like I said this is my first time doing this and I've done everything through texting and e-mail, so I'm just kind of going with it.
The way you explained the interest makes sense. The #s changed  little since I first posted. The loan is still $213,562.

Closing Costs went from $2121 to $1789 and payoff $211,511 to $211, 403.
Cash to Close From Borrower box was checked for $70 and now To Borrower box is checked for $370.

Does that mean we will get $370?
Don't spend it yet, but most likely yes, somewhere in that ballpark. Typically during a re-fi, interest collected is for the next month's payment, allowing you to "skip" one. Be sure to clarify at closing. Surprise! Try not to spend that either, lol.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on January 29, 2021, 01:07:59 PM
Thanks @Vapour for that additional information. Yes, it is a 30 year loan. I didn't make the February payment because I just got paid today
and we signed this ppw on the 27th.

Closing Date 02/01/2021
Disbursement Date 02/05/2021

It looks like we are closing very soon and I didn't want to have the ppw need to be adjusted again. Like I said this is my first time doing this and I've done everything through texting and e-mail, so I'm just kind of going with it.
The way you explained the interest makes sense. The #s changed  little since I first posted. The loan is still $213,562.

Closing Costs went from $2121 to $1789 and payoff $211,511 to $211, 403.
Cash to Close From Borrower box was checked for $70 and now To Borrower box is checked for $370.

Does that mean we will get $370?

Yes, you should get paid the $370.  I also had some cash paid to me in my last refinance.  The title company sent a check out about a week or so after everything went through.  I also got a little bit back from my old mortgage because the payoff was too high from the new lender.  I think they wanted to make sure they paid enough and it's hard to be sure exactly what day it's going to go through.  It all worked out in the end.  The old mortgage co. sent me a check as well for the overage and confirmation that it was paid off.

Just be careful to review everything thoroughly at closing.  The night before my closing, my lender sent me a new Closing Disclosure that differed from the one I signed 3 days before closing.  It had a different balance for my new loan and required me to bring some money to closing vs. having money paid to me with a slightly higher loan balance.  Nothing important really changed (interest rate, closing costs were the same), but I didn't want to deal with wiring money and wasn't sure if they'd accept a personal check.  I got it changed, but it did delay my closing by several hours.  That was the only minor hiccup I experienced.  I otherwise had a very easy and fairly quick re-fi.  I wish I could've gotten 2.25% though!  That's an awesome rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Naomi on January 30, 2021, 04:04:44 AM
Thanks all, I will be sure to review everything before we sign. We have a VA loan if that makes a difference as far as the rate we got.
We did a VA IRRL for the refinance.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on February 02, 2021, 01:22:04 PM
He's in the Austin area, so there's been nice appreciation as well. I'm sure he'll be fine.

Austin SFH prices have gone absolutely nuts in the past few months, far above the rapid appreciation we have seen since spring. I've heard numerous firsthand reports from people putting in an all-cash, zero inspection, zero contingency offer $50k above asking - and being seriously overbid. One was from a RE agent who also put in the tidbit that the listing was already $50k over comps, they bid $50k higher than ask for their client and still lost it by a large margin.

Tesla, Oracle, etc coming to Austin - and now Samsung is talking about spending $10B on fab expansions here. Prices are still cheap to people used to "Bay Area" pricing.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on February 02, 2021, 01:25:40 PM
A 20 minute call to my credit union, and they're going to knock down the rate on my existing HEL by 0.7%, no closing costs - just some DocuSign next week. I could go lower, but that would require a full refi and some version of in-person signing.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on February 02, 2021, 01:41:52 PM
A 20 minute call to my credit union, and they're going to knock down the rate on my existing HEL by 0.7%, no closing costs - just some DocuSign next week. I could go lower, but that would require a full refi and some version of in-person signing.

That belongs in the Celebrations! thread!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 02, 2021, 06:04:02 PM
A 20 minute call to my credit union, and they're going to knock down the rate on my existing HEL by 0.7%, no closing costs - just some DocuSign next week. I could go lower, but that would require a full refi and some version of in-person signing.
Yippee!

In related news, we seem to have found a compromise between rate and fees, so we're getting things rolling on the rental re-fis. Fingers crossed.
Title: Re: DONT Payoff your Mortgage Club
Post by: KiloRomeo on February 04, 2021, 02:25:03 PM
Shopping around now for a refi, I will report back what I find. Currently at 3.875% and still owe $129k for the next 25 years.


So far I've found 2.375% with approximately $4k in closing costs. 2.75% with Aimloans (current servicer which I've had good experience with) and it says $973 in lender fees (which I assume means I need to figure out the other title/doc stamp type costs?) and then  2.99% with 50k cash out and 3000 in fees but this broker wants to roll the fees into the loan (i guess this is a good thing?).

I want to talk to the first guy and aimloans to explore the cash out refi options, seems to make sense if you want to be part of the dont payoff your mortgage club right? Plus in 5-10 years when we move I would like to make this a rental and aimloans already told me they dont think I would need to refi when I convert it to a rental property.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 04, 2021, 02:40:56 PM
Man, cashing out is nice, but is it 63 basis points nice? That'd be a difficult call for me.

Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on February 04, 2021, 03:46:35 PM
just completed a cash out refi.
took out about $110k
new loan total = $230k
LTV ~28%

30 years
2.625%
about $3.5k in fees that were rolled into new loan balance
accelin loans
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on February 04, 2021, 08:48:37 PM
A 20 minute call to my credit union, and they're going to knock down the rate on my existing HEL by 0.7%, no closing costs - just some DocuSign next week. I could go lower, but that would require a full refi and some version of in-person signing.
Yippee!

In related news, we seem to have found a compromise between rate and fees, so we're getting things rolling on the rental re-fis. Fingers crossed.
DocuSign completed, along with a note that they will float down the rate (upon request) if it drops between now and when it's finished being processed - no more than 10 days.

I like my CU.
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldy on February 06, 2021, 07:49:51 PM
Just locked my cash out refi pulling about 100k of equity out at 2.75% with $1700 closing costs.  Excited to put this money to work!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 08, 2021, 09:31:38 AM
Nice work, @Goldy ! What types of investments do you plan to buy with that money?
Title: Re: DONT Payoff your Mortgage Club
Post by: KiloRomeo on February 08, 2021, 12:12:30 PM
Just locked my cash out refi pulling about 100k of equity out at 2.75% with $1700 closing costs.  Excited to put this money to work!

That includes all the government and recording fees? I can't find closing costs for anything less than $3500 and most are closer to $4500.
Title: Re: DONT Payoff your Mortgage Club
Post by: KiloRomeo on February 08, 2021, 12:27:19 PM
Man, cashing out is nice, but is it 63 basis points nice? That'd be a difficult call for me.

That was through a different broker. First guy got back to me and it would be around 22 basis points +$900 or so to go with him,

Hurts me to pay more fees for a worse rate and more debt but the math seems to say this is a good deal
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on February 08, 2021, 03:10:31 PM
"To cash out or not to cash out". Approaching 1% lower rates from our refinance in October 2019 and I've been wondering how to factor this in for months. Our refinance not even 2 years ago corrected a massive error (I should have listened to Cheddar Stacker back in the day . . .) in that we paid this house off in 2016. The situation now that we already have a 30 year fixed rate mortgage working for us is murkier - not going to be able to cash out $100K now (relatively inexpensive house in a LCOL carrier - may be a very long time.

So we probably should refinance just due to the lower rate, but should we be just refinancing our current balance or taking cash out?

So I came up with this back-of-the-napkin math to help my thinking:

No-Cash-out loan amount * (difference between the cash out and no cash out interest rate)

+

Full Cash-out rate * (amount of cash out)

= Expected "cost" of cash-out


Then compute break-even investment return as:

Expected "cost" of cash-out / amount of cash out

Then decide how that looks within in your risk calculus.

An example:

Current mortgage about $122K - refinance rate 2.875%

Could cash out $14K, but the rate is 3.125%

So if I cashed out, that would be 0.25% * 122K + 3.125% * 14K = $742.50. Which puts my breakeven investment return at $742.50 / $14000 = 5.3%.

If the rates were the same but I could only cash out $5K, all of sudden that breakeven return becomes 9.2%. Obviously I'm more confident our investments would beat 5.3% than 9.2% (and yeah, this whole idea is pretty hand-wavy, but I think gets into a reasonable enough number to help evaluate the options).

I'm ignoring closing costs because it happens they are within about $200 on these two options for me right now, but if those were widely divergent, I think I'd adjust loan principal on each option to get a better feel for the situation.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on February 15, 2021, 11:32:36 AM
So I am starting to feel a little crazy because we keep on refinancing... I think this is our 4th refi in 2.5 years now.  Details on the rate we just locked in below.

585k
30yr
2.5%
0 points
0 lender fees
Appraisal waiver
Washington state
Current payment - 3170 - 30yr 2.75%
New payment - 2960
Fees not covered by lender - 1600
Break even - 8 months

What made this refinance really worth it was the appraisal waiver we received which put us across the 80% ltv threshold in order to drop PMI.  Next step 2%? Lol

Closed on the refinance above and got my first sub 3k mortgage payment :D

I have a hard time seeing rates go much lower but who knows.  I would be tempted to entertain another refinance at 2% if they happen to get there.

On the investments front, our total stock portfolio has surpassed 800k and our NW has cleared 900k.  The last 18 months have been crazy for our accounts and 1M is coming up rather quickly....

Keep it up everyone!
Title: Re: DONT Payoff your Mortgage Club
Post by: Pizzabrewer on February 15, 2021, 02:24:04 PM
I thought I was set with the 2.75% 15-year mortgage we took out 4+ years ago.  Today I just saw an ad for 1.98% 15-year term. 

I don't really want to go thru the hassle of a refi.  But damn.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on February 15, 2021, 03:05:11 PM
Anyone done a cash-out for a lot?  My primary mortgage is pretty small, like borderline too small to refi.   But I have a huge amount of equity.   I'd like to pull out like $400K or so (to buy another property)  but the rates go up at lot.  At least where I'm looking.   
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 16, 2021, 07:05:11 AM
I suppose there are three options to compare:

Title: Re: DONT Payoff your Mortgage Club
Post by: BlueHouse on February 16, 2021, 07:07:47 AM
 I usually agree that not pre-paying the mortgage the right path for most.  But now I'm seriously considering paying off my mortgage and I want to know if there's a good reason NOT to pay it off at this point and under my circumstances:

1.  I just quit my job and don't plan on going back.  I guess I'm FIREd
2.  I have $170K in a savings account that I could use to pay for my next 2 years of living expenses.
3.  Or I could use $140k of that to pay off the mortgage on my loan and reduce cash flow needs by $2200 each month.
4.  I plan to stay in this home for 3-10 more years.
5.  I also have $70K in my investment accounts that are not invested.  They're just in cash.  So if I need more than the $30k in cash over the next year, I can start using the cash in the taxable investment account. 
6.  It is unlikely that I will actually invest any of the $170K that is sitting in savings unless the market crashes and I see a great opportunity for "on sale" equities. 
7.  My mortgage rate is 3.875%

Should I just pay this off and save 300-400/month on interest charges for the next few years?
Why should I keep the mortgage?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on February 16, 2021, 07:51:11 AM
@BlueHouse ,

Well, investing instead of paying off a low interest, fixed rate mortgage will get you to FIRE sooner.  But you're already FIRED so that doesn't matter.

You'll still end up with more wealth over the next several decades if you invest instead of pay off the mortgage.   But you're FIRED with an obviously high margin of safety (all that cash just loafing around), so you already have enough.

If you were planning to stay in the house "forever" instead of maybe just 3 years, I wouldn't question doing it at all.
In 3 years you could find yourself needing a down payment for another house plus moving expenses before you've sold the old house.     Then again, the cash savings of $2200 a month ($26,400 annually) lets you build up a down payment in a year, assuming that's not including taxes and insurance.  Plus you'll still have cash reserves to draw on.

It's not the choice that will most likely lead to more wealth over the next few decades.  But that's not the biggest concern unless you're doing a leanFIRE.   

So unless your total stash is small enough that you're really stretching to make FIRE work, I wouldn't think you're crazy to just pay the damn thing off.     Did the same thing myself. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: BlueHouse on February 16, 2021, 09:44:52 AM
@BlueHouse ,

Well, investing instead of paying off a low interest, fixed rate mortgage will get you to FIRE sooner.  But you're already FIRED so that doesn't matter.

You'll still end up with more wealth over the next several decades if you invest instead of pay off the mortgage.   But you're FIRED with an obviously high margin of safety (all that cash just loafing around), so you already have enough.

If you were planning to stay in the house "forever" instead of maybe just 3 years, I wouldn't question doing it at all.
In 3 years you could find yourself needing a down payment for another house plus moving expenses before you've sold the old house.     Then again, the cash savings of $2200 a month ($26,400 annually) lets you build up a down payment in a year, assuming that's not including taxes and insurance.  Plus you'll still have cash reserves to draw on.

It's not the choice that will most likely lead to more wealth over the next few decades.  But that's not the biggest concern unless you're doing a leanFIRE.   

So unless your total stash is small enough that you're really stretching to make FIRE work, I wouldn't think you're crazy to just pay the damn thing off.     Did the same thing myself. :)
Thanks @SwordGuy
Yeah, making a downpayment on another house was the one thing I hadn't considered, but I think I'm okay along those lines.  Right now, I'm not sure I'd want to own another house after this one.  I'll probably rent for a while until I figure out where my next location will be.  And of that, I have NO IDEA except, not here. So really really glad for the feedback.  I'll write that one down to make sure I don't overlook it in case it becomes an issue later. 

Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on February 16, 2021, 09:51:34 AM
@BlueHouse ,

Well, investing instead of paying off a low interest, fixed rate mortgage will get you to FIRE sooner.  But you're already FIRED so that doesn't matter.

You'll still end up with more wealth over the next several decades if you invest instead of pay off the mortgage.   But you're FIRED with an obviously high margin of safety (all that cash just loafing around), so you already have enough.

If you were planning to stay in the house "forever" instead of maybe just 3 years, I wouldn't question doing it at all.
In 3 years you could find yourself needing a down payment for another house plus moving expenses before you've sold the old house.     Then again, the cash savings of $2200 a month ($26,400 annually) lets you build up a down payment in a year, assuming that's not including taxes and insurance.  Plus you'll still have cash reserves to draw on.

It's not the choice that will most likely lead to more wealth over the next few decades.  But that's not the biggest concern unless you're doing a leanFIRE.   

So unless your total stash is small enough that you're really stretching to make FIRE work, I wouldn't think you're crazy to just pay the damn thing off.     Did the same thing myself. :)
Thanks @SwordGuy
Yeah, making a downpayment on another house was the one thing I hadn't considered, but I think I'm okay along those lines.  Right now, I'm not sure I'd want to own another house after this one.  I'll probably rent for a while until I figure out where my next location will be.  And of that, I have NO IDEA except, not here. So really really glad for the feedback.  I'll write that one down to make sure I don't overlook it in case it becomes an issue later.

Just thought of one other issue if you want to get a mortgage on that new house.   If you pay off your house and then try to buy one after the mortgage falls off your credit report (7 years??), your credit score might be lower and the rate might be higher.   Not positive on that.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on February 16, 2021, 09:59:43 AM
I usually agree that not pre-paying the mortgage the right path for most.  But now I'm seriously considering paying off my mortgage and I want to know if there's a good reason NOT to pay it off at this point and under my circumstances:

1.  I just quit my job and don't plan on going back.  I guess I'm FIREd
2.  I have $170K in a savings account that I could use to pay for my next 2 years of living expenses.
3.  Or I could use $140k of that to pay off the mortgage on my loan and reduce cash flow needs by $2200 each month.
4.  I plan to stay in this home for 3-10 more years.
5.  I also have $70K in my investment accounts that are not invested.  They're just in cash.  So if I need more than the $30k in cash over the next year, I can start using the cash in the taxable investment account. 
6.  It is unlikely that I will actually invest any of the $170K that is sitting in savings unless the market crashes and I see a great opportunity for "on sale" equities. 
7.  My mortgage rate is 3.875%

Should I just pay this off and save 300-400/month on interest charges for the next few years?
Why should I keep the mortgage?

You dont need to keep the mortgage, but if I were you I would keep the cash flexibility and refinance to low rates in 30 or 15 year fixed.
Title: Re: DONT Payoff your Mortgage Club
Post by: TempusFugit on February 22, 2021, 12:53:19 PM
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option. 
Title: Re: DONT Payoff your Mortgage Club
Post by: UnleashHell on February 22, 2021, 01:52:52 PM
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

I used bankrate . com to compare various rates and fees. it'll give you a good idea of where you are at and then see what your current lender is offering.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on February 22, 2021, 03:44:45 PM
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

I had good experience with credit unions, local brokers, local banks. If wells Fargo makes it easier to refinance do it. I am done with big banks, they are usually expensive, frustrating and take long time to close.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mr Mark on February 22, 2021, 08:02:43 PM
Just refinancing my mortgage.

I FIREd 2.5 years ago in 2018. But the deal is too good to resist. The refi offer is 2.75%, fixed for 30 yrs, no points, usual USA deal, non-callable, no fee to refinance. While my payments drop immediately, it'll be about 9 months to nominal payback.

My AA has a solid 30% bonds, but it's there as a short term shock absorber and for tax leverage. Long term inflation is a big risk for me. So, I've got 12% of my stock/bond portfolio in a 30 yr fixed.

Essentially I'm long short bonds but short long bonds. I find it's a one way bet. And the mortgage people kindly make sure I pay my taxes and house insurance, one less thing to worry over.

If rates drop further (hey, a Euro buddy has a 10 yr 0.5% deal) I can still refinance. But if yields and inflation move up, that fixed 2.75% (and its associated principal) will seem like nothing in 15-20 years. Meanwhile having that 12% leverage boost at a 3% vs 9% yield... tasty.
Title: Re: DONT Payoff your Mortgage Club
Post by: vand on February 23, 2021, 10:27:23 AM
Don't know if anyone else caught this episode of RPF about using ratios to make financial decisions, where Joshua give us a clue to his own personal view on how much wealth you should have tied up in your home: "I don't want more than 10% of my wealth tied up in my home":

RPF - The Psychological Freedom of Ratios (https://podcasts.google.com/feed/aHR0cDovL3JhZGljYWxwZXJzb25hbGZpbmFuY2UubGlic3luLmNvbS9yc3M/episode/M2U5MWJiYjQtZjk5Ni00YzBmLTk4YmYtNzJjNzE5YmJiOTUx?hl=en-GB&ved=2ahUKEwj30df86f_uAhUMXMAKHXAqBaoQieUEegQICBAF&ep=6)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 23, 2021, 02:48:36 PM
Don't know if anyone else caught this episode of RPF about using ratios to make financial decisions, where Joshua give us a clue to his own personal view on how much wealth you should have tied up in your home: "I don't want more than 10% of my wealth tied up in my home":

RPF - The Psychological Freedom of Ratios (https://podcasts.google.com/feed/aHR0cDovL3JhZGljYWxwZXJzb25hbGZpbmFuY2UubGlic3luLmNvbS9yc3M/episode/M2U5MWJiYjQtZjk5Ni00YzBmLTk4YmYtNzJjNzE5YmJiOTUx?hl=en-GB&ved=2ahUKEwj30df86f_uAhUMXMAKHXAqBaoQieUEegQICBAF&ep=6)
Thanks for that, I look forward to listening to it. Sometimes, when one lives in a HCOLA, for example, it's impossible to buy a home for 10% of your net worth. That's why long, low-rate, fixed mortgages are such a lovely, lovely thing.

Even now, when we are FIRE, our damn clown house has appreciated so much that it's still a huge chunk of our NW. We compensate by having a stock-heavy asset allocation and by avoiding REITS. Yeah, we have enough RE exposure.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on February 24, 2021, 08:00:19 AM
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

Are you sure you're comparing apples to apples? I don't see how an interest rate of 2.875 could have an APR of 2.6 or even 2.85.
The difference between the interest rate and the APR basically is accounting for the fees involved in the transaction.
I just looked at Lender FI (I still have the app on my phone) and for me at least the 15 year rate of 2.875 has a corresponding APR of 3.031.
The closer the APR is to the interest rate, the lower the fees you are paying.
I found the best deal for me was through the online vendors (Lender FI) in my case. I refinanced at three percent, with a lender credit of $1200 that didn't quite pay all the lender fees, so actual cost was approx $900. 30 year payback. My credit union offered that rate but with costs approx $4000. (costs do not include the tax and insurance escrow pre pays).
B of A was my previous mortgage holder, their offer was similar to my CU.
Also, I think in most cases you will get a better rate if you don't do a cash out, but if your balance is really low you might get a better rate if you do a cash out.
Title: Re: DONT Payoff your Mortgage Club
Post by: TempusFugit on February 24, 2021, 03:43:54 PM
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

Are you sure you're comparing apples to apples? I don't see how an interest rate of 2.875 could have an APR of 2.6 or even 2.85.
The difference between the interest rate and the APR basically is accounting for the fees involved in the transaction.
I just looked at Lender FI (I still have the app on my phone) and for me at least the 15 year rate of 2.875 has a corresponding APR of 3.031.
The closer the APR is to the interest rate, the lower the fees you are paying.
I found the best deal for me was through the online vendors (Lender FI) in my case. I refinanced at three percent, with a lender credit of $1200 that didn't quite pay all the lender fees, so actual cost was approx $900. 30 year payback. My credit union offered that rate but with costs approx $4000. (costs do not include the tax and insurance escrow pre pays).
B of A was my previous mortgage holder, their offer was similar to my CU.
Also, I think in most cases you will get a better rate if you don't do a cash out, but if your balance is really low you might get a better rate if you do a cash out.

I hope I’m comparing like with like, hence the APR, which as you say accounts for the costs of the refinance.  Thats why i was surprised to see the LenderFi numbers so much higher than the other two.

I have a low balance ~94k on my property valued around 300k, so perhaps that just doesn't get me very good rates.   

Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on February 26, 2021, 11:41:20 AM
i'm seeking crystal ball advice.
what do you think interest rates will do in the next 3 months?

i'm going to be selling and my understanding of our current market is that "rent-back" duration (list and close your house, but rent it back from the new owner) is limited to 30 days by most banks. i'd like to sell soon, but timing of things isn't going to allow that.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 01, 2021, 06:19:56 AM
I will admit, I was shocked at how quickly ten year treasury yields have jumped, from below 1.0% at the start of the year to 1.4% now. There's not any change in monetary policy behind this, this is purely driven by the bond market's response to other things.
Title: Re: DONT Payoff your Mortgage Club
Post by: kimura on March 11, 2021, 11:31:06 AM
SUBSCRIBED!
Wow I have some reading to do.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 11, 2021, 11:38:07 AM
SUBSCRIBED!
Wow I have some reading to do.
I was going to mention this on your other thread, but $100K in excess home equity today costs you around $500K at the end of a 30 year fixed rate mortgage. You'll get plenty of folks face-punching the spending stuff, which is important, but if you own your home, having it paid off when you can easily get a <4% fixed rate mortgage for 3 decades is an incredibly expensive luxury. This also goes contrary to conventional wisdom, where the alternative to paying down the mortgage is the metaphorical "hookers and blow" and not "investments".

You can probably cash-out refinance roughly $100K from the numbers presented on the other thread without getting into PMI or what have you.
Title: Re: DONT Payoff your Mortgage Club
Post by: mizzourah2006 on March 11, 2021, 11:43:27 AM
I'm doing a cash out refi on a 15 year note for 2.25% interest. I'll get about $35k in cash out. Using it to pay cash for a pool. It may not be "hookers and blow", but definitely not an investment :) Our family just loves to be around the water, my kids are young and I feel we'll get years of fun and memories out of it and frankly at some point we have to spend some of the money. We're doing way better income wise than I would have ever expected when I started this journey 5 years ago and have no plans to RE until the kids are a bit older, so I figured a splurge here and there is justified.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 11, 2021, 11:57:42 AM
That's much better than not doing the refinance and unplugging $35K from investments to put in the pool @mizzourah2006.

Now how do I explain this concept in a way to get a 2/3 affirmative vote at my church? For a liberal church (UU - we're probably getting towards the rightmost side of this denomination just by continuing to call ourselves a 'church' . . .), we have an extraordinarily conservative approach to finances.
Title: Re: DONT Payoff your Mortgage Club
Post by: kimura on March 11, 2021, 01:13:13 PM
SUBSCRIBED!
Wow I have some reading to do.
I was going to mention this on your other thread, but $100K in excess home equity today costs you around $500K at the end of a 30 year fixed rate mortgage. You'll get plenty of folks face-punching the spending stuff, which is important, but if you own your home, having it paid off when you can easily get a <4% fixed rate mortgage for 3 decades is an incredibly expensive luxury. This also goes contrary to conventional wisdom, where the alternative to paying down the mortgage is the metaphorical "hookers and blow" and not "investments".

You can probably cash-out refinance roughly $100K from the numbers presented on the other thread without getting into PMI or what have you.

I feel extremely naïve and uneducated because I don't understand what you just said. I appreciate your time and trying to help. I will try to wrap my head around what your posted.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 11, 2021, 01:37:14 PM
Yeah, this one takes time to digest, but basically "why would you not invest at an expected 8-10% annual return just to save 3% on your mortgage?".

Took me a while to fully grasp this - this forum was screaming this at me back in 2014 to not pay off our new-to-us house. I came up with every rebuttal I could think of. Finished paying off the house in 2016, knowing in my head but not my heart that it was a mistake even if our house is less expensive than many folks on here. Then had to convince my wife on the idea even when I was at "we should undo the error and refinance". Ultimately we didn't get the refinance done until October 2019 for various reasons. Been hemming and hawing on refinancing again, but this time it isn't like $125K that isn't working for us - just marginal savings on that and at most maybe $20K additional we can take out.

Back of the napkin tells me that we're behind by several tens of thousands of dollars that we'll never recover (and that only gets larger over time due to compounding) due to having that roughly $100K sum out of the market for those 3 years. Some of that is timing - market happened to perform very well over that period, but the thing that pisses me off the most about this loss looking back is not the dollar amount but my own stubbornness in the face of so many people telling me it was a bad move at the time I was making the mistake actively. The fact that the loss is probably about $50K already and growing and not a smaller amount just cements the lesson.
Title: Re: DONT Payoff your Mortgage Club
Post by: kimura on March 11, 2021, 01:51:10 PM
Thanks for clarifying. We just refinanced our mortgage at %2.25. Our house payment is much less than many apartments in our area and a lot less than renting a house similar to ours so I feel like we are on the right track. I have no intention of making extra payments. So it sounds like we have made the best decision.
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 11, 2021, 01:56:48 PM
@dandarc ,  yeah, you learned the lesson (that's important!), but don't beat yourself up about it.

You didn't do something stupid, you did something less than optimal.   There's a world of difference.

And in 3 years, if the market crashes, don't beat yourself up about so-called losses.    The market will recover and you'll still have been earning dividends about what the new mortgage interest is, so it's no big deal.   In 10 years you'll be ahead.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 11, 2021, 03:23:38 PM
@dandarc ,  yeah, you learned the lesson (that's important!), but don't beat yourself up about it.

You didn't do something stupid, you did something less than optimal.   There's a world of difference.

And in 3 years, if the market crashes, don't beat yourself up about so-called losses.    The market will recover and you'll still have been earning dividends about what the new mortgage interest is, so it's no big deal.   In 10 years you'll be ahead.
I'm still accumulating, though it will soon be slower with a new 24 hour per week Coast-FIRE job - I want the market to crash.

Actually went a little bit too all-in on the "find cheap debt - buy index funds - profit" thing last year. Took out what wound up being a total of about $35K in 0% balance transfer offers to buy stock with the proceeds. I was thinking "I've had these offers available continuously as long as I've had these credit cards - I should be able to pay minimums and roll-over as the promotional periods come to an end". I thought wrong - haven't seen one of those offers on any existing card since I cashed in 4 of them at 3 different banks last March. So I've been paying those off faster than I had planned originally. I was able to score one more 0% for 18 months introductory offer on a new card just recently to extend the runway a bit on paying it all off. I had also just invested over $30K in in January to front-load the IRAs and Solo 401K for 2020 so I was also thinking "if I was willing to pay 30% more two months ago . . ."

$1400 / month until September when remaining balance #1 pays off, then $600 until late 2022 when remaining balance #2 pays off is a lot more palatable than $3K per month total until October as my payoff plan before the new intro-offer came through was. Particularly in light of a "40% less time for 40% less money (*absent tax advantages I'll have now that I'm self-employed again)" move that presented itself earlier this year. Academic in the grand scheme, but I'd be lying if I didn't say that significantly reduced draw is making me feel a little better about the change - and I feel absolutely fantastic about this particular change.

2020 into early 2021 has been really strange for me on the job front - started self employed as I have been since 2011, got a verbal agreement from my full-time customer to extend the contract for another year. That was around March 5th I want to say. Literally a week later a year with expectations to renew beyond that turned into "3 months and then W-2 at an insultingly low salary if you want to stay on after that". Then they came up on the salary offer as the end of the 3 months was drawing near, but remaining self-employed was absolutely not an option with them any longer. Was still insulted a bit, but ultimately took the offer. W-2 started on July 1st.  Then the company merger that started in 2018 became more real to us rank-and-file folks, so I found out health insurance and various other benefits were changing again on 1/1/2021, and our leave policy was getting worse. Still though this job was paying enough that on the money front it was the best option. I've been taking calls from recruiters from time to time and being a contractor this long I discuss money immediately - best thing I've heard was "we could maybe match the salary but our benefits are worse". Then a former client reached out to me (they knew I had moved back from California in 2019, and I think they'd have reached out sooner except for the pandemic) and I thought "fuck it - ask for what you really want." Part time, self employed, hourly rate that will make this more than enough money to run the household without breaking a sweat". And they literally just said yes to everything I asked for. This is state-government contract work, so paperwork is not final yet but should be quite soon. My big challenge right now is not quitting my current job prematurely.

You know one thing that made all that change a little more palatable and gave me the confidence to straight up ask for the upcoming part time job? Having $125K more in liquid assets plus growth has pushed us to a level where if I try a little harder than I want to on reigning in our household budget, we don't actually need any jobs anymore - certainly not this big stress job I've been doing since spring of 2018. Even with the $600 mortgage payment added we're in much, much better shape than we were before, and that would be true even if the market was down and not up like it is.

I guess that is what I was trying to convey: $100K more invested today with a $500-$600 fixed monthly payment for the next 30 years, contrary to conventional wisdom, is a far better situation than $0 more invested and a $0 payment. This is one of those things I think a portion of the MMM forum is much more correct about than MMM himself, though note that the latest post on the main blog is about taking out a margin loan to buy a house, so maybe MMM is shifting of the idea of carefully using debt to keep more money invested?

Also don't take that to mean that I think buying more house than necessary (and of course everyone's criteria for 'acceptable house' is different, and real estate markets vary in a big way) is a smart move either. Just that if you do buy a house, think long and hard about the best way to finance it. House value will do whatever it is going to do regardless of whether you borrow against it or not, and residential mortgage terms, at least in the US, are very very favorable.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 11, 2021, 04:05:26 PM
Excellent post, @dandarc. I may or may not have been one of the screamers way back when. Ahem.

Two more points:
Money for the purchase of a property is the cheapest money you can get. Anything you do afterwards is considered a cash-out re-fi and typically costs more.

Tax deductibility comes into play here, too. IIRC, only $100k will be deductible on your taxes. This may have changed, or I may not be stating it clearly, so I'm paging @seattlecyclone for an assist.
Title: Re: DONT Payoff your Mortgage Club
Post by: seattlecyclone on March 11, 2021, 04:32:31 PM
Excellent post, @dandarc. I may or may not have been one of the screamers way back when. Ahem.

Two more points:
Money for the purchase of a property is the cheapest money you can get. Anything you do afterwards is considered a cash-out re-fi and typically costs more.

Tax deductibility comes into play here, too. IIRC, only $100k will be deductible on your taxes. This may have changed, or I may not be stating it clearly, so I'm paging @seattlecyclone for an assist.

I think you can only deduct interest from a cash-out refinance if you used the extra money to make capital improvements to your house. This may be a change from a few years ago.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 11, 2021, 04:54:44 PM
Well shit - thanks for pointing that out. We were literally about to switch to "every other year" on property taxes and donations, but if the mortgage interest is not tax deductible, we might not come out ahead then. Monthly donations and "in November" for property taxes is easier for convenience and saving a little money if we're not getting thousands more dollars sheltered from income taxes by itemizing every other other.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 12, 2021, 05:26:02 AM
I've often pondered an "every other year" approach to charitable giving.

It probably makes life tougher for the charities, though.
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on March 12, 2021, 05:31:09 AM
I've often pondered an "every other year" approach to charitable giving.

It probably makes life tougher for the charities, though.

Perhaps every other year contributions to a Donor Advised Fund, with annual or monthly contributions to the actual charities?
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on March 12, 2021, 08:14:01 AM
Maybe for a startup charity or if you're providing millions of dollars or something - I seriously doubt timing of under $10k of donations per year will cause anyone any angst at an established place. One check instead of 12 might be welcomed, particularly at a smaller one - less work to record it.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 15, 2021, 07:23:33 AM
It's always stressful at the end of the year to try to arrange all these last-minute gifts. I can see the argument for just "setting and forgetting" a monthly contribution.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 15, 2021, 11:13:16 AM
It's always stressful at the end of the year to try to arrange all these last-minute gifts. I can see the argument for just "setting and forgetting" a monthly contribution.
You can do that with a DAF, too.
Title: Re: DONT Payoff your Mortgage Club
Post by: kenmoremmm on March 24, 2021, 09:46:55 PM
Here's my DPOYM story that I wish I had known 9 years ago:

Back in 2012, I received a settlement from an accident that was large enough to pay off the balance of a rental property (<$100k). We are now selling that rental at the sale price of $250k. Had I invested that $100k, I'm certain I would be ahead by several hundred thousand. It helps that we had a historic bull market, but this was certainly a stinging lesson for me.

Now, I am faced with a similar dilemma. We will have the sale of the rental property and are selling our primary residence and will be moving to Canada from the US. I expect to be sitting on about $825k when all is said and done (post taxes). I am tempted to buy the new house (not yet found) in cash to simplify things, realizing that it's a suboptimal choice compared to investing the balance. My TOP-IS-IN radar is beeping loudly and I would have a hard time justifying risk vs reward. Because of the complex relationship between the US and Canada on tax and investment treaties, I'm not (yet) confident on my investment strategy moving forward. New home purchase will likely be in the range of $600-800k USD (these are not clown houses, just high demand low inventory areas). Someone convince me to dump it all in on black and let it ride.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on March 25, 2021, 10:06:49 AM
Someone convince me to dump it all in on black and let it ride.
If your own stories aren't enough, I don't know what would be. I'm not familiar with investing or purchasing a home in Canada, but I certainly wouldn't want to pass up on the low mortgage rates for a purchase in the US. I could see possibly using a wholly owned investment entity make the intimal purchase with cash, then personally purchasing from the investment entity using a traditional mortgage. as discussed a bit in this thread (https://forum.mrmoneymustache.com/investor-alley/investment-line-of-credit-a-clever-way-to-finance-buying-real-estate/) (with or without the use of a line of credit secured by paper investments to raise the cash). I have no idea what the additional transaction costs of doing this would be.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 25, 2021, 01:08:11 PM
Crap. I dun messed up and paid off my mortgage (sale).
I’ll throw myself out.
Jealous of all of you holding cheap money...
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 25, 2021, 01:28:00 PM
Crap. I dun messed up and paid off my mortgage (sale).
I’ll throw myself out.
Jealous of all of you holding cheap money...
Having no house at all frees up all the money for investments!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 25, 2021, 04:52:12 PM
Crap. I dun messed up and paid off my mortgage (sale).
I’ll throw myself out.
Jealous of all of you holding cheap money...
Having no house at all frees up all the money for investments!

Hmm.... That would be great, if not for the monthly rent payment. Oh well, c’est la vie.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 25, 2021, 05:58:31 PM
Crap. I dun messed up and paid off my mortgage (sale).
I’ll throw myself out.
Jealous of all of you holding cheap money...
Having no house at all frees up all the money for investments!

Hmm.... That would be great, if not for the monthly rent payment. Oh well, c’est la vie.

I might be doing the same in a few months, either I’ll have the largest mortgage of my life, or I’ll have none because I’m renting.  Either way my monthly housing “budget”. Is the same cash flow wise.  With one I’ll keep building home equity over 30 years, with the other, the old house equity will be tossed into my index funds to grow slowly until I spend it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 26, 2021, 04:51:44 AM
Next quarter, my dividends from my taxable investment account, which is larger because I didn’t pay off my mortgage will likely surpass my mortgage payment.  I have a $14 difference now, next goal would have been to be able to pay taxes and insurance as well but I’m likely to be moving so it’ll be reset.
Title: Re: DONT Payoff your Mortgage Club
Post by: Naomi on March 26, 2021, 08:48:25 AM
I made the first payment on the new loan/refinance today.
We ended up getting back around $365 at closing and $1190 escrow from our previous lender.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 26, 2021, 09:16:21 AM
Next quarter, my dividends from my taxable investment account, which is larger because I didn’t pay off my mortgage will likely surpass my mortgage payment.  I have a $14 difference now, next goal would have been to be able to pay taxes and insurance as well but I’m likely to be moving so it’ll be reset.

About three decades ago my parents created a “mortgage sinking fund” with the idea that it could be used to pay off the mortgage if desirable. Now (and two ReFis later) their dividends more then pay for the monthly payments, and the sinking fund is worth several times the original mortgage
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 30, 2021, 06:54:51 AM
Good job on your parents!
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldy on April 03, 2021, 08:14:18 AM
Well the refi has been completed and the cash has been put to work.

30yr 2.75% $1,700 total closing costs
Cashed out 90k in equity and tossed it in a VTSAX in a separate account so we can easily track its progress vs the 2.75% loan.

Dumped it all lump sum style into vanguard at an all time market high but the ISP says to do so.  Feels good!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 05, 2021, 11:22:35 AM
Well the refi has been completed and the cash has been put to work.

30yr 2.75% $1,700 total closing costs
Cashed out 90k in equity and tossed it in a VTSAX in a separate account so we can easily track its progress vs the 2.75% loan.

Dumped it all lump sum style into vanguard at an all time market high but the ISP says to do so.  Feels good!

Nice! Basically a 0% loan after accounting for inflation :)

Now the fun part will be to see how long it will take for the 90K invested to overtake your mortgage balance!

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 06, 2021, 06:51:27 AM
We're getting a tax refund for 2020, I'm feeling particularly sub-optimal, since that money could have been going into the market instead of the Federal government this whole time. Will try to adjust that with-holding.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 06, 2021, 07:14:14 AM
We're getting a tax refund for 2020, I'm feeling particularly sub-optimal, since that money could have been going into the market instead of the Federal government this whole time. Will try to adjust that with-holding.
Not the worst problem in the world. In the long run, it's only a small amount of money out of the market for six-ish months on average. Another advantage of FIRE is you'll have more control over your withholdings.
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on April 06, 2021, 11:24:52 AM
Question for the group:  We are 6 years into a 10/1 ARM home loan at 3.5%, and are looking to refinance now that the possible move we were considering in late 2020/early 2021 isn't going to happen. Started working with a mortgage broker recommended in the Dallas ChooseFI FB group, and their offer is Quicken loans, 3.125%.

However, there are a few snaps.

First this is a jumbo loan, remaining balance 705k.

Second, current loan is with BoA, and it's the result of a previous cash-out refinance in 2015; despite TX subsequently changing refinance rules to allow traditional refinances of previous cash-outs, BoA still has an internal rule in TX limiting their own refinance options to only "cash-out" type, so they essentially offered the same terms as what we now have with around 1% closing costs even with no actual cash-out; no bueno.

Third, DW has had a stable 10y job that accounts for <25% of our income, however I left my job 2 years ago to try self-employed that didn't work, ending 12/2020, and since 8/2020 I've been back at my old employer, but part time 50% and hourly (both I and my employer are very happy with this arrangement). However, the broker has said the underwriters won't consider this part time income since I've been doing it for less than 2 years, despite it being around $200k per year. Also, apparently assets don't factor in, since our retirement and investment accounts dwarf this loan.

None of this would be a problem, the broker initially said that DW's income was just enough to qualify for a 700k refinance amount, but now the underwriters calculated a max amount of 650k, which would mean brining 50k to the table, and defeating the entire purpose, which for us is to direct as little cash flow to the mortgage as possible, while not tapping into our bank and retirement accounts and letting them grow.

So question: do the broker/underwriter objections seem reasonable, or are we dealing with unusually stringent rules and should just try someone else out? If not, anyone see any way to get around this? I've asked why assets and my income can't at least play a role. Also, DW is taking on an additional 20%-time job running a course for the medical school, which will increase her income about 35% on May 1st, however this will be a new separate paycheck from the medical school rather than a raise from her main employer, so I'm guessing we'd run into the same underwriting problem of ignoring part-time work of <2years.
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 06, 2021, 11:52:15 AM
Question for the group:  We are 6 years into a 10/1 ARM home loan at 3.5%, and are looking to refinance now that the possible move we were considering in late 2020/early 2021 isn't going to happen. Started working with a mortgage broker recommended in the Dallas ChooseFI FB group, and their offer is Quicken loans, 3.125%.

However, there are a few snaps.

First this is a jumbo loan, remaining balance 705k.

Second, current loan is with BoA, and it's the result of a previous cash-out refinance in 2015; despite TX subsequently changing refinance rules to allow traditional refinances of previous cash-outs, BoA still has an internal rule in TX limiting their own refinance options to only "cash-out" type, so they essentially offered the same terms as what we now have with around 1% closing costs even with no actual cash-out; no bueno.

Third, DW has had a stable 10y job that accounts for <25% of our income, however I left my job 2 years ago to try self-employed that didn't work, ending 12/2020, and since 8/2020 I've been back at my old employer, but part time 50% and hourly (both I and my employer are very happy with this arrangement). However, the broker has said the underwriters won't consider this part time income since I've been doing it for less than 2 years, despite it being around $200k per year. Also, apparently assets don't factor in, since our retirement and investment accounts dwarf this loan.

None of this would be a problem, the broker initially said that DW's income was just enough to qualify for a 700k refinance amount, but now the underwriters calculated a max amount of 650k, which would mean brining 50k to the table, and defeating the entire purpose, which for us is to direct as little cash flow to the mortgage as possible, while not tapping into our bank and retirement accounts and letting them grow.

So question: do the broker/underwriter objections seem reasonable, or are we dealing with unusually stringent rules and should just try someone else out? If not, anyone see any way to get around this? I've asked why assets and my income can't at least play a role. Also, DW is taking on an additional 20%-time job running a course for the medical school, which will increase her income about 35% on May 1st, however this will be a new separate paycheck from the medical school rather than a raise from her main employer, so I'm guessing we'd run into the same underwriting problem of ignoring part-time work of <2years.



I don't think they are being unreasonable.  All of this sounds pretty standard for Jumbo loans and, in an ideal situation, I would personally try to pay enough down in order to take this loan out of the Jumbo category because you will get way better access to good rates & loan terms.

If you are sitting on a lot of taxable investments(1-2M+).  I would look into using Interactive brokers to source some capital on a margin loan at their 1.57% rate and then get the mortgage down to non-Jumbo territory.  Then pay off the margin over the coming months with the extra income.  The benefit of this is that you are not liquidating any assets so you will not have any taxable sales of stocks or index funds, assuming you are up a bunch on them.  You are just being charged the 1.57% margin loan rate and as long as you keep your margin reasonably low then the risk of getting a margin call on broad market index funds is really low.   MMM recently did something similar to this and this situation was one of the reasons I switched all of my investments over to Interactive Brokers in 2019.  It's just a little more creative flexibility if the situation arises and is needed, assuming you are comfortable with structuring something like this though...

I would never plan to go over 20% margin for an extended period of time and ideally keep it to 10-15% margin for something like this assuming the assets are held in total market index funds.

Take all this info with a grain of salt.. Doing something like this comes with risks and is not for everyone but it's just one example of having some extreme flexibility if you are sitting on a large taxable brokerage account and need a good chunk of money to bridge a purchase and then repaying it without being subject to capital gains tax.

MMM Blog going over this: https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/


Alright, taking my creative thinking hat off now...
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on April 06, 2021, 12:07:07 PM
Thanks FIreDrill, definitely something to think about. We've only got 840k spread out over Vanguard, Fidelity, and Merrill Edge accounts, I'm guessing that your suggestion would be to do an in-kind transfer to IB, and then do 80-120k margin loan, correct? Probably not for us, at least for the refi, especially as we are ~190k away from the conforming limits, but we are also considering a major remodel in the near future; in 16 months my income will factor in, but your idea would be a potential superior way of financing rather than a HELOC, which seems out of our reach before 16 months time; will give this some serious thought.

Heard back from the broker, the income issue is a 45% loan-to-income ratio, and DW's income puts it right at 46.5% with the 700k, so no amount of assets changes that math, and got confirmation that the expected new income source for DW is still problematic.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 06, 2021, 12:07:36 PM
Question for the group:  We are 6 years into a 10/1 ARM home loan at 3.5%, and are looking to refinance now that the possible move we were considering in late 2020/early 2021 isn't going to happen. Started working with a mortgage broker recommended in the Dallas ChooseFI FB group, and their offer is Quicken loans, 3.125%.

However, there are a few snaps.

First this is a jumbo loan, remaining balance 705k.

Second, current loan is with BoA, and it's the result of a previous cash-out refinance in 2015; despite TX subsequently changing refinance rules to allow traditional refinances of previous cash-outs, BoA still has an internal rule in TX limiting their own refinance options to only "cash-out" type, so they essentially offered the same terms as what we now have with around 1% closing costs even with no actual cash-out; no bueno.

Third, DW has had a stable 10y job that accounts for <25% of our income, however I left my job 2 years ago to try self-employed that didn't work, ending 12/2020, and since 8/2020 I've been back at my old employer, but part time 50% and hourly (both I and my employer are very happy with this arrangement). However, the broker has said the underwriters won't consider this part time income since I've been doing it for less than 2 years, despite it being around $200k per year. Also, apparently assets don't factor in, since our retirement and investment accounts dwarf this loan.

None of this would be a problem, the broker initially said that DW's income was just enough to qualify for a 700k refinance amount, but now the underwriters calculated a max amount of 650k, which would mean brining 50k to the table, and defeating the entire purpose, which for us is to direct as little cash flow to the mortgage as possible, while not tapping into our bank and retirement accounts and letting them grow.

So question: do the broker/underwriter objections seem reasonable, or are we dealing with unusually stringent rules and should just try someone else out? If not, anyone see any way to get around this? I've asked why assets and my income can't at least play a role. Also, DW is taking on an additional 20%-time job running a course for the medical school, which will increase her income about 35% on May 1st, however this will be a new separate paycheck from the medical school rather than a raise from her main employer, so I'm guessing we'd run into the same underwriting problem of ignoring part-time work of <2years.



I don't think they are being unreasonable.  All of this sounds pretty standard for Jumbo loans and, in an ideal situation, I would personally try to pay enough down in order to take this loan out of the Jumbo category because you will get way better access to good rates & loan terms.

If you are sitting on a lot of taxable investments(1-2M+).  I would look into using Interactive brokers to source some capital on a margin loan at their 1.57% rate and then get the mortgage down to non-Jumbo territory.  Then pay off the margin over the coming months with the extra income.  The benefit of this is that you are not liquidating any assets so you will not have any taxable sales of stocks or index funds, assuming you are up a bunch on them.  You are just being charged the 1.57% margin loan rate and as long as you keep your margin reasonably low then the risk of getting a margin call on broad market index funds is really low.   MMM recently did something similar to this and this situation was one of the reasons I switched all of my investments over to Interactive Brokers in 2019.  It's just a little more creative flexibility if the situation arises and is needed, assuming you are comfortable with structuring something like this though...

I would never plan to go over 20% margin for an extended period of time and ideally keep it to 10-15% margin for something like this assuming the assets are held in total market index funds.

Take all this info with a grain of salt.. Doing something like this comes with risks and is not for everyone but it's just one example of having some extreme flexibility if you are sitting on a large taxable brokerage account and need a good chunk of money to bridge a purchase and then repaying it without being subject to capital gains tax.

MMM Blog going over this: https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/


Alright, taking my creative thinking hat off now...
While I respect FIreDrill's opinion, I do not agree in this case. I think they're being crazy unreasonable.

I live in the land of Everyone Has Jumbo Mortgages. Typically, the question asked is "How many years at your current employer?" or "How many years in this field of work?" An honest answer to either of those questions should make the box checkers happy. It's possible you gave them TMI. Could you characterize your time off as a sabbatical? You may just have to go with someone else. Plenty of lenders in the sea...
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 06, 2021, 12:19:45 PM
Thanks FIreDrill, definitely something to think about. We've only got 840k spread out over Vanguard, Fidelity, and Merrill Edge accounts, I'm guessing that your suggestion would be to do an in-kind transfer to IB, and then do 80-120k margin loan, correct? Probably not for us, at least for the refi, especially as we are ~190k away from the conforming limits, but we are also considering a major remodel in the near future; in 16 months my income will factor in, but your idea would be a potential superior way of financing rather than a HELOC, which seems out of our reach before 16 months time; will give this some serious thought.

Heard back from the broker, the income issue is a 45% loan-to-income ratio, and DW's income puts it right at 46.5% with the 700k, so no amount of assets changes that math, and got confirmation that the expected new income source for DW is still problematic.

No problem.  Yes, I would suggest in-kind transfers using their ACATS option.  I transferred multiple brokerage accounts and IRA's to IB using ACATS and it was pretty easy.  I have been with IB for around 2 years now and I do not see myself going anywhere else.  I've used margin several times in the way I described above, typically only for a couple of weeks or months.  The flexibility these provide combined with the insanely low rates make them very attractive for short-term bridge loans.

The only other thing I could think of is if you are receiving a decent amount of dividend/interest income in your taxable accounts that can usually be used to help qualify for a mortgage since it's re-occurring income.  Or just put it off for a little bit until the extra work income comes in for a couple of months and then get qualified off of that.  I would definitely try to get out of the ARM over the next couple of months though.

Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on April 07, 2021, 01:33:29 PM
<snip> receiving a decent amount of dividend/interest income in your taxable accounts that can usually be used to help qualify for a mortgage since it's re-occurring income <snip>

FYI this worked!
Title: Re: DONT Payoff your Mortgage Club
Post by: FIreDrill on April 07, 2021, 03:57:21 PM
<snip> receiving a decent amount of dividend/interest income in your taxable accounts that can usually be used to help qualify for a mortgage since it's re-occurring income <snip>

FYI this worked!

Awesome!  I hope it made a big enough difference! :)
Title: Re: DONT Payoff your Mortgage Club
Post by: jeromedawg on April 26, 2021, 01:41:32 PM
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on April 26, 2021, 01:50:01 PM
I don't know the particulars, but mortgage interest on cash-out refinances is currently not deductible - and in HCOL, that is probably relevant to you. Whereas mortgage interest on a purchase loan still is.

It is possible there is some kind of "if you refinance within XX days of purchase, it would be considered a purchase loan for this deduction", but I don't know if and what those details would be.
Title: Re: DONT Payoff your Mortgage Club
Post by: jeromedawg on April 26, 2021, 02:01:21 PM
I don't know the particulars, but mortgage interest on cash-out refinances is currently not deductible - and in HCOL, that is probably relevant to you. Whereas mortgage interest on a purchase loan still is.

It is possible there is some kind of "if you refinance within XX days of purchase, it would be considered a purchase loan for this deduction", but I don't know if and what those details would be.

What would you realistically save with the mortgage interest deductions?

I'd be interested in knowing anyone has done anything like this and particularly the latter situation you describe: "if you refinance within XX days of purchase it would be considered a purchase loan"
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on April 26, 2021, 02:17:30 PM
Fill out the case study spreadsheet with various options and find out for yourself.
Title: Re: DONT Payoff your Mortgage Club
Post by: jeromedawg on April 26, 2021, 03:05:20 PM
Fill out the case study spreadsheet with various options and find out for yourself.

The MLM case study? Good idea.... although I struggled a bit through even the basic one - guess I'll have to put alot more effort in
Title: Re: DONT Payoff your Mortgage Club
Post by: aetheldrea on April 26, 2021, 07:36:26 PM
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.
Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.
Title: Re: DONT Payoff your Mortgage Club
Post by: jeromedawg on April 27, 2021, 10:49:51 AM
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.
Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.


Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?
Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on April 27, 2021, 10:55:09 AM
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.
Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.


Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?

You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.

So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer.   Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.

We won the bidding war on our second home despite being the LOWEST bid among three bids.  Why?   Because our finances were rock solid and the other two bidders were a bit iffy.   The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer.    We were a sure thing and they took the deal we offered.
Title: Re: DONT Payoff your Mortgage Club
Post by: jeromedawg on April 27, 2021, 11:58:49 AM
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.
Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.


Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?

You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.

So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer.   Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.

We won the bidding war on our second home despite being the LOWEST bid among three bids.  Why?   Because our finances were rock solid and the other two bidders were a bit iffy.   The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer.    We were a sure thing and they took the deal we offered.

That makes sense now that you put it in that light.

Also, I would tend to think that the higher the cost of the house is (and where you still could put all cash down but may not want to), the better chances of weeding out other all cash buyers as well as out-competing other buyers who have questionable financials. The question I have is *when* do you show all your cards? When you submit the preapproval letter? Just slip in your bank accounts showing all the cash you have that would cover the entire cost of the home?


On a different note, in my side-quest on researching cash-out refis, someone whispered "delayed mortgage financing" in my ear which has gotten me pretty curious... it seems like you *can* take deductions as long as you do this type of financing within the first 90 days. But I still think there's opportunity cost with that and taking the mortgage would save more money in the long run.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on April 27, 2021, 03:29:13 PM
Just look at it like waiving the financing contingency.  It’s not a deal winner by itself but makes the offer slightly more attractive

If they know you aren’t cash strapped they probably think you are less likely to fuss around on other minor stuff
Title: Re: DONT Payoff your Mortgage Club
Post by: sisto on April 27, 2021, 04:07:25 PM
I remember when this thread got started. I had refinanced to a 15yr loan shortly before finding MMM. I had also been adding some to the principal. Then I saw the light but never did find a date good enough to back to a 30 year and I also have a VA loan so would have to keep 15 or go conventional. Fast forward to an accident that has left me disabled and totally changed up my Fire plans. I'm now actually thinking about paying off the mortgage to save on taxes. I know this sounds crazy, but I am getting Ssdi and LTD. This is ordinary income and taxed. I have over $1M in 401K and thinking that it might be better to payoff the mortgage and save myself around $14K per year in payments and have that available to help with Roth conversions so that money doesn't snowball and cause huge RMDs later.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 27, 2021, 04:13:25 PM
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.
Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.


Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?

You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.

So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer.   Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.

We won the bidding war on our second home despite being the LOWEST bid among three bids.  Why?   Because our finances were rock solid and the other two bidders were a bit iffy.   The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer.    We were a sure thing and they took the deal we offered.
This just happened to my brother. The original buyer ghosted everyone the day before closing, so the house went on the market again. There were three more offers, but my brother's finances were the most solid, and his was the offer the seller accepted. Curiously, another bidder's offer said if they couldn't secure financing in 30 days, they'd pay cash. I thought that was pretty creative, but the once-burned seller thought it meant they weren't sure of their ability to qualify and chose my brother, who already has his financing lined up.
Title: Re: DONT Payoff your Mortgage Club
Post by: TempusFugit on April 28, 2021, 04:40:05 PM
I have a basic question for you experienced refinancers. 

I've got about 12 years left on the 20 year at 3.75% and I'm looking to refi into a 15 yr to take advantage of the lower rates.
The only time I've ever refinanced a mortgage was back in 2012 when my mortgage company (Wells Fargo) offered a low cost refi for existing mortgagees.  That was a trivially easy process, considering that they already held my mortgage.

I've started checking around a few places for refi rates on my home and I'm wondering which of the options folks have been the most pleased with recently. 

- LenderFi / Loan Depot online mortgage lenders
- Using a local mortgage broker
- The big banks directly- Bank Of America, etc
- My existing mortgage holder (Wells Fargo)

LenderFi is showing APR of 3.3% (rate of 2.875) compared to APR 2.612 at Wells Fargo and 2.85 at BofA. 

Seems LenderFi, for me at least, is way high.   I'm also wondering if doing a refi with my existing company would generally be a simpler, lower cost option.

Are you sure you're comparing apples to apples? I don't see how an interest rate of 2.875 could have an APR of 2.6 or even 2.85.
The difference between the interest rate and the APR basically is accounting for the fees involved in the transaction.
I just looked at Lender FI (I still have the app on my phone) and for me at least the 15 year rate of 2.875 has a corresponding APR of 3.031.
The closer the APR is to the interest rate, the lower the fees you are paying.
I found the best deal for me was through the online vendors (Lender FI) in my case. I refinanced at three percent, with a lender credit of $1200 that didn't quite pay all the lender fees, so actual cost was approx $900. 30 year payback. My credit union offered that rate but with costs approx $4000. (costs do not include the tax and insurance escrow pre pays).
B of A was my previous mortgage holder, their offer was similar to my CU.
Also, I think in most cases you will get a better rate if you don't do a cash out, but if your balance is really low you might get a better rate if you do a cash out.

I hope I’m comparing like with like, hence the APR, which as you say accounts for the costs of the refinance.  Thats why i was surprised to see the LenderFi numbers so much higher than the other two.

I have a low balance ~94k on my property valued around 300k, so perhaps that just doesn't get me very good rates.

Just closed last week on a 15 yr refi at just under 3% with LenderFi.  I was down to 12 years so this added 3 years but reduced total interest significantly and also increased monthly cash flow by almost $400. 

The process with LenderFI was pretty easy. It only took about 2 weeks from beginning to close. I may have been able to get a slightly lower rate if I tried harder, but this was about the same as what I was seeing at bankrate, so I went ahead rather than continuing to 'think about it' for another 4-6 months.  Take the win and move on, I say. 

Title: Re: DONT Payoff your Mortgage Club
Post by: jeromedawg on May 02, 2021, 03:26:11 PM
Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.

Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.


Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?

You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.

So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer.   Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.

We won the bidding war on our second home despite being the LOWEST bid among three bids.  Why?   Because our finances were rock solid and the other two bidders were a bit iffy.   The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer.    We were a sure thing and they took the deal we offered.

Sorry if this has already been covered (and or facepunched) but what are your guys' thoughts on purchasing a home all cash or with a really high down-payment (at least 50% or more depending on COL area), doing a cash-out refi, and reinvesting the proceeds right after? The case is that we are pretty intent on staying in our current HCOL for the long-term and we technically have enough to pull off an all-cash or super high down-payment offer (the reason for doing this would be to weed and beat out a majority of the competition). Doing a cash-out refi would just be a means to mitigate/reduce the opportunity cost of tying up funds in the house.
Unless your offer is all cash, I don’t see how this is going to help you, really. Your offer will still be contingent on financing like every other offer that isn’t all cash. The seller won’t know how much you intend to finance unless you tell them. So why not tell them you have a boatload of money and *could* put 50% or 80% down, so financing won’t be an issue, but you will probably use a smaller down payment to keep your money invested.


Are you saying to tell the seller that we have a bunch of money and *could* pay in cash (but actually will put a small down payment down) as a tactic to try to get them to accept the offer? I don't see how this would work unless the other bids on the home were non-competitive. Sure, I could broadcast that I have all cash but only want to put 30% down while another buyer comes in and offers all cash period. Do you really think the seller will pass up the all cash offer in favor of mine just because I told (or showed) them that I have a ton of money and could technically pay all cash but have decided not to?

You don't have to win a bidding war against all POSSIBLE bidders, you only need to win the war against those who are bidding against you on that specific house.

So, showing you have gobs of money you could put down but still want to finance won't win against someone who makes an all cash offer.   Bit it may well win against someone whose financials are a bit iffy because they are buying at the top of what the banks might allow.

We won the bidding war on our second home despite being the LOWEST bid among three bids.  Why?   Because our finances were rock solid and the other two bidders were a bit iffy.   The seller had already gone to the altar twice before and had the deal fail due to the finances of the buyer.    We were a sure thing and they took the deal we offered.
This just happened to my brother. The original buyer ghosted everyone the day before closing, so the house went on the market again. There were three more offers, but my brother's finances were the most solid, and his was the offer the seller accepted. Curiously, another bidder's offer said if they couldn't secure financing in 30 days, they'd pay cash. I thought that was pretty creative, but the once-burned seller thought it meant they weren't sure of their ability to qualify and chose my brother, who already has his financing lined up.

Thanks for the input and sharing experiences. What markets were these in BTW?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 02, 2021, 04:48:58 PM
My brother's north of Phoenix.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on May 03, 2021, 03:54:40 PM
We have 14 years left (15 year mortgage) at 3.125%. Too good of a rate to pay down faster. Principal balance is about $178k right now.
Another month, another minimum payment. $133k and 10 years remaining. $24.6k in cumulative interest paid over the last 5 years. That's 13.2% of the initial loan amount.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 04, 2021, 06:38:12 AM
@RWD , I have a co-worker who is trying to decide between a 15-year and 30-year loan. Would you be willing to offer 1-2 reasons why you opted for the 15-year term that I can pass on to her? She is about 35 years old, recently engaged, and more of a Bogleheads than Mustachian mindset.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on May 04, 2021, 07:47:05 AM
@RWD , I have a co-worker who is trying to decide between a 15-year and 30-year loan. Would you be willing to offer 1-2 reasons why you opted for the 15-year term that I can pass on to her? She is about 35 years old, recently engaged, and more of a Bogleheads than Mustachian mindset.
Sure. It mostly has to do with our time frame. Our plan when we bought the house was that we would stay here for less than 10 years and would not keep the house as a rental afterwards. That makes the lower interest rate (in our case 3.125% vs 3.875%) worthwhile. If the plan were to stay longer than 10 years then having the higher cash flow for investing can make more sense. We were also buying a house that was only ~1.5x our gross income so the higher payments of a 15-year mortgage are barely noticeable and will still be affordable even on half our income (e.g. one of us loses our job).
Title: Re: DONT Payoff your Mortgage Club
Post by: Gardo on May 10, 2021, 07:36:31 AM
On my 14th year of 15 Year Mortgage.  :)

Mortgage Balance:  $13K
Title: Re: DONT Payoff your Mortgage Club
Post by: Gardo on May 10, 2021, 07:42:39 AM
@RWD , I have a co-worker who is trying to decide between a 15-year and 30-year loan. Would you be willing to offer 1-2 reasons why you opted for the 15-year term that I can pass on to her? She is about 35 years old, recently engaged, and more of a Bogleheads than Mustachian mindset.
I was 35 when I bought my house and took 15. 

Reason 1:  I want to fully pay it by the time I am 50. 
Reason 2:  I can opt to make that house the family's ancestral house and I can go for another house for another 15 years and finish it by 65.  Having an ancestral house would be a nice gift to my future generations as they can live there for sometime while they save for their DP for their own house.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on May 10, 2021, 07:50:40 AM
On my 14th year of 15 Year Mortgage.  :)

Mortgage Balance:  $13K
Time to cash-out refinance!
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on May 10, 2021, 07:54:21 AM
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.

https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 10, 2021, 09:24:49 AM
@RWD , I have a co-worker who is trying to decide between a 15-year and 30-year loan. Would you be willing to offer 1-2 reasons why you opted for the 15-year term that I can pass on to her? She is about 35 years old, recently engaged, and more of a Bogleheads than Mustachian mindset.
I was 35 when I bought my house and took 15. 

Reason 1:  I want to fully pay it by the time I am 50. 
Reason 2:  I can opt to make that house the family's ancestral house and I can go for another house for another 15 years and finish it by 65.  Having an ancestral house would be a nice gift to my future generations as they can live there for sometime while they save for their DP for their own house.

While I'm sympathetic to the idea of giving adult children a break on housing, I'm also cautious about a plan like this because I cannot predict that the "ancestral house" will be anywhere near the best work opportunities for those adult children. I suppose you could make a case for that if you're in a city that has historically offered durable economic opportunity--say a world class city like NY or San Francisco--or a city that has a very obvious path to join them like Raleigh or Austin.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 10, 2021, 09:28:21 AM
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.

https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)

I appreciate you sharing this post--and indeed I did happen to watch this episode sometime in the 1990s--but, dang, it seems like quite a risk to endure certain prison-time in exhange for that. Maybe prison was just a metaphor?
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on May 10, 2021, 09:34:30 AM
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.

https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)

I appreciate you sharing this post--and indeed I did happen to watch this episode sometime in the 1990s--but, dang, it seems like quite a risk to endure certain prison-time in exhange for that. Maybe prison was just a metaphor?
Yeah - 12 years in prison is not quite the interest-free loan implied.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 10, 2021, 09:38:26 AM
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.

https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)
Love, love, love it!

This also illustrates another key DPOYM point. To earn those kind of returns, you have to start with a relatively big pile of money. To start investing in real estate, one only needs a relatively small pile of money and the mortgage provides the rest of the ballast.
Title: Re: DONT Payoff your Mortgage Club
Post by: robartsd on May 10, 2021, 11:34:10 AM
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.

https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)

I appreciate you sharing this post--and indeed I did happen to watch this episode sometime in the 1990s--but, dang, it seems like quite a risk to endure certain prison-time in exhange for that. Maybe prison was just a metaphor?
Yeah - 12 years in prison is not quite the interest-free loan implied.
But he kept his spending rate way down while in prison.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on May 10, 2021, 02:09:20 PM
I'm actually surprised at the sentence (15 years for a first-time offender, non-violent, educated white male).  Based on other sentences I've seen handed out I'm guessing IRL one might get closer to 6-10 years, out in under 5 with good behavior (all of it served in a low-security "white collar crime" prison).

I',m wondering:  Who amounts us would go to a low-security prison for 4-5 years in their early 30s if they were all but guaranteed to have enough to FIRE upon their release?

At least on paper it's a pretty tempting offer...

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 10, 2021, 02:46:41 PM
Or what if we were allowed to serve the sentence at home?

Oh, wait, if that happens to you, it probably means you're already rich.
Title: Re: DONT Payoff your Mortgage Club
Post by: Gardo on May 10, 2021, 02:48:17 PM
For that amount of money, banks hire goons to take care of you and your family really nice.
Title: Re: DONT Payoff your Mortgage Club
Post by: Gardo on May 10, 2021, 02:50:33 PM

While I'm sympathetic to the idea of giving adult children a break on housing, I'm also cautious about a plan like this because I cannot predict that the "ancestral house" will be anywhere near the best work opportunities for those adult children. I suppose you could make a case for that if you're in a city that has historically offered durable economic opportunity--say a world class city like NY or San Francisco--or a city that has a very obvious path to join them like Raleigh or Austin.

or Metro Nashville.
Title: Re: DONT Payoff your Mortgage Club
Post by: Gardo on May 10, 2021, 02:54:55 PM

But he kept his spending rate way down while in prison.

You missed dandarc's allusion. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 11, 2021, 09:53:41 AM
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:

https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)

(I did glance at the same page for Austin, and it's even faster)
Title: Re: DONT Payoff your Mortgage Club
Post by: K-ice on May 11, 2021, 11:18:27 PM
Anyone else see Collins' latest post or the Alfred Hitchcock episode it references? I think this resonates with this thread's premise.

https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/ (https://jlcollinsnh.com/2021/05/05/the-alfred-hitchcock-path-to-fi/)

That was fun. A form of coast fire I guess. Here is a link to the show.

https://www.dailymotion.com/video/x59ypm0
Title: Re: DONT Payoff your Mortgage Club
Post by: mckaylabaloney on May 24, 2021, 03:29:41 PM
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:

https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)

(I did glance at the same page for Austin, and it's even faster)

My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on May 24, 2021, 07:17:48 PM
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:

https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)

(I did glance at the same page for Austin, and it's even faster)

My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.

Part of me wishes we bought a bigger house and stretched further while we had a high combined income.  Of course we made the right decision at the time, when housing could either skyrocket or crash, but Just imagine if we bought a house at the maximum the bank was willing to lend and the. Downsize
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 24, 2021, 09:23:19 PM
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:

https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)

(I did glance at the same page for Austin, and it's even faster)

My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.

Part of me wishes we bought a bigger house and stretched further while we had a high combined income.  Of course we made the right decision at the time, when housing could either skyrocket or crash, but Just imagine if we bought a house at the maximum the bank was willing to lend and the. Downsize
I've known a couple of people who did that. Stretched like crazy in hopes of selling for lots more money in a few years. It worked out for some, but another lost it all in the housing crash. I may be perfectly comfortable in a house with a mortgaged roof over my head, but I sure don't want to gamble that way.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 25, 2021, 07:03:16 AM
Two years ago the talltexan household was contemplating a move within Charlotte to try to optimize access to kids' activities, school, and family who are in the area. One particularly nice neighborhood was at the top end of our range, although a little farther from all of those activities, and driving distance from my in-laws' instead of walking distance. We opted for the slightly closer, more connected neighborhood, but I checked out the tony one on Zillow last week, and--dang--those houses have really appreciated. I think that neighborhood would be completely out of reach now.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on May 25, 2021, 11:04:06 AM
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:

https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)

(I did glance at the same page for Austin, and it's even faster)

My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.

Our house is in a Nashville suburb. We just got our new property assessment: it went from $259k to $369k.

Appreciation comes with a cost when you don't plan on moving anytime soon...
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on May 25, 2021, 11:28:06 AM
Seems like an opportunity for a cash-out refinance where you invest the proceeds @DadJokes
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 25, 2021, 05:10:49 PM
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:

https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)

(I did glance at the same page for Austin, and it's even faster)

My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.

Our house is in a Nashville suburb. We just got our new property assessment: it went from $259k to $369k.

Appreciation comes with a cost when you don't plan on moving anytime soon...
Gotta say, that's one of the beauties of home ownership in sunny California. They can't do that shit. Plenty of other problems, but your tax increases are miniscule and completely predictable.
Title: Re: DONT Payoff your Mortgage Club
Post by: TempusFugit on May 25, 2021, 05:52:07 PM
I happen to have grown up near Austin and live in NC, but I hear about Nashville being *blistering hot* as a real estate market right now. I thought it was just hype from the Dave Ramsey show, but now I think it's justified. Check out the 3%-4% growth rate in jobs every year (except of course for 2020) here:

https://www.bls.gov/eag/eag.tn_nashville_msa.htm (https://www.bls.gov/eag/eag.tn_nashville_msa.htm)

(I did glance at the same page for Austin, and it's even faster)

My best friend bought a house in Nashville in 2011 for $130k. Its value is now north of $400k, and that's without taking into account any of the improvements they've made.

Our house is in a Nashville suburb. We just got our new property assessment: it went from $259k to $369k.

Appreciation comes with a cost when you don't plan on moving anytime soon...
Gotta say, that's one of the beauties of home ownership in sunny California. They can't do that shit. Plenty of other problems, but your tax increases are miniscule and completely predictable.

Lots of counties / municipalities in my area have laws that mandate the tax RATE be reduced after a reassessment cycle if the average property values rose, such that the net tax should (on average) be unchanged.  Of course, the local government can change that by voting on new rates, but that would require an unpopular vote, as opposed to being able to just let the assessors office take the blame for everyone's taxes rising. 

My assessment rose about 30% this year (4 year reassessment cycle) but the tax rate has been reduced so it makes not very much difference in my tax bill.  This time. 

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 26, 2021, 06:52:01 AM
But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 26, 2021, 09:35:16 AM
But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).
You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on May 26, 2021, 11:50:47 AM
But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).
You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
There’s a new revision to prop 13 that will likely cause much higher taxes “eventually” as you can only inherit basis if you actually love in at as your primary residence. Tricky tricky CA.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 26, 2021, 04:08:58 PM
But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).
You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
There’s a new revision to prop 13 that will likely cause much higher taxes “eventually” as you can only inherit basis if you actually love in at as your primary residence. Tricky tricky CA.
I'm all for that. One of the side effects of the Inheritance thing is kids inherit and have no means to maintain the property. The house goes to shit and impacts the whole neighborhood. On our walks, we point them out and say, " Prop 13 house."

Recent example: the owner of a house I've been eyeing for years is on hospice. If his kids keep the house when he passes, they will continue to pay $720/year on a house that would sell in the $1.1-$1.2M range. If they sell, the new buyers would get an annual tax bill of at least $12,000/year. How is that equitable?
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on May 26, 2021, 07:02:24 PM
But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).
You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.
There’s a new revision to prop 13 that will likely cause much higher taxes “eventually” as you can only inherit basis if you actually love in at as your primary residence. Tricky tricky CA.
I'm all for that. One of the side effects of the Inheritance thing is kids inherit and have no means to maintain the property. The house goes to shit and impacts the whole neighborhood. On our walks, we point them out and say, " Prop 13 house."

Recent example: the owner of a house I've been eyeing for years is on hospice. If his kids keep the house when he passes, they will continue to pay $720/year on a house that would sell in the $1.1-$1.2M range. If they sell, the new buyers would get an annual tax bill of at least $12,000/year. How is that equitable?

I grew up in NorCal, and don't live there anymore. My parents and grandparents have a hard time accepting this equity argument, though, because they have benefitted so much from Prop 13. It is *really* hard to help someone appreciate the unfairness of something like that when they are benefiting from the disparity.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on May 26, 2021, 11:57:38 PM
But property values would rise less if people knew they'd have higher property taxes: it affects the cash flow associated with the property. So this is one more sneaky way in which the spike in values is perpetuating itself (and punishing folks who are still trying to buy into that first home).
You'd think so, but Prop. 13 happened in the '70's, people have gotten used to it. Prop. 13 has led to huge disparities, especially when people inherit properties along with their low tax rates, but otherwise hasn't had the effect you assume. To clarify: taxes adjust to market rates when a property is sold and are based on actual purchase price. Supply and Demand is the larger force here.

I’ve seen a study that showed prop 13 had the effect of people staying slightly longer in their homes.  Something like 7 years avg vs 5 years in other states
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 27, 2021, 08:18:49 AM
Moving is costly, so reducing the number of times someone has to do it is okay, I guess. I suppose what's hard to see is if there are economic opportunities that someone could take advantage of by moving, but risk aversion keeps them in a house too long.
Title: Re: DONT Payoff your Mortgage Club
Post by: August26th on May 27, 2021, 06:19:56 PM
Seems like an appropriate place to ask this question.... and I have not read every post in this very long thread so I apologize if this scenario has been covered. Would you do this refinance?

Current loan: purchased March 2020, original loan 592K at 3.25% 30-year fixed. Principal and interest payment $2,576. Current balance is $584,181.

With the new conforming loan limits now at $548,250 I am considering a refinance into 2.375% with about $2,000 in closing costs. I’d have to bring 36-38K to do this, but the result is that my principal and interest payment would drop to $2,130. Monthly savings of $446.

Would you bring almost 38K to save $446 per month? If I did this, I’d let this loan ride for the long term and put the extra into investments. Or is this silly thinking? I have a bunch of cash piled up, waiting to buy an investment property, so the 40K wouldn’t hurt.   

Best guess is that I am 8-10 years away from FIRE.

Circling back to say that I finally refinanced from 3.25% to 2.74% with $1285 in total closing costs. I brought 36K to closing to pay the loan down to the conforming loan limit. Wish I had done it back in December when I first posted this so that I could have refi’d into a lower rate than I ultimately got, but we decided at the time to instead purchase a second home/vacation rental (no regrets.) So now I have 2 mortgages at 2.74% and 2.625% respectively.  I plan to let these ride for a long time, and possibly pay off one or both at our RE date. Feeling good about this but will also dump my extra into the market according to my (not yet on paper) ISP.

ALSO - I no longer escrow for taxes and insurance, so my overall monthly payment drop is $900.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 28, 2021, 07:57:24 AM
I was a fan of not-escrowing, as I could make an easy walk in early December to the County assessor's office and write them a fat check in person.

But then they moved the office out of foot (or scooter) distance for me, and my newest mortgage didn't allow it anyway, so I'm sending $00's a month to some bank to do it for me now. Sigh.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on May 28, 2021, 08:06:17 PM
But then they moved the office out of foot (or scooter) distance for me, and my newest mortgage didn't allow it anyway, so I'm sending $00's a month to some bank to do it for me now. Sigh.

Bastards.  Although these days you usually get a slightly lower rate if you escrow. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on May 28, 2021, 08:15:15 PM
Still hate escrowing.  My processing was transferred to Flagstar and their online capabilities are kinda trash w/ no app.  Now they want me to make an extra escrow payment of like $1k to cover a supposed deficiency, but there is no deficiency they just want to max out their legally allowed buffer/slush fund.  At least they have to pay me 2% interest which ain't to shabby RN.

I'm going to request removal of escrow as soon as my refi hits 365 days.  I don't know if they will allow it but worth a shot.  They might also require 12 months of actual payments (so more like 14 months from closing date) or 12 months from when the loan was transferred (which would be almost another year)

At least in my state they aren't allowed to charge a fee for this (in most other states they charge 0.25% of the principal balance (!!!)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 28, 2021, 08:30:49 PM
Still hate escrowing.  My processing was transferred to Flagstar and their online capabilities are kinda trash w/ no app.  Now they want me to make an extra escrow payment of like $1k to cover a supposed deficiency, but there is no deficiency they just want to max out their legally allowed buffer/slush fund.  At least they have to pay me 2% interest which ain't to shabby RN.

I'm going to request removal of escrow as soon as my refi hits 365 days.  I don't know if they will allow it but worth a shot.  They might also require 12 months of actual payments (so more like 14 months from closing date) or 12 months from when the loan was transferred (which would be almost another year)

At least in my state they aren't allowed to charge a fee for this (in most other states they charge 0.25% of the principal balance (!!!)
Crikey!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 01, 2021, 12:04:01 PM
2% interest on escrowed funds when your mortgage rate is 2.625% seems...not very strategic.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on June 01, 2021, 02:55:00 PM
2% interest on escrowed funds when your mortgage rate is 2.625% seems...not very strategic.

Nobody is doing it for the 2%, it’s basically a consolation prize.  You have to consider that most of it is allocated to biannual payments so most people are already going to build up a property tax buffer in their savings account over 6 mo which will earn less than 2% (sure some people will just sell stocks a few days before they pay their property taxes)

But I saved around $1k in costs by doing escrow so as long as I can get out of it relatively soon I come out way ahead on lost opportunity cost
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on June 04, 2021, 09:50:18 AM
Just closed on a re-fi at LenderFi, a small cash out.
Rate of 2.875%, down from the 3% rate I got in August from them.
Loan cost $1600 approx, because of the cash out.
I hemmed and hawed over paying for points (approx $5k to get 2.49%, approx $9k to get 2.25%) but ultimately decided to forego the points.
Breakeven timelines were from just under six years to just over ten years.
I "plan" on staying here forever, but ya know...plans can change, and I'm cheap (ahem, frugal).
From the inquiry email to signing closing docs on my front porch was, amazingly, 15 days.
Title: Re: DONT Payoff your Mortgage Club
Post by: ohyonghao on June 06, 2021, 06:23:47 AM
I probably won't be in this thread any time soon, not having a house anymore, but I agree with what ya'll are doing. I am, however, in student loan debt of about $50,000 averaging 3.7% or so with the current rate being 0%. The math has always been simple, using 7% as a conservative number, as long as my loans are below that it doesn't make sense to pay them off any faster than required. I took the maximum I could each year and graduated in 3 years, which unfortunately coincided with the pandemic starting. Thanks to these loans, though, we survived the crash and managed to not sell anything for the past year. In March I was offered employment and am now back in working towards FIRE.

My net worth when starting school was about $200k, it is now $275k including the $50k for student loans (account balances are about $325k). I'm signed up for the graduated repayment over 30 years. Maybe one day I'll decide to pay them off just for fun, but logically there is no need. I'll continue to enjoy my investments growing and being able to stash even more money away each month!

If I ever buy a house again I'll come back here and join everyone, until then enjoy my stamp of approval for being good at numbers, I have a $50k piece of paper which says I am :-P (BS in Math and CS).

P.S.
I'd argue that arithmetic is being good at numbers and mathematics is a much deeper topic to do with abstraction and relationships around objects, some of which just happen to be numbers.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 06, 2021, 06:56:43 AM
Renting is "not paying off the mortgage" in my book @ohyonghao - plus as you've noted the arithmetic works in other areas on low, fixed-rate debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: MountainLakeMama on June 06, 2021, 08:01:53 AM
Hi everyone! I'm thinking about joining the club!!! I just refinanced in Nov. 2020 (before I discovered MMM or FI). I'm new to this and I'm a single mom. My mortgage is at $167,000, 20 years at 3.125%. I'm thinking about going back to a 30-year (hopefully better interest rate- I think my credit rating has improved) and putting the lower payment difference into my Roth.

I also have a 403b and will be eligible for a pension in 10 years.

Am I on the right track? Is there a tool somewhere I can use to see if this is the way to go? I have the Case Study Spreadsheet from someone on this forum but it's a little over my head. I also know I have to take fees into account, but I'm not sure exactly how.
Title: Re: DONT Payoff your Mortgage Club
Post by: mckaylabaloney on June 06, 2021, 09:42:05 AM
@MountainLakeMama Not sure if you mean a tool to see if you should refinance, or a tool to see if you shouldn't pay off your mortgage early, but:

Here is a straightforward prepaying vs. investing calculator: https://usehhaf.org/loan-information/loan-calculators/mortgage-investment-analysis-calculator/

And here is a refinance calculator that shows you the breakeven point on refinances: https://www.bankrate.com/calculators/mortgages/mortgage-refinance-break-even-calculator.aspx (You will need to check your actual rates to use it effectively, since you need to know whether lenders will be charging you points for various rates.)

You could check your refinance rates first, figure out your ideal refinance situation based on the break even calculator, then plug those potential loan numbers into the payoff vs. investing calculator.

In general, unless you're planning to leave your current home in the next few years, it's very likely you'll be offered a lower rate that makes sense to take. It's also very likely that it makes sense to invest the difference in payments (plus any other extra cash you may have) rather than putting it into your home. That's almost always the correct decision mathematically at current interest rates; reasons to pay off the mortgage early are typically psychological (although even then, investing the money until you have enough to pay off the mortgage in a lump sum is typically much safer and much more profitable).
Title: Re: DONT Payoff your Mortgage Club
Post by: MountainLakeMama on June 06, 2021, 10:49:32 AM
@mckaylabaloney Those are both exactly what I needed... tools for figuring out the cost to refinance AND whether or not to payoff mortgage early. Thank you! I'll keep the group posted on my progress!
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on June 06, 2021, 11:34:01 AM
Hi everyone! I'm thinking about joining the club!!! I just refinanced in Nov. 2020 (before I discovered MMM or FI). I'm new to this and I'm a single mom. My mortgage is at $167,000, 20 years at 3.125%. I'm thinking about going back to a 30-year (hopefully better interest rate- I think my credit rating has improved) and putting the lower payment difference into my Roth.

I also have a 403b and will be eligible for a pension in 10 years.

Am I on the right track? Is there a tool somewhere I can use to see if this is the way to go? I have the Case Study Spreadsheet from someone on this forum but it's a little over my head. I also know I have to take fees into account, but I'm not sure exactly how.

I like the really simple Bankrate amortization schedule calculator, you can plug in any combination of interest rate, mortgage amount,  and length of term to see your payment amount, and also see what your remaining balance would be in five years, ten years, etc.
If you did a "no cost" at 2.875%  30 year on a loan balance of $167,000 your payment would be $693.
Of course there's more to it.
Some of the costs involved are things you have to pay anyway, but they want them up front (escrow fund for taxes and insurance for one year, typically).
There's a mega refinance thread at the bogleheads forum with a lot of info, too.
Title: Re: DONT Payoff your Mortgage Club
Post by: Eco_eco on June 06, 2021, 01:26:53 PM
Hello

We are joining the don't pay off your mortgage club. We are very comfortable with low levels of manageable debt and will simply allow our loans to be paid down over the coming 20 or so years. We hold roughly 18x our annual spending in debt, most of this is held against our rental property investments. Our personal mortgage is small, at about 0.75x our annual spending.

Why?
- I really like the forced savings that come from mortgages (it helps with our cash control, anti splurge discipline)
- The investment return is sooo much higher than the interest cost at the moment
- With debt inflation is a friend, rather than than stealth tax. Inflation decreases the real costs of the loan.
- We are very comfortable with relatively high debt loads having been real estate investors for our whole adult lives and have the cash management strategies which evolved our the challenges which have come along over the years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 06, 2021, 01:50:08 PM
Hello

We are joining the don't pay off your mortgage club. We are very comfortable with low levels of manageable debt and will simply allow our loans to be paid down over the coming 20 or so years. We hold roughly 18x our annual spending in debt, most of this is held against our rental property investments. Our personal mortgage is small, at about 0.75x our annual spending.

Why?
- I really like the forced savings that come from mortgages (it helps with our cash control, anti splurge discipline)
- The investment return is sooo much higher than the interest cost at the moment
- With debt inflation is a friend, rather than than stealth tax. Inflation decreases the real costs of the loan.
- We are very comfortable with relatively high debt loads having been real estate investors for our whole adult lives and have the cash management strategies which evolved our the challenges which have come along over the years.
Welcome!
Title: Re: DONT Payoff your Mortgage Club
Post by: aetheldrea on June 11, 2021, 09:13:36 AM
I like the really simple Bankrate amortization schedule calculator, you can plug in any combination of interest rate, mortgage amount,  and length of term to see your payment amount, and also see what your remaining balance would be in five years, ten years, etc.
If you did a "no cost" at 2.875%  30 year on a loan balance of $167,000 your payment would be $693.
I’m a big fan of the Payment function in Excel (=PMT I think) for calculating any principal, any rate, any time frame. From there it is super easy to create a simple formula and drag it down to create your own amortization schedule.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 14, 2021, 11:30:25 AM
Just started a re-finance with Lender-Fi. Half a percent lower to 3.25% and unlocking about $18,000 in equity to buy investments with. Closing costs always seem ridiculous to me, but should be a bit under $4K (seriously how are y'all getting these sub-$2,000 cost mortgages? Just the recording fees are over $1,000 and and our loan is small). Less than two years since we corrected our big mistake of having a paid-off house, but rates continued lower and house has increased in value as well, so why not. With the expected return on the newly available $18K, plus saving 0.5% on the outstanding $121K balance, should recoup the closing cost in less than 2 years.

On the one hand our small house is great - relatively easy maintenance, inexpensive, pretty awesome location in many ways. But I'm a little jealous of the lower rates I see in this thread at times. Still, 3.25% is very cheap money.

Anyway, time to upload documents.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on June 14, 2021, 12:18:07 PM
Just started a re-finance with Lender-Fi. Half a percent lower to 3.25% and unlocking about $18,000 in equity to buy investments with. Closing costs always seem ridiculous to me, but should be a bit under $4K (seriously how are y'all getting these sub-$2,000 cost mortgages? Just the recording fees are over $1,000 and and our loan is small). Less than two years since we corrected our big mistake of having a paid-off house, but rates continued lower and house has increased in value as well, so why not. With the expected return on the newly available $18K, plus saving 0.5% on the outstanding $121K balance, should recoup the closing cost in less than 2 years.

On the one hand our small house is great - relatively easy maintenance, inexpensive, pretty awesome location in many ways. But I'm a little jealous of the lower rates I see in this thread at times. Still, 3.25% is very cheap money.

Anyway, time to upload documents.

Try a quote with no cash out, escrow yes, highest FICO, and the lowest points available and let us know the rate

No cost is basically a function of negative points which means a higher rate.  Whether the resulting rate is decent often seems to depend on your region and other specific stuff
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 14, 2021, 01:10:18 PM
As I was pulling that quote, the LenderFi rep called me - they can actually loan us more money than I originally thought, at the same rate, without an appraisal, and at a lower closing cost by over $1,000 than I had run the quote for and decided "yep - gonna pull the trigger today on this".

In any event the "zero closing cost" option with highest credit score + escrow + no cash out was 3.625%.

Actual loan is going to be, if it goes through as we've agreed to: $150K @3.25%, no escrow, net closing costs of under $2600 (including the prior-mentioned $1K+ of recording fees). Which should result in about $26,000 to us when the loan is funded, and that will be immediately directed to investments once it arrives.

Not quite as exciting as in 2019 when the place was initially paid off and we corrected that mistake so it was a six-figure credit to our account, but I'm pretty stoked to be doing this again so soon, and at even better terms than I was expecting.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on June 19, 2021, 06:03:30 AM
We would like to officially join this incredible club and celebrate the occasion with a cash-out-refi.

Home Value: 1,190,000
Mortgage Balance: 610,000
Monthly payment: 2,950
Terms: 30yr at 2.75 (refi’d a few months ago)

Would like to refi again at <2.75%, 30yr fixed, and pull out 1-300k (depending on appraisal) to then invest in a rental property.  Will start getting quotes this weekend.

We bought the home for 793k  (new construction) only 22 months ago. Prices have been exploding in our neighborhood for sure.

Thoughts? Extract as much from the cash out refi as they will let me?

I very much view this as an inflation hedge using the banks dollars. We’ve talked about moving but I think we would keep this home for the long term.  Or since we are in CA, maybe there is a future prop19/60 play on lower taxes?  Worst worst worst case we end up buying a vacation home elsewhere instead of ‘upgrading’ the current one :).
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 19, 2021, 06:54:53 AM
Good luck! I would extract as much as they'll give you - mortgages are kind of a hassle, so might as well take the money when they are willing. Then you'll have it for whatever rentals pop up on your radar or just to put in index funds. So long as you're reasonably investing the money and not blowing it on stuff you don't need, it should work out.
Title: Re: DONT Payoff your Mortgage Club
Post by: StarBright on June 19, 2021, 07:11:04 AM
This thread has a way of worming itself into your brain.

I am a pay off your mortgage early person, we pay extra every month (refied to a 15 year not that long ago and just kept on paying what we had been paying previously, which is now extra).

But - we have an extra chunk of cash outside of our set budget and it just seems to keep growing lately. DH asked if I wanted to throw it at the mortgage, but I thought about how it doesn't get me that much closer to paying it off.  Into investments it went - it is more flexible there for the long term!

I'm still probably going to pay off early - I have a deep need for security and come from a family of people who have always paid off houses early. It is part of my financial DNA. But I just threw a double digit chunk into investments instead, which is the biggest chunk I've ever done at one time!
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on June 19, 2021, 07:38:25 AM
This thread has a way of worming itself into your brain.

I am a pay off your mortgage early person, we pay extra every month (refied to a 15 year not that long ago and just kept on paying what we had been paying previously, which is now extra).

But - we have an extra chunk of cash outside of our set budget and it just seems to keep growing lately. DH asked if I wanted to throw it at the mortgage, but I thought about how it doesn't get me that much closer to paying it off.  Into investments it went - it is more flexible there for the long term!

I'm still probably going to pay off early - I have a deep need for security and come from a family of people who have always paid off houses early. It is part of my financial DNA. But I just threw a double digit chunk into investments instead, which is the biggest chunk I've ever done at one time!

I'm big on security too, and it was B42 who showed me how I was much more secure not paying off my mortgage, and how splitting money between extra payments and investments was by far the least secure option.

If I planned to pay off my mortgage, I would definitely only do it in one large lump sum now that I've wrapper my mind around how extra mortgage payments actually maximize your risk.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 21, 2021, 05:04:40 AM
This thread has a way of worming itself into your brain.

I am a pay off your mortgage early person, we pay extra every month (refied to a 15 year not that long ago and just kept on paying what we had been paying previously, which is now extra).

But - we have an extra chunk of cash outside of our set budget and it just seems to keep growing lately. DH asked if I wanted to throw it at the mortgage, but I thought about how it doesn't get me that much closer to paying it off.  Into investments it went - it is more flexible there for the long term!

I'm still probably going to pay off early - I have a deep need for security and come from a family of people who have always paid off houses early. It is part of my financial DNA. But I just threw a double digit chunk into investments instead, which is the biggest chunk I've ever done at one time!

I'm big on security too, and it was B42 who showed me how I was much more secure not paying off my mortgage, and how splitting money between extra payments and investments was by far the least secure option.

If I planned to pay off my mortgage, I would definitely only do it in one large lump sum now that I've wrapper my mind around how extra mortgage payments actually maximize your risk.

I’ve got to credit B42 (and a few others) as well for shifting my focus and making me realizes that extra mortgage payments actually maximizes risk during the entire payoff period. For me, security comes from having the most amount of cash (invested according to my AA, of course). Paying down a mortgage is choosing to have less cash in exchange for more equity in your home.

The mortgage crisis (and subsequent ‘great recession’) also made me very wary of having a very high percentage of our NW tied to a home.  They are not ‘secure investments’ - no matter what the National Realtors Association says. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 21, 2021, 07:58:00 AM
This thread has a way of worming itself into your brain.

I am a pay off your mortgage early person, we pay extra every month (refied to a 15 year not that long ago and just kept on paying what we had been paying previously, which is now extra).

But - we have an extra chunk of cash outside of our set budget and it just seems to keep growing lately. DH asked if I wanted to throw it at the mortgage, but I thought about how it doesn't get me that much closer to paying it off.  Into investments it went - it is more flexible there for the long term!

I'm still probably going to pay off early - I have a deep need for security and come from a family of people who have always paid off houses early. It is part of my financial DNA. But I just threw a double digit chunk into investments instead, which is the biggest chunk I've ever done at one time!

I'm big on security too, and it was B42 who showed me how I was much more secure not paying off my mortgage, and how splitting money between extra payments and investments was by far the least secure option.

If I planned to pay off my mortgage, I would definitely only do it in one large lump sum now that I've wrapper my mind around how extra mortgage payments actually maximize your risk.

I’ve got to credit B42 (and a few others) as well for shifting my focus and making me realizes that extra mortgage payments actually maximizes risk during the entire payoff period. For me, security comes from having the most amount of cash (invested according to my AA, of course). Paying down a mortgage is choosing to have less cash in exchange for more equity in your home.

The mortgage crisis (and subsequent ‘great recession’) also made me very wary of having a very high percentage of our NW tied to a home.  They are not ‘secure investments’ - no matter what the National Realtors Association says.
Some random thoughts:

We own four properties and three mortgages. The unmortgaged property is worth more than the others combined. The threat of inflation* has me seriously considering taking out a mortgage on our primary. However,  DH isn't really on board, because we don't really need the money (MPP for sure).

The other three mortgages are at okay rates, but they are at 50% LTV. We have looked into refinancing, but the fees were so high, we couldn't pull the trigger. Our existing rates are good enough, but the process made us pine for those sweet, rock-bottom re-fis.

One more thought: In retrospect, I wish I'd counted my mortgage as a bond and placed a higher percentage of my investments in equities. By following traditional guidelines, which tend to ignore mortgage(s), my portfolio was actually more conservative than I intended. Live and learn.

*One advantage of our age is that we've lived through multiple inflationary periods and KNOW what that's going to feel like. Hell, we lived through the Seventies, when gas pump meters only went to 99.9 CENTS per gallon. Every single one of them had to be modified when gas prices surged past $1.00. Everyone who has a long, affordable, low interest mortgage is going to be doing the happy dance in the next few years. Double bonus points if you're US based and that mortgage is tax deductible.
Title: Re: DONT Payoff your Mortgage Club
Post by: FragglesRock666 on June 21, 2021, 02:40:27 PM
Just checking in!  I re-fi'd in October 2020, and in between signing the paperwork and my first "new" mortgage payment, I became part of this club.  So, too late to change from a 20 year mortgage to a 30 year for my re-fi, BUT I haven't made any extra payments on my house at all.

Even though I just got an inheritance check of $5,000 (who knew my grandma had any money left? I sure didn't), that money is NOT going towards my house (though it is killing me a little), but instead it is going into savings for my kiddo's college fund.

I am still building my "one year's expenses" emergency fund, so no investments beyond my 401k at work yet.  I'm the sole breadwinner at the moment, and I have MS, so I want a large, very safe fund in case I can't work for a while. 

I appreciate this thread, it helps me keep on track when I start to consider tossing some extra at the house.  Reminds me to NOT do it. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 22, 2021, 07:20:49 AM
So i was going over the last month's expenses, and I completely forgot to send in my mortgage payment. I was wondering how the checking balance had gotten so high. Do I get extra credit in this club?

Will have to call the lender today and figure out how bad the fees will be to get current again. Sigh.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 22, 2021, 07:29:15 AM
So i was going over the last month's expenses, and I completely forgot to send in my mortgage payment. I was wondering how the checking balance had gotten so high. Do I get extra credit in this club?

Will have to call the lender today and figure out how bad the fees will be to get current again. Sigh.
Extra credit granted.

Related: our Costco bill is on auto pay. For reasons yet unknown, it was not autopaid last month The bill was $3500, which is more than most mortgage payments, I'd guess.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 25, 2021, 11:50:54 AM
Happened to see this on the internet today. https://www.financialsamurai.com/never-sell-assets-and-pay-less-in-taxes-like-billionaires/ (https://www.financialsamurai.com/never-sell-assets-and-pay-less-in-taxes-like-billionaires/)

The content of the post may not contain much new, but in the comments, Sam basically describes maintaining a slug of continuing mortgage debt--which we consider the foundational strategy of this club--as analogous to the tax-sheltering techniques modern billionaires are using.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 25, 2021, 12:01:06 PM
I'll just go ahead and assume whatever analysis was done there is deeply flawed. Although you'd think a guy who believes only 0.5% withdrawal rate or less is safe would be strongly anti-debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 28, 2021, 12:03:46 PM
LenderFi sucks. 2 weeks ago said "we'll fund the loan in two weeks". Today "your business has inadequate history". Even though I put the whole deal on the application and explained every time I sent it in "I just started this up - expect $10,000 / month per my contract but first month was May". Aggravating - if I was a regular state employee making 1/3 to 1/2 this much, would be no problem rubber stamping it. But 10 years of self-employed history isn't enough because I did something stupid and took a regular job for 10 months and formed an LLC for this new deal this year.

Whatever, don't need the money, and maybe rates will stay low while the house continues to go up.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 29, 2021, 11:28:42 AM
I'll just go ahead and assume whatever analysis was done there is deeply flawed. Although you'd think a guy who believes only 0.5% withdrawal rate or less is safe would be strongly anti-debt.

Sure, I agree that the 0.5% withdrawal rate article was bad, and the SF numbers seem cartoonish to me (in my humble North Carolina real estate market). The particular article I shared seemed to align with our founding philosophy here in the DNPYM thread, tho.
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on June 29, 2021, 12:50:44 PM
LenderFi sucks. 2 weeks ago said "we'll fund the loan in two weeks". Today "your business has inadequate history". Even though I put the whole deal on the application and explained every time I sent it in "I just started this up - expect $10,000 / month per my contract but first month was May". Aggravating - if I was a regular state employee making 1/3 to 1/2 this much, would be no problem rubber stamping it. But 10 years of self-employed history isn't enough because I did something stupid and took a regular job for 10 months and formed an LLC for this new deal this year.

Whatever, don't need the money, and maybe rates will stay low while the house continues to go up.

Yeah, mortgage underwriting and self-employed income does not mix well.

I was very cautious with Lenderfi. They've ordered up appraisals and then backed out, similar to what you experienced. They told us that it was "no problem" qualifying for a re-fi with dividends, withdrawals, and a little SE income. It turns out that it was a problem.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 29, 2021, 12:54:09 PM
LenderFi sucks. 2 weeks ago said "we'll fund the loan in two weeks". Today "your business has inadequate history". Even though I put the whole deal on the application and explained every time I sent it in "I just started this up - expect $10,000 / month per my contract but first month was May". Aggravating - if I was a regular state employee making 1/3 to 1/2 this much, would be no problem rubber stamping it. But 10 years of self-employed history isn't enough because I did something stupid and took a regular job for 10 months and formed an LLC for this new deal this year.

Whatever, don't need the money, and maybe rates will stay low while the house continues to go up.

Yeah, mortgage underwriting and self-employed income does not mix well.

I was very cautious with Lenderfi. They've ordered up appraisals and then backed out, similar to what you experienced. They told us that it was "no problem" qualifying for a re-fi with dividends, withdrawals, and a little SE income. It turns out that it was a problem.
On the plus side, with no mortgage application pending, I've opened 5 credit cards to scare up some miles today. Our 10th anniversary is next year - I have something somewhat ridiculous in mind to celebrate, and this will help mitigate the cost big time.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on June 30, 2021, 01:10:29 PM
We own four properties and three mortgages. The unmortgaged property is worth more than the others combined. The threat of inflation* has me seriously considering taking out a mortgage on our primary. However,  DH isn't really on board, because we don't really need the money (MPP for sure).

The other three mortgages are at okay rates, but they are at 50% LTV. We have looked into refinancing, but the fees were so high, we couldn't pull the trigger. Our existing rates are good enough, but the process made us pine for those sweet, rock-bottom re-fis.

Take out a low-rate mortgage on the primary, use the proceeds to pay off the other higher rate mortgages.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 30, 2021, 01:12:41 PM
We own four properties and three mortgages. The unmortgaged property is worth more than the others combined. The threat of inflation* has me seriously considering taking out a mortgage on our primary. However,  DH isn't really on board, because we don't really need the money (MPP for sure).

The other three mortgages are at okay rates, but they are at 50% LTV. We have looked into refinancing, but the fees were so high, we couldn't pull the trigger. Our existing rates are good enough, but the process made us pine for those sweet, rock-bottom re-fis.

Take out a low-rate mortgage on the primary, use the proceeds to pay off the other higher rate mortgages.
You're joking, right?
Title: Re: DONT Payoff your Mortgage Club
Post by: Stash Man on July 03, 2021, 07:55:35 PM
The name of this thread amuses me so much. Love it!

I have posted about this before and no one has really given me a good answer, maybe you all can since you guys have spent a lot of time thinking about this.

Are you planning on having your mortgage payment x 25 (4% swr) for retirement so you can keep paying your mortgage? How are you planning on paying your actual mortgage payment in retirement?

For example, if you have 200k balance, refinance today at 4.125% for 30 years is just around a payment of 1,000 per month (for math simplicity). Will you just save the 200k or save for the 12k * 25 = 300k for your retirement in order to keep making those payments? It is easy to have a mortgage while working but what are actual plans for making payments when you are actually retired? I am reading many saying they will have lower balances or have paid off house when they retire, so I am interested in the 30 yr mortgage crowd.

Thanks in advance.

I haven't heard anyone talk about this either. Maybe most don't relate mortgage payments to the safe withdrawal rate, but to me they are very similar and deserve the same considerations.

One difference though is that you don't need mortgage payment x 25. The study that came up with the 4% swr adjusts withdrawals for inflation, but mortgage payments are fixed. Thus you can support a mortgage with a smaller portfolio.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on July 03, 2021, 10:00:40 PM
The name of this thread amuses me so much. Love it!

I have posted about this before and no one has really given me a good answer, maybe you all can since you guys have spent a lot of time thinking about this.

Are you planning on having your mortgage payment x 25 (4% swr) for retirement so you can keep paying your mortgage? How are you planning on paying your actual mortgage payment in retirement?

For example, if you have 200k balance, refinance today at 4.125% for 30 years is just around a payment of 1,000 per month (for math simplicity). Will you just save the 200k or save for the 12k * 25 = 300k for your retirement in order to keep making those payments? It is easy to have a mortgage while working but what are actual plans for making payments when you are actually retired? I am reading many saying they will have lower balances or have paid off house when they retire, so I am interested in the 30 yr mortgage crowd.

Thanks in advance.

I haven't heard anyone talk about this either. Maybe most don't relate mortgage payments to the safe withdrawal rate, but to me they are very similar and deserve the same considerations.

One difference though is that you don't need mortgage payment x 25. The study that came up with the 4% swr adjusts withdrawals for inflation, but mortgage payments are fixed. Thus you can support a mortgage with a smaller portfolio.
It been talked about, including in this thread (I am 99% sure, been a while). We are more split on that one. Many say carry the mortgage all the way to the end. Others may pay it off at retirement to protect against sequence of returns risk.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 04, 2021, 07:30:35 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.

I haven't heard anyone talk about this either. Maybe most don't relate mortgage payments to the safe withdrawal rate, but to me they are very similar and deserve the same considerations.

One difference though is that you don't need mortgage payment x 25. The study that came up with the 4% swr adjusts withdrawals for inflation, but mortgage payments are fixed. Thus you can support a mortgage with a smaller portfolio.
It been talked about, including in this thread (I am 99% sure, been a while). We are more split on that one. Many say carry the mortgage all the way to the end. Others may pay it off at retirement to protect against sequence of returns risk.

indeed, it has been discussed extensively. Simply put, it’s a far more complex issue than simple “have 25x to cover the mortgage” (which is incorrect).

First, as others have indicated the classic WR is pegged to inflation, and a fixed mortgage is not, ergo the PI will go down relative to annual withdrawals. Over a ~30 year timeline the effect can be substantial - less than half the initial amount.

Second, while it’s easy to talk about our “retirement number” as if it’s a fixed amount (e.g. “I need $50k/year), in reality it’s almost never this static. Almost all posters will receive some form of pension and/or SS/Old-Age benefits; for generally thrifty, partnered mustachians this can be a sizable chunk of their total. Windfalls, kids fleeing the nest and the well-documented trend of lower-spending in retirement are other important factors.  A mortgage ultimately dropping off the ledger (see below) is yet another.  It makes back-of-the-envelope calculations less reliable, but thankfully there’s ample software (example: cFireSim) that will include increased payments (e.g. SS) and dropped expenses (e.g. mortgage, tuition) for each year of your planned retirement.

While most of us will carry a mortgage for many years into retirement, it’s unlikely this won’t get paid off at some point.  As we discussed a few pages back, banks frequently reject to refinance once you don’t have a reliable income, regardless of assets. This recently happened to my parents.  One of the pieces of advice frequently given in this thread is to refinance a year or two before pulling the plug, to maximize the number of years you can carry the mortgage into ER.

Bottom line though is you don’t need an extra $250k in investments to cover $10k in annual mortgage payments. You don’t need anywhere close to that amount.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on July 04, 2021, 08:01:58 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.

I haven't heard anyone talk about this either. Maybe most don't relate mortgage payments to the safe withdrawal rate, but to me they are very similar and deserve the same considerations.

One difference though is that you don't need mortgage payment x 25. The study that came up with the 4% swr adjusts withdrawals for inflation, but mortgage payments are fixed. Thus you can support a mortgage with a smaller portfolio.

But...you have to save more to pay off the mortgage anyway, so either way, yeah, you need to save enough to pay for your expenses, including housing.

The fine details of the math are so fine it basically doesn't matter. If you have enough to retire on, it will make very little difference if you maintain a mortgage or not, unless your house is insanely expensive, this just doesn't matter.

What really matters is what you do in accumulation phase, that's where paying extra on your mortgage really bites you in the ass, both in terms of costing you money AND increasing your risk.

Beyond that, it's kind of silly to overthink it.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on July 04, 2021, 08:14:55 AM
You may not necessarily need 25x your mortgage payment added on top of your portfolio. You may only need 10-15x that amount. However, keeping 25x your non-mortgage spend and 15x your mortgage payment still leaves your first 5-10 years of retirement slightly more vulnerable than 25x across the board (and more convoluted as well).

I think I've noted in here that we plan to pay off our mortgage when we retire. This is based on reduction of SORR and optimizing for ACA subsidies & FAFSA. Using various calculators, risk of failure was lower for us by having $200k less in investments and $18k less in expenses than keeping the mortgage. Additionally, keeping our AGI $18k lower is great for ACA & FAFSA.

However, we aren't paying a penny extra until we retire.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 04, 2021, 10:18:29 AM
For most people, the mortgage is the biggest debt they've ever taken on. If they look at the total amount to be paid over the life of the loan, it's staggering. It seems impossible that they could ever be worth enough to surpass that figure, which creates fear. And fear is what sells, hence the power of messengers like Ramsey

If one starts saving and investing early and consistently, there will come a point where investment growth and compound interest will exceed their income, then their mortgage balance, and so on, all the way to FI. Factor in wage growth, inflation and low, fixed mortgage rates, and it happens even faster, as everyone on this thread knows. IMO, it's a lack of education and imagination, but the fear is still real. The power of MMM and the FIRE philosophy in general is that it teaches people, so they can move past their fears. That is far more powerful, but it's a lot more nuanced than "Kill all the debt", so it's always going to be an uphill battle. It doesn't help that saving/investing is mostly voluntary in the US and we do not emphasize financial literacy in school.

My first mortgage was $101k, and I was petrified when I signed the papers. If anyone had told me that by not prepaying my mortgage I'd end up in the "Beyond" section of the "Race from $2-$4M and Beyond" club, having never been a high wage earner or lottery winner, I'd have laughed hysterically and never, ever believed them. I will forever be grateful to Pete and everyone along the way who helped me learn these lessons.


.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on July 04, 2021, 06:43:13 PM
Seems like no one has said this recently. Congrats to everyone in this thread! Inflation and wages are rising, asset prices are going up, and mortgages are going nowhere!

We have two houses: a rental duplex on a 15/15yr @3.0% (don't bother with a 15/15, they were dubious then and dumb now) and a two unit on 30yr @2.75%. We rent three units which nearly cover the cost of both. The two duplexes knock on wood are filled with good tenants and have never had a vacancy and for that reason I have never raised rent, but at the next vacancy we will raise the rent and break even on the mortgages. After a slow start, we now have people lining up to rent out our casita which looks to have 90+% occupancy on more profitable short term furnished rentals (1-4mo) to fancy professionals.

My wife and I both got mid year bonuses because our employers are concerned rising wages elsewhere will suck us away (and they should be concerned, I have strongly contemplated other jobs which pay a little better). DW got an additional outright random raise for the same reason, and she will get an ordinary COL raise effective this month. I am being told to expect a larger than average annual raise at the end of the year, and am past due for a promotion and raise.

Investments fluctuate, but have been going up on all fronts, even bonds and international stocks and value stocks over the past three years.

Meanwhile, those mortgage payments ain't gone up one dime!!!!!!!!! We are making bank by not paying off our mortgages, and thanks to our rapidly growing assets are safer than ever. We are many streets ahead of where we would be if we were paying off the mortgages. Another five years of this and those mortgages will seem very inconsequential. Theory, meet Reality.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 04, 2021, 06:56:26 PM
[Snip]
Meanwhile, those mortgage payments ain't gone up one dime!!!!!!!!! We are making bank by not paying off our mortgages, and thanks to our rapidly growing assets are safer than ever. We are many streets ahead of where we would be if we were paying off the mortgages. Another five years of this and those mortgages will seem very inconsequential. Theory, meet Reality.
Ain't it grand? Congratulations!!!
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on July 04, 2021, 07:32:04 PM
[Snip]
Meanwhile, those mortgage payments ain't gone up one dime!!!!!!!!! We are making bank by not paying off our mortgages, and thanks to our rapidly growing assets are safer than ever. We are many streets ahead of where we would be if we were paying off the mortgages. Another five years of this and those mortgages will seem very inconsequential. Theory, meet Reality.
Ain't it grand? Congratulations!!!
I overheard a couple of my mindlessly partisan coworkers complaining about government debt and the devaluation of the dollar the other day. IMO devaluation is beneficial to the economy and has been overly slow. Either way, if you can't beat em join em!
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on July 04, 2021, 08:05:38 PM
[Snip]
Meanwhile, those mortgage payments ain't gone up one dime!!!!!!!!! We are making bank by not paying off our mortgages, and thanks to our rapidly growing assets are safer than ever. We are many streets ahead of where we would be if we were paying off the mortgages. Another five years of this and those mortgages will seem very inconsequential. Theory, meet Reality.
Ain't it grand? Congratulations!!!

I do chuckle at how laughably small my already modest mortgage payment will be in 20 year's time. It will be couch-cushion change by the time we near the end of our 25 year amortization period.

Paying it off would take away the fun of watching inflation make our payments laughably small.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on July 05, 2021, 12:58:21 AM

We are many streets ahead of where we would be if we were paying off the mortgages.

Paying off your mortgage is streets behind
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 05, 2021, 07:31:09 PM
August 1 will be my last mortgage payment.  Because I’m selling and renting.  I don’t think the mortgage people would congratulate me.  I’m moving out by Dicey.  I’m not real thrilled with the options in my price range that would tie up so much equity and still have a big mortgage so I’ll rent, then I can spend the dividends from my old house equity on fun stuff (or not and grow it).
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 06, 2021, 05:04:55 AM
August 1 will be my last mortgage payment.  Because I’m selling and renting.  I don’t think the mortgage people would congratulate me.  I’m moving out by Dicey.  I’m not real thrilled with the options in my price range that would tie up so much equity and still have a big mortgage so I’ll rent, then I can spend the dividends from my old house equity on fun stuff (or not and grow it).

Recently got into the same boat as you, formerly-something. I’m a bit bitter at not being able to find a sane place for us to buy and hold these ridiculously, stupid-low fixed mortgages through term.  But that’s FWP I suppose. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 06, 2021, 06:24:38 AM
I imagine you have family or other motivations for moving where you are?
Title: Re: DONT Payoff your Mortgage Club
Post by: Raenia on July 06, 2021, 09:30:36 AM
August 1 will be my last mortgage payment.  Because I’m selling and renting.  I don’t think the mortgage people would congratulate me.  I’m moving out by Dicey.  I’m not real thrilled with the options in my price range that would tie up so much equity and still have a big mortgage so I’ll rent, then I can spend the dividends from my old house equity on fun stuff (or not and grow it).

Recently got into the same boat as you, formerly-something. I’m a bit bitter at not being able to find a sane place for us to buy and hold these ridiculously, stupid-low fixed mortgages through term.  But that’s FWP I suppose.

Do we need our own club? I'm in the same situation as well.  Recently moved to a rental and preparing to sell our house.  I'm very disappointed not to be able to hold that mortgage longer, but since we're not expecting to get anything out from the sale, we won't have anywhere near the downpayment required for how hot the market is right now, without digging into our investments more deeply than I'm comfortable with.  Will try again in a few years, hopefully the market will stabilize.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on July 06, 2021, 03:08:54 PM
I imagine you have family or other motivations for moving where you are?

There are a lot of factors but the main one is I’m 4 years from my federal pension, I’m moving to a place that “just sounds like fun” since I hit my number outside of the pension and I can afford it.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on July 06, 2021, 05:28:20 PM
Flagstar approved our escrow waiver so looking forward to my large check.  They haven’t paid the insurance yet (due in three days) so I’m pretty sure this is an absolute win
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 07, 2021, 06:31:31 AM
Taxable investment account statement came in the mail, and it is more than our mortgage balance! Our cash flow is plenty for the size of our payments even now, so we're not going to start using withdrawals to support the payments. We use them to support contributions to my wife's Roth IRA, actually.

Title: Re: DONT Payoff your Mortgage Club
Post by: Kevin Aster Tin Obin on July 15, 2021, 02:10:06 PM
and... done..  don't pay off your mortgage, so I cash-out refi'd a rental property.  Now what to do with the lump of cash that I paid 2.99% to borrow for 30 years?  I really want to feel ok by getting >3% ROI..  put half in VTI and half in REIT?  Or throw it all on black at the casino?   Looking to buy another rental property now that I have 3x down payments, but hard to find a deal..  CDs are junk.. I'm feeling the cash drag of selling a house and now adding a cash out refi..

Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 15, 2021, 02:40:15 PM
You did this without having a plan for investing the proceeds first?
Title: Re: DONT Payoff your Mortgage Club
Post by: Kevin Aster Tin Obin on July 15, 2021, 02:58:32 PM
You did this without having a plan for investing the proceeds first?
Have plan to invest it according to AA but hard to pull the trigger with lump sum... I've read all the books and know to just do it, but..

Title: Re: DONT Payoff your Mortgage Club
Post by: FIREandMONEY on July 15, 2021, 03:15:12 PM
Hey All.

It was recommended in a different thread that I post my question over here.

Long story short, I currently have a 30 year @ 3.25% with 189K left. The mortgage started in 2016 and I have made a few extra payments to principal (mainly to get rid of PMI ASAP) and currently have 21 years left on the mortgage.  I just did what I read on the old MMM blog and have basically been putting any extra windfalls like Xmas bonuses directly to principal.  I think now that I have PMI done, I will stop making any extra bonus payments.  My P&I payments are $1,024/month and I have 21 years left.

My lender came to me and offered a 20 year @ 2.75% with $3500 in closing costs. The refi'd P&I payments were $1,025/month. I ran the numbers through an amortization spreadsheet and it showed I would pay $12.5K less interest at the end of the loans with the refi.

When I stick $3500 in a compound interest calculator @ 7% over 20 years, I come up with $13.5K.  Am I thinking of this right?  Realistically, I view the 13 or 12K whatever as a wash over twenty years.  So basically, I shouldn't even bother wasting my time refinancing a a half point with $3500 closing costs right?

For fun, I went and got a quote from Better.com.  An apples to apples quote for a 20yr Fixed, Better offered me 2.75% with $4200 closing costs.  They offered to take that down to 2.375, but with a whopping $6400 in closing costs after the cost of the points.  They also offered to refi a 30-yr fixed @ 2.875% for $3600 closing costs.  Also, they offered a 15 year fixed @ 3.125% with $200 credit (no closing costs!).  But on that one, my P&I goes up $200/month, so again, I think I'd be better off just staying the course and investing that $200.

I am totally on board with you guys in this thread on the no extra payments, don't pay off early, etc.  I struggle a little bit with the idea of refinancing to a new 30-year, so with all that said...I feel like I just want to stay put with my 30 year that I have 21 years left on at 3.25%.  And just invest any of my future windfalls or anything that I normally would've put into paying extra on my mortgage.

Thoughts?  Any ides/replies are appreciated!  I just want to make sure I am not doing something bone-headed and leaving free money on the table.

Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 15, 2021, 03:35:59 PM
How much would the house appraise for today?
Title: Re: DONT Payoff your Mortgage Club
Post by: FIREandMONEY on July 15, 2021, 03:48:19 PM
How much would the house appraise for today?

325-350k.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 15, 2021, 04:06:01 PM
Here's what I'd do (well maybe after I get over the sting mentioned upthread with the whole "we can loan you this money! Wait - you just formed your LLC this year? nevermind" deal):

Shop for good terms on a new 30 year note at 80% LTV. You'll likely cash out $80-90K, even after closing costs. Invest that money according to whatever you normally invest in. If you can get a $280,000 loan (80% if valued at $350K), then your principal and interest is now $1,161.70 and you've got another $80,000+ working for you, and you're only having to pay $135/ month more than you already do.

If you get to 21 years from now and really want to pay the house off, do so in a lump sum. That sort of gets to one of the big ideas of this thread - a lot of people screw up the risk calculus and do something that is both worse for growing wealth and for reducing wealth when we pay extra to our mortgage. That extra payment doesn't free you from making the payment next month, so until your balance is zero, you're not reducing your risk at all by making that extra payment.

If you're investing reasonably, odds are high that in 2 decades that $80K you have today will have grown to far more than you need to pay off the house. Even moreso if you stop yourself every time you're about to throw a little extra on the mortgage and invest instead.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 15, 2021, 04:10:21 PM
Thought of a one-sentence version: In your position you can create a pretty big one of those windfalls you're planning to invest right now by cash-out refinancing.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 15, 2021, 04:16:19 PM
You did this without having a plan for investing the proceeds first?
Have plan to invest it according to AA but hard to pull the trigger with lump sum... I've read all the books and know to just do it, but..
How big is this lump sum relative to your portfolio (both now and in the future)? Thinking along those lines has helped me kind of reduce the size of the money in my mind.

Hypothetical example - $100K probably seems like a whole lot initially, but if you already have another $400K and in 10 years it will likely be $2 million, how of a big of deal is getting the timing right on that $100K really?
Title: Re: DONT Payoff your Mortgage Club
Post by: Kevin Aster Tin Obin on July 15, 2021, 07:42:54 PM
You did this without having a plan for investing the proceeds first?
Have plan to invest it according to AA but hard to pull the trigger with lump sum... I've read all the books and know to just do it, but..
How big is this lump sum relative to your portfolio (both now and in the future)? Thinking along those lines has helped me kind of reduce the size of the money in my mind.

Hypothetical example - $100K probably seems like a whole lot initially, but if you already have another $400K and in 10 years it will likely be $2 million, how of a big of deal is getting the timing right on that $100K really?

Good point.  it seems like a lot, but isn't a huge dent in total NW.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 20, 2021, 10:57:15 AM
and... done..  don't pay off your mortgage, so I cash-out refi'd a rental property.  Now what to do with the lump of cash that I paid 2.99% to borrow for 30 years?  I really want to feel ok by getting >3% ROI..  put half in VTI and half in REIT?  Or throw it all on black at the casino?   Looking to buy another rental property now that I have 3x down payments, but hard to find a deal..  CDs are junk.. I'm feeling the cash drag of selling a house and now adding a cash out refi..

Put 40% of it in $VTI like today.

It's okay to take your time thinking about the rest. That starts you off with a very conservative allocation, which should be sufficient to lap that low interest rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 24, 2021, 05:35:11 AM
[note: the tone of this post is intended to be light-hearted, which might not be easily conveyed]

Whelp! After being near-models of financial efficiency my parents just gone and done something stupid!  After 43 (?) years they paid off the remaining 6 years of their mortgage in one lump sum, despite having a sub-3% fixed rate. The horror! The personal disgrace! Not only did I pay off my own super-low-rate mortgage when we sold our home (and moved into a rental), but now my parents nixed theirs voluntarily.

It all started about a year ago when my parents tried for another cash ReFi to pull out some equity.  They were shocked and a big angry when they were denied, despite having credit scores north of 800 and some $2MM in liquid assets. The sole reason? No income (both retired in the last five years). To the lenders it was as simple as that, never-mind my mother’s pension and father’s SS exceed the mortgage payment by a large multiple.
“Oh well” they said, “we’ll just continue paying as normal for the next 6 years until it goes away”. 

So what changed?  A stupid financial planning session with their (fee-based) financial advisor, and of course Covid (because everything in the world seems to have been impacted by Covid).  You see, in 2020 my parents had planned a family reunion for their 50th and a great big extravagant trip, which were canceled (because: Covid). Their monthly expenses also plummeted as they weren’t eating out or visiting their grandkids or, well, anything.  Meanwhile, their assets have gone way up along with the market. So they had this large chunk of cash sitting unused. Which the advisor saw towards the end of a tiring session about their assets and he was like “oh, this cash here would cover most of oyur mortgage balance, let’s just nix that entirely.’  My parents weakly objected but he was all enthusiastic about the idea and so they did it, and it’s gone, and if the recent lending experience is any indication they’ll never take out another fixed-rate loan in their lives.

Honestly, they are fine either way. More than fine. Waaay more than fine, as they both ‘overshot’ their retirement plans.  But I am kinda sad somehow that their steadfast adherence to holding a fixed, low-rate mortgage has disappeared. Ironically, they still have their “mortgage sinking fund” which is several times greater than their origional mortgage.  The dividends pay off the property taxes, but the account keeps growing. I guess they are talking about donating that in one lump sum in a few years, once they figure what life without a mortgage feels like.

…honestly, I don’t know why you folks keep letting me post in this thread
;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 24, 2021, 08:55:26 AM
Hahaha, you know we don't  have a mortgage on our primary home either, right?* I know and respect others who teach differently, but I have no problem with people paying off their mortgages AFTER they hit their FI number. It's just stunningly sub optimal to do so before then. Sounds like your parents will be fine, just fine :-)

DH is looking at retiring very soon and we were considering taking out a mortgage before he does, simply because it's the cheapest money available, but it seems there's an inheritance headed our way, so we probably won't.

*General Note: We did not pay it off early, we never had one. And our rentals have mortgages. So we still have more mortgages than average, I suppose.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on July 29, 2021, 11:41:12 AM
If you refinanced in the last year you might want to look again.
Locked last night with Better, 30 yr 2.75 with approx $500 in credit (yes, they are paying me to borrow money at 2.75). Lender credit at that rate is in the thousands, the $500 surplus is whats left after loan costs.
Or switch to 2.875 (my current rate) with a few thousand in credit, decisions, decisions...
Amex is running a promo with Better for  $2000 statement credit with a successful re fi also, more free money.
Better has a well done web portal that will show you their rates, but not their best rates.
If you sign up with Bankrate you will see an even better rate for Better. Screenshot it and send it to the LO and they will re set your rate table.
Title: Re: DONT Payoff your Mortgage Club
Post by: mckaylabaloney on July 29, 2021, 11:49:22 AM
Amex is running a promo with Better for  $2000 statement credit with a successful re fi also, more free money.

Wow I wish I didn't know this lol. I refinanced with Better earlier this summer and it looks like the Amex offer started...the DAY AFTER I closed.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on July 31, 2021, 12:45:05 PM
DW got a larger than expected raise. Curiously, the mortgage payment didn't go up. Don't bankers index these things to inflation?!?!?

I'd love to refinance but its hard to beat 2.75% :(
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 31, 2021, 01:22:26 PM
DW got a larger than expected raise. Curiously, the mortgage payment didn't go up. Don't bankers index these things to inflation?!?!?

I'd love to refinance but its hard to beat 2.75% :(
Oh god, I'm so jealous. Not of the raise, but that sexy interest rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on July 31, 2021, 06:37:54 PM
If you refinanced in the last year you might want to look again.
Locked last night with Better, 30 yr 2.75 with approx $500 in credit (yes, they are paying me to borrow money at 2.75). Lender credit at that rate is in the thousands, the $500 surplus is whats left after loan costs.
Or switch to 2.875 (my current rate) with a few thousand in credit, decisions, decisions...
Amex is running a promo with Better for  $2000 statement credit with a successful re fi also, more free money.
Better has a well done web portal that will show you their rates, but not their best rates.
If you sign up with Bankrate you will see an even better rate for Better. Screenshot it and send it to the LO and they will re set your rate table.

Correction: the credit looks like $1200, plus or minus on 2.75. Crazy.
Also, I learned about this Bankrate/Better play on Bogleheads refinance thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on August 01, 2021, 07:48:09 AM
Then there is inflation. Buy it now, pay it back later with inflated dollars that literally cost you less.
Very few loans have interest rates below inflation (and all of them that I've seen were attached to the purchase of overpriced consumer goods). Doesn't take away from the other parts of your arguments.
I would change that to "very few loans right now have interest rates below inflation." It wouldn't take much of a bump in inflation to cause a huge number of people to have mortgage rates less than inflation. Will it happen in the next 30 years? We'll see.

And just like that (a bit under two years from the post), most people who borrowed money for a residence in the past few years have a mortgage rate that is below inflation.
https://www.reuters.com/business/finance/us-consumer-prices-surge-june-2021-07-13/ (https://www.reuters.com/business/finance/us-consumer-prices-surge-june-2021-07-13/)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 02, 2021, 12:47:55 PM
I don't think anyone studying the problem thinks we can sustain this rate of inflation over the remaining 29.3 years of my mortgage, tho
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on August 02, 2021, 03:58:45 PM
I don't think anyone studying the problem thinks we can sustain this rate of inflation over the remaining 29.3 years of my mortgage, tho
Depends on what you mean by "this rate." From 1967 to 1985, inflation didn't drop below 3.0% on an annual basis, a rate people are getting these days on mortgages. If we were to exclude the 1.9% in 1986, we could make it to 1993 (almost the full 30 years) without inflation dropping below 3.0% on an annual basis.

That being said, if you're talking about inflation on a monthly basis, the 5% inflation rate of the last quarter probably isn't going to last 30 years.
https://www.usinflationcalculator.com/inflation/historical-inflation-rates/ (https://www.usinflationcalculator.com/inflation/historical-inflation-rates/)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 04, 2021, 06:34:16 AM
would be useful to verify withdrawal rate that was safe for 1967-1985 period?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 04, 2021, 07:25:34 AM
Every economist I listen to stresses that “one quarter a trend does not make” with regard to macroeconomics and inflation in particular. Yet everyone still gets in a tizzy over a couple numbers above 3%.

Personally I’d love for the rolling five year average to hover just below 3%.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 04, 2021, 07:09:11 PM
All y’all talking about rates made me curious, so I went and looked at better’s site, and we could refinance to a 20-year at 2.375. We would get a 500 credit and pay 251 more a month (we currently pay ~3000/mo with taxes, etc on a 30 year fixed, we are 5 years in with no plans to move). I’m curious how y’all would evaluate something like that?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 05, 2021, 06:34:16 AM
All y’all talking about rates made me curious, so I went and looked at better’s site, and we could refinance to a 20-year at 2.375. We would get a 500 credit and pay 251 more a month (we currently pay ~3000/mo with taxes, etc on a 30 year fixed, we are 5 years in with no plans to move). I’m curious how y’all would evaluate something like that?

I’m on my phone and unable to quickly do the math - what is your current rate on your 30y (25 remaining)?

At a quick glance it doesn’t seem worth it to pay $251 more each month ($3k/y) to be done five years sooner. Even with sub par returns $3k of DCA over 20 years should net $100k
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 05, 2021, 08:03:46 AM
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.


Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 05, 2021, 08:17:00 AM
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.
Uhhh...
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on August 05, 2021, 08:28:00 AM
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.
Based on the numbers you've provided it looks like you have about $500k in principal.

Even though the actual number of dollars of interest saved by going to the 20 year rate may be $100k, with 2% inflation, the value of the money paid back is only $50k more (in today's dollars). At 3% inflation, the value difference drops to $35k.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 05, 2021, 09:12:08 AM
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.
Uhhh...

Can you explain what you mean there?
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on August 05, 2021, 09:17:28 AM
What rate can you get off you refinance to a new 30 year term?
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 05, 2021, 09:20:16 AM
What rate can you get off you refinance to a new 30 year term?

Great question.  FWIW I am not interested in paying off my mortgage early, exactly. I was just trying to compare options. My husband has an interest in our mortgage being paid off before he retires, so I was interested in the 20 year because it scratches his itch there.

If we refinance to a 30 year, we could get a rate of 2.25 with a break even period of 2 years, 9 months. Given that we have zero plans to move, this may be a better option. If we wanted not to pay points, we could get a $300 credit on a 2.625 rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 05, 2021, 09:21:07 AM
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.
Based on the numbers you've provided it looks like you have about $500k in principal.

Even though the actual number of dollars of interest saved by going to the 20 year rate may be $100k, with 2% inflation, the value of the money paid back is only $50k more (in today's dollars). At 3% inflation, the value difference drops to $35k.

Thanks @YttriumNitrate . This is the kind of math that I need in my life.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on August 05, 2021, 10:49:43 AM
What rate can you get off you refinance to a new 30 year term?

Great question.  FWIW I am not interested in paying off my mortgage early, exactly. I was just trying to compare options. My husband has an interest in our mortgage being paid off before he retires, so I was interested in the 20 year because it scratches his itch there.

If we refinance to a 30 year, we could get a rate of 2.25 with a break even period of 2 years, 9 months. Given that we have zero plans to move, this may be a better option. If we wanted not to pay points, we could get a $300 credit on a 2.625 rate.

I went with the "no cost" option twice in the last year, both times moving down in rate. That makes the most sense to me even though I am not planning on moving, ever. It gives you better options if rates continue their descent.
It's really just the paperwork hassle, which I'm willing to do.
YMMV
Try the Bankrate trick, Better doesn't give you their '"best" unless you play the game a little.
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on August 05, 2021, 01:12:39 PM
What rate can you get off you refinance to a new 30 year term?

we locked a 30 yr at 2.875% with a cash out refi to a 70% LTV. That rate comes with ~$2,600 in lender credits, basically making it a free loan. the 2.75% cost about $100 and would have saved $30 a month

Rates for loans with out cash out are lower
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 05, 2021, 01:19:08 PM
What rate can you get off you refinance to a new 30 year term?

Great question.  FWIW I am not interested in paying off my mortgage early, exactly. I was just trying to compare options. My husband has an interest in our mortgage being paid off before he retires, so I was interested in the 20 year because it scratches his itch there.

If we refinance to a 30 year, we could get a rate of 2.25 with a break even period of 2 years, 9 months. Given that we have zero plans to move, this may be a better option. If we wanted not to pay points, we could get a $300 credit on a 2.625 rate.

Under those circumstances, here's what I'd do.  If you are confident you won't move in the next 2 years, take the 2.25% refi (if not, the 2.625 is still better than your existing).  Then, to satisfy your husband's "itch" to have a paid off mortgage, set up a "house sinking fund" invested based on your AA (I'd do a simple index fund).  Plug the $280(ish) you 'save' each month by having a lower rate into your sinking fund and forget about it.  In 20 years there should be well over $100k in there.  If you still feel like it, you can pay off the remainder of your mortgage once the balance in your sinking fund exceeds your remaining mortgage.  If you are like my parents, after 20 years of inflation and pay raises the monthly PI payment will seem so inconsequential and the six-figures in your 'sinking fund' so substantial that you'll just laugh and keep the mortgage, and the money.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on August 05, 2021, 01:31:08 PM
Amex is running a promo with Better for  $2000 statement credit with a successful re fi also, more free money.
I've been looking into this, and ever since Fidelity's rewards card went from Amex to Visa I have not had an Amex card. So, if I need to get an Amex card, the question is now what is the best card that qualifies for the $2000 statement? Ideally it would be something with no annual fee and some sort of reward program or other signup incentive (e.g., 60,000 frequent flier miles).
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 05, 2021, 01:54:42 PM
What rate can you get off you refinance to a new 30 year term?

Great question.  FWIW I am not interested in paying off my mortgage early, exactly. I was just trying to compare options. My husband has an interest in our mortgage being paid off before he retires, so I was interested in the 20 year because it scratches his itch there.

If we refinance to a 30 year, we could get a rate of 2.25 with a break even period of 2 years, 9 months. Given that we have zero plans to move, this may be a better option. If we wanted not to pay points, we could get a $300 credit on a 2.625 rate.

Under those circumstances, here's what I'd do.  If you are confident you won't move in the next 2 years, take the 2.25% refi (if not, the 2.625 is still better than your existing).  Then, to satisfy your husband's "itch" to have a paid off mortgage, set up a "house sinking fund" invested based on your AA (I'd do a simple index fund).  Plug the $280(ish) you 'save' each month by having a lower rate into your sinking fund and forget about it.  In 20 years there should be well over $100k in there.  If you still feel like it, you can pay off the remainder of your mortgage once the balance in your sinking fund exceeds your remaining mortgage.  If you are like my parents, after 20 years of inflation and pay raises the monthly PI payment will seem so inconsequential and the six-figures in your 'sinking fund' so substantial that you'll just laugh and keep the mortgage, and the money.

That is helpful. FWIW I think my husband is less likely to worry about this in 20 years than he thinks.  We both have tenure in our positions, so there is zero possibility that we move. I will talk with him about these two options, and see where we land. Definitely feels worth pulling the trigger for nearly a percentage point difference.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 05, 2021, 04:27:49 PM
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.
Uhhh...

Can you explain what you mean there?
I don't have time today, alas. Maybe someone else will jump in and explain there's a better way to approach this. You wouldn't be "saving" anything if you took that same amount of money and invested it instead. For now, I'll just say I would strongly encourage you to take @nereo's suggestion. Grab the low rate and figure out the details later.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 05, 2021, 05:17:37 PM
Thanks @nereo. Current rate is 3.125. The interest savings are about 100k if we refinance.
Uhhh...

Can you explain what you mean there?
I don't have time today, alas. Maybe someone else will jump in and explain there's a better way to approach this. You wouldn't be "saving" anything if you took that same amount of money and invested it instead. For now, I'll just say I would strongly encourage you to take @nereo's suggestion. Grab the low rate and figure out the details later.
Fair enough. I just wanted to make sure I wasn’t making a obviously dumb mistake, something that should’ve been incredibly obvious. I will admit that part of me was worried that I was a butt of a joke here.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on August 05, 2021, 05:24:18 PM
I’m debt free!  Of course now I’m a renter.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on August 05, 2021, 05:44:20 PM
Amex is running a promo with Better for  $2000 statement credit with a successful re fi also, more free money.
I've been looking into this, and ever since Fidelity's rewards card went from Amex to Visa I have not had an Amex card. So, if I need to get an Amex card, the question is now what is the best card that qualifies for the $2000 statement? Ideally it would be something with no annual fee and some sort of reward program or other signup incentive (e.g., 60,000 frequent flier miles).

I picked the "Cash Magnet" amex for all those reasons. They have a lot of different cards.
I got pre-approved but I'm waiting until I'm farther along in the refi before I apply. I wouldn't get the card if it weren't for the promo.
The Better loan officer said I can get the card any time up to closing.
Also I will check with amex when applying to make sure it qualifies for the offer.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on August 06, 2021, 06:55:12 AM
Amex is running a promo with Better for  $2000 statement credit with a successful re fi also, more free money.
I've been looking into this, and ever since Fidelity's rewards card went from Amex to Visa I have not had an Amex card. So, if I need to get an Amex card, the question is now what is the best card that qualifies for the $2000 statement? Ideally it would be something with no annual fee and some sort of reward program or other signup incentive (e.g., 60,000 frequent flier miles).

I picked the "Cash Magnet" amex for all those reasons. They have a lot of different cards.
I got pre-approved but I'm waiting until I'm farther along in the refi before I apply. I wouldn't get the card if it weren't for the promo.
The Better loan officer said I can get the card any time up to closing.
Also I will check with amex when applying to make sure it qualifies for the offer.

Thanks! I'll definitely check out that card. Regarding the timing of when to get the card, here's the response I got:
Quote
To answer your question, you do not need to start a new application, once you have locked your Rate Table in your Better Mortgage Platform our system will ask you to enter in your AMEX card number.  You will need to provide this information prior to closing in order to receive the statement credit.

We not have restrictions as to whether you can apply for an AMEX credit card, and you can call the 1-800 number on the back of your card to check whether this card is eligible for the promotion.  Please be mindful that opening a new credit card may potentially impact your credit score, which may affect loan qualification.

I'll probably get the card sooner rather than later just to avoid a potential surprise of accidentally getting one that isn't eligible when I'm far along in the refi process.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 06, 2021, 04:50:04 PM
Welp, we locked in a refi rate with better... 2.25%.  we were able to negotiate their feeds down quite a bit with the help of some better rates on bank rate.  Altogether, pretty happy with the experience so far.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 10, 2021, 01:54:43 PM
Re-financed to a 2.75%, 30yr, -$4000 closing costs about 9 months ago.

About ready to have another go at it. 
Currently owe $617k on ~1.2M.  Super-confirming limit is $752k where I live, so I want to cash-out-refi 135k to maximize the banks cheap leverage. (assuming this makes sense?)
Could look into jumbo terms, but normally they are much worse, no?

Still torn on the 15yr or 30yr vehicle. Will likely retire in ~5 years and may not want to carry the mortgage due to ACA/tax etc (live in CA), need to read more here...

Who has the best rates/terms these days?  Will start some quotes now with costco, loandepot etc.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 10, 2021, 02:55:17 PM
how much more can U improve on 2.75% if you stick with 30-year?
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on August 10, 2021, 03:05:34 PM
I always forget about Costco.
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on August 10, 2021, 03:27:00 PM
Who has the best rates/terms these days?  Will start some quotes now with costco, loandepot etc.

check out amerisave
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 10, 2021, 03:39:35 PM
how much more can U improve on 2.75% if you stick with 30-year?

Good question. Maybe not much at all? But if I can also cash out refi the 135k to maximize cheap leverage AND interest tax deduction etc, it may still be worth it, even at the same 2.75% rate?

I sort of want as much cheap leverage as absolutely possible..
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on August 10, 2021, 03:58:16 PM
how much more can U improve on 2.75% if you stick with 30-year?

Good question. Maybe not much at all? But if I can also cash out refi the 135k to maximize cheap leverage AND interest tax deduction etc, it may still be worth it, even at the same 2.75% rate?

I sort of want as much cheap leverage as absolutely possible..

you should be in that ball park, i think i am quoted at 2.875% 30 yr 70% LTV cashout with ~$2600 in lender credits (so basically no cost) but as always YMMV
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 10, 2021, 06:09:39 PM
I always forget about Costco.
We Love Costco, but have checked them repeatedly for re-fi and homeowner's insurance and they've never been even remotely competitive, alas.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on August 11, 2021, 01:24:54 AM
I always forget about Costco.
We Love Costco, but have checked them repeatedly for re-fi and homeowner's insurance and they've never been even remotely competitive, alas.

Same... never found a good deal on travel either.  Found an OK deal on a car once (not the best price but hassle free)

edit: actually I take it back for car rentals costco has been really good to me.  I play the "book and rebook" game where I book a new reservation whenever I see the price drop.  There's also a website that will track those price drops for you

Title: Re: DONT Payoff your Mortgage Club
Post by: Flyingstache on August 12, 2021, 12:01:56 PM
Hello, was recommended to post in this thread to learn from the experts!

Curious about if we should do a cash out refi back to 30yrs & invest the $$$ from the refi. Here are some details

Us -  30yr old teachers with 2 kids under 3 (hope to have more in the future). No debt other than house. Have $60k in savings currently & about $200k in investments. Living in one of the fastest growing counties in OH

House - Purchased in 2018 for $167,500. Refinanced in March 2020 to 15yr at 2.75%. Current balance on the loan is about $97k. Due to crazy housing market, home would currently appraise for $225-250k based on similar homes selling in our neighborhood. Paying $1,100/month with insurance & taxes

Will likely move within the next 2-5yrs. Will either sell the house or keep it as our first rental property. Similar homes are renting for $1,600/month with some up to $2k due to limited options.

So, knowing we will likely move in the next few years, does it make sense to refinance & do a cash out to have more money to invest or do we just keep doing what we are doing?

Thanks for any insights & have a great day!
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on August 12, 2021, 12:08:55 PM
With the short time frame, I'm thinking "eh either way". If you knew for sure you'd keep it for a long time, either living in it or eventually rent it out, then seems like a no-brainer to me to do the refinance. If you might sell in 2 years, that reduces the certainty the market will do better than your interest rate vs. just getting a larger check when you close on the sale.

Have you gotten detailed quotes on refinancing? What terms are available to you?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 12, 2021, 12:21:38 PM
Hello, was recommended to post in this thread to learn from the experts!

Curious about if we should do a cash out refi back to 30yrs & invest the $$$ from the refi. Here are some details

Us -  30yr old teachers with 2 kids under 3 (hope to have more in the future). No debt other than house. Have $60k in savings currently & about $200k in investments. Living in one of the fastest growing counties in OH

House - Purchased in 2018 for $167,500. Refinanced in March 2020 to 15yr at 2.75%. Current balance on the loan is about $97k. Due to crazy housing market, home would currently appraise for $225-250k based on similar homes selling in our neighborhood. Paying $1,100/month with insurance & taxes

Will likely move within the next 2-5yrs. Will either sell the house or keep it as our first rental property. Similar homes are renting for $1,600/month with some up to $2k due to limited options.

So, knowing we will likely move in the next few years, does it make sense to refinance & do a cash out to have more money to invest or do we just keep doing what we are doing?

Thanks for any insights & have a great day!
I would do it. My younger brother ignored ignored my advice (surprise, right?) and re-fied to a 15 year loan. A few years later, they decided to buy a bigger house and keep the current one. It was a huge scramble to re-fi back to a 30 year loan. He shoulda listened to his big sister...

A 30 year loan gives you the most options, even if you don't end up keeping it. Find a loan where the lender pays most or all of the fees. They're out there. Oh, wait. They're out there for owner occupied properties. You'll never get these rock-bottom, low-or-no fee re-fis on investment properties, #askmehowiknow.

Do it now. We know you won't blow the money on shiny shit or individual stocks, 'cuz you're a Mustachian, right?
Title: Re: DONT Payoff your Mortgage Club
Post by: Flyingstache on August 12, 2021, 07:04:16 PM
@dandarc & @Dicey thanks so much for the input & advice!

Assuming we do the refinance, would you suggest doing a pure refinance or doing the cash out refi? If doing the cash out refi would you suggest going all the way back to 80% LTV? If doing so, it would be best to invest all the money correct?

Thank you again for your help!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 12, 2021, 10:53:20 PM
@dandarc & @Dicey thanks so much for the input & advice!

Assuming we do the refinance, would you suggest doing a pure refinance or doing the cash out refi? If doing the cash out refi would you suggest going all the way back to 80% LTV? If doing so, it would be best to invest all the money correct?

Thank you again for your help!
I can't tell you what to do with it*. A lot would depend on the way your other $200k is invested**, but I can give you something that might be more valuable. Check with Rate Plus. DH was very favorably impressed with their rates and fee schedule, until they found out we were looking to re-fi our rentals, whomp, whomp. I'm not sure you can get 80% LTV on a re-fi, but if you are good with money and have the nerves to ride through a market downturn without freaking out, I'd take as much as I could get.

*Well, I sort of can: Always, always read JLCollinsNH for investment strategies and use Vanguard.

**I'm huge a fan of big, fat emergency funds, but if that's the $60k "savings" you also listed, I'd be tempted to put some of that to work. In your circumstances, I think it's way too much. I think 6 months of net pay (not gross earnings) is sufficient, and it looks like you're well beyond that. Having so much idle cash is really a drag on your growth.

Title: Re: DONT Payoff your Mortgage Club
Post by: ender on August 13, 2021, 06:13:04 AM
Anyone doing cash out refinances recently?

Zillow's appraisal (different than zestimate) pegs our house value high enough that if we wanted to we could keep 20% equity and withdraw almost $50k.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fire2025 on August 13, 2021, 08:16:13 AM
I'm thinking about doing a cash out refi and pulling 50k from my home equity. 

I've always been a DPOYM person, but the mental game of pulling equity, to invest, is very different. 

I have 235k in equity so this would only be a blip.  But I'm still having a hard time pulling the trigger.
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on August 13, 2021, 08:44:11 AM
My cashout refi closes next week, i stayed below a 70%LTV and the lender waived the appraisal, i am not sure where they got the home value. According to them the value went up $135k in about 8 months.

The cost of the increased monthly payments vs the cash we are getting has a 20 year break even point. i am 90% certain by that time we will have either moved or have the cash to payoff the mortgage
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 13, 2021, 09:09:55 AM
What’s the sweet spot for a cash out refi?

70% LTV or up to jumbo limits? 

Just saw a few folks on WCI lock a 2.375% 30 year, wild !
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 13, 2021, 11:56:25 AM
What’s the sweet spot for a cash out refi?

70% LTV or up to jumbo limits? 

Just saw a few folks on WCI lock a 2.375% 30 year, wild !

We locked a 2.25% 30 year last week.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 13, 2021, 01:29:08 PM
What’s the sweet spot for a cash out refi?

70% LTV or up to jumbo limits? 

Just saw a few folks on WCI lock a 2.375% 30 year, wild !

We locked a 2.25% 30 year last week.
Wow! What were the fees? Did you have to pay any points?
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 13, 2021, 01:59:38 PM
What’s the sweet spot for a cash out refi?

70% LTV or up to jumbo limits? 

Just saw a few folks on WCI lock a 2.375% 30 year, wild !

We locked a 2.25% 30 year last week.

Yes tell more ! I’m about to take out as much as the bank will legally let me at 2.25 :)
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on August 13, 2021, 04:00:53 PM
i could have gotten 2.00% but it was ~$17k in lender points
My 2.875%, where i locked, had ~$2600 in lender credits
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on August 13, 2021, 05:40:04 PM
What’s the sweet spot for a cash out refi?

70% LTV or up to jumbo limits? 

Just saw a few folks on WCI lock a 2.375% 30 year, wild !

From what I saw to lock that low on a 30 would require quite a bit of cost.
I locked @ 2.75 with credit back. I believe the max you can get back in credits is $2000 (this is for a non cash out); my lender is tweaking the loan amount slightly so I hit that max.
Better than no cost, they are paying you.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 13, 2021, 10:46:46 PM
i could have gotten 2.00% but it was ~$17k in lender points
My 2.875%, where i locked, had ~$2600 in lender credits
Seventeen grand! How big is the loan?
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 14, 2021, 11:36:40 AM
So, we locked a 2.25 30 year last week. We did have to pay a point, but we have no plans to move at any point, and the payoff on point is a little over a year. In return our monthly goes down significantly, which will allow us to dollar cost average more on a rolling basis into the market. We have the cash to be able to pay the point without taking anything out of the market, so we felt this was more than worth it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 14, 2021, 07:37:25 PM
So, we locked a 2.25 30 year last week. We did have to pay a point, but we have no plans to move at any point, and the payoff on point is a little over a year. In return our monthly goes down significantly, which will allow us to dollar cost average more on a rolling basis into the market. We have the cash to be able to pay the point without taking anything out of the market, so we felt this was more than worth it.
I'd probably do the same under the circumstances. Congratulations!
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on August 15, 2021, 09:33:25 PM
I notice I can likely do a cash out of $100k+ at either my current rate of 2.75% or maybe even 2.625%. The goal would to be maximize the "conforming loan" limit, and then I would be free to pursue lower interest rates exclusively for a few years. But I would probably restrain any future refinances to the greater of 70% and the conforming limit unless something amazing popped up. I ran it by the wife, who says "I don't know much about investing. Did you ask that mustache?" Consider yourselves asked :).

The money would probably go to 60% VEA 40% VWALX*, giving a total taxable split 1/3 RZV, 1/3 VEA, 1/3 VWALX. Doing my best to backtest that allocation, it gives a pleasant combo of better returns than all but a 100% VTI stock allocation, but better worse case scenarios that most "guru" allocations. Also, a mixture of VEA and VWALX distributes a yield of about 2.625%, similar to the mortgage rate. Monthly mortgage payments are higher because of principal, but the investments (stocks anyhow) are likely to grow dividends over time.

Of course we could just try for a rate reduction. Nothing wrong with a lower monthly payment by a few dozen dollars either.

*unless I try to get a $500 brokerage bonus from etrade or somewhere.

Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 16, 2021, 11:27:04 AM
Loandepot is quoting 2.75%, 68% LTV @ 14K in points, to maximize loan amount to the conforming limits (750k).
If my appraisal can bring us to 60% LTV, could save another ~$3k in costs. (unlikely)

3.125% with no points with the 135k cash out. Eek not great.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 16, 2021, 01:01:23 PM
Loandepot is quoting 2.75%, 68% LTV @ 14K in points, to maximize loan amount to the conforming limits (750k).
If my appraisal can bring us to 60% LTV, could save another ~$3k in costs. (unlikely)

3.125% with no points with the 135k cash out. Eek not great.
Can you please explain what isn't great about that?
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on August 16, 2021, 02:40:20 PM
i could have gotten 2.00% but it was ~$17k in lender points
My 2.875%, where i locked, had ~$2600 in lender credits
Seventeen grand! How big is the loan?

its about 2 points i think, loan of ~$465k
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 16, 2021, 04:35:49 PM
Loandepot is quoting 2.75%, 68% LTV @ 14K in points, to maximize loan amount to the conforming limits (750k).
If my appraisal can bring us to 60% LTV (1.25M), could save another ~$3k in costs. (unlikely)

3.125% with no points with the 135k cash out. Eek not great.
Can you please explain what isn't great about that?

Ha, the rate!  We are at 2.75% now, 30yr. 

All of this talk of 2.2, 2.3, ... 2.6 has spoiled me.
I will have to call a few other lenders to compare.

We'd likely either invest the cash-out into taxable or buy our first rental property (looking seriously as airbnb short term rentals as something fun to do during FIRE).

Also looked into a 15yr.
2.375 no points.  Increase loan amount to max conforming of 752,350, for a total monthly payment of $6079.

Can you explain to me why you think it is GREAT? :)



Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 17, 2021, 05:31:38 AM
Because I'm much older than you are. I remember having excellent credit and being elated to get an "only" 7% rate mortgage on a new purchase. The difference between 2.75 and 3.125% is negligible, especially with so much cash out. Don't let the perfect be the enemy of the good.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 17, 2021, 05:55:43 AM
I notice I can likely do a cash out of $100k+ at either my current rate of 2.75% or maybe even 2.625%. The goal would to be maximize the "conforming loan" limit, and then I would be free to pursue lower interest rates exclusively for a few years. But I would probably restrain any future refinances to the greater of 70% and the conforming limit unless something amazing popped up. I ran it by the wife, who says "I don't know much about investing. Did you ask that mustache?" Consider yourselves asked :).

The money would probably go to 60% VEA 40% VWALX*, giving a total taxable split 1/3 RZV, 1/3 VEA, 1/3 VWALX. Doing my best to backtest that allocation, it gives a pleasant combo of better returns than all but a 100% VTI stock allocation, but better worse case scenarios that most "guru" allocations. Also, a mixture of VEA and VWALX distributes a yield of about 2.625%, similar to the mortgage rate. Monthly mortgage payments are higher because of principal, but the investments (stocks anyhow) are likely to grow dividends over time.

Of course we could just try for a rate reduction. Nothing wrong with a lower monthly payment by a few dozen dollars either.

*unless I try to get a $500 brokerage bonus from etrade or somewhere.

Which lender?
Planning to do exactly the same.

Confirming limit where I live is $752,350. Will cash out refi up to that amount to maximize leverage. That would put us at ~63% LTV.

The lender I spoke to today expects a massive increase to the confirming limit for next year (jan1). So assuming rates stay low, and housing keeps appreciating, could likely redo this again. And then even one final time a few months later  to lock in a low (non cash out) rate. :)
Rates seem to be a bit higher for cash-outs.

Folks on bogleheads are all using better.com to match rates and then receive a $2000 AMEX statement upon close. Will look into this.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 17, 2021, 06:15:57 AM
Because I'm much older than you are. I remember having excellent credit and being elated to get an "only" 7% rate mortgage on a new purchase. The difference between 2.75 and 3.125% is negligible, especially with so much cash out. Don't let the perfect be the enemy of the good.

Agreed - you are right. Plus I can likely refinance again :)

Planning to hit FI  in ~5 years. I still need to do a bit more reading in this thread…  Not sure if carrying a large mortage (4-6k/mo) into FIRE is wise. Was also considering how nice it would be to not have a payment on our primary … and to instead, carry a mortgage on 3-4 rentals into FIRE. Then we’d hedge our bets a bit and could always unwind the rentals in the event of some major retractions. 

But then again, these historically low rates and inflation fears make debt look …  so very good.  Very much want to load up to my ‘safe limit’.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 17, 2021, 06:29:15 AM
Because I'm much older than you are. I remember having excellent credit and being elated to get an "only" 7% rate mortgage on a new purchase. The difference between 2.75 and 3.125% is negligible, especially with so much cash out. Don't let the perfect be the enemy of the good.

I was talking to my parents about our mortgage refinance recently, and my dad reminded me that when they bought their land in the 80s in NorCal, they were stuck with a mortgage with a rate that was nearly 18% *(they had excellent credit, too).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 17, 2021, 07:40:31 AM
Because I'm much older than you are. I remember having excellent credit and being elated to get an "only" 7% rate mortgage on a new purchase. The difference between 2.75 and 3.125% is negligible, especially with so much cash out. Don't let the perfect be the enemy of the good.

I was talking to my parents about our mortgage refinance recently, and my dad reminded me that when they bought their land in the 80s in NorCal, they were stuck with a mortgage with a rate that was nearly 18% *(they had excellent credit, too).
Sometimes I kick my past self for not investing in equities sooner. Then I remember that I was buying CD's that were paying up to 16% for as long as 60 months. That became the down payment on my first house when mortgage rates finally started coming down. Ah yes, the olden days, lol. I don't remember what the rate was, but it was obviously more than the 7% I was happy to get on the next property.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on August 17, 2021, 08:12:04 AM
Rather than increasing rate on whole loan, you might see if you can get a 30 year fixed-rate home equity loan at a "good enough" interest rate just for the cash out. Depends on the details, but keeping existing balance at 2.75% and only paying a higher rate on the cash-out might work out better than 3.125% on the whole amount.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 17, 2021, 09:38:36 AM
Rather than increasing rate on whole loan, you might see if you can get a 30 year fixed-rate home equity loan at a "good enough" interest rate just for the cash out. Depends on the details, but keeping existing balance at 2.75% and only paying a higher rate on the cash-out might work out better than 3.125% on the whole amount.

Great point.  Will look into this. 

Though I don't entirely have a pressing need for the cash-out - my main goal was to hedge a bit and increase the amount of 'good' debt I am carrying forward.  Maybe that alone is crazy :)

A heloc may then also make a future refi more difficult (assuming I use the cash up)?  Hoping to even do this again in 2022 when the conforming limits increase.
If I do proceed, I would likely use the cash to make my first cash-flow-producing investment into RE (short or long term rental).

Working on other quotes now to see if I can't get closer to 2.75% (w/ either no points or discounted points).
~70% LTV seems like a fairly safe space to be.

Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on August 17, 2021, 11:55:17 AM
Just closed with Better on a thirty year at 2.75, cash back at closing $1996.00, loan amount $220,749 (tweaked slightly from $220,348 payoff amount for maximum cash back)
Applied for the Cash Magnet (spend $2000 in six months for a $200 bonus) card from Amex before closing for an additional $2,000 statement credit.
19 days from rate lock to closing.
Signed docs with mobile notary on my front porch, done in thirty minutes.
It is very easy to refi right now.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on August 17, 2021, 10:33:04 PM
I notice I can likely do a cash out of $100k+ at either my current rate of 2.75% or maybe even 2.625%. The goal would to be maximize the "conforming loan" limit, and then I would be free to pursue lower interest rates exclusively for a few years. But I would probably restrain any future refinances to the greater of 70% and the conforming limit unless something amazing popped up. I ran it by the wife, who says "I don't know much about investing. Did you ask that mustache?" Consider yourselves asked :).

The money would probably go to 60% VEA 40% VWALX*, giving a total taxable split 1/3 RZV, 1/3 VEA, 1/3 VWALX. Doing my best to backtest that allocation, it gives a pleasant combo of better returns than all but a 100% VTI stock allocation, but better worse case scenarios that most "guru" allocations. Also, a mixture of VEA and VWALX distributes a yield of about 2.625%, similar to the mortgage rate. Monthly mortgage payments are higher because of principal, but the investments (stocks anyhow) are likely to grow dividends over time.

Of course we could just try for a rate reduction. Nothing wrong with a lower monthly payment by a few dozen dollars either.

*unless I try to get a $500 brokerage bonus from etrade or somewhere.

Which lender?
Planning to do exactly the same.

Confirming limit where I live is $752,350. Will cash out refi up to that amount to maximize leverage. That would put us at ~63% LTV.

The lender I spoke to today expects a massive increase to the confirming limit for next year (jan1). So assuming rates stay low, and housing keeps appreciating, could likely redo this again. And then even one final time a few months later  to lock in a low (non cash out) rate. :)
Rates seem to be a bit higher for cash-outs.

Folks on bogleheads are all using better.com to match rates and then receive a $2000 AMEX statement upon close. Will look into this.
Sebonic is the one I am leaning toward (of the few I did more than a few seconds research on). As of this morning they said 2.75%, with a small lender points credit. Better doesn't serve my type, so they were never an option here.

In the mean time I am triple checking my assumptions before I yoink $100,000+. But, even investing in the S&P500 from the Y2K top, starting with $100,000 would have given much better results ($57,051) at the 2009 market bottom than DCA $408 per month* after starting with a $3,000 saved lender cost would have ($34,876). And if it was better at the bottom, it was definitely better after. And other asset allocations better yet.

*monthly payment on a $100,000 mortgage at 2.75%

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=4&endYear=2009&lastMonth=2&calendarAligned=true&includeYTD=false&initialAmount=3000&annualOperation=1&annualAdjustment=408&inflationAdjusted=false&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VFINX&allocation1_1=100
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on August 18, 2021, 06:21:51 AM
Just closed with Better on a thirty year at 2.75, cash back at closing $1996.00, loan amount $220,749 (tweaked slightly from $220,348 payoff amount for maximum cash back)
Applied for the Cash Magnet (spend $2000 in six months for a $200 bonus) card from Amex before closing for an additional $2,000 statement credit.
19 days from rate lock to closing.
Signed docs with mobile notary on my front porch, done in thirty minutes.
It is very easy to refi right now.

I did a preliminary thing with them for a cash out refi and it's... expensive to do a 30 year cash out refi.

For the same interest rate we have (2.875%) it'd be close to $5k in loan costs to cash out. Meh.
Title: Re: DONT Payoff your Mortgage Club
Post by: firelight on August 22, 2021, 05:00:41 PM
We are buying a house for 1.68M in Bay area with 25% downpayment and 1.75% interest rate(APR 2.175%) at 10/6 ARM. Currently, our principal + interest comes to $4501.27 per month. When we include hoa, insurance and property taxes, it goes up to $6200 per month. DH and I can afford to do extra principal-only payments on mortgage.

We are not sure how to calculate that on ARM and how to make sure we are using the full interest deductions.
1) What does $750,000 interest deductions mean? Is it 750k per year of deduction or is it over the life of the loan? For example, our loan is for 1.26M. Can we only deduct interest for 750k of that loan? How to calculate what that number is?

2) When does paying off early vs not make sense?

3) Is there any way to reduce the APR of the property? This is from Wells Fargo and they already gave their best for interest rate. I'm wondering if APR is just a formula result or is there any leeway in reducing it?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 23, 2021, 05:56:09 AM
@firelight we wish you the utmost success with this new property!

Here at the DNPYM club, we celebrate the flexibility that responsible use of mortgage debt can give you over the life of the loan. At its most basic, that means taking the extra money (you made it sound like you have some that you're considering for extra principal payments toward the mortgage), and instead investing it according to your investor policy statement.

In my own case, keeping liquid investments set aside--and that's the key, it's critical to save the extra--from my primary residence for 2013-2019 gave me the flexibility to move our household on our own time-table two years ago, as we bought the new property before selling the old one, and didn't need to go through the routine of living in a property while showing it. At the moment, we don't have a mortgage with anything like the low rates you're describing, but our payments are low enough that we're benefitting from the flexibility to set aside additional money for college planning for the kids and health care costs.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 23, 2021, 06:19:25 AM
@firelight we wish you the utmost success with this new property!

Here at the DNPYM club, we celebrate the flexibility that responsible use of mortgage debt can give you over the life of the loan. At its most basic, that means taking the extra money (you made it sound like you have some that you're considering for extra principal payments toward the mortgage), and instead investing it according to your investor policy statement.

In my own case, keeping liquid investments set aside--and that's the key, it's critical to save the extra--from my primary residence for 2013-2019 gave me the flexibility to move our household on our own time-table two years ago, as we bought the new property before selling the old one, and didn't need to go through the routine of living in a property while showing it. At the moment, we don't have a mortgage with anything like the low rates you're describing, but our payments are low enough that we're benefitting from the flexibility to set aside additional money for college planning for the kids and health care costs.

Echoing talltexan - we were uprooted due to COVID and job reassignments. I was amazed at how much of a benefit being able to purchase a new home without it being contingent on the sale of an existing home had in this hot housing market. It instantly put us right behind the 'cash buyers' and ahead of everyone else (especially since we could bring more cash to the table in the form of earnest money and a larger down payment).

Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on August 23, 2021, 06:34:18 AM
@firelight we wish you the utmost success with this new property!

Here at the DNPYM club, we celebrate the flexibility that responsible use of mortgage debt can give you over the life of the loan. At its most basic, that means taking the extra money (you made it sound like you have some that you're considering for extra principal payments toward the mortgage), and instead investing it according to your investor policy statement.

In my own case, keeping liquid investments set aside--and that's the key, it's critical to save the extra--from my primary residence for 2013-2019 gave me the flexibility to move our household on our own time-table two years ago, as we bought the new property before selling the old one, and didn't need to go through the routine of living in a property while showing it. At the moment, we don't have a mortgage with anything like the low rates you're describing, but our payments are low enough that we're benefitting from the flexibility to set aside additional money for college planning for the kids and health care costs.

Echoing talltexan - we were uprooted due to COVID and job reassignments. I was amazed at how much of a benefit being able to purchase a new home without it being contingent on the sale of an existing home had in this hot housing market. It instantly put us right behind the 'cash buyers' and ahead of everyone else (especially since we could bring more cash to the table in the form of earnest money and a larger down payment).

OMG yes, I would never ever buy and sell at the same time. That's just nuts.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on August 23, 2021, 07:56:47 AM
@firelight we wish you the utmost success with this new property!

Here at the DNPYM club, we celebrate the flexibility that responsible use of mortgage debt can give you over the life of the loan. At its most basic, that means taking the extra money (you made it sound like you have some that you're considering for extra principal payments toward the mortgage), and instead investing it according to your investor policy statement.

In my own case, keeping liquid investments set aside--and that's the key, it's critical to save the extra--from my primary residence for 2013-2019 gave me the flexibility to move our household on our own time-table two years ago, as we bought the new property before selling the old one, and didn't need to go through the routine of living in a property while showing it. At the moment, we don't have a mortgage with anything like the low rates you're describing, but our payments are low enough that we're benefitting from the flexibility to set aside additional money for college planning for the kids and health care costs.

Echoing talltexan - we were uprooted due to COVID and job reassignments. I was amazed at how much of a benefit being able to purchase a new home without it being contingent on the sale of an existing home had in this hot housing market. It instantly put us right behind the 'cash buyers' and ahead of everyone else (especially since we could bring more cash to the table in the form of earnest money and a larger down payment).

OMG yes, I would never ever buy and sell at the same time. That's just nuts.

can't agree with that more. Watching my good friends take a HELOC to tide them over when they bought a new house and before selling their old one was so stressful, and it wasn't even me doing it. They still talk about how much that sucked.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on August 23, 2021, 08:14:59 AM
I hope this came out of my original post (for any newcomers) that this isn't a group in which we celebrate slow paydown of the mortgage so that you're spraying money out in the world with ridiculous consumption. The purpose of the slow paydown is to locate other investments and commit to them for a long enough horizon that they can overtake the mortgage rate.

And learning how to locate those investments is part of the journey.
Title: Re: DONT Payoff your Mortgage Club
Post by: firelight on August 23, 2021, 12:41:00 PM
I totally agree on keeping the money working in stock market vs early payoff of mortgage at such low rates.

I'm only wondering if there is a time/scenario where it makes sense to do early payments. I've not found any so far (except for peace of mind, of course). So, I'm curious what I'm missing. I'd love to know your thoughts.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on August 23, 2021, 09:41:55 PM
I totally agree on keeping the money working in stock market vs early payoff of mortgage at such low rates.

I'm only wondering if there is a time/scenario where it makes sense to do early payments. I've not found any so far (except for peace of mind, of course). So, I'm curious what I'm missing. I'd love to know your thoughts.
Nope, never does :) pay it off all at once, or not at all, aka the bare minimum. Especially at 1.75%. Inflation will destroy that. 90% of a house is the worst amount to own, because you have all of the payments and none of the cash.

Edit:
3) Is there any way to reduce the APR of the property? This is from Wells Fargo and they already gave their best for interest rate. I'm wondering if APR is just a formula result or is there any leeway in reducing it?
That is a crazy high APR difference. You must be paying a boat load of points for that, or else fees extraordinaire. Probably not a good idea. Your APR should be within, like, 0.1% of the rate for example 1.75% --> 1.85% APR. Shop around. Even if you need WF to make closing, absolutely do not pay extra points or fees, make those go away. You can refinance later, but you can't get back the overpaid fees and points. Better to get a higher rate and lower upfront costs.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fire2025 on August 24, 2021, 09:45:33 AM
Hey all,
I have a question.  I'm doing a refi with a 50,000 cash out, going from 3.75/ 30yrs to 2.7/ 30yrs, 2000 in fees. Total loan 280K, 31% of house value.  Payment stays the same.  Original loan 273K in 2017. 

Cash out will go into the market in keeping with my current AA.

My partner, who is extremely debt averse, said I'm flushing the interest I've paid in the last 4 years down the toilet, with the refi.  And asked when the lower interest rate would cover that loss?
 
Sorry if I'm asking a stupid question.  But, what is the answer to the question of "what about the interest you've already paid when you refi"? 
Title: Re: DONT Payoff your Mortgage Club
Post by: Kem on August 24, 2021, 10:18:21 AM
Calculate interest paid and principal paid over the ‘lost’ period.

 

1.       The total interest paid over the life of the loan actually will go down x$.

2.       I am converting x$ of interest and x$ of principal in a non-productive asset into a productive asset tax free.

3.       50K in VTI will likely grow to a total return of at least 660K at the end of the 30 year period.  On the low end it could be 475K, on the upper end it could be 1.2M. 

4.       The only cost being the $2,000 now, the x$ of converted interest, plus the x$* years of remaining P&I payment.

5.       The opportunity cost is $26K (based on the $2K now) + the (additional $ noted above) reduced by 1.5x due to inflation adjustments.

6.       The increased productive liquidity actually reduces our financial risk.   

7.       That 660K pool will then provide 26K/year until our end of days.


Edit:  these are shoot from the hip off the top of my head numbers.... Please run actual return scenarios that you're comfortable with.
 
Title: Re: DONT Payoff your Mortgage Club
Post by: Flyingstache on August 25, 2021, 05:37:18 AM
@dandarc & @Dicey thanks so much for the input & advice!

Assuming we do the refinance, would you suggest doing a pure refinance or doing the cash out refi? If doing the cash out refi would you suggest going all the way back to 80% LTV? If doing so, it would be best to invest all the money correct?

Thank you again for your help!
I can't tell you what to do with it*. A lot would depend on the way your other $200k is invested**, but I can give you something that might be more valuable. Check with Rate Plus. DH was very favorably impressed with their rates and fee schedule, until they found out we were looking to re-fi our rentals, whomp, whomp. I'm not sure you can get 80% LTV on a re-fi, but if you are good with money and have the nerves to ride through a market downturn without freaking out, I'd take as much as I could get.

*Well, I sort of can: Always, always read JLCollinsNH for investment strategies and use Vanguard.

**I'm huge a fan of big, fat emergency funds, but if that's the $60k "savings" you also listed, I'd be tempted to put some of that to work. In your circumstances, I think it's way too much. I think 6 months of net pay (not gross earnings) is sufficient, and it looks like you're well beyond that. Having so much idle cash is really a drag on your growth.

Thanks so much for the advice.

I also think the $60k in savings (Ally) is too much but we have kept it there thinking we can use it as a down payment on our next home if we keep our current home as a rental. This $60k is something we need to re-evaluate!

The rest of our money is in Vanguard with some in a Traditional IRA (previous biz job 401k rollover) & Roth IRAs with the rest in the VTSAX fund.

Both of us come from families that were all about paying off your house as quickly as possible so this is all a big change of mindset for us!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fire2025 on August 25, 2021, 08:16:53 AM
Calculate interest paid and principal paid over the ‘lost’ period.

 

1.       The total interest paid over the life of the loan actually will go down x$.

2.       I am converting x$ of interest and x$ of principal in a non-productive asset into a productive asset tax free.

3.       50K in VTI will likely grow to a total return of at least 660K at the end of the 30 year period.  On the low end it could be 475K, on the upper end it could be 1.2M. 

4.       The only cost being the $2,000 now, the x$ of converted interest, plus the x$* years of remaining P&I payment.

5.       The opportunity cost is $26K (based on the $2K now) + the (additional $ noted above) reduced by 1.5x due to inflation adjustments.

6.       The increased productive liquidity actually reduces our financial risk.   

7.       That 660K pool will then provide 26K/year until our end of days.


Edit:  these are shoot from the hip off the top of my head numbers.... Please run actual return scenarios that you're comfortable with.

Kem thanks for this info.  I ran a bunch of numbers yesterday, from info here and around interwebs/ and tubes. 

I think what I'm seeing from his argument is a type of "sunk cost" issue.  Overtime this looks like the best choice, but time will reveal all.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on August 25, 2021, 03:27:47 PM
Hey all,
I have a question.  I'm doing a refi with a 50,000 cash out, going from 3.75/ 30yrs to 2.7/ 30yrs, 2000 in fees. Total loan 280K, 31% of house value.  Payment stays the same.  Original loan 273K in 2017. 

Cash out will go into the market in keeping with my current AA.

My partner, who is extremely debt averse, said I'm flushing the interest I've paid in the last 4 years down the toilet, with the refi.  And asked when the lower interest rate would cover that loss?
 
Sorry if I'm asking a stupid question.  But, what is the answer to the question of "what about the interest you've already paid when you refi"?

Interest is what you pay each month to keep the loan.  Every month you choose to either repay the loan entirely or pay interest.  Each month you “flush the interest down the toilet”…. It’s gone when you pay it.  Is it worth it?  To most here, yes, because flushing the interest allows us to turn on the fire hose of investment returns. 

But refinancing doesn’t re-flush the previously paid interest.  As already discussed it’s long gone.  Like you said, sunk cost fallacy.

An analogy.  Tell your partner you found a cheaper wireless carrier — you could even get an extra line for the same price if you wanted to — but don’t want to flush all your previous bill payments down the drain.  See if it feels the same.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fire2025 on August 25, 2021, 03:49:56 PM
Hey all,
I have a question.  I'm doing a refi with a 50,000 cash out, going from 3.75/ 30yrs to 2.7/ 30yrs, 2000 in fees. Total loan 280K, 31% of house value.  Payment stays the same.  Original loan 273K in 2017. 

Cash out will go into the market in keeping with my current AA.

My partner, who is extremely debt averse, said I'm flushing the interest I've paid in the last 4 years down the toilet, with the refi.  And asked when the lower interest rate would cover that loss?
 
Sorry if I'm asking a stupid question.  But, what is the answer to the question of "what about the interest you've already paid when you refi"?

Interest is what you pay each month to keep the loan.  Every month you choose to either repay the loan entirely or pay interest.  Each month you “flush the interest down the toilet”…. It’s gone when you pay it.  Is it worth it?  To most here, yes, because flushing the interest allows us to turn on the fire hose of investment returns. 

But refinancing doesn’t re-flush the previously paid interest.  As already discussed it’s long gone.  Like you said, sunk cost fallacy.

An analogy.  Tell your partner you found a cheaper wireless carrier — you could even get an extra line for the same price if you wanted to — but don’t want to flush all your previous bill payments down the drain.  See if it feels the same.

Thanks for that perspective.  I like your analogy, that makes sense to me.  I tried to make the argument that as long as I have a loan, I'll have interest, and therefor when I pay the interest is kind of a moot point with regards to the refi.  But he said it totally mattered and I felt like I must be missing something.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 25, 2021, 05:05:24 PM
The best (no/low cost) I could find was ~3.1% APR.   60% LTV, cash out of 140k,  $752k total loan (via loandepot/amerisave).

Still torn on increasing our rate (coming from 2.75%).  Could simply carry a mortgage on our planned rental to increase cheap leverage.
Will give it a big longer and try to get a few more quotes + matches.


Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on August 27, 2021, 11:15:52 PM
Thanks to this thread, I learned Better was having another $2k Amex credit and locked with them today.  I missed out on the Amex credit last time since Better did not operate in my state.  Apparently they started to within the last year.  I had to apply for an Amex card today right before I locked my rate.

This is my second re-fi in the last year.  I'm taking out ~$30k this time.  I was sort of torn about this since I'm planning to FIRE next year.  Usually people want to pay off their mortgages before retiring.  I'm doing the opposite.  But at 3% and with better credits for a cash out, I couldn't resist.  Closing costs are around $500, so assuming the Amex credit goes through, I should come out $1500 ahead.  Not bad to lower my interest rate a little (3.125% to 3%) and get $30k out.  Still have <50% LTV and my mortgage payment is still low.  If I was further away from FIRE, I'd probably take out more.  But with the stock market high and FIRE on the horizon, I wouldn't feel comfortable borrowing much more.

The initial estimates I got from Better were terrible.  But they are very good at matching other offers.  With the Amex credit, you come out $2k ahead of other lenders so it's hard to beat that.  I used LenderFi to get a decent quote to have them match.  Would highly recommend this approach if Better is licensed in your state.  I've been impressed with Better so far.  They actually let you lock the rate online which is nice.  Everyone else seems to make you call.  They were kind enough to extend the rate lock for me too.  Hopefully the rest of the process goes smoothly.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on August 31, 2021, 01:42:33 PM
Just locked a 2.9%, 30yr fixed with LoanDepot.  ~63% LTV, loan amount increased to the county conventional max ($753,250).  Will provide $134k in cash out. 
Total cost is ~$900 after lender credits.

New payment will increase from $3600/mo -> $4200/mo due to the cash out, which I am OK with.  A bit more 'forced savings' can't hurt.

Now the hunt for an income producing rental begins.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 31, 2021, 06:00:57 PM
I’m back baby!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 31, 2021, 09:45:16 PM
I’m back baby!
You must have read my mind! I was wondering how you were doing today and was going to ping you. Does this mean there's a journal update in the offing, too? Hope so and hope there's good news.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 01, 2021, 04:36:47 AM
I’m back baby!
You must have read my mind! I was wondering how you were doing today and was going to ping you. Does this mean there's a journal update in the offing, too? Hope so and hope there's good news.

This market is crazy. We missed our initial closing appointment through no fault of our own (something about the lender and the title company not getting information to each other fast enough the day before).  Sounded like every appraiser, title company and lender is booked weeks out.  But around 6:15pm last night it all *finally* went through

The numbers:
30y fixed at 2.725%, no points. 20% down (no PMI)

Somehow our total monthly mortgage payment (PIMI) is going to be $558 less than our already cheap rent for what will be a much nicer home in a way better area. College towns = inflated rent prices.

We begin moving (ugh) Friday afternoon, and plan on taking two weekends.

As part of the 30-some documents which needed our signature was a lot of stuff on how there’s no prepayment penalty - not going to pay this loan off early until we move. Our plan is to remain there at least 7 years, hopefully longer.

Can I rejoin the club now?

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 01, 2021, 05:12:07 AM
Hell, yes! Wait! You can, as long as you promise to keep shoveling all that sweet, saved money into low-cost equities or the like, lol. What a great deal! You have been through several trying years. I hope this new location, job and home are harbingers of good things to come for you and your family. Way to go, nereo!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 01, 2021, 07:32:03 AM
@nereo, good job, you got a loan that beats me by 2.5 basis points. I look forward to celebrating our slowly decreasing leverage together on this thread!
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on September 01, 2021, 11:07:26 AM
Anyone in this thread have the holy grail, a long-term interest-only mortgage?

We are in Texas, and did a cashout refinance in 2015 in order to extinguish all student loans and pad the then-new Vanguard account, and in hindsight I wouldn't have done it differently (though the sideways market for 15 months after did get a little side-eye from me). But that left us with a type of mortgage that almost no bank wanted to touch (seriously, no one but semi-shady small operators appear willing to refinance a "jumbo Texas home equity loan" as they are called here). So now we are squarely back in just the normal jumbo Texas loan status after the most recent refinance, and have 11 months left on the clock until we are allowed to refinance again and get access to the fuller market.

I'm not holding my breath that rates will be as great then as they are now, but I'm already planning my next refinance (but don't tell DW, she'd kill me at the thought of repeating what we went through this summer), and want to either do another cashout, this time for pure investment purposes (I put us at an LTV of 54% right now, but the 2 appraisals we had to get show us closer to 45%; either way there's a lot of equity doing nothing in our house right now), or even better an interest-only loan. But I've been a part of this thread for most of it's life, and can't recall it coming up much. So has no one taken the plunge, or are all you IO-mortgage folks lurking and nursing your even loftier superiority over us traditional DPOYM club noobs?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 01, 2021, 05:20:45 PM
Hell, yes! Wait! You can, as long as you promise to keep shoveling all that sweet, saved money into low-cost equities or the like, lol. What a great deal! You have been through several trying years. I hope this new location, job and home are harbingers of good things to come for you and your family. Way to go, nereo!

Wait, what?  I have to invest the savings responsibly??  That sounds less fun. 

Can’t I use some of the savings on hookers and booze?  What if I use the same justifications that the “pay off your mortgage ASAP” crowd does:
“[hookers and booze] make me feel better”
or
“[hookers and booze] let me sleep at night”
or
“I like the certainty of [hookers and booze], even if the return isn’t that great”
or
“I want to know that no one can take my [hookers and booze] away from me if the SHTF”.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 01, 2021, 06:22:32 PM
Hell, yes! Wait! You can, as long as you promise to keep shoveling all that sweet, saved money into low-cost equities or the like, lol. What a great deal! You have been through several trying years. I hope this new location, job and home are harbingers of good things to come for you and your family. Way to go, nereo!

Wait, what?  I have to invest the savings responsibly??  That sounds less fun. 

Can’t I use some of the savings on hookers and booze?  What if I use the same justifications that the “pay off your mortgage ASAP” crowd does:
“[hookers and booze] make me feel better”
or
“[hookers and booze] let me sleep at night”
or
“I like the certainty of [hookers and booze], even if the return isn’t that great”
or
“I want to know that no one can take my [hookers and booze] away from me if the SHTF”.

Hookers and booze are mathematically optimal though
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 01, 2021, 07:30:13 PM
If you think you deserve so much money to spend on booze (before you're FI), how about going over to the "intentional/voluntary discomfort" topic and reminding yourself what true Mustachianism is all about?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 01, 2021, 09:27:28 PM
Hell, yes! Wait! You can, as long as you promise to keep shoveling all that sweet, saved money into low-cost equities or the like, lol. What a great deal! You have been through several trying years. I hope this new location, job and home are harbingers of good things to come for you and your family. Way to go, nereo!

Wait, what?  I have to invest the savings responsibly??  That sounds less fun. 

Can’t I use some of the savings on hookers and booze?  What if I use the same justifications that the “pay off your mortgage ASAP” crowd does:
“[hookers and booze] make me feel better”
or
“[hookers and booze] let me sleep at night”
or
“I like the certainty of [hookers and booze], even if the return isn’t that great”
or
“I want to know that no one can take my [hookers and booze] away from me if the SHTF”.

Hookers and booze are mathematically optimal though
Better or worse than hookers and blow? Asking for a friend.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 02, 2021, 12:29:21 AM
Quote
Hookers and booze are mathematically optimal though
Better or worse than hookers and blow? Asking for a friend.

Blow is better in an up market, but booze wins during a recession. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 02, 2021, 12:37:44 AM
Quote
Hookers and booze are mathematically optimal though
Better or worse than hookers and blow? Asking for a friend.

Blow is better in an up market, but booze wins during a recession.
So is nereo calling the top?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 02, 2021, 01:45:34 AM
Quote
Hookers and booze are mathematically optimal though
Better or worse than hookers and blow? Asking for a friend.

Blow is better in an up market, but booze wins during a recession.
So is nereo calling the top?

Nah, I’ll let Thorstash handle calling the top.

Re: booze vs. blow - as this is a forum focused on FI/RE, let’s say it’s all about risk assessment. If there’s one underappreciated risk to an otherwise bullet-proof (i.e. sub 4% WR) retirement, it’s being forced into the judicial system. A proper legal defense can quickly run into the six figures, and incarceration is by definition antithetical to the freedoms that FI/RE brings.

Perhaps the only threat as great to one’s otherwise solid retirement plans is health-care costs (at least within the US). While excessive chronic indulgence of booze does seriously impact one’s overall health, I’d argue that risk pales in comparison to equal use of blow. I’d argue one can partake in a moderate (i.e. 1-2x per day) level of drinking for years with little more than some weight gain to show for it (which itself can be offset by some dieting and rigorous exercising).  I doubt one can do an equal amount of blow for 2 years and not suffer serious systemic organ damage.

Tl;dr - booze is better for your economic security than blow.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 02, 2021, 08:04:26 AM
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 02, 2021, 03:24:41 PM
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.

This is a good point

Either way, I’m jacked to the TITS
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 02, 2021, 03:29:45 PM
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.

hmm... so my logic is flawed then.  Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 03, 2021, 06:17:16 AM
Drink, challenge your body with difficult chemicals, just make damn sure you don't pay ahead on that mortgage and you're still in our club :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 03, 2021, 07:42:12 AM
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.

hmm... so my logic is flawed then.  Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.
@nereo, this is not directed at you personally, just a general observation. It always cracks me up when people talk about drinking on this forum and don't get facepunched called out on it. Booze is expensive and is totally optional, like cable TV or Amazon Prime.

Related: I got banned from Next Door over this phrase. Someone was whinging about the local elected's salaries, which I happen to know is about $6k per year (not a typo). I also know that the majority of them donate that amount and more to local charitable endeavors. I said, "It's not like they're spending it on hookers and blow." And just like that, I was banned. Fortunately my local mod understood the OS reference and got me reinstated, albeit sans the H&B comment, which blows.

Note to @talltexan: you win the thread today!
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 03, 2021, 10:18:53 AM
Anyone doing cash out refinances recently?

Zillow's appraisal (different than zestimate) pegs our house value high enough that if we wanted to we could keep 20% equity and withdraw almost $50k.

We did a cash out refi a few months ago and the appraisal came in higher than Zillow's estimate, which was the highest of the online realtors. I picked a nice round number to cash out and ended up at 70% LTV.
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 03, 2021, 10:24:04 AM
I notice I can likely do a cash out of $100k+ at either my current rate of 2.75% or maybe even 2.625%. The goal would to be maximize the "conforming loan" limit, and then I would be free to pursue lower interest rates exclusively for a few years. But I would probably restrain any future refinances to the greater of 70% and the conforming limit unless something amazing popped up. I ran it by the wife, who says "I don't know much about investing. Did you ask that mustache?" Consider yourselves asked :).

The money would probably go to 60% VEA 40% VWALX*, giving a total taxable split 1/3 RZV, 1/3 VEA, 1/3 VWALX. Doing my best to backtest that allocation, it gives a pleasant combo of better returns than all but a 100% VTI stock allocation, but better worse case scenarios that most "guru" allocations. Also, a mixture of VEA and VWALX distributes a yield of about 2.625%, similar to the mortgage rate. Monthly mortgage payments are higher because of principal, but the investments (stocks anyhow) are likely to grow dividends over time.

Of course we could just try for a rate reduction. Nothing wrong with a lower monthly payment by a few dozen dollars either.

*unless I try to get a $500 brokerage bonus from etrade or somewhere.

Which lender?
Planning to do exactly the same.

Confirming limit where I live is $752,350. Will cash out refi up to that amount to maximize leverage. That would put us at ~63% LTV.

The lender I spoke to today expects a massive increase to the confirming limit for next year (jan1). So assuming rates stay low, and housing keeps appreciating, could likely redo this again. And then even one final time a few months later  to lock in a low (non cash out) rate. :)
Rates seem to be a bit higher for cash-outs.

Folks on bogleheads are all using better.com to match rates and then receive a $2000 AMEX statement upon close. Will look into this.
Sebonic is the one I am leaning toward (of the few I did more than a few seconds research on). As of this morning they said 2.75%, with a small lender points credit. Better doesn't serve my type, so they were never an option here.

In the mean time I am triple checking my assumptions before I yoink $100,000+. But, even investing in the S&P500 from the Y2K top, starting with $100,000 would have given much better results ($57,051) at the 2009 market bottom than DCA $408 per month* after starting with a $3,000 saved lender cost would have ($34,876). And if it was better at the bottom, it was definitely better after. And other asset allocations better yet.

*monthly payment on a $100,000 mortgage at 2.75%

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=4&endYear=2009&lastMonth=2&calendarAligned=true&includeYTD=false&initialAmount=3000&annualOperation=1&annualAdjustment=408&inflationAdjusted=false&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VFINX&allocation1_1=100
Did you end up yoinking? We did.

My thought process was after refi'ing to drop interest rate, I was like I love this skipped mortgage payment I can invest this month's payment. Then I was like why not cash out, it could be a bad time if this is the top of a pre cash and takes forever or never to recover. Or it could be fine as we won't need this $ for at least 10 years. worst case scenario we keep working another year or two to keep a roof over our heads.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 03, 2021, 12:55:37 PM
Winning the thread today is nice, but my mortgage still has another 10,165 days left on it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on September 03, 2021, 02:06:39 PM
Did you end up yoinking? We did.

My thought process was after refi'ing to drop interest rate, I was like I love this skipped mortgage payment I can invest this month's payment. Then I was like why not cash out, it could be a bad time if this is the top of a pre cash and takes forever or never to recover. Or it could be fine as we won't need this $ for at least 10 years. worst case scenario we keep working another year or two to keep a roof over our heads.
Yup! We are locked for 30-year 2.75% with no points either way, plus a couple thousand lost in closing costs and appraisal. The house appraised for $690,000, which is exactly what we needed for the $548,250 maximum conforming loan and 80% LTV. Worst case, we are cashing out exactly enough to pay off our 3% investment property mortgage :D.

I am probably actually going to split between VEA, SCHX, and VWALX. I admit to being concerned about US stock prices, but I decided to include SCHX just to tell myself not to be too sure. Also that will keep my overall stock allocation 50/50 US/International, which I am pretty happy with.

In the mean time, we are diligently and vigorously not paying of our mortgages!
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 03, 2021, 02:28:28 PM
Did you end up yoinking? We did.

My thought process was after refi'ing to drop interest rate, I was like I love this skipped mortgage payment I can invest this month's payment. Then I was like why not cash out, it could be a bad time if this is the top of a pre cash and takes forever or never to recover. Or it could be fine as we won't need this $ for at least 10 years. worst case scenario we keep working another year or two to keep a roof over our heads.
Yup! We are locked for 30-year 2.75% with no points either way, plus a couple thousand lost in closing costs and appraisal. The house appraised for $690,000, which is exactly what we needed for the $548,250 maximum conforming loan and 80% LTV. Worst case, we are cashing out exactly enough to pay off our 3% investment property mortgage :D.

I am probably actually going to split between VEA, SCHX, and VWALX. I admit to being concerned about US stock prices, but I decided to include SCHX just to tell myself not to be too sure. Also that will keep my overall stock allocation 50/50 US/International, which I am pretty happy with.

In the mean time, we are diligently and vigorously not paying of our mortgages!
That's great. Isn't it amazing when the numbers work out magically perfect?

I would have pulled out another chunk to get to 80% but I didn't want to put too much pressure on our income with me going part time and DW's employment still somewhat in flux. Granted it would have been only a few more hundred dollars a month but funny how budgets work out sometimes.

Our rate i couldn't get below 3.125 no cost. I will probably refi again in a few months to get a lower rate without the cash out. Seems rates in my area were higher with cash out with all lenders on bankrate compared to no cash refi.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on September 04, 2021, 06:49:33 PM
Saw the same thing with higher rates on cash outs.

Planning to refi again in a few months without a cash out to lock in a lower rate. Though the conventional limit is expected to significantly increase for 2022. Might cash out refi one more time up to the max, quickly followed by one final refi to lock in the lowest possible rate for our 30yr journey (assuming nothing major changes).
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on September 05, 2021, 07:02:36 AM
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.

hmm... so my logic is flawed then.  Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.
@nereo, this is not directed at you personally, just a general observation. It always cracks me up when people talk about drinking on this forum and don't get facepunched called out on it. Booze is expensive and is totally optional, like cable TV or Amazon Prime.

Even Pete comments on the insane expense of alcohol, but it seems to be a bit of a sacred cow for a lot of people.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 05, 2021, 04:58:10 PM
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.

hmm... so my logic is flawed then.  Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.
@nereo, this is not directed at you personally, just a general observation. It always cracks me up when people talk about drinking on this forum and don't get facepunched called out on it. Booze is expensive and is totally optional, like cable TV or Amazon Prime.

Even Pete comments on the insane expense of alcohol, but it seems to be a bit of a sacred cow for a lot of people.

I agree that alcohol is expensive and for whatever reason many treat it like some sacred cow. Perhaps that’s why I make such jokes (in poor taste).  Compared to what seems to be the median consumption we are light and occasional drinkers. I can’t remember the last time we had more than two drinks in a day and most days we don’t have zero.

It also fascinates me how competitively expensive booze is in restaurants compared to the grocery store - particularly with the effort involved in prep and serving. I can get behind a well- crafted $26 main course but not an $8 beer or a $16 “craft cocktail”.
Title: Re: DONT Payoff your Mortgage Club
Post by: Metalcat on September 05, 2021, 05:28:30 PM
booze can lead to legal exposure as well: arrests for DUI, or legal separation from a job that has a "no working under the influence" policy.

hmm... so my logic is flawed then.  Oh well, back to investing the savings following the Investment Over from not paying down my mortgage.
@nereo, this is not directed at you personally, just a general observation. It always cracks me up when people talk about drinking on this forum and don't get facepunched called out on it. Booze is expensive and is totally optional, like cable TV or Amazon Prime.

Even Pete comments on the insane expense of alcohol, but it seems to be a bit of a sacred cow for a lot of people.

I agree that alcohol is expensive and for whatever reason many treat it like some sacred cow. Perhaps that’s why I make such jokes (in poor taste).  Compared to what seems to be the median consumption we are light and occasional drinkers. I can’t remember the last time we had more than two drinks in a day and most days we don’t have zero.

It also fascinates me how competitively expensive booze is in restaurants compared to the grocery store - particularly with the effort involved in prep and serving. I can get behind a well- crafted $26 main course but not an $8 beer or a $16 “craft cocktail”.

Market forces at play.

People love their booze and will pay through the nose for it if that's the only option. In a lot of restaurants, those booze markups are the only thing keeping the restaurant in the black.
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on September 05, 2021, 08:50:18 PM
But if you don't pay off your mortgage you'll have plenty of extra money available for alcohol right?
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 05, 2021, 11:59:10 PM
But if you don't pay off your mortgage you'll have plenty of extra money available for alcohol right?

And blow!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 06, 2021, 01:22:20 AM
It's good to have goals...
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 06, 2021, 06:44:32 AM
It's good to have goals...
Especially if you keep moving the 30 yr goal.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on September 10, 2021, 09:48:09 AM
Currently have 2.99% rate with ~28 years remaining.

I'm receiving an offer from my current lender via VA IRRL.

2.25% rate would drop my payment by $139/month, and the current balance would increase by $2,676, making it a 19-month breakeven point.

It seems nice, but I've also refinanced twice in the last five years, and I don't know if I want to deal with it again.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on September 10, 2021, 10:54:17 AM
Better sent me a promo code offer that up to five of my friends can use for an additional $500 credit on a refi, message me if you want it. There's nothing in it for me.
The $2000 Better/Amex credit showed up on my new Amex card, and after I spent $2090.00 on new carpet the $200 bonus for spending $2k showed up as well.
Title: Re: DONT Payoff your Mortgage Club
Post by: mntnmn117 on September 10, 2021, 11:10:30 AM
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust.  Investing in VT/VTI.  Mentally you have to just keep telling yourself its the right decision and the math works?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 10, 2021, 11:17:20 AM
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust.  Investing in VT/VTI.  Mentally you have to just keep telling yourself its the right decision and the math works?

It’s hard for me to envision a scenario in which this plan didn’t work out very well for you over the next decade +.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on September 10, 2021, 09:57:40 PM
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust.  Investing in VT/VTI.  Mentally you have to just keep telling yourself its the right decision and the math works?

That's a baller move! :). How close to FIRE are you?  Plan to stay in the home long-term?

We just had our appraisal today, talked shop a bit with the appraiser, he thinks we may come close to appraising at 1.25M, which would bring our cash-out-refi into the 60% LTV range.  Would love to cash out more, but we are already at the conventional limit of 752k with this refi.  May need to re-fi again next year when the county conforming limit increases - some seem to think it may jump to 850 ish.  But then I am also torn on holding a mortgage > 750k due to the phase out of the mortgage interest deduction.  With that said, I still feel the play/hedge on inflation alone makes this a winning strategy ... so it may need to be done. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on September 11, 2021, 02:06:36 PM
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust.  Investing in VT/VTI.  Mentally you have to just keep telling yourself its the right decision and the math works?
Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

Personally I'd choose the red line.
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 11, 2021, 07:38:51 PM
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust.  Investing in VT/VTI.  Mentally you have to just keep telling yourself its the right decision and the math works?
Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

Personally I'd choose the red line.

Probably a simple question, but why the s&p 500 over VTSAX? Is it for the large cap/small cap mix to cut out mid caps?

I also need to do more reading/research into intermediate term vs long term treasuries.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on September 11, 2021, 10:24:47 PM
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust.  Investing in VT/VTI.  Mentally you have to just keep telling yourself its the right decision and the math works?
Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

Personally I'd choose the red line.

Probably a simple question, but why the s&p 500 over VTSAX? Is it for the large cap/small cap mix to cut out mid caps?

I also need to do more reading/research into intermediate term vs long term treasuries.
No reason really. The two portfolios with S&P500 were by Bernstein and Buffet and were supposed to be very simple, easily accessible, with common appeal so they said S&P500 (which pretty much any 401K has). In fact the S&P500 is probably the weakest of the large/total market funds, but only by a few basis points.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=SCHB&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=SCHX&allocation1_1=100&symbol2=VFIAX&allocation2_2=100&symbol3=VTI&allocation3_3=100

All the linked portfolios I posted above used total market, intermediate, or short term bonds. It would not be tax efficient to use long term bonds in a taxable account and long term muni bonds are callable, so not really long term. I do use long term in my tax advantaged accounts.
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 12, 2021, 07:50:43 AM
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust.  Investing in VT/VTI.  Mentally you have to just keep telling yourself its the right decision and the math works?
Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

Personally I'd choose the red line.

Probably a simple question, but why the s&p 500 over VTSAX? Is it for the large cap/small cap mix to cut out mid caps?

I also need to do more reading/research into intermediate term vs long term treasuries.
No reason really. The two portfolios with S&P500 were by Bernstein and Buffet and were supposed to be very simple, easily accessible, with common appeal so they said S&P500 (which pretty much any 401K has). In fact the S&P500 is probably the weakest of the large/total market funds, but only by a few basis points.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=SCHB&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=SCHX&allocation1_1=100&symbol2=VFIAX&allocation2_2=100&symbol3=VTI&allocation3_3=100

All the linked portfolios I posted above used total market, intermediate, or short term bonds. It would not be tax efficient to use long term bonds in a taxable account and long term muni bonds are callable, so not really long term. I do use long term in my tax advantaged accounts.

Your preferred red line in the second period comes from a portfolio with intermediate term bonds. Me saying that was me going"i need to figure out why he prefers that lineup as is there something special with intermediate term".maybe there's nothing special about which set of bonds but just to include them.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on September 12, 2021, 01:36:06 PM
Your preferred red line in the second period comes from a portfolio with intermediate term bonds. Me saying that was me going"i need to figure out why he prefers that lineup as is there something special with intermediate term".maybe there's nothing special about which set of bonds but just to include them.
It was mostly just because I tweaked the portfolio to match what Bernstein actually preaches, which is no credit risk in bonds, so I switched it from total bond to intermediate treasury. Probably it is important just to include bonds, but I do think there is a nice benefit to intermediate or long term bonds because duration risk is a separate risk from credit/stock risk, plus that after a few years intermediate will always return more money. However Bernstein, also dumps on duration risk, saying bonds should be riskless and therefore only short term government bonds need apply. But in this case there is close to a 100% chance that short term bonds will be a detriment to a portfolio which is trying to outrun a mortgage. Both terms give a chance at rebalancing, but intermediate bonds might plausibly go up a little during a rebalancing event.
Title: Re: DONT Payoff your Mortgage Club
Post by: Flyingstache on September 13, 2021, 09:15:55 AM
With the short time frame, I'm thinking "eh either way". If you knew for sure you'd keep it for a long time, either living in it or eventually rent it out, then seems like a no-brainer to me to do the refinance. If you might sell in 2 years, that reduces the certainty the market will do better than your interest rate vs. just getting a larger check when you close on the sale.

Have you gotten detailed quotes on refinancing? What terms are available to you?

Just an update. I have yet to find anyone offering no closing costs but have found some under $300 for closing costs. Also was quoted today the following rates

30yrs - 2.875%
15yrs - 2.125%
10yrs - 1.99%

But that was for $2k closing costs

Kind of unsure what to do at this time!
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 13, 2021, 09:43:59 AM
With the short time frame, I'm thinking "eh either way". If you knew for sure you'd keep it for a long time, either living in it or eventually rent it out, then seems like a no-brainer to me to do the refinance. If you might sell in 2 years, that reduces the certainty the market will do better than your interest rate vs. just getting a larger check when you close on the sale.

Have you gotten detailed quotes on refinancing? What terms are available to you?

Just an update. I have yet to find anyone offering no closing costs but have found some under $300 for closing costs. Also was quoted today the following rates

30yrs - 2.875%
15yrs - 2.125%
10yrs - 1.99%

But that was for $2k closing costs

Kind of unsure what to do at this time!

Sometimes the lowest rate offered has you paying points. The "no cost" refis are when the closing costs ~= the credits offered by the lender for a higher rate. $2k for closing costs seems about right.
Title: Re: DONT Payoff your Mortgage Club
Post by: mntnmn117 on September 13, 2021, 12:05:11 PM
I'm about to do a big cash out Refi. From 8 years left on a 15yr to new 30yr. 20% LTV to 70% LTV. Seems hard like I could have huge regrets if we are on the precipice of a dot com bust.  Investing in VT/VTI.  Mentally you have to just keep telling yourself its the right decision and the math works?
Choose a good asset allocation IMO. See link below, showing 100% VTSA(M)X, the Buffet Portfolio, my version of the Three Fund Portfolio, and my version of the No-Brainer Portfolio. Recently everyone has been dwelling on the hockey-stick ending of the US-stock heavy portfolios:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

But no-one seems to remember this period:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=1&endYear=2016&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=VTSMX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=45&symbol2=VGTSX&allocation2_1=30&allocation2_2=25&symbol3=VBMFX&allocation3_1=25&symbol4=VFITX&allocation4_2=25&symbol5=DFSVX&allocation5_2=25&symbol6=VFINX&allocation6_2=25&allocation6_3=90&symbol7=VFISX&allocation7_3=10

Personally I'd choose the red line.

Probably a simple question, but why the s&p 500 over VTSAX? Is it for the large cap/small cap mix to cut out mid caps?

I also need to do more reading/research into intermediate term vs long term treasuries.
No reason really. The two portfolios with S&P500 were by Bernstein and Buffet and were supposed to be very simple, easily accessible, with common appeal so they said S&P500 (which pretty much any 401K has). In fact the S&P500 is probably the weakest of the large/total market funds, but only by a few basis points.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=SCHB&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=SCHX&allocation1_1=100&symbol2=VFIAX&allocation2_2=100&symbol3=VTI&allocation3_3=100

All the linked portfolios I posted above used total market, intermediate, or short term bonds. It would not be tax efficient to use long term bonds in a taxable account and long term muni bonds are callable, so not really long term. I do use long term in my tax advantaged accounts.

Your preferred red line in the second period comes from a portfolio with intermediate term bonds. Me saying that was me going"i need to figure out why he prefers that lineup as is there something special with intermediate term".maybe there's nothing special about which set of bonds but just to include them.

Thanks, yeah the last few years have made bonds seem useless but its the rebalancing in a down market is where they bring their value.
Title: Re: DONT Payoff your Mortgage Club
Post by: Flyingstache on September 13, 2021, 06:12:35 PM
From the quotes above the principal & interest payments would be as follows. This was based on a cash out of $20k (the lender just used this as an example) for a loan amount of $115k

30yr - $477 PI
15yr - $746 PI
10yr - $1,058 PI

We are currently paying $712 PI. Based on the quotes above we could make it work for all of those options.

We could do a larger cash out amount (especially if doing the 30yr option) & likely would put the majority of the money into VTSAX which is where all of our money goes in the stock market after we max out our Roth IRAs.

Closing costs for all of the above options would be $2k. Rates would be the same if we didn't do the cash out option & just went straight refi.

Any thoughts or suggestions?
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on September 13, 2021, 06:20:56 PM
From the quotes above the principal & interest payments would be as follows. This was based on a cash out of $20k (the lender just used this as an example) for a loan amount of $115k

30yr - $477 PI
15yr - $746 PI
10yr - $1,058 PI

We are currently paying $712 PI. Based on the quotes above we could make it work for all of those options.

We could do a larger cash out amount (especially if doing the 30yr option) & likely would put the majority of the money into VTSAX which is where all of our money goes in the stock market after we max out our Roth IRAs.

Closing costs for all of the above options would be $2k. Rates would be the same if we didn't do the cash out option & just went straight refi.

Any thoughts or suggestions?

In the other thread, I think you wrote that your current 15 year rate was 2.75%. What's the 30 year rate that you're being offered?

Title: Re: DONT Payoff your Mortgage Club
Post by: Flyingstache on September 13, 2021, 06:41:22 PM
Rates that were offered today were as follows:

30yr - 2.875%

15yr - 2.125%

10yr - 1.99%

All of those were with $2k closing costs

Also was offered 10yr at 2.39% with $295 closing costs
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 13, 2021, 07:53:58 PM
At the risk of sounding like a broken record, at any of those rates it's going to be hard to beat returns invested in the market in a balanced portfolio.

It all depends on how much pressure you want to put on income. If you want to put a ton of pressure on income, do a cash out 10 year. For the least pressure, no cash out 30 year.

Title: Re: DONT Payoff your Mortgage Club
Post by: Flyingstache on September 14, 2021, 08:17:23 AM
@JJ

Thanks so much for the insights & advice! The idea of a cash out refi had never crossed my mind previously so this has been really helpful!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fire2025 on September 19, 2021, 11:06:33 AM
Thanks everyone, I'm the owner of a shiny new 30 year mortgage at 2.7.  Sorry, but I'm going to be hoping for a steady market drop until my cash out check arrives.  So expect the market to soar all next week.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on September 27, 2021, 03:05:36 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 27, 2021, 09:29:14 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on September 27, 2021, 10:52:26 PM
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years.  I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September.  IDK, I couldn't help myself?!  Here to try to keep myself on the mathematically smarter track, I guess?!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 28, 2021, 04:42:59 AM
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years.  I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September.  IDK, I couldn't help myself?!  Here to try to keep myself on the mathematically smarter track, I guess?!

You recognize that there’s a strong mathematical advantage towards not paying down your fixed very low interest loans early. Fantastic - you are well ahead of most. What’s prompting you to make early payments is emotional, and as every economist will tell you, one shouldn’t let emotion dictate your finances.

Now you can reflect on why you feel compelled to do something you realize is not in your best interests, and find ways to address that. For me it was the realization that it was always “either/or” - I could have less mortgage or more money to deploy whenever and however was needed. If I spent the money on the mortgage it couldn’t (easily) be used for anything else, and ultimately it became apparent there were *many* more productive places for that money for me.

Others (like my sister) feel compelled to follow the herd advice. It’s social pressure. So she set up a home sinking fund and to the outside world pretends that her mortgage balance is whatever it is minus the sinking fund. Social pressure managed.

Many others just want “the good feeling” of no mortgage payment. Strategies there can be broad - one I’ve seen as effective is to ask what excites more: a $450K home with ‘only monthly T&I payments (still substantial), or an investment account with $600,000+ in it.

Up to you to find out what works, but good that you recognize it’s not a rational desire.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 28, 2021, 08:16:11 AM
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years.  I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September.  IDK, I couldn't help myself?!  Here to try to keep myself on the mathematically smarter track, I guess?!

@catccc , Now that you've enjoyed the adrenaline rush of accelerating your paydown by several months, we're asking you to recommit to our DNPYM way of living by making a sacrifice. Scour your couch cushions for whatever you can find and entrust it to Vanguard like this week! Only by enlarging the investment account can the DNPYM traditions be fully honored.

I'd do it myself, but payday isn't until Thursday, and my mortgage payments have to be sent by mail.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on September 28, 2021, 10:12:29 AM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 28, 2021, 10:39:04 AM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on September 28, 2021, 12:33:46 PM
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years.  I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September.  IDK, I couldn't help myself?!  Here to try to keep myself on the mathematically smarter track, I guess?!

@catccc , Now that you've enjoyed the adrenaline rush of accelerating your paydown by several months, we're asking you to recommit to our DNPYM way of living by making a sacrifice. Scour your couch cushions for whatever you can find and entrust it to Vanguard like this week! Only by enlarging the investment account can the DNPYM traditions be fully honored.

I'd do it myself, but payday isn't until Thursday, and my mortgage payments have to be sent by mail.

Ha!  Funny, I just vacuumed and flipped couch cushions yesterday.  11 cents going to VG, I guess?!  For funsies, I did just throw $20 into VTSAX after reading your reply.  Thanks for helping me honor the DNPYM code.  This is the way.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2021, 01:59:46 PM
For the record, this is the "DONT Payoff your Mortgage Club" [stet], started by our Forum Friend B42. The terms of his parole do not allow him to post in this thread, but his legacy continues. The established acronym is DPOYM.

It's difficult enough to get some folks to see the wisdom of DPOYM, let's not confuse them with multiple acronyms, please.

We welcome all who wish to learn and partake of this magical force with open arms. Safely socially distanced, of course.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2021, 02:18:28 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 28, 2021, 02:18:36 PM
I prefer DNPYM (do not pay your mortgage) Because it saves me a ton of money every month!0
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2021, 02:28:26 PM
I prefer DNPYM (do not pay your mortgage) Because it saves me a ton of money every month!0
You forgot the "off" part. Missing mortgage payments (assuming you're smarter than me and still have one) can be very expensive.

(There's always a wag. Why, oh why, does it have to be the great, scaly one that I have little hope of matching wits with?)
Title: Re: DONT Payoff your Mortgage Club
Post by: dreadmoose on September 28, 2021, 02:40:20 PM
To further confuse this mess I got carte blanche last year during the first 9 months of the pandemic to postpone all mortgage payments no questions asked (made very sure there were no qualifiers before signing up).

This would put me squarely in the DNPYM camp, though only for a short while before rejoining the DPOYM team.

I also am trying to sell my only property and rent... meaning I'll be in the DNEGAM corner soon.

Do Not Even Get A Mortgage
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 28, 2021, 02:42:17 PM
You forgot the "off" part. Missing mortgage payments (assuming you're smarter than me and still have one) can be very expensive.

That sounds like a problem for future me
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2021, 02:47:05 PM
To further confuse this mess I got carte blanche last year during the first 9 months of the pandemic to postpone all mortgage payments no questions asked (made very sure there were no qualifiers before signing up).

This would put me squarely in the DNPYM camp, though only for a short while before rejoining the DPOYM team.

I also am trying to sell my only property and rent... meaning I'll be in the DNEGAM corner soon.

Do Not Even Get A Mortgage
I almost added a disclaimer that my input only applied to the good old US of A. As with so very, very many things, other countries do it better than we do. Sigh.

I hope you didn't spend those nine unmade payments on Hookers & Blow...
Title: Re: DONT Payoff your Mortgage Club
Post by: dreadmoose on September 28, 2021, 02:50:10 PM
No Hookers and Blow
Sad to say I only did
Transfers to VGRO
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 28, 2021, 02:54:09 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!

Yeah chasing the bottom can often feel like trying to sell at the top (did somebody say top is in?), but stepping back you get a really good idea about where things are if you don't fixate on the here and now.

Sorry to make you feel jelly, but hopefully others learn from your jelliness and my awesome sauce low rate.


Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2021, 02:54:58 PM
No Hookers and Blow
Sad to say I only did
Transfers to VGRO
I see what you did there ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2021, 03:04:50 PM
Sorry to make you feel jelly, but hopefully others learn from your jelliness and my awesome sauce low rate.
Ha! Making it easier for others to reach their goals faster, with a lot less effort, is one of the main reasons I've hung around this place so long after FIRE.

When I started my FIRE journey, it didn't have an acronym and information was much less readily available, and like-minded community nearly impossible to find.

Heck, the internet didn't even exist.

Somehow, I stumbled my way through, but with support such as MMM et al, I probably could have shaved a decade of my working career. Happily, it all worked out for the best (with a tip of the hat to Voltaire).
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 28, 2021, 03:32:38 PM
I did consider taking COVID deferrals but I wanted to refinance and that’s harder if you haven’t made the last 12 monthly payments
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on September 28, 2021, 04:41:57 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!

Yeah chasing the bottom can often feel like trying to sell at the top (did somebody say top is in?), but stepping back you get a really good idea about where things are if you don't fixate on the here and now.

Sorry to make you feel jelly, but hopefully others learn from your jelliness and my awesome sauce low rate.

We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)

The good old days with no limits must have been quite something to see.  On top of having no SALT limits.  GOODNESS GRACIOUS

See y'all in 2051!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 28, 2021, 06:55:12 PM
For the record, this is the "DONT Payoff your Mortgage Club" [stet], started by our Forum Friend B42. The terms of his parole do not allow him to post in this thread, but his legacy continues. The established acronym is DPOYM.

It's difficult enough to get some folks to see the wisdom of DPOYM, let's not confuse them with multiple acronyms, please.

We welcome all who wish to learn and partake of this magical force with open arms. Safely socially distanced, of course.

It now seems that I, too, have angered the spirit of leverage and better find some money to throw into index funds fast to atone!
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on September 28, 2021, 10:38:41 PM
Woot! Got a message saying my docs were approved and funds would be dispersed within 24 hours. Not the waiting type, I checked anyhow. +131 large in the bank at 2.75% (and like 2.779% APY)! Haven't had this much cash since I was trying to buy the place.

I have to remind myself that this isn't quite as amazing as $130k cash. After all, we need to pay $6,400 per year on this. Even just the interest will be a sizable monthly payment at first. It is really only effectively half as effective as a real$130,000.

Still, it feels like a big win. Worst case, if we hate having a liquid hundred G's making money, the amount is nearly exactly what we have left on the rental unit mortgage at 3%, we could just pay that off.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 28, 2021, 11:04:10 PM
Woot! Got a message saying my docs were approved and funds would be dispersed within 24 hours. Not the waiting type, I checked anyhow. +131 large in the bank at 2.75% (and like 2.779% APY)! Haven't had this much cash since I was trying to buy the place.

I have to remind myself that this isn't quite as amazing as $130k cash. After all, we need to pay $6,400 per year on this. Even just the interest will be a sizable monthly payment at first. It is really only effectively half as effective as a real$130,000.

Still, it feels like a big win. Worst case, if we hate having a liquid hundred G's making money, the amount is nearly exactly what we have left on the rental unit mortgage at 3%, we could just pay that off.
Noooooooo! on the bolded part. Don't shoot yourself in the foot.

Who did you go with for the re-fi?
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on September 28, 2021, 11:33:09 PM
Woot! Got a message saying my docs were approved and funds would be dispersed within 24 hours. Not the waiting type, I checked anyhow. +131 large in the bank at 2.75% (and like 2.779% APY)! Haven't had this much cash since I was trying to buy the place.

I have to remind myself that this isn't quite as amazing as $130k cash. After all, we need to pay $6,400 per year on this. Even just the interest will be a sizable monthly payment at first. It is really only effectively half as effective as a real$130,000.

Still, it feels like a big win. Worst case, if we hate having a liquid hundred G's making money, the amount is nearly exactly what we have left on the rental unit mortgage at 3%, we could just pay that off.
Noooooooo! on the bolded part. Don't shoot yourself in the foot.

Who did you go with for the re-fi?
Just kidding! I might be a bit dull, but I'm not obtuse enough to pay off a 3% loan with inflation running near 6% :D

We followed through with Sebonic "dba Cardinal Financial".
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 29, 2021, 07:45:13 AM
You did a good job pulling @Radagast back from the brink, but I imagine many of our DPOYM fellows are looking at the stock market's recent pullback and having second thoughts about diving in.

Here's a thought experiment: suppose you buy a conservative ETF like Vanguard Wellington, which is roughly 3/8 stocks and the rest bonds. You have a lot less downside in times like this, AND you still have a good chance of lapping your mortgage long term if your rate is <3%. You can make one more commitment, which is that--in one year--you'll check your statement, and 100% of any gains on the Wellington you move over to $VTI.

The point of the mortgage is to allow greater market exposure.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 29, 2021, 07:58:55 AM
You did a good job pulling @Radagast back from the brink, but I imagine many of our DPOYM fellows are looking at the stock market's recent pullback and having second thoughts about diving in.

Here's a thought experiment: suppose you buy a conservative ETF like Vanguard Wellington, which is roughly 3/8 stocks and the rest bonds. You have a lot less downside in times like this, AND you still have a good chance of lapping your mortgage long term if your rate is <3%. You can make one more commitment, which is that--in one year--you'll check your statement, and 100% of any gains on the Wellington you move over to $VTI.

The point of the mortgage is to allow greater market exposure.
Radagast was only joking. Are you calling the top?

A mortgage is effectively a bond, but better, IMO. Why would you want to load up on more by buying Wellington?

Another way to frame a "market pullback" is "On Sale". If this really is one, what excellent timing for Radagast!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 29, 2021, 08:05:06 AM
Dicey, you make an interesting point about a mortgage being a sort of negative bond. I'm trying to offer an option with some stock exposure for people who might be wavering (and reading the comments). Someone with more sophistication could always sell puts on $VTI with the cash supporting the puts.

I cannot offer a credible prediction about the immediate direction of the market, although I struggle with worry as do all of us. I certainly wouldn't want to give someone investment advice, only to have the unpredictability of the market make it a bad outcome (even if my advice was sound).

People who cash out their mortgages should follow their investment policy statements with the money. Sometimes, having an extra five or six digits of cash is a clue to people to re-evaluate those IPSs.
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on September 29, 2021, 11:16:16 AM
We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)

I believe your deduction may be limited to the amount going towards the original loan if you didn't use the cashout to make qualified improvements to the home. We did a cashout refi in 2015, and have never been able to deduct the full interest payments, in part because for the first few years after we fell under the AMT which eliminated deductions for home equity, and more recently because we ultimately used the money to pay off student loans with the rest going into Vanguard; we did use $7.5k to replace and stain our fence, but it was clear to me that it qualified, and even then I would only have been able to add that part of the new mortgage back into the deduction calculation starting in 2018 and decided it wasn't worth being possibly wrong on including it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on September 29, 2021, 12:27:50 PM
Quote from: bryan995 link=topic=69225.msg2909059#msg2909059

We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)


Wait, we can deduct montage interest now? Think of all the skills I could learn, the workouts I could finish. =)
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on September 29, 2021, 01:05:18 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!

Bought a house with a 30y mortgage at 4.25% in late 2018.
Refinanced in late 2019 to a 15y mortgage at 3.25% at a cost of ~$3,000. Payoff on that investment was to occur in about 2.5 years.
Thought I was smart. Thought "this HAS to be near the bottom".
Today, 15y rates are 2.6%, and were as low as 2.25% a couple of weeks ago.
If I refinanced for a second time in as many years, the $3k investment would break even in 6y.
But OTOH, I only have 13 years remaining on the mortgage, so not a long runway to benefit after breakeven.
And am I going to end up chucking down yet another $3k when 15y rates go down to 1.25%? How many times do I pay these people?

THIS is some deep-ass FOMO/Regret.
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on September 29, 2021, 02:09:38 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!

Bought a house with a 30y mortgage at 4.25% in late 2018.
Refinanced in late 2019 to a 15y mortgage at 3.25% at a cost of ~$3,000. Payoff on that investment was to occur in about 2.5 years.
Thought I was smart. Thought "this HAS to be near the bottom".
Today, 15y rates are 2.6%, and were as low as 2.25% a couple of weeks ago.
If I refinanced for a second time in as many years, the $3k investment would break even in 6y.
But OTOH, I only have 13 years remaining on the mortgage, so not a long runway to benefit after breakeven.
And am I going to end up chucking down yet another $3k when 15y rates go down to 1.25%? How many times do I pay these people?

THIS is some deep-ass FOMO/Regret.

I have a hard time paying for a lower rate when the alternative is putting the $ into the market. However it depends on whether it's $500 per 0.125% vs $2500 for example. I'm sure I'm under thinking it, but even if it pays off in 6 years the money is still available in the market with some growth, assumedly.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on September 29, 2021, 06:23:01 PM
We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)

I believe your deduction may be limited to the amount going towards the original loan if you didn't use the cashout to make qualified improvements to the home. We did a cashout refi in 2015, and have never been able to deduct the full interest payments, in part because for the first few years after we fell under the AMT which eliminated deductions for home equity, and more recently because we ultimately used the money to pay off student loans with the rest going into Vanguard; we did use $7.5k to replace and stain our fence, but it was clear to me that it qualified, and even then I would only have been able to add that part of the new mortgage back into the deduction calculation starting in 2018 and decided it wasn't worth being possibly wrong on including it.

Say what?  After 5 seconds of googling, this indeed looks to true...  Sort of a weird rule.  So I should have never put 20% down and optimized the purchase to carry 750k in mortgage balance from the get-go.   Then I could have cash-out refi'd above that (today).  I wonder if the 'improvements' can be backdated.   We did have 50k worth of landscaping and 30k worth of solar added... Maybe I will add some gold bar flooring to our entryway?  And then later decide it was a bit too much?  Or buy a second home, and use that to fill the interest-deduction gap...  Lame!

Quote from: bryan995 link=topic=69225.msg2909059#msg2909059

We also ended up bringing our montage balance up to exactly $750k, to maximize that lovely lovely mortgage interest deduction ;)


Wait, we can deduct montage interest now? Think of all the skills I could learn, the workouts I could finish. =)

Please don't scare me :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on September 29, 2021, 09:28:35 PM
You did a good job pulling @Radagast back from the brink, but I imagine many of our DPOYM fellows are looking at the stock market's recent pullback and having second thoughts about diving in.

Here's a thought experiment: suppose you buy a conservative ETF like Vanguard Wellington, which is roughly 3/8 stocks and the rest bonds. You have a lot less downside in times like this, AND you still have a good chance of lapping your mortgage long term if your rate is <3%. You can make one more commitment, which is that--in one year--you'll check your statement, and 100% of any gains on the Wellington you move over to $VTI.

The point of the mortgage is to allow greater market exposure.
As per earlier in the thread, I'm planning to put most of it in VEA (Vanguard International Developed) and either SCHX (Schwab US Large Company) or MGC (Vanguard US Megacap). The rest goes to VWALX (Vanguard High Yield Tax Exempt Bond). I also have a lot of RZV already (S&P600 Pure Small-Cap Value). I will then have a roughly even split in taxable: VEA, SCHX, VWALX, RZV. I'm not sure if that is conservative!

I hope the dip expands to 10% before I buy. Fat chance.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 30, 2021, 07:17:51 AM
On the one hand, I feel smart when the market goes up because it means that I made the right decision throwing money in the market earlier.

On the other hand, I love the excitement of being able to buy cheap when the market goes down.

I don't know which to root for anymore!
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on September 30, 2021, 07:30:20 AM
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years.  I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September.  IDK, I couldn't help myself?!  Here to try to keep myself on the mathematically smarter track, I guess?!

You recognize that there’s a strong mathematical advantage towards not paying down your fixed very low interest loans early. Fantastic - you are well ahead of most. What’s prompting you to make early payments is emotional, and as every economist will tell you, one shouldn’t let emotion dictate your finances.

Now you can reflect on why you feel compelled to do something you realize is not in your best interests, and find ways to address that. For me it was the realization that it was always “either/or” - I could have less mortgage or more money to deploy whenever and however was needed. If I spent the money on the mortgage it couldn’t (easily) be used for anything else, and ultimately it became apparent there were *many* more productive places for that money for me.

Others (like my sister) feel compelled to follow the herd advice. It’s social pressure. So she set up a home sinking fund and to the outside world pretends that her mortgage balance is whatever it is minus the sinking fund. Social pressure managed.

Many others just want “the good feeling” of no mortgage payment. Strategies there can be broad - one I’ve seen as effective is to ask what excites more: a $450K home with ‘only monthly T&I payments (still substantial), or an investment account with $600,000+ in it.

Up to you to find out what works, but good that you recognize it’s not a rational desire.

Yes to all your points!  I already feel like my mortgage was a smart financial decision we made, since the seller made us prove we could pay cash for it (this market) before agreeing to accept our offer that didn't have a financing contingency.  And at these rates in the current inflation environment, it seemed like a mortgage was clearly the right move.  I definitely tell myself that the $410K mortgage is our choice, especially since we sit on a 1.8M portfolio (that excludes home equity, too).

The only actual advantage I can pinpoint would be a lower drawdown in retirement (and the tax mitigation that can come with it.)  But until we are in the drawdown phase, that's not really worth thinking about.

Speaking of desires, I was recently introduced to the idea of mimetic desires via a Paula Pant podcast.  Almost everything we want is based on a model of desire, with the exception of biological wants/needs.  It makes you think hard about whether you really want what you think you want, or you think you want it because you've seen others model that desire.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on September 30, 2021, 07:36:27 AM
I'm just stoked my SoloK purchase went through on 9/28 - wasn't sure if I got the order entered in time or not. Because the price I pay on that 1/3 of 1 percent of the portfolio is gonna be THE KEY to retirement success for me.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 30, 2021, 08:55:35 AM
Bought our first place in July 2021, financed $410K @ 2.75% for 30 years.  I really am not trying to pay this off early, but am so naturally debt averse that the first thing I did was make a principal only payment in August before the 1st payment was even due in September.  IDK, I couldn't help myself?!  Here to try to keep myself on the mathematically smarter track, I guess?!

You recognize that there’s a strong mathematical advantage towards not paying down your fixed very low interest loans early. Fantastic - you are well ahead of most. What’s prompting you to make early payments is emotional, and as every economist will tell you, one shouldn’t let emotion dictate your finances.

Now you can reflect on why you feel compelled to do something you realize is not in your best interests, and find ways to address that. For me it was the realization that it was always “either/or” - I could have less mortgage or more money to deploy whenever and however was needed. If I spent the money on the mortgage it couldn’t (easily) be used for anything else, and ultimately it became apparent there were *many* more productive places for that money for me.

Others (like my sister) feel compelled to follow the herd advice. It’s social pressure. So she set up a home sinking fund and to the outside world pretends that her mortgage balance is whatever it is minus the sinking fund. Social pressure managed.

Many others just want “the good feeling” of no mortgage payment. Strategies there can be broad - one I’ve seen as effective is to ask what excites more: a $450K home with ‘only monthly T&I payments (still substantial), or an investment account with $600,000+ in it.

Up to you to find out what works, but good that you recognize it’s not a rational desire.

Yes to all your points!  I already feel like my mortgage was a smart financial decision we made, since the seller made us prove we could pay cash for it (this market) before agreeing to accept our offer that didn't have a financing contingency.  And at these rates in the current inflation environment, it seemed like a mortgage was clearly the right move.  I definitely tell myself that the $410K mortgage is our choice, especially since we sit on a 1.8M portfolio (that excludes home equity, too).

The only actual advantage I can pinpoint would be a lower drawdown in retirement (and the tax mitigation that can come with it.)  But until we are in the drawdown phase, that's not really worth thinking about.

Speaking of desires, I was recently introduced to the idea of mimetic desires via a Paula Pant podcast.  Almost everything we want is based on a model of desire, with the exception of biological wants/needs.  It makes you think hard about whether you really want what you think you want, or you think you want it because you've seen others model that desire.

I've been listening to Paula a lot lately. She took the pro-leverage side against Laurence Kotlikoff, but I listened to the replay of her Rich Carey interview yesterday, and she isn't just a maximalist when it comes to leveraging, either.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on September 30, 2021, 09:35:32 AM
Would anyone NOT do this refi?

Currently a year into a 2.625 / 30yr with Lenderfi.  443k balance.
Looking at a 1.75 7yr ARM with Loan Depot.  (30 year amortization schedule) Total costs are ~2k so balance will become 445k.  Total interest savings over next 7 years are 25k.  We plan to move/downsize/retire at that time. 

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 30, 2021, 11:57:21 AM
Sounds like an excellent move, good luck with the switch!
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on October 02, 2021, 01:24:03 PM
I would do it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Joe Schmo on October 03, 2021, 10:24:59 AM
350 @2.625 for 14 more years. Thinking about jumping on the NOT PAYING IT OFF EARLY wagon🤔
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 03, 2021, 05:04:41 PM
350 @2.625 for 14 more years. Thinking about jumping on the NOT PAYING IT OFF EARLY wagon🤔
What’s holding you back?
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on October 03, 2021, 07:44:17 PM
350 @2.625 for 14 more years. Thinking about jumping on the NOT PAYING IT OFF EARLY wagon🤔
Refi @ 30 years and invest the difference. That's the wagon to jump on
Title: Re: DONT Payoff your Mortgage Club
Post by: Joe Schmo on October 03, 2021, 08:57:08 PM
Nothing stopping. Actually just started. Just gonna let it happen naturally in 13ish years…
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on October 12, 2021, 03:47:47 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!

Here's a twist. I cashed out and refi'd. My plan was to refi later to drop the rates because cash out rates were higher.

I started paperwork last night and discovered I don't qualify to refi because my income isn't high enough because I went to 3/4 time last month. DW is self employed currently and I'm not ready to dive into that headache. If she ever goes back to FT W2 work

My reaction last night? Oh well. I got a sweet mortgage rate anyway.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on October 13, 2021, 06:07:03 PM
So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.


Sent from my iPhone using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 13, 2021, 06:46:53 PM
So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.


Sent from my iPhone using Tapatalk
You can contest an appraisal, fyi.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on October 13, 2021, 07:14:46 PM
So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.


Sent from my iPhone using Tapatalk
You can contest an appraisal, fyi.
Yes, but that’ll be hard to close the gap between Zillow and the appraisal. The market is so hot here in Charlotte that prices have risen 30% in the past year, but nothing has sold in the past six months in my neighborhood, that’s how tight supply is. Older homes are still getting cash offers off market and being torn down and rebuilt.

Also I’m not trading in my 2.5% for a 3% rate unless I can get a large amount of money out.


Sent from my iPhone using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on October 13, 2021, 07:28:57 PM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!

Here's a twist. I cashed out and refi'd. My plan was to refi later to drop the rates because cash out rates were higher.

I started paperwork last night and discovered I don't qualify to refi because my income isn't high enough because I went to 3/4 time last month. DW is self employed currently and I'm not ready to dive into that headache. If she ever goes back to FT W2 work

My reaction last night? Oh well. I got a sweet mortgage rate anyway.

Dang, that's too bad.  Temporarily go back full-time to qualify? Or work some 'extra time' for a few weeks to boost on-paper income?

I am looking into buying a rental with our cash-out proceeds (may only put 10% down).  I want more 'pro-inflation-bank-sponsored-leverage' :)  Most homes I am considering need a ton of work.  It may just be too much for our first foray into real estate investing. I assume an additional home improvement / construction loan would have wildly high rates.  Need to look into which to do first.  Re-fi the primary or purchase rental home or procure construction loan (if we need it).  I'm also hoping that that county conventional limits will increase massively in 2022, which again should help some with their refi. 
SS benefits just increased 5.9%!  If that's not a sure sign of looming inflation, then we are truly living in a bizarro world.

So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.

Prices do seem to be flattening but that is wild!   We came in about $110k over the zestimate.  And since the re-finance, the zestimate now shows +30k over our appraisal.  Granted there are quite a few neighbors listing pushing the price/sqft higher and higher (almost $500 now). 


Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on October 13, 2021, 08:06:47 PM
 
Dang, that's too bad.  Temporarily go back full-time to qualify? Or work some 'extra time' for a few weeks to boost on-paper income?

That is soooooo not worth ~100 hours of my time 😊
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on October 13, 2021, 08:28:53 PM
 
Dang, that's too bad.  Temporarily go back full-time to qualify? Or work some 'extra time' for a few weeks to boost on-paper income?

That is soooooo not worth ~100 hours of my time 😊

The FED just signaled that they will not taper anytime soon. What if we hit 2.25%, 30yr? Surely a fresh cash out + reset of the clock is worth 100 hours :)
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on October 13, 2021, 09:14:50 PM
 
Dang, that's too bad.  Temporarily go back full-time to qualify? Or work some 'extra time' for a few weeks to boost on-paper income?

That is soooooo not worth ~100 hours of my time 😊

The FED just signaled that they will not taper anytime soon. What if we hit 2.25%, 30yr? Surely a fresh cash out + reset of the clock is worth 100 hours :)

Maybe. I'd probably consider and be like..... Nahhhhhh. It's nice having time.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 14, 2021, 06:14:51 AM
So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.


Sent from my iPhone using Tapatalk
You can contest an appraisal, fyi.
Yes, but that’ll be hard to close the gap between Zillow and the appraisal. The market is so hot here in Charlotte that prices have risen 30% in the past year, but nothing has sold in the past six months in my neighborhood, that’s how tight supply is. Older homes are still getting cash offers off market and being torn down and rebuilt.

Also I’m not trading in my 2.5% for a 3% rate unless I can get a large amount of money out.


Sent from my iPhone using Tapatalk

I also live in Charlotte, and I became very skeptical of Zillow's estimates, particularly in the Northern half of the area.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on October 14, 2021, 06:27:43 AM
So we are in the process of doing a cash out refinance and the appraisal came in $115k below what Zillow shows the value to be. I’ll be canceling that cashout.


Sent from my iPhone using Tapatalk
You can contest an appraisal, fyi.
Yes, but that’ll be hard to close the gap between Zillow and the appraisal. The market is so hot here in Charlotte that prices have risen 30% in the past year, but nothing has sold in the past six months in my neighborhood, that’s how tight supply is. Older homes are still getting cash offers off market and being torn down and rebuilt.

Also I’m not trading in my 2.5% for a 3% rate unless I can get a large amount of money out.


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I also live in Charlotte, and I became very skeptical of Zillow's estimates, particularly in the Northern half of the area.
Interestingly Trulia is extremely close to Zillow.

However the appraisal of $615 doesnt even fall into zillows range of 665k to 790k. The fact the two are so far off makes me uncomfortable to refinance and want to just stand pat.

Of course I will continue to not pay one extra dime towards my mortgage:-)


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Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on October 14, 2021, 07:15:43 AM
Can you sell to Zillow, if they think it's worth so much?
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on October 14, 2021, 07:34:23 AM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!

Here's a twist. I cashed out and refi'd. My plan was to refi later to drop the rates because cash out rates were higher.

I started paperwork last night and discovered I don't qualify to refi because my income isn't high enough because I went to 3/4 time last month. DW is self employed currently and I'm not ready to dive into that headache. If she ever goes back to FT W2 work

My reaction last night? Oh well. I got a sweet mortgage rate anyway.

I did three in the last year as self employed, two with lender fi, one with Better. All they wanted was a previous three months profit and loss statement (which was done by me, not an accountant, not notarized), three months of bank statements, two years taxes.
That was pretty much it. They each took less than a month, start to finish. One was cash out, two were rate/term.
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on October 14, 2021, 07:56:06 AM
Just signed the paperwork for our cash out refi.  2.99% 30yr w/ $126k out.  Looking at investment properties now.  Torn between furnished-medium-term in FL vs a unfurnished-long-term in AL vs a furnished-short-term in CA.

~3 months ago, we had tesla solar+powerwalls w/ financing added to the home.  Apparently the loan does not show up until Tesla receives PTO from the energy provider, so the bank was none the wiser.  Luckily that has not yet happened yet, so we were able to complete this refi without any issue.  Solar loan is at 0.99% APR so it was a no brainer.

Next time we refi we may run into some issues though as it seems having a solar loan/lean on the home can block some refis.
As long as you're buying it and not leasing, the hassle should be minimal. Leased solar is a whole other can of worms.

Yes, purchase (via financing), would never lease ... yuck! 

And good to know - it came up often enough during that closing that it made me wonder.  Glad to hear that my next refi (with financed solar) should be mostly hassle free, assuming rates stay low!

Would still like to refinance once more, in an attempt to lock in a even lower rate due to not having the cash out portion...  Assuming of course we stay at ~60% LTV and rates stay sub 3%.  gulp.

I too want to refinance to drop to a lower rate after having done cash out, but if rates go up in the short term I'm not going to sweat it. The rate we refi'd at (3.125%) I was comfortable holding 30 years because it's 3.125% for cryin out loud. We bought this property 4 years ago at 4.75%. I think our PI payment now after pulling out 100k at current rates is about where it was back when we bought at the earlier rates, +/- $50.
I wanted to comment on this while I have a moment at a real keyboard. Posts like this make me nuts so jelly. FOMO is real, man, and we have it big time. DH and I paid cash for our house eight years ago and still we kick ourselves. It just gets worse as rates continue to drop and fellow mustachians post stuff like this. Okay, it's actually Fear That We Missed Out, but let's still call it FOMO.

You'd think it would be no big deal because we're FI/RE and statistically it's probably less of a big deal because of our advanced ages (Ha!), but dang it, we still feel like we're missing out! There's a lesson here. DPOYM Rules!!!

Congratulations to everyone who has locked in a cheap-ass, fixed rate mortgage on a reasonably priced (for your area) house! Your future selves are going to be ecstatic!

Here's a twist. I cashed out and refi'd. My plan was to refi later to drop the rates because cash out rates were higher.

I started paperwork last night and discovered I don't qualify to refi because my income isn't high enough because I went to 3/4 time last month. DW is self employed currently and I'm not ready to dive into that headache. If she ever goes back to FT W2 work

My reaction last night? Oh well. I got a sweet mortgage rate anyway.

I did three in the last year as self employed, two with lender fi, one with Better. All they wanted was a previous three months profit and loss statement (which was done by me, not an accountant, not notarized), three months of bank statements, two years taxes.
That was pretty much it. They each took less than a month, start to finish. One was cash out, two were rate/term.

Hmm. This I'll give a shot. Thanks
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on October 15, 2021, 09:17:31 AM


I did three in the last year as self employed, two with lender fi, one with Better. All they wanted was a previous three months profit and loss statement (which was done by me, not an accountant, not notarized), three months of bank statements, two years taxes.
That was pretty much it. They each took less than a month, start to finish. One was cash out, two were rate/term.

Good news bad news. Bad news, DW has been self employed for 6 months and doesn't qualify for a co borrower. Good news? My refi showed up twice on the credit report, with both the original bank and then the one it was sold to. They were able to get me qualified by removing the first one that has been sold.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 15, 2021, 09:44:50 AM


I did three in the last year as self employed, two with lender fi, one with Better. All they wanted was a previous three months profit and loss statement (which was done by me, not an accountant, not notarized), three months of bank statements, two years taxes.
That was pretty much it. They each took less than a month, start to finish. One was cash out, two were rate/term.

Good news bad news. Bad news, DW has been self employed for 6 months and doesn't qualify for a co borrower. Good news? My refi showed up twice on the credit report, with both the original bank and then the one it was sold to. They were able to get me qualified by removing the first one that has been sold.
Yeah, I had 9 years self employed, then 10 months W2, then tried to refinance ~1 month after going back to self employed. Lender Fi scuttled the deal. Moral of this story is never work as an employee for anyone ever.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on October 15, 2021, 01:12:43 PM
Yeah, I had 9 years self employed, then 10 months W2, then tried to refinance ~1 month after going back to self employed. Lender Fi scuttled the deal. Moral of this story is never work as an employee for anyone ever.

That's a bummer.  Usually they don't care unless you change industries. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 15, 2021, 03:36:59 PM
Yeah, I had 9 years self employed, then 10 months W2, then tried to refinance ~1 month after going back to self employed. Lender Fi scuttled the deal. Moral of this story is never work as an employee for anyone ever.

That's a bummer.  Usually they don't care unless you change industries.
I also formed a new LLC for this latest iteration, so maybe that was it? I just wish they would have told me before the "gather all your paperwork" part - I thought I went out of my way to explain the whole situation.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 20, 2021, 09:47:42 PM
My refi with Better went through earlier this month and I just got the $2k Amex credit.  I came out at least $1.5k ahead after closing costs (yes, I got PAID to refinance), lowered my rate to 3%, and cashed out almost $30k. Overall a pretty good deal! Some of the cash out went to VTI and some is going into ibonds, currently paying ~5.33% for the next year.  I'm planning to quit my job next spring so want to keep a little more money in fixed income to live off of for the next few years.  This is allowing me to max out my mega backdoor Roth at 50% of my income which I was thinking I might need to taper down at some point.  I know at least part of the reason I'm able to FIRE is due to the decision to invest over paying off my low rate mortgage.  The awesome stock market returns in that time sure helped a lot too.  I know I got pretty lucky with my timing, but I knew the odds were in my favor.  That's the whole point of this thread!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 21, 2021, 02:33:18 PM
Larry Kotlikoff--who normally doesn't seem like a champion of the DPYM crowd--is a huge advocate of the I-bonds, i'm pleased to see someone taking advantage of them. All the best!
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 21, 2021, 08:11:00 PM
Thanks!  I'm generally not a huge proponent of ibonds.  I bought maybe $5-10k around 10 years ago when the rates were decent and before I knew much about investing.  At some point when the ibond rates were <0, I redeemed the ibond and invested the proceeds in the market.  That was a good decision.  But now that I need a bit more fixed income and inflation is super high, they make sense again.  We'll see how long I hold onto them this time.  I doubt ibonds will beat mortgage rates over the long-term, but they make sense now and I'm fine to lock up the money for 1 year, so why not.
Title: Re: DONT Payoff your Mortgage Club
Post by: GodlessCommie on October 22, 2021, 12:36:22 PM
Same deal with Better.com and $2K Amex offer. Got paid to extend the mortgage to 30 years, with a sub-3% rate just 0.015% higher than the previous 15-year one. This looked like a deal too good to pass.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 22, 2021, 01:14:00 PM
Hmm - $2K would put a serious dent in the "recording fees". Looks like the offer goes through September next year - gotta remember this in roughly May when my new-ish LLC will be more seasoned.

Anyone know if Amex refunds excess credit balances? I have a card or two from them that we don't use much - I could fairly easily direct spend there, but I'd rather just have them cut me the check and not have to think about that.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 24, 2021, 02:38:21 PM
After more than a year of looking to re-fi the mortgages on our rentals, it looks like we will be signing papers on one of them this week. Thirty years at 3.375%, with about $2500 in closing costs. Not bad for an investment property. Major pisser is the charge of $566 NOT to have an escrow account, ack!

We're using Aim Loans. They have been relatively efficient, but here's a pro tip: Don't submit all your paperwork, think you're done, then go tour National Parks in Utah for two weeks, ack! We've had some adventures keeping this deal alive with no connectivity.  We sign tomorrow, and I'll post all the dirty details when we close, and why we're only doing one re-fi.

Thanks to everyone who's posted on the topic. We've learned a lot along the way.
Title: Re: DONT Payoff your Mortgage Club
Post by: Mako52 on October 25, 2021, 07:08:33 AM
Would anyone NOT do this refi?

Currently a year into a 2.625 / 30yr with Lenderfi.  443k balance.
Looking at a 1.75 7yr ARM with Loan Depot.  (30 year amortization schedule) Total costs are ~2k so balance will become 445k.  Total interest savings over next 7 years are 25k.  We plan to move/downsize/retire at that time.

We decided to pass on this one.  There's a good chance we could be moving within a year, but with the timing of our kids' education we could still be here in 8 years.  If mortgage rates spike, they can go up 0.5% every six months to a max of 6.75 under the terms of the ARM.  Going from paying 1.75 to 6.75 would be awful when we can stay locked in at 2.625 for 29 more years if we want. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 25, 2021, 09:47:09 AM
Sometimes things go in the opposite direction. I remember one time where the deep thinking about whether we wanted to refinance ultimately led us to realize we just needed to move.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on October 25, 2021, 11:00:16 AM
Sometimes things go in the opposite direction. I remember one time where the deep thinking about whether we wanted to refinance ultimately led us to realize we just needed to move.
I did that too. I said "if I'm trying to save $ with a refi, why wouldn't I also move out of this house that's too big and expensive?"

Probably this is what is driving the housing market higher and higher, and pushing all the demand to high-end housing. Except non-mustachians are up-sizing their homes with the same mortgage payment rather than trying to reduce their expenses.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on October 25, 2021, 11:10:48 AM
Sometimes things go in the opposite direction. I remember one time where the deep thinking about whether we wanted to refinance ultimately led us to realize we just needed to move.
We always planned to sell our clown house and downsize. The market's crazy escalation since we bought in 2013 means a smaller house will now cost just as much or more, and the property taxes will be at least as high.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on October 25, 2021, 02:19:42 PM
Sometimes things go in the opposite direction. I remember one time where the deep thinking about whether we wanted to refinance ultimately led us to realize we just needed to move.
We always planned to sell our clown house and downsize. The market's crazy escalation since we bought in 2013 means a smaller house will now cost just as much or more, and the property taxes will be at least as high.

Prop 13 strikes again.  At this point moving to a smaller house in the same area would ruin my WR
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 26, 2021, 08:15:46 PM
Hmm - $2K would put a serious dent in the "recording fees". Looks like the offer goes through September next year - gotta remember this in roughly May when my new-ish LLC will be more seasoned.

Anyone know if Amex refunds excess credit balances? I have a card or two from them that we don't use much - I could fairly easily direct spend there, but I'd rather just have them cut me the check and not have to think about that.

I believe you can get a check for excess credit balances.  I just requested a check by following this link: https://www.americanexpress.com/us/customer-service/faq.credit-balance-refund.html (https://www.americanexpress.com/us/customer-service/faq.credit-balance-refund.html).  There was also an option to transfer to another Amex account, but I just wanted the check.  Seems like it should work but will have to wait and see.

I thought the Better Amex deal was up this Sept, didn't realize it went until next Sept!  It's almost tempting to do another one.  The $2k certainly helps with the closing costs that usually make a refi harder to justify.  It looks like it's only once per 6 months though.  Who knows what rates will be like then.  And more importantly, that's around when I plan to FIRE so not sure I want to delay that to prove I have income.  I guess we'll see.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on October 27, 2021, 09:10:03 AM
Hmm - $2K would put a serious dent in the "recording fees". Looks like the offer goes through September next year - gotta remember this in roughly May when my new-ish LLC will be more seasoned.

Anyone know if Amex refunds excess credit balances? I have a card or two from them that we don't use much - I could fairly easily direct spend there, but I'd rather just have them cut me the check and not have to think about that.

I believe you can get a check for excess credit balances.  I just requested a check by following this link: https://www.americanexpress.com/us/customer-service/faq.credit-balance-refund.html (https://www.americanexpress.com/us/customer-service/faq.credit-balance-refund.html).  There was also an option to transfer to another Amex account, but I just wanted the check.  Seems like it should work but will have to wait and see.

I thought the Better Amex deal was up this Sept, didn't realize it went until next Sept!  It's almost tempting to do another one.  The $2k certainly helps with the closing costs that usually make a refi harder to justify.  It looks like it's only once per 6 months though.  Who knows what rates will be like then.  And more importantly, that's around when I plan to FIRE so not sure I want to delay that to prove I have income.  I guess we'll see.
The offer page says this:

 Access the offer by:

i. Prior to 9/13/22 (the “Lock Rate-By Date”), create an account with Better Mortgage by either: clicking the “I’m purchasing” or “I’m refinancing” link on better.com/amex; or

ii. If you have already created an account with Better Mortgage, contact your Better Mortgage Loan consultant or call (877-688-3252) to request the offer prior to your loan closing; and

b. Lock your rate on a Better Mortgage loan application by the “Lock Rate-by-Date”, at which point an appraisal fee is charged; and

c. Qualify for and successfully close your mortgage loan with Better Mortgage by 12/17/22 (the “Close-by-Date”).
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on October 29, 2021, 08:47:48 PM
The offer page says this:

 Access the offer by:

i. Prior to 9/13/22 (the “Lock Rate-By Date”), create an account with Better Mortgage by either: clicking the “I’m purchasing” or “I’m refinancing” link on better.com/amex; or

ii. If you have already created an account with Better Mortgage, contact your Better Mortgage Loan consultant or call (877-688-3252) to request the offer prior to your loan closing; and

b. Lock your rate on a Better Mortgage loan application by the “Lock Rate-by-Date”, at which point an appraisal fee is charged; and

c. Qualify for and successfully close your mortgage loan with Better Mortgage by 12/17/22 (the “Close-by-Date”).
Yes, I did see that you were correct on it going through Sept 2022.  I didn't mean to imply that you were wrong!  I did the offer at the end of August.  I remember seeing a Sept. date at the time and thought it was this year and the offer was about to end.  Either this is a new offer/they extended it or I misread it earlier which could very well be the case.  So thanks for pointing out that it goes until next year.  I could potentially benefit again.  It's definitely a great deal if Better is available in your state.  Their initial rate/quote was pretty crappy for me though so I'd recommend having them match another lender.  Getting them to match was super easy.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on November 03, 2021, 06:48:59 PM
@dandarc - Since you asked about Amex refunds, thought I'd follow up that I did get my Amex check this week.  So it didn't take too long (less than a week I think) and was super easy.

My Better mortgage got transferred to Mr. Cooper which seems to be pretty common.  The website seems decent and it was easy to set up autopay so should be fine.  I don't escrow which is the main place I think they could screw things up.  I might have to get kicked out of this club though.  I set up my autopay to do an extra $1.85 principal payment so my total payment would be an even $600.  If I keep it for 30 years, I'll pay it off a whole month or two early!  Blasphemy for this club!  But then again, I reset to a 30 year and owe slightly more than when I bought my house 9 years ago, so maybe I can stay :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on November 03, 2021, 07:58:51 PM
I might have to get kicked out of this club though.  I set up my autopay to do an extra $1.85 principal payment so my total payment would be an even $600.  If I keep it for 30 years, I'll pay it off a whole month or two early!  Blasphemy for this club!  But then again, I reset to a 30 year and owe slightly more than when I bought my house 9 years ago, so maybe I can stay :)

We'll allow it.  Just don't tell anyone else.  The kids might get ideas. 
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on November 03, 2021, 08:06:21 PM
@dandarc - Since you asked about Amex refunds, thought I'd follow up that I did get my Amex check this week.  So it didn't take too long (less than a week I think) and was super easy.

My Better mortgage got transferred to Mr. Cooper which seems to be pretty common.  The website seems decent and it was easy to set up autopay so should be fine.  I don't escrow which is the main place I think they could screw things up.  I might have to get kicked out of this club though.  I set up my autopay to do an extra $1.85 principal payment so my total payment would be an even $600.  If I keep it for 30 years, I'll pay it off a whole month or two early!  Blasphemy for this club!  But then again, I reset to a 30 year and owe slightly more than when I bought my house 9 years ago, so maybe I can stay :)

I really need to move. My mortgage (PI) is ~$2k/mo.

Man. But I love the city.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on November 03, 2021, 09:45:32 PM
@Telecaster -  Thanks for allowing me to keep my membership :)  I'll try not to set any more bad examples like this!

@dandarc - Since you asked about Amex refunds, thought I'd follow up that I did get my Amex check this week.  So it didn't take too long (less than a week I think) and was super easy.

My Better mortgage got transferred to Mr. Cooper which seems to be pretty common.  The website seems decent and it was easy to set up autopay so should be fine.  I don't escrow which is the main place I think they could screw things up.  I might have to get kicked out of this club though.  I set up my autopay to do an extra $1.85 principal payment so my total payment would be an even $600.  If I keep it for 30 years, I'll pay it off a whole month or two early!  Blasphemy for this club!  But then again, I reset to a 30 year and owe slightly more than when I bought my house 9 years ago, so maybe I can stay :)

I really need to move. My mortgage (PI) is ~$2k/mo.

Man. But I love the city.
Ha, yeah I love my cheap payment.  I generally live on under $2k/mo so it's crazy for me to think of paying that for a mortgage alone.  I was down under $500 for my last re-fi but took out some cash this time.  I'm not even in a super LCOL area, just bought at the right time just after the housing crash.  It's a decent place to live, in the suburbs with 2 large cities nearby.  Summers are great and winters are long.  Family is nearby which is the main thing keeping me here at this point. I bought for around $175k and I don't think there's really any SFHs available in the metro area under $300k now.  House appreciation and stocks have treated me well over the last decade.  I could have cashed out a lot more, but with FIRE around the corner, I put priority on keeping my payment lower.  This way I have enough Roth contributions to pay my mortgage until I'm 59.5.  Then I can keep the rest of my spending to ~$25k and receive very cheap healthcare.  And probably donate quite a bit since I planned for worst case of no subsidies.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 04, 2021, 07:20:40 AM
I  passed the one year anniversary of our refinance, got the letter that they're changing our escrow amount slightly to accommodate changes in taxes and insurance. So I log into ING to update the payment amount, and my wife suggested that we might wish to pay a little extra.

I would rather eat shards of glass than pay even a cent extra on my mortgage.

Actually, that sounds a little extreme, maybe I should be grateful that's not the choice in front of me.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 04, 2021, 09:57:46 AM
Maybe a bit extreme. Personally I’d pay a bit extra before to eat shards of glass, but hey to each their own.

If you are debating where to put your excess money each month then you are way ahead of about 2
/3rds of Americans
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 04, 2021, 12:16:23 PM
My wife suggested that we might wish to pay a little extra.


Domestic violence is wrong, so I guess divorce is the only option
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 04, 2021, 01:09:55 PM
I'm not ready to follow this DPYM club all the way to where I'm claiming divorce isn't as expensive as trapping a few extra bucks in your home equity.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 04, 2021, 01:50:33 PM
I'm not ready to follow this DPYM club all the way to where I'm claiming divorce isn't as expensive as trapping a few extra bucks in your home equity.

You lack… discipline
Title: Re: DONT Payoff your Mortgage Club
Post by: Ftao93 on November 09, 2021, 09:18:42 AM
This wasn't on purpose for us, but this is how the journey has gone so far:

Bought at 325k/4.25%   Added solar, which was 17k.  Rolled that all into a new mortgage for 330k @3.375%.    Just refinanced (our house is now said to be worth 450k...) to a 20 year for 2.275%.    Our month to month only went up $150, since we got rid of PMI.  It will save us over $100k in interest.   It's possible that if I invested that extra few hundred per month we'd end up with lots more, or...not?   I just found it to be a nice balance, and that rate is insanely low.   When I retire (if we can't do it earlier), the house will be free and clear.   We should be able to invest at least $1500 most months from here on out.

My wife is 11 years younger than me, so that's a strong positive.

Not sure if I did things in the right order, but here we are!
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on November 09, 2021, 09:59:08 AM
So has anyone re-financed after their cash-out-refi to get an even lower rate?  How long must we wait? :)

Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on November 09, 2021, 10:45:49 AM
So has anyone re-financed after their cash-out-refi to get an even lower rate?  How long must we wait? :)

I am going to refi in a couple weeks after a cash out a few months ago. I emailed better and asked what their wait period was and they said for a no cash out refi there is no waiting time.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on November 09, 2021, 12:10:16 PM
So has anyone re-financed after their cash-out-refi to get an even lower rate?  How long must we wait? :)

I am going to refi in a couple weeks after a cash out a few months ago. I emailed better and asked what their wait period was and they said for a no cash out refi there is no waiting time.

Sweet!  Are you finding lower rates?

I had a 2.99% with the cash out.  Would love to get back down into the 2.6-2.7 range ;)
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on November 09, 2021, 12:13:53 PM
So has anyone re-financed after their cash-out-refi to get an even lower rate?  How long must we wait? :)

I am going to refi in a couple weeks after a cash out a few months ago. I emailed better and asked what their wait period was and they said for a no cash out refi there is no waiting time.

Sweet!  Are you finding lower rates?

I had a 2.99% with the cash out.  Would love to get back down into the 2.6-2.7 range ;)
3.125 with cash out 2.75 no cash out. These are with ~$2k credits
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on November 09, 2021, 01:05:34 PM
Amazing, I will have to follow up with better then.  thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 20, 2021, 08:55:26 AM
Pretty quiet around here lately. I guess not paying off the mortgage gets to be a non-event.

To stir things up: we finally refi'd two of our rentals after at least 18 months of searching. Went with AimLoans.com. Got 3.375% with relatively reasonable fees. Lowered the rates by 87.5 basis points on each one. I just received the final numbers on the first one and the second one closed yesterday. I'll post them later.

Aim was easy to work with, but each loan was a completely different experience. More deets to follow.

Oh, and the rental I've owned the longest (2003) is now mortgaged until 2051. Yay!
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on November 20, 2021, 11:03:53 AM
Pretty quiet around here lately. I guess not paying off the mortgage gets to be a non-event.

To stir things up: we finally refi'd two of our rentals after at least 18 months of searching. Went with AimLoans.com. Got 3.375% with relatively reasonable fees. Lowered the rates by 87.5 basis points on each one. I just received the final numbers on the first one and the second one closed yesterday. I'll post them later.

Aim was easy to work with, but each loan was a completely different experience. More deets to follow.

Oh, and the rental I've owned the longest (2003) is now mortgaged until 2051. Yay!

I knocked 0.375 off my cash out refi rate and killed escrow just the other day. I wonder if all the activity is low since rates haven't moved much. I doubt we'll see more activity unless rates drop another good chunk again.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 20, 2021, 03:47:41 PM
SUPER UPDATE

this month I also didn’t pay off my mortgage

STAY TUNED FOR NEXT MONTHS AMAZING EPISODE OF… DONT PAY OFF YOUR MORTGAGE AND ALWAYS TYPE IN CAPS
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 20, 2021, 04:57:15 PM
SUPER UPDATE

this month I also didn’t pay off my mortgage

STAY TUNED FOR NEXT MONTHS AMAZING EPISODE OF… DONT PAY OFF YOUR MORTGAGE AND ALWAYS TYPE IN CAPS
CAN’T WAIT!!!!!!!!!!!!!

Meanwhile…. My spouse said to me the other day “I’m even more stoked we have a mortgage now that inflation is back”

I shed a little tear of joy.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 20, 2021, 05:06:05 PM
SUPER UPDATE

this month I also didn’t pay off my mortgage

STAY TUNED FOR NEXT MONTHS AMAZING EPISODE OF… DONT PAY OFF YOUR MORTGAGE AND ALWAYS TYPE IN CAPS
CAN’T WAIT!!!!!!!!!!!!!

Meanwhile…. My spouse said to me the other day “I’m even more stoked we have a mortgage now that inflation is back”

I shed a little tear of joy.
I think I have something in my eye...
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on November 20, 2021, 05:08:12 PM
Meanwhile…. My spouse said to me the other day “I’m even more stoked we have a mortgage now that inflation is back”

I shed a little tear of joy.

Between inflation and surging markets, not paying off your mortgage never looked better.  Sure, we could--and eventually will--have a market crash. But even then not paying off your mortgage is a clear winner. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on November 21, 2021, 09:00:40 AM
SUPER UPDATE

this month I also didn’t pay off my mortgage

STAY TUNED FOR NEXT MONTHS AMAZING EPISODE OF… DONT PAY OFF YOUR MORTGAGE AND ALWAYS TYPE IN CAPS
CAN’T WAIT!!!!!!!!!!!!!

Meanwhile…. My spouse said to me the other day “I’m even more stoked we have a mortgage now that inflation is back”

I shed a little tear of joy.
Yeah, paying extra on a 3% mortgage in a 2% inflationary world never made much sense to me. Paying extra on a 3% mortgage in a 5% inflationary world is the opposite of sense. If I wanted to waste money that badly I'd hang out at a casino slot machine so I could get free drinks while I was at it.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on November 21, 2021, 09:17:37 AM
Pretty quiet around here lately. I guess not paying off the mortgage gets to be a non-event.

To stir things up: we finally refi'd two of our rentals after at least 18 months of searching. Went with AimLoans.com. Got 3.375% with relatively reasonable fees. Lowered the rates by 87.5 basis points on each one. I just received the final numbers on the first one and the second one closed yesterday. I'll post them later.

Aim was easy to work with, but each loan was a completely different experience. More deets to follow.

Oh, and the rental I've owned the longest (2003) is now mortgaged until 2051. Yay!

I'm just waiting for six months to be up so I can do another Better re-fi for the $2k Amex credit. That offer is valid through Dec of '22.
I had another re-fi lined up a few weeks ago but I didn't do it: 2.875 with approx $400 credit.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 22, 2021, 11:56:14 AM
Pretty quiet around here lately. I guess not paying off the mortgage gets to be a non-event.

To stir things up: we finally refi'd two of our rentals after at least 18 months of searching. Went with AimLoans.com. Got 3.375% with relatively reasonable fees. Lowered the rates by 87.5 basis points on each one. I just received the final numbers on the first one and the second one closed yesterday. I'll post them later.

Aim was easy to work with, but each loan was a completely different experience. More deets to follow.

Oh, and the rental I've owned the longest (2003) is now mortgaged until 2051. Yay!

I'm just waiting for six months to be up so I can do another Better re-fi for the $2k Amex credit. That offer is valid through Dec of '22.
I had another re-fi lined up a few weeks ago but I didn't do it: 2.875 with approx $400 credit.

I bought my first property in 2008. When I was signing the papers, that xx/xx/38 date looked like a typo.

Thirty years seems so long. It's incredible to contemplate that banks are willing to fix our interest rates until then.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on November 22, 2021, 12:23:09 PM
<broken record>  Getting a 30-year fixed rate loan at or below the historical rate of inflation is the deal of a lifetime </broken record>
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on November 22, 2021, 02:40:57 PM
<broken record>  Getting a 30-year fixed rate loan at or below the historical rate of inflation is the deal of a lifetime </broken record>

I am struggling with how far to take this...

You don't want to purposely overpay on a home, but then you also want to account for the role inflation and low-interest-rates will play over the 30 years.
At some point it may be far better to buy now for more, than to wait for prices to drop as rates increase...
I doubt rents will ever decrease substantially?

If one can find properties that at a minimum breaks-even, why now leverage up to the T!T$ and buy as many properties as the bank will allow.

Who cares what happens to the value of the home, let the rent flow in and offset your fixed expenses.  #guarenteedtowork #profitin30? #2008alloveragain?
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on November 22, 2021, 04:09:49 PM
<broken record>  Getting a 30-year fixed rate loan at or below the historical rate of inflation is the deal of a lifetime </broken record>

I am struggling with how far to take this...

You don't want to purposely overpay on a home, but then you also want to account for the role inflation and low-interest-rates will play over the 30 years.
At some point it may be far better to buy now for more, than to wait for prices to drop as rates increase...
I doubt rents will ever decrease substantially?

If one can find properties that at a minimum breaks-even, why now leverage up to the T!T$ and buy as many properties as the bank will allow.

Who cares what happens to the value of the home, let the rent flow in and offset your fixed expenses.  #guarenteedtowork #profitin30? #2008alloveragain?

I view housing as an expense, and like all expenses it is good to optimize them.   I wouldn't buy more house than I want or need or buy rental properties that don't cash flow.  But with today's rates I would also put down as small a downpayment as possible and never pay off the mortgage early.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 22, 2021, 06:58:15 PM
My friend's daughter just bought her first home. It's a condo and it cost just over a million bucks. I am proud to report that she got a 30 year loan at 2.75%. She's a CPA, so she already knows not to prepay a cent on that sweet, sweet loan. So much love! And holy shit, I feel old saying this, but is that what things cost? Argh!
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on November 22, 2021, 07:17:04 PM
I know, right? My wife and I have discussed maybe retiring to Boise from Seattle. So I've been keeping tabs on the market and shit!  The days of Boise having low cost housing have come and gone.  Keep looking, I guess. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Kierun on November 23, 2021, 10:22:34 AM
Don't come looking here, median price for a little grass shack is over 1M on this little rock. I am looking forward to paying off the mortgage on the condo though, so I can reinstate my VA entitlement and refi the house.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 23, 2021, 11:53:01 AM
I have a cousin--recently turned 30--who continued working remotely at her Berkeley job from Boise. She loves it there!!!
Title: Re: DONT Payoff your Mortgage Club
Post by: EchoStache on November 27, 2021, 08:23:23 PM
Hi, my name is UltraStache, and I love paying off debt.  I don't have a problem though.  I'm only here because Dicey told me to come check out the thread.  Maybe she steered me here because I was thinking about paying off my mortgage as fast as possible!! 

P.S…UltraStache has nothing to do with having an ultra-money mustache.……or being the Apex of Mustachianism.  It's more like, I couldn't think of a username….I'm an ultrasound tech…..working on my stache….maybe I can grow into the name!
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on November 27, 2021, 08:48:37 PM
Hi, my name is UltraStache, and I love paying off debt.  I don't have a problem though.  I'm only here because Dicey told me to come check out the thread.  Maybe she steered me here because I was thinking about paying off my mortgage as fast as possible!!
If you pay off your debt as slowly as possible you'll be able to do what you love for longer. And bonus you'll probably be richer at the end too.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 28, 2021, 05:03:37 PM
Hi, my name is UltraStache, and I love paying off debt.  I don't have a problem though.  I'm only here because Dicey told me to come check out the thread.  Maybe she steered me here because I was thinking about paying off my mortgage as fast as possible!! 


Hello @UltraStache  - what kinds of debt do you have that you’d like to get rid of?
While no debt is a tempting goal, it necessarily means giving up some of your cash. Those in the DPOYM crowd recognize that we can be much bettter off - financially - holding a fixed, low rate mortgage instead of paying it off at an accelerated rate. This is particularly true during a high-inflation, ultra-low-mortgage-rate time period like we have right now. 

Title: Re: DONT Payoff your Mortgage Club
Post by: EchoStache on November 29, 2021, 03:34:44 AM
I became consumer debt free this year.  Recently found the FIRE movement and this site.  My plan going into next year was to max all retirement savings, then aggressively pay down my mortgage as fast as possible.  I got a number of suggestions to consider investing instead, while paying the mortgage slowly.  I'll admit, I'm open to that option now although I'm still tempted to take out a 15 year fixed on the new home we buy next year after moving, rather than a 30 year. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 29, 2021, 04:54:46 AM
I became consumer debt free this year.  Recently found the FIRE movement and this site.  My plan going into next year was to max all retirement savings, then aggressively pay down my mortgage as fast as possible.  I got a number of suggestions to consider investing instead, while paying the mortgage slowly.  I'll admit, I'm open to that option now although I'm still tempted to take out a 15 year fixed on the new home we buy next year after moving, rather than a 30 year.
Stick around, you'll be singing the praises of 30 year mortgages in no time!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 29, 2021, 05:09:34 AM
I mentioned this elsewhere, but recording it here for posterity. Y'all know we just re-fi'd two of our rentals. The second re-fi just closed. I bought the property as a new build in 2003 with the intent to make it my retirement home eventually. The new mortgage runs through 2051. I'll be 93, yippee!

I also mentioned elsewhere that I tallied the estimated value of our RE holdings about a month ago, then again yesterday. The total estimate increased by $134k! Holy crap! I never earned that much in a whole year!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 29, 2021, 06:31:33 AM
Hi, my name is UltraStache, and I love paying off debt.  I don't have a problem though.  I'm only here because Dicey told me to come check out the thread.  Maybe she steered me here because I was thinking about paying off my mortgage as fast as possible!! 

P.S…UltraStache has nothing to do with having an ultra-money mustache.……or being the Apex of Mustachianism.  It's more like, I couldn't think of a username….I'm an ultrasound tech…..working on my stache….maybe I can grow into the name!

@UltraStache , it sounds like you're planning to move soon. Part of what drew me to the DPYM club was my own experience when moving: having accumulated a significant balance in a taxable investment account gave us enough available cash that we could move on our schedule, which meant buying the new home before selling the old one. Like you, we benefitted from having all other debts paid off, so there wasn't additional space in the budget needed for a car payment or anything like that.

Basically, equity in a house is a cruddy place to store funds if you think you'll need them soon.
Title: Re: DONT Payoff your Mortgage Club
Post by: JoePublic3.14 on November 29, 2021, 02:46:46 PM
I don’t fully belong here, but posting anyway. We have not had a mortgage for about five years. Paid one off, then moved (corporate relo) and simply used the sale proceeds to pay for the new one, and put the leftover $15k into VTSAX. We moved again, but this time the timing didn’t work out, and we ended up in a more expensive place (mostly due to COL in new area, house is about an even trade). So we have a mortgage. However, once we got the old place sold, we made a large payment and had the loan recalculated for free. The remainder will be going into VTSAX this week. Waiting on some other payments from the relo company so one big buy.

So we sort of belong here, but mostly don’t. Especially when I add that we have a 5/1 ARM at 2.0% and likely will move again within seven years. Perfect for not paying…..
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 29, 2021, 04:48:56 PM
I don’t fully belong here, but posting anyway. We have not had a mortgage for about five years. Paid one off, then moved (corporate relo) and simply used the sale proceeds to pay for the new one, and put the leftover $15k into VTSAX. We moved again, but this time the timing didn’t work out, and we ended up in a more expensive place (mostly due to COL in new area, house is about an even trade). So we have a mortgage. However, once we got the old place sold, we made a large payment and had the loan recalculated for free. The remainder will be going into VTSAX this week. Waiting on some other payments from the relo company so one big buy.

So we sort of belong here, but mostly don’t. Especially when I add that we have a 5/1 ARM at 2.0% and likely will move again within seven years. Perfect for not paying…..

I don’t really understand… do you want to hold on to your mortgage or not?  If not, why not?
Title: Re: DONT Payoff your Mortgage Club
Post by: Retire-Canada on November 29, 2021, 05:44:05 PM
I sold my house [had a mortgage] and bought a house jointly with my GF. I got a bunch of cash from the old house as it went up a lot. I could have been mortgage free if I dumped all the sale proceeds into the new house. Instead I put enough down to satisfy the lender we had a good down payment and then put the rest into my investments according to my AA.

So we now have a bigger mortgage jointly than I did solo, but my share of the mortgage is only about 50% of the mortgage I previously had. Being in Canada we renegotiate mortgages every 5 years. I'm thinking I'll pull some money out of the house every time that happens [assuming home values continue to climb] to increase my % of the joint mortgage until we are 50/50. Any funds I gain that way will get invested into my portfolio.

Living in a high risk earthquake zone I sleep better with a bigger mortgage! ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on November 29, 2021, 07:54:54 PM
Maybe this was asked somewhere on pages 1-60, but do any of you in the DPYM secret society set aside your mortgage balance in relatively low-risk investments in order to both earn a higher yield than the mortgage and simultaneously avoid Sequence of Returns Risk (SORR) at the same time?

Example: I owe about $108k on my house, at 3.25%. Relatively low-volatility preferred stock funds like PGF yield 4.8%. I could keep $108k in PGF and $-108k on my mortgage and arbitrage the 1.55% difference for $1,674 per year.

Of course, the arbitrage game is getting harder as yields compress across the duration and risk curves, so I suspect most of you are putting it all in VTI/VTSAX. But because the mortgage payment increases one's monthly withdraw from stocks, it makes SORR from a 2-5 year -50% bear market a bigger concern. Do you dial down the AA risk in exchange for holding the mortgage, and how does that work as the available yields from bond funds drop?

VCIT yields 2.27%, which is less than my mortgage, AND it has significant risk when rates increase next year. So if that was my risk tolerance, I'd prefer to pay off my mortgage. I could go out on a limb with junk bonds - JNK yields 4.47% - but is the additional risk really worth the 1.22% spread over an absolutely risk-free investment? IDK. How do you approach this?
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 30, 2021, 06:56:38 AM
I personally just invest according to stated asset allocation, which means I'm losing a bit on ~20% of the portfolio (rebalance day I actually remembered this year), while gaining quite a lot on the other 80% or so - prefer that expected 5-7% spread vs. a known 2% spread. I might feel differently about it if I was in a much more expensive house where the cash-flow draw was more significant.

With a $108K mortgage, since I could make that payment working at any number of jobs I wouldn't sweat the cash-flow need on that. I'm actually pretty close to that number as it is - my mortgage sits at $121K currently, and an under $600 payment is not something I'm losing any sleep over.

I'm also on more of a coast-fire path, if all cash flow was truly being covered out of portfolio I might have more concern over SORR, but at this point even that 50% downswing wouldn't have me concerned with the mortgage specifically - it is a mere drop in our un-mustachian bucket of outflow these days. Goal for next year is to dial that back in to more respectable levels.
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on November 30, 2021, 07:17:48 AM
Maybe this was asked somewhere on pages 1-60, but do any of you in the DPYM secret society set aside your mortgage balance in relatively low-risk investments in order to both earn a higher yield than the mortgage and simultaneously avoid Sequence of Returns Risk (SORR) at the same time?

Example: I owe about $108k on my house, at 3.25%. Relatively low-volatility preferred stock funds like PGF yield 4.8%. I could keep $108k in PGF and $-108k on my mortgage and arbitrage the 1.55% difference for $1,674 per year.

Of course, the arbitrage game is getting harder as yields compress across the duration and risk curves, so I suspect most of you are putting it all in VTI/VTSAX. But because the mortgage payment increases one's monthly withdraw from stocks, it makes SORR from a 2-5 year -50% bear market a bigger concern. Do you dial down the AA risk in exchange for holding the mortgage, and how does that work as the available yields from bond funds drop?

VCIT yields 2.27%, which is less than my mortgage, AND it has significant risk when rates increase next year. So if that was my risk tolerance, I'd prefer to pay off my mortgage. I could go out on a limb with junk bonds - JNK yields 4.47% - but is the additional risk really worth the 1.22% spread over an absolutely risk-free investment? IDK. How do you approach this?

Are you talking about SORR for somebody who is about to retire with a mortgage?

I think keeping the entire mortgage balance in low risk funds is pretty against the grain and potentially unwise. Keeping 3-4 years of payments in low risk funds makes some sense to beat SORR because you know you have to pay them the first few years. But the entire balance will drag the portfolio down. Ideally it should include other fixed expenses outside the mortgage  too in those first few years, but you already know that.

If folks were signing up for $1674/yr on a 1.55% difference I doubt we'd have 60 pages. We're here more for the difference on 3% vs 8-10% per year over 25-30 years.

It is a good question though and should make some folks here think about how they invest the funds if refinancing just before retirement. Especially if the plan has always been 100% VTI.
Title: Re: DONT Payoff your Mortgage Club
Post by: Retire-Canada on November 30, 2021, 07:50:21 AM
A few months before FIREd I converted my 100% stock AA to 100% stock + ~5 years spending in cash/bonds for SORR reasons. At the time that would have been ~50% of my mortgage balance. Now in the new house it's ~100% of my part of the mortgage or ~30% of the total mortgage.

But, at no time did I have my mortgage specifically in mind as I was setting up the non-stock part of the portfolio. I just wanted some money to spend if the markets went sideways. When the COVID crash happened I was glad for the cash/bonds even though the recovery was fast. At the time of the crash it was unclear how bad COVID would affect the global economy.

As noted above I plan to increase my mortgage when we renew every 5 years and I have no plans to increase the cash/bond part of the portfolio. I also don't rebalance that part of the portfolio. It stays at ~5 years of spending regardless of the value of my stocks.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 30, 2021, 07:57:26 AM
I personally just invest according to stated asset allocation, which means I'm losing a bit on ~20% of the portfolio (rebalance day I actually remembered this year), while gaining quite a lot on the other 80% or so - prefer that expected 5-7% spread vs. a known 2% spread. I might feel differently about it if I was in a much more expensive house where the cash-flow draw was more significant.

With a $108K mortgage, since I could make that payment working at any number of jobs I wouldn't sweat the cash-flow need on that. I'm actually pretty close to that number as it is - my mortgage sits at $121K currently, and an under $600 payment is not something I'm losing any sleep over.

I'm also on more of a coast-fire path, if all cash flow was truly being covered out of portfolio I might have more concern over SORR, but at this point even that 50% downswing wouldn't have me concerned with the mortgage specifically - it is a mere drop in our un-mustachian bucket of outflow these days. Goal for next year is to dial that back in to more respectable levels.
IMO, that's just shooting yourself in the foot. You want the market, based on historical returns, to beat the interest rate on the mortgage by as much as is reasonably and safely possible, for as long as possible. Investing the money so conservatively also dampens the mortgage's inflation shielding superpower. If the market stumbles, you just keep going about your business, making your steady, affordable mortgage payments while the market recovers, which it always does.

In the present day, I would keep a decently large EF if it helps you "sleep better". Make that EF earn its keep by chasing bank deposit bonuses with it. Boom, all your green soldiers are always on active duty.
Title: Re: DONT Payoff your Mortgage Club
Post by: JoePublic3.14 on November 30, 2021, 08:28:36 AM
I don’t fully belong here, but posting anyway. We have not had a mortgage for about five years. Paid one off, then moved (corporate relo) and simply used the sale proceeds to pay for the new one, and put the leftover $15k into VTSAX. We moved again, but this time the timing didn’t work out, and we ended up in a more expensive place (mostly due to COL in new area, house is about an even trade). So we have a mortgage. However, once we got the old place sold, we made a large payment and had the loan recalculated for free. The remainder will be going into VTSAX this week. Waiting on some other payments from the relo company so one big buy.

So we sort of belong here, but mostly don’t. Especially when I add that we have a 5/1 ARM at 2.0% and likely will move again within seven years. Perfect for not paying…..

I don’t really understand… do you want to hold on to your mortgage or not?  If not, why not?

Yeah, exactly…

Really got used to and enjoyed the flexibility not having a mortgage gave us (real or perceived.) However, I get the math of holding one.

So this time we are meeting in the middle, well shaded towards not having one, but still not at one extreme.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 30, 2021, 09:03:24 AM
I don’t fully belong here, but posting anyway. We have not had a mortgage for about five years. Paid one off, then moved (corporate relo) and simply used the sale proceeds to pay for the new one, and put the leftover $15k into VTSAX. We moved again, but this time the timing didn’t work out, and we ended up in a more expensive place (mostly due to COL in new area, house is about an even trade). So we have a mortgage. However, once we got the old place sold, we made a large payment and had the loan recalculated for free. The remainder will be going into VTSAX this week. Waiting on some other payments from the relo company so one big buy.

So we sort of belong here, but mostly don’t. Especially when I add that we have a 5/1 ARM at 2.0% and likely will move again within seven years. Perfect for not paying…..

I don’t really understand… do you want to hold on to your mortgage or not?  If not, why not?

Yeah, exactly…

Really got used to and enjoyed the flexibility not having a mortgage gave us (real or perceived.) However, I get the math of holding one.

So this time we are meeting in the middle, well shaded towards not having one, but still not at one extreme.

Gotcha. 
I always urge people to make sure they have ample liquid investments and use all their tax-advantaged space before ever contemplating paying down a fixed-rate, low-interest mortgage.  But once you have those boxes checked paying things off is hardly the worst use of one’s money (though the ‘optimum’ path is still generally not paying it off).
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 30, 2021, 12:01:05 PM
I think many of us would have paid off our mortgages even less, were it not for our partnerships with spouses who are cautious about investing.
Title: Re: DONT Payoff your Mortgage Club
Post by: LD_TAndK on December 29, 2021, 04:17:42 AM
Woo finished a refinance with Better, got the $2000 AMEX bonus!

Total in fees was $1,408. Paid $452 of that out of pocket, the rest is rolled into the loan at 2.875% 30 yrs.

Paying $44 less per month or $528 annually. So not a huge win but it's something haha
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 29, 2021, 05:55:59 AM
Interesting cross-discussion about inflation and the power of holding a mortgage.

I’ll admit this is the first time I’ve truly internalized the “fixed mortgage as an inflation hedge”. 
One aspect I had under-appreciated is the degree to which holding a mortgage makes that entire segment of monthly expenses immune to changes in inflation (because it’s fixed).  In our personal expenses, our mortgage accounts for almost 50% of monthly budget*, and the PI is the lion’s share. As a result, that large portion is completely immune from inflation.

Granted this is comparing relative percentage to absolute dollars, but I think that remains powerful. 

*how much we spend (excluding investment contributions), not our monthly income.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 29, 2021, 07:02:38 AM
Unexpected gift from my youngest sister, who is not particularly financially savvy. Turns out they got a 30 year mortgage re-fi at 2.25% back in 2019 and they have no intention of paying it off early. They have owned their home for nearly twenty years. I just hope that BIL's midlife crisis muscle car purchase wasn't procured with cash-out proceeds, but I'm not going to ask...
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on December 29, 2021, 07:30:54 AM
Not paying off your mortgage early is now getting mainstream attention!

https://www.wsj.com/articles/four-ways-to-manage-personal-finances-11640645156


Sent from my iPhone using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 29, 2021, 07:41:22 AM
Not paying off your mortgage early is now getting mainstream attention!

https://www.wsj.com/articles/four-ways-to-manage-personal-finances-11640645156


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It's paywalled, but nice to know...
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on December 29, 2021, 08:04:55 AM
Not paying off your mortgage early is now getting mainstream attention!

https://www.wsj.com/articles/four-ways-to-manage-personal-finances-11640645156


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It's paywalled, but nice to know...
Summary:

1. Don’t be quick to pay off low interest rate mortgage
2. Don’t over-pay for items because “supplies are limited”
3. Don’t track your spending - save first, spend the rest
4. Don’t fall prey to FOMO (cryptos, NFTs, etc) and jump in without purpose.

The rest is filler!


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Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on December 29, 2021, 01:45:47 PM
3. Don’t track your spending - save first, spend the rest

This is BS.  The rule is: save first, save the rest
Title: Re: DONT Payoff your Mortgage Club
Post by: FragglesRock666 on December 29, 2021, 02:38:16 PM
Update:  Still haven't paid any extra on my mortgage!
And just opened my first ever taxable brokerage account, with scheduled weekly deposits starting next week, where I will be sending my "extra" money instead of to the mortgage. 
Title: Re: DONT Payoff your Mortgage Club
Post by: GrumpyPenguin on January 01, 2022, 07:23:57 AM
Hi all!  Just commenting to say I'm joining the club.  About to close on a big ol' house with a fatty 30 year mortgage at 2.625%.  Bring on the inflation, I'm ready.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 01, 2022, 08:12:28 AM
Hi all!  Just commenting to say I'm joining the club.  About to close on a big ol' house with a fatty 30 year mortgage at 2.625%.  Bring on the inflation, I'm ready.
Great attitude. Welcome!
Title: Re: DONT Payoff your Mortgage Club
Post by: SavinMaven on January 01, 2022, 08:24:11 AM
29 years left on a beautiful 2.75% rate. Happy to be here!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 01, 2022, 08:29:19 AM
29 years left on a beautiful 2.75% rate. Happy to be here!

Are you my twin?  Same rate and we have 355 payments to go.

Edited; number typo.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on January 01, 2022, 10:48:43 AM
Twenty nine years six months left at 2.75, but who's counting?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 09, 2022, 11:26:09 AM
There is a bit of click bait at the end, but man, I do not like DR, so I'm sharing it here.


https://www.fool.com/the-ascent/mortgages/articles/heres-why-warren-buffett-is-right-and-dave-ramsey-is-wrong-about-mortgages/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 09, 2022, 11:33:15 AM
There’s an interesting discussion going on in another thread about what people are are experiencing with rising inflation.
There is a bit of click bait at the end, but man, I do not like DR, so I'm sharing it here.


https://www.fool.com/the-ascent/mortgages/articles/heres-why-warren-buffett-is-right-and-dave-ramsey-is-wrong-about-mortgages/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article

I bristle when people call DR a “financial expert”. Just because you talk about something a lot doesn’t make you an expert. It’s even worse when put on equal footing with Buffett.
Title: Re: DONT Payoff your Mortgage Club
Post by: Virtus3 on January 09, 2022, 11:42:57 AM
Interesting read through this thread. I'm on board with 350 remaining payments at 2.625%.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 10, 2022, 09:15:48 AM
If we have to accept Warren Buffet into our DPYM club, I won't complain.

Warren Buffet had something like 1% of his eventual Net Worth at the time he bought that house. He could have bought a house 10X as expensive, and it wouldn't have impacted his story. I suspect the house today would appraise in the neighborhood of $1 million, which is (financially) irrelevant to Buffet's fortune. If memory serves me right, Ramsey lives in a house worth several multiples of that, but I do not doubt even that opulent house is a very small portion of his net worth. My guess is that the people here are quite a bit more exposed wrt the value of our primary residence compared to the rest of our financial picture.

I think setting up the world in which you have to be either Ramsey or Buffet is a false dichotomy.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on January 14, 2022, 11:14:07 AM
29 years left on a beautiful 2.75% rate. Happy to be here!

Are you my twin?  Same rate and we have 355 payments to go.

Edited; number typo.

I'm in a very similar position!  353 to go at 2.75%!  I would have been at 355, but I couldn't help myself from making an extra mortgage payment in the month we moved.  We paid rent in July but our first mortage payment wasn't due until September.  I made a payment in August.  Trying to keep myself from doing that again, but it is hard!
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on January 14, 2022, 11:42:51 AM
If we have to accept Warren Buffet into our DPYM club, I won't complain.
Warren Buffet had something like 1% of his eventual Net Worth at the time he bought that house. He could have bought a house 10X as expensive, and it wouldn't have impacted his story.
Well, had he bought a house 10x more expensive, his story might have changed in that instead of calling his gas station a $6 billion dollar mistake, he might have called his house that.
https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx (https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx)

EDIT: So it looks like he bought his house in 1958 for $31,500 and didn't become a millionaire until 1962. Just as an assumption, let's say in 1958 he was worth $500k. Buying a 10x house ($315k) would require about a $63k down payment (roughly 12% of his net worth). Applying that percentage to today, buying a much nicer house would have been about a $14 billion dollar mistake for Buffet.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2022, 01:30:24 PM
If we have to accept Warren Buffet into our DPYM club, I won't complain.
Warren Buffet had something like 1% of his eventual Net Worth at the time he bought that house. He could have bought a house 10X as expensive, and it wouldn't have impacted his story.
Well, had he bought a house 10x more expensive, his story might have changed in that instead of calling his gas station a $6 billion dollar mistake, he might have called his house that.
https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx (https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx)

EDIT: So it looks like he bought his house in 1958 for $31,500 and didn't become a millionaire until 1962. Just as an assumption, let's say in 1958 he was worth $500k. Buying a 10x house ($315k) would require about a $63k down payment (roughly 12% of his net worth). Applying that percentage to today, buying a much nicer house would have been about a $14 billion dollar mistake for Buffet.

Given that this is already a pretty absurd hypothetical...
... simply finding a home that was worth 10x as much in Omaha in 1958 would have been a challenge, unless it was an opulent custom home. Buffett's home is pretty darn nice by local standards, and it always amuses me that the press keeps referring to it as "modest".  It's 6,000 square feet in a really nice neighborhood. It's not like Star Island Florida where there's home after home of the rich and famous.  It's Omaha - sleepy small city in the heartland with a (well) below average household income (then and now).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 14, 2022, 04:31:13 PM
If we have to accept Warren Buffet into our DPYM club, I won't complain.
Warren Buffet had something like 1% of his eventual Net Worth at the time he bought that house. He could have bought a house 10X as expensive, and it wouldn't have impacted his story.
Well, had he bought a house 10x more expensive, his story might have changed in that instead of calling his gas station a $6 billion dollar mistake, he might have called his house that.
https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx (https://www.fool.com/investing/2017/10/04/buffett-hopes-his-second-gas-station-bet-works-out.aspx)

EDIT: So it looks like he bought his house in 1958 for $31,500 and didn't become a millionaire until 1962. Just as an assumption, let's say in 1958 he was worth $500k. Buying a 10x house ($315k) would require about a $63k down payment (roughly 12% of his net worth). Applying that percentage to today, buying a much nicer house would have been about a $14 billion dollar mistake for Buffet.

Given that this is already a pretty absurd hypothetical...
... simply finding a home that was worth 10x as much in Omaha in 1958 would have been a challenge, unless it was an opulent custom home. Buffett's home is pretty darn nice by local standards, and it always amuses me that the press keeps referring to it as "modest".  It's 6,000 square feet in a really nice neighborhood. It's not like Star Island Florida where there's home after home of the rich and famous.  It's Omaha - sleepy small city in the heartland with a (well) below average household income (then and now).
I always think the same thing when the subject of his "modest" house comes up.
Title: Re: DONT Payoff your Mortgage Club
Post by: getsorted on January 14, 2022, 05:08:56 PM
I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?

I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 14, 2022, 10:27:29 PM
I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?

I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?
How much is the PMI? What's your total payment? FHA financing? That's such a good interest rate on so little money that you might be just fine letting it ride and investing everything else you can save into equities. PMI isn't the worst thing in the world, as long as it isn't costing you a fortune.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on January 15, 2022, 08:54:23 AM
Given that this is already a pretty absurd hypothetical...... simply finding a home that was worth 10x as much in Omaha in 1958 would have been a challenge, unless it was an opulent custom home...It's Omaha - sleepy small city in the heartland with a (well) below average household income (then and now).
So you're saying that the hypothetical requires Buffett to move from Omaha to a more expensive location in 1958. Considering people do that all the time, I'm not sure how that qualifies as an absurd hypothetical.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 15, 2022, 10:54:22 AM
Given that this is already a pretty absurd hypothetical...... simply finding a home that was worth 10x as much in Omaha in 1958 would have been a challenge, unless it was an opulent custom home...It's Omaha - sleepy small city in the heartland with a (well) below average household income (then and now).
So you're saying that the hypothetical requires Buffett to move from Omaha to a more expensive location in 1958. Considering people do that all the time, I'm not sure how that qualifies as an absurd hypothetical.

Nope.
I’m saying Buffett’s choice of home wasn’t some miserly hovel and the real estate market in Omaha in 1958 did not have any $380k homes available. The return* he got is precisely because it fit within the local market.  If you buy (or build) a home that’s 10x nicer than nearby homes in your area, chances are you won’t make any money.  That certainly seems to be the case for Omaha.

*ROI on a home purchase of course must include more than simply the  purchase price and sale price, especially over 5+ decades.  Inflation, insurance, renovations etc. must all be considered.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 16, 2022, 11:06:31 AM
Buffet's life should be judged as the whole package. I was very impressed by his biography The Snowball.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bateaux on January 16, 2022, 12:08:33 PM
I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?

I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?

It can't be much money on such a small loan.  I'd however try and get passed PMI.  You never know when you'd like to sell and having a bit more equity could help.
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on January 16, 2022, 07:55:09 PM
On page one of this thread, runewell has a great formula for determining the mortgage vs invest question. A great formula, usually eye-popping in most scenarios.

The question I have is about the assumption. It assumes you have a pile of money equal to your principle balance, and you are trying to decide if you should pay off the mortgage all at once, or invest it. But that's not the situation I'm in, and I think many people are with me. I don't have a big pile of cash, I have $1,000 a month from my paycheck.

Is there a formula that helps you decide what to do with an extra $1,000 a month? Is it the same as runewell's formula, just at a smaller scope?
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on January 16, 2022, 08:39:00 PM
On page one of this thread, runewell has a great formula for determining the mortgage vs invest question. A great formula, usually eye-popping in most scenarios.

The question I have is about the assumption. It assumes you have a pile of money equal to your principle balance, and you are trying to decide if you should pay off the mortgage all at once, or invest it. But that's not the situation I'm in, and I think many people are with me. I don't have a big pile of cash, I have $1,000 a month from my paycheck.

Is there a formula that helps you decide what to do with an extra $1,000 a month? Is it the same as runewell's formula, just at a smaller scope?

It's slightly different, but if you keep it simple the concept is similar.

Keeping it simple, if you have a $100k mortgage, or 10x$10k mortgages, the monthly payment for the $100k will equal the sum of the 10x$10k mortgages.

What this means is for every $ of that mortgage you can run a separate analysis. You could technically run runewells formula for each monthly extra payment you make, put in an annualized sum, or honestly run an online investment calculator interest gained result vs a pay down mortgage interest saved result. That will give you the data you're looking for rather than wiping it out all at once. You'll also want to ignore any "monthly payment reduction" l, focusing on interest only, unless you factor in a recast because the main mortgage payment will not change.

Real life variations will happen for sure. For example year 1 that $12k in the market may be flat but over 10 years avg 5%. One year of prepayment knocks time off the end of that loan and you'll see that savings in 20+ years.

The important thing to remember though is that that whole mortgage balance is the sum of a bunch of tiny chunks of money that can be assessed at the same rate (in most cases) as the parent mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: getsorted on January 17, 2022, 01:21:51 PM

It can't be much money on such a small loan.  I'd however try and get passed PMI.  You never know when you'd like to sell and having a bit more equity could help.

Unless I'm reading my statement breakdown wrong, it's $31 a month.

I don't plan on ever selling this house. If I did want to move, I'd rent it out before selling -- it's in a great rental market (near a large hospital and a college) and I could easily get almost twice the mortgage payment in rent. I think I may be firmly in the DPOYM club now.
Title: Re: DONT Payoff your Mortgage Club
Post by: Viking Thor on January 17, 2022, 02:44:18 PM

It can't be much money on such a small loan.  I'd however try and get passed PMI.  You never know when you'd like to sell and having a bit more equity could help.

Unless I'm reading my statement breakdown wrong, it's $31 a month.

I don't plan on ever selling this house. If I did want to move, I'd rent it out before selling -- it's in a great rental market (near a large hospital and a college) and I could easily get almost twice the mortgage payment in rent. I think I may be firmly in the DPOYM club now.

Its probably a good deal to get rid of PMI, hard to know for sure without knowing all the details. You save on the PMI and on the mortgage interest if you pay a little extra to get the necessary loan to value to remove PMI.

Its at least worth looking up with the bank how to get rid of it which differs accordingly to your loan/bank rules. Sometimes you can get rid of it with an appraisal above a certain amount.

Once you know the rules you could do a calculation of how much you would save versus the cost and effort involved.
Title: Re: DONT Payoff your Mortgage Club
Post by: feelingroovy on January 17, 2022, 09:59:39 PM
I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?

I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?

Do you have any idea if the house has appreciated?

We also bought a house with PMI in 2020. I was able to get the PMI removed last month with a reappraisal. It should pay off in a year.

We needed it to go up 12%. The appraisal came back 27% increase over what we paid for it. To be fair, we have already put on a new roof and did some updating of a bathroom.

But maybe check your neighborhood sales and Zestimate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 17, 2022, 11:56:56 PM
I'm going to just ask an ignorant question-- is it worth paying extra on the mortgage if you have PMI?

I bought a house in 2020 for $70k (heck yes Missouri prices) at 2.95% on a fixed-rate 30-year mortgage. I only put about $2000 down. How do I math it to figure out if it's worth paying extra to get PMI removed?

Do you have any idea if the house has appreciated?

We also bought a house with PMI in 2020. I was able to get the PMI removed last month with a reappraisal. It should pay off in a year.

We needed it to go up 12%. The appraisal came back 27% increase over what we paid for it. To be fair, we have already put on a new roof and did some updating of a bathroom.

But maybe check your neighborhood sales and Zestimate.
How much did the appraisal cost?

OP, at $31/month, I'd be tempted to just let the PMI ride for a while.
Title: Re: DONT Payoff your Mortgage Club
Post by: feelingroovy on January 18, 2022, 02:33:14 PM
Our appraisal was $495. Our PMI was a little higher so we had a 12 month payback. It's worth it if you're confident it will appraise high enough.
Title: Re: DONT Payoff your Mortgage Club
Post by: getsorted on January 18, 2022, 02:59:04 PM

Do you have any idea if the house has appreciated?

We also bought a house with PMI in 2020. I was able to get the PMI removed last month with a reappraisal. It should pay off in a year.


I checked with the lender, but they will only use the original loan amount to calculate PMI, not the appraisal value. The idea being that an appraisal is a purely theoretical value until a valuation event (the sale) occurs. However, they were more than happy to issue me a HELOC nine months after the sale based on the appraisal value.

As to Zillow, it's interesting - the Zestimate when I bought in October 2020 was the same as the appraisal value and asking price -- $90,000. After the house sold to me for $70,000 (surprising everyone), the Zestimate dropped to $74,000 and climbed over the last year to $87,500. It's difficult to say what it would really sell for. The nearly identical houses around me have much higher Zestimates.

I plan to own this house forever, either as my home or a rental property.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on January 18, 2022, 03:24:36 PM
Could you use the HELOC to pay down the original PMI balance. (Assuming the math works.) I.e if you only need $5K and it’s 5%, then the interest payment of $21/month is less than the PMI cost.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on January 18, 2022, 04:10:43 PM
It might be too low a balance, but have you thought about a re fi?
Online is easy.
I got a message from Lender Fi that claimed they are closing in eight days.
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on January 19, 2022, 04:54:33 AM
So I've just finished reading this whole thread and found it very useful, thanks y'all! I was already familiar with the general argument in favour of keeping a mortgage, but there was a lot of nuance and detail in here that was new to me, and it's also fascinating to see how mortgages work in different places.

I guess I belong in this club, having only paid the agreed monthly payment since spring 2014. When we first took it out, it felt awful to be in debt, although the amount was less than half the value of the home we bought. I was torn between "a mortgage is almost free money, we should stretch this out" and "we need to pay off this horrible thing as soon as possible". So I figured if I can't decide between these two courses of action, just paying the agreed amount is probably the best... And as soon as the amount dropped into five figures, it didn't feel horrible at all anymore.

Mortgages here are almost always variable rate, with a specific base rate (in our case the 6 month Euribor) + an agreed margin for the bank. This means that the rate changes every 6 months, but it's not something that's up to the bank. We pay the same amount every month, and if the rate goes up, the loan takes longer to pay (and if it goes down, the loan term gets shorter). So with this setup, banks wouldn't usually lend you money for 30 years, since the loan term has to be able to expand if rates go up. I think banks also don't really consider pensioners to be able to handle mortgage payments, so they'll only give you loans that end by the theoretical (very high, nowadays) national retirement age.

When we first took out the loan, the base rate was just above 0.4% and the bank's margin 1%. Since then, the base rate has dropped somewhere below -0.5%, and we've twice renegotiated the margin, first to 0.65% and then to 0.45% (I think the first of this was free and the second cost a few hundred euros). Since contracts currently include a clause that the bank will not pay the customer any interest, we now pay that 0.45% ... while smiling and thinking of this MMM club. Our original contract didn't include that clause, and I've heard that some customers have actually been in situations where the bank pays them to keep their mortgage! Meanwhile, the projected end date of the mortgage has moved from spring 2028 to summer 2027 because of the lower base rate and those renegotiations.

So it's possible to follow the DPOYM philosophy, even if you can't have a 30-year fixed loan. A combination of a much larger down payment and muuuch better rates does the trick just as well.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 19, 2022, 08:02:04 AM
We are glad to have you join us, @NorthernIkigai !

When I was reading those early posts, the peculiar American access to a long term at a fixed interest rate was a major foundational requirement of the DPYM club. That doesn't mean it's unwise to float a large mortgage balance. It just means you're bearing more risk per currency unit of debt than someone with a lengthy fixed term would be.

In my own case, I was paying toward an Adjustable rate mortgage from 2013-2020. During the initial five year "teaser" period (when my rate was fixed at 3.0%), I paid ahead slightly so as to ensure that any rate resets would limit the monthly payment to what our household could manage. The first reset took us up the maximum, but we were able to swing the payments with no difficulty, and the second annual reset--this was after the yield curve inversion--actually reduced the rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: Retire-Canada on January 19, 2022, 08:18:27 AM
We are in the DPOYMC here in Canada with adjustable rate mortgages. The way the mortgage/housing market is structured the Government cannot allow rates to sky rocket suddenly as that would lead to so many defaults they economy would crater. So while rates are not static I don't feel particularly vulnerable with this type of mortgage. The low starting rate of each 5 year term means that we can take quite a few rate increases before we would have been better off on a 5 year fixed term mortgage.

If the SHTF these mortgages have generous repayment terms so we could pay it off quickly if the math did make sense at some point.

In the meantime we'll enjoy our 1.45% mortgage rate and keep borrowing while letting that ~$500K stay invested.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 19, 2022, 08:58:13 AM
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.

Of course, those investments could have a year in which they decline by 35%. It's happened recently...
Title: Re: DONT Payoff your Mortgage Club
Post by: trc4897 on January 19, 2022, 09:34:03 AM
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.

Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)
Title: Re: DONT Payoff your Mortgage Club
Post by: JJ- on January 19, 2022, 09:59:32 AM
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.

Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)

No experience in doing it, but I'd do it if it's genuinely free and invest that $100 accordingly.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on January 19, 2022, 01:04:24 PM
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.

Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)

Totally makes sense to recast in your situation.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 24, 2022, 11:38:15 AM
It's clickbait, but at least they're singing the right song, lol!


https://www.fool.com/the-ascent/mortgages/articles/suze-orman-and-dave-ramsey-have-both-given-this-bad-mortgage-advice/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 24, 2022, 12:01:30 PM
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.

Of course, those investments could have a year in which they decline by 35%. It's happened recently...

Checks Markets

Perhaps I shouldn't have been bragging about that taxable investment account just yet.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 24, 2022, 02:49:51 PM
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.

Of course, those investments could have a year in which they decline by 35%. It's happened recently...

Checks Markets

Perhaps I shouldn't have been bragging about that taxable investment account just yet.

Check the market again
:-P
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on January 24, 2022, 05:13:37 PM
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.

Of course, those investments could have a year in which they decline by 35%. It's happened recently...

Checks Markets

Perhaps I shouldn't have been bragging about that taxable investment account just yet.

Check the market again
:-P

I’m on a horse
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 24, 2022, 06:40:59 PM
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.

Of course, those investments could have a year in which they decline by 35%. It's happened recently...

Checks Markets

Perhaps I shouldn't have been bragging about that taxable investment account just yet.

Check the market again
:-P

I’m on a horse

Huh?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 24, 2022, 06:43:26 PM
Because of investment gains, I now have a taxable investment account with a balance more than 15% in excess of our mortgage balance on our primary resident.

Of course, those investments could have a year in which they decline by 35%. It's happened recently...

Checks Markets

Perhaps I shouldn't have been bragging about that taxable investment account just yet.

Check the market again
:-P

I’m on a horse

Huh?

https://www.youtube.com/watch?v=turAjKH1UVo
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 25, 2022, 09:14:45 AM
Indeed, Jan. 24 was crazy! $QQQ down 5% at one point, but closes in the green. Definitely one of those days where I am grateful to have a commitment to long term, buy/hold investing rather than trying to dance in/out of positions.

Unfortunately, I did have a put contract I'd sold expire, so I had to log into ETrade and do something with that money. I opted to just put it into shares of $AVEV--not doing anything fancy with options--at current prices, which worked out well by the end of the day.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on February 12, 2022, 12:31:48 PM
The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on February 12, 2022, 12:48:37 PM
The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!

Very nice.  I too still have a very low % rate mortgage.  It's actually a little lower than the last time I posted in this thread - I had to refinance when my ex-wife left me.  Overall I lost some income when she left and to keep the house I had to give her all the $$ from the savings and retirement accounts.  But I've doubled down on savings/investing since then and just paying the minimum to my mortgage. 

Net result?   I now have a house valued at over $900k, a mortgage of $330k, and savings/investments at $225k.  One of my big goals before the divorce was to have enough $$ saved up to pay off the mortgage in full, if I ever needed to.  We'd 'just' achieved that prior to the divorce, but of course all assets get split down the middle here in CO.  Honestly I'm a bit shocked how fast the investments have rocketed up.  Once it hits $350k I'll actually breath a huge sigh of relief. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on February 12, 2022, 04:27:22 PM
Yep, definitely happy with my 3% mortgage with inflation at 7+%.  I also did a refinance in the fall and took out around $30k.  I mainly did this because the interest rate was actually better than a straight refinance and I wanted to take advantage of the $2k Amex offer from Better.  Some of this cash was invested in VTI and some went into i bonds.  It also allowed me to keep investing the max to my Mega Backdoor Roth and now Roth 401k at 50% of my paycheck.  I'm planning to FIRE in approximately 7 weeks, so thought about pulling back my contributions to pad my cash a bit.  But now I don't have to so I get to stuff a bit more into Roth before I call it quits.  I'll be happy to keep the mortgage in retirement as long as I own this house.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on February 12, 2022, 09:23:03 PM
The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!

Very nice.  I too still have a very low % rate mortgage.  It's actually a little lower than the last time I posted in this thread - I had to refinance when my ex-wife left me.  Overall I lost some income when she left and to keep the house I had to give her all the $$ from the savings and retirement accounts.  But I've doubled down on savings/investing since then and just paying the minimum to my mortgage. 

Net result?   I now have a house valued at over $900k, a mortgage of $330k, and savings/investments at $225k.  One of my big goals before the divorce was to have enough $$ saved up to pay off the mortgage in full, if I ever needed to.  We'd 'just' achieved that prior to the divorce, but of course all assets get split down the middle here in CO.  Honestly I'm a bit shocked how fast the investments have rocketed up.  Once it hits $350k I'll actually breath a huge sigh of relief.
Divorce sounds rough, including financially. I have been seriously thinking that a married couple of two should not call themselves fully financially independent (in the FIRE sense) on a 4% withdrawal rate, unless they can also support themselves separately, which is more likely a 3% or 2.5% rate together. It seems that independence which depends on marriage is not fully so.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on February 12, 2022, 09:54:42 PM
The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!

Very nice.  I too still have a very low % rate mortgage.  It's actually a little lower than the last time I posted in this thread - I had to refinance when my ex-wife left me.  Overall I lost some income when she left and to keep the house I had to give her all the $$ from the savings and retirement accounts.  But I've doubled down on savings/investing since then and just paying the minimum to my mortgage. 

Net result?   I now have a house valued at over $900k, a mortgage of $330k, and savings/investments at $225k.  One of my big goals before the divorce was to have enough $$ saved up to pay off the mortgage in full, if I ever needed to.  We'd 'just' achieved that prior to the divorce, but of course all assets get split down the middle here in CO.  Honestly I'm a bit shocked how fast the investments have rocketed up.  Once it hits $350k I'll actually breath a huge sigh of relief.
Divorce sounds rough, including financially. I have been seriously thinking that a married couple of two should not call themselves fully financially independent (in the FIRE sense) on a 4% withdrawal rate, unless they can also support themselves separately, which is more likely a 3% or 2.5% rate together. It seems that independence which depends on marriage is not fully so.

I never thought it would happen to me, until it did.  It was quite the shock.  Especially after 23 years of what I thought was a pretty good marriage.  And an 11 year old daughter caught in the middle. 

I'm still a little raw about the whole thing.  But on the other hand, it was better that it happened 3.5 years ago and not today because the financial hit would be even greater now.  At least I still have some time to triage and recover. 

And this was a person that I trusted completely.  So yes, I agree with you - if you are planning FIRE, have a contingency plan for divorce.  The divorce stats are breathtakingly bad.  You have a FAR better chance of FIRE failing from divorce than just about any other cause, at least as far as I can see. 
Title: Re: DONT Payoff your Mortgage Club
Post by: FragglesRock666 on February 17, 2022, 06:03:35 PM
The mortgage-as-an-inflation hedge thing has been working out very well. As readers may know, we did a large cash-out refinance last fall (put in SCHX, VEA, VWALX), which increased our monthly payment by $500. Since that time we are charging an extra $100 per month for rent, and I got a raise, which offset the higher payment. My wife will get a raise next month, which will also independently offset the extra $500. A 2.75% mortgage in a 7% inflation world is free money, and a lot of it!

Very nice.  I too still have a very low % rate mortgage.  It's actually a little lower than the last time I posted in this thread - I had to refinance when my ex-wife left me.  Overall I lost some income when she left and to keep the house I had to give her all the $$ from the savings and retirement accounts.  But I've doubled down on savings/investing since then and just paying the minimum to my mortgage. 

Net result?   I now have a house valued at over $900k, a mortgage of $330k, and savings/investments at $225k.  One of my big goals before the divorce was to have enough $$ saved up to pay off the mortgage in full, if I ever needed to.  We'd 'just' achieved that prior to the divorce, but of course all assets get split down the middle here in CO.  Honestly I'm a bit shocked how fast the investments have rocketed up.  Once it hits $350k I'll actually breath a huge sigh of relief.
Divorce sounds rough, including financially. I have been seriously thinking that a married couple of two should not call themselves fully financially independent (in the FIRE sense) on a 4% withdrawal rate, unless they can also support themselves separately, which is more likely a 3% or 2.5% rate together. It seems that independence which depends on marriage is not fully so.

I never thought it would happen to me, until it did.  It was quite the shock.  Especially after 23 years of what I thought was a pretty good marriage.  And an 11 year old daughter caught in the middle. 

I'm still a little raw about the whole thing.  But on the other hand, it was better that it happened 3.5 years ago and not today because the financial hit would be even greater now.  At least I still have some time to triage and recover. 

And this was a person that I trusted completely.  So yes, I agree with you - if you are planning FIRE, have a contingency plan for divorce.  The divorce stats are breathtakingly bad.  You have a FAR better chance of FIRE failing from divorce than just about any other cause, at least as far as I can see.

I'm sorry about your divorce, man, they suck so much.  If it helps, I am in a MUCH better position financially AFTER my divorce than I was before.  It does take some time to recover after the initial shock, and part of my problems before had to do with his spending habits that I don't have to worry about anymore.  But things get caught up and stabilized after a while. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on February 17, 2022, 07:00:38 PM

I'm sorry about your divorce, man, they suck so much.  If it helps, I am in a MUCH better position financially AFTER my divorce than I was before.  It does take some time to recover after the initial shock, and part of my problems before had to do with his spending habits that I don't have to worry about anymore.  But things get caught up and stabilized after a while.

Thanks, I appreciate that.  And you are right, even after the divorce I am almost halfway back to the cash/investment level I had back then, plus I kept the house which will probably increase in value another $100k this year.  So, it is working out, but it's just frustrating because I was so caught off guard by the whole thing. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 27, 2022, 08:52:55 AM
I think of this thread and everyone who has participated in it when I peruse all the OMG Inflation! threads that are popping up. Again when I note that mortgage rates are on the rise.

Keep on keeping those lovely, lovely mortgages!

Also, I'm giving the side-eye someone who is active here *and* on one of the mortgage payoff threads. WTH? You know who you are.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on February 27, 2022, 09:21:48 AM
I think of this thread and everyone who has participated in it when I peruse all the OMG Inflation! threads that are popping up. Again when I note that mortgage rates are on the rise.

Keep on keeping those lovely, lovely mortgages!

Also, I'm giving the side-eye someone who is active here *and* on one of the mortgage payoff threads. WTH? You know who you are.

WTH? Is it me? I have no idea what I have done. I have plenty of mortgages. LOL.  Even a 75% LOC on the FIRE house that hasn't been tapped but is signed at 3.75% for 10 years that we are ready to consider accessing. Have you mortgaged your current home yet? It might be a decent idea for retirement....
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 27, 2022, 09:36:38 AM
I think of this thread and everyone who has participated in it when I peruse all the OMG Inflation! threads that are popping up. Again when I note that mortgage rates are on the rise.

Keep on keeping those lovely, lovely mortgages!

Also, I'm giving the side-eye someone who is active here *and* on one of the mortgage payoff threads. WTH? You know who you are.

WTH? Is it me? I have no idea what I have done. I have plenty of mortgages. LOL.  Even a 75% LOC on the FIRE house that hasn't been tapped but is signed at 3.75% for 10 years that we are ready to consider accessing. Have you mortgaged your current home yet? It might be a decent idea for retirement....
Not unless you're from Texas...

We re-fi'd two of the rentals at just the right time. The third one had a pretty low rate, so we left it alone. We've strongly considered a loan on the primary before DH retires, but we're going to get a large inheritance that we don't need, so why pull a mortgage that we don't need either? MPP for sure. Our latest scheme is scouting for a condo that we can evict the Bonus Kid into. It's the only way we can see him launching. Alas, a 1+1 costs at least $400k here, which freaks us out. Still cheaper than renting, but sigh, it feels like Economic Outpatienting in the worst way. At least we would be using inherited money??? BTW, we're only thinking of making the down payment on it. He has enough savings to make payments for at least two years,  plus he has a job, which should be enough time for him to figure things out. Of course, we'll have to get the loan or carry the paper...
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on February 27, 2022, 12:35:44 PM
Ok I gotta hear about the bonus kid… is there a thread on it?  Did you get it with credit card miles?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 27, 2022, 02:10:04 PM
Ok I gotta hear about the bonus kid… is there a thread on it?  Did you get it with credit card miles?
Alas, not a particularly interesting story. BK came with the husband. There might be some details in my journal, but Dog knows where. Absolutely  no CC miles, but DH package included many other benefits, most of which are far superior. BK is 29 and having him around is no hassle really, he just isn't going to launch if he isn't shoved.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on February 28, 2022, 06:37:38 AM
Glad it’s not me! I hear you on launching bonus kid. We keep asking the oldest what his plans are after college. Much is riding on whether he passes certain exams….$400K sounds about right for a tiny 1BR in your area.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 28, 2022, 10:02:13 AM
I remember being in my twenties--there wasn't a public health situation mind you--and realizing that an "ease out" strategy would be more effective than simply announcing I was moving out.

Then I was in my thirties with young kids, and the new strategy became "ease out" the legos for building with grandkids. Made everyone happy.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on February 28, 2022, 08:02:16 PM
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on March 01, 2022, 12:00:27 AM
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."

PG&E?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 01, 2022, 12:09:04 AM
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."

PG&E?
Hahaha! Our PG&E bill was $715 in January and we keep our heat at 65.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 01, 2022, 05:28:53 AM
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."

I’ve been frustrated by the tone and context of many posters on this forum regarding inflation and our circles of control. We have deliberately designed our lives to weather inflationary shocks, and we’ve been implementing measures to do so for several years. For most of this forum’s existence when the subject of inflation came up - often in the context of having “inflation hedges” such as a fixed low-rate mortgage - posters would inevitably chime in that they believed inflation was a largely solved problem and the Fed would never allow the kind of price spikes we saw in the late 70s. But we saw it as a potential risk so we modeled our AA and our lifestyles accordingly.

Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.

I can’t help but draw a parallel to the broader concept of ‘early retirement’, since that is at the center of this forum. Certainly one will have difficulty retiring early if they are in their 40s living paycheck to paycheck with massive cc debt. Posters who have achieved FI by this point are often chided for being overly optimistic or just plain lucky, (even, increasingly, on this forum). Often they are dismissed as their experiences are so contrary to the norm even though they made a series of deliberate decisions over many years which go them there.

The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 01, 2022, 07:08:21 AM
Oddly enough, many young people are told inflation is the central risk as a motivator to get them using risky investments.

It seems like if that's your only true worry, you could be buying i-bonds.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 01, 2022, 07:49:53 AM
Oh, you are so right, nereo!

I keep hearing bullshit ads about how inflation is going to destroy your nest egg. Well, sure it will if you're a dumbass and don't keep your money invested.  For those of us who have followed mustachian principles and continue to, there is no need to fear. We're in far more danger from the likes of Putin than inflation.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on March 01, 2022, 11:34:55 AM
Oh, you are so right, nereo!

I keep hearing bullshit ads about how inflation is going to destroy your nest egg. Well, sure it will if you're a dumbass and don't keep your money invested.  For those of us who have followed mustachian principles and continue to, there is no need to fear. We're in far more danger from the likes of Putin than inflation.

The biggest downside to inflation with taxable invested FIRE assets is that you pay taxes on phantom gains (so if inflation continues to run 7% PA, and you sell your stocks for a 100% inflation gain 10 years later, your effective investment return will be reduced by 10-20% long term capital gains).  I might have messed up those exact numbers but you get the idea

Yes, having a fixed mortgage probably offsets this downside
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 01, 2022, 11:49:36 AM
Oh, you are so right, nereo!

I keep hearing bullshit ads about how inflation is going to destroy your nest egg. Well, sure it will if you're a dumbass and don't keep your money invested.  For those of us who have followed mustachian principles and continue to, there is no need to fear. We're in far more danger from the likes of Putin than inflation.

The biggest downside to inflation with taxable invested FIRE assets is that you pay taxes on phantom gains (so if inflation continues to run 7% PA, and you sell your stocks for a 100% inflation gain 10 years later, your effective investment return will be reduced by 10-20% long term capital gains).  I might have messed up those exact numbers but you get the idea

Yes, having a fixed mortgage probably offsets this downside

Good point. For us the mortgage exclusion ($500k on gains for married filing jointly) on primary residences (2 of previous 5 years occupancy) will more than cover any “phantom gains”. Our entire home is well under the $500k cap. But for others in HCOL regions (like my sister in the SF Bay Area) they can easily exceed the exemption after a decade or two of living there.

Note, though that it doesn’t change if you pay off your mortgage early or not. Appreciation are gains which occur regardless of whether it’s your money invested or the banks. Given the choice I have, I’m going to invest the banks money.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on March 01, 2022, 03:57:03 PM
Oh, you are so right, nereo!

I keep hearing bullshit ads about how inflation is going to destroy your nest egg. Well, sure it will if you're a dumbass and don't keep your money invested.  For those of us who have followed mustachian principles and continue to, there is no need to fear. We're in far more danger from the likes of Putin than inflation.

The biggest downside to inflation with taxable invested FIRE assets is that you pay taxes on phantom gains (so if inflation continues to run 7% PA, and you sell your stocks for a 100% inflation gain 10 years later, your effective investment return will be reduced by 10-20% long term capital gains).  I might have messed up those exact numbers but you get the idea

Yes, having a fixed mortgage probably offsets this downside

Good point. For us the mortgage exclusion ($500k on gains for married filing jointly) on primary residences (2 of previous 5 years occupancy) will more than cover any “phantom gains”. Our entire home is well under the $500k cap. But for others in HCOL regions (like my sister in the SF Bay Area) they can easily exceed the exemption after a decade or two of living there.

Note, though that it doesn’t change if you pay off your mortgage early or not. Appreciation are gains which occur regardless of whether it’s your money invested or the banks. Given the choice I have, I’m going to invest the banks money.

True on the DPYM calculus

And yeah I’m already over the 500k exclusion in under a decade at this house.  Been thinking about tricky ways to step up my basis (sale to parent, return sale.. just pay transfer tax and escrow, but doesn’t work with a mortgage) Poor me right?  But I do believe most tax values (exemptions, AMT caps, etc) should be inflation adjusted. On the other hand, not inflation adjusting that stuff is just a lazy way for lawmakers to phaseout/sunset which is possibly intentional
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 01, 2022, 07:38:47 PM
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."

PG&E?
Hahaha! Our PG&E bill was $715 in January and we keep our heat at 65.
Wait, seriously?!? For just your own single family house?  That seems ridiculously high.  That really is more than my mortgage.  In the highest month, my combined electric/gas costs were around $175.  And that's to heat up a house and myself in the frozen tundra.  Natural gas costs are up around 33% for me this year, but my electric rates are pretty much steady.  I honestly can't fathom a $700 electric bill.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 01, 2022, 10:23:50 PM
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."

PG&E?
Hahaha! Our PG&E bill was $715 in January and we keep our heat at 65.
Wait, seriously?!? For just your own single family house?  That seems ridiculously high.  That really is more than my mortgage.  In the highest month, my combined electric/gas costs were around $175.  And that's to heat up a house and myself in the frozen tundra.  Natural gas costs are up around 33% for me this year, but my electric rates are pretty much steady.  I honestly can't fathom a $700 electric bill.
Neither can we. Our house is energy efficient, built in 2006. Energy efficient windows, additional insulation, blah x3. We also have a higher Tier 1 Baseline allotment than average, due to the use of c-paps. Oh, and it's about 2600sf, so large, but not a McMansion.

The following month it dropped to "only" about $450. Gah! Fortunately,  the same damn redwoods that prevent us from being good candidates for solar have allowed us to use the A/C for an average of only five days per year since we've owned the house. So we breeze through the summer months, but get killed during the winter. Imagine if it was actually cold here in NorCal.

We have no mortgage, so it's definitely higher, which is why I posted. People think their costs will vanish when they "kill" their mortgage. Others of us know (ouch) that it ain't necessarily so.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 02, 2022, 07:18:41 PM
Neither can we. Our house is energy efficient, built in 2006. Energy efficient windows, additional insulation, blah x3. We also have a higher Tier 1 Baseline allotment than average, due to the use of c-paps. Oh, and it's about 2600sf, so large, but not a McMansion.

The following month it dropped to "only" about $450. Gah! Fortunately,  the same damn redwoods that prevent us from being good candidates for solar have allowed us to use the A/C for an average of only five days per year since we've owned the house. So we breeze through the summer months, but get killed during the winter. Imagine if it was actually cold here in NorCal.

We have no mortgage, so it's definitely higher, which is why I posted. People think their costs will vanish when they "kill" their mortgage. Others of us know (ouch) that it ain't necessarily so.
Has this year been an anomaly or is this a normal winter electric bill for you?  I mean I knew CA was expensive, but this seems ridiculous!  If this is mostly for heating, have you considered other ways to heat?  How do you heat now?  I hear good things about heat pumps.  I think your climate would be warm enough for them to work well.  I mean at $700, it might be cheaper to literally light dollar bills on fire for heat :)

I was going to recommend looking into solar but guess that's a no go.  I love redwoods so wouldn't be too upset about that though.  And to get back on topic, you have lots of mortgages for your rentals so I guess you can afford to pay ridiculous energy bills!  Yay for the DPOYM club!
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on March 02, 2022, 08:17:44 PM
I was talking to my coworker last week who was proudly paying down his 2.75% 20 year mortgage and only had 6 years left. I was like "yeah right I'm keeping my 2.75% 30 year, it's losing 7% of its value every year and in 6 years at this rate the monthly payment will be cheaper than my power bill, and I'm only slightly joking."

PG&E?
LOL, but no. In reality, inflation will need to be much higher than 7% for it to happen in 6 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on March 02, 2022, 09:18:43 PM
This year has been colder than normal in the Bay Area, but gas prices are also like 40% higher.  Combine the two and many people have doubled their bills
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 02, 2022, 09:19:52 PM
This year has been colder than normal in the Bay Area, but gas prices are also like 40% higher.  Combine the two and many people have doubled their bills
Yup.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on March 02, 2022, 10:55:21 PM
Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.

The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
I have definitely noticed that those in a rush to pay off their mortgage are mostly those who complain about inflation. Which is a self consistent world view I guess. But if the world doesn't match your world view, it seems better to change your actions to match the world, instead of complaining while you act in a way which makes you worse off. But also, the same crowd seems to have a harder time changing world views in general even contrary to all evidence and at times to their own detriment.

Not being prepared for financial events in advance is something I see as a general weakness for many people. If something financially crazy happens and you aren't prepared for it in advance, it's already too late. That goes for personal finances as well as investing in markets.
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 02, 2022, 11:02:39 PM
Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.

The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
I have definitely noticed that those in a rush to pay off their mortgage are mostly those who complain about inflation. Which is a self consistent world view I guess. But if the world doesn't match your world view, it seems better to change your actions to match the world, instead of complaining while you act in a way which makes you worse off. But also, the same crowd seems to have a harder time changing world views in general even contrary to all evidence and at times to their own detriment.

Not being prepared for financial events in advance is something I see as a general weakness for many people. If something financially crazy happens and you aren't prepared for it in advance, it's already too late. That goes for personal finances as well as investing in markets.

I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on March 02, 2022, 11:53:43 PM
Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.

The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
I have definitely noticed that those in a rush to pay off their mortgage are mostly those who complain about inflation. Which is a self consistent world view I guess. But if the world doesn't match your world view, it seems better to change your actions to match the world, instead of complaining while you act in a way which makes you worse off. But also, the same crowd seems to have a harder time changing world views in general even contrary to all evidence and at times to their own detriment.

Not being prepared for financial events in advance is something I see as a general weakness for many people. If something financially crazy happens and you aren't prepared for it in advance, it's already too late. That goes for personal finances as well as investing in markets.

I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm investing in 50/50 US and international stocks. International does not have high P/E ratios :). I also have a small bond allocation. Particularly, savings bonds yield 7+% and there is zero chance they lose to a 2.75% mortgage, so I would and do buy as many of those as I could the past few months.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 03, 2022, 06:47:22 AM
Now a common narrative is how inescapable inflation is, and how it’s certainly much higher than the “bogus” headline numbers released each month. Ironically some the loudest complainers are also the ones continue to rush to pay off low-interest fixed debt. In multiple active threads mustachians who comment about how inflation hasn’t had a large impact on their finances because they did X, Y & Z years ago are told they are just plain lucky or shouted down as not understanding their own finances.

The same can be said for mitigating inflation. If you assume it’ll never happen and then wait until we’re six months in there’s not a ton you can easily do to have immediate impacts. But start early and you can blunt the worst of it, and be one of those that don’t really notice increased prices.
I have definitely noticed that those in a rush to pay off their mortgage are mostly those who complain about inflation. Which is a self consistent world view I guess. But if the world doesn't match your world view, it seems better to change your actions to match the world, instead of complaining while you act in a way which makes you worse off. But also, the same crowd seems to have a harder time changing world views in general even contrary to all evidence and at times to their own detriment.

Not being prepared for financial events in advance is something I see as a general weakness for many people. If something financially crazy happens and you aren't prepared for it in advance, it's already too late. That goes for personal finances as well as investing in markets.

I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm investing in 50/50 US and international stocks. International does not have high P/E ratios :). I also have a small bond allocation. Particularly, savings bonds yield 7+% and there is zero chance they lose to a 2.75% mortgage, so I would and do buy as many of those as I could the past few months.
And even within US equity if P/E ratios are a sticking point you could look at small and mid-cap funds.
https://www.morningstar.com/etfs/arcx/vbr/portfolio
https://www.morningstar.com/etfs/arcx/voe/portfolio
https://twitter.com/Rick_Ferri/status/1496498306276601857
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2022, 07:14:16 AM
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".

This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

Title: Re: DONT Payoff your Mortgage Club
Post by: SwordGuy on March 03, 2022, 08:37:42 AM
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".

Damn, but that was witty!

Quote
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

To be precise, carrying a cheap, affordable mortgage WHILE SENSIBLY INVESTING THE EXTRA YOU WOULD HAVE USED TO PAY IT OFF EARLY is a smarter move than ever.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on March 03, 2022, 08:40:49 AM
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".

This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

Yes, this is where we brag on low rates and long payoffs.
I'm at 2.75% with "only" 354 monthly payments to go, fixing my monthly payment @$901 (sans tax and insurance). That's a good feeling.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on March 03, 2022, 08:43:58 AM
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".

This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

Yes, this is where we brag on low rates and long payoffs.
I'm at 2.75% with "only" 354 monthly payments to go, fixing my monthly payment @$901 (sans tax and insurance). That's a good feeling.

Same here. Locked in 2.25% last year, and I can't imagine ever paying it off early.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on March 03, 2022, 09:12:34 AM
This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

To be precise, carrying a cheap, affordable mortgage WHILE SENSIBLY INVESTING THE EXTRA YOU WOULD HAVE USED TO PAY IT OFF EARLY is a smarter move than ever.

There was a calculator earlier in the thread that showed how much $$ you would end up with if you didn't pay of the mortgage and simply saved/invested instead.  For me the difference was several hundred thousand dollars.  Well that was enough to convince me that paying off the mortgage was a bad idea. 

The other thing I liked about saving/investing the money is that it gives me more flexibility.  At a certain point, you have enough saved up that you 'could' pay off the mortgage any time you want.  I like having that flexibility.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2022, 09:30:00 AM
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".

This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

Yes, this is where we brag on low rates and long payoffs.
I'm at 2.75% with "only" 354 monthly payments to go, fixing my monthly payment @$901 (sans tax and insurance). That's a good feeling.

Same here. Locked in 2.25% last year, and I can't imagine ever paying it off early.

Listening to Jerome Powell speak yesterday we had the realization that there may be a very real possibility that we will be able to buy secure bonds which have a higher yield than our mortgage.  My parents had a similar situation for much of their 42 years they held a mortgage.
As we transition to an 80/20 AA I'm thankful that opportunity may exist.
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 09:54:58 AM
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".

This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

I applaud you in your ability to decipher a typo; I'm actually trying to think of another word of could of been and none come to mind.  It could be argued the letters missing were "if" not "fi", but regardless, no it wasn't intentional. 

I was replying to a comment and explaining inflation had nothing to do with my reasoning for paying off my mortage debt.  I don't want my money sitting in bank account doing nothing and I'm not about to put it into a stock market with how inflated it is currently.
Title: Re: DONT Payoff your Mortgage Club
Post by: mckaylabaloney on March 03, 2022, 10:28:45 AM
I'm not about to put it into a stock market with how inflated it is currently.

Okay. And how will you know when it's not inflated anymore?

@RWD are you the one who keeps that list of years of posts exactly like this?
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 10:38:28 AM
I'm not about to put it into a stock market with how inflated it is currently.

Okay. And how will you know when it's not inflated anymore?

@RWD are you the one who keeps that list of years of posts exactly like this?

When it doesn't look like this:  (I'm older though at 50, so that plays into my decision more than it perhaps would for someone who say is 30.)

(http://drive.google.com/uc?export=view&id=1hmQ9fg8j4aNxOgw0OloFZq8EU80mBKv8)
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on March 03, 2022, 11:13:17 AM
I'm not about to put it into a stock market with how inflated it is currently.

Okay. And how will you know when it's not inflated anymore?

@RWD are you the one who keeps that list of years of posts exactly like this?

When it doesn't look like this:  (I'm older though at 50, so that plays into my decision more than it perhaps would for someone who say is 30.)

(http://drive.google.com/uc?export=view&id=1hmQ9fg8j4aNxOgw0OloFZq8EU80mBKv8)

There's a good chance that the PE ratio is simply higher now than it was in the past and this is the new normal.  If that's the case, then the market will keep up with it's gains like it's been doing for the last 20 years and you'll miss out on all of that because there's never a 'good time' to get back into the market.  The best time to get into the market was yesterday.  The 2nd best time to get into the market is today. 

Here's the problem (IMO) of using the PE ratio as a basis for staying out of the market.  If you look at the last 20 years, ONLY in 2010 was the PE at historically 'normal' levels.   So if you'd used this chart as a reason to stay out of the market, you'd have missed out of all the gains in the market over the last 20 years, which would be a giant missed opportunity. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 03, 2022, 11:34:43 AM
I see everyone celebrating that our mortgages protect us from inflation. I'll sign on to that, but we have to experience the increase in nominal income alongside the increse in costs for it to really work. So go get that 7% raise while you keep making those minimum payments.
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 11:41:46 AM
I see everyone celebrating that our mortgages protect us from inflation. I'll sign on to that, but we have to experience the increase in nominal income alongside the increse in costs for it to really work. So go get that 7% raise while you keep making those minimum payments.

It's so sad, my brother who is a machinist programmer, didn't get a dime increase in wage this year. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 03, 2022, 12:10:21 PM
I'm not about to put it into a stock market with how inflated it is currently.

Okay. And how will you know when it's not inflated anymore?

@RWD are you the one who keeps that list of years of posts exactly like this?

When it doesn't look like this:  (I'm older though at 50, so that plays into my decision more than it perhaps would for someone who say is 30.)

(http://drive.google.com/uc?export=view&id=1hmQ9fg8j4aNxOgw0OloFZq8EU80mBKv8)

This is how I look at it:  If you started investing $100/month in the stock market back in say, 1998 when the P/E ratio was similar to now, you'd have $145,000 today.   

Here's why I mention it.   Morgan Housel points out that about 95% of Warren Buffet's net worth came after the age of 65--and that doesn't include the portion he gave away!   Buffet of course was a great investor, but BRK's returns have been pretty meh for a couple decades.   The key is Buffet straight up lived a long time.  He became ultra wealthy due to the power of compound interest. 

Continuing my example, let's say the person who wound up with $145,000 today, is 50 years old and lives to 85.   At 80, that $145,000 could easily turn into $1.3 million without adding another dime.   That's enough to move the needle.  At age 85, it would be more like $2 million.  Compounding again.   

In my own investing history, initially it seem to take forever to save anything.  Finally compounding started to kick in and it has been like a rocketship.   The rates of return haven't really changed much, but dollar amounts sure have. 

In the DPOYM Club I think sometimes we are too harsh on the mind of people who get satisfaction from not having a mortgage.  I get it.   If spending money that way makes you feel better, that's probably a legit reason to pay off the mortgage.   But that's different from the financial argument.  Keep in mind, if you leave your green soldiers on the battlefield long enough they will become the Incredible Hulk, even if it seems like they occasionally take a decade off.  Even in bad times, I just keep sending in the reinforcements.   
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 01:16:40 PM
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense.  That's less than inflation even.   I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.

I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly.   I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now.  And plus I'm like 50 and I dunno if I'll even live another 15 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 01:21:57 PM
Additionally I recall reading a blog post MMM put out regarding the Schiller P/E ratio.  He was concerned then and it's worse now.  If I recall correctly, he suggested perhaps putting some more money towards mortage payment; especially you were more near retirement age.

MMM is where I first heard about Schiller P/E ratio btw.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2022, 01:24:20 PM
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense.  That's less than inflation even.   I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.

I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly.   I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now.  And plus I'm like 50 and I dunno if I'll even live another 15 years.
Why not do a ReFi to a lower rate? Multiple people here have done so and gotten no closing costs to make the switch. If you aren't planning on moving you would be the perfect candidate.
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 01:43:32 PM
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense.  That's less than inflation even.   I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.

I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly.   I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now.  And plus I'm like 50 and I dunno if I'll even live another 15 years.
Why not do a ReFi to a lower rate? Multiple people here have done so and gotten no closing costs to make the switch. If you aren't planning on moving you would be the perfect candidate.

At this point I only owe $40,700.  Just gonna finish it.   The original loan amount was only for $76k.

Surprised you can get a refinance without closign costs.  My credit union is great and if I recall they even wanted like $3k for the refinance.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 03, 2022, 01:53:28 PM
I'm not about to put it into a stock market with how inflated it is currently.

Okay. And how will you know when it's not inflated anymore?

@RWD are you the one who keeps that list of years of posts exactly like this?

I am. It's the last link in my signature.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2022, 02:05:31 PM
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense.  That's less than inflation even.   I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.

I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly.   I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now.  And plus I'm like 50 and I dunno if I'll even live another 15 years.
Why not do a ReFi to a lower rate? Multiple people here have done so and gotten no closing costs to make the switch. If you aren't planning on moving you would be the perfect candidate.

At this point I only owe $40,700.  Just gonna finish it.   The original loan amount was only for $76k.

Surprised you can get a refinance without closign costs.  My credit union is great and if I recall they even wanted like $3k for the refinance.

I'm not quite sure why you are posting in this thread then.
With $40k left and a rate of 4.63% some back-of-the-envelop math shows you're going to pay about $4k more in interest than if you refinanced. Your credit union is not a great deal if they still want to charge $3k for a ReFi in this current market. Even if you accept the $3k refinancing charge you are ultimately going to pay more to keep your current mortgage.

If nothing else you could use the lower monthly payments to accelerate your payoff schedule without increasing how much you contribute each month, hitting your "paid-off" date even earlier.

Of course what many (myself included) here would to do a cash-out ReFi which would likely both lower your payments and result in several $k to divest.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 03, 2022, 02:18:24 PM
Additionally I recall reading a blog post MMM put out regarding the Schiller P/E ratio.  He was concerned then and it's worse now.  If I recall correctly, he suggested perhaps putting some more money towards mortage payment; especially you were more near retirement age.

MMM is where I first heard about Schiller P/E ratio btw.

I didn't see that post, but Schiller himself has warned against using the Schiller ratio (AKA CAPE) as a market timing tool many times.   CAPE has no predictive value in the short term, moderate predictive value over 10-year horizons, and zero predictive value for 30-year horizons.   Since my investing horizon is longer than ten years, I don't worry about it. 

Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on March 03, 2022, 02:21:34 PM
I'm not quite sure why you are posting in this thread then.
With $40k left and a rate of 4.63% some back-of-the-envelop math shows you're going to pay about $4k more in interest than if you refinanced. Your credit union is not a great deal if they still want to charge $3k for a ReFi in this current market. Even if you accept the $3k refinancing charge you are ultimately going to pay more to keep your current mortgage.

Banks don't like to deal with re-fi's less than about $150K.  Your options go down quickly below that amount. 
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 02:25:40 PM
I totally understand taking 30 years to pay off a home loan for 2.5%; it makes sense.  That's less than inflation even.   I realize the average return is 7 something % over the past 100 years with stock market; I read JL Collins book and appreciated it.

I started paying off this mortgage with excess payments since I moved in, before I knew about MMM and JL Collins and investing properly.   I guess I am just continuing what I started out doing and plus my interest rate is like 4.63% .. was higher in 2013 than now.  And plus I'm like 50 and I dunno if I'll even live another 15 years.
Why not do a ReFi to a lower rate? Multiple people here have done so and gotten no closing costs to make the switch. If you aren't planning on moving you would be the perfect candidate.

At this point I only owe $40,700.  Just gonna finish it.   The original loan amount was only for $76k.

Surprised you can get a refinance without closign costs.  My credit union is great and if I recall they even wanted like $3k for the refinance.

I'm not quite sure why you are posting in this thread then.
With $40k left and a rate of 4.63% some back-of-the-envelop math shows you're going to pay about $4k more in interest than if you refinanced. Your credit union is not a great deal if they still want to charge $3k for a ReFi in this current market. Even if you accept the $3k refinancing charge you are ultimately going to pay more to keep your current mortgage.

If nothing else you could use the lower monthly payments to accelerate your payoff schedule without increasing how much you contribute each month, hitting your "paid-off" date even earlier.

Of course what many (myself included) here would to do a cash-out ReFi which would likely both lower your payments and result in several $k to divest.

I already explained why I posted.  It was in response to what another said.

I know exacty how much more inerest I'll pay on this home and it's $2500.  Because I am paying it off in 2.5 years.  (Less than the refinance fee..  it's been a few years so I don't know if the credit union has a lower refinance fee or not.. and maybe it was $2k back then and not 3K I forget.)

After I pay the mortgage off, I'll have $1800 per month I can put into VTI.  I'll get an guaranteed 4.63% return for the next 2.5 years.. and by that time perhaps the stocks might be more affordable.. but I could be wrong.. or they could go up 4.63% I am not sure.   But I like my chances better with the home since it is guaranteed return instead of potential say 30% loss.
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 02:35:02 PM
Anyways, sorry for rubbing you guys the wrong way.  I won't bother posting here in this thread anymore since I seem to upset.
Title: Re: DONT Payoff your Mortgage Club
Post by: mckaylabaloney on March 03, 2022, 02:57:19 PM
I'm not about to put it into a stock market with how inflated it is currently.

Okay. And how will you know when it's not inflated anymore?

@RWD are you the one who keeps that list of years of posts exactly like this?

I am. It's the last link in my signature.

Handy! Thanks.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2022, 03:39:24 PM
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".

This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

I applaud you in your ability to decipher a typo; I'm actually trying to think of another word of could of been and none come to mind.  It could be argued the letters missing were "if" not "fi", but regardless, no it wasn't intentional. 

I was replying to a comment and explaining inflation had nothing to do with my reasoning for paying off my mortage debt.  I don't want my money sitting in bank account doing nothing and I'm not about to put it into a stock market with how inflated it is currently.
T-e-r-r-i-FI-e-d is how I figured it. I was just using humor to make a point gently. To reiterate, this is not the thread where we debate or abet accelerated mortgage payoff. This is the single MMM Forum thread where we share and celebrate the magical power of smart mortgages, when used judiciously. [Dicey waves to @SwordGuy.] To be more blunt still,  DPOYM believers are not allowed to post anything educational contrarian on any of the many mortgage payoff threads. It's okay to ask others to give this space the same courtesy.
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on March 03, 2022, 03:41:44 PM
I'm rushed to payoff mortage because I am terried of the stock market right now.. with all the buy backs and very high P/E ratios.
I'm trying to figure out exactly what you meant by "terried". Do you mean "terrified"? Interesting that the missing letters are "fi".

This thread was created as a counterpoint to the many mortgage payoff threads around the forum. If you can honestly say you have read through enough of the DPOYM material to be crystal clear on this counterintuitive concept and still desire to pay yours off early, you may be in the wrong place, unless you're looking to be talked out of your panic...

The DPOYM Club was created when inflation was almost nothing. Now that it's roared back, carrying a cheap, affordable mortgage is a smarter move than ever. Brilliant, in fact.

I applaud you in your ability to decipher a typo; I'm actually trying to think of another word of could of been and none come to mind.  It could be argued the letters missing were "if" not "fi", but regardless, no it wasn't intentional. 

I was replying to a comment and explaining inflation had nothing to do with my reasoning for paying off my mortage debt.  I don't want my money sitting in bank account doing nothing and I'm not about to put it into a stock market with how inflated it is currently.
T-e-r-r-i-FI-e-d is how I figured it. I was just using humor to make a point gently. To reiterate, this is not the thread where we debate or abet accelerated mortgage payoff. This is the single MMM Forum thread where we share and celebrate the magical power of smart mortgages, when used judiciously. [Dicey waves to @SwordGuy.] To be more blunt still,  DPOYM believers are not allowed to post anything educational contrarian on any of the many mortgage payoff threads. It's okay to ask others to give this space the same courtesy.

Like I said I won't post here anymore.  I respect the thread.  I don't like upsetting people.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2022, 07:46:22 PM
I wrote ^^that response^^, hit "Send", then left the house. When I returned, I discovered it hadn't gone through, so I hit "Send" again without reading the new replies. I can understand how it seems I was piling on, which was not my intention.

The topic of DPOYM is rather proscribed here; I hope it's clear why we feel the need to defend this space.

I'm happy to see you've followed through elsewhere.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on March 03, 2022, 08:32:59 PM
I'm not quite sure why you are posting in this thread then.
With $40k left and a rate of 4.63% some back-of-the-envelop math shows you're going to pay about $4k more in interest than if you refinanced. Your credit union is not a great deal if they still want to charge $3k for a ReFi in this current market. Even if you accept the $3k refinancing charge you are ultimately going to pay more to keep your current mortgage.

Banks don't like to deal with re-fi's less than about $150K.  Your options go down quickly below that amount.

Yep.  It's a lot harder to get competitive low/no cost refinances at lower balances.  I think people forget that the lender credits (negative points) are usually a percentage of the loan amount.  And a lot of closing costs are fixed.  So for lower balances, you still have the same fixed fees to refinance (mainly title and recording fees) but your credits are much lower.  So basically, you need to take a higher rate to get no closing cost.  It can still make sense.  I did one at $113k and another cash-out at $142k.  I'm still only at 3% so not into the 2s that many are posting.  Then again, my mortgage is $600/mo and I got $2k out of the deal so I'm not complaining.

At $40k, there's no way I'd bother with a refinance unless it was to take cash out.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on March 04, 2022, 12:35:26 AM

Like I said I won't post here anymore.  I respect the thread.  I don't like upsetting people.

FWIW I don’t think anyone was upset, more confused.  But I could be wrong… seems like a silly thing to get upset about as you obviously weren’t being antagonistic.  Maybe Because I don’t spend time in other threads where I’d get in trouble for following the superior science and sublime art of DPOYM
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on March 04, 2022, 02:14:51 AM
I see everyone celebrating that our mortgages protect us from inflation. I'll sign on to that, but we have to experience the increase in nominal income alongside the increse in costs for it to really work. So go get that 7% raise while you keep making those minimum payments.

It's so sad, my brother who is a machinist programmer, didn't get a dime increase in wage this year.

I see this argument used a lot now that inflation is a thing again. But it's a silly one: Everyone across the board is not going to get a X% raise. But lots of people are going to change jobs and get a X+Y% or X+Z% raise, which will mean that salaries as a whole will probably follow inflation, maybe with some delay.

If you're not one of those getting a raise that matches inflation, it's probably time to do something about it (assuming your job doesn't have other aspects that outweigh a sub-inflation salary development).
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 04, 2022, 11:22:24 AM
I see everyone celebrating that our mortgages protect us from inflation. I'll sign on to that, but we have to experience the increase in nominal income alongside the increse in costs for it to really work. So go get that 7% raise while you keep making those minimum payments.

It's so sad, my brother who is a machinist programmer, didn't get a dime increase in wage this year.

Thank you for sharing this, as well as your own position. I realize that inflation might fall differently on your and your brother.

This morning, the BLS released their monthly Employment Situation, which spoke to many thousands of people having success finding jobs, although average wages do appear to have fallen behind inflation over the past year.

I still think my own choices in the past will work out, but I have to be honest that watching the headline inflation number by itself doesn't guarantee I'm gaining at this moment from my big mortgage. Here's wishing that average times will come soon!
Title: Re: DONT Payoff your Mortgage Club
Post by: trc4897 on March 15, 2022, 08:01:22 AM
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.

Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)

Totally makes sense to recast in your situation.

Wanted to follow up on this. Went through with the recast. Painless and no fees through Chase. Required payment drops by a little over $100! I'll definitely be investing the difference
Title: Re: DONT Payoff your Mortgage Club
Post by: Freedom2016 on March 17, 2022, 01:16:34 PM
We refinanced to a 2.0% jumbo mortgage; we paid points to get a rock bottom rate, since we plan to live here 4evah. Only 349 more payments to go!!!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 17, 2022, 01:21:28 PM
excellent rate!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 18, 2022, 03:30:14 AM
There are a lot of unknowns - too many this far out for any firm planning

For starters, no one knows what the interest rates will be in 14 years. Could be 3%, or 12%+. Depending on those a case out ReFi may or may not be a good idea

Second, your “anticipated stache” of ~$700k could be slightly less of a lot more, depending on market returns.

Finally a good chunk of your plan relies on SS and a defined pension. Despite terms like “guaranteed benefits” they can and have been changed in the past. 14 years out I would treat both with a touch of caution.

Oh, and of course there is the unknowns of “life”. You might find you need much more due to [insert hardship here] or realize you can be comfortable on much less. The place you live now with a mortgage may not be where you want to live in 2037. Your home equitymay be much more or much less than you anticipate. Who knows.

I’d simply keep this strategy as “one possible option” and revisit 3-5 years before you retire to see where the numbers land.

One last thing, DONT wait until you retire to attempt a ReFi. Banks don’t like to see people with no income, even if they have seven figures in assets. My parents faced this first-world problem when they tried to do exactly this ReFi at least six months before you give notice at your jobs.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on March 18, 2022, 11:37:53 AM
BTW, I kept my house in the divorce, refinanced the $350k as a new 2.5% mortgage (3.5 years ago), and all my retirement savings (and all other cash/saving) went to the ex as part of the separation. 

I kept on with the DPotM philosophy and just started shoving every spare cent into savings while continuing to pay the minimum on the mortgage every month.  Net result?  I now have $215k in my retirement funds, still around $330k on my mortgage, but my house value has gone from $710k to $1m.  So yeah, that was a good decision.

And a lot of it was thanks to this thread.  If I hadn't seen the clear math (spreadsheet) many pages ago on this thread I would have never been able to optimize things the way that I have.  So thank you DPotM thread!!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 18, 2022, 11:59:47 AM
@Tyson , congrats on playing through with the strategy!

Title: Re: DONT Payoff your Mortgage Club
Post by: Bradlinc4 on March 22, 2022, 07:03:40 PM
How have you invested the proceeds of your mortgage? Are you more conservative? Do you mix it in with your other investments?
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 22, 2022, 09:45:30 PM
Well I shall soon be rejoining this bandwagon with a new big fat mortgage.  It looks like rates “kind of suck” now so I’m likely going to land somewhere around 4%.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 23, 2022, 12:46:05 AM
Well I shall soon be rejoining this bandwagon with a new big fat mortgage.  It looks like rates “kind of suck” now so I’m likely going to land somewhere around 4%.
It's not much comfort, but that's still a historically low rate. I remember being elated to get 7% on a condo I bought on a short sale in 1996.

Our plan is to pay cash and then get a mortgage, so we're feeling the pinch, too. Don't know if we should push it through or wait. MPP.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 23, 2022, 07:35:05 AM
A 4% nominal rate still satisfies the DPYM club, welcome!

When you were rate shopping, what did they quote you for the ARM?

I was refinancing in late 2020, and the ARM rates were actually above the thirty-year-fixed rates. The bank wanted me to pay them for the right to bear risk. Perhaps it's different now?
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 23, 2022, 04:45:12 PM
A 4% nominal rate still satisfies the DPYM club, welcome!

When you were rate shopping, what did they quote you for the ARM?

I was refinancing in late 2020, and the ARM rates were actually above the thirty-year-fixed rates. The bank wanted me to pay them for the right to bear risk. Perhaps it's different now?

ARM’s were a tiny bit lower but not enough to make material difference.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 24, 2022, 08:20:56 AM
We enjoyed a 3% even rate on a 5/1 arm for a property we bought in Nov. 2013 (at the time, this was 112 bps lower than the 30-year fixed). The rate reset at the beginning of 2019, and we sold it in 2020, so 60 payments at the teaser rate, and 15 payments at higher rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 26, 2022, 06:18:49 PM
From elsewhere on the forum:

"My husband and I (late 20's) just paid off our mortgage and even though it was a financially stupid idea with our 1.80% interest rate,  it just feels so good to have no debt. We keep our finances private so I had no one else to share the excitement with."

Is it okay if I weep for the loss of all that lovely, lovely 1.8% money?

If you want to comment, please do it here. I don't want to rain on anyone's parade.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 26, 2022, 07:12:19 PM
That’s about as close to the bank saying “you can pay us all now or you can pay us the same amount over time” and choosing the latter.
I guess I have better uses for my money.  Oh well.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on March 27, 2022, 03:01:01 PM
From elsewhere on the forum:

"My husband and I (late 20's) just paid off our mortgage and even though it was a financially stupid idea with our 1.80% interest rate,  it just feels so good to have no debt. We keep our finances private so I had no one else to share the excitement with."

Is it okay if I weep for the loss of all that lovely, lovely 1.8% money?

If you want to comment, please do it here. I don't want to rain on anyone's parade.

Lol I was about to comment the same thing. 1.80% GOODNESS.  That poor poor mortgage.  Borderline criminal to pay off such a loan IMO :)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on March 28, 2022, 07:53:06 AM
Just to re-iterate that I am team "Do not pay off the mortgage". 344 payments to go!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 29, 2022, 08:33:15 AM
From elsewhere on the forum:

"My husband and I (late 20's) just paid off our mortgage and even though it was a financially stupid idea with our 1.80% interest rate,  it just feels so good to have no debt. We keep our finances private so I had no one else to share the excitement with."

Is it okay if I weep for the loss of all that lovely, lovely 1.8% money?

If you want to comment, please do it here. I don't want to rain on anyone's parade.

Lol I was about to comment the same thing. 1.80% GOODNESS.  That poor poor mortgage.  Borderline criminal to pay off such a loan IMO :)

My only thought is “at least” they are young enough that now that they are redirecting $ to investments they still have time to compound.  But I can’t help but think they will change houses in a few years and do the same thing again.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on March 29, 2022, 09:34:54 AM
After the divorce, I was decimated financially (3.5 years ago).  I gave all the $$ in order to keep the house (and the very low interest mortgage on it).  I've kept paying the minimum on the mortgage and have been aggressively shoving my money into investments instead of paying down the mortgage.  I'm pleased to say that I'm back up to $220k in my 401k account which is kind of astonishing to me.  The investments have grown at a much faster rate than what I would have been able to pay down on the mortgage (had I gone down that route). 

Once again, thank you DPOTM thread!
Title: Re: DONT Payoff your Mortgage Club
Post by: FragglesRock666 on March 30, 2022, 04:55:58 PM
Sooooo.
Still haven't paid anything extra on my mortgage.  And continue to funnel money into my first-ever taxable brokerage account.

And also decided along with the fiance that A) we're going to look for a vacation property nearby and B) we are going to get a mortgage and not pay it off early, either.  Even if the interest rates look to be going up for the foreseeable future, so we won't get as great of a deal as I got when I refi'd the house in 2020.  We will only put down the minimum amount needed to keep the monthly payments within a budget that we're comfortable with. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Villanelle on April 01, 2022, 03:02:16 PM
Sad to say, I think I'm leaving the club.

We are planning to list our rental property (the only home we own) for sale in a few months.  Unless the markets shifts between now and then, we will make a boatload of money, even after owning through the 2008 crash.  But one thing I'm sad about is losing my low-interest loan, just when interest rates start to rise.

I will happy not to deal with being  long distance landlord though.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on April 01, 2022, 08:05:17 PM
Sad to say, I think I'm leaving the club.

We are planning to list our rental property (the only home we own) for sale in a few months.  Unless the markets shifts between now and then, we will make a boatload of money, even after owning through the 2008 crash.  But one thing I'm sad about is losing my low-interest loan, just when interest rates start to rise.

I will happy not to deal with being  long distance landlord though.
Selling and not buying something else is the ultimate DPOYM move in my mind. Granted, not a mortgage, but the whole idea is to keep your money working for you - not sinking a chunk into the next home means you have maximum money to invest.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on April 02, 2022, 05:14:17 AM
From elsewhere on the forum:

"My husband and I (late 20's) just paid off our mortgage and even though it was a financially stupid idea with our 1.80% interest rate,  it just feels so good to have no debt. We keep our finances private so I had no one else to share the excitement with."

Is it okay if I weep for the loss of all that lovely, lovely 1.8% money?

If you want to comment, please do it here. I don't want to rain on anyone's parade.
Some bank was made very happy too.


Sent from my iPhone using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on April 04, 2022, 11:22:16 PM
Anyone thinking of doing a cash out refi right now? We have a 2.875% 30 year with about 348 payments to go. My thought was if we cashout refi we could clear ~$115k due to the crazy price increases of late, but at the expense of starting over on the mortgage and an increase in monthly payment of ~$1200 a month due to added principal and higher rates of ~4.5%.

If you compare Option A) investing $1200 a month and Option B) invest a $115k lump sum both assuming a 7% interest, Option B or the $115k is a better deal for ~13-14 years at around which time the saving balance for Option A or saving $1200 a month has a higher balance. Seems like an interesting conversation
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 05, 2022, 08:23:38 AM
How easy would it be to keep the primary mortgage, and do a HELOC on the extra equity you want to access? That would mean paying a higher rate, but only on a tranche of the funds.
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on April 05, 2022, 09:11:29 AM
How easy would it be to keep the primary mortgage, and do a HELOC on the extra equity you want to access? That would mean paying a higher rate, but only on a tranche of the funds.

i should have said vaguely entertaining the concept instead of thinking about it. we don't need that cash for any specific purpose, taking advantage of the crazy equity gain and putting it to work in an index fund seems like an interesting idea as i hope we are retired in less than 13 years so the math theoretically works out. But i believe DW would never agree, she is debt averse
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 05, 2022, 10:37:57 AM
Agreed: accessing that equity at a low price is the trick.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 05, 2022, 02:43:24 PM
If you compare Option A) investing $1200 a month and Option B) invest a $115k lump sum both assuming a 7% interest, Option B or the $115k is a better deal for ~13-14 years at around which time the saving balance for Option A or saving $1200 a month has a higher balance. Seems like an interesting conversation

I probably would not do this.   I haven't run the numbers but with that time frame you'll have a good chance of not breaking even.    And there is some utility to having a lower monthly payment too. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on April 05, 2022, 09:47:49 PM
Anyone thinking of doing a cash out refi right now? We have a 2.875% 30 year with about 348 payments to go. My thought was if we cashout refi we could clear ~$115k due to the crazy price increases of late, but at the expense of starting over on the mortgage and an increase in monthly payment of ~$1200 a month due to added principal and higher rates of ~4.5%.

If you compare Option A) investing $1200 a month and Option B) invest a $115k lump sum both assuming a 7% interest, Option B or the $115k is a better deal for ~13-14 years at around which time the saving balance for Option A or saving $1200 a month has a higher balance. Seems like an interesting conversation
I'd think long and hard before giving up that sweet 2.875% 30 year rate.  You might never get a rate that low again.  You're looking at a pretty huge rate jump.  I agree that you should at least look into a HELOC to access the equity.  I think HELOC rates are higher, but at least you get to keep the existing low rate on the main mortgage.  I personally wouldn't do it, but I'm not one to fully leverage my house either.  I could've done a much bigger cash-out when I refinanced last fall.  I only did $30k and that was only to get a better deal.  I found that I got used to my low mortgage payment and wasn't too keen on the idea of a much larger payment with FIRE on the horizon.  May have been a bit suboptimal, but no regrets.  I still turned my 30 year mortgage into a 39 year mortgage, pulled out $30k, and my payment is still less than my original payment.  So I could've done worse.

But i believe DW would never agree, she is debt averse
And this is another good reason not to do it!
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on April 06, 2022, 08:33:15 AM
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.

Thanks to this thread for reinforcing the strategy.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on April 06, 2022, 08:38:03 AM
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.

Thanks to this thread for reinforcing the strategy.

Heck, I super excited I got locked back in 2 weeks ago at 3.875%.  Should be signing paperwork sometime next week I think.  CA “closing” on new purchases are different.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 06, 2022, 08:47:12 AM
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.

Thanks to this thread for reinforcing the strategy.
I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!

On another recent thread, someone called us "haters" which is very um, impolite, IMO. In a way, they might have a point, because we don't love seeing people choose sub-optimal financial options. Cheers to everyone who has embraced their long, lean mortgages.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 06, 2022, 09:48:34 AM
I believe in the DPYM club strategy for myself, at the rates that we've seen during much of the last ten years.

I also don't go over to the mortgage payoff thread and rain on their parades, even as I believe they'd be richer if they'd followed the path I'm following.
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on April 06, 2022, 10:04:01 AM
But i believe DW would never agree, she is debt averse
And this is another good reason not to do it!

Yeah - i kept this idea in my brain and brought it up here to see how crazy the brain trust thought it was, i dont think i will even bring it up with DW. At current rates, at this refi it would increase total payment by $1,070, while Decreasing principal payments by ~$90 and increase interest payments by ~$1,160 per month over our current 2.875% rate
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 06, 2022, 10:10:41 AM
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.

Thanks to this thread for reinforcing the strategy.
I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!

On another recent thread, someone called us "haters" which is very um, impolite, IMO. In a way, they might have a point, because we don't love seeing people choose sub-optimal financial options. Cheers to everyone who has embraced their long, lean mortgages.

who's calling us "haters"?
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on April 06, 2022, 11:06:14 AM
who's calling us "haters"?

Antiha?
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on April 06, 2022, 02:11:41 PM
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.

Thanks to this thread for reinforcing the strategy.
I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!

On another recent thread, someone called us "haters" which is very um, impolite, IMO. In a way, they might have a point, because we don't love seeing people choose sub-optimal financial options. Cheers to everyone who has embraced their long, lean mortgages.

who's calling us "haters"?

:) I think DPYM is an advance concept for many to digest. Its hard to convince people, what we can do is point people to it and people have to go on their own journey to accept it.

I had trouble convincing my dear wife about DPYM and even worse when I wanted to do cash out refinance to invest, she wouldn't let me at first and even brought in my father in law to convince me not to.

By the time I got a reluctant go ahead from her after months, we probably missed out about 50% gain on the invested cash. Still I am happy we did it and made good returns from it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 06, 2022, 07:32:19 PM
Some posters have been, uh, a little evangelical about promoting the DPYM Club.   Perhaps a bit too strong at times. 

One thing to keep in mind, is the that PYM Club always talks about the feeling of not having a mortgage.  You can't rationalize with someone about how they feel.   At least not forcefully.   It will just cause them to retreat and dig in.  That might be the reason for the "hater" comment.

However, with the perspective of hindsight and nearing the end of my accumulation journey, I can see the power of compounding taking over.   The hundred dollars I didn't pay on my mortgage 20 years ago is worth something like $550 today.   In not very many years, it will be $1000.   But in the early years that $100 would be come $108.  Big whoop.   Hard to see much benefit. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on April 06, 2022, 08:00:42 PM
Some posters have been, uh, a little evangelical about promoting the DPYM Club.   Perhaps a bit too strong at times. 

One thing to keep in mind, is the that PYM Club always talks about the feeling of not having a mortgage.  You can't rationalize with someone about how they feel.   At least not forcefully.   It will just cause them to retreat and dig in.  That might be the reason for the "hater" comment.

However, with the perspective of hindsight and nearing the end of my accumulation journey, I can see the power of compounding taking over.   The hundred dollars I didn't pay on my mortgage 20 years ago is worth something like $550 today.   In not very many years, it will be $1000.   But in the early years that $100 would be come $108.  Big whoop.   Hard to see much benefit.

I became a “hater” because I paid off my mortgage, and I felt meh.  Maybe if I hadn’t lived n an area where taxes were still $500 a month I dunno.  I will say taking out a mortgage on the next home when I could have paid cash was the best decision I could have made.  (Although it might be a bit of happy market timing with being able to double my money from 2017 to 2021 in the market).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 06, 2022, 11:38:22 PM
Some posters have been, uh, a little evangelical about promoting the DPYM Club.   Perhaps a bit too strong at times. 

One thing to keep in mind, is the that PYM Club always talks about the feeling of not having a mortgage.  You can't rationalize with someone about how they feel.   At least not forcefully.   It will just cause them to retreat and dig in.  That might be the reason for the "hater" comment.

However, with the perspective of hindsight and nearing the end of my accumulation journey, I can see the power of compounding taking over.   The hundred dollars I didn't pay on my mortgage 20 years ago is worth something like $550 today.   In not very many years, it will be $1000.   But in the early years that $100 would be come $108.  Big whoop.   Hard to see much benefit.
What people who kill the mortgage first don't understand is the power of compound interest. When I was just starting out, the mortgage payoff seemed almost insurmountable. Never would I have imagined that my investments would grow to the heights they have. I could smite that mortgage many times over these days. You want to talk about an amazing feeling, wowza!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 07, 2022, 12:29:59 AM
Some posters have been, uh, a little evangelical about promoting the DPYM Club.   Perhaps a bit too strong at times. 
Hmmm, I think you've got the sequence a little mixed up. When the payoff threads started, some people didn't realize that they were unlike almost any other thread on the forum. They were exclusively for celebration, not discussion. Zero discussion. The mere idea that it was not up for examination was unfathomable to those of us who came to MMM when facepunches were the order of the day, and all expenditures were analyzed for maximum effectiveness.

Why this particular topic was so different was a mystery to a number of people, including myself. After some behind-the-scenes discussion, the DPOYM Club was started. So no one was promoting/evangelizing the club before it existed. Nowadays, DPOYM supporters pretty much avoid commenting in the Payoff threads.

Recently, a newbie wandered into a payoff thread and started asking probing questions. They were gently invited to join the party at the DPOYM Club, which they did. What may have seemed evangelical to someone who doesn't know the back story was actually an effort to prevent a newb from getting their ass handed to them.

So here's how it works these days:

If you want celebration without discussion, see: various Payoff threads.

If you want to figure out what's optimal for your situation, come chat with us here. Sometimes paying off the mortgage is the best option. Only after a lot of other boxes are checked, of course ;-)

Title: Re: DONT Payoff your Mortgage Club
Post by: solon on April 07, 2022, 05:42:57 AM
What's amazing to me is that nearly everyone can grasp this concept:

     If you got a raise that is less than inflation, you're losing money.

But so many can't grasp this concept:

     If your investment returns are less than the index, you're losing money.

In my mind these are identical concepts. It is urgent - critical - that I make index returns. Just as critical as earning an inflation raise.

And when someone says, "There's no feeling like being debt free", I'm thinking, "You're going backward! You're drowning! What do feelings have to do with it?!"
Title: Re: DONT Payoff your Mortgage Club
Post by: deborah on April 07, 2022, 06:17:56 AM
That’s not quite true - if your returns are less than the index you’re not making as much money as you could. You’re probably still making money.

It’s probably not optimal.

However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.

I guess that others have similar reactions and trade offs. But I’m never going to say that everything I have done was optimal, and I’m fairly sure that we all have suboptimal performance in some area of our finances. Part of that is to ensure that we (and our partners) feel comfortable with what we’re doing. It’s not optimal to have a divorce either.

But the DPOYM Club performs a very worthwhile function of showing that, in many cases, not over contributing is a very good thing.
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on April 07, 2022, 08:34:11 AM
What people who kill the mortgage first don't understand is the power of compound interest. When I was just starting out, the mortgage payoff seemed almost insurmountable. Never would I have imagined that my investments would grow to the heights they have. I could smite that mortgage many times over these days. You want to talk about an amazing feeling, wowza!
I was wondering about current higher inflation conditions, buying a house in general and even better having a fixed low interest mortgage is such a great inflation hedge.

10 years ago I was renting a small place and same house now rents for more than double the price if you can find one.

Savings are now so big and if we can invest it for long term in securities that can beat inflation now we are adding power of compounding to the mix.

We keep the housing costs low while compounding the assets and cashflows from it. An efficient way to work towards completing financial independence pie.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 07, 2022, 03:21:19 PM
I was wondering about current higher inflation conditions, buying a house in general and even better having a fixed low interest mortgage is such a great inflation hedge.

10 years ago I was renting a small place and same house now rents for more than double the price if you can find one.

Savings are now so big and if we can invest it for long term in securities that can beat inflation now we are adding power of compounding to the mix.

We keep the housing costs low while compounding the assets and cashflows from it. An efficient way to work towards completing financial independence pie.

Inflation is one of the best reasons to not pay off your mortgage.   The long term inflation rate is about 3.5%.   If your mortgage is around 3.5% or so that means you are getting use of the money for free, or something close to it.   That's a pretty sweet deal. 

But the best reason is that not to pay off your mortgage, is that you would be using full valued dollars now in order to save puny, inflation valued dollars in the future.   If you want some laughs, ask your parents what their first mortgage payment was.   It was probably some laughably small number.  But to them at the time, it was probably a bunch of money.   

Part of the appeal of paying down the mortgage is you have this great big payment you want to get rid of.  But it gets small all by itself if you wait long enough.   
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 07, 2022, 03:29:09 PM
However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.

I guess that others have similar reactions and trade offs. But I’m never going to say that everything I have done was optimal, and I’m fairly sure that we all have suboptimal performance in some area of our finances. Part of that is to ensure that we (and our partners) feel comfortable with what we’re doing. It’s not optimal to have a divorce either.

Totally agree.  In the MMM community in general and the DPYM Club in particular, I think we get a little too fixated on optimization.   Having a good feeling is worth something.   If you understand the costs of paying off the mortgage early, and still want that feeling, then go for it. 

Title: Re: DONT Payoff your Mortgage Club
Post by: solon on April 07, 2022, 04:02:46 PM
However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.

I guess that others have similar reactions and trade offs. But I’m never going to say that everything I have done was optimal, and I’m fairly sure that we all have suboptimal performance in some area of our finances. Part of that is to ensure that we (and our partners) feel comfortable with what we’re doing. It’s not optimal to have a divorce either.

Totally agree.  In the MMM community in general and the DPYM Club in particular, I think we get a little too fixated on optimization.   Having a good feeling is worth something.   If you understand the costs of paying off the mortgage early, and still want that feeling, then go for it.

It feels about like getting a raise that is smaller than inflation.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on April 07, 2022, 04:06:12 PM
However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.

I guess that others have similar reactions and trade offs. But I’m never going to say that everything I have done was optimal, and I’m fairly sure that we all have suboptimal performance in some area of our finances. Part of that is to ensure that we (and our partners) feel comfortable with what we’re doing. It’s not optimal to have a divorce either.

Totally agree.  In the MMM community in general and the DPYM Club in particular, I think we get a little too fixated on optimization.   Having a good feeling is worth something.   If you understand the costs of paying off the mortgage early, and still want that feeling, then go for it.

Did you not see that I didn’t get a great feeling when I paid mine off in 2016.  To the point that when I moved 1.5 years later I got a mortgage?  I felt for the most part indifferent at that point.  Maybe it’s because I’ve always run the numbers before buying a home.  I’m perfectly fine with the cost of obtaining my future home.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 07, 2022, 05:23:55 PM

However, when I was a child, I can remember debt collectors visiting. I vowed that would never happen to me. So, to me, the peace of mind when I had paid off my mortgage was worth suboptimal performance.


This is something I’ve struggled to understand. To me, having a big pile of money is the biggest security blanket, the best defense against debt collectors. You don’t escape payments by paying off your mortgage - you just make them smaller. You’ve still got taxes and insurance. There are still emergency repairs and basic maintenance. Fail to promptly address those and you are just as likely to lose your home. A bigger pile of money helps with all of that, and the continued mortgage payments and then some. I hear people say not having a mortgage helps them sleep better at night. I can’t really relate. My PI payments are a pretty minor portion of our monthly expenses - I’m worried about how to cover the other 80%. Which is why I prefer saving those dollars instead of putting them into my home.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 07, 2022, 06:37:51 PM
Did you not see that I didn’t get a great feeling when I paid mine off in 2016.  To the point that when I moved 1.5 years later I got a mortgage? 

You didn't.  And I don't.  And the most of the people here don't.  But some people do.  And neither you nor I are in a position to place a price tag on their feelings. The best and most we can do is make sure people undersand the implications of paying down the mortgage.  Which sadly, many people don't.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 07, 2022, 07:35:40 PM
Did you not see that I didn’t get a great feeling when I paid mine off in 2016.  To the point that when I moved 1.5 years later I got a mortgage? 

You didn't.  And I don't.  And the most of the people here don't.  But some people do.  And neither you nor I are in a position to place a price tag on their feelings. The best and most we can do is make sure people undersand the implications of paying down the mortgage.  Which sadly, many people don't.
Sorry, I completely disagree. Mastering your "feelings" is the whole damn point of mustachianism.

Ooh, the following things might make a lot of people "feel" great:
- Private jet/yacht
- Personal limo - with driver, of course
- Monster trucks/multiple ORV's/"toy" haulers
- Lamborghini/Maserati/Bentley, etc.
- Designer clothing (see: Birkin handbags, Louboutin footwear)
- Designer hair/make-up/mani-pedi
- Posh private schools
- Personal staff (hairstylist, makeup artist, masseuse, personal trainer, chef, etc.)
- Box season seats to [fill in the blank] team(s).
- Fancy pants alcohol labels, designed to impress.

Not an exhaustive list by any means, and mustachians freely spend their money where their passion is, but FFS, plenty of people buy this shit and more because it makes them "feel" good.

Note to @deborah, and all our friends who live in places where mortgages aren't as advantaged as they are in the USA: not throwing shade at you. It's a much harder decision. Well, except during inflationary times.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on April 08, 2022, 12:16:20 AM
Don’t hate the hater hate the game
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 08, 2022, 09:37:14 AM
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 08, 2022, 12:40:52 PM
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 08, 2022, 12:54:41 PM
Speaking of feelings, I'd like to dive back into our shared purpose:

my wife has a taxable investment account (it's really her money, from a deceased relative) with Edward Jones. I've succeeded in prying some cash lose from investments in the forms of dividends/capital gains. So now the chance is here to live out our values...transferring that money away from the rabid wolves of EJ and into productive investments.

First phone call has unlocked $3,500...more to come!
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on April 08, 2022, 07:29:05 PM
Speaking of feelings, I'd like to dive back into our shared purpose:

my wife has a taxable investment account (it's really her money, from a deceased relative) with Edward Jones. I've succeeded in prying some cash lose from investments in the forms of dividends/capital gains. So now the chance is here to live out our values...transferring that money away from the rabid wolves of EJ and into productive investments.

First phone call has unlocked $3,500...more to come!

I also inherited an Edward Jones account several years ago.  It was an IRA though.  I got it moved out of there ASAP.  I just went through Fidelity and requested a transfer online and they handled it.  No phone calls needed.  I think I just had to upload a statement or something like that.  Make sure you transfer the stocks/investments to the new brokerage first before selling anything.  The fees to sell things at EJ are ridiculously high, like everything else there.  Good luck!
Title: Re: DONT Payoff your Mortgage Club
Post by: srad on April 11, 2022, 10:39:57 AM
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.










Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 11, 2022, 11:59:44 AM
agreed that less cash flow can put you in a position of strength, but I've known people who faced one or more of those dilemmas, but had value trapped within their house that was difficult to extract.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 11, 2022, 12:49:28 PM
[...] most of these people's finances were in fine order at the time of purchase until one of the above happened.
But obviously not in fine enough order to have paid off the house.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 11, 2022, 01:06:38 PM
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

Can't say I agree here. Like talltexan I've known too many people who were royally screwed in divorce because their one main asset was their home, which then had to be split - typically leaving one person deeply indebted to the other for the equity owed. In those cases they most definitely didn't feel "very good" about the situation.

And no, your finances are not "in fine order" if you can't weather some very real but very common 'very bad things'.

Which brings us around to... my financial rule of "don't have the majority of your net worth in your home".  If you've got enough in savings where you are FI, and you just want to pay off your mortgage, and doing so won't put the majority of your wealth into your home - sure, go ahead if you like, at this point you've pretty much 'won the game' and it'll be fine whichever way you go.  But having your home equity be the lions-share of your wealth..?  Then you've made yourself far more vulnerable to all the things you've described - divorce, illness, job loss, etc.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 11, 2022, 01:39:42 PM
Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

I'm going to push back on this one.  Remember, we're talking about a cohort of savers, people who save either by paying down the mortgage or by investing.  The reasons you mention are the same reasons I recommend not paying down the mortgage.  Unexpected stuff happened.  Specifically, paying down the mortgage provides no protection from foreclosure until the mortgage is completely retired.   If you are unable to make payments as agreed, the bank will foreclose and it doesn't matter how many extra payments you've made.  So there is no benefit at all to paying down the mortgage until far in the future. 

On the flip side, in the event of an unexpected financial situation having liquid assets might be enough to keep making mortgage payments for years in some cases.  At this point in the discussion someone usually says something to the effect of that you should of course have substantial liquid assets before putting extra into the mortgage.   But that just highlights the risky nature of paying down the mortgage in the first place.    Don't even think about it unless you have lots of money stashed away already.    It is a high risk, low reward proposition.   
Title: Re: DONT Payoff your Mortgage Club
Post by: srad on April 11, 2022, 03:08:11 PM
I wasn't taking a side there.  I was just pointing out that life doesn't always work out.  So be careful with debt and leverage. 

FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though).  Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.  As we approach fire (I'm close so very close), we are looking to make our lives as easy as possible its not about maximizing money its about maximizing time and ease of life.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on April 11, 2022, 03:10:44 PM
Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

I'm going to push back on this one.  Remember, we're talking about a cohort of savers, people who save either by paying down the mortgage or by investing.  The reasons you mention are the same reasons I recommend not paying down the mortgage.  Unexpected stuff happened.  Specifically, paying down the mortgage provides no protection from foreclosure until the mortgage is completely retired.   If you are unable to make payments as agreed, the bank will foreclose and it doesn't matter how many extra payments you've made. So there is no benefit at all to paying down the mortgage until far in the future. 

On the flip side, in the event of an unexpected financial situation having liquid assets might be enough to keep making mortgage payments for years in some cases.  At this point in the discussion someone usually says something to the effect of that you should of course have substantial liquid assets before putting extra into the mortgage.   But that just highlights the risky nature of paying down the mortgage in the first place.    Don't even think about it unless you have lots of money stashed away already.    It is a high risk, low reward proposition.

I highlighted the part above, because this is EXACTLY what happened to me about 5 years ago.  I'd been paying extra toward my mortgage every month, in an effort to pay it off as soon as possible.  Wife had been out of work for a while and I lost my job.  Couldn't find work for about 8 months after that.  And guess what, all that $$ I'd paid to the mortgage had done NOTHING to protect me.  In fact it made me much more vulnerable than if I had saved/invested all those extra payments. 

Having a big pile of cash is way more safe in the case of job loss than having made extra payments toward a mortgage.  I learned my lesson the hard way.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 11, 2022, 03:17:00 PM
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

See: https://en.m.wikipedia.org/wiki/Tax_sale
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 11, 2022, 03:38:13 PM
I wasn't taking a side there.  I was just pointing out that life doesn't always work out.  So be careful with debt and leverage. 

FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though).  Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.  As we approach fire (I'm close so very close), we are looking to make our lives as easy as possible its not about maximizing money its about maximizing time and ease of life.
Others would argue for lots of leverage, most all of the time. I'm not totally in that camp. If you have enough to FIRE and have adequately provided for future taxes, utilities and upkeep, I'm okay with paying off the mortgage at or after FIRE to reduce spending. The people I hope to reach are people like my past self, who thought "Kill the mortgage, then save for retirement" was a sound financial strategy. This was long before blogs and places like the MMM forum existed.

IMO, there is nothing sadder than an old person with a paid-off house who can't afford upkeep or groceries. It happens way too often. Our rentals are in a very large, fairly affluent Senior Community. It's a sad tale, but very true. Many older Seniors are forced to take reverse mortgages, which are incredibly expensive.
Title: Re: DONT Payoff your Mortgage Club
Post by: srad on April 11, 2022, 03:39:49 PM
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

See: https://en.m.wikipedia.org/wiki/Tax_sale

Come on man, If you can't pay your taxes you are in a very rough financial place. 

Which by the way is an added benefit to having a mortgage.  The mortgage company will pay your taxes and insurance for you if you don't'.  We've got loans where borrower haven't made a mortgage payment in over a decade and we just keep paying their taxes and insurance for them.  Quick tip, you want to live for free for a decade or more?  Buy a place in NY, NJ or HI and never make a payment.


 
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on April 11, 2022, 03:42:02 PM
FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though).  Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.

Are we really having this conversation here?

Where do you think we, a cohort of savers (thank you, telecaster!), put that money that would've gone to pay off a mortgage? Hint: it doesn't have wheels and fit in a garage.
Title: Re: DONT Payoff your Mortgage Club
Post by: srad on April 11, 2022, 03:47:39 PM
FWITW - As of last year I don't have a home mortgage (I do have over 1mm of rental debt though).  Retiring that debt freed up enough monthly cash flow to where my wife was able to stop her W2 job.

Are we really having this conversation here?

Where do you think we, a cohort of savers (thank you, telecaster!), put that money that would've gone to pay off a mortgage? Hint: it doesn't have wheels and fit in a garage.

Wait This isn't the I paid off mortgage forum? 

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 11, 2022, 05:13:30 PM
I think feelings are a way of checking whether your choices align with your values. The opulent things you list wouldn't feel as good to us because we have spent some time pondering what we truly value, and...it ain't that.
Feelings lie. Ever been scared to do something that turned out just fine?

The list wasn't designed to be anything more than a top-of-mind sampling.

Not for nothing, but my day job has shown me over the years, that sh1t does happen.  I work for a non performing note fund, (defaulted mortgages).  We buy loans from the big banks when borrowers stop making their payments.  Let me tell you, Divorce, Death, Hospital bills, Illness, and Job Loss are very real.   Aside from a VERY large batch of 2005 to 2007 Liar Loans, most of these people's finances were in fine order at the time of purchase until one of the above happened.  You know what we have never foreclosed on?  A paid off home.  That paid off home would feel pretty good if one of the above's happen.

See: https://en.m.wikipedia.org/wiki/Tax_sale

Come on man, If you can't pay your taxes you are in a very rough financial place. 


Come on man, if paying off your mortgage is the difference between solvency and bankruptcy you are already in a very rough financial place.

The only thing which goes away when you pre-pay your mortgage is the PI portion of your mortgage.  You are still on the hook for taxes and insurance and maintenance.  The PI may start out being the slightly larger portion of your mortgage payment, but that rapidly shrinks as the years go by.  If you are following even the spendy-pants guidelines the PI should be less than a quarter of your budget.  Several years in and the PI’s the minority fraction.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 12, 2022, 07:18:39 AM
Principal increases while interest decreases.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on April 12, 2022, 07:31:22 AM
I know this question was asked earlier in the thread, but what are you investing in with your low-interest-rate mortgage money? Stated another way, what investments do you own that you wouldn't have owned if you didn't have your mortgage, and what is the spread between their expected returns and your mortgage rate?

Me:
Mortgage rate - 3.25%
Navient bonds backed by student loans yielding 7.5% on my original investment
OHI yielding 9.35%, plus revenue from covered calls
VTIP as an inflation play, yielding 4.5%
LYSDY, a growth play on rare earth elements, up 44% since I bought a few shares
SPY, roughly flat since I bought it, expected return about 5%/year plus revenue from covered calls
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 12, 2022, 07:32:27 AM
Principal increases while interest decreases.

Yup. And taxes and insurance [typically] keep going up, irrespective of your principal balance.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on April 12, 2022, 07:49:46 AM
I know this question was asked earlier in the thread, but what are you investing in with your low-interest-rate mortgage money? Stated another way, what investments do you own that you wouldn't have owned if you didn't have your mortgage, and what is the spread between their expected returns and your mortgage rate?

Me:
More in spouse’s 457(b) in a target date fund. Nets us 22% tax deferred off the bat, plus whatever gains (loses) incurred over time.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 12, 2022, 09:05:41 AM
With 30 year fixed mortgage rates hitting > 5%, I feel like a genius for doing cash out refinance couple years ago for 2.875% 30 year fixed and investing 60 K in proceeds.

Thanks to this thread for reinforcing the strategy.
I'm thankful to all the folks who keep this thread bouncing along. It gives me no small thrill to read posts like yours, @achvfi. Congratulations!

On another recent thread, someone called us "haters" which is very um, impolite, IMO. In a way, they might have a point, because we don't love seeing people choose sub-optimal financial options. Cheers to everyone who has embraced their long, lean mortgages.

who's calling us "haters"?
It took a while for the thread to pop up again. Maybe the best approach is not to activate a thread that's not getting much play. Apparently the mods don't find this comment objectionable.

We paid off our primary mortgage in 2020 and it's been so liberating.  I don't answer to anybody (other than the county tax man) and it's awesome going to bed at night knowing the bank doesn't own our home.

We just bought a couple hundred acres on a mountain and paid cash, and again, it's awesome knowing the bank doesn't own any of that shit. 

Well done, don't listen to the haters.  The bank owns their real estate no matter what random math rationale they might come up with.
ETA: I prefer to think of us as kind people who are willing to share our hard-earned knowledge, teachers, if you will, certainly not haters. The math is absolutely not random.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on April 12, 2022, 12:23:17 PM
I know this question was asked earlier in the thread, but what are you investing in with your low-interest-rate mortgage money? Stated another way, what investments do you own that you wouldn't have owned if you didn't have your mortgage, and what is the spread between their expected returns and your mortgage rate?

I just invest as I would any other money.   I don't see any reason to divide up the pot. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 12, 2022, 12:46:26 PM
It may well be the case that I'm slightly more conservative with my investments as part of the DPYM trade.
Title: Re: DONT Payoff your Mortgage Club
Post by: ColoAndy on April 28, 2022, 12:47:03 PM
So I used to be on the pay off the mortgage early mindset (before reading this thread). I have about $11k in extra payments applied to the mortgage since 2017. Has anyone ever done a recast? Chase offers this for free and it should lower my monthly payment by $100 or so. I don't see a downside in doing this.

Some info on my mortgage: 3.5%, $89k remaining balance ($140k purchase price in 2017)

Totally makes sense to recast in your situation.

Wanted to follow up on this. Went through with the recast. Painless and no fees through Chase. Required payment drops by a little over $100! I'll definitely be investing the difference
Question for you (or anybody) about recasting. 
Did you make a large one time lump sum and then recast?  Or did you make a series of smaller extra payments over the years and then recast?  I have googled "recast the mortgage" a few times and everything I read says that one must make a large one time lump sum in order to then recast.  Thanks for any light you can shed on this.
Title: Re: DONT Payoff your Mortgage Club
Post by: FragglesRock666 on April 28, 2022, 08:19:57 PM
So, I still haven't made any extra mortgage payments, and instead have been putting my "surplus" money each week into a taxable brokerage account.  My first one ever, opened this last December.  And I feel like a super rich person saying that I have a taxable brokerage account. LOL
My fiancé and I are looking at some mountain properties, and even with mortgage rates now at an "astronomical" 5%, we're still planning on leaving as much as is feasible in a mortgage vs taking money out of his investments to pay it down.  We will do so enough only to A) avoid PMI and B) make sure our monthly cash flow is OK, but otherwise, we'll leverage the debt to continue to invest. 
I admit, it's a little scary for me, as I am very debt-adverse having been in a bad spot in my last marriage and immediately after my divorce due to excessive debt, but this forum helps me stay strong, knowing that we are actually safer with money "in the bank" vs paying extra on the mortgage.
I see there was another discussion here recently about it, and honestly, given that I don't have enough to actually have the mortgage paid off, I feel more secure with money in the bank and in investments I can pull from to make payments than being "cash poor" but with less on the mortgage, that I still have to pay every month.  I can pull from savings to make payments if I lose my job, but if the savings are already in the house, I am SOL. 
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on April 28, 2022, 10:01:53 PM
Someone posted I bonds are at 7% today, which is a 4.5% guaranteed return vs my 2.5% fixed 30 year. I haven’t purchased any, but it is kind of tempting.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on April 29, 2022, 06:06:02 AM
Series I bonds are appealing right now.

However, we will see that rate go down, and you're not able to withdraw money penalty free until it's been in those bonds for a year or more. With 10-year treasuries yielding 2.9%, what reason do you have to suspect that long-term inflation will continue in excess of 3%?
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on April 29, 2022, 08:09:49 AM
Series I bonds are appealing right now.

However, we will see that rate go down, and you're not able to withdraw money penalty free until it's been in those bonds for a year or more. With 10-year treasuries yielding 2.9%, what reason do you have to suspect that long-term inflation will continue in excess of 3%?

That's the thing. There's no way to look at the yield curve and conclude anything else than that the market expects a profound collapse in inflation, and expects the Fed to only return us to neutral 2.25%-2.5% rates. If that happens, the Ibonds everyone are so excited about today will turn into low-yielding treasuries that you can't get your money out of for five years!

Real incomes are collapsing compared to 2021, and we just posted a month of negative GDP growth. Good read, albeit with a conclusion not supported by the body: https://www.marketwatch.com/story/theres-a-big-hole-in-the-feds-theory-of-inflationincomes-are-falling-at-a-record-10-9-rate-11651165705?mod=home-page (https://www.marketwatch.com/story/theres-a-big-hole-in-the-feds-theory-of-inflationincomes-are-falling-at-a-record-10-9-rate-11651165705?mod=home-page)
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on April 29, 2022, 10:52:53 PM
That's the thing. There's no way to look at the yield curve and conclude anything else than that the market expects a profound collapse in inflation, and expects the Fed to only return us to neutral 2.25%-2.5% rates. If that happens, the Ibonds everyone are so excited about today will turn into low-yielding treasuries that you can't get your money out of for five years!
You can get your money out of I bonds before 5 years.  It's only the first year you can't cash out.  For 1-5 years there is a 3 month penalty.  So if inflation rates drop, I figure worst case I make $854 in the next 15 months off of $10k, an annualized rate of 6.8%, though today was the last day to do that.  It seems unlikely to me that the inflation rate will drop to 0 in the next 6 months.  No other rates are anywhere close, so it seems like a no brainer to me.  I'm in for $30k in the last 6 months.  And I'll likely keep them as part of my bond allocation since I'm seeing how useful they can be in times of high inflation.  I don't love locking in 0% real in the long term, but at least they're not losing money like all my bond funds.  If the fixed rates go up and I don't have new money to invest (semi FIREing next week) and inflation is down again, I'll probably break some current I bonds and buy in at the higher fixed rate.  In any case I'll re-evaluate once inflation settles down.

Someone posted I bonds are at 7% today, which is a 4.5% guaranteed return vs my 2.5% fixed 30 year. I haven’t purchased any, but it is kind of tempting.
Starting May 1, it'll be up to 9.62%.  If only we could lock that in for 30 years along with the low mortgage rates, we'd be set!

I'm definitely glad for my 3% small cash-out refinance that I got paid for last fall now that rates are over 5%.  Let my mortgage payments get inflated away.  I do feel bad for people looking for housing right now, including my brother.  House prices are still way up and now mortgage rates are getting up there too.  Rents have sky-rocketed as well.  I'm glad to be a Mustachian these days...
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 03, 2022, 06:46:41 AM
thirty years of inflation at 9%+ would actually be really bad. You'd be well positioned with the Series I and the mortgage, but aren't the 1970s years when we saw most retirement failures in modeling?
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on May 03, 2022, 11:07:24 PM
Stay strong everyone - don't you dare ruin a good thing !

Came across this - seemed quite relevant to the DPYMC crew. 

https://vm.tiktok.com/TTPdbuptoF/
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on May 04, 2022, 04:57:01 AM
I do feel bad for people looking for housing right now, including my brother.  House prices are still way up and now mortgage rates are getting up there too.  Rents have sky-rocketed as well.  I'm glad to be a Mustachian these days...

We've been looking for our forever home for a while now, as we want to find it and move there before the four walls of our <800 sq ft apartment eventually figuratively suffocate the four of us. But I'm personally welcoming rising mortgage rates (although I acknowledge that the squeeze from this and higher inflation will be bad for many people), as I'm counting on it sooner or later leading to a drop or at least a stagnation in the housing market.

They way I'm thinking is that I'd be more than happy to spend a bit more on my mortgage (we were still offered a 0.45% variable rate a couple of months ago) if it scares the craziest lenders/borrowers from the market, making our equity + savings + new mortgage stretch further than it would right now. Maybe it won't? Oh well, then we might have to start saving less than the approx. 50% of our income we are saving now, boohoo.

Mustachanism works, whether it's rainy or sunny in the economy in general.
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on May 04, 2022, 07:06:32 AM
Replying to myself here after a brief email exchange with the (current and likely also future) mortgage bank: The lowest they can go at the moment is 0.5%. Although they hinted that that's only the official rate. Oh no, a rise of more than 11% compared to a few months ago -- mortgage rates are skyrocketing!!
Title: Re: DONT Payoff your Mortgage Club
Post by: shureShote on May 04, 2022, 07:55:00 AM

Starting May 1, it'll be up to 9.62%.  If only we could lock that in for 30 years along with the low mortgage rates, we'd be set!


I recall longing for longer terms on some 4% CDs years ago. As nice as it is to be able to lock in cheap loan rates, it would be interesting to play the wheel and be able to lock in long term interest bearing instruments when the time seemed right. I guess that dream is not fully different from an annuity, but I want the 9.62%!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on May 04, 2022, 08:11:27 AM
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 04, 2022, 08:20:02 AM
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on May 04, 2022, 05:27:13 PM
thirty years of inflation at 9%+ would actually be really bad. You'd be well positioned with the Series I and the mortgage, but aren't the 1970s years when we saw most retirement failures in modeling?
Very good point.  I really meant that I'd like to lock in just the 9.6% rate for 30 years, not the inflation that goes with it!  I definitely do NOT want I bonds to continue to pay such high rates.  I agree that 30 years of 9% inflation would be very bad.  But for now, I bonds are the best game in town for something safe.  While they're still only paying 0% real, better than my savings account paying -9% real.

@NorthernIkigai - Definitely sounds worth it to drop your savings rate a bit to get some more space.  <800 square feet for 4 people sounds like it might be a tad tight!  Hope you're able to find something that works for you!
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on May 05, 2022, 04:29:28 AM
thirty years of inflation at 9%+ would actually be really bad. You'd be well positioned with the Series I and the mortgage, but aren't the 1970s years when we saw most retirement failures in modeling?
Very good point.  I really meant that I'd like to lock in just the 9.6% rate for 30 years, not the inflation that goes with it!  I definitely do NOT want I bonds to continue to pay such high rates.  I agree that 30 years of 9% inflation would be very bad.  But for now, I bonds are the best game in town for something safe.  While they're still only paying 0% real, better than my savings account paying -9% real.

@NorthernIkigai - Definitely sounds worth it to drop your savings rate a bit to get some more space.  <800 square feet for 4 people sounds like it might be a tad tight!  Hope you're able to find something that works for you!

Thanks @Holocene! We're actually OK right now, I'm always amazed that many North Americans (even Mustachians!) seem to need so much space. But the kids are growing and it would be very nice to have at least another half bath and not just the one bathroom.

With prices for decent apartments in the size (still max 1k sq ft or so) and area we're considering starting from about 550 or 600k€, we're just patiently keeping an eye on the market and hoping for a rate rise and its effect on the market...
Title: Re: DONT Payoff your Mortgage Club
Post by: Scramblin Rover on May 12, 2022, 09:39:08 PM
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on May 12, 2022, 09:45:44 PM
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 12, 2022, 11:28:28 PM
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Yup.
Title: Re: DONT Payoff your Mortgage Club
Post by: getsorted on May 13, 2022, 08:35:26 AM

Thanks @Holocene! We're actually OK right now, I'm always amazed that many North Americans (even Mustachians!) seem to need so much space. But the kids are growing and it would be very nice to have at least another half bath and not just the one bathroom.

With prices for decent apartments in the size (still max 1k sq ft or so) and area we're considering starting from about 550 or 600k€, we're just patiently keeping an eye on the market and hoping for a rate rise and its effect on the market...

This is a funny thing about Americans! I bought an 808 square foot house in the US for myself and my son, and people kept saying, "But it's so small! Don't you need at least a three-bedroom?"

Meanwhile, my neighbor in the identical house next door raised three boys in hers in the 60s.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on May 13, 2022, 08:47:39 AM
I happened to see an article in the Post about a family with two parents, six children (some are often away for studies), and a live-in grandparent in a 6,100 square foot house. The husband said he'd lived in "larger", but there was much more usable space in this one. He's got nothing on that family of five!
Title: Re: DONT Payoff your Mortgage Club
Post by: habanero on May 13, 2022, 09:06:47 AM

That's the thing. There's no way to look at the yield curve and conclude anything else than that the market expects a profound collapse in inflation, and expects the Fed to only return us to neutral 2.25%-2.5% rates. If that happens, the Ibonds everyone are so excited about today will turn into low-yielding treasuries that you can't get your money out of for five years!

In the US (and EUR and other large markets) forward inflation is traded directly. In the US, 5y inflation in 5y (so inflation in years 5-10 from now) is trading around 2.40% and hasn't really moved that much the last months relative to the massive spike in current inflation.

A chart with history here

https://fred.stlouisfed.org/series/T5YIFR

Does of course not mean that the market is correct for what it will be, but it's what the market is saying at the moment.
Title: Re: DONT Payoff your Mortgage Club
Post by: Scramblin Rover on May 13, 2022, 07:24:06 PM
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Yup.
Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd  - I wouldn't have guessed that extra payments could work that way.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on May 14, 2022, 04:29:10 AM
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Yup.
Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd  - I wouldn't have guessed that extra payments could work that way.

Mortgages are a money-making business. Left to ambiguity your lender will do what is most profitable to them. They also have zero problems putting their clients into foreclosure after multiple missed payments, regardless of how many previous early or oversized payments you may have made.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on May 14, 2022, 09:33:09 AM
Well I set up my Autopay for my first payment in June.  Since I like rounder numbers in my budget, I am paying an additional $19.23 a month.  It will save me 6 months on a 30 year mortgage.
Be sure it's being applied to the principle. It isn't always automatic.
I'm a little confused about this. How would it be possible for extra payments to go towards interest that hasn't even accrued yet? Some sort of bank-related fuzzy math?
The mortgage service company could just say, "oh, looks like @Scramblin Rover made their June and July payments in May instead of a couple of days before as they usually do". Then you save nothing on interest.
Yup.
Humph. That still seems stupid, but good flag by @Dicey and @ChpBstrd  - I wouldn't have guessed that extra payments could work that way.

Mortgages are a money-making business. Left to ambiguity your lender will do what is most profitable to them. They also have zero problems putting their clients into foreclosure after multiple missed payments, regardless of how many previous early or oversized payments you may have made.
Yup.
Title: Re: DONT Payoff your Mortgage Club
Post by: GUNDERSON on May 14, 2022, 01:29:00 PM
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?

Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on May 14, 2022, 01:56:31 PM
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?
Not really - not high enough yet (see investment order post - 3% above 10 year t-note yield is recommended line for this decision). 30 years at 5-6% still works, just not quite as well as 30 years at 3-4%. If / when rates come down far enough again you can refinance then as well.

If you've already got a mortgage in place, should likely be looking more at home-equity loans than refinancing the whole deal if cash-out is the goal.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on May 16, 2022, 03:30:01 PM
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?

Not measurably.   Although not paying off the mortgage becomes less and less of a slam dunk as as interest rates increase, for sure.   A primary consideration for me is that your house is just a bad place to store money.   

Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on May 16, 2022, 08:32:40 PM
If you were getting a new mortgage at today's somewhat higher rates, would this change anyone's calculation?

Good question. It's all relative to the other opportunities around you - i.e. the spread between your mortgage interest rate and fixed income investments. When I took out my mortgage at 3.25% I was happy because I could have taken the money I would have otherwise spent to pay cash for my house and put it into a preferred stock fund or BBB-rated bond yielding 4%.* With today's mortgage rates at about 5% and fixed income markets still anticipating low inflation on the 5-10 year scale, that sort of arbitrage trade would be underwater. I.e. The mortgage interest rate is now higher than a reasonably-risky fixed income investment yield. Blame the Fed for ending QE and allowing mortgages to reach a free market value!

Those of us who took out loans in the 3-4% range are very happy about that decision because (a) wage inflation is running higher than our mortgage rates, and (b) the yield on low-risk investments is now exceeding our interest rate. None of that matters of course if we had that cash tied up in stocks or bonds at the beginning of this year though! Maybe timing is everything.

*just a nitpick, this comparison is not 100% fair because I'd have to adjust my mortgage return downward to account for closing costs. This interest rate to interest rate comparison only makes sense when the CC's are a sunk cost, but you'd need to do another type of analysis if it was before you take out the mortgage and paying cash is an option.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 01, 2022, 08:05:28 AM
@Dicey , I was catching up on another forum and noticed you disclosing having paid cash for a property recently. Is everything going okay? You still love us here, right?

I haven't checked rates recently, but I know they're higher now, so that may be affecting the cost/benefit of playing through on carrying a mortgage for many of us here.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 01, 2022, 08:40:06 AM
@Dicey , I was catching up on another forum and noticed you disclosing having paid cash for a property recently. Is everything going okay? You still love us here, right?

I haven't checked rates recently, but I know they're higher now, so that may be affecting the cost/benefit of playing through on carrying a mortgage for many of us here.
Lol, we also re-fi'd two of the rentals in the last 12 months (Can't remember exactly when - DH did all the heavy lifting.) Reset the clock to 30 years and got great rates. No cash out, though.

We did buy a property recently. We had to pay cash to get our offer accepted, sigh. Seriously, the "losing" bidder "only" offered 50% down. The market is insane here.

It was our intention to pay cash, do the it-had-to-happen reno, then get a big, fat mortgage. We closed on April 4. Y'all know what happened next.

This property is for my Bonus Kid, who is slightly on the spectrum. They don't call it Asperger's any more, but he's got tons of markers. We know he's unlikely to move from this new place. Also, though he's been at his job for five years, he doesn't have permanent status yet.  It's in the process of happening. When it does, we intend to have him get the biggest mortgage he can qualify for, whatever the rate is, and we will figure out the rest.

If you're keeping score, we have five properties and three mortgages. The unmortgaged properties were primarily paid for with profits from the sale of other properties that had been mortgaged. It's worth mentioning that we're already fatFIRE. We had the cash on hand, as it was seed money for our next project.

Love that you noticed, and I'm happy to answer any questions. At some point, I'll start a journal on the project. I'll post a link in case anyone wants to follow along.

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 01, 2022, 09:27:51 AM
Thanks for checking in, @Dicey , best of luck with the reno-! That losing bidder is probably sitting around resolving to find more cash for the next time they get in the arena.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 01, 2022, 10:15:09 AM
Thanks for checking in, @Dicey , best of luck with the reno-! That losing bidder is probably sitting around resolving to find more cash for the next time they get in the arena.

Having been the 'looser' on at least eight other properties we bid on while offering anything from 20% to 40% cash, a large earnest-money deposit and near-flawless credit score and pre-approval, blah-blah-blah... it's frustrating as hell.  Bonkers is a good way of describing some local markets right now.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on June 01, 2022, 10:30:23 AM

Thanks for checking in, @Dicey , best of luck with the reno-! That losing bidder is probably sitting around resolving to find more cash for the next time they get in the arena.

Having been the 'looser' on at least eight other properties we bid on while offering anything from 20% to 40% cash, a large earnest-money deposit and near-flawless credit score and pre-approval, blah-blah-blah... it's frustrating as hell.  Bonkers is a good way of describing some local markets right now.

Does a seller really care if you are 20 or 40% cash?  Any mortgage is a closing risk.  Obviously someone super pushing their monthly payment is a different kind of risk but I don’t think I’d distinguish between finances offers over a few percent down payment (especially since a low down payment buyer may easily be in a better position to close than a high down payment buyer who is upping their down payment because they can’t get approved for a larger mortgage)

Hopefully things calm down for you.  My neighbor is listing in the next few weeks after delaying for months.  On the one hand I want them to get a great price.  On the other hand I’m tired of seeing people stretch their affordability and then they can’t afford basic maintenance and makes the neighborhood look sleezy (not that you have to pay someone to do the yard, etc.  But if you don’t pay someone then do it yourself… don’t over leverage on an expensive property with no plan for maintenance)

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 01, 2022, 12:25:10 PM
Does a seller really care if you are 20 or 40% cash?  Any mortgage is a closing risk.  Obviously someone super pushing their monthly payment is a different kind of risk but I don’t think I’d distinguish between finances offers over a few percent down payment (especially since a low down payment buyer may easily be in a better position to close than a high down payment buyer who is upping their down payment because they can’t get approved for a larger mortgage)



Apparently they do, though I don't fully understand why.  Our agent said >20% down shows that you've got sufficient cash reserves the bank is less likely to drop you at the last second (apparently "pre-approved" is contractually meaningless), and that if there's a major issue discovered you've got the means to deal with it.

As they say, 'cash is king'.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 02, 2022, 07:18:38 AM
Does a seller really care if you are 20 or 40% cash?  Any mortgage is a closing risk.  Obviously someone super pushing their monthly payment is a different kind of risk but I don’t think I’d distinguish between finances offers over a few percent down payment (especially since a low down payment buyer may easily be in a better position to close than a high down payment buyer who is upping their down payment because they can’t get approved for a larger mortgage)



Apparently they do, though I don't fully understand why.  Our agent said >20% down shows that you've got sufficient cash reserves the bank is less likely to drop you at the last second (apparently "pre-approved" is contractually meaningless), and that if there's a major issue discovered you've got the means to deal with it.

As they say, 'cash is king'.
In a hot market, prices escalate faster than data and appraisals tend to lag. If a person has say, 40% down, the deal won't fall apart if the property doesn't appraise. And yes, that's another thing buyers are routinely waiving (along with inspections, shudder) to get their offers approved.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on June 02, 2022, 08:50:58 AM
Yeah I get how having money to make up an appraisal deficiency or something like that is advantageous.   But between two buyers with equal cash but I thought it would be just as useful to show you have the cash without dedicating it to a larger down payment
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on June 10, 2022, 11:23:31 AM
Sadly the era of sub-4% mortgages has ended, for the time being at least.   But some good news for everyone who obtained a sub-4% mortgage in the last few years and didn't pay it off:   Inflation has returned.   Why is that good news?   Because your mortgage payment is fixed at a much lower rate than current inflation.   That means your total expenses are also rising a lower rate than inflation.  In retirement, that means your WR is decreasing!    In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER. 

So, great job everyone for locking in those historically low interest rates and not paying them off! 
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on June 10, 2022, 12:15:33 PM
Sadly the era of sub-4% mortgages has ended, for the time being at least.   But some good news for everyone who obtained a sub-4% mortgage in the last few years and didn't pay it off:   Inflation has returned.   Why is that good news?   Because your mortgage payment is fixed at a much lower rate than current inflation.   That means your total expenses are also rising a lower rate than inflation. 
It is definitely good to under-spend inflation, but...

Quote
In retirement, that means your WR is decreasing!   
...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.

Quote
In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER. 
I'm getting a 3.5% raise this evaluation season, when the national average is 5.5%, and when inflation is 8.6%. So this isn't a guaranteed thing. For people like myself who have maxxed out in their company or profession, there aren't as many arbitrage options. I've heard that wage gains are disproportionately going to low-skill, low-wage workers - which is good for them because they've fallen behind for decades.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on June 10, 2022, 03:47:54 PM
In retirement, that means your WR is decreasing!   
...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.

The SWR is based on your initial portfolio value.  If you are doing it right, your WR increases because of inflation, not because of portfolio value.  If we go back to 1980 when inflation in the US was at its modern peak, over the next 30 years (length of typical mortgage) stocks returned a robust 7.6% after inflation.   

In fact, there has been no 30-year period when the S&P 500 returned less than 4%.  Yes, it is possible it could happen, but very unlikely.   Of course, you couldn't get a 3.5% mortgage in 1980.   Mortgages were more like 15%.   But that hammers home a point I've made in this thread and elsewhere many times over the years:  A sub-4% mortgage was the deal of a lifetime.  The long term inflation rate is about 3.5%.  That means you would likely get to use the money for free.   But if inflation goes higher--which it did--that means the bank is paying you to use their money.   
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 10, 2022, 04:00:52 PM
Quote
In retirement, that means your WR is decreasing!   
...not if your investments are tanking due to rising interest rates. I think a lot of people who just retired are seeing their WR increase. If stocks permanently reset to lower valuations due to higher interest rates, one might have been better off taking the mortgage's rate of return. Make no mistake about it - all asset values are directly related to interest rates.

The SWR is based on your initial portfolio value.  If you are doing it right, your WR increases because of inflation, not because of portfolio value.  If we go back to 1980 when inflation in the US was at its modern peak, over the next 30 years (length of typical mortgage) stocks returned a robust 7.6% after inflation.   

In fact, there has been no 30-year period when the S&P 500 returned less than 4%.  Yes, it is possible it could happen, but very unlikely.   Of course, you couldn't get a 3.5% mortgage in 1980.   Mortgages were more like 15%.   But that hammers home a point I've made in this thread and elsewhere many times over the years:  A sub-4% mortgage was the deal of a lifetime.  The long term inflation rate is about 3.5%.  That means you would likely get to use the money for free.   But if inflation goes higher--which it did--that means the bank is paying you to use their money.

…and yet there are people on this forum passionately arguing that a person cannot beat or even mitigate the impacts of inflation.
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on June 23, 2022, 09:34:17 AM
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.
Title: Re: DONT Payoff your Mortgage Club
Post by: Shuchong on June 27, 2022, 05:46:32 PM
After some hand wringing -- and a post in the real estate subforum where @Dicey gently steered me this way -- I'm joining the club.  Closing late July on a house and taking out a $270k mortgage, likely at 5.5%. (In the unlikely event that rates go lower in the next two weeks, I can lock in a lower rate for a nominal fee.) 

Psychologically, I feel that debt = bad.  And my rate *feels* high, even though historically it isn't.  There is a large part of me that just wants the mortgage gone.

But my federal+state combined marginal tax rate is about 42%, and I itemize and get a mortgage interest deduction on state taxes too.  So if I'm doing the math right, my tax-adjusted mortgage rate is 3.2% (5.5%*(1-42%).  I also have some job and life uncertainty that, while not enough to prevent me from getting a house, are enough to make me conscious that prepaying the mortgage would be turning liquid assets into illiquid ones.  And my mortgage allows for low-cost, streamlined refinancing that I could take advantage of if rates drop in a few years. 

I'll reevaluate if I start making less money and therefore paying less in taxes and worrying more about cash flow.  But for now, you all have convinced me. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on June 27, 2022, 06:46:02 PM


Psychologically, I feel that debt = bad.  And my rate *feels* high, even though historically it isn't.  There is a large part of me that just wants the mortgage gone.


Psychologically I’ve found it helpful to realize that: money > debt.
In almost every situation I’ve encounterd, having a lot more money is preferable to having no debt.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 27, 2022, 08:09:16 PM
Welcome, Shuchong! Come on in, we don't bite.

Another way to look at it is to consider your mortgage a bond, except it's better because it can't go down in value. Even at 5.5% and before the tax break, it beats inflation. Re-jigger your AA to reflect that and you're good to go.

Over time, your income is likely to go up but your mortgage interest rate never will. Woo-hoo!

Actually, the only potential danger here is people are going to just might start bragging on their low interest payments, especially as rates increase. Bring it, I say!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 28, 2022, 06:47:03 AM
@Shuchong , I totally get you when you talk about that life uncertainty.

In our particular case, the life uncertainty came in the form of moving. Because of the mortgage balance, we were able to change the order of our transactions such that we could purchase the new house before selling the old one, and that was right for our family.
Title: Re: DONT Payoff your Mortgage Club
Post by: Must_ache on June 28, 2022, 12:05:04 PM
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Those stresses aren't nearly as big as the money lost when stocks go down.  I think that people that once focus on how future purchases are getting cheaper are deluding themselves.  It's not untrue, but it's a lopsided way of looking at the issue.  I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale.  That argument works best for a noob with next to nothing in the market and a 50-yr investing window.
Title: Re: DONT Payoff your Mortgage Club
Post by: Shuchong on June 28, 2022, 12:14:41 PM
Thanks for the warm welcome, all!

@nereo, I will try to keep this in mind.  Having more money and more liquidity is definitely valuable:)

@Dicey, yeah, I am beating inflation at the moment.  Silver linings, I guess?  And if inflation stays high, it will be easy next year for me to take money I would be tempted to put towards the mortgage and put it into ibonds instead.  I doubt I will ever make more money than I'm making now (I work for a large law firm, but will probably have to downshift soon-ish due to health issues -- I could very well end up taking a 75% pay cut).  However, I would still be able to cover mortgage payments with my lower income, and that income will no doubt inflate over the course of 30 years. 

@talltexan, glad everything worked out with your new house sale!  And yes, flexibility and life uncertainty go nicely together:)
Title: Re: DONT Payoff your Mortgage Club
Post by: ATtiny85 on June 28, 2022, 12:17:31 PM
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Those stresses aren't nearly as big as the money lost when stocks go down.  I think that people that once focus on how future purchases are getting cheaper are deluding themselves.  It's not untrue, but it's a lopsided way of looking at the issue.  I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale.  That argument works best for a noob with next to nothing in the market and a 50-yr investing window.

But do you believe stocks will go up long term? If no, then you should not be buying equities at any price. If yes, then equities you buy today are a good deal, and the equities you bought last year, while depressed now, will also be a good deal later.

Watch out for the sunk cost fallacy.

I am down quite a bit more than $150,000, but so what? It’s done. My fate on the VTSAX I bought in December was sealed as soon as the purchase cleared. But I have doubt those shares will be worth holding for the next ten+ years (not counting the TLH I did, but I made a round trip by now) and will be valuable to exchange for money needed to live on.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on June 28, 2022, 12:31:37 PM
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Those stresses aren't nearly as big as the money lost when stocks go down.  I think that people that once focus on how future purchases are getting cheaper are deluding themselves.  It's not untrue, but it's a lopsided way of looking at the issue.  I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale.  That argument works best for a noob with next to nothing in the market and a 50-yr investing window.

Short term losses don't matter.  With equities, the ride is bumpy.  Don't sell.  Keep buying. 

Besides, aren't a lot of people always complaining about how 'overpriced' stocks are?  Well, here we are, stocks are no longer overpriced.  But do people stop complaining?  No, they don't.  They just figure out something else to complain about (like volatility). 
Title: Re: DONT Payoff your Mortgage Club
Post by: EngineerOurFI on June 28, 2022, 01:08:00 PM
In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER. 

Still waiting on that annual raise that seems to be MIA to help counter inflation.
Title: Re: DONT Payoff your Mortgage Club
Post by: ATtiny85 on June 28, 2022, 01:16:51 PM
In accumulation phase--assuming you get a COLA bump---this means you can save a larger percentage of your income, speeding the day to ER. 

Still waiting on that annual raise that seems to be MIA to help counter inflation.

My entire company got an out of sequence bump last year. 8%. So with that we got closer to even…before this recent inflation kicked us back down.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 28, 2022, 07:08:11 PM
Market down like it is, this is a good time to celebrate the lower stresses from buying more and more shares.

Those stresses aren't nearly as big as the money lost when stocks go down.  I think that people that once focus on how future purchases are getting cheaper are deluding themselves.  It's not untrue, but it's a lopsided way of looking at the issue.  I've lost over $150K of net worth this year as the stocks have slid, and I'm not exciting about stocks being on sale.  That argument works best for a noob with next to nothing in the market and a 50-yr investing window.

But do you believe stocks will go up long term? If no, then you should not be buying equities at any price. If yes, then equities you buy today are a good deal, and the equities you bought last year, while depressed now, will also be a good deal later.

Watch out for the sunk cost fallacy.

I am down quite a bit more than $150,000, but so what? It’s done. My fate on the VTSAX I bought in December was sealed as soon as the purchase cleared. But I have doubt those shares will be worth holding for the next ten+ years (not counting the TLH I did, but I made a round trip by now) and will be valuable to exchange for money needed to live on.
I know I promised @Shuchong we don't bite, so please read this with a very gentle tone:  The stock market goes up and the stock market goes down in the short term. Over time, the stock market always goes UP. For proof, one only has to look at the history of the stock market. Therefore, what anyone believes doesn't really matter. It's the facts that count.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 29, 2022, 07:31:13 AM
Actually, it's future returns that count. We are fallible humans, who can select excellent investments, but still find ways to mess up the returns we experience.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 29, 2022, 09:11:15 AM
Actually, it's future returns that count. We are fallible humans, who can select excellent investments, but still find ways to mess up the returns we experience.
Do you mean by doing something like panic selling when the market drops? If not that, could you please elaborate?
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 29, 2022, 09:34:17 AM
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on June 29, 2022, 02:20:22 PM
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that? 
Title: Re: DONT Payoff your Mortgage Club
Post by: ATtiny85 on June 29, 2022, 02:32:32 PM
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?

It can be tough for some people, especially the first time they see a little blip, let alone a major blip. We can only hope they post here in a panic and can be talked back from the cliff.
Title: Re: DONT Payoff your Mortgage Club
Post by: moof on June 29, 2022, 04:36:20 PM
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?

It can be tough for some people, especially the first time they see a little blip, let alone a major blip. We can only hope they post here in a panic and can be talked back from the cliff.
I heard word from my old work that one fellow nearing retirement sold it all and pumped it into a triple negative leveraged ETF just a few weeks ago, which proceed to lose over 20% in a week when the cat corpse bounced a little last week.  Going back a ways he had tales of previously sinking his money in a hedge fund that lost a fair bit while the market had been up like 30% (he got very quiet about it once the S&P started whipping its performance).  Folks like that can’t be saved from themselves.  I feel for the guy, but seeing his engineering skills (or lack there of), it does not surprise me, just a walking dumpster fire of poor numbers comprehension on many fronts.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 29, 2022, 05:36:41 PM
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on June 30, 2022, 09:27:04 AM
Not every investment I own is like this, but I'm holding about $580 worth of Bitcoin today, and--assuming my cost calculations are correct--I paid about $1,240 for it. So there are certainly some places where I've failed to maximize my investment returns with the money that has been provided to me.
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on June 30, 2022, 09:29:36 AM
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.

I can understand why people might feel trapped by a mortgage.  And that's a strong motivator to pay it off early.  I used to be one of those people.  But I found myself in a situation where I'd paid extra to my mortgage instead of building up my savings/investments and then suffered a 9 month job loss and holy crap that was awful. 

I almost lost my house because I wasn't able to make payments, because I'd sent in all my extra cash as 'early payments' to drive down the mortgage. 

Nowadays I just pay the minimum of $1900 every month and shove all my spare cash into savings/investing and I have a nice cushion, pretty soon I'll have enough saved/invested that I could pay off my mortgage in full, if I wanted to (which I don't).
Title: Re: DONT Payoff your Mortgage Club
Post by: ATtiny85 on June 30, 2022, 11:41:12 AM

I can understand why people might feel trapped by a mortgage.  And that's a strong motivator to pay it off early.  I used to be one of those people.  But I found myself in a situation where I'd paid extra to my mortgage instead of building up my savings/investments and then suffered a 9 month job loss and holy crap that was awful. 

I almost lost my house because I wasn't able to make payments, because I'd sent in all my extra cash as 'early payments' to drive down the mortgage. 

Nowadays I just pay the minimum of $1900 every month and shove all my spare cash into savings/investing and I have a nice cushion, pretty soon I'll have enough saved/invested that I could pay off my mortgage in full, if I wanted to (which I don't).

These types of stories are helpful. A nice real life example of how it can make things a challenge, especially if you stretch to pay extra and it is not after a bunch of other uses of the money.

We do corporate moves quite regularly, and having either a small mortgage, like now, or no mortgage, like the five years before, has provided us some flexibility that would not have been as easy otherwise. It also sort of streamlines our relos a bit.

It would be hard for me to want to go back to a large mortgage, I have become addicted to the large VTSAX purchase that happens each month. The small balance we have now, sitting at 2%, is barely noticed.  Now, if I fully understood things twenty plus years when we had the first mortgage, maybe we would have progressed differently. But at this point our plan has no need for a large cash out refinance to invest.

For our retirement which hopefully happens in just a few years, I have been using a model that assumes no mortgage, with the idea that we will just trade the equity in what we have for our retirement place far away from weather hell-hole we currently endure for the jobs.

Some really good info scattered in this thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on July 02, 2022, 04:43:22 PM
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on July 03, 2022, 01:38:35 AM
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

Seems like you paid 15 days early, friend

(Mostly kidding but I set autopay to the 10th)
Title: Re: DONT Payoff your Mortgage Club
Post by: solon on July 03, 2022, 03:57:17 PM
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

👍
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 05, 2022, 06:24:35 AM
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

I think you've come to the right place, @Psychstache . Not sure what all these other jokers are doing ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dee_the_third on July 07, 2022, 12:25:46 PM
I came looking for this thread because I am feeling awfully smug about my (in retrospect) smart decisions that I happened into through a tiny bit of savviness and a whole lot of dumb luck. Locked in a fixed 15-year November of 2021 at 2.8%, hohoho.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 07, 2022, 12:30:28 PM
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

I think you've come to the right place, @Psychstache . Not sure what all these other jokers are doing ;-)
Not sure either, but hopefully not too many of them are giving away pieces of their mind. I know I cannot afford to lose even a single functioning brain cell. ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 07, 2022, 12:50:24 PM
I am so excited to share this with you all, since no one will understand, but yesterday I just paid my mortgage minimum payment for the month! There just no way to quantify the feeling of paying the minimum amount on a 30 year non-callable 2.875% fixed rate loan. It just gives me piece of mind and helps me sleep at night. =D

I think you've come to the right place, @Psychstache . Not sure what all these other jokers are doing ;-)
Not sure either, but hopefully not too many of them are giving away pieces of their mind. I know I cannot afford to lose even a single functioning brain cell. ;-)

No mind to give away here!
Title: Re: DONT Payoff your Mortgage Club
Post by: GUNDERSON on July 15, 2022, 10:46:54 AM
How do folks in this group feel about 15-year vs 30-year mortgages? I'm assuming you'd vote for the latter. And I think you're probably right... the flexibility of extra liquidity, and you put the extra savings into the market, and today's money is worth more than tomorrow's money. But just to run some numbers at today's rates...   Say you're looking at a 520k mortgage. You'd pay 1000 more per month to have a 15 year payoff, vs still owing about 350k in 15 years if you had a 30-year. To match that by putting the monthly 1000 in VTI, you'd need a consistent 9 percent return. But maybe that's close enough to what you'd actually get to still make the 30 year preferable given the advantage of liquidity. How would you think about this?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dee_the_third on July 15, 2022, 11:56:00 AM
How do folks in this group feel about 15-year vs 30-year mortgages? I'm assuming you'd vote for the latter. And I think you're probably right... the flexibility of extra liquidity, and you put the extra savings into the market, and today's money is worth more than tomorrow's money. But just to run some numbers at today's rates...   Say you're looking at a 520k mortgage. You'd pay 1000 more per month to have a 15 year payoff, vs still owing about 350k in 15 years if you had a 30-year. To match that by putting the monthly 1000 in VTI, you'd need a consistent 9 percent return. But maybe that's close enough to what you'd actually get to still make the 30 year preferable given the advantage of liquidity. How would you think about this?

My rule is to play safe with the cash flow. For a personal home - if you can swing 15-year payments in a SHTF scenario (great recession, one or both partners lose their job, etc etc - pick a medium worse-case scenario for your family and your situation) for a good long time, go for the 15-year. Same with rentals. If you can't find a tenant for  6 months, if you have to replace the roof and furnace in the same year, does paying a 15-year mortgage cause undue personal pain or cause your cash reserves to dip unacceptably low? If so, go for the 30year.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 15, 2022, 01:04:42 PM
It's all about the rate-delta for me.

When I was refi'ing in summer of 2020, the delta was maybe only 25 bps.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on July 15, 2022, 01:20:05 PM
We did a 15 year on our IL house when rates went way way down because the payments were enough that we could make them on one salary and we had a one year emergency fund. In VA, we did 30 year because it was the almost the same rate as the 15 year, and our cash flow is more needed for college, and we became a one-income household. It’s whatever makes sense to you.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 16, 2022, 05:11:52 AM
I remember what it was to agonize over this decision when I went through it.

But we built this club to celebrate responsible use of leverage. Why would you deny the chance at inexpensive leverage to yourself in 2037?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 16, 2022, 07:56:34 AM
I remember what it was to agonize over this decision when I went through it.

But we built this club to celebrate responsible use of leverage. Why would you deny the chance at inexpensive leverage to yourself in 2037?
Lol, Dicey Brother consulted her about refinancing their starter home from a 30 to a 15. Y'all know what Dicey advised, but Dicey Brother didn't listen to big sister. About a year later they decided to upgrade, keeping the starter home as a rental. Whereupon, Dicey Brother refinanced again, back to a 30 year loan. Fifteen years later, the rental, with fifteen years left on the mortgage, is paying for Dicey Brother's Daughter's college education.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on July 16, 2022, 10:11:11 AM


Psychologically, I feel that debt = bad.  And my rate *feels* high, even though historically it isn't.  There is a large part of me that just wants the mortgage gone.


Psychologically I’ve found it helpful to realize that: money > debt.
In almost every situation I’ve encounterd, having a lot more money is preferable to having no debt.

Well, in the past 12 months we bought 2021 iBonds (2x$10k), 2022 iBonds (2x$10k) and just pre-bought 2023* iBonds (2x$10k) using the gift box workaround.

Still have a fair amount of cash on hand, and we're keeping the low interest rate 30-year mortgage in place.

*Notionally 2023, but we can put off the transfer to whenever, so it may make more sense to just buy 2023 iBonds and leave $20k in gift boxes, earning interest and seasoning.
Title: Re: DONT Payoff your Mortgage Club
Post by: GUNDERSON on July 16, 2022, 12:29:19 PM
The attractive difference is the rate, though, not the speed of paydown. There's appears to be as much as a 1.2% spread.
Title: Re: DONT Payoff your Mortgage Club
Post by: Shuchong on July 17, 2022, 12:39:44 AM
The attractive difference is the rate, though, not the speed of paydown. There's appears to be as much as a 1.2% spread.

I hear you.  I just went through this, and opted for the 30 year.  I don't know how to mathematically model this/put a dollar value on it, but the 30 year gives you more options.  What if inflation stays super high for 30 years?  What if you have an emergency big enough that you need the lower payment the 30 year offers?  What if in four years rates are low again and refinancing becomes a no-brainer? 
Title: Re: DONT Payoff your Mortgage Club
Post by: GUNDERSON on July 17, 2022, 09:40:42 AM
"What if in four years rates are low again and refinancing becomes a no-brainer?"

This seems like an ideal scenario, really? Since that scenario would see us refinancing regardless of what choice we make now. I would be totally comfortable paying a higher monthly cost for 4 years, lowering the principal in a meaningful way vs just paying mostly interest, then refinancing into a lower rate 30 year, which would feel like an actually good deal, for flexibility and liquidity.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on July 17, 2022, 10:05:31 AM
"What if in four years rates are low again and refinancing becomes a no-brainer?"

This seems like an ideal scenario, really? Since that scenario would see us refinancing regardless of what choice we make now. I would be totally comfortable paying a higher monthly cost for 4 years, lowering the principal in a meaningful way vs just paying mostly interest, then refinancing into a lower rate 30 year, which would feel like an actually good deal, for flexibility and liquidity.

I’d be Cautious about viewing through the lens if “paying off principle” or not. The advantage to holding a 30year fixed works despite minimal principle being paid down in the initial years. As a thought excercise, consider the proposed 50 year mortgages suggested for the UK - if you could get one for about the same yield as a 30 year it would be a no brained for responsible mustachians, even though you would pay off just a small fraction of the principle in the first decade. More importantly you would have more cash flow to invest and inflation would eat away at the principle in real terms.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on July 19, 2022, 09:23:22 AM
I remember what it was to agonize over this decision when I went through it.

But we built this club to celebrate responsible use of leverage. Why would you deny the chance at inexpensive leverage to yourself in 2037?
Lol, Dicey Brother consulted her about refinancing their starter home from a 30 to a 15. Y'all know what Dicey advised, but Dicey Brother didn't listen to big sister. About a year later they decided to upgrade, keeping the starter home as a rental. Whereupon, Dicey Brother refinanced again, back to a 30 year loan. Fifteen years later, the rental, with fifteen years left on the mortgage, is paying for Dicey Brother's Daughter's college education.

So dicey has been banging this drum for almost two decades or longer.  Don’t piss off dicey she doesn’t forget
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on July 19, 2022, 09:41:45 AM
Different contracts make sense at different points in the economic cycle.
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on September 03, 2022, 03:34:02 AM


Psychologically, I feel that debt = bad.  And my rate *feels* high, even though historically it isn't.  There is a large part of me that just wants the mortgage gone.


Psychologically I’ve found it helpful to realize that: money > debt.
In almost every situation I’ve encounterd, having a lot more money is preferable to having no debt.

I’m just finishing The Value of Debt by Thomas J Anderson (a book I probably heard about on this board, maybe even in this thread). Although the practical advice in the book is unfortunately not applicable to the market I’m in, the ideas and points of view are great! Like many, I’m naturally adverse to debt, but the message that debt isn’t necessarily something to be paid down, it all depends on the balance between assets and debts, is intriguing.

Meanwhile, our small adjustable rate mortgage is (unfortunately, but it was likely to happen sooner or later) about to be adjusted: For many years, we’ve only paid the margin paid to the bank (0.45%) since the bank rate has been negative. Now the bank rate is at 1.2+%, so as of next month we’ll be paying 1.7+%! A huge percentage increase, but still a steal…
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on September 03, 2022, 04:58:09 PM
Still diligently working every day to avoid paying off our mortgage!
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on September 04, 2022, 05:19:45 AM
Still diligently working every day to avoid paying off our mortgage!

Same, same.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 06, 2022, 07:37:41 AM
I'm grateful for my low rate. From what I hear, those sub-4 rates (And I've been 3.0 or lower for much of the last ten years) are now a thing of the past. Ten year treasury yield is 3.2% currently.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 06, 2022, 09:52:28 AM
I'm grateful for my low rate. From what I hear, those sub-4 rates (And I've been 3.0 or lower for much of the last ten years) are now a thing of the past. Ten year treasury yield is 3.2% currently.

Yeah, at 2.7% I can’t justify paying down my mortgage aggressively, even with windfalls and rising incomes. At this point it would be deliberately increasing our risk and decreasing our return, which is just a strange scenario.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on September 06, 2022, 12:11:23 PM
I'm grateful for my low rate. From what I hear, those sub-4 rates (And I've been 3.0 or lower for much of the last ten years) are now a thing of the past. Ten year treasury yield is 3.2% currently.

Yeah, at 2.7% I can’t justify paying down my mortgage aggressively, even with windfalls and rising incomes. At this point it would be deliberately increasing our risk and decreasing our return, which is just a strange scenario.

Yup. 2.25 is something I will NEVER pay off early.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 06, 2022, 02:15:55 PM
I just logged into my online bank, and they have CD's at many term-lengths that are >3%. Unless you have a serious marginal tax rate, taking extra money and buying one of those seems like it sets you up for a rock-solid spread.
Title: Re: DONT Payoff your Mortgage Club
Post by: Wolfpack Mustachian on September 06, 2022, 07:53:23 PM
The panic selling thing is an excellent example, @Dicey , but also doing things like pausing new contributions or changing strategies in response to emphemera.

Why would anyone on MMM ever panic sell?  Isn't one of the main points of this forum to teach people to not do that?
Some people are still learning the Way of the Mustache. Perhaps that's why this thread is 66 pages long and in other places people are whinging about how "mean" we are or how tired they are of "listening" to the DPOYM conversation. Apparently not everyone who thinks they're listening is actually is absorbing the concepts.

I can understand why people might feel trapped by a mortgage.  And that's a strong motivator to pay it off early.  I used to be one of those people.  But I found myself in a situation where I'd paid extra to my mortgage instead of building up my savings/investments and then suffered a 9 month job loss and holy crap that was awful. 

I almost lost my house because I wasn't able to make payments, because I'd sent in all my extra cash as 'early payments' to drive down the mortgage. 

Nowadays I just pay the minimum of $1900 every month and shove all my spare cash into savings/investing and I have a nice cushion, pretty soon I'll have enough saved/invested that I could pay off my mortgage in full, if I wanted to (which I don't).

I wish everyone could internalize this. Once I finally wrapped my mind around the fact that it wasn't really safer either, I truly joined this club. It's so logical that I don't see why I never saw it. If you make enough money to pay extra, you're not safer paying it off with extra payments despite how it feels. If you pay it down from 30 years to having "5" years left and you lose your job and can't pay and lose your house, you truly threw that money away. I know I'm preaching to the choir....just wish this realization had hit me sooner.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 06, 2022, 08:04:48 PM
Yup, that's why some of us are still here, singing this song. It is so very counterintuitive. It was a very hard lesson for me to learn. Like a reformed smoker (please don't say religious zealot), I just want to share the good news!

In other news...keep this under your mustachian hats, but there is starting to be some discussion of this topic in places where typically only celebration is allowed. I'm keeping out of it (mostly), but it thrills me to see people possibly beginning to see the light.

Disclaimer: I don't care one way or the other. I just want people to UNDERSTAND the concept of DPOYM and the Investment Order for whatever part of the world they live in before they decide what is best for them.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 07, 2022, 08:08:27 AM
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 07, 2022, 08:47:15 AM
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.
Hmmm, do you mean it's less attractive for a new mortgage than one initiated a year ago? Because maintaining a mortgage at a sub 4 rate is even more attractive than it was a year ago,  considering inflation.

How does "intellectual honesty" relate to simply understanding of the math?
Title: Re: DONT Payoff your Mortgage Club
Post by: ATtiny85 on September 07, 2022, 09:01:33 AM
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.
Hmmm, do you mean it's less attractive for a new mortgage than one initiated a year ago? Because maintaining a mortgage at a sub 4 rate is even more attractive than it was a year ago,  considering inflation.

How does "intellectual honesty" relate to simply understanding of the math?

I guess maybe in my situation. Corporate relo last year. Rolled the equity of the last house into a large down payment on the new house around the first of December. It seems possible that the monthly larger investment into equities I have been able to make since then will come out ahead of what the lump sum would have.  While it is pretty darn unlikely to do so on a long term basis, the break even point is still in the future right now. Since it is a hypothetical, no reason to run the numbers. Can’t change my actions then and have no intention of going back now. Hopefully within a year I will shake my head at what might have been as the market goes well above the all time highs. It will be smiles all around regardless.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 07, 2022, 09:59:33 AM
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on September 07, 2022, 10:11:08 AM
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.
I mean a little less sure, but 5% or 6% is still low enough to work (our investment order post would not advise paying down at current treasury bond yields). If the value of our home goes up to where I can free up $100K or more and get <6% for 20+ years, I'm gonna try and make that move and buy more index funds. Should be easier in May once I have the coveted 2 continuous years of self-employment officially on the books.

There's actually 1 house that is under contract that was listed for $100K more than I would have thought it was worth just down the block from us and the place across the street from them was just listed at about the same price. Rare for there to be this many relevant comps right on our block where all the houses are fairly similar (1400-1800 sf, all are 3-4 br with 2 baths and built in the early 50's on smallish in-town lots). So I'm thinking ours might appraise high enough within a month or two to hit my "give enough of a damn to apply for a mortgage" level of available equity.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 07, 2022, 10:18:21 AM
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.
Thanks for that, although I think I'd say the mortgages are lapping inflation, because the lapper is the one in the position of strength, no?

The math still works, especially in light of the insane inflation we're experiencing right now. Hopefully, both will stabilize sooner rather than later.

A long time ago, when I was getting the DPOYM lesson pounded into my head (long before MMM was born), I remember being thrilled to buy a new place and get a 7% mortgage, and I had stellar credit. Mortgages are still historically cheap.

The math still works, it just isn't quite as blindingly obvious.

Kudos to all who scored cheap mortgages while they lasted. And long may they last for each of you.
Title: Re: DONT Payoff your Mortgage Club
Post by: jsap819 on September 08, 2022, 04:41:24 PM
To clarify: I was referring to mortgages being issued in today's market at rates > 5%, not to those amazing mortgages <3%, which are being lapped by inflation.
Thanks for that, although I think I'd say the mortgages are lapping inflation, because the lapper is the one in the position of strength, no?

The math still works, especially in light of the insane inflation we're experiencing right now. Hopefully, both will stabilize sooner rather than later.

A long time ago, when I was getting the DPOYM lesson pounded into my head (long before MMM was born), I remember being thrilled to buy a new place and get a 7% mortgage, and I had stellar credit. Mortgages are still historically cheap.

The math still works, it just isn't quite as blindingly obvious.

Kudos to all who scored cheap mortgages while they lasted. And long may they last for each of you.

I wish I can take my 30 year 2.375% mortgage to my grave (too bad I can't). Before I refinanced to this rate in 2021, I was plowing thousands of dollars to the principal every time I can. I'm glad I found the ways of DPOYM because instead of paying down, I focused all available excess money to taxable and it has now grown to the point that I can pay it off in full if I wanted to, but I won't. If I would have put all the money I invested the past 3 years towards the mortgage balance , I'd still have 30% of it left to pay. The timing of my decision was very lucky that the returns from 2019-2021 was beyond exceptional.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 09, 2022, 08:47:24 AM
You say the total return of 2019-2021 was "lucky".

I think that deserves more analysis:
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 09, 2022, 09:16:28 AM
You say the total return of 2019-2021 was "lucky".

I think that deserves more analysis:
  • How did the 3-year return compare to other 3-year periods?
  • How bizarre was it that markets responded so strongly to the utterly unprecedented set of events during the 2020 calendar year?

2019-2021 was 18.2% (https://dqydj.com/sp-500-return-calculator/) (inflation adjusted). One in ten 3-year periods returns at least 20.9% (https://dqydj.com/sp-500-historical-return-calculator/) (inflation adjusted). So it's roughly a one-in-eight chance to get that sort of return? Not super lucky, in my opinion (should happen several times over a lifetime).

Can't help you on speculating the second bullet point.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on September 09, 2022, 10:00:23 AM
The math still works, especially in light of the insane inflation we're experiencing right now. Hopefully, both will stabilize sooner rather than later.

A long time ago, when I was getting the DPOYM lesson pounded into my head (long before MMM was born), I remember being thrilled to buy a new place and get a 7% mortgage, and I had stellar credit. Mortgages are still historically cheap.

The math still works, it just isn't quite as blindingly obvious.

See, I have this theory that monetary policy is stimulative any time you can borrow for less than the rate of inflation. E.g. Toyota is still offering 1.9% financing for new cars that will likely cost 6-8% more to buy if you wait 12 months PLUS a much higher financing rate (and you also miss out on the utility of a new car until then). Thus it makes sense to pull forward next year's planned purchase of a new car and lock in the lower price today. Even if you park it in a storage unit for a year, the depreciation won't cost as much as the price and rate hikes!

Similarly, even though mortgage rates are suddenly 6%, it might still be justifiable to buy a house today because the inflation rate is more like 8% and all the labor and commodities that go into building a house are getting more expensive by the day. When you can borrow at a cheaper rate than inflation to lock in lower prices than will be available in the future, you are incentivized to pull ahead your purchases. This logic applies to corporate investments too: Borrow now at 5-6% to lock in next year's supply of inventory or commodities and avoid the next round of 8% or worse price hikes.

This dynamic, of course, leads to higher demand, shortages, and higher inflation expectations, which means the rationale for spending money keeps making sense month after month until the music stops. 

With mortgages you have the option to pay them off or refinance when the rate of inflation drops back below your interest rate - i.e. after the next recession. That option value makes RE seem like a win-win to a lot of people.
Title: Re: DONT Payoff your Mortgage Club
Post by: Shuchong on September 09, 2022, 01:09:53 PM
With mortgages you have the option to pay them off or refinance when the rate of inflation drops back below your interest rate - i.e. after the next recession. That option value makes RE seem like a win-win to a lot of people.

Yeah, this is a big thing for me.  I just bought a house, with a 30 year mortgage at a 5.375% rate.  I'm not paying extra on it even though that's my natural inclination, and one of the reasons is that the option to refinance somewhere in that 30 years is worth something to me.  I wish I had a mathematical way to value that option, but alas, I'm neither math-y enough nor clairvoyant enough to come up with a formula. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 09, 2022, 05:27:17 PM
You say the total return of 2019-2021 was "lucky".

I think that deserves more analysis:
  • How did the 3-year return compare to other 3-year periods?
  • How bizarre was it that markets responded so strongly to the utterly unprecedented set of events during the 2020 calendar year?

Investors need encouragement.
If a kid gets a good return, tell him it was a lucky guess.
That way he develops a good, lucky feeling.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 09, 2022, 07:28:36 PM
With mortgages you have the option to pay them off or refinance when the rate of inflation drops back below your interest rate - i.e. after the next recession. That option value makes RE seem like a win-win to a lot of people.

Yeah, this is a big thing for me.  I just bought a house, with a 30 year mortgage at a 5.375% rate.  I'm not paying extra on it even though that's my natural inclination, and one of the reasons is that the option to refinance somewhere in that 30 years is worth something to me.  I wish I had a mathematical way to value that option, but alas, I'm neither math-y enough nor clairvoyant enough to come up with a formula.
In that case, one option might be to set up autopay and forget about it. If you have an impound account, check once or twice a year to be assured that your insurances and taxes are being paid properly and to adjust your payment amount as the economy pushes those T& I numbers inexorably upward. Then go out and have fun living your best life!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 09, 2022, 08:01:46 PM
Indeed, I think the average tenure in a house is somewhere between 7-9 years. But you may have special reasons that make you different than average. So you're valuing that option based on the horizon of living in the property, not the term of the mortgage. Would that forecasting rates over 7-9 years were easy!

I performed a version of this calculation when I signed up for a 5/1 ARM at 3.0% back in 2013 (was offered a 30-year fixed at 4.125). As it turned out, we were selling the house in early 2020, so that was only perhaps seventeen months into the rate reset period.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on September 09, 2022, 11:41:38 PM
I think intellectual honesty requires us to acknowledge that in today's environment, maintaining a mortgage is less attractive than it was one year ago.

Sure, and if you look back through these many pages, you will time and again find the caveat of "at today's low rates."  Which of course meant the low rates of the past few years.  That assumption was built into DPOYM and repeated many times.

But many of the advantages still apply, for example avoiding the high risk of putting your money in an illiquid asset.  And you can make a convincing argument that over any reasonably long period of time, the return on equities has to be higher than the cost of capital.  If not, we'd all we living in stone huts. 

We all know the folly of trying to time the market, but that doesn't mean we can't be aware of cycles.  That's why so many of us were screaming on the highest mountain tops that a sub-4% mortgage was--literally--the deal of a lifetime.     Those rates were nonsensically low, and it made sense to take advantage of them as much as you responsibly could.   
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on September 20, 2022, 12:13:39 PM
My house was sold and the mortgage paid off.  It was a 30 year 2.5% fixed rate. A sad day. :(
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on September 20, 2022, 12:54:59 PM
Sad day indeed! I hope you made good chunk on the equity while the market is hot.

What are your next housing plans?
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on September 20, 2022, 01:17:13 PM
Sad day indeed! I hope you made good chunk on the equity while the market is hot.

What are your next housing plans?

It was indeed a good time to sell. Bought the house in early 2011 as the market was still dropping. House price appreciation was 5.5% annualized over this entire period (2011-2022). Though most of the gains came in the past two years (2020-2022) at 20% annualized.

The very first loan to purchase was a 30 year @ 4.875% in Dec 2010. Gradually and continuously did no cost refis all the way to 2.5% in late 2020.

Moved a few months ago cross country to a VHCOL area. Renting for now.  Rents, house prices, and mortgage rates are all high, of course. May have to do an ARM or something if we decide to buy.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 20, 2022, 02:04:13 PM
Paula Pant had a nice discussion on her podcast late August about why she rents where she lives (while owning more than half a dozen rental properties to generate income). Depending on your plans in this VHCOL area, you may find being a long-term renter has some benefit.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on September 20, 2022, 02:18:08 PM
Plus that's the ultimate DPOYM play. Relatively little capital tied up in your house when renting vs. owning.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on September 20, 2022, 02:26:59 PM
Paula Pant had a nice discussion on her podcast late August about why she rents where she lives (while owning more than half a dozen rental properties to generate income). Depending on your plans in this VHCOL area, you may find being a long-term renter has some benefit.

Thanks, @talltexan. Would you happen to have the link to that specific podcast? She has a bunch and I am looking at the synopsis and not sure which one has the discussion you refer to. I was able to find it. It was very useful.

Good and fulfilling jobs for both of us at the moment. Nice city life with many things to do. Walk or take public transit most places. We do plan to live here for a while.  And we may even retire here. But who knows, things may change as we're still in the honeymoon period. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 21, 2022, 08:40:01 AM
So glad. I've really come to appreciate Paula's output during the past year!
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on September 21, 2022, 08:53:40 AM
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on September 21, 2022, 11:19:03 AM
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.

In the city I am, average monthly rate for rent is $4000 while the median house/condo price is $710K. This is the data for June 2022. We are comparing average vs median but this is a price to rent ratio of around 15.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 21, 2022, 12:24:28 PM
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.

Where was this unicorn of which you speak?
Title: Re: DONT Payoff your Mortgage Club
Post by: achvfi on September 21, 2022, 12:40:34 PM
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.

Where was this unicorn of which you speak?
This one was in Saratoga. It had nice yard front and back and you can see some red woods near by. Beautiful home for a family.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 21, 2022, 01:55:41 PM
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.

Where was this unicorn of which you speak?
This one was in Saratoga. It had nice yard front and back and you can see some red woods near by. Beautiful home for a family.
Hmmm, what I remember of Saratoga is that it was considered the "most affordable" pocket of the Silicon Valley. But hey, who doesn't love a little Real Estate Porn?
I realize there are more places to shop for rentals than Zillow, but the to-do list needs to get to-done today, so I pushed the Easy Button.

Cheapest SFH in Saratoga - $3995 1232sf 3+1.5: https://www.zillow.com/homedetails/12931-Quito-Rd-Saratoga-CA-95070/19654331_zpid/? (Curiously, it's had two price drops since 9/9/22 - Huge lot, plenty of parking. Possible scam meter alert.)

Most expensive SFH - $15,000 5700sf 7+4: https://www.zillow.com/homedetails/Saratoga-CA-95070/19657952_zpid/

Closest to the pin SFH -  $4750 1616sf 4+3: https://www.zillow.com/homedetails/12122-Covina-Ct-Saratoga-CA-95070/19652902_zpid/(Check out the kitchen!)

Just for fun - $3250 450sf 1+1: https://www.zillow.com/homedetails/Saratoga-CA-95070/2061493328_zpid/

Occasionally, DH and I will play a Real Estate game: We choose a city and a budget and then search for the house we'd buy That Day. Free, frugal RE fun!
Title: Re: DONT Payoff your Mortgage Club
Post by: clarkfan1979 on September 21, 2022, 02:29:45 PM
I'm kind of late to the party (5 years), but I finally decided to chime in. I have recently become more passionate about "not paying off my mortgage" because my current rates are crazy low and I have Dave Ramsey whispers in society telling me that I need to get rid of all debt asap.

I have 28.3 years left on a 30 year mortgage at 2.875% with an original balance of 227K. House is worth 375K to 400K. I have 3 rental properties with mortgages at 3.5%, 4.5% and 4.875%. The total equity (after transaction costs) across the 3 rentals is around 1 million. The Dave Ramsey crowd says, "sell the rentals and pay off the mortgage on your primary, so you can feel free. Wouldn't that feel awesome."

Actually, I don't think it would feel like anything to me. My P & I is $950/month. This last August, I raised the rent by $1,000/month across the 3 rentals and I'm still not at market value. I will probably raise it another $500-$1,000/month next August as well. The P & I on my primary is only $950/month. It's already taken care of. I don't feel the weight of anything when I have my rentals paying for it. Not selling the rentals.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 21, 2022, 02:46:20 PM
I'm kind of late to the party (5 years), but I finally decided to chime in. I have recently become more passionate about "not paying off my mortgage" because my current rates are crazy low and I have Dave Ramsey whispers in society telling me that I need to get rid of all debt asap.

I have 28.3 years left on a 30 year mortgage at 2.875% with an original balance of 227K. House is worth 375K to 400K. I have 3 rental properties with mortgages at 3.5%, 4.5% and 4.875%. The total equity (after transaction costs) across the 3 rentals is around 1 million. The Dave Ramsey crowd says, "sell the rentals and pay off the mortgage on your primary, so you can feel free. Wouldn't that feel awesome."

Actually, I don't think it would feel like anything to me. My P & I is $950/month. This last August, I raised the rent by $1,000/month across the 3 rentals and I'm still not at market value. I will probably raise it another $500-$1,000/month next August as well. The P & I on my primary is only $950/month. It's already taken care of. I don't feel the weight of anything when I have my rentals paying for it. Not selling the rentals.

"The debt-free feeling!" is one area I've never been to reconcile with the DR crowd.  At various times I've held debt (but always responsibly - ie low rates and amounts within reason of income), and I've paid it off to be debt free (like when we sold our last home, or when we paid off very low SL).  Having no debt has never felt better to me than holding debt.  Further, I strongly believe that one shouldn't allow their feelings to rule their financial decisions. So the whole "do it for how it feels" strikes me as the wrong thing to follow.

Ironically, what does make me "feel better" is having a very large number in my investment account. I still don't allow that to dictate my financial decisions, but to me that's a much better security blanket than no monthly mortgage PI payments.
Title: Re: DONT Payoff your Mortgage Club
Post by: PathtoFIRE on September 21, 2022, 02:56:51 PM
The great thing about mortgage debt is that it tends to feel lighter as time goes on. The debt on our last home felt heavy at first, and practically non-existent at the end. We chose to move and also take out a larger mortgage this year, and it feels pretty shitty to me right now, but history tells me that it'll become more comfortable and eventually a non-issue as inflation erodes it's financial impact.

OTOH, I agree in theory (since I haven't tried it yet) with a poster above suggesting that renting and investing the home equity that you used to have might be the best of both worlds to me personally. So I think we're also all about the feels here, but with just a slightly different emphasis.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 21, 2022, 07:42:50 PM
I'm kind of late to the party (5 years), but I finally decided to chime in. I have recently become more passionate about "not paying off my mortgage" because my current rates are crazy low and I have Dave Ramsey whispers in society telling me that I need to get rid of all debt asap.

I have 28.3 years left on a 30 year mortgage at 2.875% with an original balance of 227K. House is worth 375K to 400K. I have 3 rental properties with mortgages at 3.5%, 4.5% and 4.875%. The total equity (after transaction costs) across the 3 rentals is around 1 million. The Dave Ramsey crowd says, "sell the rentals and pay off the mortgage on your primary, so you can feel free. Wouldn't that feel awesome."

Actually, I don't think it would feel like anything to me. My P & I is $950/month. This last August, I raised the rent by $1,000/month across the 3 rentals and I'm still not at market value. I will probably raise it another $500-$1,000/month next August as well. The P & I on my primary is only $950/month. It's already taken care of. I don't feel the weight of anything when I have my rentals paying for it. Not selling the rentals.

"The debt-free feeling!" is one area I've never been to reconcile with the DR crowd.  At various times I've held debt (but always responsibly - ie low rates and amounts within reason of income), and I've paid it off to be debt free (like when we sold our last home, or when we paid off very low SL).  Having no debt has never felt better to me than holding debt.  Further, I strongly believe that one shouldn't allow their feelings to rule their financial decisions. So the whole "do it for how it feels" strikes me as the wrong thing to follow.

Ironically, what does make me "feel better" is having a very large number in my investment account. I still don't allow that to dictate my financial decisions, but to me that's a much better security blanket than no monthly mortgage PI payments.
The "Debt-free feeling" is ephemeral. Having more money in your stache than you ever imagined was possible is a whole order of magnitude more amazing. For an average wage earner, you can't save enough "after" accelerating the mortgage payoff to get there early enough to call it FIRE. <---I know that's convoluted, but it's crazy how it grows, lol!

And to @clarkfan1979, same same. Three rentals, three mortgages. We refi'd two of them last year. I'll be in my 90's if we ever actually pay them off.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fru-Gal on September 21, 2022, 09:11:46 PM
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.

But anyway I just have to say this thread really made it possible for me to fire this year. And yes my P&I is $950 a month as well at 2.75% interest for 30 years.

I’ve done all the different permutations you can do with a mortgage (and 2nd) in the quarter century plus that I’ve lived in this house and I think this is the best one in the end lol. In FIRE cash flow is king.

(Granted if I hadn’t cashed out a bunch of times then we would almost have paid off the house by now for what is now a very small amount of money. But the equity we have now is enormous.)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 21, 2022, 11:41:24 PM
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.

But anyway I just have to say this thread really made it possible for me to fire this year. And yes my P&I is $950 a month as well at 2.75% interest for 30 years.

I’ve done all the different permutations you can do with a mortgage (and 2nd) in the quarter century plus that I’ve lived in this house and I think this is the best one in the end lol. In FIRE cash flow is king.

(Granted if I hadn’t cashed out a bunch of times then we would almost have paid off the house by now for what is now a very small amount of money. But the equity we have now is enormous.)
Woo-hoo! Go, Fru-Gal, go!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 22, 2022, 03:50:55 AM
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Oh boy - the intersection of debt-free and religion… there’s a sticky subject. There’s a whole torrent of religious judgement (and judgement by religious people…not the same thing) on both sides of the debt ledger. Edicts about money-changers, prohibitions on certain days and lofty ideals about “honoring” your debt. Making certain financial actions sinful, while making debt payoff some sort of redemption.

Many years ago I got dog-piled (to the point of harassment and threats) on the DR forums for not toeing the line about paying off some zero-interest subsidized student loans, particularly since I had far better uses for that money (e.g. funding my IRA). It grew frustrated with posters who wouldn’t acknowledge that I literally wound up with my money by lowering my tax burden, but the real hate came from some posters who flat-out called what I was doing reprehensible.  Their argument seemed to be that I had sinned by taking out loans for college I could clearly afford, and then I was compounding that sin by not suffering deeply to pay off that debt.  One vivid poster even told me that “the debt was on my soul, not just on my monthly statement”.  Others professed moral outrage that I should fund my IRA while still holding debt, thereby making “hard working tax-payers” give me money for exploiting such a “loophole” (I was cheating the system!… somehow… by following some clearly laid-out rules I guess…).

Title: Re: DONT Payoff your Mortgage Club
Post by: davisgang90 on September 22, 2022, 06:21:32 AM
Don't mind me. Just here to brag on my 2.25% 30 year I refied in Spring of 2021. No plan to pay a dime before its time!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 22, 2022, 07:31:51 AM
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Seriously, though, if you have a thing you're passionate about--like religion--why wouldn't you be willing to make choices in other parts of your life to fit in with that? You should be willing to leave some $$ on the table to better align with religious practice.

If anything, I'd argue that your next door neighbor having a lower mortgage balance is either neutral or good from your perspective.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 22, 2022, 07:52:00 AM
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Seriously, though, if you have a thing you're passionate about--like religion--why wouldn't you be willing to make choices in other parts of your life to fit in with that? You should be willing to leave some $$ on the table to better align with religious practice.

If anything, I'd argue that your next door neighbor having a lower mortgage balance is either neutral or good from your perspective.
What? Tithing isn't enough? /s
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 22, 2022, 08:55:51 AM
I'll own that I am practicing, but I do not tithe. But I also don't feel called to handle my approach to debt in a way that aligns with my Protestant ethic.

I did serve in a finance role for my (United Methodist) church about ten years ago, and the annual budget from 170 households was $850,000. If you take the per-HH average of $5,000, that would have been close to tithing if we were average. But it was in a very tony community in SW Ohio, so I suspect the average income per HH was considerably higher.
Title: Re: DONT Payoff your Mortgage Club
Post by: DadJokes on September 22, 2022, 09:29:14 AM
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Oh boy - the intersection of debt-free and religion… there’s a sticky subject. There’s a whole torrent of religious judgement (and judgement by religious people…not the same thing) on both sides of the debt ledger. Edicts about money-changers, prohibitions on certain days and lofty ideals about “honoring” your debt. Making certain financial actions sinful, while making debt payoff some sort of redemption.

Many years ago I got dog-piled (to the point of harassment and threats) on the DR forums for not toeing the line about paying off some zero-interest subsidized student loans, particularly since I had far better uses for that money (e.g. funding my IRA). It grew frustrated with posters who wouldn’t acknowledge that I literally wound up with my money by lowering my tax burden, but the real hate came from some posters who flat-out called what I was doing reprehensible.  Their argument seemed to be that I had sinned by taking out loans for college I could clearly afford, and then I was compounding that sin by not suffering deeply to pay off that debt.  One vivid poster even told me that “the debt was on my soul, not just on my monthly statement”.  Others professed moral outrage that I should fund my IRA while still holding debt, thereby making “hard working tax-payers” give me money for exploiting such a “loophole” (I was cheating the system!… somehow… by following some clearly laid-out rules I guess…).

Even Dave Ramsey doesn't take things that far. He'll say that the Bible never speaks well of debt, but he'll also say that it is never called a sin.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on September 22, 2022, 10:29:52 AM
Came across something recently, probably a YouTube video, that talked about religious approaches to debt and I think that that is where some of this 100% debt-free talk comes from.


Seriously, though, if you have a thing you're passionate about--like religion--why wouldn't you be willing to make choices in other parts of your life to fit in with that? You should be willing to leave some $$ on the table to better align with religious practice.

If anything, I'd argue that your next door neighbor having a lower mortgage balance is either neutral or good from your perspective.
What? Tithing isn't enough? /s
People have a limited ability to tithe/donate when they are servicing debt. For example, if I net $5k/month and pay a $2k mortgage P&I, I have $3k for everything else plus my religious organization. When I pay off my mortgage, however, suddenly I have $5k available for everything else plus my religious organization. I'm more likely to pay a bigger amount to my religious group when I don't have debt payments.

Someone who is an accumulating landlord or an entrepreneur, who is taking on debt today to build equity in something tomorrow, offers religious organizations less immediate disposable income than the wage earner whose giving is based on a growing income and shrinking debts. People don't tithe out of the gains in their home equity, business value, or investment real estate equity. Additionally the use of leverage usually requires a person to save up a financial cushion to handle unexpected contingencies, and that's also money the religious organization can't access.

Therefore those religious leaders whose message is about working hard (for wages) and paying off debt will cultivate a following with a greater ability to pay. Those religious leaders whose message is about using leverage in your favor, saving up an emergency fund or business contingency fund, and never paying off your mortgage will end up with a following whose ability to make large donations is somewhat impaired by the need to service debt. Even if the use of debt is more profitable in the long run, for the time being it cuts off the religious organization from your sources of liquidity.

As the anti-debt religious messages attract more money than their competitors, their perspective becomes amplified in comparison to their competitors.

Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on September 22, 2022, 10:40:46 AM
In the medium term maybe. In the short term, there is even less available to be potentially donated for the pay off the mortgage crowd. In the long term, the harm to your wealth is massive so limiting potential donations 10, 20, 30 years down the road.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on September 22, 2022, 12:03:54 PM
I added a poll.

How high would your mortgage rate have to be to persuade you to make early payments toward principal?

https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/ (https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/)
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on September 22, 2022, 12:46:11 PM
I added a poll.

How high would your mortgage rate have to be to persuade you to make early payments toward principal?

https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/ (https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/)

Not to quibble with the poll choices (but quibbling anyway...)
It depends immensely on yields of my alternatives.  For example, there's no way I'd pay off mortgage debt at even 9% with iBonds paying 9.62% right now. 

Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on September 22, 2022, 08:07:41 PM
I added a poll.

How high would your mortgage rate have to be to persuade you to make early payments toward principal?

https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/ (https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/)

Not to quibble with the poll choices (but quibbling anyway...)
It depends immensely on yields of my alternatives.  For example, there's no way I'd pay off mortgage debt at even 9% with iBonds paying 9.62% right now.

They won't be yielding that for much longer, but you make a good point about how a decision to pay down a mortgage and earn that yield for the duration of the loan competes with shorter-duration alternatives that may yield even more. As the yield curve continues inverting, this is going to become an even tougher call. That's even before we start talking about adding risk from corporate bonds, junk bonds, or preferreds.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on September 23, 2022, 06:57:58 AM
Rates matter, but it also matters how large the overall debt load is. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 23, 2022, 10:27:11 PM
I tithe regularly to my religion

(https://i.imgur.com/SsO8FIn_d.webp?maxwidth=640&shape=thumb&fidelity=medium)
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on September 24, 2022, 05:54:17 PM
It seems to me that rents in VHCOL areas are relatively cheap when compared to property value. Makes a lot of sense to rent in those areas.

I was visiting bay area recently, rent on 3 million dollar property was around 5 thousand dollars a month. It makes so much sense to rent.
Dunno, two houses near me, both valued at ~$1.6M, rented recently for $5500 and $5800, and I'm in one of the more "affordable" parts of the Bay Area.

Where was this unicorn of which you speak?
This one was in Saratoga. It had nice yard front and back and you can see some red woods near by. Beautiful home for a family.
Hmmm, what I remember of Saratoga is that it was considered the "most affordable" pocket of the Silicon Valley. But hey, who doesn't love a little Real Estate Porn?
I realize there are more places to shop for rentals than Zillow, but the to-do list needs to get to-done today, so I pushed the Easy Button.

Cheapest SFH in Saratoga - $3995 1232sf 3+1.5: https://www.zillow.com/homedetails/12931-Quito-Rd-Saratoga-CA-95070/19654331_zpid/? (Curiously, it's had two price drops since 9/9/22 - Huge lot, plenty of parking. Possible scam meter alert.)

Most expensive SFH - $15,000 5700sf 7+4: https://www.zillow.com/homedetails/Saratoga-CA-95070/19657952_zpid/

Closest to the pin SFH -  $4750 1616sf 4+3: https://www.zillow.com/homedetails/12122-Covina-Ct-Saratoga-CA-95070/19652902_zpid/(Check out the kitchen!)

Just for fun - $3250 450sf 1+1: https://www.zillow.com/homedetails/Saratoga-CA-95070/2061493328_zpid/

Occasionally, DH and I will play a Real Estate game: We choose a city and a budget and then search for the house we'd buy That Day. Free, frugal RE fun!

It’s interesting my North Bay Mortgage PITI plus HOA $3450, rent $3,200.  But condo is 400 sq ft bigger with an extra bathroom not counting outside storage and now covered parking.  I’m getting a lot for that $250.  I can’t really say much about Saratoga as it also is very far away from where I’m familiar.
Title: Re: DONT Payoff your Mortgage Club
Post by: fuzzy math on September 24, 2022, 09:02:34 PM
I tithe regularly to my religion

(https://i.imgur.com/SsO8FIn_d.webp?maxwidth=640&shape=thumb&fidelity=medium)

They Live !!!
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on September 24, 2022, 09:39:25 PM
Hey all, just checking in. Was walking around with my sig other when I remembered the homo economicuses on this thread. How are you all doing? Are you still economicuses, making economically optimal decisions?
Has some of your identity become, “I am someone who does not pay off their mortgage,” as opposed to, “I am someone who makes optimal decisions based on the math.”?
Is there a crossover point when one becomes mere Homo sapiens?
It may come across as snarky, but that’s just my resting bitch face. Hope you are well.

Mortgages in the US are generally fixed-rate and non-callable. A mortgage taken out last year (2021) at 3% would still be at 3%.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 24, 2022, 11:39:24 PM
Hey all, just checking in. Was walking around with my sig other when I remembered the homo economicuses on this thread. How are you all doing? Are you still economicuses, making economically optimal decisions?
Has some of your identity become, “I am someone who does not pay off their mortgage,” as opposed to, “I am someone who makes optimal decisions based on the math.”?
Is there a crossover point when one becomes mere Homo sapiens?
It may come across as snarky, but that’s just my resting bitch face. Hope you are well.
Hmmm, I have a 30 year mortgage on each of three houses at the moment. Two of them are very recent and I'm over 60. I own one house that never had a mortgage. I sold two mortgaged properties to buy it. I have never paid off a mortgage prior to sale in my life. I am also FIRE,fwiw for the win.

I guess it depends on what you consider a crossover point.

If snark makes you happy, there are plenty of places to practice it. What's unclear is why it's important to you to practice it on this particular thread. Is there something related to mortgages that you're uncomfortable with? We can help.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on September 25, 2022, 08:36:51 AM
Hey all, just checking in. Was walking around with my sig other when I remembered the homo economicuses on this thread. How are you all doing? Are you still economicuses, making economically optimal decisions?
Has some of your identity become, “I am someone who does not pay off their mortgage,” as opposed to, “I am someone who makes optimal decisions based on the math.”?
Is there a crossover point when one becomes mere Homo sapiens?
It may come across as snarky, but that’s just my resting bitch face. Hope you are well.

What exactly are you asking.  Your profile says you are from New Jersey but you seem to not be speaking in English.

I have personally never been 100% about optimization so nope there isn’t a cross over point for me.  I’m more in the camp of, is there something else I could be doing with my money that is more desirable.  I have paid extra toward my mortgage in the past, but it comes from my discretionary income, so money I would have otherwise spent on something else.  Now I have other things I’d rather spend money on so I don’t prepay.  Same with paying in full.  I could pay off my mortgage, or I could have 12 years of fun money once I can retire until I have access to tax advantaged account at 59.5.  I’ll take the fun money.
Title: Re: DONT Payoff your Mortgage Club
Post by: mbjerry on October 06, 2022, 04:56:34 PM
Would you mind helping with my calculation? Balance is $312k. 30 years. Rate is 3.75. Have 354 payments left. Thank you for any help!

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: Dicey on October 07, 2022, 09:02:03 AM
Would you mind helping with my calculation? Balance is $312k. 30 years. Rate is 3.75. Have 354 payments left. Thank you for any help!

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.
A batsignal might help, though I'm not sure if @runewell is still in the building...

Interesting that this 2017 calculation doesn't include inflation. On that basis alone, no way would I prepay a 3.75% 30 year mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Must_ache on October 11, 2022, 02:32:36 PM
I'm an extremely close personal friend of runewell! ;)
And I think that this post is right on the money. 

One thing people fail to think about is what us actuaries refer to as the time value of money.  This example involves 120 payments of $1,645, but assuming normal interest rates we all know that the $1,645 is going to be a lower % of our income at payment 120 than at payment 1 because we will hopefully make more 10 years in the future while the mortgage payment is level.

People also focus on the interest dollars.  120 payments of $1,645 is $197,400.  Subtract the original mortgage balance of $160,000 and you realize you will pay $37,400 in interest.  However you will pay it at different times, and that interest is an even lower amount in today's dollars.  If anyone doubts long-term that investing will generally net them more money, just focus on a single month. 

I bought my Honda Civic in August 2017 for 19,400 and sold it in January 2022 for 19,600.  While that doesn't happen everyday, it isn't as exciting as it sounds.  The purchase price adjusted for inflation (CPI index) in Jan2022 dollars is 19,400 x 1.145 = 22,215.  So in constant Jan2022 dollars I sold it for 88.2% of what I paid for it. 
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 12, 2022, 07:07:44 AM
Agreed that accounting for the purchasing power of money matters.

This is a community of people who make decisions around early retirement. The assumption that income will be higher ten years from now (let alone 30) may not hold.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on October 12, 2022, 08:29:58 AM
Agreed that accounting for the purchasing power of money matters.

This is a community of people who make decisions around early retirement. The assumption that income will be higher ten years from now (let alone 30) may not hold.

Do you mean in nominal or real terms?  I wouldn’t be surprised if my real income doesn’t increase in a decade, but it would painful if we saw zero increase and inflation north of 3% for the next decade.

Thankfully we have automatic COLAs in our current contracts…
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on October 12, 2022, 12:12:35 PM
A retiree would have no need to save. For an early retiree, that's 20%+ of their income (and more for a committed Mustachian) that would not be replaced in retirement. I suppose inflation could total 20% over a few years, especially at the rate that's going now.

Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on November 15, 2022, 11:24:34 AM
Back to this thread again.

We sold our house and moved cross country with a decent chunk of change to a VHCOL. Initial plan was to rent but we found a nice place to buy. So we are under contract.

Got a decent (in the current environment) sub 5% 7/1 ARM with 30 year amortization. However, the loan had to be jumbo, so could not put more down. The down payment is just a little bit over 20%.

Have another 20% of the house value in cash from the previous house sale which is sitting in Cap One savings at 3% now.

Question is: how to deploy that cash? 

Some background info: DINK couple low-to-mid 50s with reasonably stable jobs (but who knows). Currently able to max all tax deferred/tax advantaged accounts even with the higher mortgage payments. Asset allocation is 65/35 stocks/bonds. Golden handcuffs about 7-8 years away. Jobs are enjoyable at the moment but again management can change at any time ;)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 15, 2022, 12:27:00 PM
So this is the DNPYM club, so we're ruling out paying down your mortgage.

You say your rate is < 5%, and that rate is guaranteed for seven years. I'm thinking you want to identify a portfolio that is X% Small-cap-value--I'd use $SLYV or $IJS--and (1-X)% treasury bills.

Here's how your solve for X: go to Portfolio visualizer, and plug in X to get an 80% chance of the seven-year return exceeding a CAGR of your mortgage rate. Then put that WHOLE CHUNK into that allocation before the end of the week. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 15, 2022, 01:46:02 PM


Question is: how to deploy that cash? 

Some background info: DINK couple low-to-mid 50s with reasonably stable jobs (but who knows). Currently able to max all tax deferred/tax advantaged accounts even with the higher mortgage payments. Asset allocation is 65/35 stocks/bonds. Golden handcuffs about 7-8 years away. Jobs are enjoyable at the moment but again management can change at any time ;)

First: Do you have an Investor Policy STatement (IPS), or at least an established Asset Allocation (AA)?  If so, my recommendation is to just deploy the cash according to your pre-established IPS/AA - in one lump sum if you can stomach that and if not in a series of automated contributions.You mentioned a 65/35 stock/bond, but is that your complete AA

If you do not have an IPS - now is a great time to do just that. Not only will it determine where you should put your money, but it helps think through your goals (e.g. “‘golden handcuffs 7-8 years away”, we want to ____”)

I find the Investment Order is a good place to start - see how it applies to you and where you might diverge.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 15, 2022, 02:23:40 PM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on November 15, 2022, 04:09:29 PM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.
Ha! That could be me! I am sitting at 2.6%, but feeling like I should stay because we have the great rate. I’m even looking at rental options, although this isn’t a good rental house I have built!
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on November 16, 2022, 07:38:47 AM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.

Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on November 16, 2022, 08:04:52 AM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on November 16, 2022, 08:45:42 AM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".

To me, that's an odd way of thinking about it.  Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase.  Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).

Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on November 16, 2022, 10:43:48 AM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".

To me, that's an odd way of thinking about it.  Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase.  Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.

To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.

To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.

This is how one misses out on promotions for the next 5-10 years.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 16, 2022, 11:46:57 AM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".

To me, that's an odd way of thinking about it.  Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase.  Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.

To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.

To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.

This is how one misses out on promotions for the next 5-10 years.
Mildly curious what you would propose as a solution to this "problem".
Title: Re: DONT Payoff your Mortgage Club
Post by: ATtiny85 on November 16, 2022, 12:30:19 PM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".

To me, that's an odd way of thinking about it.  Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase.  Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.

To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.

To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.

This is how one misses out on promotions for the next 5-10 years.
Mildly curious what you would propose as a solution to this "problem".

As someone who has moved every three or so years on average over the last couple decades, our solution has been to roll equity into the new down payment. So we only have a little mortgage right now (current total is about $15k less than what we pour into our taxable account every year). That makes us only have about one foot in this club. But it also provides us with little worry for the future as it is possible that our next move will be to our retirement home. We will do some figuring as we get close to that time about what to do with the equity that we have. For us it has been about optimizing our situation and how it looks relative to a large number of assumptions about the future.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on November 16, 2022, 02:13:54 PM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".

To me, that's an odd way of thinking about it.  Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase.  Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.

To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.

To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.

This is how one misses out on promotions for the next 5-10 years.
Mildly curious what you would propose as a solution to this "problem".
There is no solution. The trapped person can either miss out on the promotion because they can't afford to relocate, or they can bite the bullet, come up with more down payment money, and struggle with higher payments for an equivalent house.

If layoffs force them to relocate, homeowners will have to bite the bullet, which may negate all the savings from the low rate they were chasing when they bought their house or refinanced. People's reluctance to relocate might result in longer periods of unemployment, longer average commutes, slower post-recession recoveries, more difficulties for businesses to hire workers, a shift of businesses toward denser urban areas, and fewer homes on the market. Between the financial disincentives for moving and the work-from-home movement, the future does not look bright for RE agents or mortgage originators.

It's the RE parallel to the "golden handcuffs" problem faced by FI people with pension and stock vesting.
Title: Re: DONT Payoff your Mortgage Club
Post by: bryan995 on November 16, 2022, 02:24:44 PM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".

To me, that's an odd way of thinking about it.  Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase.  Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.

To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.

To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.

This is how one misses out on promotions for the next 5-10 years.
Mildly curious what you would propose as a solution to this "problem".
There is no solution. The trapped person can either miss out on the promotion because they can't afford to relocate, or they can bite the bullet, come up with more down payment money, and struggle with higher payments for an equivalent house.

If layoffs force them to relocate, homeowners will have to bite the bullet, which may negate all the savings from the low rate they were chasing when they bought their house or refinanced. People's reluctance to relocate might result in longer periods of unemployment, longer average commutes, slower post-recession recoveries, more difficulties for businesses to hire workers, a shift of businesses toward denser urban areas, and fewer homes on the market. Between the financial disincentives for moving and the work-from-home movement, the future does not look bright for RE agents or mortgage originators.

It's the RE parallel to the "golden handcuffs" problem faced by FI people with pension and stock vesting.

This is why you buy in a 'hub' for your line of work.  No need to relocate.

SF/Seattle for tech
SD/Boston for biotech
XYC for ABC

Mucho employment options, and housing demand seems to stay incredibly strong even through broader down-turns in these areas.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on November 16, 2022, 02:29:51 PM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".

To me, that's an odd way of thinking about it.  Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase.  Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.

To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.

To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.

This is how one misses out on promotions for the next 5-10 years.
Mildly curious what you would propose as a solution to this "problem".
There is no solution. The trapped person can either miss out on the promotion because they can't afford to relocate, or they can bite the bullet, come up with more down payment money, and struggle with higher payments for an equivalent house.

If layoffs force them to relocate, homeowners will have to bite the bullet, which may negate all the savings from the low rate they were chasing when they bought their house or refinanced. People's reluctance to relocate might result in longer periods of unemployment, longer average commutes, slower post-recession recoveries, more difficulties for businesses to hire workers, a shift of businesses toward denser urban areas, and fewer homes on the market. Between the financial disincentives for moving and the work-from-home movement, the future does not look bright for RE agents or mortgage originators.

It's the RE parallel to the "golden handcuffs" problem faced by FI people with pension and stock vesting.
There's "sell and rent". I know not many homeowners view renting as a viable option and it would be a tough pill to swallow with the equity, but you don't need the big down payment when renting usually. Depending on the market, rent can be cheaper than mortgage on similar places too, although that varies wildly.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 16, 2022, 02:36:28 PM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.
The trap is that now all these people who rushed to lock in low interest rates on very high home prices are unable to move in order to pursue career advancement, or to shorten their commutes. They can't sell because their next home would have a higher rate, and because they have or will soon have negative equity. Many of them settled on homes the don't particularly like in the frenzy of bidding wars.

This is chapter 5,683 in the book "Never Do What The Herd Is Doing".

To me, that's an odd way of thinking about it.  Their ability to take on a higher rate isn't strongly impacted by their current mortgage - if they didn't have that mortgage they would not be in a stronger position; they would still need to pay at a higher rate under the current environment. If anything, having a low rate now means they could have paid down more of the principle - they should not have 'negative equity'.
If they settled on homes they didn't particularly like... well that was just a dumb purchase.  Maybe some were driven by the market, but one can make stupid decisions with high rates too (just ask my inlaws, who bought into properties they didn't really like at >8% in the 1980s).
Low rates came with high prices, and high rates will come with low prices. People shop for homes just like they shop for cars, by asking what monthly payment they can afford.

To visualize the trap, imagine yourself as a specialist working a job in town X. You are offered a job in town Y for a raise or promotion. You look into the possibility of moving, and discover your house has lost 10% of its value since you bought it for $500k with a 3.5% mortgage and 10% down, so you have zero equity. Comparable houses in town Y are now also $450k, but now the mortgage rate is 7%.

To move, you'd have to trade your current $2020 P+I payment for a $2694 P+I payment, plus come up with a new $45,000 down payment. Let's not even mention closing and moving costs. The two factors above, related to rising rates and fall in prices, will stop most people from moving. Presumably the P+I most people are currently paying is the max they can afford, and they don't have $45k laying around to plow into another houses' equity, after losing all their current house's equity.

This is how one misses out on promotions for the next 5-10 years.
Mildly curious what you would propose as a solution to this "problem".
There is no solution. The trapped person can either miss out on the promotion because they can't afford to relocate, or they can bite the bullet, come up with more down payment money, and struggle with higher payments for an equivalent house.

If layoffs force them to relocate, homeowners will have to bite the bullet, which may negate all the savings from the low rate they were chasing when they bought their house or refinanced. People's reluctance to relocate might result in longer periods of unemployment, longer average commutes, slower post-recession recoveries, more difficulties for businesses to hire workers, a shift of businesses toward denser urban areas, and fewer homes on the market. Between the financial disincentives for moving and the work-from-home movement, the future does not look bright for RE agents or mortgage originators.

It's the RE parallel to the "golden handcuffs" problem faced by FI people with pension and stock vesting.
Sounds like it's the same as it ever was. The historic low interest rates on the last decade gave people opportunities that never existed before, but everything else on your list is familiar.

To clarify: when I hear people say they're "trapped" it means they can't change their mind about where they want to live. i.e. they can't upsize, downsize, rightsize, whatever.

So many buyers had FOMO and made sub-optimal decisions in the last few years in their rush to buy something, anything.

Anecdote: When a home with undisclosed/hidden problems was for sale in our neighborhood, we chatted with as many potential buyers as we could. When we gently pointed out some of the things they might have wanted to pay extra attention to, more than one said, "But what else are we going to buy?"
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on November 16, 2022, 07:01:21 PM
Interesting replies. Thanks -- @talltexan @nereo @Dicey others...

After reading through the exchange, it looks like having enough liquidity is really important. For now we decided to keep the remaining money in a HYSA and reassess after another year. It may not be optimal but is probably a simple option.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on November 17, 2022, 11:43:13 AM
Today I ran into someone I know slightly. We have discussed Real Estate in the past and I haven't seen her for six months or so. I jokingly said, "How do you like that low-interest rate mortgage now?" knowing she's >3%. She said, "Well, now I'm trapped". OMG, there is just no pleasing some people!

Alas, I've heard people use that same word elsewhere on the forums and I just kind of roll my eyes.

We are absolutely trapped ! Meaning we could never sell this home. If we ever need/want to move, it will have to be without the aid of the equity we have.

2.9% 30yr fixed. And because of CA prop 13 we pay an assessed 803k taxes on a 1.7M home.
It would be financial suicide to sell! Monthly payment would be >2x to even move into a neighbors home.

Yeah we bought our place before we knew we wanted/would have kids.  Now we are side eyeing our mediocre schools but even if we downsized to a better school district for the same price our property taxes would increase to the point private school tuition is competitive.  Plus we wouldn’t have to leave a house we otherwise like.

If prices absolutely crashed it would help but I don’t really think that’s going to happen

Because everyone else is “trapped” so there will be very low inventory outside of the three Ds
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on November 21, 2022, 07:17:38 AM
I agree that keeping that low rate is nice, but if you're doing the DPYM club correctly, you are taking what you're saving on the payments and building up that snowball so that you'll have more liquidity available for when the need to move does arise.

When the talltexan house was planning a move in 2019, I kept thinking that there'd be a pull-back in prices, and we could time with that to move to a larger house in a more desirable area (thinking that a 10% pullback would help us need to cover less of a gap to move "up"). We relented, and 2020 came, and the market moved in the opposite direction. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Goldielocks on November 24, 2022, 02:32:27 PM
Interesting replies. Thanks -- @talltexan @nereo @Dicey others...

After reading through the exchange, it looks like having enough liquidity is really important.

Winner winner!

Don't pay off your mortgage club works best when you can afford a 15 year mortgage, but choose the low interest 30 year one instead, to keep your cash flow flexible..
Title: Re: DONT Payoff your Mortgage Club
Post by: Tyson on November 24, 2022, 02:48:10 PM
That's the key - don't just take your extra money and say "wheee, look at all the other stuff I can buy now". 

Be disciplined about saving/investing the extra cash every month and you will end up with WAY more money.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on November 25, 2022, 05:08:49 PM
I bought some T bills today.  Rates were ~4-4.7% for 2-6 months.  When I refinanced my mortgage a little over a year ago at 3% and took some cash out, I definitely didn't imagine rates would climb so fast.  I've never experienced such high rates in my investing life.  I knew a mortgage at 3% was a good deal.  I didn't realize just how good of a deal it was until now.  I don't even need to compare paying off my mortgage to investing in stocks anymore.  I can invest in extremely safe short-term US government backed treasury bills and still come out ahead.  If I wanted to lock in longer term US bonds, those would also be beating my mortgage.  We definitely got the deal of a lifetime with these sub 4% mortgages.  Needless to say, I will continue to be a part of this club. :)
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on November 25, 2022, 06:37:46 PM
I will admit I was a little annoyed when we sold our house earlier this year following a move. Had a 30 year FRM at 2.5%.   

Now I'm about to close on a house at 4.625 % 7/1 ARM. Maybe rates will come down again in the future. 
Title: Re: DONT Payoff your Mortgage Club
Post by: EchoStache on December 03, 2022, 08:35:59 AM
Trying to decide whether to pay off my mortgage or not and if so, how to best do so.

Projected mortgage balance at FI: $300,000 @ 4.375% 30 year fixed.
Stash needed for FI while carrying mortgage $1,200,000


Stash needed for FI if I pay off the mortgage: $1,020,000
This assumes $1,020,000, -$300,000 to payoff mortgage, leaving a stash of $720,000

Paying off the mortgage reduces stash needed by $480,000.

Unless my math/facts are wrong, paying off my mortgage is significantly superior to not paying off my mortgage for FI.

(yes, I made a full thread about this elsewhere but thought I might get more eyes/input/discussion here as there won't be 100% overlap)
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 03, 2022, 09:06:02 AM
@UltraStache - how did you arrive at the $1.2 million figure? Likely being excessively conservative.

Another way to look at it - you need enough to cover "all other expenses" ($720,000) + enough to payoff the mortgage in full ($300,000), so you actually only need to $1,020,000 on your FIRE date. Because then - at any point once you have that amount in hand - you can support your lifestyle and choose to pay off the mortgage or not. Of course, once you get there, what you should do, in all probability, is not pay off the mortgage because 4.375% is still plenty low enough that you'd expect your portfolio to out-perform that by a wide margin.

How far out is FI?
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on December 03, 2022, 09:37:23 AM
From @UltraStache 's other thread:
Quote
Let's assume that my retirement living expenses will be $48,000/year.  I need $1,200,000 for FI with 4% withdrawal.  This $48,000 includes a $300,000 mortgage @4.375% with principal and interest payment of $1600/month or $19,200/year.
As @dandarc points out, what do you expect $300K will return over the long term?
Title: Re: DONT Payoff your Mortgage Club
Post by: EchoStache on December 03, 2022, 10:17:35 AM
@UltraStache - how did you arrive at the $1.2 million figure? Likely being excessively conservative.

Another way to look at it - you need enough to cover "all other expenses" ($720,000) + enough to payoff the mortgage in full ($300,000), so you actually only need to $1,020,000 on your FIRE date. Because then - at any point once you have that amount in hand - you can support your lifestyle and choose to pay off the mortgage or not. Of course, once you get there, what you should do, in all probability, is not pay off the mortgage because 4.375% is still plenty low enough that you'd expect your portfolio to out-perform that by a wide margin.

How far out is FI?

Yearly living expenses including the mortgage = $48,000/year.  Normal, 4% SWR requires $1.2m for $48,000 year.  If I have a mortgage payment, it has to be paid.  So I need $1.2m to retire with a mortgage.

Yearly living expenses without a mortgage are $29,000/year, which requires $720,000 for a 4% SWR, i.e. the same for either scenario.  Plus the $300,000 I would need to pay off the mortgage(if I saved until I have enough to pay the mortgage to zero).

FI is about 5-7 years out.

$1,020,000 does not allow me to fire while holding the $300,000 mortgage with a 4% SWR.

The math says that paying off the mortgage is superior to keeping my mortgage for FIRE. 

Title: Re: DONT Payoff your Mortgage Club
Post by: EchoStache on December 03, 2022, 10:19:26 AM
From @UltraStache 's other thread:
Quote
Let's assume that my retirement living expenses will be $48,000/year.  I need $1,200,000 for FI with 4% withdrawal.  This $48,000 includes a $300,000 mortgage @4.375% with principal and interest payment of $1600/month or $19,200/year.
As @dandarc points out, what do you expect $300K will return over the long term?

If I keep the 300k invested, withdrawing 4% of that 300k does not pay the mortgage.  So I would have to postpone retirement by the length of time necessary to save/invest an additional $180,000 if it was important to me to keep making a mortgage payment.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 03, 2022, 10:29:01 AM
The mortgage payment is not for the rest of your life like most lifestyle expenses are, and your mortgage also does not increase with inflation, so you don't need to cover it in the same way as living expenses with your investments - 4% is excessively conservative for this particular item. That's why better guidance is "everything else" * 25 + mortgage balance.

If you're going to insist on treating that mortgage payment like it is forever, then you should be cash-out refinancing every few years to extend out the payoff date. Which will get you to your higher number faster because you will be able to invest more with the proceeds every time you do that.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 03, 2022, 10:34:34 AM
That being said, if you've got qualms about 4% being too aggressive, then standard advice would be to simply choose a lower withdrawal rate, and this sort of "just lump the mortgage payment in the same as all other expenses even though it is fixed and has an end date" is effectively just lowering your withdrawal rate some.
Title: Re: DONT Payoff your Mortgage Club
Post by: EchoStache on December 03, 2022, 10:51:42 AM
Thank you for the replies.  Already, I have received new information that alters my understanding and gives me more to consider.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 03, 2022, 06:21:34 PM
Yearly living expenses including the mortgage = $48,000/year.  Normal, 4% SWR requires $1.2m for $48,000 year.  If I have a mortgage payment, it has to be paid.  So I need $1.2m to retire with a mortgage.

Yearly living expenses without a mortgage are $29,000/year, which requires $720,000 for a 4% SWR, i.e. the same for either scenario.  Plus the $300,000 I would need to pay off the mortgage(if I saved until I have enough to pay the mortgage to zero).

FI is about 5-7 years out.

$1,020,000 does not allow me to fire while holding the $300,000 mortgage with a 4% SWR.

The math says that paying off the mortgage is superior to keeping my mortgage for FIRE.

This is incomplete.  If you are investing the money each month instead of paying down the mortgage that $300,000 will likely become more like $350,000 by RE date, which by itself pushes you up pretty close to $1.1 million, maybe with a tailwind you get to the full $1.2.  Optimistic thinking, but not crazy.

But there's more.  The mortgage is fixed, which the 4% rule assumes an inflation adjustment, so you need less money in retirement.  You can model this in FIREcalc. 

And the mortgage ends eventually, so again you need less money.  You can also model this in FIREcalc. 

I'd run a few sims and see where you are.  Paying down the mortgage is a high risk/low reward proposition, so make sure you consider all the variables before doing it.
Title: Re: DONT Payoff your Mortgage Club
Post by: jsap819 on December 05, 2022, 05:57:26 PM
From @UltraStache 's other thread:
Quote
Let's assume that my retirement living expenses will be $48,000/year.  I need $1,200,000 for FI with 4% withdrawal.  This $48,000 includes a $300,000 mortgage @4.375% with principal and interest payment of $1600/month or $19,200/year.
As @dandarc points out, what do you expect $300K will return over the long term?

If I keep the 300k invested, withdrawing 4% of that 300k does not pay the mortgage.  So I would have to postpone retirement by the length of time necessary to save/invest an additional $180,000 if it was important to me to keep making a mortgage payment.

It's too bad your rate is higher than current government bond rates. When I refinanced mine down to 2.375%, I can technically get a 30 year duration today that's currently higher than my mortgage rate and just withdraw my monthly mortgage payment and come out ahead after maturity, guaranteed. Your rate is still technically low enough to beat but it will come with risks (higher stock allocation). You can't focus on the 4% rule regarding your mortgage balance because it is the same fixed payment for the next 30 years and it will eventually be paid off.
Title: Re: DONT Payoff your Mortgage Club
Post by: LD_TAndK on December 15, 2022, 08:39:20 AM
Didn't pay off my 2.875% mortgage today! Continued to enjoy having liquid assets! Continued to enjoy inflation driving down the value of my debt!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 15, 2022, 12:55:10 PM
I popped over to the "pay off your mortgage" celebration thread, and people there are talking about how they need to have a HELOC in case they run into "liquidity problems" before they finish paying it off. It's like they're just. so. close. to figuring it out!
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 15, 2022, 01:53:14 PM
I popped over to the "pay off your mortgage" celebration thread, and people there are talking about how they need to have a HELOC in case they run into "liquidity problems" before they finish paying it off. It's like they're just. so. close. to figuring it out!

Frankly, the reliance on HELOCs for liquidity problems scares me a little. HELOCs can be revoked at any time by your lender - indeed in 2008 most canceled them outright, and IIRC most recessions have resulted in a drastic tightening.

Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 16, 2022, 12:08:38 AM
I popped over to the "pay off your mortgage" celebration thread, and people there are talking about how they need to have a HELOC in case they run into "liquidity problems" before they finish paying it off. It's like they're just. so. close. to figuring it out!

Frankly, the reliance on HELOCs for liquidity problems scares me a little. HELOCs can be revoked at any time by your lender - indeed in 2008 most canceled them outright, and IIRC most recessions have resulted in a drastic tightening.
I had the same thought what I saw that. I started to respond and then remembered that we DPOYMers are not supposed to say anything that would be considered negative on that thread. It's exclusively for celebrating mortgage payoff, sigh.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on December 16, 2022, 07:04:30 AM
Indeed I remain committed to our cause. I follow the other thread because I think it's important to keep track of those beliefs that challenge my own. I suppose it's possible some of the mortgage payers are silently following us here, and I can only hope that our thoughtful discussion makes them wonder if we aren't slightly less crazy than they supposed.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 16, 2022, 07:42:32 AM
Indeed I remain committed to our cause. I follow the other thread because I think it's important to keep track of those beliefs that challenge my own. I suppose it's possible some of the mortgage payers are silently following us here, and I can only hope that our thoughtful discussion makes them wonder if we aren't slightly less crazy than they supposed.
Well put, sir!
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on December 16, 2022, 12:27:56 PM
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.

I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on December 16, 2022, 12:55:15 PM
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.

I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)

Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 16, 2022, 01:27:22 PM
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.

I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)

Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).
Winning!
Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on December 16, 2022, 01:33:25 PM
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.

I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)

Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).

Winning!
Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.

Usually, though I've let it build up a bit now (~$50k) because I expect to move next year and want it a bit more stable for the potential down payment. Still have $300k+ in equities in a taxable account though.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on December 16, 2022, 01:41:50 PM
Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).
Winning! Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
Well, yes. But, in days gone by one the pay-off-your-mortgage arguments was that a paid off mortgage gave you a guaranteed return on your money, and that the risk associated with investing was not properly considered by those keeping their mortgages. That's why I find today's FDIC insured rates so notable.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 16, 2022, 01:50:14 PM
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.

I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)

Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).

Winning!
Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.

Usually, though I've let it build up a bit now (~$50k) because I expect to move next year and want it a bit more stable for the potential down payment. Still have $300k+ in equities in a taxable account though.
I know the conventional wisdom is "pay yourself first", but I always did both. Invest automatically, then challenge yourself to spend the rest as wisely as possible. I think this works for a lot of mustachians. I also worked on commission, so I kept a fat EF and lived on last month's income. I also have a fondness for Real Estate, so I'm comfortable with larger sums of money on standby for deployment.

Actually, I made that comment mostly for the benefit of other readers of this thread. It's crazy that the tables have turned so dramatically. While I don't comment on the celebration threads, I do peruse them occasionally and I never miss an opportunity to invite folks (anywhere on the forum) to drop by the DPOYM Club. We're the only place that people can do more than celebrate a decision.

Thanks to you and the rest of the team who help keep the DPOYM banner flying high!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 16, 2022, 02:16:18 PM
Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).
Winning! Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
Well, yes. But, in days gone by one the pay-off-your-mortgage arguments was that a paid off mortgage gave you a guaranteed return on your money, and that the risk associated with investing was not properly considered by those keeping their mortgages. That's why I find today's FDIC insured rates so notable.
Funny, we met with our Financial Planner recently. On the topic of when to start collecting Social Security, they said, "Where are you going to get a guaranteed 8% these days?"
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 16, 2022, 03:13:58 PM
Now that you mention it same here. 3.125% mortgage vs 3.3% savings account (Ally).
Winning! Of course, y'all are just using those accounts for accumulation. You move it into equities at some point, right? Assuming whatever level of EF you're comfortable with.
Well, yes. But, in days gone by one the pay-off-your-mortgage arguments was that a paid off mortgage gave you a guaranteed return on your money, and that the risk associated with investing was not properly considered by those keeping their mortgages. That's why I find today's FDIC insured rates so notable.
Funny, we met with our Financial Planner recently. On the topic of when to start collecting Social Security, they said, "Where are you going to get a guaranteed 8% these days?"
Guarantees that aren't in any way guaranteed. Gotta make it quite a few years for that 8% increase in SS for waiting to approach being the same thing as an 8% return.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on December 16, 2022, 03:36:42 PM
Guarantees that aren't in any way guaranteed. Gotta make it quite a few years for that 8% increase in SS for waiting to approach being the same thing as an 8% return.
From what I recall, the annual increases in SS are more or less set up so that the average person will receive the same total amount regardless of when they start collecting.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 16, 2022, 09:12:59 PM
From what I recall, the annual increases in SS are more or less set up so that the average person will receive the same total amount regardless of when they start collecting.

Exactly.  It is actuarily the same.  But the SS increases are guaranteed and are inflation-adjusted to boot!  From a retirement planning standpoint it is the bomb dot com.  It is a home run.  On top of that, educated, financially well-off people (which describes most of the people here) tend to live longer than average.  So if you want to play the averages, delay as long as you can.  If your family or personal history suggests you might live less than average, then maybe consider taking SS sooner. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 16, 2022, 09:13:35 PM
Guarantees that aren't in any way guaranteed. Gotta make it quite a few years for that 8% increase in SS for waiting to approach being the same thing as an 8% return.
From what I recall, the annual increases in SS are more or less set up so that the average person will receive the same total amount regardless of when they start collecting.
Yeah - breakeven is something like 84 the way SSA does the math. But if you can invest social security, and you don't want to work much, taking at 62 is best with typical market returns (obviously not guaranteed) Full retirement age the "reduce benefits if you work too much" goes away.

Of course looking at it as longevity insurance the wait till 70 move makes more sense, but insurance does typically cost you money - can certainly be worth it depending on individual circumstances.

ETA: taxes can move the needle too of course.

More edits: having a hard time typing actually tonight. I swear it was just one beer with dinner 3 hours ago officer.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on December 16, 2022, 10:06:21 PM
Yeah - breakeven is something like 84 the way SSA does the math. But if you can invest social security, and you don't want to work much, taking at 62 is best with typical market returns (obviously not guaranteed) Full retirement age the "reduce benefits if you work too much" goes away.

Of course looking at it as longevity insurance the wait till 70 move makes more sense, but insurance does typically cost you money - can certainly be worth it depending on individual circumstances..

But the guarantee is the kicker.  You get automatic step up plus inflation.  The market returns 10% on average as well all know.  So why is the 4% rule not the 10% rule?  Because there is no guarantee.  If I could get ~8% plus inflation guaranteed I wouldn't have dime in the stock market.  That's what you get by delaying SS. 
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on December 16, 2022, 10:13:46 PM
I just noticed that the competitive online banks are now in the 2.25% range for FDIC insured deposits ... so only a little over a percentage point until the rate of return on risk free investing exceeds the rate on my 30 year mortgage.

I'm sure many others have beaten me to this point, but it finally happened to me. With this latest bump in rates I now have a risk-free FDIC insured bank account that's paying a higher rate than my mortgage. ;-)
Even better are t-bills.  The official rates today were 3.84% for 4 weeks, up to 4.62% for 52 weeks.  Or just use VUSXX treasury money market at Vanguard if t-bills are too much work for you.  VUSXX has a 7 day SEC yield of 3.86% and continues to go up.  If you live in a state with income tax, it's an even better deal since t-bills are exempt from state/local taxes.  I calculate my tax equivalent yield to be 4.14% for VUSXX.  I finally moved away from Ally savings when I realized how big the gap was getting.  Definitely no reason to pay extra on my 3% mortgage!
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on December 17, 2022, 12:51:00 AM
Yeah - breakeven is something like 84 the way SSA does the math. But if you can invest social security, and you don't want to work much, taking at 62 is best with typical market returns (obviously not guaranteed) Full retirement age the "reduce benefits if you work too much" goes away.

Of course looking at it as longevity insurance the wait till 70 move makes more sense, but insurance does typically cost you money - can certainly be worth it depending on individual circumstances..

But the guarantee is the kicker.  You get automatic step up plus inflation.  The market returns 10% on average as well all know.  So why is the 4% rule not the 10% rule?  Because there is no guarantee.  If I could get ~8% plus inflation guaranteed I wouldn't have dime in the stock market.  That's what you get by delaying SS.
Exactly this.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on December 17, 2022, 11:38:24 AM
Back to the club. Just got a 7/1 ARM at 4.625%. Let's hope rates drop for a refi.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on December 17, 2022, 02:11:24 PM
Back to the club. Just got a 7/1 ARM at 4.625%. Let's hope rates drop for a refi.
Wonder if anyone does a 2nd mortgage on similar terms - theoretically have $70-100k in equity languishing in my house right now. Not quite as good as fixed for 30 years, but that rate is more friendly looking than what's available for the longer-term fixed rates and 7 years is still likely to work out, particularly if rates come down and can refinance it.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on December 17, 2022, 03:17:00 PM
In order to get this rate, I had to go for a jumbo loan. So I had to put less down which left some cash on hand. Conforming loan rates were higher by 0.75-0.875%.

We will be itemizing, so a significant fraction of the mortgage will be tax deductible. But the itemization benefits decrease over time as the amount of interest comes down and the standard deduction goes up.

The monthly payments with the jumbo loan are higher and we have the income to support it as long as we are working (mortgage amount < 2.5x gross income with PITI < 20% gross).

However, we are getting closer to retirement (say 7-10 years out). We are maxing out all tax advantaged accounts. Trying to decide what to do with the extra cash and also have some extra monthly savings.

1. Just put it in a broad stock (or bond regular or tax exempt bond fund) index funds keeping in mind tax efficiency (not risk free)
2. HYSA are up to 3.3% (e.g. at  Cap One etc) but this is before tax. Risk free and provides liquidity but rates not guaranteed.
3. Buy ibonds for this year and the next for both of us. Risk free but amount to put in is limited to 10K per person per year.

Most of our savings are in tax deferred accounts.

Any other options to consider with the 7-10 year timeline? 

For this year and the next, we will probably do stick with the HYSA primarily to keep things simple.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on December 17, 2022, 04:47:44 PM
@rpr - For a 7-10 year timeline, I'd probably do mostly stocks, assuming you can handle stocks going down and not panic and sell.  With the S&P500/Total US Market down around 20% YTD, I'd bet on stocks having a decent positive return over a 7-10 year timeframe.  But there's always risk in stocks...

I think maxing out I bonds is a good idea for now.  If you really want, you can create a revocable trust and throw another $10k of I bonds in there each year.  Not quite as appealing as it was a few months ago with a 9+% yield, but still maybe worth it.  You might have other reasons why a trust would be beneficial anyway.  Or there's the option to buy more I bonds now as gifts between you and your partner for future years.  I wouldn't do more than 1 years worth of gifts at this point (deliver in 2024).  These gifts would basically be the same as your 2023 I bonds, earning the same rates and accessible at the same time.

I mentioned T-bills or treasury money markets upthread.  I think these are the best places to park short-term cash since they are handily beating most HYSA right now and have the advantage of being exempt from state and local income taxes.  T-bills are very liquid (if you buy at a brokerage and NOT Treasury Direct!), but you would need to sell them and wait a day for them to settle.  So if you needed cash immediately, that could be a problem.  But I think they'd be on par with accessibility of a HYSA, or maybe an extra day or two.  Ideally, you'd hold the T-bills to term.  You will have to accept the current market rate if you sell early and could lose money.  A rolling ladder would minimize that small risk, or just use a money market fund and accept slightly lower rates.  I also enabled checkwriting and bill pay at Fidelity that will automatically withdraw from my money market funds, so that money is immediately accessible and still earning 3.8-3.9% right now.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on December 17, 2022, 05:13:18 PM
@Holocene -- Thanks for the suggestions.

Once I set things up, I'm a kinda hands off person. I find that even the I bonds are a little hassle. Once more account(s) that I need to remember and write down for my wife. The T bills and stuff looks like even more work to me. I suppose I should read up on them a little bit more and educate myself.

I am leaning towards the stock market while acknowledging the risk. Use the existing cash stash to create a 1 year EF and throw the rest into something like VTSAX. Also set up monthly transfers from our bank account directly to buy more VTSAX.  This would be a simple path to follow. Then evaluate next December.
Title: Re: DONT Payoff your Mortgage Club
Post by: Holocene on December 17, 2022, 08:38:56 PM
@rpr - If you have a Fidelity account or would be open to getting one, you can set up the T-bills to AutoRoll.  It still takes some work to set up a T-bill ladder, but after you do, the bills will keep rolling into new bills of the same duration when they mature unless you stop it.  I think Schwab might also do AutoRoll but I believe they leave you out for a week in between so not quite as good.

Say you want to set up a ladder of 26 week (6 month) T-bills maturing every 4ish weeks.  26 week T-bills auction every week on Mondays.  You need to place your order on Sunday or early Monday as I think the cut off is 10am ET.  You need to purchase in quantities of $1k.  If you started this week and placed your order on 12/18 or early 12/19, the issue date is 12/22/22 and the bill will mature on 6/22/23.  If you set it to AutoRoll (an option when you place the initial order), Fidelity will automatically purchase another 26 week T-bill of the same quantity with an issue date of 6/22/23 that matures on 12/21/23.  To set up your next rung in 4 weeks, you'd make another purchase for the 26 week T-bill auction on 1/15/23 with an issue date of 1/19, maturing 7/20 and also set that to AutoRoll.  And you'd continue to make new purchases every 4 weeks until you had your ladder built up.  Since 26 is not divisible by 4, you'd need to have a couple rungs at 3 weeks, or a short 2 week rung or a longer 6 week rung at the end.  But anyway, after your ladder is set up, you only have to worry about it when you need money.  At that point, you can stop the AutoRoll for the next upcoming bill and either wait for it to mature if you have time, or sell it if you need money more quickly.  And you always have money within 4-6 weeks of maturity, so you're unlikely to lose principal or much interest.  You can liquidate the whole thing if you need to as well. 

The most recent 26 week T-bills last week auctioned at 4.807%.  Honestly, if interest rates keep rising quickly, this may not even gain you a whole lot over using a treasury/federal money market fund.  The T-bills are a higher rate now, but 6 months is a long time and the money market funds will likely catch up at some point.  So if it's not worth the effort, that's understandable.  Just thought I'd explain how it'd work at Fidelity without needing to be too hands on. 

Since you mention VTSAX, I'll assume you might have a Vanguard account?  VUSXX at Vanguard is a very good treasury money market fund that will probably net you 0.5-0.75% over a HYSA, or more if you're in a high income tax state.  VMFXX, the default settlement fund is also good, but generally has less eligible government obligations income (73% vs. 99.9% last year) and therefore won't save you quite as much on state income tax.  VMFXX seems to react quicker to the rising rates though so it might even out.  VUSXX is at 3.89% and VMFXX is 3.99% as of yesterday.  Not a bad place to park some cash for an EF or until you figure out what else you might want to do with it.  I'd consider these about as safe as FDIC insured savings accounts since they literally hold T-bills or government securities/re-purchase agreements.  In either case you're relying on the US government, which I think is a pretty safe bet!
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on December 17, 2022, 09:38:31 PM
Thanks again @Holocene for taking the time to explain. I am beginning to understand how to implement that.

And indeed we do have a taxable account at vanguard with a couple of funds (VFIAX/VTSAX). There's not too much in those two yet as most of our savings are in tax deferred.  I had not even considered VMFXX or VUSXX. That's a great idea and would work well and is easy to implement. Given the current rates, the after tax difference between the mortgage rate and VUSXX is about 0.8%. That is a reasonable price to pay for preserving (safe) liquidity. Also I would guess that if the interest rates decrease, both the mortgage rates and VUSXX might track each other.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on December 18, 2022, 08:57:31 PM
At one point, I was more Pay off my Mortgage.  In fact, I had a paid off mortgage.  But then I decided I’d rather have a fat brokerage account, so when I moved, I got a modest mortgage.  I pre paid it a bit with disposable income I didn’t need. Then I moved again, to the Bay Area.  I have a rather large (for me) Mortgage now which I’m happy with.  It is mentally a cost I’m willing to put up with and pay for years.  I do add an extra $19.37 to get to an even $2850 each month.  I could add more, I still have some disposable income, but I have other priorities at this time.  Maybe in 10 years or something (but not likely).
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on December 19, 2022, 07:00:58 AM
At one point, I was more Pay off my Mortgage.  In fact, I had a paid off mortgage.  But then I decided I’d rather have a fat brokerage account, so when I moved, I got a modest mortgage.  I pre paid it a bit with disposable income I didn’t need. Then I moved again, to the Bay Area.  I have a rather large (for me) Mortgage now which I’m happy with.  It is mentally a cost I’m willing to put up with and pay for years.  I do add an extra $19.37 to get to an even $2850 each month.  I could add more, I still have some disposable income, but I have other priorities at this time.  Maybe in 10 years or something (but not likely).

The framing I’ve always found most useful is not “do you want a paid off home or not” but rather “would you rather have more of your money in your home, or in your investment account”

Discussions and projections about how much more you’d likely have seem to break down into “guaranteed” vs “average.” It seems more concrete to ask - do you want $200k in Vanguard (with whatever AA you choose) or $200k in equity?  Then comes the conversation of “well, it’s likely to be $325k in Vanguard vs $200k more in equity…”

Title: Re: DONT Payoff your Mortgage Club
Post by: OurTown on December 21, 2022, 08:01:25 AM
I have always enjoyed this thread.  We are booking along with a balance somewhere in the 90k - 99k range at 2.5%; it is scheduled to pay off in early 2030.  I intend to be FIREd well before then, if the fates allow.  I have gone back and forth on this issue of whether I can FIRE with a mortgage, but I think I will be satisfied beefing up my after-tax brokerage account to where the brokerage balance is greater than the remaining mortgage balance, then letting it ride.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on December 31, 2022, 01:02:29 AM
I was just playing with the "pay x more a month and save y in interest and have z fewer payments" section of my mortgage account.  It's so tempting but I know it's the wrong thing to do!  I remembered this post had to come here for support.  Yup.  More equity isn't better than more in my investment portfolio.

Patting myself on my back today for not paying extra on our mortgage all year long.  Last year I paid a little extra.  It was that weird time between renting and buying when you have a month with no housing payment.  I made an entire extra payment.  Mistake, obviously.  (But there's a little part of me that loves that I'll make my last payment in June instead of August.  I know, it doesn't make sense!)

Okay.  $396K @ 2.75% until 2051. 

I can do this, I can not payoff my mortgage! (until 2051)
Title: Re: DONT Payoff your Mortgage Club
Post by: LD_TAndK on January 02, 2023, 12:43:33 PM
Funny from our rival thread:

Quote
Do you ever lie awake at night thinking "I wish I owed JP Morgan money still and had tens more shares of VTSAX?"

Well no, but you might be kept up at night if you find yourself needing liquidity!
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 03, 2023, 06:26:00 AM
I saw that post, as well as the mortgage pay-ahead-ers chuckling.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 03, 2023, 07:29:57 AM
Thanks for your heartfelt concern! I'm a real full adult who fully understands my own finances. I don't need liquidity with the funds I am using to prepay my mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 03, 2023, 07:30:45 AM
Quote
Do you ever lie awake at night thinking "I wish I owed JP Morgan money still and had tens more shares of VTSAX?"

A (seemingly) long time ago someone recommended keeping track of the number of shares of VTSAX (which basically only goes up) I owned rather than the total balance (which fluctuates with the market) as a way of staying motivated. It's a mental strategy to be sure, but one I've found useful.

So... yes, I frequently wish I had a few dozen more shares of VTSAX in my brokerage account.  I really don't care about the mortgage payment as that's a low fixed cost which becomes less and less important each year via inflation and rising incomes.

Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 03, 2023, 08:41:02 AM
when my parents were my age (early 40's), they were paying $780/monthly on a 3-br, 2bath house with perhaps 1,400 sq feet.

thirty years later, I'm paying $1,990/monthly for a much larger house with 2+ bet and bath compared to theirs, and I have a feeling that if I looked up the CPI today, my payments would be less in real terms. Of course, I also have to pay for much more expensive education and health care for my family.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on January 03, 2023, 08:59:06 AM
Funny from our rival thread:

Quote
Do you ever lie awake at night thinking "I wish I owed JP Morgan money still and had tens more shares of VTSAX?"

Well no, but you might be kept up at night if you find yourself needing liquidity!

Why yes, which is why I took out a mortgage in 2017 instead of paying cash and why I have a Mortgage now when I could have paid cash for my place. 

On the other hand I am willing to prepay a bit on my mortgage at times from discretionary funds, but lately I’d rather spend more on travel instead.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 03, 2023, 09:41:26 AM
Thanks for your heartfelt concern! I'm a real full adult who fully understands my own finances. I don't need liquidity with the funds I am using to prepay my mortgage.
Hi @grantmeaname! On those mortgage payoff threads, no discussion is allowed, which is how this thread (aka The DPOYM Club) came to be. I saw your post and said nothing there, but suspected it would get a response in this safe pace. You may indeed fully understand your own finances, but there are other factors, such as inflation, and compound interest to consider.

You are welcome to do as you please, but this is a forum about reaching FIRE asap. Particularly in the US, paying yourself first and feeding the bank anemic, inflation eroded dollars, while letting your massive "Compound Interest" Army, which includes the mighty VTSAX division, protect you, is a far safer and more efficient route.

And we are all "real adults" here. We are happy to share this space to folks differing viewpoints. The more it's discussed, the more people learn. You may never change your mind, but if you did, you certainly wouldn't be the first. Feel free to drop by any time.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 03, 2023, 11:51:30 AM
Yeah, I know that this has been contentious in the past and those other guys run a no-fun-allowed thread.

I have LONG been a DPOYM partisan and I'm sure one of us could find a post from 2012 where I argue to that effect.

Here's my logic. The earnings yield of the S&P500 is almost exactly 6%, and that's before tax because my marginal dollar would be saved into a taxable account. I have a new mortgage at late 2022 rates, not one of those incredible 2.3% unicorns that you lucky folk have. So I'm comparing a riskless 4.99% mortgage paydown to a risky 4.5-5% posttax S&P earnings yield and to a ~4% safe withdrawal rate. Under those circumstances, my circumstances, killing this mortgage fast is the overwhelming best choice.

I think I have spent many years paying myself first. Spending the last 30% of a 12-14 year career paying off the mortgage after a long time accumulating financial assets is almost exactly the path you describe. I've got a bigole pile of VTSAX (well, FZROX) and I should be able to just fill the tax advantaged space for two years and let it coast me to my Fire.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 03, 2023, 12:19:55 PM
@grantmeaname , thanks for your post. There are two markets you mention, and I'd love to know how you conclude both of those are the ones for your decision process:


One other one I'd offer as an alternative is some consideration of your baseline savings rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 03, 2023, 12:26:23 PM
Yeah, I know that this has been contentious in the past and those other guys run a no-fun-allowed thread.

I have LONG been a DPOYM partisan and I'm sure one of us could find a post from 2012 where I argue to that effect.

Here's my logic. The earnings yield of the S&P500 is almost exactly 6%, and that's before tax because my marginal dollar would be saved into a taxable account. I have a new mortgage at late 2022 rates, not one of those incredible 2.3% unicorns that you lucky folk have. So I'm comparing a riskless 4.99% mortgage paydown to a risky 4.5-5% posttax S&P earnings yield and to a ~4% safe withdrawal rate. Under those circumstances, my circumstances, killing this mortgage fast is the overwhelming best choice.

I think I have spent many years paying myself first. Spending the last 30% of a 12-14 year career paying off the mortgage after a long time accumulating financial assets is almost exactly the path you describe. I've got a bigole pile of VTSAX (well, FZROX) and I should be able to just fill the tax advantaged space for two years and let it coast me to my Fire.

Sounds like you are in an awesome financial position, and I certainly can't fault your logic.  FWIW, I've often held the position that "once you've maxed out your tax-advantaged accounts and provided you aren't placing a very large (>30%) of your NW into your house, either investing or pre-paying is a good financial choice".

As you can see above, I personally have often wished owned more shares or had a larger brokerage account, but the size of my mortgage doesn't bother me because 1) I'm not over leveraged and 2) I have said large brokerage to cover "very bad things" - including job loss and continued payments on my mortgage.

 
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 03, 2023, 12:39:23 PM
The 5% growth in "yield"--I'm actually wondering if you didn't mean "earnings" for SP500
I meant what I said... I'm wondering if you're confusing earnings yield and earnings growth? I didn't say anything about earnings growth or "growth in yield".
Earnings yield is the inverse of the forward P/E ratio, or if you like the 'E/P' ratio. As an accountant and also a believer of evidence, I believe that accounting earnings is the least bad approximation of the flow of economic value (out of the set of earnings, dividends, buybacks, free cash flow), so the earnings yield is sort of the appropriate hurdle to compare against other projects.

The P/E of the S&P today is 16.6 so the earnings yield of the S&P 500 today is 6% pretax, which is 4.5-5% after tax if you're talking about taxable money at a 15-25% marginal income tax rate.

Quote
The safe withdrawal rate of 4%
That's just a rule of thumb in this context, although for me I think it will be pretty close to appropriate in the end. To my thinking the 4% safe withdrawal rate is also kind of like a hurdle rate or opportunity cost.

It matters here because if I could add 24 dollars to my stache but increase my expenses by a dollar a year, it would be a net negative, but if I could add 26 dollars to my stache for a dollar cost per year it would be net negative positive. A 2.5% mortgage rate, being lower than 4%, can help you because you can add $100k of VTSAX to the pile for $2500 more annual interest (ties up just $62,500 of your stache), while a 7.5% interest rate, being higher than 4%, can hurt you ($100k of VTSAX and foregone mortgage paydown requires $7500 more annual interest and ties up $187.5k of math under the 4% rule).

Quote
One other one I'd offer as an alternative is some consideration of your baseline savings rate.
Not sure what this has to do with anything? Can you expand what you mean here?
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 03, 2023, 09:42:58 PM
The 4% rule is designed to survive inflation while your E/P ratio is in today's dollars
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 03, 2023, 10:09:43 PM
Yeah, I recognize you from around these parts @grantmeaname ;-) Frankly, I welcome any discussion on this thread that keeps it alive.

I want to remind anyone following along that my primary home has never had a mortgage, and our three rentals do. If you've peeked into my Condo Conversion diary,  you'll know we paid cash for a small condo in April 2022, intending to renovate, then slap a mortgage on it... nine months later, it's finally almost done and everyone knows what's happened to mortgage rates since then. (They're still far below what i was thrilled to get in 1996, but I've gotten spoiled.)

Here's what I can't figure out, GMaN. You have stated your NW to be roughly equivalent to the value of your new home. From my 10 years FIRE vantage point, that ain't exactly a huge nest egg. I think I'd be shooting for a second comma betore accelerated mortgage payoff. You know what feels better than a paid-off-early mortgage? A million bucks in liquid investments first.

Why all of a sudden do you want to pay off the mortgage, when the whole damn stock market is on sale? The only regret I have about the cash condo is that I can't shovel huge piles of VTSAX (or equivalent) into my portfolio at the moment. But, wait! I guess I don't really need to, because I did that first.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 04, 2023, 06:20:36 AM
I'd like to throw out one more reference figure (for mortgage rate comparison purposes): the long-term 10% average total nominal return of the SP500.

I recognize that some premium on safety should exist, so a risk-free return shouldn't have to be 10% to compete for my marginal dollar.

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 04, 2023, 06:41:46 AM
Historically only one-in-ten 30-year periods have had a nominal annual return of less than 6.4% (S&P 500). So there's something like only a 5% chance for paying down a 4.99% mortgage to be better than investing. And don't forget that your mortgage interest might be tax-deductible and there's always a chance you could refinance the debt to a lower interest rate in the future.

By the way, the stickied investment order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) suggests that it is better to invest in taxable accounts than it is to pay off debt at a ~6.6% (or lower) interest rate. ~8.6% if comparing to tax-advantaged accounts. Based on the current treasury yield.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 04, 2023, 06:58:33 AM
Historically only one-in-ten 30-year periods have had a nominal annual return of less than 6.4% (S&P 500). So there's something like only a 5% chance for paying down a 4.99% mortgage to be better than investing. And don't forget that your mortgage interest might be tax-deductible and there's always a chance you could refinance the debt to a lower interest rate in the future.

Perhaps its because most of my professional life has focused on probabilities, but I have always struggled to understand why some people favor a 'guaranteed return' over the far, far more likely outcome.  Behavioral studies suggest we feel financial loss 3x greater than a similar sized gain - even accounting for this it's hard for me to comprehend why some will favor a path that is less optimal 19/20 and only marginally better the 20th time.

It's not that different* from being on a gameshow where you had the opportunity to roll a set of dice and get paid 100x that amount (e.g. rolling a 7 = $700) - or just take $300 without rolling. Why would you choose the $300? The worst-case scenario is pretty decent, and the likely outcome is much, much better.


*not a perfect match statistically, but I'm still drinking my morning coffee.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 04, 2023, 06:59:34 AM
The 4% rule is designed to survive inflation while your E/P ratio is in today's dollars
I wasn't comparing the 4% rule to today's earnings yield. They're both worse than my mortgage rate and both suggest paying down the mortgage.



Why all of a sudden do you want to pay off the mortgage
All of a sudden I have a mortgage - I wasn't carrying a mortgage all this time and then woke up in November and decided to kill it. I've always been a renter in HCOL or VHCOL areas until lately.

Quote
the whole damn stock market is on sale
I disagree. The market has pulled back from objectively very expensive to its long term typical valuation - the market costs about what it should, and is not a screaming deal. If anything, it's a bit overpriced as we're staring down a recession, but I'm not a market timer and don't let my feelings make that decision for me. What I am doing is letting the earnings yield of the market tell me what my hurdle rate for other projects is (mortgage paydown and energy efficiency work)

From the excellent JPM Guide to Markets (https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/) (slide 5)
(https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/?action=dlattach;attach=83213;image)



I'd like to throw out one more reference figure (for mortgage rate comparison purposes): the long-term 10% average total nominal return of the SP500.

I recognize that some premium on safety should exist, so a risk-free return shouldn't have to be 10% to compete for my marginal dollar.
I don't think that's a bad one in general, but it's unconditional and the earnings yield is conditional. The expected return on stocks is lower when P/E is higher. There's two reasons for this - first, you're buying less earnings and actual economic value of businesses per dollar when the valuations are expensive, and second, unless P/Es are permanently higher from now on, valuations are mean reverting over some time period so you have a rubber band effect.

JPM GtM again, slide 6:
(https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/?action=dlattach;attach=83215;image)



your mortgage interest might be tax-deductible
I'm MFJ, and the mortgage interest (4.99%*372k) is $18.5k or not even 2/3s of enough to get me to the starting line vs the standard deduction. Even if I had $10-15k of other itemized deductions, which I don't, it would only be a tiny bit of the borrowing that effectively benefits.

Quote
there's always a chance you could refinance the debt to a lower interest rate in the future.
I don't forego this option. I can still do that if someone offers me a 2011-style 2.2% mortgage after the house is paid off.

Quote
By the way, the stickied investment order post (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) suggests that it is better to invest in taxable accounts than it is to pay off debt at a ~6.6% (or lower) interest rate. ~8.6% if comparing to tax-advantaged accounts. Based on the current treasury yield.
I'm not a fan of rules of thumb as substitutes for actual thinking, and this one makes very little sense to me. But regardless, I am all the way at the bottom of the list - no other debt paydown, and completely filling all my tax-advantaged space every year.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 04, 2023, 07:07:33 AM
Historically only one-in-ten 30-year periods have had a nominal annual return of less than 6.4% (S&P 500). So there's something like only a 5% chance for paying down a 4.99% mortgage to be better than investing. And don't forget that your mortgage interest might be tax-deductible and there's always a chance you could refinance the debt to a lower interest rate in the future.
Perhaps its because most of my professional life has focused on probabilities, but I have always struggled to understand why some people favor a 'guaranteed return' over the far, far more likely outcome.  Behavioral studies suggest we feel financial loss 3x greater than a similar sized gain - even accounting for this it's hard for me to comprehend why some will favor a path that is less optimal 19/20 and only marginally better the 20th time.

It's not that different* from being on a gameshow where you had the opportunity to roll a set of dice and get paid 100x that amount (e.g. rolling a 7 = $700) - or just take $300 without rolling. Why would you choose the $300? The worst-case scenario is pretty decent, and the likely outcome is much, much better.
This is an unfair straw man and your example does not capture the facts of my situation. My mortgage paydown return is equal to or better than the market return despite the market return's uncertainty.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on January 04, 2023, 07:22:46 AM
This is an unfair straw man and your example does not capture the facts of my situation. My mortgage paydown return is equal to or better than the market return despite the market return's uncertainty.
I've always been a renter in HCOL or VHCOL areas until lately.
4.99% 15-year mortgage (locked in September, closed in November)

It's great that your mortgage paydown return has been better than the market, but you've only had a mortgage for a month or two. On that time frame, investing in the market is only slightly better than casino gambling. I would be leery to draw any long term conclusions.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 04, 2023, 07:24:27 AM
Historically only one-in-ten 30-year periods have had a nominal annual return of less than 6.4% (S&P 500). So there's something like only a 5% chance for paying down a 4.99% mortgage to be better than investing. And don't forget that your mortgage interest might be tax-deductible and there's always a chance you could refinance the debt to a lower interest rate in the future.
Perhaps its because most of my professional life has focused on probabilities, but I have always struggled to understand why some people favor a 'guaranteed return' over the far, far more likely outcome.  Behavioral studies suggest we feel financial loss 3x greater than a similar sized gain - even accounting for this it's hard for me to comprehend why some will favor a path that is less optimal 19/20 and only marginally better the 20th time.

It's not that different* from being on a gameshow where you had the opportunity to roll a set of dice and get paid 100x that amount (e.g. rolling a 7 = $700) - or just take $300 without rolling. Why would you choose the $300? The worst-case scenario is pretty decent, and the likely outcome is much, much better.
This is an unfair straw man and your example does not capture the facts of my situation. My mortgage paydown return is equal to or better than the market return despite the market return's uncertainty.

I wasn't referring to your situation per se and I don't consider it a straw man argument at all.
I was speaking in general about the tendency for individuals to choose the option which was far less likely to yield the best outcome (10-20x less likely over decadal timeframes) - particularly when the option they are selecting is only slightly better than than the 'bad' outcomes they are trying to avoid.
See upthread about discussion of your situation and my general support of your approach (however, as indicated the return of the SP500 is far greater than 6% when you do not adjust for inflation, which you shouldn't do for comparison to a fixed-rate debt).
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 04, 2023, 07:28:39 AM
Got it. Sorry.

I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path, even thought it has a lower average final wealth after 30-50 years. If your goal is to retire early as safely as possible, and not just to be as rich as possible at 80, it better fits that goal.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 04, 2023, 07:34:10 AM
It's great that your mortgage paydown return has been better than the market, but you've only had a mortgage for a month or two. On that time frame, investing in the market is only slightly better than casino gambling. I would be leery to draw any long term conclusions.
That's not what I said at all. Did you read my post?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 04, 2023, 07:40:49 AM
Got it. Sorry.

I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path

Sounds like we are in broad agreement.
My main takeaway from literally years of discussion and analysis is that it's particularly risky to POYM if it means foregoing tax-advantaged accounts, when it results in a very large (~>30%) of your NW being tied to your home, and when the rate on a fixed mortgage is very low (≤ 4%). There are times when paying off your mortgage is essentially no different (e.g. very large savings) and a few when in which it can be beneficial (e.g. when guarding against SORR is your primary goal, or to keep spending below certain thresholds for subsidies).

Often the discussions aren't that nuanced, or include [misleading/non-universal] mantras like "____ will make you sleep better at night" or "no one can take your home from you".
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on January 04, 2023, 07:45:15 AM
your mortgage interest might be tax-deductible
I'm MFJ, and the mortgage interest (4.99%*372k) is $18.5k or not even 2/3s of enough to get me to the starting line vs the standard deduction. Even if I had $10-15k of other itemized deductions, which I don't, it would only be a tiny bit of the borrowing that effectively benefits.

Do you not have $10k in SALT? My property taxes alone get me the $10k, and many also have some significant sales and income taxes. I agree with you point that the 'benefit' is minimal, but I'm gonna take the extra deduction while I can.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 04, 2023, 09:50:58 AM
Nope, more like $5k. Maybe enough to push me into itemizing so a tiny fraction of the mortgage interest is deductible, but not a lot.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 04, 2023, 10:00:06 AM
Often the discussions aren't that nuanced, or include [misleading/non-universal] mantras like "____ will make you sleep better at night" or "no one can take your home from you".
We are 100% in agreement there.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on January 07, 2023, 10:31:06 AM
Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on January 07, 2023, 11:46:13 AM
Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .

Sorry for your loss :P
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 07, 2023, 01:57:33 PM
Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .
Sometimes it is. Keep your eyes peeled.
Title: Re: DONT Payoff your Mortgage Club
Post by: valsecito on January 07, 2023, 03:23:24 PM
Our situation is different:
- 1.23% 20 years fixed mortgage
- interest payments almost fully (80%) paid for by tax incentives
- >10% inflation
- legally mandated auto-adjustments of wages to inflation
- low personal inflation

This mortgage feels like printing money. Even so, I could imagine killing it at some point in the future. I'd have to be FIRE with a low mortgage/portfolio ratio, and not motivated anymore to optimise the last bit of my portfolio. Flexibility and simplicity definitely have value.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 08, 2023, 04:37:46 PM
Got it. Sorry.

I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path

Sounds like we are in broad agreement.
My main takeaway from literally years of discussion and analysis is that it's particularly risky to POYM if it means foregoing tax-advantaged accounts, when it results in a very large (~>30%) of your NW being tied to your home, and when the rate on a fixed mortgage is very low (≤ 4%). There are times when paying off your mortgage is essentially no different (e.g. very large savings) and a few when in which it can be beneficial (e.g. when guarding against SORR is your primary goal, or to keep spending below certain thresholds for subsidies).

Often the discussions aren't that nuanced, or include [misleading/non-universal] mantras like "____ will make you sleep better at night" or "no one can take your home from you".
Every household’s finances are different. For my household for many years we shoved money into all kinds of accounts, retirement, prepaying the mortgage, deferring comp/bonuses, etc. after tax cash was kept low. But I was dumb and young and thought I’d always have a job and work a long time.

Then after 15 years bam, I’m laid off and I realize I wish I had access to our retirement and real estate rich portfolio. All the sudden I regretted prepaying that mortgage (still had a balance) and not saving a lot more money in after tax accounts. Thank goodness my severance was good, it was the only saving grace, and the fact I was was working three months later.

After that experience, and given we are closer to retirement, really retire asap, I don’t pay one extra penny to the mortgage, I only contribute enough to retirement accounts to get matches. All other savings goes into after tax accounts.

We all have the best laid plans, then life happens. Unless it is greatly advantageous to prepay the mortgage, I would at least save those payments into a special account and then pay the mortgage off all at once when there was enough savings. Never know when you might just need the money.

Easy for me to save tho, we have a 2.5% fixed unicorn.


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Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on January 08, 2023, 05:12:53 PM
@rmorris50 - Money in mortgage is significantly more locked-away than money in retirement accounts. https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/  (https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/)is a good resource on that.

While the Roth-Ladder technique requires some planning, every year that passes you get to where a SEPP's inflexibility is less of a problem and "just pay the effing penalty" has a lower projected cost since you're closer to 59.5.

100% agree that investing in taxable is far preferable to prepaying a fixed, low-rate mortgage. Tax advantaged is also preferable to taxable and the whole "yes you can withdraw early . . ." can go a long way towards easing concerns as to availability of money. At least do a Roth IRA before taxable if you can make regular contributions - you can take those contributions out with no tax or penalty at any time if you need to.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 08, 2023, 05:59:56 PM
Yes I know all the rules how to access retirement accounts, just don’t want to until the time I’ve planned to. Also my story is from some years ago, we are in a much better spot now.


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Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on January 09, 2023, 11:13:41 AM
Got it. Sorry.

I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path

Thanks for linking that article from ERN.  It's a great analysis.  Here's one section that stood out to me, under the header "Exceptions to the No Mortgage Recommendation":

"Finally, I can see how at some point down the road interest rates could be much higher than today. If you retire in 5 years and still have 20 years left on your 3.25% fixed rate mortgage but bond interest rates are now 3.5 or 4%, then by all means, hold on to that mortgage. Now the mortgage vs. bond leverage works beautifully!"

Welp, that's here.  My mortgage is at 2.75% and I-bonds are yielding 6.89%.  (I don't actually have any I bonds, but that's another story.  If I had the extra cash, I would buy I-bonds over prepaying the mortgage.)

Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 09, 2023, 11:38:35 AM
I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.

The SEC yield of the Vanguard corporate bond index is 3.14%, or the US 10Y Treasury yields 3.52% - one of those is probably a better comparison point.

Agree with the broader point that a sub-3% mortgage and a bond portfolio with a better yield could make a lot of sense, and that's pretty much the analysis I did in my introduction post above. As someone with a 5% mortgage, the bond market and stock market are not close to appealing enough for my marginal dollar.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 09, 2023, 11:59:29 AM
I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.

The SEC yield of the Vanguard corporate bond index is 3.14%, or the US 10Y Treasury yields 3.52% - one of those is probably a better comparison point.

Agree with the broader point that a sub-3% mortgage and a bond portfolio with a better yield could make a lot of sense, and that's pretty much the analysis I did in my introduction post above. As someone with a 5% mortgage, the bond market and stock market are not close to appealing enough for my marginal dollar.
Would you get a different answer if you adjust your mortgage rate downward or alternative invest return upward for a liquidity premium. Liquidity is worth something.


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Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on January 09, 2023, 12:36:43 PM
Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .
Sometimes it is. Keep your eyes peeled.
Saw one that claimed to offer rates as low as 2.83%, but as soon as I entered that 0 for amount owed "sorry we can't help you". Only like $10Kish, so I'm not that worried about it.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 09, 2023, 01:04:59 PM
I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.

The SEC yield of the Vanguard corporate bond index is 3.14%, or the US 10Y Treasury yields 3.52% - one of those is probably a better comparison point.

Agree with the broader point that a sub-3% mortgage and a bond portfolio with a better yield could make a lot of sense, and that's pretty much the analysis I did in my introduction post above. As someone with a 5% mortgage, the bond market and stock market are not close to appealing enough for my marginal dollar.
Would you get a different answer if you adjust your mortgage rate downward or alternative invest return upward for a liquidity premium. Liquidity is worth something.
Sure. If you put an arbitrarily large bonus on a smaller number you can make it bigger than a number that used to be bigger than it. I'm not sure why that's interesting or relevant?
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on January 09, 2023, 07:38:52 PM
I bonds are variable rate, and they're not bonds
They are called "bonds", and they literally say "BOND" at the top, and the issuer makes the rules, so I am going to say they are bonds...
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 09, 2023, 07:54:16 PM
I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.

The SEC yield of the Vanguard corporate bond index is 3.14%, or the US 10Y Treasury yields 3.52% - one of those is probably a better comparison point.

Agree with the broader point that a sub-3% mortgage and a bond portfolio with a better yield could make a lot of sense, and that's pretty much the analysis I did in my introduction post above. As someone with a 5% mortgage, the bond market and stock market are not close to appealing enough for my marginal dollar.
Would you get a different answer if you adjust your mortgage rate downward or alternative invest return upward for a liquidity premium. Liquidity is worth something.
Sure. If you put an arbitrarily large bonus on a smaller number you can make it bigger than a number that used to be bigger than it. I'm not sure why that's interesting or relevant?
Trying to say you might want include the value of liquidity in your analysis of whether to prepay the mortgage or not. Finance types do that via a liquidity premium. Of course most people on this thread don’t do that, they just qualitatively decide whether they want their money tied up, or decide based on a cash flow analysis, another type of analysis that can help determine which option might be best. You seem focused strictly on return and volatility. For me cash flow and liquidity have significant value. Meaning my mortgage rate would prob need to be at LEAST 100bps higher than my alternative investment for me to prepay it. Maybe even 150bps. And I’d be looking constantly in the meantime to refi to a lower rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 09, 2023, 09:06:07 PM
Last payment on 0% car loan made today. I wish cash-out refinancing was available at good terms on cars . . .
Sometimes it is. Keep your eyes peeled.
Saw one that claimed to offer rates as low as 2.83%, but as soon as I entered that 0 for amount owed "sorry we can't help you". Only like $10Kish, so I'm not that worried about it.
You're a bit of an outlier. All may not be lost. Unless it's online only, it's worth a phone call. You could also try entering the amount you'd like to borrow and see what happens.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 10, 2023, 06:44:14 AM
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on January 10, 2023, 07:05:18 AM
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.
But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on January 10, 2023, 07:29:55 AM
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.

We have an entire thread devoted to parking large chunks of money in checking accounts for months in order to get a $200-$500 sign up bonus. How is this any different?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 10, 2023, 07:30:42 AM
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.
But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.

You could follow a similar argument with churning credit cards for points and bonuses. Plenty here do this to get a $200 signup bonus or 30,000 free miles (heck, MMM even promotes a few of these via ads and his blog) but unless you take it to extremes it's going to be fraction of a percent of most people's NW, and maybe 1-2% of annual gross salary.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 10, 2023, 08:28:30 AM
Trying to say you might want include the value of liquidity in your analysis of whether to prepay the mortgage or not. Finance types do that via a liquidity premium. Of course most people on this thread don’t do that, they just qualitatively decide whether they want their money tied up, or decide based on a cash flow analysis, another type of analysis that can help determine which option might be best. You seem focused strictly on return and volatility. For me cash flow and liquidity have significant value. Meaning my mortgage rate would prob need to be at LEAST 100bps higher than my alternative investment for me to prepay it. Maybe even 150bps. And I’d be looking constantly in the meantime to refi to a lower rate.
I work in finance, and I get the concept, but I just don't see how it's really relevant here. Over 80% of my net worth today is liquid, and at FIRE time that will have decreased to 'only' 60% (but a larger dollar amount), with an additional portion conditionally accessible by a HELOC. I will be swimming in liquidity relative to my needs and don't see why I should accept a 100-150bp lower return to get additional liquidity I should have no reasonable need for.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on January 10, 2023, 08:38:33 AM
I came across this article at ERN.

https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

From what I can understand, if you are risk averse (SORR risk), he says to pay off the mortgage. If not, he says stick with the mortgage but that for optimum you should have no bonds in your portfolio.

The liquidity issue is not addressed. In his table on SWRs, it looks to me that case 5 with 30 year fixed rate mortgage at 3.875% and an 80/20 asset allocation seems pretty decent. Ultimately it depends on the difference between the bond and the mortgage rates.

Anyone have any thoughts?
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on January 10, 2023, 09:16:01 AM
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.
But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.

You could follow a similar argument with churning credit cards for points and bonuses. Plenty here do this to get a $200 signup bonus or 30,000 free miles (heck, MMM even promotes a few of these via ads and his blog) but unless you take it to extremes it's going to be fraction of a percent of most people's NW, and maybe 1-2% of annual gross salary.
I would make that argument, too. When offered "free money" I say yes, please 🙂.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on January 10, 2023, 01:01:18 PM
I bonds are variable rate, and they're not bonds, so not the best comparison. You're only getting six months of I Bond yield at those levels before it declines further.

It's a bond.  I guess you could also say the rate is fixed for 6 months.  For the last three 6 month periods, the rate has been over 6.89%, so that's 18 months of DPOYM, according to ERN.  And depending on your mortgage rate, the period before that could also have been a good time to not POYM.

Bonds aside... I think DPOYM or POYM based on SORR risk should be assessed along with time from FIRE.  If SORR risk is the main concern, in most cases, DPOYM until you are very near FIRE, then POYM.  I wouldn't tell a 20 year old that plans to FIRE at 40 that they should POYM to mitigate SORR.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on January 10, 2023, 01:05:56 PM
When offered "free money" I say yes, please 🙂.

Yes, please!  (I'm currently floating $20K on 0% CCs while earning interest on equivalent amounts stashed elsewhere!)
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 10, 2023, 01:14:06 PM
I'll restrict my comments to primary mortgage loan versus these other ways of finding a few $$:

Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 10, 2023, 01:15:26 PM
I'll restrict my comments to primary mortgage loan versus these other ways of finding a few $$:

  • A primary mortgage is the largest line item in many household budgets, and it has a lot of characteristics (non-callable, lengthy term, fixed rate) not associated with most other loan products;
  • The threshold for having your life together (set up one automatic payment/month) is so much lower if all you want to do is stay current on one payment; than for the credit card churning/manufactured spending route
  • it really feels like optimizing on the mortgage is one of those ways where you can get a lot of results for minimal amount of effort places.

I agree with all of these points!
Title: Re: DONT Payoff your Mortgage Club
Post by: index on January 10, 2023, 01:39:27 PM
Got it. Sorry.

I guess the other point is that people on this forum should be optimizing for the greatest chance of success in early retirement and not the greatest final wealth after 30 years. The no mortgage path mitigates sequence of returns risk (https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/) and so has better 5th and 10th percentile SWR rates than the mortgage+more stock path, even thought it has a lower average final wealth after 30-50 years. If your goal is to retire early as safely as possible, and not just to be as rich as possible at 80, it better fits that goal.

With a 5% mortgage and bond rates marching higher. It might be smarter to hang onto those extra payments is Vanguard or Fidelity MMA where you are paying a 50-100bps spread and play the wait and see game with interest rates. The opportunity cost is $60-250/yr on $12-25k which is a pretty cheap option on the possibility we see some structural financial changes coming in the next year or two and interest rates remain high... There was another thread on here about how to play the US debt ceiling debate coming to a congress near you. I'd love to have $15k to drop into treasuries if that debate goes south. 
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 10, 2023, 01:43:02 PM
It's a bond.
I Bonds are not negotiable and bonds must be negotiable by definition, so I Bonds are not bonds despite their name. (The second sentence the wikipedia definition of a financial security (https://en.wikipedia.org/wiki/Security_(finance)) says that the word "security" is used vernacularly to refer to any financial instrument even if that instrument is not technically a security, and it works just the same with bonds.) If you don't want to own a T bond anymore, you can sell it to someone. If you don't want to own an I Bond anymore, then just like a nonnegotiable CD you have to put it back to the issuer at terms they decide, using a formula that cares nothing for 'market value'.

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I guess you could also say the rate is fixed for 6 months.  For the last three 6 month periods, the rate has been over 6.89%, so that's 18 months of DPOYM, according to ERN.  And depending on your mortgage rate, the period before that could also have been a good time to not POYM.
If you buy a fixed rate bond (or another fixed rate instrument like a CD) you know you are getting the yield to maturity until the instrument's maturity. Look at three instruments with very similar risk profiles and identical maturities: the fact that the 30 year TIPS trades at 1.5% (https://www.cnbc.com/quotes/US30YTIP), the 30 year treasury bond trades at 3.7% (https://www.cnbc.com/quotes/US30Y), and the I Bond has a 6% current yield (but no meaningful yield to maturity), should tell you all you need to know about inflation expectations for the second, third, and fourth six month windows on that I Bond.

Or for another analogy, if a low quality company is selling off furniture to make common or preferred dividend payments and the dividend yield is 18% (https://www.macrotrends.net/stocks/charts/LUMN/lumen-technologies/dividend-yield-history) that doesn't mean 18% is your hurdle rate and buying anything yielding less is a poor investment, it means that market participants have taken a look at the expected lifetime returns of the instrument and that's the return they need to accept the poor yields in the next year and for the rest of their holding period.

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Bonds aside... I think DPOYM or POYM based on SORR risk should be assessed along with time from FIRE.  If SORR risk is the main concern, in most cases, DPOYM until you are very near FIRE, then POYM.  I wouldn't tell a 20 year old that plans to FIRE at 40 that they should POYM to mitigate SORR.
I would say that sequence of returns risk is always the primary concern. That's why we have the 4% rule and not the 7% rule or the 10% rule.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 10, 2023, 01:45:35 PM
With a 5% mortgage and bond rates marching higher. It might be smarter to hang onto those extra payments is Vanguard or Fidelity MMA where you are paying a 50-100bps spread and play the wait and see game with interest rates.
Doesn't a 4.22% money market yield vs a 3.74% 30 year treasury yield tell you that rates are marching lower, not higher?
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 10, 2023, 09:35:22 PM
Trying to say you might want include the value of liquidity in your analysis of whether to prepay the mortgage or not. Finance types do that via a liquidity premium. Of course most people on this thread don’t do that, they just qualitatively decide whether they want their money tied up, or decide based on a cash flow analysis, another type of analysis that can help determine which option might be best. You seem focused strictly on return and volatility. For me cash flow and liquidity have significant value. Meaning my mortgage rate would prob need to be at LEAST 100bps higher than my alternative investment for me to prepay it. Maybe even 150bps. And I’d be looking constantly in the meantime to refi to a lower rate.
I work in finance, and I get the concept, but I just don't see how it's really relevant here. Over 80% of my net worth today is liquid, and at FIRE time that will have decreased to 'only' 60% (but a larger dollar amount), with an additional portion conditionally accessible by a HELOC. I will be swimming in liquidity relative to my needs and don't see why I should accept a 100-150bp lower return to get additional liquidity I should have no reasonable need for.
Is that 80 percent all post tax? My household only has 5% of our NW in after tax accounts. RE equity is about 10% and the rest is pre-tax. our NW is just shy of $3m .I view the pre-tax as illiquid even tho yes I know I can break those golden eggs early if I want to.

And the liquidity premium is relevant to this thread in the sense it should be considered, you’re just valuing that premium at zero. Where as someone like me is putting a high value on it. Others reading this thread might find this concept useful.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 11, 2023, 06:18:04 AM
Is that 80 percent all post tax? My household only has 5% of our NW in after tax accounts. RE equity is about 10% and the rest is pre-tax. our NW is just shy of $3m .I view the pre-tax as illiquid even tho yes I know I can break those golden eggs early if I want to.
You could make the argument that pretax/trad money is liquid too once you're retired since you can Roth convert, but I think I am in your boat and I would really only consider taxable and Roth money accessible. I am very lucky in that my 401k has a mega backdoor option, so I only have a tiny bit (~15% each) in pretax and taxable, and a ton in post-tax. And thankfully since the market has thrown up all over my hopes and dreams, I have no gains in my Roth - it's all contributions. Yay?

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the liquidity premium is relevant to this thread in the sense it should be considered, you’re just valuing that premium at zero. Where as someone like me is putting a high value on it. Others reading this thread might find this concept useful.
Agreed. There are times a liquidity premium makes sense. But I think most early retirees are awash in more liquidity than they know what to do with. The most expensive thing I've ever bought, excluding my house, is $6200, and I have ~10x that available tomorrow in E fund and taxable accounts. 
Title: Re: DONT Payoff your Mortgage Club
Post by: index on January 11, 2023, 12:11:06 PM
With a 5% mortgage and bond rates marching higher. It might be smarter to hang onto those extra payments is Vanguard or Fidelity MMA where you are paying a 50-100bps spread and play the wait and see game with interest rates.
Doesn't a 4.22% money market yield vs a 3.74% 30 year treasury yield tell you that rates are marching lower, not higher?

The 5 to 10 yr treasury is probably more your speed since that is the time frame you are using to pay off your mortgage. The inverted yield curve means the expected interest rate over 30 yrs is less than the current fed funds rate. If inflation doesn't head lower or it proves harder to stamp out than anticipated like the 70's there is a very real chance 5-10yr treasuries go higher. It just seems a little silly to dump more into your mortgage when it is so close to current MMA rates and losing all that optionality. You seem dissuaded from pouring more into the market when the implied earnings yield is 6%. What if the market takes another 30% dump and than yield becomes 8-9%? 

This is all to say you are right on the cusp of where paying your mortgage off makes sense in 10% of situations. You are making the case you have enough money that you want to insure against a 10% scenario. I'm making the case to light $60 to $250 on fire (because you have so much money) and wait and see what happens. If MMA conditions change, then sure, it makes sense to dump the money on your 5% mortgage, but you are playing a game that is going to net you $250 at most.
 
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 11, 2023, 01:59:26 PM
To be clear, I am not proposing to buy 30 year treasuries! Just saying the yield curve inversion is telling us that the market's expectation is for rates to decline, not to rise.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on January 11, 2023, 04:12:02 PM
bonds must be negotiable by definition,

No, they don't.  A bond is simply a financial instrument that represents debt.  Bonds can be fixed (traditional) or variable (more of this lately), non-negotiable or negotiable.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 11, 2023, 07:05:31 PM
The SEC (https://www.investor.gov/introduction-investing/investing-basics/glossary/bonds), FINRA (https://www.finra.org/investors/investing/investment-products/bonds), the CFAI (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/fixed-income-securities-defining-elements), SIPC (https://www.sipc.org/for-investors/what-sipc-protects), and Wikipedia (https://en.wikipedia.org/wiki/Bond_(finance)) disagree. Die on that hill if you like, but regardless the point remains that a mortgage prepayment or a fixed rate bond held to maturity gives you a knowable and unchanging return, and an I bond does not and so is an inapt comparison.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 12, 2023, 04:39:24 AM
The SEC (https://www.investor.gov/introduction-investing/investing-basics/glossary/bonds), FINRA (https://www.finra.org/investors/investing/investment-products/bonds), the CFAI (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/fixed-income-securities-defining-elements), SIPC (https://www.sipc.org/for-investors/what-sipc-protects), and Wikipedia (https://en.wikipedia.org/wiki/Bond_(finance)) disagree. Die on that hill if you like, but regardless the point remains that a mortgage prepayment or a fixed rate bond held to maturity gives you a knowable and unchanging return, and an I bond does not and so is an inapt comparison.

Does it thought?  I agree it gives you a fixed return, but unchanging would only be accurate if we are ignoring real returns (i.e inflation).  Which IMO is the whole problem here - you can calculate to the penny what a fixed rate bond will pay out 10 years from now, but not what that bond will be worth.
The same is true with pre-paying your mortgage - you can calculate exactly how many dollars that will save in years to come, but not what those dollars will be worth. Judging on my mortgage rate, the markets were expecting my dollars today to be worth a lot more than they are back when they issued my loan a few years ago.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 12, 2023, 05:20:47 AM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


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Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 12, 2023, 08:19:21 AM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage.  As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).

If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 12, 2023, 09:04:25 AM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage.  As you said, if you rely to heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines.

If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
Completely agree. I have one open that I purposely keep a small balance on, like $1000. Just to keep the line functioning in the banks eyes I guess. But it really is just a “oh crap” line of credit. The rate is also high on it.


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Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on January 12, 2023, 09:19:25 AM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage.  As you said, if you rely to heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines.

If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
Completely agree. I have one open that I purposely keep a small balance on, like $1000. Just to keep the line functioning in the banks eyes I guess. But it really is just a “oh crap” line of credit. The rate is also high on it.


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Ditto on this-I keep the minimum amount on it to avoid the annual line access fee in interest payments and pay about $75 per month for the convenience.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 12, 2023, 09:43:07 AM
you can calculate to the penny what a fixed rate bond will pay out 10 years from now, but not what that bond will be worth.
That's right, and a good point. But comparing a TIPS to a mortgage paydown does not fix this problem.

With a TIPS you are guaranteed to be paid nothing for the time value of money, but paid for inflation. The ex inflation return of a TIPS is nothing.
With a fixed bond you are paid for the time value of money but not for inflation. You get a fixed, knowable nominal return for N years.

They're different assets with different returns and so saying "I'm not paying down my mortgage and foregoing 30 years of a fixed nominal return because I can get a better nominal return for the next six months" is inapt. The appropriate comparison is a fixed rate bond. You can forego paying down a 30Y mortgage that bears an X% interest rate and instead purchase a 3.65% 30Y treasury bond, or not, and the risks are comparable, and the return difference is knowable.

Edit: one more thought: we all mostly own stocks of companies that sell their products in nominal dollars. The stock market absolutely rips in high inflation environments (short of hyperinflation and societal collapse). Most people with a mostly stock portfolio don't need more inflation protection in my opinion. Do you feel differently?
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on January 12, 2023, 10:38:24 AM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage.  As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).

If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.
I was going to use it to buy another fixer in the downturn.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on January 12, 2023, 11:27:49 AM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage.  As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).

If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.
I was going to use it to buy another fixer in the downturn.

With that I’d rather take a margin loan on my brokerage count if necessary than use a HELOC when it comes down to it. 
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on January 12, 2023, 12:35:28 PM
Are you with IBKR? That's the only place I've seen even somewhat decent margin loan terms, and even there with only megabucks account, but I'd love to hear other options...
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 12, 2023, 02:31:06 PM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage.  As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).

If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.
I was going to use it to buy another fixer in the downturn.

Would the lender not issue a letter saying something like, you may continue to pay down the balance owed on the HELOC, but you may not borrow additional principal during a financial crisis? Or is that covered under the terms of the line of credit?
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 12, 2023, 04:15:01 PM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage.  As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).

If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.
I was going to use it to buy another fixer in the downturn.

Would the lender not issue a letter saying something like, you may continue to pay down the balance owed on the HELOC, but you may not borrow additional principal during a financial crisis? Or is that covered under the terms of the line of credit?
Possible, I’d have to read the fine print. Maybe carrying a small balance doesn’t mean anything in the end.  Maybe it’s more for my own sake, knowing it works. I assume at the end of the day the bank can just shut it down for whatever reason it wants.


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Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on January 12, 2023, 07:23:42 PM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


For me personally, I value investment assets far higher than potential credit through a HELOC, which to me is yet another reason not to pre-pay the mortgage.  As you said, if you rely too heavily on a HELOC, you run the risk of it not being available when you need it. This can be because the rates go up (like now), because banks can freeze access to your HELOC (as in 2008-09, '01, and when the bank considers you an elevated credit risk), or when the value of your home declines (limiting how big your HELOC can be).

If/when a HELOC is available and has favorable terms we will absolutely use it - but it's pretty far down there in terms of financial planning. Having more in savings creates more options.
I agree. In '09 my untapped HELOC was cancelled. At the time I had more than double the amount of the HELOC in my home's equity, but it did not matter. It's hard to know what your equity is when prices are dropping, and the banks were taking no chances.
I was going to use it to buy another fixer in the downturn.

Would the lender not issue a letter saying something like, you may continue to pay down the balance owed on the HELOC, but you may not borrow additional principal during a financial crisis? Or is that covered under the terms of the line of credit?
Possible, I’d have to read the fine print. Maybe carrying a small balance doesn’t mean anything in the end.  Maybe it’s more for my own sake, knowing it works. I assume at the end of the day the bank can just shut it down for whatever reason it wants.


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I believe they can call them at any time, but in my case there was $0 balance and they just shut it down. That was the (temporary) end of easy credit.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on January 13, 2023, 12:12:46 PM
The SEC (https://www.investor.gov/introduction-investing/investing-basics/glossary/bonds), FINRA (https://www.finra.org/investors/investing/investment-products/bonds), the CFAI (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/fixed-income-securities-defining-elements), SIPC (https://www.sipc.org/for-investors/what-sipc-protects), and Wikipedia (https://en.wikipedia.org/wiki/Bond_(finance)) disagree. Die on that hill if you like, but regardless the point remains that a mortgage prepayment or a fixed rate bond held to maturity gives you a knowable and unchanging return, and an I bond does not and so is an inapt comparison.

I'm always willing to learn, so I checked out the links you shared, except wikipedia for obvious reasons, and the word "negotiable" is included in exactly zero of them.  (One of them did say this, though: "Moreover, the term “fixed income” is not to be understood literally: Some fixed-income securities have interest payments that change over time.")

Actually, then I got curious and looked at the wikipedia link just now.  It says "Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in the secondary market. "  Very often.  Not always.  All your sources confirm my assertion, and I bond is a bond.

Bond definition aside, the point remains that at a given time, you have a choice between the rate on your mortgage and a rate of return elsewhere, and there is a mathematically superior option.  Choosing the I bond for the 18 months rates have been higher than most people's mortgage rates is mathematically superior.  That doesn't mean one can't change course when circumstances change or choose the inferior option, anyway.

Are you with IBKR? That's the only place I've seen even somewhat decent margin loan terms, and even there with only megabucks account, but I'd love to hear other options...

I had an account with IBKR, opened in the wake of MMM's post (https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/) about low margin rates of 1.09%.  I had planned to use margin loans for some home R&M and improvements, rather than diverting excess cash from what would be investments.  IBKR now offers rates of nearing 5% on their margin loans.  Like the other low rates of that time, they didn't last.  This is why I favor my 2.75% fixed mortgage and investments over other potential credit facilities such as HELOCs and margin loans.  I ultimately passed on the IBKR margin loans in favor of CC arbitrage at the low rate of 0% (plus a couple of hard inquiries) and have since closed the account with IBKR.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on January 13, 2023, 12:28:58 PM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


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I don't think I would let it influence whether I choose to prepay or not, but of course I'm choosing not to prepay.  If I were in the POYM camp, I think it would, since those in the POYM club are apt to be more concerned about liquidity and see the HELOC as a remedy for that.  If the HELOC isn't an option, that could be a problem.  I am unconcerned about MV of my home, since I have no plans to move or sell.
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on January 13, 2023, 01:10:04 PM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.
Well, if I was underwater on my mortgage then I would definitely not prepay anything. On the flip side, if I was paying PMI and the value had gone up enough so I was just on the cusp of getting the PMI removed, then I would certainly consider prepaying a bit.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 13, 2023, 02:08:06 PM
My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 14, 2023, 07:07:25 AM
My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.
OMG, this hurts just to read.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 14, 2023, 08:44:54 AM
My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.
OMG, this hurts just to read.
My husband has a ridiculous Disney wrist band collection. Prob a few thousand worth .


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Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 14, 2023, 02:12:54 PM
My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.
OMG, this hurts just to read.
My husband has a ridiculous Disney wrist band collection. Prob a few thousand worth .


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A what…?  Like the wristbands for park entry? They are worth money…?
So confused
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on January 14, 2023, 06:47:38 PM
My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.
OMG, this hurts just to read.
I have a single ornament that goes for $200+, and I have probably 5-10 more that are over $100 each. Somehow certain brands of ornaments become collectible over time. I am also not selling them. I’m sure my kids will once I am gone. LOL
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 14, 2023, 08:56:44 PM
My wife kept making claims that our christmas ornament collection was worth $10,000. As if she'd ever willingly sell any part of it.
OMG, this hurts just to read.
I have a single ornament that goes for $200+, and I have probably 5-10 more that are over $100 each. Somehow certain brands of ornaments become collectible over time. I am also not selling them. I’m sure my kids will once I am gone. LOL
Yeah, but you have earned an asterisk, IMO. You're a little bit fancy and a lotta bit mustachian. I freely confer this status upon you because I have come to understand that living with your DH is a constant (or near-constant) source of spending pressure. Also, you mentioned what they go for, not what you actually paid for them. Very clever.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on January 14, 2023, 11:37:45 PM
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.
But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.

I usually drop comprehensive/collision once the value of my car becomes non-catastrophic.  Dealing with the hassle of a lien title and insurance requirements definitely puts a damper on the reward of cash-out refinancing a car. 
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on January 14, 2023, 11:42:46 PM
Does anyone let the value of their house influence whether you are prepaying? My outstanding mortgage is 60% of zillows purported MV. What if it crashed to the same amount as my mortgage and wiped out my equity? Any potential HELOC is gone. This whole recent conversation appears to have the assumption our housing value is stable/going up.


Sent from my iPhone using Tapatalk

When I had a new mortgage I definitely had no desire to prepay.  I figured if a huge crash came, the non-recourse mortgage (in CA) would give me some downside protection.  At this point it's almost unthinkable that any market crash could lead me to walk away.  I guess there's the possibility of a ridiculous earthquake that renders the home AND land completely worthless.

Still not paying down my mortgage, but the downside protection doesn't factor into that decision anymore
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 15, 2023, 10:22:50 AM
You guys know I'm a believer in safe leverage, but refinancing a car loan seems...un-Mustachian. The value of our cars should be so small relative to everything else that it shouldn't move the needle.
But if you could save money by refinancing a car loan why wouldn't you?
I did one years ago to a local CU for one free month plus a $200 bonus.

I usually drop comprehensive/collision once the value of my car becomes non-catastrophic.  Dealing with the hassle of a lien title and insurance requirements definitely puts a damper on the reward of cash-out refinancing a car.

We’ve all seen what you do to cars / I don’t think insurance covers that.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 16, 2023, 06:48:24 AM
@sonofsven , my argument is more about size than about saving money (in fact, yesterday, I only filled up my tank a fraction of the way towards full because I thought the per gallon price was too high). You sound like you saved $600-ish from your refinance--and I will take that if it's in front of me on a table--but I imagine your target net worth is probably 1,500x of that or more.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 16, 2023, 07:25:17 AM
I refinanced a car loan in 2018 which saved me ~$5k in interest over payback period.
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on January 16, 2023, 07:50:49 AM
@sonofsven , my argument is more about size than about saving money (in fact, yesterday, I only filled up my tank a fraction of the way towards full because I thought the per gallon price was too high). You sound like you saved $600-ish from your refinance--and I will take that if it's in front of me on a table--but I imagine your target net worth is probably 1,500x of that or more.
Gotcha. Sometimes I go all in to save money as i'm of fairly modest income, but my blind spot is that I should often instead make more money. But I do like the simplicity of staying home and puttering around more as I get older, instead of the $$ hustle.
I quit twice a month garbage pickup because the can was rarely full, so now I take my trash to the dump every few months. Also I would often forget which week my pickup was and if I put the can out on the wrong day they would charge me extra, so heck with 'em.

Back  on topic: still not paying extra on my 2.75% fixed mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 17, 2023, 08:38:09 AM
@sonofsven , my argument is more about size than about saving money (in fact, yesterday, I only filled up my tank a fraction of the way towards full because I thought the per gallon price was too high). You sound like you saved $600-ish from your refinance--and I will take that if it's in front of me on a table--but I imagine your target net worth is probably 1,500x of that or more.

Back  on topic: still not paying extra on my 2.75% fixed mortgage.

Indeed, I am working at hard making sure I stay in love with my house (that has a similar rate mortgage, actually).
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 19, 2023, 02:07:23 PM
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.

If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.

We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).

This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
Title: Re: DONT Payoff your Mortgage Club
Post by: cdub on January 19, 2023, 03:57:10 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

I'm not. Ha. (I started the other thread) I want the peace of mind of having no debt whatsoever. To me that's worth any nickel and diming of interest rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 19, 2023, 04:21:41 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

I'm not. Ha. (I started the other thread) I want the peace of mind of having no debt whatsoever. To me that's worth any nickel and diming of interest rates.

Why on earth would you respond to a post made over five years ago to a member who is no longer here? It just seems like you are trying to start a needless confrontation.

It’s particularly odd given your most recent updates.
Title: Re: DONT Payoff your Mortgage Club
Post by: cdub on January 19, 2023, 04:27:08 PM
Not really. I just thought it was neat that someone created a thread based on the opposite of my thread from 10 years ago. I haven't been on this site for over 5 years so I never saw the post. Not trying to start a confrontation. To each their own in how they want to handle their mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 19, 2023, 05:54:08 PM
Not really. I just thought it was neat that someone created a thread based on the opposite of my thread from 10 years ago. I haven't been on this site for over 5 years so I never saw the post. Not trying to start a confrontation. To each their own in how they want to handle their mortgage.
Except it isn't really the opposite. Those other threads are for the sole purpose of celebrating a decision that others consider sub-optimal. No discussion is allowed there, only celebration. This thread was created for people who wanted to learn and understand before  making a decision. HUGE difference. We are a very tolerant group, but your comments aren't really helpful, primarily because this thread isn't what you think it is. However, you are welcome to stay and learn. Who knows? Maybe you'll get a mortgage on your next property. Either way, you'll gain a greater understanding of why "killing the mortgage" comes at a cost that many don't even realize they're paying until it's too late.

You're right about one thing, this is a really neat thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: cdub on January 19, 2023, 06:09:51 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 19, 2023, 06:17:31 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
Title: Re: DONT Payoff your Mortgage Club
Post by: By the River on January 20, 2023, 08:10:36 AM
To sort of get this back on track:  Yesterday I was deep cleaning my office and found old papers that I needed to shred.  One was the folder for my 20 year 6.75% mortgage that I took out in 2002.  Saw that the last payment had been scheduled for October 2022.  I guess if I had stayed in that house, I would have been posting in the other thread (or probably refinanced).  I guess I will keep paying on my 2.75% mortgage for the next 28 years. 

As an aside; damn we used to use a lot of paper to get a mortgage, the appraisal, paychecks, bank accounts, and all of the other papers associated before ever getting to the 40 pages of mortgage fine print.   
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on January 20, 2023, 12:40:29 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 20, 2023, 12:59:49 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.

I’m familiar and generally appreciate your approach on this forum. Doesn’t change the fact that the overall tone has changed dramatically over the last decade
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 20, 2023, 01:30:54 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.

I’m familiar and generally appreciate your approach on this forum. Doesn’t change the fact that the overall tone has changed dramatically over the last decade
I have a theory that most of us who got in on the ground floor, so to speak, have discovered that this shit works, and does so far beyond our original expectations oe even our wildest ones, in many cases. Now our priorities have shifted.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 20, 2023, 01:59:09 PM
@Dicey , I think by "this shit" you have the larger Mustachian movement in mind. We DPYM'ers rightly recognize we are a subgroup within the larger, anti-consumerist mustachian movement, however.

I think we are at a moment in time when market conditions have changed, and these may well change the DPYM strategy for people who have not yet secured a property. Anti-consumerism will certainly age well. I think you've experienced this with your current property you're renovating for sale, haven't you?
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 20, 2023, 05:15:47 PM
@Dicey , I think by "this shit" you have the larger Mustachian movement in mind. We DPYM'ers rightly recognize we are a subgroup within the larger, anti-consumerist mustachian movement, however.

I think we are at a moment in time when market conditions have changed, and these may well change the DPYM strategy for people who have not yet secured a property. Anti-consumerism will certainly age well. I think you've experienced this with your current property you're renovating for sale, haven't you?
Yes indeed, I was referring to the larger Mustachian movement, as you call it, because that's where a lot of these so-called changes are most apparent. This thread has been pretty consistent, IMO.

The property I am just finishing renovating is not for sale, it is for a family member. I'm not going to link it, but it's not too hard to find for those of you who love a good "Before & After" and can find the RE & LL section. If I was buying it to flip, which I wouldn't have, we would indeed be in deep doo-doo.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on January 20, 2023, 05:41:52 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.

Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.
Title: Re: DONT Payoff your Mortgage Club
Post by: rpr on January 20, 2023, 06:14:20 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.


Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.

All hail the mighty thorstache :)
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 20, 2023, 07:34:29 PM
I had temporarily forgotten about Mr Orange.  Man, that got weird.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 20, 2023, 08:34:25 PM
Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.
I am honored to have made this list.  =)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 20, 2023, 10:32:53 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.

Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.
Awesome recap, but you missed the most germane one: The legend who started this thread, boarder42, who got his badass self banned, reinstated, then banned again. I miss that dude, but I have it on good authority that he is enjoying his post-FIRE, post-MMM life very much. We have our fingers crossed that he will make it to the next Moab Meetup.

And just because I like throwing matches, I recently bought a Vitamix on sale at Costco for $299. It's still in the box, because is Bonus Kid is about to move out and he's taking the Ninja with him. Once that happens, I will be free to open the Vitamix box, which I'm staring at as I type. Do you think it will make my friends think better of me? Hahaha...my friends don't care. They're more likely to ask if I scored it at the thrift shop where I volunteer. I wish.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 20, 2023, 10:33:43 PM
Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.
I am honored to have made this list.  =)
Your lists are legendary. You deserve to be on that list.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on January 22, 2023, 12:24:18 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.

Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.
Awesome recap, but you missed the most germane one: The legend who started this thread, boarder42, who got his badass self banned, reinstated, then banned again. I miss that dude, but I have it on good authority that he is enjoying his post-FIRE, post-MMM life very much. We have our fingers crossed that he will make it to the next Moab Meetup.

And just because I like throwing matches, I recently bought a Vitamix on sale at Costco for $299. It's still in the box, because is Bonus Kid is about to move out and he's taking the Ninja with him. Once that happens, I will be free to open the Vitamix box, which I'm staring at as I type. Do you think it will make my friends think better of me? Hahaha...my friends don't care. They're more likely to ask if I scored it at the thrift shop where I volunteer. I wish.

Dicey, I have a vitamix as well.  My Dad likes to buy his kids expensive kitchen or shop gadgets for Christmas.  This year he bought me a good drill since he hated my cheap black and decker one.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 22, 2023, 05:54:19 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.

Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.
Awesome recap, but you missed the most germane one: The legend who started this thread, boarder42, who got his badass self banned, reinstated, then banned again. I miss that dude, but I have it on good authority that he is enjoying his post-FIRE, post-MMM life very much. We have our fingers crossed that he will make it to the next Moab Meetup.

And just because I like throwing matches, I recently bought a Vitamix on sale at Costco for $299. It's still in the box, because is Bonus Kid is about to move out and he's taking the Ninja with him. Once that happens, I will be free to open the Vitamix box, which I'm staring at as I type. Do you think it will make my friends think better of me? Hahaha...my friends don't care. They're more likely to ask if I scored it at the thrift shop where I volunteer. I wish.

Dicey, I have a vitamix as well.  My Dad likes to buy his kids expensive kitchen or shop gadgets for Christmas.  This year he bought me a good drill since he hated my cheap black and decker one.
I like your Dad.
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on January 22, 2023, 07:15:59 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.

Yup, as has this forum.
I've roasted and facepunched lots of people who asked if they should buy expensive cars or if they should buy houses in HCOL areas or if they should buy rental RE with hundreds of dollars per month in negative cash flow. I've always been polite and I've experienced no bans or warnings, ever. I've gone against the grain in numerous discussions.

Give it a try if you don't believe me. There's no shortage of opportunities, just a shortage of people throwing facepunches.

Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.
Awesome recap, but you missed the most germane one: The legend who started this thread, boarder42, who got his badass self banned, reinstated, then banned again. I miss that dude, but I have it on good authority that he is enjoying his post-FIRE, post-MMM life very much. We have our fingers crossed that he will make it to the next Moab Meetup.

And just because I like throwing matches, I recently bought a Vitamix on sale at Costco for $299. It's still in the box, because is Bonus Kid is about to move out and he's taking the Ninja with him. Once that happens, I will be free to open the Vitamix box, which I'm staring at as I type. Do you think it will make my friends think better of me? Hahaha...my friends don't care. They're more likely to ask if I scored it at the thrift shop where I volunteer. I wish.

Dicey, I have a vitamix as well.  My Dad likes to buy his kids expensive kitchen or shop gadgets for Christmas.  This year he bought me a good drill since he hated my cheap black and decker one.

I, too, have a dad who gifts delightful splurges like a vitamix. It’s a great relationship 😉
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on January 23, 2023, 09:41:24 AM
Yes but think about all the things our prodigal mustachian poster has missed.

The great do don't pay your mortgage schism
The Mr Orange separation journal trainwreck
The great $600 Vitamix debate of '18
The endless series of "is the market too high right now?" threads and the subsequent chronicling by RWD
The OMD forum split
The junioroldtimer market timing thread
The arrival of our top is in savior, the mighty thorstache

It has been quite a journey.

+ Westchester Frugal's thread actively seeking support for a country club membership and mansion

Hey, WF might actually fit in now. "Yeah, you hate the country club, and it costs $9000/yr, but it's your money. YOLO!"

Who is the poster who has/had weird, controlling, relationships with his girlfriends and women in general? He posted in Off Topic fairly recently.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 23, 2023, 10:21:08 AM
Who is the poster who has/had weird, controlling, relationships with his girlfriends and women in general? He posted in Off Topic fairly recently.
zoochadookdook?
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on January 23, 2023, 10:32:58 AM
Who is the poster who has/had weird, controlling, relationships with his girlfriends and women in general? He posted in Off Topic fairly recently.
zoochadookdook?

Yes, thank you.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 23, 2023, 10:58:19 AM
Yeah, most of us probably don't want to be known by the mistakes we're making in our romantic relationships.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 23, 2023, 12:04:49 PM
Yeah, most of us probably don't want to be known by the mistakes we're making in our romantic relationships.
Especially when we continue to make them and post about it.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 23, 2023, 02:01:41 PM
Easy, there, I have a journal that is exclusively focused on my crypto-currency purchases.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on January 23, 2023, 02:11:36 PM
Easy, there, I have a journal that is exclusively focused on my crypto-currency purchases.

I don't think documenting an investment strategy in real time to see how it goes is the same thing.

Frankly, lots of people post threads and journals about relationships, but the ones we end up remembering are usually when the OP is lacking in self-awareness or completely obstinate in the face of consistent advice to try something different when the presumably came and posted to get advice about something that is not working for them. That's what makes the Mr. Orange's and zoochadookdook's and Wechester Frugal's of the world so memorable.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 24, 2023, 10:54:01 AM
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.

If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.

We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).

This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on January 24, 2023, 11:50:26 AM
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.

If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.

We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).

This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.

i like the plan of paying off the existing mortgage, which frees up DTI space for the new mortgage. i also like the idea of you not being held ransom by having to sell your existing place to buy the new place, which is a tricky situation when buying properties. With $100k left on the existing mortgage and $300k available to you it all seems like a good plan.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on January 24, 2023, 11:59:23 AM
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.

If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.

We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).

This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.

i like the plan of paying off the existing mortgage, which frees up DTI space for the new mortgage. i also like the idea of you not being held ransom by having to sell your existing place to buy the new place, which is a tricky situation when buying properties. With $100k left on the existing mortgage and $300k available to you it all seems like a good plan.
I like the plan too, so long as it all happens relatively quickly once make that first move to pay off the mortgage. The risk would be that something happens and after you've paid off current house, plans change and you're looking at several years or more with that extra $100K languishing as home equity and maybe refinancing is difficult and if available seems pretty likely to be at worse terms than you had before. So if you do this this way, be sure to get it all done in a matter of a few months.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on January 24, 2023, 12:32:55 PM
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.

If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.

We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).

This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.

Sorry I missed your post @RWD   I'd pose that question directly to your lender.   As I understand it, the old mortgage will be counted as part of your DTI, BUT your liquid assets also figure into the qualification process.  I'm not sure how that formula works, and it is probably lender specific.   Might be sixes, not sure.  In any event, the power of DPYM comes in the long term, so it probably won't matter much either way. 

Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 24, 2023, 01:40:39 PM
I am considering the ramifications of paying off our mortgage with knowledge of a planned move. Ideally we would 1) buy (finance) a new house, 2) move into new house, 3) sell old house (and then settle old mortgage). From what I've read if we don't sell our old house first (or use a contingency or rent it) then the old mortgage payment will be used as part of our DTI calculations for the new mortgage. Because we have a 15-year mortgage the monthly amount is actually rather high relative to the remaining balance. Our payment is ~$1600/month on a $100k remaining balance.

If we were to take that $100k and put it towards a new house that would allow us to buy $100k more house. But if we paid off the old mortgage with that $100k our improved DTI ratio would allow borrowing an additional $200-250k (without tying up extra money in equity in the new house) at today's interest rates (if I'm understanding correctly). Then once the old house sells we could roll all the equity back into investments.

We have over ~$300k in liquid (and post-tax) savings/investments accounts. So dropping $100k on the current mortgage should not negatively impact our down payment funds. I can't imagine needing more than $200k for the down payment (20% on a $1M house, wow).

This is all still hypothetical right now. It may end up being moot and we don't buy an expensive enough house where DTI is a factor. But I want to be figure this stuff out ahead of time. Am I thinking about this correctly? Are there other strategies I should be considering?
I'm assuming no one saw this post of mine from last week? I'm also considering making a case study post, but it is maybe still too hypothetical.

i like the plan of paying off the existing mortgage, which frees up DTI space for the new mortgage. i also like the idea of you not being held ransom by having to sell your existing place to buy the new place, which is a tricky situation when buying properties. With $100k left on the existing mortgage and $300k available to you it all seems like a good plan.
I like the plan too, so long as it all happens relatively quickly once make that first move to pay off the mortgage. The risk would be that something happens and after you've paid off current house, plans change and you're looking at several years or more with that extra $100K languishing as home equity and maybe refinancing is difficult and if available seems pretty likely to be at worse terms than you had before. So if you do this this way, be sure to get it all done in a matter of a few months.
Thanks for weighing in, both of you. I agree that this is pretty committal so I need to be sure we're moving first. On that front the potential move would be to an entirely different state, so it's not like we're just thinking of moving to a bigger house or nicer part of town. If this is happening it will be quite definitive with a definitive timeline.


Sorry I missed your post @RWD   I'd pose that question directly to your lender.   As I understand it, the old mortgage will be counted as part of your DTI, BUT your liquid assets also figure into the qualification process.  I'm not sure how that formula works, and it is probably lender specific.   Might be sixes, not sure.  In any event, the power of DPYM comes in the long term, so it probably won't matter much either way.
No problem, I know the forum can sometimes be a little wonky about actually jumping to the correct unread post in a thread. And then this thread went off on a tangent immediately after I posted.

Good idea on talking with the lender. In theory if they could take into account my liquid capital then that would simplify things greatly.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 25, 2023, 07:56:21 AM
I should also consider that selling extra funds from my brokerage would have tax implications, hmm...
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 26, 2023, 07:07:26 AM
three years ago I went through a move, and we wound up just submitting a written statement that we were planning to sell the prior house soon. You may wish to talk with your mortgage broker before you commit to a plan that would pay off the loan balance in case it doesn't actually matter. Having liquid cash during a move sure helped us.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on January 26, 2023, 07:52:24 AM
three years ago I went through a move, and we wound up just submitting a written statement that we were planning to sell the prior house soon. You may wish to talk with your mortgage broker before you commit to a plan that would pay off the loan balance in case it doesn't actually matter. Having liquid cash during a move sure helped us.
Thanks, that's very helpful. That would definitely be ideal. I am quite happy to not have all our capital tied up in house equity right now. So much more flexibility with not paying extra on the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 30, 2023, 09:06:50 PM
Now this is funny…

(https://uploads.tapatalk-cdn.com/20230131/801876681516a37f8afa5740148c92f7.jpg)


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Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 31, 2023, 07:51:06 AM
Where did you find a photo of us, @rmorris50 ?
Title: Re: DONT Payoff your Mortgage Club
Post by: midweststache on January 31, 2023, 08:51:11 AM
Now this is funny…

Sent from my iPhone using Tapatalk

You're not wrong. We are at 2.625% and, two years into ownership with a +$100K larger mortgage, we are already paying less in interest than we were on our previous home after four years of ownership.

I've told DH were here for the next 28 years - enough time to get both our kids through the local HS (walking distance to public schools K-8 and a short bus ride/bike ride to the HS is what sold us on this place, in addition to being a SFH [rather than a condo] on a lot and a half across from a giant park and in an excellent school system).
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on January 31, 2023, 10:57:28 AM
I was making the trip to work today and listening to local radio, and they mentioned that we're in another property-revaluation cycle, so taxes are going to go up soon. Good thing I optimized on the principal/interest part of my payment!
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on January 31, 2023, 11:06:31 AM
Where did you find a photo of us, @rmorris50 ?
You know, on the internets…


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Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on January 31, 2023, 07:53:40 PM
Now this is funny…

(https://uploads.tapatalk-cdn.com/20230131/801876681516a37f8afa5740148c92f7.jpg)


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Oh Snap...*

*I remember this phrase being funny in grad school. Cooler people have informed me it was funny in middle school.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 01, 2023, 03:16:29 PM
The meme is particularly appropriate since vampires are immortal, presumably they could leverage all the way to the hilt, perhaps should even consider a negative amortization.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 01, 2023, 03:58:26 PM
I think a 90 year old vampire could make a killing* taking out a series of COLA adjusted annuities. Sure, it might not get great returns the first few years, but just wait until the third or forth decade kicks in!

* pun intended
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on February 01, 2023, 04:28:57 PM
Gives a whole new meaning to signing your life away…


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Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 02, 2023, 09:32:04 AM
I suppose the real question is why a Vampire would ever not be 100% stocks?
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on February 02, 2023, 09:46:18 AM
I suppose the real question is why a Vampire would ever not be 100% stocks?
On a long enough time period, black swan events become a serious risk. Since stocks are publicly known there's a much higher chance of them being nationalized relative to a pile of gold hidden in an underground lair protected by an army of the undead.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 02, 2023, 11:59:01 AM
I suppose the real question is why a Vampire would ever not be 100% stocks?
On a long enough time period, black swan events become a serious risk. Since stocks are publicly known there's a much higher chance of them being nationalized relative to a pile of gold hidden in an underground lair protected by an army of the undead.

but what is the opportunity cost of forming and maintaining an army of the undead?
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on February 02, 2023, 12:46:39 PM
I suppose the real question is why a Vampire would ever not be 100% stocks?
On a long enough time period, black swan events become a serious risk. Since stocks are publicly known there's a much higher chance of them being nationalized relative to a pile of gold hidden in an underground lair protected by an army of the undead.

but what is the opportunity cost of forming and maintaining an army of the undead?

I think it would depend on whether you are employing them or have more of an independent contractor army on 1099s. If you have to provide benefits I don't think it is worthwhile. Zombie health insurance rates are bananas, what with all the surgical reattachment procedures they require.
Title: Re: DONT Payoff your Mortgage Club
Post by: mtnman125 on February 10, 2023, 12:17:21 PM
I'm on board with DPYMC, but thinking about how the strategy works with early retirements, specifically ACA subsidies.

Right now my mortgage is $2000/mo, 28 years left at 2.5%- so if I kept things as is that's an extra $24k I'd need to withdraw in retirement

An ACA silver plan will be 8.5% of AGI (just for premium), so essentially a penalty of $8.5 per $1000 withdrawn.

Would I be better off paying off in full at time or retirement, or maybe a lump sum payment and recast to lower payment (say $1k/mo)?

Any advice welcome- thanks.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on February 10, 2023, 03:53:02 PM
Edit: Friday brain.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on February 10, 2023, 05:16:53 PM
I'm on board with DPYMC, but thinking about how the strategy works with early retirements, specifically ACA subsidies.

Right now my mortgage is $2000/mo, 28 years left at 2.5%- so if I kept things as is that's an extra $24k I'd need to withdraw in retirement

An ACA silver plan will be 8.5% of AGI (just for premium), so essentially a penalty of $8.5 per $1000 withdrawn.

Would I be better off paying off in full at time or retirement, or maybe a lump sum payment and recast to lower payment (say $1k/mo)?

Any advice welcome- thanks.
Depends on the structure of your portfolio to an extent. If all the money can come out of Roth contributions (or qualified after 59.5), that's no ACA subsidy impact I believe. Opposite if traditional. If you're taking money out of a taxable account, then some of it is income and some of it is return of basis.

In any event, looking at it as 8.5% additional marginal rate at withdrawal can help your analysis.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 10, 2023, 07:42:25 PM
I'm on board with DPYMC, but thinking about how the strategy works with early retirements, specifically ACA subsidies.

Right now my mortgage is $2000/mo, 28 years left at 2.5%- so if I kept things as is that's an extra $24k I'd need to withdraw in retirement

An ACA silver plan will be 8.5% of AGI (just for premium), so essentially a penalty of $8.5 per $1000 withdrawn.

Would I be better off paying off in full at time or retirement, or maybe a lump sum payment and recast to lower payment (say $1k/mo)?

Any advice welcome- thanks.
It almost always makes sense to stuff everything you can into tax deferred accounts, then Roths (if eligible) then taxable investment accounts, etc. Get as many soldiers working for you as fast as possible. Eventually, you will get to a point where you can easily decide to pay the aging mortgage off, or, more likely, continue to have fun watching your investments earn more than you ever did on your best day working.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on February 10, 2023, 08:31:49 PM
I'm on board with DPYMC, but thinking about how the strategy works with early retirements, specifically ACA subsidies.

Right now my mortgage is $2000/mo, 28 years left at 2.5%- so if I kept things as is that's an extra $24k I'd need to withdraw in retirement

An ACA silver plan will be 8.5% of AGI (just for premium), so essentially a penalty of $8.5 per $1000 withdrawn.

Would I be better off paying off in full at time or retirement, or maybe a lump sum payment and recast to lower payment (say $1k/mo)?

Any advice welcome- thanks.
So the penalty means you need to withdrawal about $26k instead of $24k. What interest rate would your mortgage have to be to require a $26k annual withdrawal? 3%? You prob would still choose to not prepay a 3% mortgage? That’s how I would think about it.


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Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on February 11, 2023, 10:23:30 AM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Hmmm... If those thread denizens were made aware how far they strayed from the original intent of the thread with their "celebrations only" demands - that could be pretty funny.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on February 11, 2023, 10:28:28 AM
I had temporarily forgotten about Mr Orange.  Man, that got weird.
Hm, never saw that one.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 11, 2023, 11:55:16 AM
I had temporarily forgotten about Mr Orange.  Man, that got weird.
Hm, never saw that one.

… and you’ll never see the weirdest parts as they e been scrubbed. But Mr Orange has the distinction of being the only poster I’m aware of to have entire sections of his journal redacted by the mods. It was … bizarre.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 11, 2023, 12:18:23 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Hmmm... If those thread denizens were made aware how far they strayed from the original intent of the thread with their "celebrations only" demands - that could be pretty funny.
Not gonna lie, for a moment I was tempted to share that gem with the mods, but some of us were sternly warned to keep out of the "discussion" or risk being banned. Not worth it to me. Let 'em celebrate all they want. However, when people say this forum has changed, I always think it started with those threads.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on February 11, 2023, 02:18:06 PM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Hmmm... If those thread denizens were made aware how far they strayed from the original intent of the thread with their "celebrations only" demands - that could be pretty funny.
Not gonna lie, for a moment I was tempted to share that gem with the mods, but some of us were sternly warned to keep out of the "discussion" or risk being banned. Not worth it to me. Let 'em celebrate all they want. However, when people say this forum has changed, I always think it started with those threads.
Can't disagree with that. Face punches blocked in favor of creating a "safe space" - which apparently wasn't even the intent of the originator of the discussion.
Title: Re: DONT Payoff your Mortgage Club
Post by: nouseforausername on February 13, 2023, 07:24:27 AM
I have 111k left on a 15 year mortgage at 2.75% that'll mature in 2031.

Posting here to hold myself accountable not to curtail or payoff the balance -- as sometimes I question a bit my DPYMC faith.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 13, 2023, 07:52:04 AM
I have 111k left on a 15 year mortgage at 2.75% that'll mature in 2031.

Posting here to hold myself accountable not to curtail or payoff the balance -- as sometimes I question a bit my DPYMC faith.

Curious, what would tempt you to pay something like that off? Just trying to understand the motivation…
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on February 13, 2023, 08:48:29 AM
I received an email from Better mortgage brokers, they have a deal going where if you close on a mortgage now they will pay up to $3500 closing costs on a re-fi if rates go down. Needs to be at least six months after close, and be done within three years of close.
Might just be marketing BS, but maybe it's an option for folks who need a mortgage now.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on February 13, 2023, 11:55:20 AM
No discussion is allowed there, only celebration.

Wasn't aware no discussion was allowed there. Isn't that the entire point of forums? I started that thread and it certainly wasn't my intention for it to be a celebration only thread... however it is a ten year old thread and has probably changed a lot in my absence.
Hmmm... If those thread denizens were made aware how far they strayed from the original intent of the thread with their "celebrations only" demands - that could be pretty funny.
Not gonna lie, for a moment I was tempted to share that gem with the mods, but some of us were sternly warned to keep out of the "discussion" or risk being banned. Not worth it to me. Let 'em celebrate all they want. However, when people say this forum has changed, I always think it started with those threads.
Can't disagree with that. Face punches blocked in favor of creating a "safe space" - which apparently wasn't even the intent of the originator of the discussion.
How about this:

If you have a 3.5% mortgage, you belong in the DPOYM club.
If you have a 6.5% mortgage, you belong in the POYM club.
If you're in between, there's no clear answer.

In the world of the past, there were only cheap mortgages and anyone with a pulse refinanced every few years. In today's world, there are people with vastly different mortgage realities. It doesn't make sense to tell the 3.5% person to pay off their mortgage, and it also doesn't make sense to tell the 6.5% person NOT to pay off their mortgage if they will still have good liquidity afterward. It's not so much that it's rude or insensitive to give each type of person bad advice, it's just that the advice is often bad if the interest rate is not taken into account.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on February 13, 2023, 12:00:37 PM
I mean, yeah - starting to get a little high at 6.5%. I might look to do a 2nd mortgage at some point in the next year. Definitely not refinancing from 3.75% to 6.5% on $118K just to get $70K out when I can probably get close to same rate with a 2nd mortgage.

Way upthread you'll see why that's the case for me - tried to refinance one last time in 2021, but didn't have the energy to deal with my unusual situation then having gone from Self Employed for 10 years -> W2 employee for 10 monhths -> back to self employed right when I decided there was enough equity to try (we had refinanced to 80% LTV in October 2019 - crazy run up since then even). Will have that coveted 2 years of tax returns soon.
Title: Re: DONT Payoff your Mortgage Club
Post by: nouseforausername on February 13, 2023, 12:17:04 PM
I have 111k left on a 15 year mortgage at 2.75% that'll mature in 2031.

Posting here to hold myself accountable not to curtail or payoff the balance -- as sometimes I question a bit my DPYMC faith.

Curious, what would tempt you to pay something like that off? Just trying to understand the motivation…

It would lower my fixed costs by 44%. I'd have to re-model it, but I think it would actually move up a "technically I'm capable to FIRE" tipping point.

Just answering a question here! If this isn't the place to ponder it -- no problem :]
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 13, 2023, 03:40:03 PM
How about this:

If you have a 3.5% mortgage, you belong in the DPOYM club.
If you have a 6.5% mortgage, you belong in the POYM club.
If you're in between, there's no clear answer.

In the world of the past, there were only cheap mortgages and anyone with a pulse refinanced every few years. In today's world, there are people with vastly different mortgage realities. It doesn't make sense to tell the 3.5% person to pay off their mortgage, and it also doesn't make sense to tell the 6.5% person NOT to pay off their mortgage if they will still have good liquidity afterward. It's not so much that it's rude or insensitive to give each type of person bad advice, it's just that the advice is often bad if the interest rate is not taken into account.
Uh, you must have a very short view into "the past"...

How about this:

Even at 6.5%, the answer isn't quite so clear. If you're not saving enough to get your employer's full match or saving less pre-tax that what's allowed in your situation, or skipping Roth IRAs (if eligible), then you have no business paying extra on your mortgage. Even if you're doing all these things, there is still the time value of money to consider and the mighty, mighty hedge against inflation a fixed mortgage generously provides.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 13, 2023, 03:46:06 PM
I have 111k left on a 15 year mortgage at 2.75% that'll mature in 2031.

Posting here to hold myself accountable not to curtail or payoff the balance -- as sometimes I question a bit my DPYMC faith.

Curious, what would tempt you to pay something like that off? Just trying to understand the motivation…

It would lower my fixed costs by 44%. I'd have to re-model it, but I think it would actually move up a "technically I'm capable to FIRE" tipping point.

Just answering a question here! If this isn't the place to ponder it -- no problem :]
This is the place where discussion is encouraged. You are absolutely in the right place!

One of the many reasons not to do it is the money you pull from investments will stop growing. Keeping it means the true cost of your housing goes down with inflation, while your investments continue to grow. There's a whole lot of good sleep to be had knowing you could pay off your mortgage in a heartbeat. However, watching your assets grow is exponentially more reassuring. Over time, the markets always go up, while your fixed rate mortgage doesn't.
Title: Re: DONT Payoff your Mortgage Club
Post by: nouseforausername on February 14, 2023, 04:47:57 AM
@Dicey Thanks!
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on February 17, 2023, 05:47:51 PM
How about this:

If you have a 3.5% mortgage, you belong in the DPOYM club.
If you have a 6.5% mortgage, you belong in the POYM club.
If you're in between, there's no clear answer.

In the world of the past, there were only cheap mortgages and anyone with a pulse refinanced every few years. In today's world, there are people with vastly different mortgage realities. It doesn't make sense to tell the 3.5% person to pay off their mortgage, and it also doesn't make sense to tell the 6.5% person NOT to pay off their mortgage if they will still have good liquidity afterward. It's not so much that it's rude or insensitive to give each type of person bad advice, it's just that the advice is often bad if the interest rate is not taken into account.
Uh, you must have a very short view into "the past"...

How about this:

Even at 6.5%, the answer isn't quite so clear. If you're not saving enough to get your employer's full match or saving less pre-tax that what's allowed in your situation, or skipping Roth IRAs (if eligible), then you have no business paying extra on your mortgage. Even if you're doing all these things, there is still the time value of money to consider and the mighty, mighty hedge against inflation a fixed mortgage generously provides.

You also don't know what the next few years will hold.  Rates could drop again, and a refinance of original purchase loan is going to get better terms than a cash-out (tax and rate) after you've totally paid off your mortgage

That kind of goes with the theme that keeping your mortgage is just more flexible.  You might end up paying more for that flexibility
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 18, 2023, 12:21:37 AM
How about this:

If you have a 3.5% mortgage, you belong in the DPOYM club.
If you have a 6.5% mortgage, you belong in the POYM club.
If you're in between, there's no clear answer.

In the world of the past, there were only cheap mortgages and anyone with a pulse refinanced every few years. In today's world, there are people with vastly different mortgage realities. It doesn't make sense to tell the 3.5% person to pay off their mortgage, and it also doesn't make sense to tell the 6.5% person NOT to pay off their mortgage if they will still have good liquidity afterward. It's not so much that it's rude or insensitive to give each type of person bad advice, it's just that the advice is often bad if the interest rate is not taken into account.
Uh, you must have a very short view into "the past"...

How about this:

Even at 6.5%, the answer isn't quite so clear. If you're not saving enough to get your employer's full match or saving less pre-tax that what's allowed in your situation, or skipping Roth IRAs (if eligible), then you have no business paying extra on your mortgage. Even if you're doing all these things, there is still the time value of money to consider and the mighty, mighty hedge against inflation a fixed mortgage generously provides.

You also don't know what the next few years will hold.  Rates could drop again, and a refinance of original purchase loan is going to get better terms than a cash-out (tax and rate) after you've totally paid off your mortgage

That kind of goes with the theme that keeping your mortgage is just more flexible.  You might end up paying more for that flexibility
Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?

Tangent: there is some seriously cringe-worthy bombast happening on a certain other thread. I rolled it so hard, my glass eye almost fell out. Not naming or quoting, but Geez, Louise!
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on February 18, 2023, 06:10:39 AM
What tax consequences would those be? Nothing that I'm aware of or that a quick Google search turned up...
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on February 18, 2023, 09:06:28 AM
Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?
Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on February 18, 2023, 09:15:45 AM
Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?
Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
I'm thinking there is a cap on how much of the interest on the new loan would be tax deductible, though possibly tax code changes implemented by a certain former US president changed that.
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on February 18, 2023, 09:42:02 AM
Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?
Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
I'm thinking there is a cap on how much of the interest on the new loan would be tax deductible, though possibly tax code changes implemented by a certain former US president changed that.
You're probably thinking about the $10k SALT cap which the certain former president pushed through. There used to be no cap: https://taxfoundation.org/tax-basics/salt-deduction/

It's irrelevant for me - I use the standard deduction since I come nowhere near enough to make itemizing worth it. The standard deduction for 2023 MFJ is $27,700. For single filers, it's $13,850
Title: Re: DONT Payoff your Mortgage Club
Post by: LibStache on February 18, 2023, 08:27:01 PM
Hi folks, I’m new to the idea of NOT paying off your mortgage as a fire strategy. But I’m curious about several things. I am about 6 years from FIRE and I planned to use the last couple of years before retiring to completely pay down the mortgage. Are folks in this camp not planning to pay down the mortgage early at all and just let them ride for the full length of the mortgage (carrying the mortgage payment into retirement), or is it that they’re planning to do exactly what I said I was planning to do which investing now and then paying down the mortgage just before retirement. I hope this is making sense. I’m just wondering if I’ve been missing something and should reevaluate my need to pay down the mortgage before FIRE.

For what it’s worth, we have a $180,000 30-year mortgage (2021), 2.75% interest rate, $1069 payment.  According to my calculations, in order to retire without paying it off would require an extra $300k invested to cover the $1069 monthly payment OR, I could spend a couple extra years just before fire paying down the $150k-ish remaining  principal instead of investing(but also while letting my investments grow) and be done with it.

Am I missing something here?  I’d love to hear your thoughts.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on February 18, 2023, 08:37:21 PM
Hi folks, I’m new to the idea of NOT paying off your mortgage as a fire strategy. But I’m curious about several things. I am about 6 years from FIRE and I planned to use the last couple of years before retiring to completely pay down the mortgage. Are folks in this camp not planning to pay down the mortgage early at all and just let them ride for the full length of the mortgage (carrying the mortgage payment into retirement), or is it that they’re planning to do exactly what I said I was planning to do which investing now and then paying down the mortgage just before retirement. I hope this is making sense. I’m just wondering if I’ve been missing something and should reevaluate my need to pay down the mortgage before FIRE.

For what it’s worth, we have a $180,000 30-year mortgage (2021), 2.75% interest rate, $1069 payment.  According to my calculations, in order to retire without paying it off would require an extra $300k invested to cover the $1069 monthly payment OR, I could spend a couple extra years just before fire paying down the $150k-ish remaining  principal instead of investing(but also while letting my investments grow) and be done with it.

Am I missing something here?  I’d love to hear your thoughts.

Personally.  I took out my 30 year 3.875% mortgage in April of 2022.  I’m retiring in July of 2025.  I pay $19.23 extra each month to round up my payment to the nearest $50.  I plan on paying no more than this ever.  Honestly I’m likely to sell before I every reach the end of my Mortgage.  I have enough to pay it off today in my investment account.  Actually I had enough to pay cash for my place 10 months ago and didn’t.
Title: Re: DONT Payoff your Mortgage Club
Post by: LibStache on February 18, 2023, 08:48:31 PM
Thanks for your reply. I think where I’m confused is that it’ll take, at least for me, about the same length of time to pay down the mortgage as it would to have enough extra invested to cover a mortgage payment into retirement. I understand that my invested money would outperform a 2.75% mortgage rate, so I was just wondering if there was more to it, like tax implications, that I might be missing. 
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on February 18, 2023, 09:30:25 PM
Thanks for your reply. I think where I’m confused is that it’ll take, at least for me, about the same length of time to pay down the mortgage as it would to have enough extra invested to cover a mortgage payment into retirement. I understand that my invested money would outperform a 2.75% mortgage rate, so I was just wondering if there was more to it, like tax implications, that I might be missing.

Saving $300k to cover the mortgage payment isn't the correct way to think about it. That's because the mortgage (the PI portion, anyway) goes away at some point. You need to use cfiresim to model what happens if you keep ~$150k (the remaining principal) invested over 28 years. You can add "Spending" at the bottom -- make sure to unclick "Inflation Adjusted," which is where the real magic happens.

You will, of course, need to save 25x to cover insurance and property taxes.

The one thing a mortgage payment (the PI of PITI) does affect for the worse is ACA subsidies. Pulling out extra money for the mortgage may increase your taxes but probably less than you think due to cost basis and Roth conversions, etc.
Title: Re: DONT Payoff your Mortgage Club
Post by: LibStache on February 18, 2023, 10:04:42 PM
Wow, thanks for sharing that site. Really cool. I think where I’m still feeling confused is that in order to have enough money to cover monthly expenses that would include the $1069 mortgage payment for the first 22 years of retirement, I’d still have to have more money saved to do that or I’d have to increase my withdrawal rate to beyond 5.5%.
Title: Re: DONT Payoff your Mortgage Club
Post by: LibStache on February 19, 2023, 04:22:53 AM
Okay! When I woke up this morning it was like a lightbulb went off and what you said clicked.  I only need enough “extra” invested to cover the PI for the remaining time of the loan, which would be about $150k. And really, I wouldn’t even need that much since it would continue growing over that period of time anyway.I’ll have to do the math to see exactly how much that would be. Thank you so much for your help!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on February 19, 2023, 10:39:38 AM
Thanks for your reply. I think where I’m confused is that it’ll take, at least for me, about the same length of time to pay down the mortgage as it would to have enough extra invested to cover a mortgage payment into retirement. I understand that my invested money would outperform a 2.75% mortgage rate, so I was just wondering if there was more to it, like tax implications, that I might be missing.

Yes there are major tax implications for me as a single US tax payer.  I itemize and pretty much all of my interest from my mortgage is deductible.
Title: Re: DONT Payoff your Mortgage Club
Post by: LibStache on February 19, 2023, 05:41:13 PM
Great point. Thanks for the tip! 
Title: Re: DONT Payoff your Mortgage Club
Post by: LibStache on February 22, 2023, 01:18:43 PM
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow?  Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments?  Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.

For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 22, 2023, 04:44:25 PM
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow?  Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments?  Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.

For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.
Don’t over think it.
The simple premise is this: you will have a lot more money and quite possibly far less risk if you put money towards other investments, particularly if you follow the Investment Order.

I don’t segregate my money into “sinking funds” and the like because money is fungible, but if that helps you mentally there’s no harm or cost in doing so. I already have far more than our mortgage balance in investments and that will continue into retirement. No, I do not plan on paying it off when I retire either, as it would involve transferring wealth from diverse investments into my home.

cFIREsim is very useful for modeling how much additional you might need yo cover the PI for a finite period into retirement.
Title: Re: DONT Payoff your Mortgage Club
Post by: jsap819 on February 23, 2023, 12:05:54 AM
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow?  Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments?  Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.

For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.

I think you're mistaking the forest for the trees. You're looking at your $1069 payment as part of the 4% SWR when in reality, it's inflation protected which means your monthly payment will never go up year after year and eventually the payment will stop once the balance is down to $0.  To make things simple, just add your balance of $182k to your FIRE (expenses without the mortgage payment x25) number and be done with it.

You can choose to pay off your mortgage in one lump sum when you reach that number. Or, you can keep that $182k invested and just take out the monthly mortgage payment from that as long as you can beat your rate of 2.75% every year. With 28 years remaining, you're very likely to beat that with ease and end up with possibly double or triple the amount you started with after you make that last payment.

Hope that clarifies it for you as this is what seems to be holding you up.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 23, 2023, 07:08:10 AM
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow?  Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments?  Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.

For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.

The mechanics of making the payments is the easy part. Organizing the rest of your life such that you're saving 25% or more of the remaining income takes discipline.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on February 23, 2023, 09:01:26 PM
So, I’m really getting into the idea of not paying off the mortgage early but still feel like I need clarity on the process or strategy folks are using to do this. Would anyone be willing to share the process they follow?  Do you have the entire remaining balance of your mortgage invested before FIRE, or do you just have enough invested to pre-pay a certain number of payments?  Also, what types of accounts do you have this money invested in, etc. I assume just a taxable brokerage account unless you happen to already have enough built up in a Roth IRA. I’d just really appreciate some insight on the process you all are using to make this strategy work, as I rearrange this aspect of my FIRE plan.

For what it’s worth, I have $182,000, 2.75%, 28 years of 30 remaining, payment is $1069 including PMI of about $27 that will come off soon.

The mechanics of making the payments is the easy part. Organizing the rest of your life such that you're saving 25% or more of the remaining income takes discipline.

Not really.  401k automatic.  IRA/HSA/taxable also automatically done through reoccurring transfers. 
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on February 24, 2023, 07:48:41 AM
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha
Title: Re: DONT Payoff your Mortgage Club
Post by: ATtiny85 on February 24, 2023, 07:58:19 AM
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha

Good thing the market is so overpriced, it makes that prepayment very wise.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on February 24, 2023, 08:29:58 AM
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha

Good thing the market is so overpriced, it makes that prepayment very wise.
Let’s revisit in a couple decades and see. I’ll bet 55 cents it was a very poor place to put that money.
Title: Re: DONT Payoff your Mortgage Club
Post by: talltexan on February 24, 2023, 08:43:58 AM
Somehow I have 55 cents of prepaid principal. Where did I go wrong!? Haha

Good thing the market is so overpriced, it makes that prepayment very wise.
Let’s revisit in a couple decades and see. I’ll bet 55 cents it was a very poor place to put that money.

At today's interest rates, that $0.55 will be worth...$2 over the life of the loan! I think someone needs to have their DPYM status shifted to "On Notice."
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on March 02, 2023, 01:50:28 AM
Aren't there negative tax consequences associated with pulling cash out of a home you've paid off? Something something $100k limit...?
Taking a loan against an asset like a house is not itself a taxable event. However, you now need more cash flow - if this extra cash flow is income (say, Traditional IRA withdrawal) it may negatively impact your ACA subsidies and other tax incentives.
I'm thinking there is a cap on how much of the interest on the new loan would be tax deductible, though possibly tax code changes implemented by a certain former US president changed that.

Yes, I believe if you itemize, you can only deduct the mortgage interest if it was used to buy, build, or improve the house.  So if you have a $750k loan that you used to purchase the home you can deduct the interest.  But if you pay it off and then take a $750k cash out mortgage you can no longer deduct the interest.

I also believe the 100k limit you mentioned was the old rule and now it's 0 (thanks TCJA!)
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 02, 2023, 09:36:46 AM
I was reflecting on my current mortgage that I’m in no hurry to pay off.  I realized that it’s more important not to pay ahead now living an CA as a non recourse state.  If things go to heck, I can just walk away losing only what is already in my home.  I could then go live cheaply in BFE and be perfectly ok with my liquid assets.
Title: Re: DONT Payoff your Mortgage Club
Post by: couponvan on March 02, 2023, 11:10:30 AM
I was reflecting on my current mortgage that I’m in no hurry to pay off.  I realized that it’s more important not to pay ahead now living an CA as a non recourse state.  If things go to heck, I can just walk away losing only what is already in my home.  I could then go live cheaply in BFE and be perfectly ok with my liquid assets.

As someone who just came back from Egypt….Some of those houses are really nice, and some of them are iffier than you could imagine. 10/10 would go back to Egypt though with the exchange rate right now!
Title: Re: DONT Payoff your Mortgage Club
Post by: nouseforausername on March 14, 2023, 05:25:07 PM
I was reflecting on my current mortgage that I’m in no hurry to pay off.  I realized that it’s more important not to pay ahead now living an CA as a non recourse state.  If things go to heck, I can just walk away losing only what is already in my home.  I could then go live cheaply in BFE and be perfectly ok with my liquid assets.

Interesting. Even in recourse states, the risk of a deficiency judgment seems to be more of a bargaining chip for bank to get mortgagor to execute deed in lieu of foreclosure settlement than a standard outcome post foreclosure. Blood out of stone or what not.

But, hmm, will Redfin San Diego County just for fun...re: Millionaires Intentional Foreclosure Club membership
Title: Re: DONT Payoff your Mortgage Club
Post by: TomTX on March 14, 2023, 05:40:32 PM
It's really satisfying to have I-bonds yielding well over 2x what my mortgage rate is...
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on March 14, 2023, 06:23:14 PM
It's really satisfying to have I-bonds yielding well over 2x what my mortgage rate is...
(https://uploads.tapatalk-cdn.com/20230315/76e3dabb5ac577b57841c84576439e84.jpg)


Sent from my iPhone using Tapatalk
Title: Re: DONT Payoff your Mortgage Club
Post by: dang1 on March 15, 2023, 12:23:55 AM
Homeowners who held onto a 3% mortgage rate are becoming ‘accidental landlords’
"The era of lower-than-ever mortgage rates is long gone, and it’s been replaced with rates hovering around 7%. But homeowners who locked in lower rates before or during the Pandemic Housing Boom aren’t selling. In fact, some of them are becoming “accidental landlords,” simply because they don’t want to lose their low rates of the past. That being said, the so-called lock-in effect is putting pressure on both sides of the market. There aren’t as many buyers looking for new digs and not as many sellers looking to move up or downsize, if they’ll get stuck with a mortgage rate more than twice as high as their old one."
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 15, 2023, 04:52:18 AM
Homeowners who held onto a 3% mortgage rate are becoming ‘accidental landlords’
"The era of lower-than-ever mortgage rates is long gone, and it’s been replaced with rates hovering around 7%. But homeowners who locked in lower rates before or during the Pandemic Housing Boom aren’t selling. In fact, some of them are becoming “accidental landlords,” simply because they don’t want to lose their low rates of the past. That being said, the so-called lock-in effect is putting pressure on both sides of the market. There aren’t as many buyers looking for new digs and not as many sellers looking to move up or downsize, if they’ll get stuck with a mortgage rate more than twice as high as their old one."
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/

I get what they are saying, but I’m not keen on the  egative phrasing. People [should] keep their previous home as a rental if it’s better than selling. The option to sell remains. Homeowners with low rates aren’t “locked in” to anything and they certainly do not “accidentally” become landlords. They decide to mov3 and realize that with their mortgage so low they can do better then selling.

It’s a blessing not a curse - both when they bought and when they move.
Title: Re: DONT Payoff your Mortgage Club
Post by: Wolfpack Mustachian on March 18, 2023, 11:47:53 AM
Homeowners who held onto a 3% mortgage rate are becoming ‘accidental landlords’
"The era of lower-than-ever mortgage rates is long gone, and it’s been replaced with rates hovering around 7%. But homeowners who locked in lower rates before or during the Pandemic Housing Boom aren’t selling. In fact, some of them are becoming “accidental landlords,” simply because they don’t want to lose their low rates of the past. That being said, the so-called lock-in effect is putting pressure on both sides of the market. There aren’t as many buyers looking for new digs and not as many sellers looking to move up or downsize, if they’ll get stuck with a mortgage rate more than twice as high as their old one."
https://fortune.com/2023/03/13/housing-market-homeowners-who-held-onto-low-mortgage-rates-are-becoming-accidental-landlords-renters-real-estate/

I get what they are saying, but I’m not keen on the  egative phrasing. People [should] keep their previous home as a rental if it’s better than selling. The option to sell remains. Homeowners with low rates aren’t “locked in” to anything and they certainly do not “accidentally” become landlords. They decide to mov3 and realize that with their mortgage so low they can do better then selling.

It’s a blessing not a curse - both when they bought and when they move.

That's where you're wrong. It's a curse because you're supposed to sell and then use that money to buy another bigger house over and over until you get a mansion that you can barely afford. Otherwise you aren't progressing forward on the consumerist treadmill and might actually grow your overall net worth and retire at some point :-).
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 11, 2023, 01:20:32 PM
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on April 11, 2023, 02:05:01 PM
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the 10/6 rate with no points?
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on April 11, 2023, 02:19:16 PM
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 11, 2023, 03:00:30 PM
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
I tend to agree with this POV.

How would you feel if you paid the points and then rates drifted downward over the course of the next year or so?

Option 1 sounds good to me!
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 11, 2023, 03:24:35 PM
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the 10/6 rate with no points?
I wasn't quoted but I estimate around 6% (0.4 points was a 5.75% rate)

We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
I tend to agree with this POV.

How would you feel if you paid the points and then rates drifted downward over the course of the next year or so?

Option 1 sounds good to me!
For the ARM comparing to itself, going from 0.4 -> 1 point pays for itself in 20 months. The extra 1 point from 1 to 2 points takes 33 months to pay for itself. Comparing to 30-year fixed no points, 1 point ARM pays for itself in 19 months. The full 2 points cost pays for itself in 24 months. We have no plans to move in the foreseeable future (15+ years is plausible).

If rates come down to ~4.5% in under 2 years I'll be a bit surprised but wouldn't mind losing a bit of those points for the chance that it takes 3 years or longer. The main risk is that rates never come down and actually go up and after 10 years we're stuck with a ridiculous rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 11, 2023, 03:44:56 PM
I believe the points would be tax deductible (https://www.irs.gov/taxtopics/tc504). So that reduces the break even time by a little under 22% (compared to what I calculated in the above post).
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on April 11, 2023, 05:36:31 PM
We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the 10/6 rate with no points?
I wasn't quoted but I estimate around 6% (0.4 points was a 5.75% rate)

We're buying a new house and got quoted 6.125% for 30-year fixed no points. Paying points didn't reduce by much (~5.82 for 1 point). I also got quoted for a 10/6 ARM at 5.25% with 1 point or 4.75% for 2 points. Thinking of going that way.
What's the break even time frame for the monthly payment savings vs the cost of the points? Will you live there that many years?
I wouldn't pay points, personally, but wait for rates to go down and re-fi as needed.
I tend to agree with this POV.

How would you feel if you paid the points and then rates drifted downward over the course of the next year or so?

Option 1 sounds good to me!
For the ARM comparing to itself, going from 0.4 -> 1 point pays for itself in 20 months. The extra 1 point from 1 to 2 points takes 33 months to pay for itself. Comparing to 30-year fixed no points, 1 point ARM pays for itself in 19 months. The full 2 points cost pays for itself in 24 months. We have no plans to move in the foreseeable future (15+ years is plausible).

If rates come down to ~4.5% in under 2 years I'll be a bit surprised but wouldn't mind losing a bit of those points for the chance that it takes 3 years or longer. The main risk is that rates never come down and actually go up and after 10 years we're stuck with a ridiculous rate.

I watch the Q&A after each monthly Jerome Powell presentation waiting - just waiting - for one of the reporters to ask if we are going to repeat the 1970's experience where rates were lowered in response to each recession, only to see of resurgence of inflation, necessitating the next round of increases, OR if the Fed truly means it when they talk about rates being "higher for longer"?

When I look at the dot plot (https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf) for the FFR, I am looking for signs of the 1970s scenario playing out again. FOMC members currently anticipate about a 1% cut in each of the next 2 years, FWIW. Of course, the 1970s post-recession rate cuts were much more dramatic than what's being projected now: -5.25% in '69-'71, -8.4% in '74-'76, and -8% in 1980 alone! All this swerving around led to economic disaster.

Of course, the Fed has a poor track record of anticipating its own behavior, and they could never explicitly forecast a recession even if they did do something obviously recessionary like 500 basis points of rate hikes in 14 months. Yet the dot plot tells me that even if things are going well, FOMC participants expect to leave a decent-sized gap between CPI and the FFR for a while after they hit CPI=2%, just to make sure they don't repeat the mistakes of the past. We aren't going back to ZIRP unless there's a true disaster, like Putin nuking Ukraine.

So maybe the FFR falls 2% over the next 2 years, but another thing will happen too: The yield curve will un-invert.

Your mortgage options are determined in part by the yield on the risk-free alternative. 30 year treasuries today are 1.38% BELOW the FFR, but in the near future we should expect this rate to be about 1.5%-2% ABOVE the FFR as it was in, say, 2015 or 2018. Even 10-year treasuries are usually a couple percent above the FFR if that's your baseline for mortgage rates.

So... even if the FFR is cut 2%, the un-inversion of the yield curve might reasonably be expected to leave long-duration treasury rates about 2% above the FFR. So long-duration treasuries and mortgages could stay at roughly the levels where they are today, even though the FFR is being reduced.

In conclusion, I think any mortgage points payback timeframe of 24 months or less is a good decision, based on what we know today. In my baseline scenario, rate cuts and yield curve inversion cancel each other out.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 11, 2023, 05:55:14 PM
Thanks. I appreciate your input, @ChpBstrd
Title: Re: DONT Payoff your Mortgage Club
Post by: sonofsven on April 11, 2023, 09:23:56 PM
When I was evaluating this for my own re-fi's I looked at real numbers. So your 33 month break even (almost 3 years), how much will you save monthly/ yearly after reaching 33 months? If you invest the savings how much would you make in five, ten, fifteen years? (I don't expect you to answer, these were just examples I used myself).
I plan on never leaving my house (well, someday...) but in my case I decided the savings/potential investment income was minimal at best and it wasn't worth it to pay points.
Also, your fixed mortgage payment is an inflation hedge in the future regardless of if you pay points now.
And if you're paying points by adding it to your loan balance you need to account for that, too. Or if paying with cash, how else can you optimize that cash now and what will it be worth in the future?
I was really tempted because at one point a few years ago I could have gotten a sub 2% 30 year fixed by paying points. Bragging rights.
Once you consider all the angles I'm sure you'll make the right decision for you; there really is no right answer. You're guessing on what rates will do. An educated guess is still half guess ;-)
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 12, 2023, 07:05:53 AM
When I was evaluating this for my own re-fi's I looked at real numbers. So your 33 month break even (almost 3 years), how much will you save monthly/ yearly after reaching 33 months? If you invest the savings how much would you make in five, ten, fifteen years? (I don't expect you to answer, these were just examples I used myself).
I plan on never leaving my house (well, someday...) but in my case I decided the savings/potential investment income was minimal at best and it wasn't worth it to pay points.
Also, your fixed mortgage payment is an inflation hedge in the future regardless of if you pay points now.
And if you're paying points by adding it to your loan balance you need to account for that, too. Or if paying with cash, how else can you optimize that cash now and what will it be worth in the future?
I was really tempted because at one point a few years ago I could have gotten a sub 2% 30 year fixed by paying points. Bragging rights.
Once you consider all the angles I'm sure you'll make the right decision for you; there really is no right answer. You're guessing on what rates will do. An educated guess is still half guess ;-)

Yes, I've run some estimates. At the 10 year mark the 2 point option will be $21k better than the 1 point option (assuming 7% opportunity cost). It's $70k better than the fixed-rate 0 point option.

Objectively I think the 1 point option is the best bet. But all options seem fine. I'm viewing the points as a bit of a hedge. If rates come down sooner than the break-even date I'll happily refinance to a fixed rate at relatively minimal loss. If I'm unable to refinance long term then I'll be very happy to have locked in a lower rate.
Title: Re: DONT Payoff your Mortgage Club
Post by: Treedream on April 17, 2023, 05:53:07 AM
I am currently in the process of getting 2 mortgages to buy my first house. I have followed this threat for a while, understanding the math behind it all. But I must say, that making this step, it does feel like a big looming thing to take on, the mortgage. So for the first time I understand the emotional choice people in the other thread make.

But I got you guys to keep me on the straight and narrow XD

I expect an effective (after tax incentives) mortgage rate of 2.6%. I can get more on a savings account than that.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on April 17, 2023, 06:20:38 AM
Wow, that's an amazing rate! In the Netherlands?
Title: Re: DONT Payoff your Mortgage Club
Post by: Treedream on April 17, 2023, 06:22:22 AM
Well its 3.91 and 3.6% but we have tax incentives for a couple of years more, which means I can deduct the interest I pay on my mortgage from my taxes. So if you calculate how much interest I really pay, its close to 2.6%
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on April 17, 2023, 07:02:35 AM
I am currently in the process of getting 2 mortgages to buy my first house. I have followed this threat for a while, understanding the math behind it all. But I must say, that making this step, it does feel like a big looming thing to take on, the mortgage. So for the first time I understand the emotional choice people in the other thread make.

But I got you guys to keep me on the straight and narrow XD

I expect an effective (after tax incentives) mortgage rate of 2.6%. I can get more on a savings account than that.
Buying a house is a Huge Commitment. It's scary as hell. I remember having an entire sleepless night when I bought my first house, and buying a home was a milestone goal for me. Further, all of the people you interact with during the process have their hand in your pocket. It's hard to find unbiased help.

"Killing the mortgage" makes perfect sense if you're scared spitless. However, with a little help from unbiased sources, it's easier to calm down, do the math, and make the most optimal decision.

Congratulations, and welcome to the club!
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on April 17, 2023, 08:19:19 AM
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US
Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on April 17, 2023, 03:53:52 PM
Sorry I have too much time on my hands, but thought it might make some laugh:

(http://drive.google.com/uc?export=view&id=1_pxpwbM4E82XTW6G3XX9iLbelCgJyyLW)
Title: Re: DONT Payoff your Mortgage Club
Post by: Weisass on April 17, 2023, 05:54:11 PM
Sorry I have too much time on my hands, but thought it might make some laugh:

(http://drive.google.com/uc?export=view&id=1_pxpwbM4E82XTW6G3XX9iLbelCgJyyLW)

Man, that joke was silent and deadly….
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on April 17, 2023, 06:36:24 PM
Sorry I have too much time on my hands, but thought it might make some laugh:

(http://drive.google.com/uc?export=view&id=1_pxpwbM4E82XTW6G3XX9iLbelCgJyyLW)

Man, that joke was silent and deadly….
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.

I really am starting to think we will never move again.


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Title: Re: DONT Payoff your Mortgage Club
Post by: jnw on April 17, 2023, 08:21:32 PM
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.

I really am starting to think we will never move again.

Sweet!  Very nice :)  Yeah I wouldn't move either :)
Title: Re: DONT Payoff your Mortgage Club
Post by: Treedream on April 18, 2023, 01:38:47 AM
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US

It has gone up considerably from the low, and is expected to rise further, but nothing like the percentage I read about in the USA.
Title: Re: DONT Payoff your Mortgage Club
Post by: getsorted on April 18, 2023, 05:21:22 AM
This vampire has no such thoughts! I bought our new house in 2020 when no one wanted a house. So I locked in 2.5% 30 year and got the house at a bargain price before the crazy bidding wars in 2021 . House value still up 33% from what I paid.

I really am starting to think we will never move again.


Sent from my iPhone using Tapatalk

This vampire, too! I was broke after a divorce, but I saw the writing on the wall as far as home prices and bought an 800 s.f. house for 20% below asking, with a 2.795% interest rate (which was pretty good considering I only had enough to put 5% down). Now I keep dating guys who tell me what a "great rental" my house would be... I guess because nobody wants to move into my tiny house in a McMansion town! I'm just like... You're gonna have to really make me love you, if I'm gonna love you more than this interest rate!
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on April 18, 2023, 07:14:30 AM
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

We have a <3% 30 year now, so obviously not in this case :) 

But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.

It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.



Title: Re: DONT Payoff your Mortgage Club
Post by: Treedream on April 18, 2023, 08:04:36 AM
I think the consideration for me would be more dependant on whether I want to decrease my hours in say 5 years, to pay it down, so the monthly spend is lower. Or, if I decide to RE and I want to simplify by paying off the mortgage.

Besides that I would have to do a calculation of effective tax rate (so after the tax return shenanigans we have here in NL). So 6% effective tax? that would get to about 8% real rate. hmm, or at a lower percentage but counting it as my 'bonds' part? TBH I haven't truly considered diversification yet, since I am just starting accumulation.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on April 18, 2023, 08:49:43 AM
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

We have a <3% 30 year now, so obviously not in this case :) 

But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.

It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.
Probably yes. But some years back I was paying my 15 year mortgage aggressively then bam , I lost my job and all sudden I wished I had that cash in savings instead of my house. I do think in our society liquidity risk gets overlooked or underestimated, generally speaking. If I was gonna pay my mortgage off early now I’d do the “sinking fund” approach and pay off the house all at once once I have enough money and feel comfortable. A paid off house only helps once it’s completely paid off. Until that point there is definitely risk in putting too much savings into your house.


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Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on April 18, 2023, 09:20:30 AM
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

I asked this question as a poll back in September 2022 and got the following responses:
https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/msg3063627/#msg3063627 (https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/msg3063627/#msg3063627)

It would be interesting to re-run the poll. Presumably, any deviation from the pattern 7 months ago might reflect shifting risk tolerance, changing cultural norms, or different alternatives for investment rather than a logic that applies in all times and circumstances.

I wonder if the people who would require 7-10% interest rates before they'd make a prepayment have moderated their demands now that the Fed has raised rates a lot higher, a couple of banks have failed, and the yield curve is the most inverted since the early 80's? Do those risk-free rates of return look better now?

18% of respondents said they would prepay a mortgage no matter how low the interest rate. Another 8% of respondents would prepay a 4% mortgage. I wonder if these combined 26% of respondents have discovered 5% CDs or 6.89% iBonds since then?

Three respondents said they'd never prepay a mortgage, no matter how high the interest rate. Another 11% would only consider prepayment if the rate was somewhere in the range of 8-10%. Assuming they understood the question, I wonder if they're still investing in things they expect to have a risk-free return at these levels, and what those things are?
Title: Re: DONT Payoff your Mortgage Club
Post by: YttriumNitrate on April 18, 2023, 10:40:35 AM
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US
The Netherlands has a government guarantee on mortgages, so they are basically risk free for lenders. This has also caused the Netherlands to be in the interesting situation of being the most unequal country in the world in terms of wealth inequality. https://youtu.be/Ot4qdCs54ZE?t=378 (https://youtu.be/Ot4qdCs54ZE?t=378)
Title: Re: DONT Payoff your Mortgage Club
Post by: Treedream on April 18, 2023, 11:11:50 AM
Sure, the tax deductibility is reasonably common - it's the pretax interest rate that really surprises me, half the rate charged here in the US
The Netherlands has a government guarantee on mortgages, so they are basically risk free for lenders. This has also caused the Netherlands to be in the interesting situation of being the most unequal country in the world in terms of wealth inequality. https://youtu.be/Ot4qdCs54ZE?t=378 (https://youtu.be/Ot4qdCs54ZE?t=378)

Not everything in the video is correct. You cannot borrow more than 100% of the house value in NL. You used to be able to, but not anymore. You can subtract the amount paid in interest from your income for tax purpose. This means people who earn more and pay higher tax, get more of a discount. This was (rightly) judged unfair by the courts and this tax law is being changed, but it will take a while until the change is in effect.

We also do have a national mortgage guarantee, that means you basically insure yourself for the cost of 0.6% of the value of the loan. In the case you can no longer pay the loan (subject to some rules of course) the guarantee will mean that the bank will get its money when you can no longer pay, due to life circumstances.

Now, you don't need a downpayment on a house in order to get a loan. But the regulations of how much you can borrow versus the price of houses means its (at least as a singel person) impossible to pay for the house without putting in your own money.

I am in the process of getting a mortgage and purchasing a house. In effect I put 20% down, because I can't get a mortgage for the total amount. And I am not buying a obscene house, but a run of the mill apartment.
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on April 18, 2023, 11:19:59 AM
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

I asked this question as a poll back in September 2022 and got the following responses:
https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/msg3063627/#msg3063627 (https://forum.mrmoneymustache.com/ask-a-mustachian/what-is-your-threshold-for-making-pre-payments-to-your-mortgage/msg3063627/#msg3063627)

It would be interesting to re-run the poll. Presumably, any deviation from the pattern 7 months ago might reflect shifting risk tolerance, changing cultural norms, or different alternatives for investment rather than a logic that applies in all times and circumstances.

I wonder if the people who would require 7-10% interest rates before they'd make a prepayment have moderated their demands now that the Fed has raised rates a lot higher, a couple of banks have failed, and the yield curve is the most inverted since the early 80's? Do those risk-free rates of return look better now?

18% of respondents said they would prepay a mortgage no matter how low the interest rate. Another 8% of respondents would prepay a 4% mortgage. I wonder if these combined 26% of respondents have discovered 5% CDs or 6.89% iBonds since then?

Three respondents said they'd never prepay a mortgage, no matter how high the interest rate. Another 11% would only consider prepayment if the rate was somewhere in the range of 8-10%. Assuming they understood the question, I wonder if they're still investing in things they expect to have a risk-free return at these levels, and what those things are?

I also wonder if the framing matters too - in theory if I'm on team DPYM then I would want to put at most 20% down on a place.

Once we're at that amount, then really saving extra cash should just go to investments and not cash savings.

Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on April 19, 2023, 12:37:10 AM
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

We have a <3% 30 year now, so obviously not in this case :) 

But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.

It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.

I'm looking at a 2nd mortgage to fund new roof/solar.  Rates are high and fluctuating so I'm not even sure I'll do it.  On the one hand, I can deduct the interest and the rates beat other financing options by far.  On the other hand, I could just sell some stonks to pay for it. 

What do you think?  When I first started looking I could get 10 year at 6%.  I was re-reading the investment order thread and it suggested something like taking the 10-year treasury rate (3.6%) and adding 2-3%.  If it's within that, prefer 401k and even consider individual investments.  So if I choose NOT to take the loan, that's effectively the same as taking the loan and then "POYM".

But to me, that's still cutting it pretty close.  Not a slam dunk like my current 3%

And the dollar value is relatively low anyway.  And the company (DCU) is kinda being a pain about it.  They were like "your DTI is too high, what if you pay off this 3% loan and then we can lend you even MORE money at 6%." Uh... no thanks?

(Also rates edged up to around 6.25% since I applied, I didn’t lock yet because I thought perhaps they would actually come down a bit but now I’m just hoping they go back to 6.  Also my appraisal came in massively undervalued which doesn’t actually change much but I want to ask the appraiser WTF he is thinking since my neighbor with basically the same house bought for 44% higher 6.1 months ago and he claims values are stable over the last 6 mo., and though I take them with a grain of salt Redfin Zillow and corelogic are way higher as we)
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on April 19, 2023, 06:44:47 AM
Is there a mortgage rate folks WOULD consider paying down their mortgages early on?

We have a <3% 30 year now, so obviously not in this case :) 

But we're considering moving in the next few years and I've actually wondered about selling points to get a higher rate then aggressively paying down a mortgage. I'm already maxing out all tax advantaged accounts and we have a fair bit leftover.

It's interesting too because we're aggressively saving now with that leftover for a future house purchase. But we're past the 20% down payment number, so this isn't really hypothetical anymore - even though we don't have a high(er) interest rate mortgage, saving in HYSA/CDs is basically planning on paying that mortgage down.

I'm looking at a 2nd mortgage to fund new roof/solar.  Rates are high and fluctuating so I'm not even sure I'll do it.  On the one hand, I can deduct the interest and the rates beat other financing options by far.  On the other hand, I could just sell some stonks to pay for it. 

What do you think?  When I first started looking I could get 10 year at 6%.  I was re-reading the investment order thread and it suggested something like taking the 10-year treasury rate (3.6%) and adding 2-3%.  If it's within that, prefer 401k and even consider individual investments.  So if I choose NOT to take the loan, that's effectively the same as taking the loan and then "POYM".

But to me, that's still cutting it pretty close.  Not a slam dunk like my current 3%

And the dollar value is relatively low anyway.  And the company (DCU) is kinda being a pain about it.  They were like "your DTI is too high, what if you pay off this 3% loan and then we can lend you even MORE money at 6%." Uh... no thanks?

(Also rates edged up to around 6.25% since I applied, I didn’t lock yet because I thought perhaps they would actually come down a bit but now I’m just hoping they go back to 6.  Also my appraisal came in massively undervalued which doesn’t actually change much but I want to ask the appraiser WTF he is thinking since my neighbor with basically the same house bought for 44% higher 6.1 months ago and he claims values are stable over the last 6 mo., and though I take them with a grain of salt Redfin Zillow and corelogic are way higher as we)

Coincidentally we just priced out solar and one thing I found interesting was the financed price vs cash price was almost 60% more, so in that case paying cash would be a non-trivial savings.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on April 19, 2023, 07:05:16 AM
yeah, solar financing is an absolute racket
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on April 19, 2023, 06:45:01 PM
On paying off a mortgage.  It’s not just about the rate.  CA being a non recourse state, I’d rather put extra into investments.  Worst case scenario I can just walk away from my home losing only what principle if things get bad.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on April 19, 2023, 10:03:27 PM
On paying off a mortgage.  It’s not just about the rate.  CA being a non recourse state, I’d rather put extra into investments.  Worst case scenario I can just walk away from my home losing only what principle if things get bad.

While this is true it only applies to original purchase principal which becomes vanishingly small after a moderate time paying down the mortgage and appreciation.  At least it was something I really thought a lot about in the early years and now after just a decade I don’t see any way my home value could fall enough to resort to jingle mail (at least in any way that I or the stock market would also survive … eg asteroid hits my house or nuclear war)
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on April 27, 2023, 11:55:34 AM
Being penalized for a good credit score?

https://finance.yahoo.com/news/mortgages-homebuyers-good-credit-cost-135954525.html


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Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on April 27, 2023, 12:12:33 PM
Being penalized for a good credit score?

https://finance.yahoo.com/news/mortgages-homebuyers-good-credit-cost-135954525.html

https://www.mortgagenewsdaily.com/markets/mortgage-rates-04212023
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on April 27, 2023, 12:15:46 PM
So much consumer finance advice is absolutely asinine, Yahoo is definitely not an exception, and this is a perfect example. It's bad faith writing and willfully misleads the reader about what is happening. There's a difference between 'the government is changing the size of the premium paid by lower creditworthiness borrowers' and 'the government is making high credit borrowers pay more and low credit borrowers pay less', which is being read by the reading comprehension-challenged as a statement about the absolute levels. Not to mention it's a mountain of controversy out of a molehill of change, equal to about 12bps/yr or less than the typical weekly variation in mortgage rates.

Bleh.
Title: Re: DONT Payoff your Mortgage Club
Post by: rmorris50 on April 27, 2023, 12:39:25 PM
Some people are interpreting the article to mean high credit score people have an absolute rate higher than lower? I didn’t get that. I got a mortgage rate for a good credit score will be marginally higher than it otherwise would have been before this change, to help out those with low credit scores.

Yeah prob not meaningful but I guess someone can claim a small victory for “helping” with the affordable housing situation.


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Title: Re: DONT Payoff your Mortgage Club
Post by: ender on April 28, 2023, 04:46:09 AM
https://www.urban.org/urban-wire/fannie-mae-and-freddie-macs-new-pricing-not-punishing-those-better-credit-follow-numbers has a graphic which is useful here, showing the change in upfront fee based on LTV and credit scores:

(https://i.imgur.com/1JpevPQl.png)
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on April 28, 2023, 06:49:55 AM
This link does too. The new structure looks pretty fair to me - seems like it was really discontinuous before at arbitrary break points.
https://www.mortgagenewsdaily.com/markets/mortgage-rates-04212023
(https://a.mortgagenewsdaily.com/assets/644982a8897b350cb57eaadf/644982a8897b350cb57eaadf.png)

(https://a.marketnewsletters.com/assets/6442e1af502fee0682ded0a4/6442e1af502fee0682ded0a4.png)
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on June 25, 2023, 10:18:09 AM
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on June 25, 2023, 01:55:36 PM
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...

Just took a second for home improvements at 6.3%.  Not gonna pay it off just yet, factoring tax deductions.

Really kicking myself for not cashing out when we refinanced three years ago— at that point the extra cash wouldn’t be deductible but at that rate it wouldn’t have mattered
Title: Re: DONT Payoff your Mortgage Club
Post by: TheAnonOne on June 26, 2023, 11:31:45 AM
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...

Congratulations, first off!

At 6.4% you could conceivably make an argument for paying it down early I think. This is the first time in this boards (shortish) history that it MIGHT be mathematically OK to do so. Even if the market beats it, 6.4% is a decent return.

I had a 4% $450k note from 2019 that got refi'ed TWICE during 2020-2021 pandemic down to 3.25% and again to 2.75%. I'm feeling pretty fortunate on the timing of the whole thing, considering the house shot from 500k(ish) to a bit over 700k in value with the payment being under 3k yet. (still, about 2x higher than I realistically wanted, but what are you going to do?)
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on June 26, 2023, 11:43:28 AM
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...

Congratulations, first off!

At 6.4% you could conceivably make an argument for paying it down early I think. This is the first time in this boards (shortish) history that it MIGHT be mathematically OK to do so. Even if the market beats it, 6.4% is a decent return.

I had a 4% $450k note from 2019 that got refi'ed TWICE during 2020-2021 pandemic down to 3.25% and again to 2.75%. I'm feeling pretty fortunate on the timing of the whole thing, considering the house shot from 500k(ish) to a bit over 700k in value with the payment being under 3k yet. (still, about 2x higher than I realistically wanted, but what are you going to do?)

Even if the market doesn't beat it I would rather have the flexibility of liquid investments than locked up in home equity. Paying off this mortgage would more than halve our invested assets. Not acceptable. And of course, if we do get to refinance in the future the more debt remaining the better.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on June 26, 2023, 11:48:34 AM
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...

Congratulations, first off!

At 6.4% you could conceivably make an argument for paying it down early I think. This is the first time in this boards (shortish) history that it MIGHT be mathematically OK to do so. Even if the market beats it, 6.4% is a decent return.

I had a 4% $450k note from 2019 that got refi'ed TWICE during 2020-2021 pandemic down to 3.25% and again to 2.75%. I'm feeling pretty fortunate on the timing of the whole thing, considering the house shot from 500k(ish) to a bit over 700k in value with the payment being under 3k yet. (still, about 2x higher than I realistically wanted, but what are you going to do?)

Even if the market doesn't beat it I would rather have the flexibility of liquid investments than locked up in home equity. Paying off this mortgage would more than halve our invested assets. Not acceptable. And of course, if we do get to refinance in the future the more debt remaining the better.
Where is a decent heart emoji when you need one?
Title: Re: DONT Payoff your Mortgage Club
Post by: joe189man on June 26, 2023, 01:18:47 PM
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...

We are trading a 2.875% rate for a 5.5% rate, the new home is purchased and the old one should close mid July. I am also incredibly sad to lose that rate. Given our hopeful timeline we may consider some early payoff unless rates drop and we can refi at a lower rate
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on June 27, 2023, 11:07:15 AM
Mailed in the check for the first mortgage payment on our new house. 30-year fixed at 6.375%.... but still not planning on paying it off early. Hopefully refinancing will be an option in the future. I'll be missing the 3.125% on the previous house...

We are trading a 2.875% rate for a 5.5% rate, the new home is purchased and the old one should close mid July. I am also incredibly sad to lose that rate. Given our hopeful timeline we may consider some early payoff unless rates drop and we can refi at a lower rate
5.5% is not as good as 2.875% obviously, but is still in the range where the move is probably hold the loan for the duration (and refinance if rates come down).
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on July 12, 2023, 05:11:49 AM
thirty years of inflation at 9%+ would actually be really bad. You'd be well positioned with the Series I and the mortgage, but aren't the 1970s years when we saw most retirement failures in modeling?
Very good point.  I really meant that I'd like to lock in just the 9.6% rate for 30 years, not the inflation that goes with it!  I definitely do NOT want I bonds to continue to pay such high rates.  I agree that 30 years of 9% inflation would be very bad.  But for now, I bonds are the best game in town for something safe.  While they're still only paying 0% real, better than my savings account paying -9% real.

@NorthernIkigai - Definitely sounds worth it to drop your savings rate a bit to get some more space.  <800 square feet for 4 people sounds like it might be a tad tight!  Hope you're able to find something that works for you!

Thanks @Holocene! We're actually OK right now, I'm always amazed that many North Americans (even Mustachians!) seem to need so much space. But the kids are growing and it would be very nice to have at least another half bath and not just the one bathroom.

With prices for decent apartments in the size (still max 1k sq ft or so) and area we're considering starting from about 550 or 600k€, we're just patiently keeping an eye on the market and hoping for a rate rise and its effect on the market...

An update from the land of adjustable rate mortgages: A few months after I wrote this, we actually found a lovely and affordable 970 sqf apartment with everything we need. Well, we bought it, but it's not finished yet. It will be finished next summer, so we should sell our current apartment next spring some time with the caveat that we'll move out on an agreed date. We're still very happy in the current one, but that's because we know we'll be moving into a brand new one soon. If we would still be looking, we'd probably feel pretty stuck here right now.

So now we have 2 mortgages! The old one which has a current rate of 3.x% (which will go up soon again), and the new one for the new apartment (which we've only taken out partially so far) at 4.x%. Oh well, the 0.x% rates were great for the many years they lasted.

Although the cash flow looks bad at the moment, certainly with the second mortgage growing every few months, we're not worried. We'll also probably get quite a bit less for the old apartment than we had originally budgeted, since the whole market has stagnated due to the rising interest rates. But we're paying a bit less than we had originally budgeted (550--650k€) for the new apartment. And we have plenty of savings.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 22, 2023, 11:34:18 AM
Thinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this). Reasons to do it:

I think I can borrow about $90,000 this way (80% LTV if we take what Zillow says as an accurate-enough appraisel). That would make fully funding my solo-K and TIRA's for both my wife and myself pretty easy for 2023 and 2024. And maxing out both the soloK and tIRA for myself saves us about $9,000 in taxes each year vs. the plan of just maxing my wife's IRA (without maxing the soloK, I probably cannot deduct tIRA for myself) - so the first couple of years I come out ahead on tax savings alone vs. the interest rate. And we'd wind up invest those tax savings as well so, I'm seeing something like $110,000 that we'd have working for us in investments that is not there today if we made this move.

Main downside I can think of is that the interest rate is so high. I mean, should still work out but the margin of error is quite a bit smaller than when rates were 3%. I don't know if / or how long it would take to get to 3% rates again.

I don't know - I'm kinda wishy-washy on the whole thing. Last time I tried this move was 2021 just after I had gone back to self-employment after a short stint as a W2 employee and I didn't have the spoons to persevere when that caused the first place I tried to back out a month or two after the application. House value has gone up since then - kind of absurd to me for our house to have more than doubled since we bought it in 2014, but a house down the street really did sell for a price recently enough that makes $255K for our house seem low, if anything, so I guess that might be accurate enough. And of course the primary balance has gone down a bit in 2 years as well.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 22, 2023, 12:14:06 PM
Thinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this).

A HELOC is a callable loan so it doesn't have the long term advantages of a mortgage. Short term for your tax advantages I could see it being worthwhile, but you should have a plan in place to pay it off rapidly if needed.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 22, 2023, 02:44:49 PM
Thinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this).

A HELOC is a callable loan so it doesn't have the long term advantages of a mortgage. Short term for your tax advantages I could see it being worthwhile, but you should have a plan in place to pay it off rapidly if needed.
It's not a HELOC
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on July 22, 2023, 02:46:49 PM
Thinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this).

A HELOC is a callable loan so it doesn't have the long term advantages of a mortgage. Short term for your tax advantages I could see it being worthwhile, but you should have a plan in place to pay it off rapidly if needed.
HELOC rates are typically variable as well. As always, be sure to read the fine print before you sign.
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on July 22, 2023, 02:52:31 PM
I'm looking at a FIXED RATE Home Equity Loan with a 20 year term. Not a HELOC.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on July 22, 2023, 03:03:31 PM
Ah, gotcha. I always get those confused
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 17, 2023, 07:23:04 PM
Hmmm, kind of quiet around here. I guess making regularly scheduled mortgage payments gets kind of ho-hum after a while. Congratulations to all you ho-hummers! Hope you're enjoying your summers.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on August 17, 2023, 11:26:10 PM
I'd post more but I feel like it is gloating.  If we look back to the heyday of this board when interest rates were ~3.0% and compare them to today, we've now seen CPI core inflation has risen to over 6% and boring old 10 year treasuries are over 4%.   And over the last five years the S&P 500 is up over 50%.   Keeping your money out of the house may or may not have made you rich, but it for sure made you a nice big pile of money.   Plus in the event of an emergency or amazing financial opportunity,  you now have a big stack of liquid assets you can access at anytime, as opposed to having your money tied up in an illiquid asset that is expensive and time consuming to access.  That's the key to sleeping well at night. 

If that weren't good enough, thanks to inflation your future obligations are withering away.  What once seemed like an enormous debt has now been cut off at the knees.  All by doing nothing.  Which, by the way, is how I like doing things. 

Back in the day, we were banging on the DPYM drum pretty awful damn hard.  Maybe too hard (RIP @boarder42).   Point is, the ability to borrow hundreds of thousands of dollars, at a fixed rate, long term, non-callable, tax-advantaged loan at ~3% was the deal of a lifetime.   We weren't able to convince everyone we were staring the golden goose in the face, but we convinced a few.   I'm really happy with that. 
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 18, 2023, 04:31:38 AM
I'd post more but I feel like it is gloating.  If we look back to the heyday of this board when interest rates were ~3.0% and compare them to today, we've now seen CPI core inflation has risen to over 6% and boring old 10 year treasuries are over 4%.   And over the last five years the S&P 500 is up over 50%.   Keeping your money out of the house may or may not have made you rich, but it for sure made you a nice big pile of money.   Plus in the event of an emergency or amazing financial opportunity,  you now have a big stack of liquid assets you can access at anytime, as opposed to having your money tied up in an illiquid asset that is expensive and time consuming to access.  That's the key to sleeping well at night. 

If that weren't good enough, thanks to inflation your future obligations are withering away.  What once seemed like an enormous debt has now been cut off at the knees.  All by doing nothing.  Which, by the way, is how I like doing things. 

Back in the day, we were banging on the DPYM drum pretty awful damn hard.  Maybe too hard (RIP @boarder42).   Point is, the ability to borrow hundreds of thousands of dollars, at a fixed rate, long term, non-callable, tax-advantaged loan at ~3% was the deal of a lifetime.   We weren't able to convince everyone we were staring the golden goose in the face, but we convinced a few.   I'm really happy with that.

Yes, all of this.  At 2.7% fixed and the biggest (by far) line item in our expenses, our mortgage has kept our personal inflation rate low while so many others seems to have gone up by double digits in the last two years. The market returns coupled with steady expenses has made it harder to relate to many posters here who seem to be expressing genuine anxiety over their financial situation, even when we appear similar in terms of age, income and assets.
Title: Re: DONT Payoff your Mortgage Club
Post by: midweststache on August 18, 2023, 07:07:36 AM
I'd post more but I feel like it is gloating.  If we look back to the heyday of this board when interest rates were ~3.0% and compare them to today, we've now seen CPI core inflation has risen to over 6% and boring old 10 year treasuries are over 4%.   And over the last five years the S&P 500 is up over 50%.   Keeping your money out of the house may or may not have made you rich, but it for sure made you a nice big pile of money.   Plus in the event of an emergency or amazing financial opportunity,  you now have a big stack of liquid assets you can access at anytime, as opposed to having your money tied up in an illiquid asset that is expensive and time consuming to access.  That's the key to sleeping well at night. 

If that weren't good enough, thanks to inflation your future obligations are withering away.  What once seemed like an enormous debt has now been cut off at the knees.  All by doing nothing.  Which, by the way, is how I like doing things. 

Back in the day, we were banging on the DPYM drum pretty awful damn hard.  Maybe too hard (RIP @boarder42).   Point is, the ability to borrow hundreds of thousands of dollars, at a fixed rate, long term, non-callable, tax-advantaged loan at ~3% was the deal of a lifetime.   We weren't able to convince everyone we were staring the golden goose in the face, but we convinced a few.   I'm really happy with that.

I mean, you're not wrong. The NYT actually had an article on the rise of the "status" of the sub 3% mortgage rate and the envy/gloating/one-up-manship of interest rates not too long ago. It talks about interest rates as a new status symbol, but it's more about timing luck than anything.

I've gift linked the article below for all my fellow DPYM ho-hummers (love it, @Dicey!)

https://www.nytimes.com/2023/08/04/realestate/mortgage-rates-increase.html?unlocked_article_code=YCvvSH2WxLNki-tcfsHGt6z6Zu4ICjkJC3S7L3ybohEhc4mBpLZG0Y_2gQFIqbYQ7JTYugcClx3iqZT3zEvvQQT5Odk9l_LRjXOpNUZZbD3kCrYyaqybIWiVwnGJHWaAO5dYJ82kpwN4ucWk_nkxOGTYpOkD-Dj6C8nB1uN6yzRN9vPjSUklLJKE-tK6nqRmuaP9TC64QW3N8PtAoNiR7yW2Fp9JxuTdRtExX4FjqNv8M4bd9_ilXCYWWvmEPdu1sJbbIHaAu2KQKYpmDtgzLkndLlo2D2l9Ck0b6MnvTl7CjqDchHIcwRcll6VVTCEeBoKBkkC1PnHmGupsij21_bbjjzQ&smid=url-share (https://www.nytimes.com/2023/08/04/realestate/mortgage-rates-increase.html?unlocked_article_code=YCvvSH2WxLNki-tcfsHGt6z6Zu4ICjkJC3S7L3ybohEhc4mBpLZG0Y_2gQFIqbYQ7JTYugcClx3iqZT3zEvvQQT5Odk9l_LRjXOpNUZZbD3kCrYyaqybIWiVwnGJHWaAO5dYJ82kpwN4ucWk_nkxOGTYpOkD-Dj6C8nB1uN6yzRN9vPjSUklLJKE-tK6nqRmuaP9TC64QW3N8PtAoNiR7yW2Fp9JxuTdRtExX4FjqNv8M4bd9_ilXCYWWvmEPdu1sJbbIHaAu2KQKYpmDtgzLkndLlo2D2l9Ck0b6MnvTl7CjqDchHIcwRcll6VVTCEeBoKBkkC1PnHmGupsij21_bbjjzQ&smid=url-share)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 18, 2023, 10:27:05 AM
Thanks for the link, @midweststache. Interesting read.

Calling it pure luck, or worse, pure dumb luck, is inaccurate,  IMO.

“Luck Is What Happens When Preparation Meets Opportunity" -Seneca

These mortgages didn't completely fall into their hands. They still had to complete all the steps it took to get them. Lenders weren't passing them out like candy, even if it was easier to qualify with super low rates.

There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.

I predict there will be a huge upsurge in additions, ADU's and general remodeling, as homeowners do everything they can to hang on to their super mortgage low rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: Psychstache on August 18, 2023, 10:45:28 AM
Thanks for the link, @midweststache. Interesting read.

Calling it pure luck, or worse, pure dumb luck, is inaccurate,  IMO.

“Luck Is What Happens When Preparation Meets Opportunity" -Seneca

These mortgages didn't completely fall into their hands. They still had to complete all the steps it took to get them. Lenders weren't passing them out like candy, even if it was easier to qualify with super low rates.

There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.

I predict there will be a huge upsurge in additions, ADU's and general remodeling, as homeowners do everything they can to hang on to their super mortgage low rates.

But they said "more about timing luck than anything", which is reasonably fair. I had to work hard to put myself in position to be a homeowner with good credit, but that wouldn't have meant diddly squat if it became a homeowner in 1979 instead of 2013.

Overall, you are more likely to be able to take advantage of your luck if you have worked hard to prepare. Doesn't mean you will get lucky, just that you are ready your number comes up.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on August 18, 2023, 02:41:04 PM
Thanks for the link, @midweststache. Interesting read.

Calling it pure luck, or worse, pure dumb luck, is inaccurate,  IMO.

“Luck Is What Happens When Preparation Meets Opportunity" -Seneca

These mortgages didn't completely fall into their hands. They still had to complete all the steps it took to get them. Lenders weren't passing them out like candy, even if it was easier to qualify with super low rates.

There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.

I predict there will be a huge upsurge in additions, ADU's and general remodeling, as homeowners do everything they can to hang on to their super mortgage low rates.

But they said "more about timing luck than anything", which is reasonably fair. I had to work hard to put myself in position to be a homeowner with good credit, but that wouldn't have meant diddly squat if it became a homeowner in 1979 instead of 2013.

Overall, you are more likely to be able to take advantage of your luck if you have worked hard to prepare. Doesn't mean you will get lucky, just that you are ready your number comes up.
I was responding to Mr. Barker's quote, "Best financial decision of my life was pure luck. It’s just that simple.”

By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 18, 2023, 03:38:52 PM
Didn’t we already have this “is a low interest rate dumb luck” a couple months ago?
Title: Re: DONT Payoff your Mortgage Club
Post by: roomtempmayo on August 18, 2023, 08:20:29 PM
Thinking about a home equity loan, even with rates for that at 7.5% (looking at 20-year term on this).

A HELOC is a callable loan so it doesn't have the long term advantages of a mortgage. Short term for your tax advantages I could see it being worthwhile, but you should have a plan in place to pay it off rapidly if needed.
It's not a HELOC

Why not a HELOC? 

If you take out a home equity loan, you're baking in today's interest rate for the life of the loan, or you'll need to refinance later.  I guess that's good if rates continue to go up, but a really can't see them going, and staying, all that much higher.

Home equity loans are usually lower by <1%.  But again, you're stuck at that rate.

Unless rates aren't going significantly up in the future, the HELOC seems like a better option to me.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on August 18, 2023, 11:53:47 PM
When I was looking a heloc was actually a bit more than just a regular second mortgage
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on August 21, 2023, 01:46:56 PM

By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.

Don't forget doing the work to be born to a family in place where getting enough education is an even an option.  Oh, wait, that's truly pure luck.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on August 21, 2023, 05:47:34 PM

By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.

Don't forget doing the work to be born to a family in place where getting enough education is an even an option.  Oh, wait, that's truly pure luck.

I know the sentiment you are trying to convey, but my immigrant grandparents would furiously object that it was “pure luck” that their children were born in a place where a good education was readily available for their children.
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on August 27, 2023, 09:08:54 AM
Thanks for the link, @midweststache. Interesting read.

Calling it pure luck, or worse, pure dumb luck, is inaccurate,  IMO.

“Luck Is What Happens When Preparation Meets Opportunity" -Seneca

These mortgages didn't completely fall into their hands. They still had to complete all the steps it took to get them. Lenders weren't passing them out like candy, even if it was easier to qualify with super low rates.

There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.

I predict there will be a huge upsurge in additions, ADU's and general remodeling, as homeowners do everything they can to hang on to their super mortgage low rates.

I also hate the “stuck” with a low rate.  A house is either affordable to you or it isn’t.  Yeah at todays rates I wouldn’t be able to “afford” as high of a cost home, but in no means am I trapped.  If I wanted to move, I could.  Rates aren’t stopping me.  I’d just need to make my decision of how much I could afford based on the new rates.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on August 28, 2023, 12:43:18 AM
For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk).   Cry my a river I know!
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on September 01, 2023, 04:22:35 PM
We have 14 years left (15 year mortgage) at 3.125%. Too good of a rate to pay down faster. Principal balance is about $178k right now.
Today I say goodbye to our 3.125% mortgage. Too bad we couldn't keep it forever. I'll be making minimum payments on our new mortgage (30-years at 6.375%), but it just isn't going to be as lucrative.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 01, 2023, 04:37:02 PM
For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk).   Cry my a river I know!
Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on September 05, 2023, 07:23:36 AM
For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk).   Cry my a river I know!
Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
Makes me wonder if the property bubble will be a boon to localities with property taxes. If the politicians weren't siphoning funds away to their charter school donors, public schools would be flush.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 05, 2023, 07:58:35 AM
For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk).   Cry my a river I know!
Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
Makes me wonder if the property bubble will be a boon to localities with property taxes. If the politicians weren't siphoning funds away to their charter school donors, public schools would be flush.
Citation, please?
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on September 05, 2023, 07:59:18 AM

There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.


Eh, as someone in this boat (the DPYMC as well as wanting to move, but having a sub 3% 30 year) I get it.

Moving even laterally would be a meaningfully higher cost. Moving "up" in house, or in our case to move to an acerage, means we'd be buying a more expensive house plus having nearly a 3x mortgage rate.

It's not "trapped" but it's sure as hell a ton more expensive relative to our current place in basically every regard - housing on the whole went up, rates went way up, and we'd be moving to a more expensive place compared to our current house.

All three of those factors add cost. Only one is in our control - the last one.
Title: Re: DONT Payoff your Mortgage Club
Post by: ChpBstrd on September 05, 2023, 12:13:36 PM
For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk).   Cry my a river I know!
Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
Makes me wonder if the property bubble will be a boon to localities with property taxes. If the politicians weren't siphoning funds away to their charter school donors, public schools would be flush.
Citation, please?
https://www.washingtonpost.com/business/2022/05/05/property-taxes-us-homes-rose-328-billion-2021-report-finds/ (https://www.washingtonpost.com/business/2022/05/05/property-taxes-us-homes-rose-328-billion-2021-report-finds/)
https://www.arkansasonline.com/news/2023/mar/10/what-you-need-to-know-about-arkansas-learns/ (https://www.arkansasonline.com/news/2023/mar/10/what-you-need-to-know-about-arkansas-learns/)
https://thejournal.com/articles/2018/01/30/yes-charters-do-hurt-public-school-funding.aspx (https://thejournal.com/articles/2018/01/30/yes-charters-do-hurt-public-school-funding.aspx)
https://www.washingtonpost.com/education/2021/12/01/bloomberg-donates-750billion-charter-schools/ (https://www.washingtonpost.com/education/2021/12/01/bloomberg-donates-750billion-charter-schools/)
https://www.mediamatters.org/daily-caller/here-are-corporations-and-right-wing-funders-backing-education-reform-movement (https://www.mediamatters.org/daily-caller/here-are-corporations-and-right-wing-funders-backing-education-reform-movement)
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on September 05, 2023, 02:05:44 PM
For me it’s just annoying that I could sell my house and buy an equally priced house somewhere else but would be in a far worse financial position due to higher rates and higher property taxes (CA quirk).   Cry my a river I know!
Yup. Same here. We'd like to downsize, but we'll be paying the same taxes, or more, on a smaller, less attractive property. MPP.
Makes me wonder if the property bubble will be a boon to localities with property taxes. If the politicians weren't siphoning funds away to their charter school donors, public schools would be flush.
Citation, please?
https://www.washingtonpost.com/business/2022/05/05/property-taxes-us-homes-rose-328-billion-2021-report-finds/ (https://www.washingtonpost.com/business/2022/05/05/property-taxes-us-homes-rose-328-billion-2021-report-finds/)
https://www.arkansasonline.com/news/2023/mar/10/what-you-need-to-know-about-arkansas-learns/ (https://www.arkansasonline.com/news/2023/mar/10/what-you-need-to-know-about-arkansas-learns/)
https://thejournal.com/articles/2018/01/30/yes-charters-do-hurt-public-school-funding.aspx (https://thejournal.com/articles/2018/01/30/yes-charters-do-hurt-public-school-funding.aspx)
https://www.washingtonpost.com/education/2021/12/01/bloomberg-donates-750billion-charter-schools/ (https://www.washingtonpost.com/education/2021/12/01/bloomberg-donates-750billion-charter-schools/)
https://www.mediamatters.org/daily-caller/here-are-corporations-and-right-wing-funders-backing-education-reform-movement (https://www.mediamatters.org/daily-caller/here-are-corporations-and-right-wing-funders-backing-education-reform-movement)
Thank you. I have no children; this issue has not been on my radar. I'll dig in.
Title: Re: DONT Payoff your Mortgage Club
Post by: neo von retorch on September 05, 2023, 02:38:21 PM

There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.


Eh, as someone in this boat (the DPYMC as well as wanting to move, but having a sub 3% 30 year) I get it.

Moving even laterally would be a meaningfully higher cost. Moving "up" in house, or in our case to move to an acerage, means we'd be buying a more expensive house plus having nearly a 3x mortgage rate.

It's not "trapped" but it's sure as hell a ton more expensive relative to our current place in basically every regard - housing on the whole went up, rates went way up, and we'd be moving to a more expensive place compared to our current house.

All three of those factors add cost. Only one is in our control - the last one.

Disclaimer: I don't like popular threads so I tend to avoid them or delete my posts a day or two after contributing because I'm tired of seeing it pop up in my unread list!



We are in this boat. Due to changing life circumstances (the death of a loved family dog, in-laws moving away, other in-law family strife) our location and the size of our house are both high sub-optimal. So we are likely to sell and move, going from a 2.99% 30 year mortgage to something like a 7% 30 year mortgage. If we bought a house that cost exactly what we net after selling (where you lose about 10% of a home's value to transaction costs) and we put 100% of equity towards a down payment, our P&I portion of the payment would increase by 53% ($1185 to $1816).

Instead, we do expect to shop around for a smaller home, smaller property, in a lower cost area, and hope to offset some of the cost to approach our current mortgage payment. We'll still be paying much more every month in interest.
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on September 05, 2023, 03:05:41 PM

Disclaimer: I don't like popular threads so I tend to avoid them or delete my posts a day or two after contributing because I'm tired of seeing it pop up in my unread list!



btw the best way to handle this is using https://forum.mrmoneymustache.com/profile/?area=notification

I exclusively use this as my "things to check" which I find immensely better than doing what you are doing. I just unfollow things where I don't want to check them again.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on September 07, 2023, 06:43:34 PM

By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.

Don't forget doing the work to be born to a family in place where getting enough education is an even an option.  Oh, wait, that's truly pure luck.

I know the sentiment you are trying to convey, but my immigrant grandparents would furiously object that it was “pure luck” that their children were born in a place where a good education was readily available for their children.

I’m first generation American born.  It was MY pure luck that I was born to my parents here in the US rather than to another set of parents in a 3rd world country.  It is also due to baller audacity and vision that my parents ended up here, and for that I’m very grateful.  If my parents want to take credit for my excellent financial standing, I will happily have that, they deserve it and so much more.  (It’s also my parents pure luck that they were both born into families that could afford good schools so they would have the educations and resources needed to move to and excel in the US.  Idk how far back you want to take this, it could go for a long time…).

Your grandparents may toot their horns all they like for leaving wherever they came from. 

I take issue when people toot their own without acknowledging privilege.  Or tout bootstrap shit like anyone can do it.  Yes, some people make it out of bad situations.  That doesn’t mean everyone can.
Title: Re: DONT Payoff your Mortgage Club
Post by: ATtiny85 on September 07, 2023, 08:10:49 PM

Blah blah blah clipped.

Yes, some people make it out of bad situations.  That doesn’t mean everyone can.


Doesn’t mean everyone can’t either. Losers make excuses, winners make it happen. We can all tell stories all day about the privileged kid who spends their time in rehab, and about that dirt poor kid from the rough side of town who is a community or business leader.

I don’t see the benefit of claiming luck, either good or bad had the first fucking thing to do with where someone sits today. What matters to me is what are you going to do with this day and the ones after it. Nereo's grandparents said “what we are going to do is work to get our families in a better situation. Starting right now.”  They created the luck for their families. They created that privilege. Everyone should assess their situation and take appropriate action to create their own luck. We try to guide folks on this board to do must that. This thread is trying to help people see that some types of debt is OK when used properly. We (you specifically provide lots of great comments) try to work with people within their means to reach their goals.
Title: Re: DONT Payoff your Mortgage Club
Post by: dragoncar on September 07, 2023, 10:13:19 PM
TLDR pull yourself up by your bootstraps

Be thankful you are lucky enough to have boots
Title: Re: DONT Payoff your Mortgage Club
Post by: ender on September 08, 2023, 08:21:07 AM

Blah blah blah clipped.

Yes, some people make it out of bad situations.  That doesn’t mean everyone can.


Doesn’t mean everyone can’t either. Losers make excuses, winners make it happen. We can all tell stories all day about the privileged kid who spends their time in rehab, and about that dirt poor kid from the rough side of town who is a community or business leader.

I don’t see the benefit of claiming luck, either good or bad had the first fucking thing to do with where someone sits today. What matters to me is what are you going to do with this day and the ones after it. Nereo's grandparents said “what we are going to do is work to get our families in a better situation. Starting right now.”  They created the luck for their families. They created that privilege. Everyone should assess their situation and take appropriate action to create their own luck. We try to guide folks on this board to do must that. This thread is trying to help people see that some types of debt is OK when used properly. We (you specifically provide lots of great comments) try to work with people within their means to reach their goals.

There's a ton of value in understanding other people's situations.

For example, do you vote? Likely your vote in some way is related to this entire question.

People's experiences and backgrounds also determine how likely they are to be able to take action based on their luck. Or how powerful their luck making machine is.

You are rather writing off the aspect of luck, or if you like privilege, as it applies to people. Yes, people should consider their actions they do to create more luck. But not understanding and recognizing the underlying factors results in a bias.

Basically, if you can't understand this, your thought process will be totally based on survivorship bias. "Oh, well Nereo's family pulled themselves up by their bootstraps. Not sure why everyone just doesn't do it, if they don't must be their fault."

Yes, it's their "fault" if they do not pull themselves up by their bootstraps and just decide "you know what I want to win today." But that fault is a combination of circumstances as well as their actions. Ignoring either is problematic.

It's kind of like being 6'8 in high school wanting to play basketball professionally. Are you guaranteed to be awesome at it? Does being above average height mean you're going pro NBA? Of course not. You only get to do that if you actually play. But are you more likely to be good at basketball if you are above average height? Is it easier for you to pursue basketball professionally than someone who is 5'2? Yes, of course.
Title: Re: DONT Payoff your Mortgage Club
Post by: simonsez on October 24, 2023, 04:02:16 PM

There's a corollary I've been hearing that also grates on my nerves. Folks are saying they're "trapped" in their low-rate mortgages. Cry me a river.


Eh, as someone in this boat (the DPYMC as well as wanting to move, but having a sub 3% 30 year) I get it.

Moving even laterally would be a meaningfully higher cost. Moving "up" in house, or in our case to move to an acerage, means we'd be buying a more expensive house plus having nearly a 3x mortgage rate.

It's not "trapped" but it's sure as hell a ton more expensive relative to our current place in basically every regard - housing on the whole went up, rates went way up, and we'd be moving to a more expensive place compared to our current house.

All three of those factors add cost. Only one is in our control - the last one.
I'm thrilled (certainly not crying!) with the rate on our current mortgage and am not looking to change where we live on a medium term horizon unless we really need to.  We have a 2 BR/1BA brick house that serves the needs of two adults quite well, even with one of them working from home in a permanent office space upstairs.   The upstairs is more like an attic (there are 2 rooms with barely enough space for a human to fit through the windows but I'm not calling them bedrooms) and would need major HVAC work plus maybe conversion to a 1/2 bath of one of the corridor closets if we have more than 1 child and for a human to be comfortable enough to sleep.  It's all tiny violin types of problems, I would like to always have a guest room (that can double as many things) and if mortgages were still low and even if we never had children or just 1, we would still want to move for a few reasons.  The sub-3% mortgage relative to current rates changes our calculus somewhat.  It's a good problem to have, i.e. staying perhaps longer than intended in your affordable first starter house to save $.

I don't want a McMansion but I also don't want to stay in the opposite end of the spectrum for decades, either.  I love our current house but the longer we stay here (while already having it in our mind that it's not where we envision ourselves forever) the minor issues become more and more grating and possibly turn into major issues.  Saying we're trapped is too strong of a term but I understand the sentiment.
Title: Re: DONT Payoff your Mortgage Club
Post by: nouseforausername on October 25, 2023, 11:09:33 AM

By "completing all the steps", I did not mean all the hoops lenders put buyers through to get a mortgage, I meant exactly what you said. Get enough education to get a good job, establish solid credit, save for a down payment, learn enough about the market to realize that rates were at historical lows, do enough research to buy a home that fits your needs, etc.

Don't forget doing the work to be born to a family in place where getting enough education is an even an option.  Oh, wait, that's truly pure luck.

I know the sentiment you are trying to convey, but my immigrant grandparents would furiously object that it was “pure luck” that their children were born in a place where a good education was readily available for their children.

I’m first generation American born.  It was MY pure luck that I was born to my parents here in the US rather than to another set of parents in a 3rd world country.  It is also due to baller audacity and vision that my parents ended up here, and for that I’m very grateful.  If my parents want to take credit for my excellent financial standing, I will happily have that, they deserve it and so much more.  (It’s also my parents pure luck that they were both born into families that could afford good schools so they would have the educations and resources needed to move to and excel in the US.  Idk how far back you want to take this, it could go for a long time…).

Your grandparents may toot their horns all they like for leaving wherever they came from. 

I take issue when people toot their own without acknowledging privilege.  Or tout bootstrap shit like anyone can do it.  Yes, some people make it out of bad situations.  That doesn’t mean everyone can.

I wonder who could survive this poster's virtue acid test. I'd love to meet that apotheosis of Anti Privilege.

Anyhoo, still privileged to be riding with a 2.75% mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on November 05, 2023, 09:06:23 AM
https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/

;)
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on November 15, 2023, 09:33:05 AM

Doesn’t mean everyone can’t either. Losers make excuses, winners make it happen. We can all tell stories all day about the privileged kid who spends their time in rehab, and about that dirt poor kid from the rough side of town who is a community or business leader.

I don’t see the benefit of claiming luck, either good or bad had the first fucking thing to do with where someone sits today. What matters to me is what are you going to do with this day and the ones after it. Nereo's grandparents said “what we are going to do is work to get our families in a better situation. Starting right now.”  They created the luck for their families. They created that privilege. Everyone should assess their situation and take appropriate action to create their own luck. We try to guide folks on this board to do must that. This thread is trying to help people see that some types of debt is OK when used properly. We (you specifically provide lots of great comments) try to work with people within their means to reach their goals.

There's a ton of value in understanding other people's situations.

For example, do you vote? Likely your vote in some way is related to this entire question.

People's experiences and backgrounds also determine how likely they are to be able to take action based on their luck. Or how powerful their luck making machine is.

You are rather writing off the aspect of luck, or if you like privilege, as it applies to people. Yes, people should consider their actions they do to create more luck. But not understanding and recognizing the underlying factors results in a bias.

Basically, if you can't understand this, your thought process will be totally based on survivorship bias. "Oh, well Nereo's family pulled themselves up by their bootstraps. Not sure why everyone just doesn't do it, if they don't must be their fault."

Yes, it's their "fault" if they do not pull themselves up by their bootstraps and just decide "you know what I want to win today." But that fault is a combination of circumstances as well as their actions. Ignoring either is problematic.

It's kind of like being 6'8 in high school wanting to play basketball professionally. Are you guaranteed to be awesome at it? Does being above average height mean you're going pro NBA? Of course not. You only get to do that if you actually play. But are you more likely to be good at basketball if you are above average height? Is it easier for you to pursue basketball professionally than someone who is 5'2? Yes, of course.

You said it so eloquently, thanks. 

Didn't pay off my mortgage again!

https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/

;)

Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Retire-Canada on November 15, 2023, 09:54:46 AM
FWIW - we've got a variable rate mortgage up here in Canukistan. No plans to do anything other than ride the rate wave up and down. I plan on extending amortization and/or pulling out equity as we get to each 5 year renewal cycle. No plans to ever not have a mortgage. At least living in the current megaquake prone location.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 15, 2023, 02:18:05 PM
Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
That still seems like a good rate. What are your plans for the $$, if you don't mind my asking.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 15, 2023, 02:27:27 PM
Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
That still seems like a good rate. What are your plans for the $$, if you don't mind my asking.
Nevermind, I found your new thread.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on November 15, 2023, 04:22:53 PM
https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/

;)

Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
Cliffs notes version, I was suggesting that current numbers may indicate paying off mortgages with rates in the 6%, 7%, or higher range could be a better move than investing. People with sub 5% rates should not be in a hurry to pay them off.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on November 16, 2023, 07:03:20 AM
Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
That still seems like a good rate. What are your plans for the $$, if you don't mind my asking.
Nevermind, I found your new thread.

Yeah, I thought it was good in the current environment.  In case people don’t want to go post hunting, it’s for a car.  And I just moved some $ around to mitigate the tax impact on interest income we’ll be earning since we opted not to pay cash, so it makes good sense.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on November 16, 2023, 07:07:33 AM
https://forum.mrmoneymustache.com/investor-alley/time-to-pay-off-recent-mortgages/

;)

Thanks for this link, I'm still not paying off my mortgage, but recently took on additional debt at 4.99%.  Debatable move, but I'm comfortable with it.
Cliffs notes version, I was suggesting that current numbers may indicate paying off mortgages with rates in the 6%, 7%, or higher range could be a better move than investing. People with sub 5% rates should not be in a hurry to pay them off.

Yup, I’m in agreement here on those thresholds, personally.  But referring back to the “investment order” gospel, I have a tricky time wrapping my head around having two different thresholds for the pay it off or don’t debate.  The way I make it work in my mind is different expected returns.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on November 19, 2023, 11:28:27 PM
I thought y'all might enjoy this:

https://markets.businessinsider.com/news/commodities/housing-market-home-mortgage-unaffordable-rates-fed-prices-investors-finance-2023-11
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on December 23, 2023, 08:30:42 AM
Still just rounding up that $19.73 to an “even $50” every month.  I now have another excuse from others when I say I’m retiring when I’m first eligible for our pension.  In addition to me having no kids, I now have the advantage of a good mortgage rate (3.875).  Um if I were buying today, my purchase price would just be lower people.
Title: Re: DONT Payoff your Mortgage Club
Post by: LD_TAndK on January 07, 2024, 05:03:52 AM
Just got our 1098 mortgage interest statement, looks like that deduction will save us around $1700 taxes.

Also, our mortgage rate is 2.875%, average 2023 inflation will probably come in around 4%. So the real value of our debt decreased more than $2500!

Additionally, our investments went up 22% during 2023, 18% factoring in inflation to be fair. That's more than $45k gained on the money that could have paid off our mortgage

Glad I didn't pay off my mortgage!
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on January 07, 2024, 05:46:22 PM
Also, our mortgage rate is 2.875%, average 2023 inflation will probably come in around 4%. So the real value of our debt decreased more than $2500!

Awesome!   Our obligations are eroding away at no cost to us. 
Title: Re: DONT Payoff your Mortgage Club
Post by: TheAnonOne on January 07, 2024, 08:37:22 PM
Sitting on just under a $410,000 note on our house at 2.75% for 30 years.

We really nailed the bottom there on rate.

We do round up $120 a month to get it to a nice round number.


That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 08, 2024, 04:18:26 AM

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?
Title: Re: DONT Payoff your Mortgage Club
Post by: TheAnonOne on January 08, 2024, 10:17:04 AM

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.

For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.

10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.


Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 08, 2024, 10:43:19 AM

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.

For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.

10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.


Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.

I’m certainly not trying to say your choice would be “wrong” either way, and agree that it’s subjective and personal. I ask because I’m interested in each persons decision.

FWIW, my parents set up a “sinking fund” for their mortgage that was invested in mutual funds circa 1980. By the time that fund had more in it than the remaining balance on the mortgage (including two cash out ReFis) in the mid 1990s, my parents decided they much preferred having those investments over having no mortgage. No doubt that has shaped my outlook. They joke it took them 42 years to pay off a 30 year mortgage, and now their mortgage sinking fund has morphed into a sizeable chunk of their NW
Title: Re: DONT Payoff your Mortgage Club
Post by: TheAnonOne on January 08, 2024, 01:16:19 PM

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.

For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.

10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.


Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.

I’m certainly not trying to say your choice would be “wrong” either way, and agree that it’s subjective and personal. I ask because I’m interested in each persons decision.

FWIW, my parents set up a “sinking fund” for their mortgage that was invested in mutual funds circa 1980. By the time that fund had more in it than the remaining balance on the mortgage (including two cash out ReFis) in the mid 1990s, my parents decided they much preferred having those investments over having no mortgage. No doubt that has shaped my outlook. They joke it took them 42 years to pay off a 30 year mortgage, and now their mortgage sinking fund has morphed into a sizeable chunk of their NW

Yeah, "wrong" in terms of "historically keeping the money results in the largest pile at the grave".

In my case, in this fantasy, I am already FAT FIRE'd (something I hope to be in 3-6 years), adding 400k to a FAT FIRE pile doesn't change my life, but removing a payment immediately increases my monthly budget by 2-3k per month.

Though, you could just keep that pile on the side invested and make the payments out of it too. <-- this is the main reason I think HYSA options are probably better in the windfall world.
Title: Re: DONT Payoff your Mortgage Club
Post by: jsap819 on January 08, 2024, 01:29:59 PM

That said, if some windfall fell on my lap, id be tempted to pay the thing off, it's still a large cash cost monthly, and probably the largest anxiety cost as far as how future FIRE looks for us. (In this fantasy world I wouldn't pay it off until HYSA rates fell under 2.75%)

-----------------------

Fun side math, since taking on the $450,000 note in mid 2019 approximately 20% of it's value was eroded due to inflation. So it should FEEL like $360,000 (-$90,000!), except, life isn't so cut and dry with wage growth, and other factors.

If you had a large windfall, wouldn’t that added investment cushion more than offset your anxiety on the monthly mortgage cost?  (Serious question).

In other words, would having an account with $410k (“home sinking fund”) in addition to your other investments make it a non issue?

This is all subjective and personal from a feelings standpoint. I'd likely have given difference answers at different points in my life.

For me, I already have enough investments to cover the mortgage, and having another account with more $$$ in it would certainly move the need to FIRE a bit. That said, ultimately, it's just another account.

10 years ago, with a net worth of basically 0, I'd 110% gone the "keep the cash and invest" route.


Again, I am not 100% saying I would make the mathematically wrong choice here, there are obvious choices like 'High Yield Savings' options that are clearly better routes with extreme little to zero risk.

I’m certainly not trying to say your choice would be “wrong” either way, and agree that it’s subjective and personal. I ask because I’m interested in each persons decision.

FWIW, my parents set up a “sinking fund” for their mortgage that was invested in mutual funds circa 1980. By the time that fund had more in it than the remaining balance on the mortgage (including two cash out ReFis) in the mid 1990s, my parents decided they much preferred having those investments over having no mortgage. No doubt that has shaped my outlook. They joke it took them 42 years to pay off a 30 year mortgage, and now their mortgage sinking fund has morphed into a sizeable chunk of their NW

We are kind of in the same boat. Started a sinking fund in 2018 where all excess cash after expenses were invested in a taxable account with goals of paying off our mortgage in one lump sum once we had enough. Instead, we refi'd in 2021 from 3.75% to 2.375% to lower our monthly payment so we can invest more. Granted, the returns those years were phenomenal so luck played a big part.

As of today. we have surpassed our mortgage balance by $200k with no intention of paying it off. If we used those excess cash all these years to pay down the mortgage, we would still have $50k remaining. We have made a decision that we value liquidity over being debt free.
Title: Re: DONT Payoff your Mortgage Club
Post by: Radagast on January 08, 2024, 06:41:11 PM
Meh, if you are in 32% tax bracket or less a treasury bond is guaranteed to give better returns if only by a little. At worst take the guaranteed more money and buy treasuries. Unless maybe you are concerned about a lawsuit in which you lose everything but your house.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 19, 2024, 01:16:45 PM
At the end of last year, there was a convo over at the "... and Beyond" thread. I've been meaning to post my thoughts here. Quoting the whole thing is a bit confusing, but I didn't want to edit it. The most pertinent parts are in bold below. For more of the discussion, you can check out that thread.

FFS, I've been meaning to follow up on this, but I'm doing a "forum lite" week, as we're on a trip. The response above is so off the mark that apparently now is the time to elaborate.

As I mentioned upthread, I believe this topic is less of a concern for this group. Frankly, though some believe one should always have a mortgage, I do not fully subscribe to that theory, particularly for the folks racing from $2M to $4M...and Beyond!

The reason to hold a long, low, fixed-rate rate mortgage on an affordable home, in a country where mortgages are tax-advantaged, is that it allows you to invest in equities which will compound, resulting in a higher net worth faster than paying off the mortgage before maxing out every other investment option first.

The average shlub is assumed to be an idiot who will blow every spendable cent. (See: Dave Ramsey or Suze Orman for endless examples.) These people may never have the means to retire, let alone early. For them, the goal of paying off the mortgage is not unreasonable. At least they'll have something.

Mustachians are smarter more financially literate than that and know how to save and invest.

Since the goal of MMM, and by extension this forum, is to retire early, holding on to a mortgage (with the caveats listed above) is a smart strategy. Mortgages, if managed correctly, are a powerful tool for building wealth. The sooner you start investing, the faster compound interest will begin to do the heavy lifting. Waiting to invest until the mortgage is paid off simply means it's going to take longer, and you'll have to earn more money (i.e. work longer) to reach FIRE.

If you're on this forum, you're here to strategize so that you can at least reach FI efficiently. Ignoring the leverage a good mortgage creates over the imagined way it's going to "feel" to "kill the mortgage" before filling every other investment option makes so little sense that the blowback continues to surprise me.

Again, I don't believe this discussion is necessary in this group, but the recent scorn that's been directed my way is ironic, given that it's happening on this forum.

For the love of Dog, can we send this discussion back to the DPOYM thread, where both sides of the question are addressed?
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on January 19, 2024, 02:15:25 PM
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on January 19, 2024, 04:30:25 PM
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

It certainly makes the decision-process more straight forward, but that doesn't mean you can't also benefit from not paying down a mortgage with an ARM.

There's plenty of people who took out 5/1 or 7/1 ARMs in 2021/22 at sub 3% rates. Certainly they would have been in a better position having invested, even in iBonds.  Provided there's no pre-payment penalty it makes good financial sense to continue stockpiling money and seeing what the rates look like in 2026-28.
Title: Re: DONT Payoff your Mortgage Club
Post by: Telecaster on January 19, 2024, 05:50:07 PM
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

For sure.   That said, a 5/1 or a 7/1 ARM almost always make sense if you think you will live in a place for less than ten years.   I wouldn't pay those down at all.

But in general, an adjustable mortgage is like a time bomb.   It could go off, you don't know when, seems like a future unknown...sounds like something I don't want. 

But a sub 4% fixed rate?  Back up the truck.  Deal of a lifetime. 

Title: Re: DONT Payoff your Mortgage Club
Post by: Must_ache on January 19, 2024, 09:25:39 PM
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

Not just fixed-rate, but low fixed-rate.  My own personal rate of 2.625% is almost certainly going to get trounced by the stock market.  It's really not clear you want to try to outdo more recent values like 7% and 8%.  I wonder where the ideal threshold is, no doubt it varies by person but at some point it shouldn't be considered subjective but decidedly disadvantageous.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 19, 2024, 09:54:12 PM
Would you argue that fixed-rate is also an important qualifier here, not just tax-advantaged?

I wouldn't argue with you at all. Here's what I actually said:

At the end of last year, there was a convo over at the "... and Beyond" thread. I've been meaning to post my thoughts here. Quoting the whole thing is a bit confusing, but I didn't want to edit it. The most pertinent parts are in bold below. For more of the discussion, you can check out that thread.

FFS, I've been meaning to follow up on this, but I'm doing a "forum lite" week, as we're on a trip. The response above is so off the mark that apparently now is the time to elaborate.

As I mentioned upthread, I believe this topic is less of a concern for this group. Frankly, though some believe one should always have a mortgage, I do not fully subscribe to that theory, particularly for the folks racing from $2M to $4M...and Beyond!

The reason to hold a long, low, fixed-rate rate mortgage on an affordable home, in a country where mortgages are tax-advantaged, is that it allows you to invest in equities which will compound, resulting in a higher net worth faster than paying off the mortgage before maxing out every other investment option first.

The average shlub is assumed to be an idiot who will blow every spendable cent. (See: Dave Ramsey or Suze Orman for endless examples.) These people may never have the means to retire, let alone early. For them, the goal of paying off the mortgage is not unreasonable. At least they'll have something.

Mustachians are smarter more financially literate than that and know how to save and invest.

Since the goal of MMM, and by extension this forum, is to retire early, holding on to a mortgage (with the caveats listed above) is a smart strategy. Mortgages, if managed correctly, are a powerful tool for building wealth. The sooner you start investing, the faster compound interest will begin to do the heavy lifting. Waiting to invest until the mortgage is paid off simply means it's going to take longer, and you'll have to earn more money (i.e. work longer) to reach FIRE.

If you're on this forum, you're here to strategize so that you can at least reach FI efficiently. Ignoring the leverage a good mortgage creates over the imagined way it's going to "feel" to "kill the mortgage" before filling every other investment option makes so little sense that the blowback continues to surprise me.

Again, I don't believe this discussion is necessary in this group, but the recent scorn that's been directed my way is ironic, given that it's happening on this forum.

For the love of Dog, can we send this discussion back to the DPOYM thread, where both sides of the question are addressed?

P.S. Any discussion about mortgages is a good discussion, IMO. Thanks for giving me the opportunity to clarify.

P.P.S. Before any of you always-have-a-mortgage-no-matter-what-folks start feeling left out, for the record, we still have three LLFRM's. We also never had a mortgage on our primary, so technically, except when we sell a property, we've never actually paid off a mortgage early. Everybody happy? I hope so, because year after year of not paying off your mortgage gets kind of ho-hum. Well, except for watching your investment balances grow...
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on January 19, 2024, 11:56:51 PM
Oh, not argue as in ”have an argument” but rather “make the argument that”.

In my mortgage market, fixed rates are hardly ever offered. If they are, it’s actually not a true fixed-rate but rather an ARM with a max 10-year initial rate. As they are rare, they are also not priced attractively.

So everyone just has a variable rate mortgage. I guess when everyone does, it’s normal to sit on a time bomb? Banks are required to calculate whether you could handle rates up to 6%, which felt silly a couple of years ago when rates were negative, but doesn’t feel silly anymore. People spend a lot of time and brain power thinking about which base rate to tie their mortgage to: 3m, 12m, etc. The differences are peanuts, but people basically don’t seem to like to be “surprised” by their mortgage payments changing more than once a year. (Although with the amount of space given to rates in the news, I don’t see how anyone can be surprised when it does change.)

We have two mortgages at the moment since we’re in the process of moving house, and both are adjustable rate at about 4.5% (adjusting at different moments). Although they’ve gone up a lot from the 0.4-something, I’m always thinking that for them to go up to something that’s unaffordable to *us* (our housing choices are not cheap, but certainly not extravagant) a whole lot of other people would already have been in trouble a long time ago. So I’m kind or trusting that the Mustachianism of our housing choices and savings will put a big damper on the time bomb.
Title: Re: DONT Payoff your Mortgage Club
Post by: Retire-Canada on January 20, 2024, 04:57:15 AM
In my mortgage market, fixed rates are hardly ever offered. If they are, it’s actually not a true fixed-rate but rather an ARM with a max 10-year initial rate. As they are rare, they are also not priced attractively.

So everyone just has a variable rate mortgage. I guess when everyone does, it’s normal to sit on a time bomb?

The typical mortgages we have in Canada are 5 year fixed term or 5 year variable rate. You can get shorter and a little longer, but nothing meaningfully longer that compare to US 30 year fixed mortgages.

I've had a variable mortgage the last ~13 years. For most of that time it's been great. The last couple years my payments went up with the recent rate hikes. Less awesome, but not a big deal in so far as we expected that rates can move in either direction. Expectation here is rates will start to drop in 2024 again. Our 5 year term ends in 2026. I expect we'll get another variable rate mortgage.

Shorter fixed mortgages cost more in general than variable rate and unless you get lucky with the timing you'll be forced to renew and deal with the higher rates anyway. If you just happen to renew before rates climb and they go back down in time for the next renewal you win, but you were lucky.

I could simply pay off my mortgage if I wanted to and I would at least consider that option at renewal time. I would also consider taking out more equity and investing it and/or extending the amortization back to 25-30 years. I've got a few reasons to keep a mortgage including the risk of a very significant earthquake where we live.

I wouldn't say no to a low rate 30 year fixed mortgage, but we just don't have that option yet I am still a DPOYM fan.
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on January 21, 2024, 03:48:07 AM
I mean it makes sense for the rate of a variable mortgage to be lower than that of a fixed one (on average), since it’s the customer taking on the risk instead of the bank.

The Euribor rates are already coming down a little, and it seems the ~4.5 we’re paying now (which includes .x% going to the bank) was a peak that we’ve just passed.

Meanwhile, in a neighbouring country, it’s not actually required to pay off your mortgage. You have to pay it off (very slowly) until you’ve paid half (or half of the house, I’m not sure which), and after that you can just pay interest if you want. In an interview comparing different countries and typical mortgages, the people from that country didn’t even under the question about the length of the mortgage! X-D
Title: Re: DONT Payoff your Mortgage Club
Post by: davisgang90 on January 21, 2024, 04:15:15 AM
Through dumb luck, we refinanced into a 2.25% 30 year on our home.

We are in no hurry to pay that off for sure!

Our only problem is that though we are FIRE, this is not our forever home, so we'd like to downsize at some point, but it will probably be a while. We have enough deductions to itemize, so there isn't really a downside to us keeping the mortgage.
Title: Re: DONT Payoff your Mortgage Club
Post by: NorthernIkigai on January 21, 2024, 07:55:19 AM
Through dumb luck, we refinanced into a 2.25% 30 year on our home.

We are in no hurry to pay that off for sure!

Our only problem is that though we are FIRE, this is not our forever home, so we'd like to downsize at some point, but it will probably be a while. We have enough deductions to itemize, so there isn't really a downside to us keeping the mortgage.

You have a Mustachian People Problem :-)
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on January 21, 2024, 09:51:02 AM
After years of being dedicated DPYMC member for years, I've decided this is for the birds. Going to pay off the 3.75% mortgage no later than early-to-mid 2025.

Spoiler: show
Put another, truer way,: we've decided that we're going to relocate and will be selling the house and renting wherever we land in North or possibly South Carolina to be closer to family. If we weren't moving then we'd just continue with our minimum-payments and possible take a 2nd mortgage or refinance if interest rates and my appetite for applying for loans get a little better.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on January 21, 2024, 09:58:12 AM
After years of being dedicated DPYMC member for years, I've decided this is for the birds. Going to pay off the 3.75% mortgage no later than early-to-mid 2025.

Spoiler: show
Put another, truer way,: we've decided that we're going to relocate and will be selling the house and renting wherever we land in North or possibly South Carolina to be closer to family. If we weren't moving then we'd just continue with our minimum-payments and possible take a 2nd mortgage or refinance if interest rates and my appetite for applying for loans get a little better.

Spoiler: show
Haha. If you look at it that way, I've done it five times, plus paid all-cash twice. Oh, the shame!
Title: Re: DONT Payoff your Mortgage Club
Post by: dandarc on January 23, 2024, 08:12:15 AM
Wow - that message came from the department of redundancy department in multiple places.
Title: Re: DONT Payoff your Mortgage Club
Post by: Bartie Musa on March 02, 2024, 09:57:40 PM
Bartie Musa - I didn't even know a club like this existed, this forum is truly one of a kind. However there's arguments on both sides, neither matters unless you got the cash for it though hehe.
Title: Re: DONT Payoff your Mortgage Club
Post by: neo von retorch on March 03, 2024, 04:54:02 AM
Oh hi! My new mortgage is 30 year fixed 5.95%.

What say you?
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on March 03, 2024, 05:09:19 AM
I think that's a no brainer payoff decision, but reasonable people can differ.

Some important variables -
How much is the balance, and do you itemize deductions?
Do you own any bonds, and are they in a taxable or tax free account if so?
Do you think rates are going to drop from here?
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 03, 2024, 07:44:48 AM
Oh, not argue as in ”have an argument” but rather “make the argument that”.

In my mortgage market, fixed rates are hardly ever offered. If they are, it’s actually not a true fixed-rate but rather an ARM with a max 10-year initial rate. As they are rare, they are also not priced attractively.

So everyone just has a variable rate mortgage. I guess when everyone does, it’s normal to sit on a time bomb? Banks are required to calculate whether you could handle rates up to 6%, which felt silly a couple of years ago when rates were negative, but doesn’t feel silly anymore. People spend a lot of time and brain power thinking about which base rate to tie their mortgage to: 3m, 12m, etc. The differences are peanuts, but people basically don’t seem to like to be “surprised” by their mortgage payments changing more than once a year. (Although with the amount of space given to rates in the news, I don’t see how anyone can be surprised when it does change.)

We have two mortgages at the moment since we’re in the process of moving house, and both are adjustable rate at about 4.5% (adjusting at different moments). Although they’ve gone up a lot from the 0.4-something, I’m always thinking that for them to go up to something that’s unaffordable to *us* (our housing choices are not cheap, but certainly not extravagant) a whole lot of other people would already have been in trouble a long time ago. So I’m kind or trusting that the Mustachianism of our housing choices and savings will put a big damper on the time bomb.

My first house was on a 7/1 ARM.  Now it was a US ARM so could only go up at most 6% per the loan documents.  I made sure I could afford the loan at 12% just as much as I could afford it at 6%.  And seeing as I got it in 2004, it actually reset lower in 2011.

Edited for spelling.
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 03, 2024, 07:58:53 AM
Oh hi! My new mortgage is 30 year fixed 5.95%.

What say you?

Don't pay extra except maybe to get rid of PMI.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2024, 08:30:02 AM
I think that's a no brainer payoff decision, but reasonable people can differ.

Some important variables -
How much is the balance, and do you itemize deductions?
Do you own any bonds, and are they in a taxable or tax free account if so?
Do you think rates are going to drop from here?
Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion,  only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?

Thanks again for popping in and giving me the chance to welcome you, and everyone who wants to learn more. All friendly discourse is helpful, no matter how anyone chooses to purchase their home.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2024, 08:41:45 AM
Oh hi! My new mortgage is 30 year fixed 5.95%.

What say you?
Our kids just purchased a new home. The loan started at 7%, then dropped to 6%, so they locked in. The lender required a simultaneous closing of the house they were selling and the one they were buying. The loan closed a few weeks ago and they're renting back for a month or two. Loan rates have already increased since then. Good timing for both of you!

Since you asked your question here, you know what our answer will be: Congratulations, and welcome to the DPOYM club. Your golden passkey is on its way.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on March 03, 2024, 09:15:48 AM
Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion,  only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?

Thanks again for popping in and giving me the chance to welcome you, and everyone who wants to learn more. All friendly discourse is helpful, no matter how anyone chooses to purchase their home.
I did not create the other thread, nor did I ask that criticism be excluded from it, because I did not have a mortgage for the first ten years that thread existed. I stumbled into the thread late in its history, long after the blowups. I can't speak to what the POYM folks wanted, what the DPOYM folks wanted, or mods chose to do years before I clicked on the thread for the first time. Nor have I reported you to the mods for any reason, ever.

I am in favor of more speech, more disagreement on the merits of the arguments, and that way getting to a better understanding. I've learned a lot from the active traders on this site, who I disagree with, and I've learned from the DPOYM squad too.

What I criticized was not you making your arguments, it was your parade around the site exclaiming that you are being cancelled for your views, bringing up how unreasonably you were treated in the POYM thread. Even when I did that, it was a post addressed to you, not the mods. I don't think that post is something that doesn't belong on the site like an ad hominem, I just disagreed with it, so I wrote a post about why.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2024, 09:38:57 AM
Hi grantmeaname, thanks for stopping by! Yes indeed, "reasonable people can differ", but only on this thread. The celebration threads do not allow discussion,  only celebration. Would you believe some people have complained to the mods if the topic is even mentioned elsewhere on the forum? That doesn't seem very reasonable to this mustachian. Why hide the benefits of such a powerful tool?

Thanks again for popping in and giving me the chance to welcome you, and everyone who wants to learn more. All friendly discourse is helpful, no matter how anyone chooses to purchase their home.
I did not create the other thread, nor did I ask that criticism be excluded from it, because I did not have a mortgage for the first ten years that thread existed. I stumbled into the thread late in its history, long after the blowups. I can't speak to what the POYM folks wanted, what the DPOYM folks wanted, or mods chose to do years before I clicked on the thread for the first time. Nor have I reported you to the mods for any reason, ever.

I am in favor of more speech, more disagreement on the merits of the arguments, and that way getting to a better understanding. I've learned a lot from the active traders on this site, who I disagree with, and I've learned from the DPOYM squad too.

What I criticized was not you making your arguments, it was your parade around the site exclaiming that you are being cancelled for your views, bringing up how unreasonably you were treated in the POYM thread. Even when I did that, it was a post addressed to you, not the mods. I don't think that post is something that doesn't belong on the site like an ad hominem, I just disagreed with it, so I wrote a post about why.
Funny, I said "some people" because they have, in fact, complained.

You have directed harsh words at me in the past, and they have been allowed to stand.

There is no such thing as a POYM thread. There are only celebration threads, unless someone starts a new thread, asking specific questions. What that happens, I happily chime in. I remain active here long after FIRE to offer encouragement to others on their journeys. Had something like this existed when I was younger, it would have made the journey easier. Consider my presence paying it forward.

And for Pete's sake, "Parade around the site" is freaking hilarious! With ~ 22,000 posts and thousands more PMs, of course I "parade around the site." I mention PMs, because I help organize the Magical Moab Meetup. Mr. Dicey and I also help mustachians behind the scenes in a specific field where we have extensive experience. Gratis, of course.

Yeah, I never thought of it that way, but I sure do "parade around the site." Thanks for noticing.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on March 03, 2024, 10:06:42 AM
I posted here on the substance of the conversation, whether Neo should pay down his mortage and the factors that influence that decision, which you say you welcome. All else I can say is that I haven't asked the mods to limit your speech in any way, nor asked you not to contribute on the substance of the discussion here or in any other thread. I've appreciated, and learned from, your posts relating to the substance of the mortgage payoff decision.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 03, 2024, 11:08:50 AM
I posted here on the substance of the conversation, whether Neo should pay down his mortage and the factors that influence that decision, which you say you welcome. All else I can say is that I haven't asked the mods to limit your speech in any way, nor asked you not to contribute on the substance of the discussion here or in any other thread. I've appreciated, and learned from, your posts relating to the substance of the mortgage payoff decision.
Based on his posting history and long time participation on this thread and forum, I'm pretty sure @Neo was joking.

Whether it came from you or not, the fact is the mods have limited my speech, while allowing you to skate on thin Rule #1 ice in your comments to me. It is what is, apparently.

I did read your final sentence: it doesn't remove the sting from previous barbs.

Can we please move on? I think we've established that we are both contributing members here. There is room here for endless conversation, provided it's friendly.
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on March 03, 2024, 12:27:52 PM
Based on his posting history and long time participation on this thread and forum, I'm pretty sure @Neo was joking.
Welp. I knew this and forgot it today. And then went and stuck my foot in my mouth.

Happy to bury the hatchet. I've been an ass and let the someone is wrong on the internet (https://xkcd.com/386/) energy take over my better sense. Sorry.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 03, 2024, 02:37:11 PM
Mostly out of curiosity (sparked by a job offer that would have forced us to sell and relocate) I calculated how our mortgage from 2021 would change if we took out the same sized mortgage at today's rates:  We would be paying almost $7,800 more per month.

Adding to that, the median home sale price in our area has jumped about 30% since we purchased about three years ago, so if we were to have bought this exact same house today vs in 2021 we'd be paying about $14,180 more per year (entirely in added interest).  That's how big a difference 3 years can make with interest rate swings and escalating property values.
Title: Re: DONT Payoff your Mortgage Club
Post by: neo von retorch on March 04, 2024, 06:47:29 AM
Some important variables -
How much is the balance, and do you itemize deductions?
Do you own any bonds, and are they in a taxable or tax free account if so?
Do you think rates are going to drop from here?

Balance was $567k, sold $40k of bonds in taxable brokerage, which may be questioniable but I really think I'm increasing how aggressive my portfolio / AA is going forward. (I still have lots of bonds in my retirement accounts.) Put that $40k towards mortgage, so now $527k. PMI will drop at $504k.

I cannot predict the future :-) But yeah I think tipping below 6% I'll probably let this ride once I hit 80% LTV, drop PMI and recast for a smaller mortgage payment (a one-time $150 fee applies.)
Title: Re: DONT Payoff your Mortgage Club
Post by: neo von retorch on March 04, 2024, 06:50:31 AM
Didn't mean to stir up any hornets nest. Not 100% a joke - seriously wanted some rational, mathematical minds to weigh in. I do think the actual rate and other factors can weigh on the decision. I don't think it's 100% a case of "never pay off any mortgage no matter what" no matter which thread you post on :)

When we sell our old house, I plan to put $24k to get to 80% LTV, $15k to pay off a no-interest credit card we've been using for preparing that house for selling. (It might be $18k by the time we sell... deck staining should hopefully happen soon as the weather warms!) Then the rest (hopefully $210k or more) will likely all just get dumped into VTSAX, purchased at an all-time high!
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on March 04, 2024, 06:55:32 AM
Where I was leading with that is you're getting a bit of the benefit of the tax deductibility of the mortgage interest, compared to taking the standard deduction. (More to the extent you have other big itemized deductions.) I have a little bit smaller loan and lower rate, and a low income tax state, so even on day 1 my mortgage wasn't enough to make itemized deductions make sense. In fact, your rate may be similar to mine after equalizing the taxes.
Title: Re: DONT Payoff your Mortgage Club
Post by: neo von retorch on March 04, 2024, 06:57:17 AM
Yes - I think current MFJ Standard is now $29k but our mortgage interest from the two mortgages plus state tax should push us comfortably into itemizing for 2024. After a couple years, it'll likely dip right back below the standard deduction though!
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on March 04, 2024, 06:59:45 AM
Is your after tax bond yield (or gross bond yield if it's all in retirement accounts) higher than your after tax mortgage rate?
Title: Re: DONT Payoff your Mortgage Club
Post by: neo von retorch on March 04, 2024, 07:00:44 AM
Is your after tax bond yield (or gross bond yield if it's all in retirement accounts) higher than your after tax mortgage rate?

The bonds have been in the Admiral Share version of BND. I don't think the yield is very high? 3% or so?
Title: Re: DONT Payoff your Mortgage Club
Post by: grantmeaname on March 04, 2024, 07:04:01 AM
Better than you might think intuitively - looks like 4.52% (https://investor.vanguard.com/investment-products/mutual-funds/profile/vbtlx). Or at least, better than I would have thought.

I guess I would argue that unless you highly value the option to cash out refinance in the next couple of years (not unreasonable if you feel we are headed for substantial rate cuts), it may be better to have less financial liabilities yielding 5.5% and less financial assets yielding 4.5%. Every $100k you traded bonds for home equity would save you $1k/year. Of course, that doesn't apply if you're looking at selling your bonds for stocks anyway...
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 04, 2024, 09:25:44 AM
don't think it's 100% a case of "never pay off any mortgage no matter what" no matter which thread you post on :)
Unlike some who espouse always having a mortgage, I completely agree with you, and always have. My point continues to be that one gets to FIRE faster by paying yourself first. Then, if you still desire to do so, pay the loan off in one fell swoop. Or, sell your highly appreciated (still mortgaged) home and buy another one for cash, which is what we did. Don't worry, we still have mortgages on our rentals ;-)

A related point: At the beginning of the FIRE journey, it can be almost impossible to imagine getting to $1M. But the mortgage comes due every month, it's typically the largest bill, and it seems to be impediment to the goal. What is harder to grok is that by investing those payments, you will get to that first million faster than you thought possible. The next million comes even faster and before you know it, you're posting on the "and Beyond" thread. It's the miracle of compound interest.

Yes - I think current MFJ Standard is now $29k but our mortgage interest from the two mortgages plus state tax should push us comfortably into itemizing for 2024. After a couple years, it'll likely dip right back below the standard deduction though!

This doesn't apply to you, neo, but it's worth pointing out in this discussion, as it particularly impacts folks in HCOLAs:

Per IRS pub 936 for 2023 - "You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017."
Title: Re: DONT Payoff your Mortgage Club
Post by: RWD on March 04, 2024, 11:02:44 AM
Per IRS pub 936 for 2023 - "You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017."

I learned this when filing my taxes for last year. My two mortgages overlapped in 2023, the combined total exceeding $750k (just barely). Of course, running through the worksheet I still qualified for the full deduction because you can use some sort of averaging of the balance(s) across the year.
Title: Re: DONT Payoff your Mortgage Club
Post by: neo von retorch on March 04, 2024, 11:36:57 AM
I mean yeah... right now our two mortgages combine to $787k... though by June hopefully there will be one mortgage and it'll be quickly dropping below $500k.
Title: Re: DONT Payoff your Mortgage Club
Post by: bacchi on March 04, 2024, 11:49:33 AM
Or, sell your highly appreciated (still mortgaged) home and buy another one for cash, which is what we did. Don't worry, we still have mortgages on our rentals ;-)

This is what we're planning. We'd like to keep a mortgage when we relocate but 1) no income; and 2) rates are too high.

The current mortgage is actually more than when I bought the place (nominally). We took out 2 HELOCs, built an ADU, and upgraded the main house wiring. It kept money in the market and we're repaying it with inflationary and capital gain dollars.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 05, 2024, 11:46:46 PM
Sometimes doing nothing gets pretty boring. This past few days has been unexpectedly...not boring. All civilized conversation on this topic is good conversation, right?

I've been singing the DPOYM song for a long time, and nothing makes me happier than reading something like the quote below. As this was posted in eta's journal, it is quoted with her permission.

The monthly budget is such a deeply embedded psychological game, I think, SunnyDays. It's probably why it's so tempting to pay down the mortgage, even though that makes no sense mathematically in our case. Two years ago, when we bought, we could have recast the mortgage after we sold the condo. It would have brought down our monthly payment by at least $600. But with a mortgage rate of 2.99%, that plan didn't make much sense. We experienced the pain of having too much of our money tied up in the house with the condo--we used to put $800/month extra on our mortgage every month, and we had a 20 year mortgage. So then, when we wanted to buy the townhouse, it was harder to come up with the down payment.

So we have a tighter monthly budget but we also have a huge pile of money in accessible investments. Come to think of it, we really made all the right moves. We didn't put the extra money into the mortgage, where it would be less efficient and also inaccessible, but we also didn't spend it, which is why the more conservative money folk a la Dave Ramsey encourage paying down the mortgage as a money goal--the concern is that if you don't pay down the mortgage, you'll just waste the money. Having the pile of money gives us a lot more flexibility in terms of big life adjustments. If I had to stop working, for example, we could pay the monthly mortgage payment out of our savings for years...whereas, if we had recast the mortgage, the bank would still want the (lower) monthly payment, but we wouldn't have the money to pay it. Good job, us!

But yes, we do have the psychological burden of a tighter monthly budget. This actually is probably not a bad thing. It makes me less likely to buy unnecessary stuff.
Thanks, @englishteacheralex!
Title: Re: DONT Payoff your Mortgage Club
Post by: Fomerly known as something on March 06, 2024, 05:57:48 PM
Sometimes doing nothing gets pretty boring. This past few days has been unexpectedly...not boring. All civilized conversation on this topic is good conversation, right?

I've been singing the DPOYM song for a long time, and nothing makes me happier than reading something like the quote below. As this was posted in eta's journal, it is quoted with her permission.

The monthly budget is such a deeply embedded psychological game, I think, SunnyDays. It's probably why it's so tempting to pay down the mortgage, even though that makes no sense mathematically in our case. Two years ago, when we bought, we could have recast the mortgage after we sold the condo. It would have brought down our monthly payment by at least $600. But with a mortgage rate of 2.99%, that plan didn't make much sense. We experienced the pain of having too much of our money tied up in the house with the condo--we used to put $800/month extra on our mortgage every month, and we had a 20 year mortgage. So then, when we wanted to buy the townhouse, it was harder to come up with the down payment.

So we have a tighter monthly budget but we also have a huge pile of money in accessible investments. Come to think of it, we really made all the right moves. We didn't put the extra money into the mortgage, where it would be less efficient and also inaccessible, but we also didn't spend it, which is why the more conservative money folk a la Dave Ramsey encourage paying down the mortgage as a money goal--the concern is that if you don't pay down the mortgage, you'll just waste the money. Having the pile of money gives us a lot more flexibility in terms of big life adjustments. If I had to stop working, for example, we could pay the monthly mortgage payment out of our savings for years...whereas, if we had recast the mortgage, the bank would still want the (lower) monthly payment, but we wouldn't have the money to pay it. Good job, us!

But yes, we do have the psychological burden of a tighter monthly budget. This actually is probably not a bad thing. It makes me less likely to buy unnecessary stuff.
Thanks, @englishteacheralex!

It makes me think about how until my expensive CA condo, I tried not to get caught in the trap of looking at my house payment as a monthly payment.  But in part because I started renting, I had thought about how much I was willing to spend on housing each month now and into the future.  When I decided to buy my Financial Advisor noted, it’s basically the same range as what you talked about for rent when you moved out to CA, amazing how that worked out right? 

With CA being a no recourse state and me itemizing because I’m single and only have a $13,xxx standard deduction it makes even more sense to have a big fat mortgage and keep my brokerage account Fat as well.  (I could pay things off tomorrow).
Title: Re: DONT Payoff your Mortgage Club
Post by: footwear on March 07, 2024, 08:15:44 AM
I have about $142k left on our mortgage that started at 15 years at 2.5%. We have about 11 years left.

I'm firmly a member of this group vs. the pay off your mortgage now group. However I feel like having a mortgage payment will be a major factor in *not* deciding to FIRE if/when that time comes. I know I won't like the payment hanging over my head without a paycheck!

Realistically the chances that we are comfortable and ready to FIRE before 11 years is probably slim but I'd love to be able to if things work out. Kind of kicking myself for refinancing to a 15 year and not doing a 30 year...could be investing a lot more each month. On the bright side we will have a paid off house before either of us reach 50.
Title: Re: DONT Payoff your Mortgage Club
Post by: halfling on March 13, 2024, 09:37:10 AM
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 13, 2024, 09:57:36 AM
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.
Title: Re: DONT Payoff your Mortgage Club
Post by: nereo on March 13, 2024, 10:21:00 AM
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

Thanks Dicey - on some level I knew this, but had not thought of it so explicitly. With PMI you are paying to insure someone else’s risk.
Title: Re: DONT Payoff your Mortgage Club
Post by: Askel on March 13, 2024, 10:53:30 AM
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.

As Dicey said, check to see what your mortgage company requires to get out of PMI.  I've had it go a couple ways (on all two mortgages I've had in my life). First eliminated PMI as soon as you hit >20% of the initial purchase price paid down.  Most recent mortgage was something like >22% of the initial purchase price when *scheduled* by the initial payment schedule. Anything sooner required a property appraisal.   But PMI was $16/month on a 3.25% loan so not really a big deal. I put down the absolute minimum down payment (3%) on my fixer upper.   But I had a couple of high dollar projects to do right away that required a bunch of cash on hand.   
Title: Re: DONT Payoff your Mortgage Club
Post by: halfling on March 13, 2024, 11:46:56 AM
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

I think it will fall off automatically, but I just asked the lender for specifics in case they will want to see a new appraisal, so thanks for the warning. It is $30/mo for the PMI, and I understand it's there to protect the lender; most of the added cost comes from just borrowing more money at a high rate. I'll have to see if I can stash enough cash before closing to be really comfortable putting more down. I'm sure I'm more scared than I ought to be of suddenly going broke! Thanks
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 13, 2024, 12:37:38 PM
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.
Title: Re: DONT Payoff your Mortgage Club
Post by: neo von retorch on March 13, 2024, 01:05:21 PM
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.

1% of the (original) loan amount... per month?

That would be shocking! My PMI is $61 on a $567k mortgage (@5.95%). Which calculates out to 0.0108%. or 0.1291% annually.

On the flip side, maybe you just meant... payment? $61 on a $4000 payment is 1.53%.
Title: Re: DONT Payoff your Mortgage Club
Post by: halfling on March 13, 2024, 01:22:46 PM
The PMI they quoted me scaled up, the less % you put down, naturally. $30 was with 15% down. It was $60 with 10% down. I'm sure much more with only 3% down.
Title: Re: DONT Payoff your Mortgage Club
Post by: catccc on March 13, 2024, 02:54:57 PM
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

I vote for this.  We put down 20% to avoid PMI and I'm glad we did.  Sometimes I do wish I had a bigger mortgage because the rate is so great, but @halfling isn't really in great rate territory.  We are also floating $45K at 0% on a half dozen credit cards right now and liking it, just make sure you have a sound exit strategy for when those promo rates expire.
Title: Re: DONT Payoff your Mortgage Club
Post by: halfling on March 13, 2024, 03:35:36 PM
I believe this interest rate, with ballpark around $20k in interest expenses per year for the first several years, is going to mean I'll want to itemize my taxes for the first time. So at least there's that.
Title: Re: DONT Payoff your Mortgage Club
Post by: Dicey on March 13, 2024, 06:20:33 PM
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.

1% of the (original) loan amount... per month?

That would be shocking! My PMI is $61 on a $567k mortgage (@5.95%). Which calculates out to 0.0108%. or 0.1291% annually.

On the flip side, maybe you just meant... payment? $61 on a $4000 payment is 1.53%.
To clarify, it was a hair over 1% of the monthly payment. Pissed me off every damn month. I literally couldn't get rid of it until I sold the place, four years later. At least I made a good return on it. IIRC, I was thrilled to get a 7% mortgage when I originally bought it.