Author Topic: DONT Payoff your Mortgage Club  (Read 384796 times)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #850 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.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #851 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.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #852 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.

YoungGranny

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Re: DONT Payoff your Mortgage Club
« Reply #853 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.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #854 on: October 10, 2018, 09:35:10 AM »
This is a great story, thanks for sharing!


Mr. Metal Mustache

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Re: DONT Payoff your Mortgage Club
« Reply #855 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.


RWD

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Re: DONT Payoff your Mortgage Club
« Reply #856 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.

Mr. Metal Mustache

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Re: DONT Payoff your Mortgage Club
« Reply #857 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.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #858 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.

Mr. Metal Mustache

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Re: DONT Payoff your Mortgage Club
« Reply #859 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.

Mr. Metal Mustache

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Re: DONT Payoff your Mortgage Club
« Reply #860 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.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #861 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.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #862 on: October 14, 2018, 07:44:54 PM »
I'm loving the smart conversation happening here. B42 would be so pleased.

Mr. Metal Mustache

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Re: DONT Payoff your Mortgage Club
« Reply #863 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?


RWD

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Re: DONT Payoff your Mortgage Club
« Reply #864 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]

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.
« Last Edit: October 15, 2018, 08:23:59 AM by RWD »

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #865 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.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #866 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).

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #867 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.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #868 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.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #869 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 (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)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #870 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.
« Last Edit: October 15, 2018, 03:08:26 PM by Dicey »

onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #871 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 (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. 

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #872 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.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #873 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.  :)

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #874 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.

Mr. Metal Mustache

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Re: DONT Payoff your Mortgage Club
« Reply #875 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?

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #876 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...

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #877 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.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #878 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.).

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #879 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.

Mr. Metal Mustache

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Re: DONT Payoff your Mortgage Club
« Reply #880 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.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #881 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).

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #882 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"?

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #883 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. 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...

Goldielocks

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Re: DONT Payoff your Mortgage Club
« Reply #884 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. 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.


RWD

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Re: DONT Payoff your Mortgage Club
« Reply #885 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. 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.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #886 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.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #887 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.

PizzaSteve

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Re: DONT Payoff your Mortgage Club
« Reply #888 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.
« Last Edit: October 17, 2018, 11:21:57 AM by PizzaSteve »

v8rx7guy

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Re: DONT Payoff your Mortgage Club
« Reply #889 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...

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #890 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. 

v8rx7guy

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Re: DONT Payoff your Mortgage Club
« Reply #891 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).

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #892 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:
"Iím 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 itís any consolation, I donít 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 Iíd say itís 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.


YoungGranny

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Re: DONT Payoff your Mortgage Club
« Reply #893 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

onlykelsey

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Re: DONT Payoff your Mortgage Club
« Reply #894 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?

YoungGranny

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Re: DONT Payoff your Mortgage Club
« Reply #895 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.

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #896 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?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #897 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!

YoungGranny

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Re: DONT Payoff your Mortgage Club
« Reply #898 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!

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #899 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).