Author Topic: DONT Payoff your Mortgage Club  (Read 116429 times)

Radagast

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Re: DONT Payoff your Mortgage Club
« Reply #950 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.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #951 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.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #952 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.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #953 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.

TexasRunner

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Re: DONT Payoff your Mortgage Club
« Reply #954 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).

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #955 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.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #956 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

Guess some things have changed since 2011.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #957 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.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #958 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/

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #959 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/

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.   

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #960 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.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #961 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.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #962 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/

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).

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #963 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.

moof

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Re: DONT Payoff your Mortgage Club
« Reply #964 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.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #965 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.

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #966 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.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #967 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. 

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #968 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.

AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #969 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.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #970 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.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #971 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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FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #972 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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Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #973 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.     


RWD

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Re: DONT Payoff your Mortgage Club
« Reply #974 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.

muckety_muck

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Re: DONT Payoff your Mortgage Club
« Reply #975 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).


AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #976 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.

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #977 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).

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #978 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.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #979 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.

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Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #980 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.

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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. 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).

AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #981 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.

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As much as I like retirement accounts and the protection they afford, aren't we talking about retiring early?  Having so much funds in an account I can't touch until I'm 60 doesn't make a lot of sense to me.  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.
« Last Edit: December 11, 2018, 09:47:20 AM by AlexMar »

sherr

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Re: DONT Payoff your Mortgage Club
« Reply #982 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.

If you go the "Roth Pipeline" route you pretty much only need 5 years' expenses in taxable accounts and/or Roth contributions.

AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #983 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.

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.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #984 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.

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.

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #985 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.

AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #986 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.

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.


AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #987 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.

tralfamadorian

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Re: DONT Payoff your Mortgage Club
« Reply #988 on: December 13, 2018, 07:04:38 AM »
Are you eligible for a solo 401k? If so, there are no fees associated with them.

AlexMar

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Re: DONT Payoff your Mortgage Club
« Reply #989 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.

mtnman125

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Re: DONT Payoff your Mortgage Club
« Reply #990 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?

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #991 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.

Pizzabrewer

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Re: DONT Payoff your Mortgage Club
« Reply #992 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. 

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #993 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. 

FIRE@50

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Re: DONT Payoff your Mortgage Club
« Reply #994 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?

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #995 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?   

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #996 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?"

Icecreamarsenal

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Re: DONT Payoff your Mortgage Club
« Reply #997 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?

mrmoonymartian

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Re: DONT Payoff your Mortgage Club
« Reply #998 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.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #999 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.