Author Topic: DONT Payoff your Mortgage Club  (Read 386663 times)

Kierun

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Re: DONT Payoff your Mortgage Club
« Reply #1950 on: November 26, 2019, 10:39:42 AM »
BLUF:  Same guy from last article, this time stating why it's better to prepay the mortgage vs contribute to your 401k, not worth your time to read if you already know he's full of something.

https://www.forbes.com/sites/kotlikoff/2019/11/25/does-prepaying-your-mortgage-beat-contributing-to-your-401k/#25c4adcf63bc

*insert cartoon meme of head exploding*

Boofinator

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Re: DONT Payoff your Mortgage Club
« Reply #1951 on: November 26, 2019, 10:59:22 AM »
BLUF:  Same guy from last article, this time stating why it's better to prepay the mortgage vs contribute to your 401k, not worth your time to read if you already know he's full of something.

https://www.forbes.com/sites/kotlikoff/2019/11/25/does-prepaying-your-mortgage-beat-contributing-to-your-401k/#25c4adcf63bc

*insert cartoon meme of head exploding*

Quote
Yes, I know that most of us aren't investing our 401(k) (or similar retirement-account assets) just in Treasury bonds that have an equal maturity to that of our mortgage. But we still need to compare pre-paying our mortgage with investing our 401(k) money in precisely such Treasury bonds. The reason is that such bonds have the same risk characteristics as our mortgages.

Um, the universe does allow for comparing risky and non-risky investments. And over long-enough time horizons, those "risky" investments tend to be less risky than the "risk-free" ones.

Charlatanism is alive and well.

DeniseNJ

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Re: DONT Payoff your Mortgage Club
« Reply #1952 on: November 27, 2019, 11:56:57 AM »
The interest isn't tax deductible anymore now that my income and property tax are 2 or 3 times the allowable tax deductable limit of 10K.
Do you mean that your total deductibles are less than the standard deduction now that SALT deduction is capped at 10k? Mortgage interest is not subject to that cap (there is a limit on how much mortgage principle qualifies for tax deductible interest).
Yes, with 10k for salt Iíd need more than 14k in deductions and my mortgage interest and any other deductions arenít that much. But my salt are about 20-25 k alone so adding in interest would have been well over the standard for mfj

DeniseNJ

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Re: DONT Payoff your Mortgage Club
« Reply #1953 on: November 27, 2019, 12:01:02 PM »
Basically ppl without a mortgage are getting the same standard deduction as me so I donít have lower taxes by I pay mortgage interest

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1954 on: November 27, 2019, 12:16:51 PM »
Basically ppl without a mortgage are getting the same standard deduction as me so I donít have lower taxes by I pay mortgage interest

Either you are explaning this in an odd way, or you aren't looking at things appropriately. 
Don't focus on what other "people without a mortgage" get for their standard deduction (which is - as the name implies - standardized).  Instead, look at your own individual tax situation.

Yes, by holding a mortgage you will pay interest.  That is a given. What is important is how your assets ($) differ over the course of your mortgage term if you paid it off vs kept the mortgage but contributed extra money towards investments (particularly tax-advantaged accounts).  Often you won't gain a mortgage interest tax deduction because of the reasons you listed, but you might lower your taxable burden considerably by being able to invest more in your 401(k), IRA, HSA etc.

Tyson

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Re: DONT Payoff your Mortgage Club
« Reply #1955 on: November 27, 2019, 12:38:08 PM »
I can't pay off my mortgage with pre-tax dollars.  But I CAN invest in my 401k with pretax dollars.  That alone is a no brainer for the $18k that I can into a 401k every year.  The fact that I get an employer match for another $6k to get to $24k per year makes it a double no brainer. 

Add to that the fact that my investments yield an average of 8% return over the long term and paying the mortgage only nets me 3.9% and it's a triple no brainer!

Goldy

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Re: DONT Payoff your Mortgage Club
« Reply #1956 on: November 28, 2019, 07:52:21 AM »
Need some input from this group.  I currently have a 5/1 arm at 2.5% that is going to adjust in just over a year to 2.00% above 12mo libor rates.  My original plan was to pay it off before it adjusted but now Iím starting to drink the koolaid and see the value in securing a low rate and paying it off as slowly as possible.  My current note is 163k on 300k house.

The best loans I can find right now are
3.5% 30yr with 2600 closing costs
3% 15yr with 2200 closing costs
Alternatively I could just let it ride and pay a 4% rate but not need to pay closing costs.
Or I could pay it off.

What would you do?

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1957 on: November 28, 2019, 08:14:14 AM »
I can't pay off my mortgage with pre-tax dollars.  But I CAN invest in my 401k with pretax dollars.  That alone is a no brainer for the $18k that I can into a 401k every year.  The fact that I get an employer match for another $6k to get to $24k per year makes it a double no brainer. 

Add to that the fact that my investments yield an average of 8% return over the long term and paying the mortgage only nets me 3.9% and it's a triple no brainer!
@Tyson, this is perhaps the most succinct explanation of DPOYM I've ever seen. Brilliant! If I could make a sticky of a single post, this one would get my vote. I think I'll post it over on the "Best Post" thread, because it deserves to be read and understood far and wide. Thank you!

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1958 on: November 28, 2019, 08:22:20 AM »
See if you can get points back with a higher fixed rate.

I just did a cashout refi* locking in 3.95% for 30 years with basically nothing in closing costs.

*Texas makes cashout refi a PITA, rates tend to be a bit higher than elsewhere.

ItsALongStory

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Re: DONT Payoff your Mortgage Club
« Reply #1959 on: November 28, 2019, 08:55:13 AM »
Need some input from this group.  I currently have a 5/1 arm at 2.5% that is going to adjust in just over a year to 2.00% above 12mo libor rates.  My original plan was to pay it off before it adjusted but now Iím starting to drink the koolaid and see the value in securing a low rate and paying it off as slowly as possible.  My current note is 163k on 300k house.

The best loans I can find right now are
3.5% 30yr with 2600 closing costs
3% 15yr with 2200 closing costs
Alternatively I could just let it ride and pay a 4% rate but not need to pay closing costs.
Or I could pay it off.

What would you do?

I love keeping the flexibility of the lower payment and would personally opt for the 3.5%. It may make it a more compelling rental property option in the future as well. If you feel so inclined then feel free to pay off a bit extra each month but given the thread we're in I think there is little risk of that happening.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1960 on: November 28, 2019, 08:56:02 AM »
Need some input from this group.  I currently have a 5/1 arm at 2.5% that is going to adjust in just over a year to 2.00% above 12mo libor rates.  My original plan was to pay it off before it adjusted but now Iím starting to drink the koolaid and see the value in securing a low rate and paying it off as slowly as possible.  My current note is 163k on 300k house.

The best loans I can find right now are
3.5% 30yr with 2600 closing costs
3% 15yr with 2200 closing costs
Alternatively I could just let it ride and pay a 4% rate but not need to pay closing costs.
Or I could pay it off.

What would you do?
I agree with @TomTX. Keep shopping.

A 30 year mortgage that you can pay off on any schedule you choose gives you the most flexibility.

Goldy

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Re: DONT Payoff your Mortgage Club
« Reply #1961 on: November 28, 2019, 11:04:49 AM »
By adjusting the points I can get a zero closing cost 30yr loan for 3.875% or a 15 for 3.5%

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1962 on: November 28, 2019, 12:24:47 PM »
By adjusting the points I can get a zero closing cost 30yr loan for 3.875% or a 15 for 3.5%
That's just moving the pea under another shell. Keep shopping, there should be better deals out there.

Tyson

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Re: DONT Payoff your Mortgage Club
« Reply #1963 on: November 28, 2019, 04:47:01 PM »
I can't pay off my mortgage with pre-tax dollars.  But I CAN invest in my 401k with pretax dollars.  That alone is a no brainer for the $18k that I can into a 401k every year.  The fact that I get an employer match for another $6k to get to $24k per year makes it a double no brainer. 

Add to that the fact that my investments yield an average of 8% return over the long term and paying the mortgage only nets me 3.9% and it's a triple no brainer!
@Tyson, this is perhaps the most succinct explanation of DPOYM I've ever seen. Brilliant! If I could make a sticky of a single post, this one would get my vote. I think I'll post it over on the "Best Post" thread, because it deserves to be read and understood far and wide. Thank you!

*blushes* - Thanks man!

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1964 on: December 01, 2019, 09:19:37 AM »
Loan hasn't been sold yet, but the lender wants me to sign "amended closing documents" at a higher rate than they sent me 3 days before closing and I signed at closing. Granted, the rate they sent me 4 days before closing is this higher rate, but I figured "must have ticked down".

Whole thing has me thinking hard about changing banks. Been working with this bank for over 10 years, and our prior 2 mortgages were very easy, but since this bank was acquired by a larger regional bank a couple of years ago, things have gone to shit.

Deal changed on this mortgage I don't know how many times between the first inquiry (mostly the timing of when they could do an owner-occupied loan - wound up closing over 2 months later than when I was originally told we could), and now they want to change the interest rate a month after closing on the loan.
I saw this on another thread. No way would I agree to this. Don't sign anything. Find the contact info for the top execs, threaten to use it and/or actually do so. Someone's trying to pull a fast one. Who knows how many others they've done this to? You have the strength and resources to make that shit stop.
They're in trouble now - my wife is pissed off. The latest issue - I tried to make our first payment via the bill pay at the same bank.  Loan officer happened to email me the day that the bill pay was withdrawn from our account, so I asked. Response was approximately "should be fine - might take a week to post." response. That payment appears to have been rejected, but of course not until they are closed for the holiday weekend. So I'll probably go in person to the bank tomorrow and write a physical check because apparently it is 1993. Appears they cannot accept a payment through their own website for a loan at the very same bank.

And they're losing a customer - we're looking for a new bank probably after the first of the year. You'd think a larger bank would have better basic banking systems - more resources available and more to be gained with some automation, but apparently not in this case.

TomTX

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Re: DONT Payoff your Mortgage Club
« Reply #1965 on: December 01, 2019, 11:32:49 AM »
As an update, funds hit the account Friday - so I set up an ACH pull from Chase (getting that sweet Sapphire Banking $1,000 bonus by using their discount brokerage) - and stupid Chase flags it as fraud. Not only do I have to discuss it with Chase, identify myself thoroughly and let them know that yes, I did initiate the ACH - they insisted on getting my CU on a 3-way call to make sure the money was in the account. Because apparently they don't trust me to transfer money INTO their bank.

I'm now super happy that I'll be gouging Chase for that $1k. Plus a $300 savings account signup bonus.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1966 on: December 01, 2019, 12:36:56 PM »
As an update, funds hit the account Friday - so I set up an ACH pull from Chase (getting that sweet Sapphire Banking $1,000 bonus by using their discount brokerage) - and stupid Chase flags it as fraud. Not only do I have to discuss it with Chase, identify myself thoroughly and let them know that yes, I did initiate the ACH - they insisted on getting my CU on a 3-way call to make sure the money was in the account. Because apparently they don't trust me to transfer money INTO their bank.

I'm now super happy that I'll be gouging Chase for that $1k. Plus a $300 savings account signup bonus.
There are so many mustachian warm fuzzies here. $1300 is a pretty good hourly wage for the bullshit they're putting you through.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1967 on: December 02, 2019, 09:33:46 AM »
You must have a nicer house than we do
Or he lives in an area where houses are much more expensive. Plenty of places where a modest single family home might have a ~700k mortgage.

Or I could have made a mathematical mistake :-)

Housing in Charlotte isn't super expensive, my neighborhood is maybe only $135 a square foot.

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #1968 on: December 02, 2019, 11:18:05 AM »
That alone is a no brainer for the $18k that I can into a 401k every year.
19k in 2019 and 19,500 in 2020. Don't forget to up your contributions to match the new limits each year (18k was the 2017 limit).

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1969 on: December 02, 2019, 12:22:09 PM »
That alone is a no brainer for the $18k that I can into a 401k every year.
19k in 2019 and 19,500 in 2020. Don't forget to up your contributions to match the new limits each year (18k was the 2017 limit).
Thanks for the reminder, @robartsd! I noticed that, too, but let it pass. We're significantly older; a different number applies. I always make a mental adjustment when someone quotes another figure. It's good to remind people to double check their withholding, especially now, while there's still time to correct before year end.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1970 on: December 03, 2019, 09:48:23 AM »
I've been living in the ARM adjustment period for twelve payments.

Just got my bill for payment #13, and...my rate got adjusted downward! Slicing $73/month off of my payment (I forgot to look at the P/I breakdown). How'ya like me now?

PathtoFIRE

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Re: DONT Payoff your Mortgage Club
« Reply #1971 on: December 03, 2019, 10:01:56 AM »
Nice! We have a 10/1 ARM, but are still 5.5 years away from entering the adjustment period. Just realized you almost never hear about people being in that situation, at least around here, it's mostly just the horror stories during the Great Recession, and then people who use ARMs and then refinance before it adjusts, which makes sense given the trend towards falling rates since 2009. Of course, it was only like 6 years ago that I discovered MMM, and our financial picture has changed so positively since then, so it's a little hard to imagine what it'll be like for us in 5.5 years, but I'm guessing we'll have enough abundance to just pay it off completely if the adjustment and/or refinance options are both prohibitively expensive, which means it will be truly just an optimization problem, and not an actual true financial problem that we'll be dealing with then.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1972 on: December 03, 2019, 11:57:32 AM »
When you look at the numbers, signing up for our ARM in 2013 was the absolute right decision.

There was an irrational part of me that felt like a total idiot and couldn't sleep the night I got the letter with our new rate in late 2018. The numbers hold up, though!

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1973 on: December 04, 2019, 01:28:39 AM »
When you look at the numbers, signing up for our ARM in 2013 was the absolute right decision.

There was an irrational part of me that felt like a total idiot and couldn't sleep the night I got the letter with our new rate in late 2018. The numbers hold up, though!
Congratulations! I had an ARM way back when. It was tied to a great index, but still, it was adjustable and conventional wisdom said fixed rate was better. I refied into a fixed rate loan when rates dropped for the supposed "security". With the advantage of hindsight, it was a huge mistake. It was one of those loans that would have been far cheaper to keep. Whoda thunk? Fortunately, the road to FIRE has considerable margin for error, and I finally managed to get there, but hanging onto that loan would have led to some serious bragging rights.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1974 on: December 04, 2019, 07:07:13 AM »
Hopefully we'll have the property with that loan attached sold by spring.

In today's market ARMs are terrible. banks are asking you to accept a higher rate now than the 30-year fixed and also bear the risk.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1975 on: December 05, 2019, 10:08:49 AM »
Hey!  We hit the mainstream.   Fidelity article cautiously points out not paying off the mortgage might be a good idea:

https://www.fidelity.com/viewpoints/personal-finance/extra-mortgage-payment

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1976 on: December 05, 2019, 10:10:52 AM »
Awfully close timing to when this thread crossed the "Pay off your mortgage" one in post count.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1977 on: December 05, 2019, 10:12:56 AM »
Hey!  We hit the mainstream.   Fidelity article cautiously points out not paying off the mortgage might be a good idea:

https://www.fidelity.com/viewpoints/personal-finance/extra-mortgage-payment
I just wish the subtitle read: Paying off the mortgage early doesn't make financial sense for some most people.

Of course, I have to acknowledge that many (most?) people wind up spending anything 'extra' from their paycheck, so in that one regard it makes sense...
« Last Edit: December 07, 2019, 04:07:21 PM by nereo »

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1978 on: December 07, 2019, 03:09:42 PM »
Baby steps.  The realization that 10% > 4% is slowly starting to sink in. 

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1979 on: December 08, 2019, 11:57:00 AM »
Hey!  We hit the mainstream.   Fidelity article cautiously points out not paying off the mortgage might be a good idea:

https://www.fidelity.com/viewpoints/personal-finance/extra-mortgage-payment
Overall, I love this article. The biggest flaw is using the example of a person who is nearing retirement. The younger you are, the more impact saving and investing first is going to have.

Also, this article sparked an observation related to the point about the emotional "thrill" of paying off a mortgage (as well as the "drag" of carrying Mortgage Debt). Most people simply cannot fathom paying off such a huge purchase, so they think it's going to feel amazing to pay it off. In my experience, people are even less able to imagine that saving and investing steadily in their younger years will make them rich. They eventually will have the amount of their mortgage several (or many) times over invested in their very own accounts! Nope, too hard to believe.

Kem

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Re: DONT Payoff your Mortgage Club
« Reply #1980 on: December 12, 2019, 01:59:10 PM »
A compelling reason to pay off the mortgage (and student loan) early

Note that right now, with children in our lives, our full fat FIRE number is a tad high through choice.
With that shameful glance aside

Full Fat Fire including Cashflow to cover P&I&Fees: $1,194,159
Full Fat Fire including Debt Balance, sans Debt Cashflow:  $967,507
Full Fat Fire sans debt payments: $729,462

As such, my swr portfolio may be nearly 20% smaller at the point of debt payoff versus waiting to hit the cashflow to cover the debt.
So it may make sense to pay off the mortgage early - only if it is being paid in a lump sum at the time of Full-FIRE

:P

Edit:
Mortgage is 30 years fixed - I just refied to 3.785%
Student loan is 20 years fixed - I refied about a year ago to 5.01%
.
I have a spreadsheet I update monthly with these sliding scales.
The assumptions change drastically if RE includes another source of income
« Last Edit: December 12, 2019, 04:34:57 PM by Kem »

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #1981 on: December 12, 2019, 02:23:27 PM »
As such, my swr portfolio may be nearly 20% smaller at the point of debt payoff versus waiting to hit the cashflow to cover the debt.

You know you don't need to cover the full cash flow of your debt payments, right? They are finite.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1982 on: December 12, 2019, 02:38:32 PM »
Here's a philosophical question:

I'm a big fan of the the 30 year fixed, for the simple reason...it's fixed for 30 years.

But I'm looking at an investment property and the mortgage broker suggested a 5/1 interest only ARM.   A product I had never really thought about it much depth before.
 Obviously, the cash flow is much better through the first five years.  And isn't it interest only sort of the ultimate never pay off your mortgage?   Obviously, there is a potential time bomb out there where you may have to refinance.  Aside from that, what are the other downsides? 

chasesfish

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Re: DONT Payoff your Mortgage Club
« Reply #1983 on: December 12, 2019, 02:40:37 PM »
By adjusting the points I can get a zero closing cost 30yr loan for 3.875% or a 15 for 3.5%

I would float and keep watching rates Libor + 2% should be 3.5% anyways.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #1984 on: December 12, 2019, 03:52:18 PM »
A compelling reason to pay off the mortgage (and student loan) early

Note that right now, with children in our lives, our full fat FIRE number is a tad high through choice.
With that shameful glance aside

Full Fat Fire including Cashflow to cover P&I&Fees: $1,194,159
Full Fat Fire including Debt Balance, sans Debt Cashflow:  $967,507
Full Fat Fire sans debt payments: $729,462

As such, my swr portfolio may be nearly 20% smaller at the point of debt payoff versus waiting to hit the cashflow to cover the debt.
So it may make sense to pay off the mortgage early - only if it is being paid in a lump sum at the time of Full-FIRE

:P

You are missing a whole bunch of info for this post to be informative one way or the other

Kem

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Re: DONT Payoff your Mortgage Club
« Reply #1985 on: December 12, 2019, 04:38:00 PM »
Mortgage is 30 years fixed - I just refied to 3.785%
Student loan is 20 years fixed - I refied about a year ago to 5.01%
.
I have a spreadsheet I update monthly with these sliding scales.
The assumptions change drastically if RE includes another source of income

I do understand that the cashflow of the debt payments are finite - as the term nears the skew changes in favour of not paying off early and the math becomes a great deal more fun to determine if it makes sense to pay off early in a lump sum.  I think for most scenarios this does NOT make sense, however if the investment pool has reached a certain size and the term is still rather far out, I believe it can actually reduce one's time to FIRE via lump sum payment.

« Last Edit: December 12, 2019, 04:40:25 PM by Kem »

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1986 on: December 13, 2019, 12:24:24 PM »
Here's a philosophical question:

I'm a big fan of the the 30 year fixed, for the simple reason...it's fixed for 30 years.

But I'm looking at an investment property and the mortgage broker suggested a 5/1 interest only ARM.   A product I had never really thought about it much depth before.
 Obviously, the cash flow is much better through the first five years.  And isn't it interest only sort of the ultimate never pay off your mortgage?   Obviously, there is a potential time bomb out there where you may have to refinance.  Aside from that, what are the other downsides?

I have not invested in property, only ever owned my own home.

When I was buying my previous house, the 5/1 ARM was a very compelling product, as it came with a 3.0% APR, versus 4 1/8 for the 30-year fixed. Are you able to get a much lower rate for this 5/1 arm?

I think of it as being compensated up-front in order to bear more risk beginning with that 61st payment. So--when evaluating this investment--determine the maximum risk (i.e. loan balance) you're willing to bear at a higher interest rate, and then plan accordingly.
« Last Edit: December 13, 2019, 12:28:03 PM by talltexan »

chasesfish

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Re: DONT Payoff your Mortgage Club
« Reply #1987 on: December 13, 2019, 03:44:16 PM »
Here's a philosophical question:

I'm a big fan of the the 30 year fixed, for the simple reason...it's fixed for 30 years.

But I'm looking at an investment property and the mortgage broker suggested a 5/1 interest only ARM.   A product I had never really thought about it much depth before.
 Obviously, the cash flow is much better through the first five years.  And isn't it interest only sort of the ultimate never pay off your mortgage?   Obviously, there is a potential time bomb out there where you may have to refinance.  Aside from that, what are the other downsides?

I have not invested in property, only ever owned my own home.

When I was buying my previous house, the 5/1 ARM was a very compelling product, as it came with a 3.0% APR, versus 4 1/8 for the 30-year fixed. Are you able to get a much lower rate for this 5/1 arm?

I think of it as being compensated up-front in order to bear more risk beginning with that 61st payment. So--when evaluating this investment--determine the maximum risk (i.e. loan balance) you're willing to bear at a higher interest rate, and then plan accordingly.

I'm going to second what TallTexan said - it really depends on the difference between the short/long term.

I went with a 7/1 ARM on my last house, it was the difference between a 2.875% rate or a 3.75% rate on a 30 year.  The ARM also could only go up by 2% per 7 year reset.  Under my worse case scenario, I would pay 4.875% for years 8-14 on a much lower loan balance.  The breakeven under the worse case scenario said I wouldn't be better off with the 30 year until something around year 11.

That and most people don't live in a house for 30 years.

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #1988 on: December 13, 2019, 05:26:55 PM »
I went with a 7/1 ARM on my last house, it was the difference between a 2.875% rate or a 3.75% rate on a 30 year.  The ARM also could only go up by 2% per 7 year reset.  Under my worse case scenario, I would pay 4.875% for years 8-14 on a much lower loan balance.  The breakeven under the worse case scenario said I wouldn't be better off with the 30 year until something around year 11.

That and most people don't live in a house for 30 years.
I thought a 7/1 ARM adjusts annually after the first 7 years. I think you did it right in your analysis: adjusting up 2% every 7 years I get a break even in terms of total interest paid early in year 15.

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #1989 on: December 13, 2019, 07:49:11 PM »
I get the 5/1 vs. 30 fixed arguments.  As I mentioned, I'm on the side of the 30-year fixed for residential.   My question/thought is how to properly think about the 5/1 interest only for investment.    Interest only is sort of the ultimate DPYM, right?  It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future. 

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1990 on: December 13, 2019, 09:22:56 PM »
I get the 5/1 vs. 30 fixed arguments.  As I mentioned, I'm on the side of the 30-year fixed for residential.   My question/thought is how to properly think about the 5/1 interest only for investment.    Interest only is sort of the ultimate DPYM, right?  It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.

A 5/1 would enable an investor to build up a repair fund for a buy-and-hold faster by putting more money in their pocket sooner.   

With the potential time-bomb of rising interest rates later, of course.   

Or to put in less money for a property being bought for appreciation with the intent to sell within 5 years (or thereabouts).

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1991 on: December 14, 2019, 02:42:48 AM »
I get the 5/1 vs. 30 fixed arguments. As I mentioned, I'm on the side of the 30-year fixed for residential. My question/thought is how to properly think about the 5/1 interest only for investment. Interest only is sort of the ultimate DPYM, right? It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.

A 5/1 would enable an investor to build up a repair fund for a buy-and-hold faster by putting more money in their pocket sooner.   

With the potential time-bomb of rising interest rates later, of course.   

Or to put in less money for a property being bought for appreciation with the intent to sell within 5 years (or thereabouts).
In my neck of the woods, lenders require 25% down on investment properties and charge at least 50 basis points more than the owner occupied rate. We purchase investment properties with the same buy-and-hold approach that we use for equities. At current rates, a 5/1 (or any other ARM) just isn't worth the risk.

chasesfish

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Re: DONT Payoff your Mortgage Club
« Reply #1992 on: December 21, 2019, 10:02:25 AM »
I get the 5/1 vs. 30 fixed arguments.  As I mentioned, I'm on the side of the 30-year fixed for residential.   My question/thought is how to properly think about the 5/1 interest only for investment.    Interest only is sort of the ultimate DPYM, right?  It seems like it is getting extra bird in the hand, with the caveat there is a bit of a time bomb in the future.

A 5/1 would enable an investor to build up a repair fund for a buy-and-hold faster by putting more money in their pocket sooner.   

With the potential time-bomb of rising interest rates later, of course.   

Or to put in less money for a property being bought for appreciation with the intent to sell within 5 years (or thereabouts).

The investor also has the benefit of rates going up = better economy = likely better rents

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1993 on: January 02, 2020, 08:43:53 AM »
"Power move" completed today - front-loaded 2020 IRAs and 2020 SoloK with funds remaining from the refinance. Probably would have been better to go taxable back in October, but this way comes with the benefit of zero-stress on getting these accounts funded in time for 2020.

Had another thought on a source of cheap money. Chase has had 0% interest for ~14 months balance transfer offers ever since I've had any cards with them - 5+ years at this point. 4% one time fee. Bank of america seems to have had the same deal going since I've had one of their cards last year, except a lower fee of 3%.

My thought is I could get $20K in funds pretty easily - $10K from Chase, $10K from BofA. Set to auto-pay minimum payment. Then when around 14 months comes closer, pay the accounts off with a balance transfer to the other one. Rinse and repeat. Borrowing at ~3-4% annually until those offers stop coming in. Could do even more money if I can get BofA to increase credit limit - key is to have another bank to pay off via balance transfer with. If I could get them all the way up to the combined chase limits, that's around $120K total. Would be more complicated due to limits on amount of each balance transfer, so would likely be spread out over several months.

Think I need to think through the issues on this - maybe will try it in a few months.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #1994 on: January 02, 2020, 01:10:53 PM »
"Power move" completed today - front-loaded 2020 IRAs and 2020 SoloK with funds remaining from the refinance. Probably would have been better to go taxable back in October, but this way comes with the benefit of zero-stress on getting these accounts funded in time for 2020.

Had another thought on a source of cheap money. Chase has had 0% interest for ~14 months balance transfer offers ever since I've had any cards with them - 5+ years at this point. 4% one time fee. Bank of america seems to have had the same deal going since I've had one of their cards last year, except a lower fee of 3%.

My thought is I could get $20K in funds pretty easily - $10K from Chase, $10K from BofA. Set to auto-pay minimum payment. Then when around 14 months comes closer, pay the accounts off with a balance transfer to the other one. Rinse and repeat. Borrowing at ~3-4% annually until those offers stop coming in. Could do even more money if I can get BofA to increase credit limit - key is to have another bank to pay off via balance transfer with. If I could get them all the way up to the combined chase limits, that's around $120K total. Would be more complicated due to limits on amount of each balance transfer, so would likely be spread out over several months.

Think I need to think through the issues on this - maybe will try it in a few months.

It's all good times until the bill comes due and something has gotten in the way of repaying it...

dandarc

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Re: DONT Payoff your Mortgage Club
« Reply #1995 on: January 02, 2020, 01:18:24 PM »
It's all good times until the bill comes due and something has gotten in the way of repaying it...
Right. While I'd be trying to keep the debt outstanding indefinitely, it really is a ~1 year loan that I'm just hoping to roll over annually at low cost.

At $20K, shouldn't be too hard to just re-pay it if it came to that. At $120K, that would potentially be more difficult. If investments had worked out well over whatever the time frame is, then it would be easier down the road due to the whole "have more money" part of it. Would also impact credit score with the higher outstanding balance.

Like everything, gotta figure out the balance of the risks and benefits. I may keep this idea as a back-pocket thing in case I ever start to fall behind on the tax-advantaged accounts again.

Pizzabrewer

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Re: DONT Payoff your Mortgage Club
« Reply #1996 on: January 02, 2020, 05:50:59 PM »
I'm 3+ years into juggling about $50k in 0% credit card debt.  I was savagely mocked here for doing this but it's been hugely beneficial to my financial health.

Obviously, if you miss a payment or otherwise screw up, it could be very costly.  But we're smarter than that here in MMM-land.
« Last Edit: January 02, 2020, 05:59:28 PM by Pizzabrewer »

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1997 on: January 03, 2020, 06:35:19 AM »
@Pizzabrewer I think I remember your other thread (DON'T Payoff your Credit Cards).

It sounds like things have worked out for you, which is great. It doesn't mean we were wrong and that there was not risk, but it sounds like you've managed it. I borrowed money against a taxable investment account as a substitute for selling investments, and--so far--it's worked out for me, too. But no one is pretending those loans have the desirable features of a 30-year fixed rate mortgage.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #1998 on: January 03, 2020, 10:07:01 PM »
Always makes me happy to see updates to this thread. Carry on, noble mustachians!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #1999 on: January 07, 2020, 06:48:10 AM »
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.