Author Topic: DONT Payoff your Mortgage Club  (Read 384659 times)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2000 on: January 07, 2020, 06:54:30 AM »
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.

nburns

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Re: DONT Payoff your Mortgage Club
« Reply #2001 on: January 07, 2020, 10:11:26 AM »
Bought a house about 15 months ago. 30 yr mortgage at 4.875%.  Recently refinanced to another 30 year mortgage but at 3.5%.  Never paying it off early!

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2002 on: January 07, 2020, 12:51:08 PM »
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.

Indeed the option to re-invest the gains into the mutual funds was available. I'm opting to pay down the loan balance instead.

But that loan does not share some of the most favorable characteristics of a 30-year fixed rate mortgage.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2003 on: January 07, 2020, 01:11:08 PM »
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.

Indeed the option to re-invest the gains into the mutual funds was available. I'm opting to pay down the loan balance instead.

But that loan does not share some of the most favorable characteristics of a 30-year fixed rate mortgage.
Hmmm, still doesn't seem like something for which you need to seek absolution ;-). Just seems smart to me, which is exactly what's making me wonder what I'm missing.

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #2004 on: January 07, 2020, 01:31:55 PM »
Confession time: we have a LoC against a taxable investment account that we're using for the down payment on our new house (still fixing up the old one to sell it).

Some end-of-year capital gains appeared in the account, and I used them to pay down the LoC balance, like a psychopath. Lender just recently cut the variable interest rate from 6.25% to 6.0%.
I'm a little confused. Why is this a "confesion"? Is it because you're paying interest and the value of the incestnents could decrease? I don't have a ton of experience with anything but typical mortgage lending.

I read it as a follow up to:
I'm 3+ years into juggling about $50k in 0% credit card debt.  I was savagely mocked here for doing this but it's been hugely beneficial to my financial health.

Obviously, if you miss a payment or otherwise screw up, it could be very costly.  But we're smarter than that here in MMM-land.

@Pizzabrewer I think I remember your other thread (DON'T Payoff your Credit Cards).

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

In addition to mortages, Pizzabrewer and talltexan are admitting to using other sources of low cost leverage that carry risks many of us who choose not to pay off a mortgage would not accept. Talltexan pointed out that what Pizzabrewer was doing was more risky than the mortgages we celebrate in this thread, but followed up to confess that he's done something that is also more risky.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2005 on: January 07, 2020, 01:44:37 PM »
It's true. It's fair.

Risk is also about unit time. I plan on maintaining my five-figure balance on a variable rate LoC for a period of 4-6 mo's. Obviously, the equity that will come with the sale of the old house will have to be put to work, I'll keep the group here posted.

Fiddler

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Re: DONT Payoff your Mortgage Club
« Reply #2006 on: January 09, 2020, 03:12:57 AM »
Hi,

New Dutch home-owner checking in. 

Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.

The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%

As our mortgage payments drop slightly every month, we want to invest the freed up cash. I've tried to visualize our options in the attachment. I've calculated that after 227 months our remaining mortgage would be equal to the invested amount (green line meets purple line). The other options include investing the mortgage deductible (hypotheekrenteaftrek, HRA).

Do you guys know any online calculators where I can check my predictions?



Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2007 on: January 09, 2020, 06:49:44 AM »
Hi,

New Dutch home-owner checking in. 

Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.

The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%

As our mortgage payments drop slightly every month, we want to invest the freed up cash. I've tried to visualize our options in the attachment. I've calculated that after 227 months our remaining mortgage would be equal to the invested amount (green line meets purple line). The other options include investing the mortgage deductible (hypotheekrenteaftrek, HRA).

Do you guys know any online calculators where I can check my predictions?
I can't answer your question, sorry. Just posting to say I'm impressed with how reasonable your system looks. Wow.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #2008 on: January 09, 2020, 07:17:03 AM »
Hi,

New Dutch home-owner checking in. 

Mortgage: €296.660
Interest: 2.35%, 30 year fixed
Monthly payment: €1400.
Mortgage type: Linear. A fixed amount per month goes to paying the principle, and a declining amount is interest. We start at ~900 principal, ~500 interest.
Market Value: €300.000. This will increase to €305.000 after remodeling, in 6 months.

The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%

As our mortgage payments drop slightly every month, we want to invest the freed up cash. I've tried to visualize our options in the attachment. I've calculated that after 227 months our remaining mortgage would be equal to the invested amount (green line meets purple line). The other options include investing the mortgage deductible (hypotheekrenteaftrek, HRA).

Do you guys know any online calculators where I can check my predictions?

I don't know of one that is coded to auto-magically handle those calculations.   
But here are two options that might help with a bit of work on your part.

Excel has a mortgage amortization template that you can use to create a new document.   If you add data fields for the loan-to-value and interest rate columns, and modify the interest calculation column to use that data instead of a fixed rate, it will work for you.   Perhaps there is a Dutch Excel user group that's already done that for you?

Karl's Mortgage Calculator   https://www.drcalculator.com/mortgage/ handles variable rates but they are date based, not balance based.    It shows you enough information that you can figure out what dates to use to set the rates.    It would be off if you were paying extra principal but, given this thread, we know you won't do that!

robartsd

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Re: DONT Payoff your Mortgage Club
« Reply #2009 on: January 09, 2020, 12:07:28 PM »
The interest rate will drop according to the following schedule:

>95% LTMV: 2.35%
95% LTMV: 2.25%
85% LTMV: 2.07%
65% LTMV: 2.06%
55% LTMV: 2.05%
I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.

Since your loan structure pays off principle at a constant rate, if you assume that MV remains constant at 300.000, it is easy to calculate when you would cross each LTMV threshold (95% 15 payments, 85% 51 payments, 65% 124 payments, 55% 160 payments). Adjusting the MV to 305.000 it becomes 95% 9 payments, 85% 46 payments, 65% 120 payments, 55% 157 payments).

UncleX

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Re: DONT Payoff your Mortgage Club
« Reply #2010 on: January 10, 2020, 01:04:32 AM »
I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.

Some Dutch lenders may require professional evaluation, but most will likely accept WOZ-value. This is the value of property determined by the municipality and used to calculate property tax and such. It is usually a bit lower than real market value though (10-20%).

My guess is that most lenders will probably only take remaining principal into account when calculating LTMV. In that case, you should contact them if WOZ-value has risen enough to lower your interest rate. In addition, if market value rises fast, a professional evaluation may pay for itself in no time.

Fiddler

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Re: DONT Payoff your Mortgage Club
« Reply #2011 on: January 10, 2020, 05:27:32 AM »
I'm curious how LTMV will be determined over the life of the loan. Here in the states, adjusting a loan due to market value (usually to remove mortgage insurance requirement) requires paying for a professional evaluation.

Some Dutch lenders may require professional evaluation, but most will likely accept WOZ-value. This is the value of property determined by the municipality and used to calculate property tax and such. It is usually a bit lower than real market value though (10-20%).

My guess is that most lenders will probably only take remaining principal into account when calculating LTMV. In that case, you should contact them if WOZ-value has risen enough to lower your interest rate. In addition, if market value rises fast, a professional evaluation may pay for itself in no time.

Our mortgage supplier requires a professional evaluation, costs are ~€500. Getting a new appraisal might be worth considering after we finish our remodeling, depending on the housing market at that time. With the housing shortage in the Randstad, WOZ-values are lagging severely behind market prices.

BECABECA

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Re: DONT Payoff your Mortgage Club
« Reply #2012 on: January 14, 2020, 09:37:13 AM »
Found MMM just before buying my current house nearly 4 years ago. I’ve been committed to making my financial decisions now strictly on the math. So I’m not prepaying any of this loan.

Loan amount: $680k (original); $540k (current balance)
Loan term: 3.0% for 15yrs (11.25yrs left)
Monthly payment: $4696

According to the equations in the beginning of this thread, assuming 7% return in the market, not prepaying my mortgage is estimated to net me $407k over the 15 year term.

However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #2013 on: January 14, 2020, 09:41:23 AM »

However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.

Keep it up!  As the loan becomes smaller (both through normal amortization and through inflation) your taxable accounts will continue to grow.  Once you hit the halfway point it doesn’t take much longer for the mortgage to be “much smaller” than investments.  ...and then you can consider a cash-ReFi :-)

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2014 on: January 14, 2020, 10:00:20 AM »

However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.

Keep it up!  As the loan becomes smaller (both through normal amortization and through inflation) your taxable accounts will continue to grow.  Once you hit the halfway point it doesn’t take much longer for the mortgage to be “much smaller” than investments.  ...and then you can consider a cash-ReFi :-)
Awesome job! + 3% is very impressive! Good for you for grabbing it and holding on to it as long as possible.

BECABECA

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Re: DONT Payoff your Mortgage Club
« Reply #2015 on: January 14, 2020, 10:23:50 AM »

However, here’s the really tangible part: In April the value of my after tax account surpassed the balance of my loan. Instead of paying it off in full then, I’ve let it ride in the market and it has earned $83k.

Keep it up!  As the loan becomes smaller (both through normal amortization and through inflation) your taxable accounts will continue to grow.  Once you hit the halfway point it doesn’t take much longer for the mortgage to be “much smaller” than investments.  ...and then you can consider a cash-ReFi :-)

I actually started thinking about that yesterday. At a 70% loan to appraisal ratio, I think I could get $1,000,000 loan. That’d give me 460k cash out now. At 3.5% over 30 years it’d be roughly the same monthly payment amount that I currently have.

However, DW is still working so it’s easy to keep the loan payments now, since it’s covered by her salary and we have health insurance through her employer so we don’t need to have our annual income low for ACA. I want her to retire right away but she is still enjoying work and talks like she wants to keep working for at least 5 more years. I always assumed I’d pay off the mortgage in full the day she retired to mitigate SORR.

Hmm, I guess it’s time for me to hit cfiresim and start running some scenarios.

terrifictim

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Re: DONT Payoff your Mortgage Club
« Reply #2016 on: January 14, 2020, 12:41:39 PM »
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

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

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

Another post to show the power of this approach. When I first joined this club (Oct 2017) I had $202k in loan remaining and a NW of $309k. Since then my loan has only dropped to $190k, but my NW has jumped to $680k, and my asset allocation between real estate and investment is much closer to 50%. And I have a great deal of confidence now knowing that I have more than $300k in liquid + liquidish accounts that I could turn to if it hits the fan. Thanks @B42 and @Dicey and all others who are enthusiastic about this.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2017 on: January 14, 2020, 12:45:08 PM »
Co-worker just shared with me that her brother is getting a VA loan, buying a house in the $490,000 range with very little down and a rate below 3.3%. Great time to be taking on smart debt!

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2018 on: January 14, 2020, 05:27:29 PM »
After reading through these posts and others, I'm proud to say I'm now a member off the DPYMC.
I bought in San Diego in 2015 for smallest property that was biking distance to work but have been spending the past two years putting extra payments down. But now that I realize I could have had two years of extra money instead going to VTSAX, sigh. At least like MMM says you're winning either way.

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

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

Another post to show the power of this approach. When I first joined this club (Oct 2017) I had $202k in loan remaining and a NW of $309k. Since then my loan has only dropped to $190k, but my NW has jumped to $680k, and my asset allocation between real estate and investment is much closer to 50%. And I have a great deal of confidence now knowing that I have more than $300k in liquid + liquidish accounts that I could turn to if it hits the fan. Thanks @B42 and @Dicey and all others who are enthusiastic about this.
In another part of my life, the shit totally hit the fan today. You have no idea how much your kind words are appreciated. Thanks @terrifictim, @BECABECA , and all the other cool cats who keep this thread active and relevant for people who want to learn about how to use mortgages to supercharge their paths to FIRE. I love all of youse, as my dear old dad used to say.

Disclaimer: For the gazillionth time, it's no sin to pay off your mortgage, if it's the best possible financial decision for your situation. If you've mastered the Investment Order and you're really making a math-based decision, you'll get no quarrels from Dicey.

https://forum.mrmoneymustache.com/investor-alley/investment-order/

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #2019 on: January 14, 2020, 05:29:16 PM »
Sorry to hear your week hasn’t gone well, @Dicey - been a hard week for us here, too.

...but we again paid the minimum on our mortgage, and again contributed as much as we could towards taxable accounts.  Slowly building wealth in New England.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2020 on: January 15, 2020, 07:22:55 AM »
Lately I've become something of a "financial priest" at work, with several people coming to me for advice with the refinances. I have the toughest time telling them whether to go for 15-year or 30-year. The spread in rates they're being quoted is 0.75%, but I'm also experiencing acutely how hard it is to get your principal back out of a property.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2021 on: January 15, 2020, 07:44:36 AM »
Lately I've become something of a "financial priest" at work, with several people coming to me for advice with the refinances. I have the toughest time telling them whether to go for 15-year or 30-year. The spread in rates they're being quoted is 0.75%, but I'm also experiencing acutely how hard it is to get your principal back out of a property.
IMO, the best answer is the 30 gives you the most flexibility. You can always double up on payments, but paying only half makes the big ol' bank a wee bit cranky...

Not saying you "should" double up, just that you "could".

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2022 on: January 15, 2020, 08:19:10 AM »
When I was deciding on my own mortgage (in September of last year), spread was only 3/8 %, made the choice for the 30-year very easy.

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Re: DONT Payoff your Mortgage Club
« Reply #2023 on: January 15, 2020, 09:49:18 AM »
Big fan of the 30 fixed as well.   

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Re: DONT Payoff your Mortgage Club
« Reply #2024 on: January 15, 2020, 10:01:36 AM »
It really depends on the person you’re advising. If you’re sure they’re going to take the difference in monthly payment amount and invest it in stock indexes, then yes 30 year. But if they’re going to use it to put in a cash savings account or worse inflate their current lifestyle, then 15 year.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #2025 on: January 15, 2020, 10:02:20 AM »
BIL had a similar question.  I used an online calculator to show him what doubled-up payments on a 30y looked like vs the 15y.  The difference wasn’t much, despite the ~0.5% spread.  What sold him on the 30 year was when I ran a third scenario showing him how the money spent NOT on extra mortgage payments but contributing to their tIRA would lower their taxes by close to $2k.  So the actual money they got to “keep” (either in home equity or in retirement accounts) was far greater each year than going with a 15y.

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Re: DONT Payoff your Mortgage Club
« Reply #2026 on: January 17, 2020, 01:37:15 PM »
After 5 years of not paying extra on my mortgage, my stash has now comfortably surpassed my mortgage balance. When we started MMM stash was about $240k less than the mortgage. Come to think of it, stash now surpasses (mortgage + student loans) too. Feels pretty darn amazing!!

Thank you, @Dicey and others (@boarder42 RIP) who keep this thread alive!

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #2027 on: January 17, 2020, 05:44:24 PM »
After 5 years of not paying extra on my mortgage, my stash has now comfortably surpassed my mortgage balance. When we started MMM stash was about $240k less than the mortgage. Come to think of it, stash now surpasses (mortgage + student loans) too. Feels pretty darn amazing!!

Thank you, @Dicey and others (@boarder42 RIP) who keep this thread alive!
Hot damn! Congratulations!

freya

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Re: DONT Payoff your Mortgage Club
« Reply #2028 on: January 17, 2020, 07:27:31 PM »
Late to the party but joining the thread anyway....

When I bought my first place, I threw all the taxable savings I could at the mortgage, I just wanted to slaughter the thing.  That was reasonable at the time, when my rate was 6%.  But now that it's 3.875% (30 year fixed), I can't justify paying it off early.

Absolutely investing the money is better, but there's more.  As a single tax filer in a high income tax state, I get to itemize deductions - which means I get to deduct not only most of the mortgage interest, but also all charitable donations.  Also my coop (like many others) has an underlying mortgage and I get to deduct that interest as well.

Nice that the new tax law did us high tax state single filers this little favor, to compensate for us otherwise getting creamed.

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Re: DONT Payoff your Mortgage Club
« Reply #2029 on: February 08, 2020, 11:57:57 AM »
I made my 90th minimum mortgage payment this month.  I haven't paid a single cent extra towards it.  When I was looking at houses, I was worried about the debt and even considered 15 year loans.  I was thinking I'd pay it off early once I had a little cash/investment cushion saved up.  I looked at those calculators that showed you how much interest you'd pay over 30 years and thought it'd be smart to pay it off so I could save myself from wasting all that money on interest.  Luckily I stumbled upon MMM shortly thereafter when researching opening a taxable account at Vanguard.  Reading MMM and then the forums convinced me to keep paying the minimum and invest as much as possible.  I was pretty risk adverse, so it's really a good thing that the market didn't crash on me right away and has instead gone up consistently since then.  It's given me the confidence to be a long-term investor and I think I'm now ready to withstand the drops without panicking.  I've only been tested a few times, but so far so good.  Now that I've experienced the upside, I'm more accepting of the downside that comes with it.

I'm very lucky to have bought at pretty much the perfect time with 3.5% interest rate for 30yrs and reasonable house prices.  My house has appreciated at least $75k if not closer $100k since I bought it.  The PITI payment on my 3 bed, 2 bath, 1500 sq. ft. house is less than it'd cost to rent a 1 bedroom apartment.  And I've been dumping all excess cash into the stock market.  If I had decided to put all extra money towards my mortgage instead, I'm sure I'd have a paid off house by now, but I'd be hundreds of thousands of dollars poorer.  I sleep very well at night knowing I have more than enough in my taxable account now to pay off my mortgage.  Even before I did, I didn't lose any sleep over it.  You have to live somewhere and my house is cheaper than renting.  I've always equated mortgage to rent rather than thinking about it as a debt which helps I think.

Not paying off my mortgage has skyrocketed me towards FI, and I should be able to FIRE in a couple years.  I understand possibly paying off your mortgage once you've reached FI and want a little more stability and possibly have ACA income limits to keep in mind.  But in the accumulation stage, it makes absolutely no sense to pay off a mortgage of 4-5% or less.  Especially if you're doing so instead of maxing out tax-advantaged accounts.  We should not accept that paying off your mortgage is as "equally good" as paying the minimum and investing the difference (in the case of long-term, low fixed-rate mortgages).  In the large majority of the cases, it's not.  You're betting against yourself when you do this and almost guaranteeing that you will work longer.  So thanks to boarder42 (RIP) for starting this awesome thread and to Dicey and others for continuing to spread the truth around these forums.  I'm sure some minds are being changed whether they speak up or not.

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Re: DONT Payoff your Mortgage Club
« Reply #2030 on: February 08, 2020, 12:07:33 PM »
That's awesome,  @Vapour ! We're at exactly half that having just made the 45th minimum payment this month.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #2031 on: February 08, 2020, 12:21:35 PM »
I'm sure some minds are being changed whether they speak up or not.

Absolutely!    Had I not seen this thread I would have poured money into my last house to pay it off early.   Instead, I put that money to work.   We ended up much better off.

Now that we're FIRED with a very healthy margin, we're going to pay off the new mortgage quickly.   Partly just to simplify our life but mostly so we take our SWR to 0%.  That way, we know there will be a lot more left to support our mentally handicapped daughter when we pass away.


ender

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Re: DONT Payoff your Mortgage Club
« Reply #2032 on: February 08, 2020, 01:47:35 PM »
Current mortgage rates are absurd.

Absurdly cheap.

I'm torn on the emotional aspect vs math aspects here though. We sold our house and having no mortgage (temporarily) feels so relieving! But... so would another $300k in the bank or whatever price we'll end up buying with a mortgage.

But if we have a 3.375% mortgage, which is apparently what Redfin is offering for 30 years right now... holy low rate batman.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2033 on: February 10, 2020, 07:50:07 AM »
Is anyone seeing sub-3 for the 15-year?

mtnman125

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Re: DONT Payoff your Mortgage Club
« Reply #2034 on: February 10, 2020, 10:43:43 AM »
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

DadJokes

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Re: DONT Payoff your Mortgage Club
« Reply #2035 on: February 10, 2020, 11:00:18 AM »
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

Like almost everything in personal finance, it varies from person to person.

I've also found that failure rates are lower with a paid-off mortgage in retirement. It will make ACA subsidies and college financial aid for our child easier to obtain as well.

With that in mind, we will aim to pay off our mortgage in a lump sum around the time we retire. Where that lump sum will come from is currently unknown, since we don't even max out all of our tax-advantaged investments right now.

SwordGuy

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Re: DONT Payoff your Mortgage Club
« Reply #2036 on: February 10, 2020, 11:15:00 AM »
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

For us, ACA is a non-starter.   It just wasn't possible for us to get our countable income low enough to get a subsidy (without giving away a lot of property and assets, which we sure as heck aren't going to do.)

I'll preface this by saying that for most folks, particularly younger folks, think LONG and HARD before you pay off a low interest, fixed rate, non-callable mortgage early instead of investing the difference.   Don't let emotion get in the way of making the best decision.

At the moment, we have TWO mortgages in FIRE.   (We bought a new house in mid-January.)

The original plan was to milk the mortgage for the rest of its lifespan, which was about 12 years when we FIRED.   We now owe about $145K on it.

But I got tired of it, so we decided to pay it off over a 3-4 year time span.

Then we found a dream house at a good price and we bought it.  New mortgage is $230K.

We're selling a non-profit flip-house in a few months that will hopefully take the new mortgage down by $62K if the buyer can get a bank loan.   If not, we'll do owner financing and pump the payments into the new mortgage.

We'll now sell our old house ASAP, hopefully by summer, and roll over the recovered equity into our new mortgage.   That will cut it by another $100K to $125K.   (150K in my dreams!)

RMDs over the next two Januaries and some extra principal payments after our old house sells should get us paid off within 20 to 36 months.   I'll be glad to be rid of them.

In principle, we would make more money by keeping the new mortgage.

In reality, we would have to watch our spending much more closely than we like to.    I would rather be rich and feel rich than be rich and feel poor because I have to watch every single penny (like we did when we were actually poor).   Paying off the mortgage gives us a bunch of discretionary spending for travel, tools, date nights, or whatever and it does it while we're still young enough to enjoy it.

My target is to be mortgage free in 25 months.

Now, some of you may be chuckling because I've just given an emotional reason for paying off our own mortgage early after advising others, particularly younger folks, to think hard before doing so.

The difference is (a) we're already rich, (b) we're already FIRED, (c) we and our kids won't need even more money than we have,  and (d) we're not young, not by a long shot.   Even the die-hard don't pay off your mortgage early folks agreed it was reasonable for us to pay off our old mortgage early (before we got a new one), and it had an interest rate that was a lot lower than our current one.

seaniemac

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Re: DONT Payoff your Mortgage Club
« Reply #2037 on: February 10, 2020, 11:25:12 AM »
I want to refinance my mortgage to take advantage of lower rates and need opinions. I was going to refi into a 15 year @ 3% until I found this thread.
House Value - $190K
Mortgage Balance - $127,400
Rate - 4.875%
Remaining months - 229
RE max date of 13.33 years away- me 47 years old wife 55. Wihe gets a 20 year teacher pension worth 40% of salary.
But after thinking/ reading/ learning more and more about FIRE I am now thinking of RE in 5 years - when wife is eligible for a 12 year teacher pension with medical, so...

I was going to refi into a 15 year @ 3% until I found this thread.
Now I am totally thinking of switching gears, refiing into a 30 year @ 3.375% and investing into a taxable account. My question is do I pay 1.375 points (150k * 1.375 = $2,062) to pull out $20k or forego the points and just refi the balance?
Thanks in advance for the help,
Sean


   




talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2038 on: February 10, 2020, 12:18:00 PM »
So, paying $2,060 will let you have $20,000 more cash in hand, but your loan balance is that much higher. Isn't that paying 10% for a one time chance to borrow from yourself?

I'm used to seeing a point-paid to lower the interest rate, but this sounds different.

3 3/8 sounds pretty dang good.

seaniemac

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Re: DONT Payoff your Mortgage Club
« Reply #2039 on: February 10, 2020, 01:18:21 PM »
I know right 3 3/8 sounds too good to be true.  The cash-out aspect has me really puzzled. 

freya

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Re: DONT Payoff your Mortgage Club
« Reply #2040 on: February 10, 2020, 02:38:38 PM »
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it:  the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter.  Over a 30 year loan lifetime you should realize something close to the historical average.

This is assuming you actually do invest the money rather than spend it or sock it into cash.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #2041 on: February 10, 2020, 05:01:56 PM »
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it:  the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter.  Over a 30 year loan lifetime you should realize something close to the historical average.

This is assuming you actually do invest the money rather than spend it or sock it into cash.
As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home.  By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house).  Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0.  Until that point I won’t fall into the trap that so many do - being house rich and cash poor.


freya

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Re: DONT Payoff your Mortgage Club
« Reply #2042 on: February 11, 2020, 07:36:13 AM »
Until that point I won’t fall into the trap that so many do - being house rich and cash poor.

True.  We are presuming, though, that OP has a good amount of liquid savings or he wouldn't be talking about retiring in 5 years.

The best reason to pay off the mortgage before retiring is to minimize the withdrawals from tax-deferred accounts to accomplish two things:  1) avoiding income taxes, and 2) staying under the Obamacare threshold.  It sounds like #2 will not be a concern, so it's more about #1.  OP, you might consider plugging some numbers into the iORP calculator to get an idea of what your tax burden is likely to be in retirement with and without the mortgage.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2043 on: February 11, 2020, 08:05:09 AM »
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it:  the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter.  Over a 30 year loan lifetime you should realize something close to the historical average.

This is assuming you actually do invest the money rather than spend it or sock it into cash.
As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home.  By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house).  Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0.  Until that point I won’t fall into the trap that so many do - being house rich and cash poor.

I would argue that a plan to avoid this includes building up skills to enable rapid selling of a home or establishing a LoC with minimal hassle and stress.

Brother Esau

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Re: DONT Payoff your Mortgage Club
« Reply #2044 on: February 11, 2020, 08:36:01 AM »
Are there many of you in this camp that are paying a mortgage in FIRE?

I'm on board during accumulation phase, but can't wrap my head around trying to pay ~$20k/annual in mortgage payments from taxable while maintaining ACA subsidies, Roth conversions, etc.

Would it make sense to change course with 5-7 years to FIRE and send those extra investments towards prepayment- to get to FIRE without a mortgage.  The only other way i could see is taking LTCG tax hit on Taxable account withdrawal to pay off at FIRE.

Thanks- we'll be signing on a non-mustachian mortgage soon and doing my homework.  Planning to get 30yr fixed and invest everything in taxable after maximizing tax sheltered.

At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.

Brother Esau

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Re: DONT Payoff your Mortgage Club
« Reply #2045 on: February 11, 2020, 08:37:19 AM »
Bought a house about 15 months ago. 30 yr mortgage at 4.875%.  Recently refinanced to another 30 year mortgage but at 3.5%.  Never paying it off early!

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #2046 on: February 11, 2020, 09:51:22 AM »
I don't think I'd borrow money to invest, even if the rate is low, although mathematically you'd be correct to take it:  the stock market returns 10% annually on average so you'd break even in year 1 and then gain ~6% a year on the $20K thereafter.  Over a 30 year loan lifetime you should realize something close to the historical average.

This is assuming you actually do invest the money rather than spend it or sock it into cash.
As a contrarian view, I don’t ever want the majority of my wealth to be tied to my home, and I have no qualms about taking out a mortgage in order to own a sensible home.  By extension, I have no problem continuing this mortgage and refinancing in order to prevent my wealth from being overly concentrated in a single, immovable, poorly appreciating and vulnerable asset (i.e. a house).  Someday, when I have more than enough in my investment accounts I might allow my mortgage to gradually evaporate to $0.  Until that point I won’t fall into the trap that so many do - being house rich and cash poor.

I would argue that a plan to avoid this includes building up skills to enable rapid selling of a home or establishing a LoC with minimal hassle and stress.

I agree that having a LoC pre-established is a good strategy, but i”m less convinced about relying on being able to rapidly sell a home.  Twice now I’ve wound up in locations where selling a home took a year or more even after making it down way below what the recent market value was.  Once was during the ‘Great Recession when foreclosures were everywhere and buyers with credit were scarce.  More recently when our neighborhood got an influx of new construction home that a builder in bankruptcy dumpers on the market.
Ironically my sister has the opposite problem - her neighborhood has seen double-digit growth for a decadr, but with one of the smallest units around she can’t afford to stay without tripling her commute or uprooting their family.

Then of course there’s the mobility question - if one sells their home they have to either uproot or find something in the area that’s cheaper.

Regardless, my take-home has been to avoid having my home be a substantial part of my net worth, and to never assume selling a home can be done quickly and/or at whatever the current market rates are going for.

YttriumNitrate

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Re: DONT Payoff your Mortgage Club
« Reply #2047 on: February 11, 2020, 09:56:40 AM »
At the time of our estimated FIRE date, we'll have 2 to 3 years remaining on our mortgage. Will probably pay the balance off then just for convenience sake. Knowing full well that it is not financially optimal.

While I can certainly appreciate the psychological benefits of having a paid off mortgage, is it really more convenient? As it is, my mortgage is in direct deposit with taxes and insurance being paid through an escrow account. With a paid off mortgage, I'll have to pay the insurance and taxes myself. Admittedly, it will only be a few checks per year, but it's still more than I'm writing now.

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #2048 on: February 11, 2020, 10:03:36 AM »
Regardless, my take-home has been to avoid having my home be a substantial part of my net worth, and to never assume selling a home can be done quickly and/or at whatever the current market rates are going for.

This is a great point.  My only experience selling a home was during the real estate crash, and that really sucked.  It took over a year, and added a ton of stress to our lives at a time that we could least afford it.  It worked out well in the end (we netted $250k), but the experience has made me extremely wary about counting on home equity as a "sure thing" when it comes to selling.

Our home (paid off as of last week -- sorry, wrong club! :D) is worth about the same as we paid for it 12+ years ago.  It represents an ever-shrinking portion of our net worth, currently about 20%.  It will probably be more like 15% by the time we retire.

Bird In Hand

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Re: DONT Payoff your Mortgage Club
« Reply #2049 on: February 11, 2020, 10:10:02 AM »
While I can certainly appreciate the psychological benefits of having a paid off mortgage, is it really more convenient? As it is, my mortgage is in direct deposit with taxes and insurance being paid through an escrow account. With a paid off mortgage, I'll have to pay the insurance and taxes myself. Admittedly, it will only be a few checks per year, but it's still more than I'm writing now.

As you say, a few checks a year is not really a big deal.  In my case it was two checks (twice yearly for taxes).  The home insurance is deducted electronically just like our car insurance.  I have a couple other thoughts about eliminating escrow here.

A few times we had trouble with the escrow company not disbursing the tax money at the appropriate time or to the appropriate location.  That caused some stress, and it made me carefully scrutinize the escrow activity twice a year at tax time.  That was certainly not convenient, and I rather prefer to have the matters in my own hands so I know it's being taken care of correctly.

Depending on your state, you may have a small amount of interest on your escrow account, and that implies a small mental burden at tax time.

Overall I think it's a wash.