Author Topic: DONT Payoff your Mortgage Club  (Read 889268 times)

RWD

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Re: DONT Payoff your Mortgage Club
« Reply #3750 on: March 04, 2024, 11:02:44 AM »
Per IRS pub 936 for 2023 - "You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017."

I learned this when filing my taxes for last year. My two mortgages overlapped in 2023, the combined total exceeding $750k (just barely). Of course, running through the worksheet I still qualified for the full deduction because you can use some sort of averaging of the balance(s) across the year.

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3751 on: March 04, 2024, 11:36:57 AM »
I mean yeah... right now our two mortgages combine to $787k... though by June hopefully there will be one mortgage and it'll be quickly dropping below $500k.

bacchi

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Re: DONT Payoff your Mortgage Club
« Reply #3752 on: March 04, 2024, 11:49:33 AM »
Or, sell your highly appreciated (still mortgaged) home and buy another one for cash, which is what we did. Don't worry, we still have mortgages on our rentals ;-)

This is what we're planning. We'd like to keep a mortgage when we relocate but 1) no income; and 2) rates are too high.

The current mortgage is actually more than when I bought the place (nominally). We took out 2 HELOCs, built an ADU, and upgraded the main house wiring. It kept money in the market and we're repaying it with inflationary and capital gain dollars.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3753 on: March 05, 2024, 11:46:46 PM »
Sometimes doing nothing gets pretty boring. This past few days has been unexpectedly...not boring. All civilized conversation on this topic is good conversation, right?

I've been singing the DPOYM song for a long time, and nothing makes me happier than reading something like the quote below. As this was posted in eta's journal, it is quoted with her permission.

The monthly budget is such a deeply embedded psychological game, I think, SunnyDays. It's probably why it's so tempting to pay down the mortgage, even though that makes no sense mathematically in our case. Two years ago, when we bought, we could have recast the mortgage after we sold the condo. It would have brought down our monthly payment by at least $600. But with a mortgage rate of 2.99%, that plan didn't make much sense. We experienced the pain of having too much of our money tied up in the house with the condo--we used to put $800/month extra on our mortgage every month, and we had a 20 year mortgage. So then, when we wanted to buy the townhouse, it was harder to come up with the down payment.

So we have a tighter monthly budget but we also have a huge pile of money in accessible investments. Come to think of it, we really made all the right moves. We didn't put the extra money into the mortgage, where it would be less efficient and also inaccessible, but we also didn't spend it, which is why the more conservative money folk a la Dave Ramsey encourage paying down the mortgage as a money goal--the concern is that if you don't pay down the mortgage, you'll just waste the money. Having the pile of money gives us a lot more flexibility in terms of big life adjustments. If I had to stop working, for example, we could pay the monthly mortgage payment out of our savings for years...whereas, if we had recast the mortgage, the bank would still want the (lower) monthly payment, but we wouldn't have the money to pay it. Good job, us!

But yes, we do have the psychological burden of a tighter monthly budget. This actually is probably not a bad thing. It makes me less likely to buy unnecessary stuff.
Thanks, @englishteacheralex!

Fomerly known as something

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Re: DONT Payoff your Mortgage Club
« Reply #3754 on: March 06, 2024, 05:57:48 PM »
Sometimes doing nothing gets pretty boring. This past few days has been unexpectedly...not boring. All civilized conversation on this topic is good conversation, right?

I've been singing the DPOYM song for a long time, and nothing makes me happier than reading something like the quote below. As this was posted in eta's journal, it is quoted with her permission.

The monthly budget is such a deeply embedded psychological game, I think, SunnyDays. It's probably why it's so tempting to pay down the mortgage, even though that makes no sense mathematically in our case. Two years ago, when we bought, we could have recast the mortgage after we sold the condo. It would have brought down our monthly payment by at least $600. But with a mortgage rate of 2.99%, that plan didn't make much sense. We experienced the pain of having too much of our money tied up in the house with the condo--we used to put $800/month extra on our mortgage every month, and we had a 20 year mortgage. So then, when we wanted to buy the townhouse, it was harder to come up with the down payment.

So we have a tighter monthly budget but we also have a huge pile of money in accessible investments. Come to think of it, we really made all the right moves. We didn't put the extra money into the mortgage, where it would be less efficient and also inaccessible, but we also didn't spend it, which is why the more conservative money folk a la Dave Ramsey encourage paying down the mortgage as a money goal--the concern is that if you don't pay down the mortgage, you'll just waste the money. Having the pile of money gives us a lot more flexibility in terms of big life adjustments. If I had to stop working, for example, we could pay the monthly mortgage payment out of our savings for years...whereas, if we had recast the mortgage, the bank would still want the (lower) monthly payment, but we wouldn't have the money to pay it. Good job, us!

But yes, we do have the psychological burden of a tighter monthly budget. This actually is probably not a bad thing. It makes me less likely to buy unnecessary stuff.
Thanks, @englishteacheralex!

It makes me think about how until my expensive CA condo, I tried not to get caught in the trap of looking at my house payment as a monthly payment.  But in part because I started renting, I had thought about how much I was willing to spend on housing each month now and into the future.  When I decided to buy my Financial Advisor noted, it’s basically the same range as what you talked about for rent when you moved out to CA, amazing how that worked out right? 

With CA being a no recourse state and me itemizing because I’m single and only have a $13,xxx standard deduction it makes even more sense to have a big fat mortgage and keep my brokerage account Fat as well.  (I could pay things off tomorrow).

footwear

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Re: DONT Payoff your Mortgage Club
« Reply #3755 on: March 07, 2024, 08:15:44 AM »
I have about $142k left on our mortgage that started at 15 years at 2.5%. We have about 11 years left.

I'm firmly a member of this group vs. the pay off your mortgage now group. However I feel like having a mortgage payment will be a major factor in *not* deciding to FIRE if/when that time comes. I know I won't like the payment hanging over my head without a paycheck!

Realistically the chances that we are comfortable and ready to FIRE before 11 years is probably slim but I'd love to be able to if things work out. Kind of kicking myself for refinancing to a 15 year and not doing a 30 year...could be investing a lot more each month. On the bright side we will have a paid off house before either of us reach 50.

halfling

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Re: DONT Payoff your Mortgage Club
« Reply #3756 on: March 13, 2024, 09:37:10 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3757 on: March 13, 2024, 09:57:36 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

nereo

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Re: DONT Payoff your Mortgage Club
« Reply #3758 on: March 13, 2024, 10:21:00 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

Thanks Dicey - on some level I knew this, but had not thought of it so explicitly. With PMI you are paying to insure someone else’s risk.

Askel

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Re: DONT Payoff your Mortgage Club
« Reply #3759 on: March 13, 2024, 10:53:30 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.

As Dicey said, check to see what your mortgage company requires to get out of PMI.  I've had it go a couple ways (on all two mortgages I've had in my life). First eliminated PMI as soon as you hit >20% of the initial purchase price paid down.  Most recent mortgage was something like >22% of the initial purchase price when *scheduled* by the initial payment schedule. Anything sooner required a property appraisal.   But PMI was $16/month on a 3.25% loan so not really a big deal. I put down the absolute minimum down payment (3%) on my fixer upper.   But I had a couple of high dollar projects to do right away that required a bunch of cash on hand.   

halfling

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Re: DONT Payoff your Mortgage Club
« Reply #3760 on: March 13, 2024, 11:46:56 AM »
Near-term math on not paying off your mortgage before you even sign up for it - please poke holes if you see them!

So, I'm on track to take on roughly a $400K mortgage locked for now at 6.625% . I could put down about $25K more than I plan to, to get me over the 20% down payment threshold, but I did some math and found that it will cost me about $125 per month total, between PMI and additional interest charges, adding back a flat 4% for interest income I could theoretically earn from HYSA minus income taxes. The comfort from the extra $25K cash buffer is worth the cost to me since the house needs some work.

I have no idea what the Fed is going to do this month or this decade, but I am assuming for my calculations no chance to refi any time soon, nor even to float down to a lower rate before closing. Hoping for an easy float down by May 1 but not expecting it.
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

I think it will fall off automatically, but I just asked the lender for specifics in case they will want to see a new appraisal, so thanks for the warning. It is $30/mo for the PMI, and I understand it's there to protect the lender; most of the added cost comes from just borrowing more money at a high rate. I'll have to see if I can stash enough cash before closing to be really comfortable putting more down. I'm sure I'm more scared than I ought to be of suddenly going broke! Thanks

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3761 on: March 13, 2024, 12:37:38 PM »
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.

neo von retorch

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Re: DONT Payoff your Mortgage Club
« Reply #3762 on: March 13, 2024, 01:05:21 PM »
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.

1% of the (original) loan amount... per month?

That would be shocking! My PMI is $61 on a $567k mortgage (@5.95%). Which calculates out to 0.0108%. or 0.1291% annually.

On the flip side, maybe you just meant... payment? $61 on a $4000 payment is 1.53%.

halfling

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Re: DONT Payoff your Mortgage Club
« Reply #3763 on: March 13, 2024, 01:22:46 PM »
The PMI they quoted me scaled up, the less % you put down, naturally. $30 was with 15% down. It was $60 with 10% down. I'm sure much more with only 3% down.

catccc

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Re: DONT Payoff your Mortgage Club
« Reply #3764 on: March 13, 2024, 02:54:57 PM »
Find out what it takes to get rid of the PMI before you go that route. I only had it once, and I despised every moment of it. Why? It protects the lender, not the borrower, and it was impossible to get rid of without paying for an appraisal. In your position,  I'd put 20% down and cash flow the renovations. A zero percent credit card might be another option, as long as you don't overspend.

I vote for this.  We put down 20% to avoid PMI and I'm glad we did.  Sometimes I do wish I had a bigger mortgage because the rate is so great, but @halfling isn't really in great rate territory.  We are also floating $45K at 0% on a half dozen credit cards right now and liking it, just make sure you have a sound exit strategy for when those promo rates expire.

halfling

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Re: DONT Payoff your Mortgage Club
« Reply #3765 on: March 13, 2024, 03:35:36 PM »
I believe this interest rate, with ballpark around $20k in interest expenses per year for the first several years, is going to mean I'll want to itemize my taxes for the first time. So at least there's that.

Dicey

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Re: DONT Payoff your Mortgage Club
« Reply #3766 on: March 13, 2024, 06:20:33 PM »
Interesting, when I had PMI, it was 1% of my loan amount. It sounds like prices have dropped sugnificantly since then.

1% of the (original) loan amount... per month?

That would be shocking! My PMI is $61 on a $567k mortgage (@5.95%). Which calculates out to 0.0108%. or 0.1291% annually.

On the flip side, maybe you just meant... payment? $61 on a $4000 payment is 1.53%.
To clarify, it was a hair over 1% of the monthly payment. Pissed me off every damn month. I literally couldn't get rid of it until I sold the place, four years later. At least I made a good return on it. IIRC, I was thrilled to get a 7% mortgage when I originally bought it.