Do you regret paying off your mortgage early?

[asauer]

It's only been a year since we paid ours off but I haven't regretted it yet.  Mathematically, it probably didn't make sense for us to do this so aggressively but I think this community sometimes underestimates the psychological power of this type of activity. 

For me, it was huge.  It moved me completely out of my scarcity mentality.  I grew up fairly poor until I was 13 or so.  Most of my extended family have been homeless at some point (though my folks and I never were).  So, to have this beautiful house that is MINE and a lot of breathing room in the budget was amazing.

Additionally, it gave my husband and I something really big to work together on.  It truly made our marriage stronger and forced us to really think about what our priorities are in life and therefore in our spending.

Finally, once done, we both were like DAMN!  If we can do this, what other AMAZING things can we do?!!  It's really opened us up to the reality of so many of our dreams including early retirement and made us believe that they don't have to remain dreams.

[Dicey]

No I don't regret paying it off at all..I paid off the mortgage in 5 years so I doubt 5 years worth of investing would have helped me..now my monthly bills are £180 a month ..throw in food at £200 a month and it doesn't take a lot of money to live a rich and fulfilling life..I could easily live on £500 a month if i had to...love the peace of mind knowing that i'll never have to work for anyone again or have anyone tell me how to spend my days ...bliss !!!

Seems you live in a place where healthcare is cost-effective and long, cheap, tax-advantaged mortgages are not available. You may even be lucky enough to have some kind of national pension program. Under those circumstances, yours may well be a very good decision. It sounds like you also managed to save to pay for the rest of your needs, while aggressively paying down the mortgage, which is the ideal combination, IMO. It sounds like you've actually pulled the trigger, so congratulations. Living a FIRE lifestyle is wonderful!

[MrMoneySaver]

Ms Frugal -- so are you retired now? Or self-employed?

[Dicey]

It's only been a year since we paid ours off but I haven't regretted it yet.  Mathematically, it probably didn't make sense for us to do this so aggressively but I think this community sometimes underestimates the psychological power of this type of activity. 

For me, it was huge.  It moved me completely out of my scarcity mentality.  I grew up fairly poor until I was 13 or so.  Most of my extended family have been homeless at some point (though my folks and I never were).  So, to have this beautiful house that is MINE and a lot of breathing room in the budget was amazing.

Additionally, it gave my husband and I something really big to work together on.  It truly made our marriage stronger and forced us to really think about what our priorities are in life and therefore in our spending.

Finally, once done, we both were like DAMN!  If we can do this, what other AMAZING things can we do?!!  It's really opened us up to the reality of so many of our dreams including early retirement and made us believe that they don't have to remain dreams.

No, I don't think we do. After all, our dear lhamo coined the term IBL, for "Inner Bag Lady". Your fears are real. You are not alone. Mustachianism is a black-belt skill for vanquishing that fear forever.

Doing it your way is perfectly fine, as long as you understand the cost of your choice of sequencing. Believe me, it's an indescribably better feeling to know that even if your taxes doubled, a huge tree fell on your uninsured roof, your HVAC went out, and your paid-for car was totalled all in the same month, you would have enough to pay for all of it without having to consider putting on a blue vest at Wally World.

And proper sequencing will help everyone's hopes and dreams become reality even faster.

[AdrianC]

I also find your feelings to be the opposite of mine you call them normal.  but they are normal for you not for everyone.  You get a feeling of not wanting to pump money into the market when its sitting there where my emotional side says put it in as fast as possible - i have a variable income due to tradelines and am constantly running calculations based on when credit card payments are due and live at a negative cash to credit cards owed most of the time to keep every single dollar i can invested.  so maybe your normal is the norm for people but my normal is the opposite of that.

No cash emergency fund?

[dandarc]

I also find your feelings to be the opposite of mine you call them normal.  but they are normal for you not for everyone.  You get a feeling of not wanting to pump money into the market when its sitting there where my emotional side says put it in as fast as possible - i have a variable income due to tradelines and am constantly running calculations based on when credit card payments are due and live at a negative cash to credit cards owed most of the time to keep every single dollar i can invested.  so maybe your normal is the norm for people but my normal is the opposite of that.

No cash emergency fund?

It is an inefficiency to have a lot of cash if you can manage that cash flow tightly, without doing things like I did last month and forgetting to actually pay a card.  Not like it takes an inordinate amount of time to sell some shares and transfer the proceeds if you do need some cash.

ETA - or along the lines of this thread, take an advance on your HELOC.

[Slee_stack]

It's only been a year since we paid ours off but I haven't regretted it yet.  Mathematically, it probably didn't make sense for us to do this so aggressively but I think this community sometimes underestimates the psychological power of this type of activity. 

For me, it was huge.  It moved me completely out of my scarcity mentality.

I find 'scarcity' to be a motivator.  I am genuinely interested that some, such as yourself, might seek to eliminate the feeling altogether.  I suppose its all in how one reacts to it.  I grew up one generation away from extreme poverty, but still solidly lower middle class.  Nothing was ever a given.

I actually dislike  feeling complacent.  Not in the sense of never 'having enough', but more ensuring that I'm always 'doing enough'.  Being ready or stronger to weather something.

Financial Efficiency has been a huge tool towards that.  From that standpoint, I find myself very pro on mortgage leverage.

Its really just setting a bar.

Paying off debts is good, but I strongly feel many can 'do better'. 

I liken it to the B student who obviously has his/her stuff together.   But they could be an A student if they really wanted to be one.

[boarder42]

I also find your feelings to be the opposite of mine you call them normal.  but they are normal for you not for everyone.  You get a feeling of not wanting to pump money into the market when its sitting there where my emotional side says put it in as fast as possible - i have a variable income due to tradelines and am constantly running calculations based on when credit card payments are due and live at a negative cash to credit cards owed most of the time to keep every single dollar i can invested.  so maybe your normal is the norm for people but my normal is the opposite of that.

No cash emergency fund?

correct - something Often over looked by the pay down your mortgage crowd.  When you are investing all of your money your taxable stashe and possibly work cash flow will reach a point where you dont need a real cash emergency fund - as stated above these are wildly inefficient - more inefficient than paying down a mortgage.  So when one couples a cash stache with a mortgage paydown you're now creating a ton of inefficiency. 

Most/All things in the USA can be paid with a credit card this buys me at minimum 30 days to figure out how to cash flow it. but with enough credit cards and alot of different statement dates you can effectively get to 59-61 days depending on the month you're in. 

so with that being said i've posted this a few times - how to cash flow a large unexpected expense.

1. stop funding your taxable account for us this frees up around 3k per month
2. stop funding your Roth accounts - around 500 a month a month for us
3. stop funding your 401k to company match level - another 3-4k per month for us
4. use HSA funds that have been sitting there but not tapped due to paying medical bills with what would go to taxable account
5. if all this fails to cover it i'll start selling some of my LTCG share of VTSAX

in two months i can free up about 14k pretty quick.  and thats if the incident was immediate and had to be paid day of. 

So if you're holding an extra large cash E fund b/c of the added risk you're taking on by paying down a mortgage you're compounding a poor financial decision with another, for what is at its core a feeling of better security or a what if the market doesnt do what its always done which is build wealth efficiently.

missed one added number 4.

[boarder42]

depending on your E-Fund stache size this could make the math look incredibly worse - if someone is keeping 20-30k sidelined while paying down a 200k mortgage over 10 years you're adding 30.40k of lost earning over that time. in addition to the likely lost earnings on the money pumped into the house.  unless you get really lucky and pick the correct 10 year period that paydown wins.

[asauer]

It's only been a year since we paid ours off but I haven't regretted it yet.  Mathematically, it probably didn't make sense for us to do this so aggressively but I 

I find 'scarcity' to be a motivator.  I am genuinely interested that some, such as yourself, might seek to eliminate the feeling altogether.  I suppose its all in how one reacts to it.  I grew up one generation away from extreme poverty, but still solidly lower middle class.  Nothing was ever a given.

I actually dislike  feeling complacent.  Not in the sense of never 'having enough', but more ensuring that I'm always 'doing enough'.  Being ready or stronger to weather something.

Financial Efficiency has been a huge tool towards that.  From that standpoint, I find myself very pro on mortgage leverage.

Its really just setting a bar.

Paying off debts is good, but I strongly feel many can 'do better'. 

I liken it to the B student who obviously has his/her stuff together.   But they could be an A student if they really wanted to be one.

I think we're just interpreting 'scarcity mentality' differently.  For me, a scarcity mentality means "I don't have enough" or "I'm not safe enough".  This shows up in for me in creating fear.  Being afraid of taking risks etc.  Whereas an abundance mentality "I am safe" "I do have enough" allows me to take risks such as (example from this year) going for a huge promotion knowing that I could fall flat on my face and get fired.  Before my mortgage payoff and emergency fund, that would totally NOT be ok b/c "I NEED this job".  Where as now, I know even if I get fired, I'll be fine.  If I go after it an get it, I'll increase my salary by 35%.  So, this is not complacency.  This is allowing me to go after the big stuff without fear of failing.  Because if I fail I'll be fine.

[boarder42]

It's only been a year since we paid ours off but I haven't regretted it yet.  Mathematically, it probably didn't make sense for us to do this so aggressively but I 

I find 'scarcity' to be a motivator.  I am genuinely interested that some, such as yourself, might seek to eliminate the feeling altogether.  I suppose its all in how one reacts to it.  I grew up one generation away from extreme poverty, but still solidly lower middle class.  Nothing was ever a given.

I actually dislike  feeling complacent.  Not in the sense of never 'having enough', but more ensuring that I'm always 'doing enough'.  Being ready or stronger to weather something.

Financial Efficiency has been a huge tool towards that.  From that standpoint, I find myself very pro on mortgage leverage.

Its really just setting a bar.

Paying off debts is good, but I strongly feel many can 'do better'. 

I liken it to the B student who obviously has his/her stuff together.   But they could be an A student if they really wanted to be one.

I think we're just interpreting 'scarcity mentality' differently.  For me, a scarcity mentality means "I don't have enough" or "I'm not safe enough".  This shows up in for me in creating fear.  Being afraid of taking risks etc.  Whereas an abundance mentality "I am safe" "I do have enough" allows me to take risks such as (example from this year) going for a huge promotion knowing that I could fall flat on my face and get fired.  Before my mortgage payoff and emergency fund, that would totally NOT be ok b/c "I NEED this job".  Where as now, I know even if I get fired, I'll be fine.  If I go after it an get it, I'll increase my salary by 35%.  So, this is not complacency.  This is allowing me to go after the big stuff without fear of failing.  Because if I fail I'll be fine.

either way you should have had a feeling of i'll be fine.  And more people should get security from having 200k(really probably would be 250-300k depending on payoff time and market returns) invested than 200k sunk in a house.  So say you do get fired.  would you feel better having 200k invested that could fund alot of time while you looked for a job or 200k in a house.  i think you may say one now but if the time ever came.  Similar to the comment i got above about no cash E fund. you'd prefer the invested part. 

[TomTX]

Also, if so, do HELOCs have "Call-ins" (where they can give a notice and require full payment) or not?

Thanks!

If the goal were to get a chunk of equity out of the house to invest, why not just get a traditional mortgage vs. a HELOC?

It's usually easier to get a "no cost" HELOC, and they tend to be more flexible with draw.

[shawndoggy]

It's usually easier to get a "no cost" HELOC, and they tend to be more flexible with draw.

which would make sense if you were looking for a line of credit, not so much to permanently take out a chunk of equity to invest in the market which seems to be the point of this thread... now that Boarder42 has taken over.

[Kyle Schuant]

No. In Australia, virtually all mortgages are variable rate. Some time over the next 20-30 years interest rates will be ruinously high, in my own lifetime they've been as high as 17% here. Since rates are unlikely to ever be this low for 10+ years in a row, it's financially safer to just pay the thing off as soon as possible.

[Schaefer Light]

Even though most of us in the USA probably have fixed-rate mortgages, Kyle brings up a good point.  All of these strategies about paying the bare minimum on your mortgage are based on today's low interest rates.  Everything changes in a "normal" interest rate environment.  It's not normal for the rates to be as low as they have for the past 10 years or so.

[boarder42]

Even though most of us in the USA probably have fixed-rate mortgages, Kyle brings up a good point.  All of these strategies about paying the bare minimum on your mortgage are based on today's low interest rates.  Everything changes in a "normal" interest rate environment.  It's not normal for the rates to be as low as they have for the past 10 years or so.

correct we are in a very great window in which to capitalize that has never really happened before.  and when/if rates do normalize then you can buy bonds that pay more than your mortgage.  And you're in a way better place having not paid down your mortgage b/c you cant go magically get that money back

People look at this as an either or decision. well i could put it in my house "sure thing" its better than the bond "sure thing" today.  and the market isnt a "sure thing" (but most here assume it is or they will never quit working)

So on the flip side if bonds were at 5% yield and you had a sub 4% mortgage would you pay it down - nope no one would do that.  and that will be the case at some point in the life of a 30 year mortgage openend in this crazy low window.

so by paying it down now you're sacraficing alot in all likelihood b/c its better TODAY. like cutting off your nose to spite your face.

[AdrianC]

...
So if you're holding an extra large cash E fund b/c of the added risk you're taking on by paying down a mortgage you're compounding a poor financial decision with another, for what is at its core a feeling of better security or a what if the market doesnt do what its always done which is build wealth efficiently.

I have to admire your financial risk-taking chops. We took risks in a different direction, I suppose, with self-employment. We've had a very variable income stream so holding a large cash buffer is second nature. Though from what I've seen, employment at a mega-corp is no more secure than what I've been doing.

We're 85/7/8 stocks/real estate/bonds+cash including our e-fund. Still considered very aggressive by the mainstream investment community (e.g. Bogleheads).

What's your allocation?

[boarder42]

...
So if you're holding an extra large cash E fund b/c of the added risk you're taking on by paying down a mortgage you're compounding a poor financial decision with another, for what is at its core a feeling of better security or a what if the market doesnt do what its always done which is build wealth efficiently.

I have to admire your financial risk-taking chops. We took risks in a different direction, I suppose, with self-employment. We've had a very variable income stream so holding a large cash buffer is second nature. Though from what I've seen, employment at a mega-corp is no more secure than what I've been doing.

We're 85/7/8 stocks/real estate/bonds+cash including our e-fund. Still considered very aggressive by the mainstream investment community (e.g. Bogleheads).

What's your allocation?

100% equity allocation on monies i control with a tilt towards small caps and mid caps in my tax advantaged accounts.  being a bit more conservative with the monies i'll need in 5 years for my bridge they're 80TSM/20MC

i have some bonds thru a company esop i cant control but if i had control it would not be in bonds but this represents less than 1% of my total accounts anyways.

[AdrianC]

100% equity allocation on monies i control...

Investments, sure. What about net worth allocation? You're more than 100% equities, right, due to leverage?

[NorthernBlitz]

NOOOOOOOOOOO! What you just said is that you will stop saving one way in order to start saving another way. If the market dumps, the easiest thing to do is simply to increase your contributions to your retirement account!!! There is minimal time delay, and no additional fees associated with increasing the amout of money you save through payroll savings. Just for fun, try logging on to your account and increasing your contribution by 1% today.

In mid 2008, after a super frugal trip to Hawaii, where I met some wise early retirees, I resolved to redouble my FIRE efforts. I rebuilt my budget from zero (a la The Frugalwoods) and resolved to save/invest every penny I could. I increased my 401k contributions significantly. You can see that I chose the very best period in modern history to do so. When the markets recovered, as they always do, my 'stache had increased dramatically, and FIRE happened soon after.

I agree that it's always better to save more. But, I think we're at the point where we couldn't add about $1000/month in spending via a mortgage and reduce our other spending by > $1000 to increase our net savings rate.

If you would have brought that idea up to me two or three years ago when we found MMM, we could have done it, but I feel like we don't have an additional $1k/month of fat to cut.

The problem with the statement is the poster is not considering the fungibility of money.  You don't stop contributing to retirement accounts you still can you are now just living off of some of your stache you took out to invest.  its a different way to view it.

I don't see a difference between (1) ratcheting down current savings rate and moving money from the lump some mortgage payout to sheltered accounts and (2) spending out of the lump sum mortgage amount and keeping the current savings rate the same. Either way my net savings rate drops by the mortgage payment (I don't think we could cut our current consumption by ~ $1000 / month).

It seems to me that your suggestion confuses "retirement savings" with "savings in retirement accounts". In this situation, the automatic deduction for my 401k stays the same, but my net savings rate decreases (because I'm paying for my mortgage from the taxable savings that I received with my lump sum mortgage payments).

Without cutting my current expenses by the mortgage payment, I fail to see how getting the mortgage does more than pull future contributions into the present (which I agree would result in more net wealth more often than not).

EDIT: Sorry for any confusion with the $$$ amount. It's from my post a bit below this, which I thought I submitted first.

[boarder42]

100% equity allocation on monies i control...

Investments, sure. What about net worth allocation? You're more than 100% equities, right, due to leverage?

i dont know really how to get over 100% equity in allocation you have a formula for that? 

my liabilities are 33% of my total assets give or take.

[NorthernBlitz]

I paid nothing for my REFI's other than an 8th of a point off the prime rate or so.

That's awesome. It's amazing how different the banking systems are with regards to mortgages. Americans certainly have many financial incentives to take out large mortgages over long terms. It's pretty clear that there are advantages to the strategy you propose of holding a mortgage forever (or at least over very long periods). But, it's a bit like CC rewards in that you need to make sure that you don't fall into the trap of extra spending (i.e. buying too much house & putting the leveraged money into an indexed portfolio).

If the scenario you describe comes to pass (i.e. market correction / crash + rate reduction), I would consider taking out a mortgage on our house and making a large lump sum investment in my portfolio. The downside would be that I would have to reduce ongoing contributions to retirement accounts, but I think that could be worth it for a large payment at a discounted price. This assumes that I have confidence in my ability to retain employment, it would also require some pretty serious market timing (how much of a correction / crash / rate reduction is required?).

It would also be a no-go for us if the reduction in cash flow meant that my wife would have to go to work and we'd need to start paying for child care for 3 kids (1 infant + 2 elementary school would probably cost upwards of $15-20k/year where we live). We also believe that her having freedom from work now (instead of when our children are in HS or University) has value because of the importance of their developmental years. While I believe that would be important, I don't know how I would incorporate it into a financial calculation. In that way, it's a bit like retiring early. It's obviously not the best decision for maximizing net worth, but it can certainly be the best decision for maximizing happiness.

So your last paragraph doesnt add up.  It would still make sense.  you would just be drawing down on the funds invested to make up for the stop gap.  Similar to what a mortgage holder does when FIREd.  you would infact have added freedom in that if you lost your job you could continue to live your lifestyle while she didnt work b/c of the liquid capital that was now invested instead of tied up in a house.  Its very counterintuitive to approach this from that side and many people struggle with it. but it doesn work out mathmatically better assuming the market continues to do what its done for years

Let's say that I took out a $200k mortgage on my house and could get a rate of 4%. In that case, I'd have an additional $955 expense that I'd have to pay every month.

I would be comfortable doing something like this if I could pay the mortgage by ramping down my current retirement savings rate and I expected to be working for a long enough time (certainly > 30 years, probably > 10-15 years) because the market should beat the interest rate over a long enough time period.

I personally would be hesitant to be drawing down on my savings to pay the mortgage in the accumulation phase. It seems to me like that would expose me to a much larger sequence of returns risk. My understanding is that during the draw down period, you can generally stop worrying about sequence of returns after the first 10 years (i.e. if you're portfolio is > 50% of it's initial value over a decade it's likely that it will survive for 30 years). My guess is that paying the mortgage out of the investment returns like this would mean that I'd probably have to survive two separate windows where sequence of returns is a big issue (maybe the first 10 years after I got the mortgage and then the 10 years after I retire)? But, that's a gut reaction and not a calculation. That often leads to bad decisions (I'd appreciate anywhere you could point me to that would answer this question).

Perhaps my bigger issue of doing this would be setting the behavior that it's OK to spend from savings. Right now, I absolutely do not spend money that is in accounts that are marked for retirement. I would be worried that spending from non-sheltered accounts for the mortgage would be a slippery slope for much worse things (i.e. it becomes OK to use that account to get a more expensive car, or to spend from that account for college, or for general consumption).

[boarder42]

I paid nothing for my REFI's other than an 8th of a point off the prime rate or so.

That's awesome. It's amazing how different the banking systems are with regards to mortgages. Americans certainly have many financial incentives to take out large mortgages over long terms. It's pretty clear that there are advantages to the strategy you propose of holding a mortgage forever (or at least over very long periods). But, it's a bit like CC rewards in that you need to make sure that you don't fall into the trap of extra spending (i.e. buying too much house & putting the leveraged money into an indexed portfolio).

If the scenario you describe comes to pass (i.e. market correction / crash + rate reduction), I would consider taking out a mortgage on our house and making a large lump sum investment in my portfolio. The downside would be that I would have to reduce ongoing contributions to retirement accounts, but I think that could be worth it for a large payment at a discounted price. This assumes that I have confidence in my ability to retain employment, it would also require some pretty serious market timing (how much of a correction / crash / rate reduction is required?).

It would also be a no-go for us if the reduction in cash flow meant that my wife would have to go to work and we'd need to start paying for child care for 3 kids (1 infant + 2 elementary school would probably cost upwards of $15-20k/year where we live). We also believe that her having freedom from work now (instead of when our children are in HS or University) has value because of the importance of their developmental years. While I believe that would be important, I don't know how I would incorporate it into a financial calculation. In that way, it's a bit like retiring early. It's obviously not the best decision for maximizing net worth, but it can certainly be the best decision for maximizing happiness.

So your last paragraph doesnt add up.  It would still make sense.  you would just be drawing down on the funds invested to make up for the stop gap.  Similar to what a mortgage holder does when FIREd.  you would infact have added freedom in that if you lost your job you could continue to live your lifestyle while she didnt work b/c of the liquid capital that was now invested instead of tied up in a house.  Its very counterintuitive to approach this from that side and many people struggle with it. but it doesn work out mathmatically better assuming the market continues to do what its done for years

Let's say that I took out a $200k mortgage on my house and could get a rate of 4%. In that case, I'd have an additional $955 expense that I'd have to pay every month.

I would be comfortable doing something like this if I could pay the mortgage by ramping down my current retirement savings rate and I expected to be working for a long enough time (certainly > 30 years, probably > 10-15 years) because the market should beat the interest rate over a long enough time period.

I personally would be hesitant to be drawing down on my savings to pay the mortgage in the accumulation phase. It seems to me like that would expose me to a much larger sequence of returns risk. My understanding is that during the draw down period, you can generally stop worrying about sequence of returns after the first 10 years (i.e. if you're portfolio is > 50% of it's initial value over a decade it's likely that it will survive for 30 years). My guess is that paying the mortgage out of the investment returns like this would mean that I'd probably have to survive two separate windows where sequence of returns is a big issue (maybe the first 10 years after I got the mortgage and then the 10 years after I retire)? But, that's a gut reaction and not a calculation. That often leads to bad decisions (I'd appreciate anywhere you could point me to that would answer this question).

Perhaps my bigger issue of doing this would be setting the behavior that it's OK to spend from savings. Right now, I absolutely do not spend money that is in accounts that are marked for retirement. I would be worried that spending from non-sheltered accounts for the mortgage would be a slippery slope for much worse things (i.e. it becomes OK to use that account to get a more expensive car, or to spend from that account for college, or for general consumption).

so its a personal lack of comfort and self control issues.  setting these aside the leveraged situation would work out better in most cases barring the catastrophic years historically and if you're worried about sequencing on a bit of money you leverage via a mortgage to invest while you're still accumulating then you'll be super worried when with drawing b/c the same logic applies to both about the first 10 years being indicative.  but in the FIREd situation you dont have an income stream other than your funds ie riskier where as in the accumulation phase you have a secondary income stream thats likely able to cover your assets. 

another way to think about it instead of stopping or contributing less to a tax advantaged account think of it as moving money from a taxable account to a tax advantaged account and using your income to pay your mortgage.

[AdrianC]

100% equity allocation on monies i control...

Investments, sure. What about net worth allocation? You're more than 100% equities, right, due to leverage?

i dont know really how to get over 100% equity in allocation you have a formula for that? 

my liabilities are 33% of my total assets give or take.

Sorry, my bad. Didn't think it through. Your leverage is 100% secured by the real estate. Thanks.

[Anon in Alaska]

I didn't pay off early; instead I paid cash for my modest condo and never had a mortgage. It was a sound financial decision and I beat the market when I look at how much renting would have cost instead. Could have done better buying bitcoin, or even Apple stock, but who knew?

[boarder42]

I didn't pay off early; instead I paid cash for my modest condo and never had a mortgage. It was a sound financial decision and I beat the market when I look at how much renting would have cost instead. Could have done better buying bitcoin, or even Apple stock, but who knew?

These are conflating statements. Rent vs buy is one decision mortgage or not is another and should be compared to investing that lump sum into vtsax or whatever your AA is. 

[Bateaux]

I didn't pay off early; instead I paid cash for my modest condo and never had a mortgage. It was a sound financial decision and I beat the market when I look at how much renting would have cost instead. Could have done better buying bitcoin, or even Apple stock, but who knew?

You're just another one of those oh so common debt free losers!  As I drive around Mcmansionville, I think to myself look at all those debt free losers!  Look at their paid off houses, their paid off landscaping and their paid off SUVs in the paid off driveway.  Even their children playing on the paid off lawn, with their fully funded 529 plans.  Nothing but future little debt free losers.   
We know that is not how it really is don't we.  How many of them are keeping debt just so they can invest more in the market?  Not many.  We Mustacians are the fringe.  Not paying off debt so you can make more investing are the fringe of the fringe.  It can work in the current economic cycle.   Extraordinary low interest rates and extraordinary high returns in the market.  Good luck to you all.  Losers!

[plainjane]

I have been thinking about this some more. We paid off the mortgage in just under 10 years. We made mistakes, some knowingly.
- A 5.35 fixed rate 5 year mortgage was a bad move in 2006, I knew that variable was more likely the right decision, but I didn't guess how much it would have been better).
- We bought a single family home instead of a duplex.
- We took out 40k of our down payment from our RRSP under the home buyer plan in 2006. We paid it back quickly, but it would have been much better growing in the RRSP, and perhaps us paying insurance for those couple of years.
- We waited until we had a 25% down payment, instead of buying earlier in the Toronto real estate ramp up
- We started extra payments into the mortgage before we used up our carry-over space for retirement savings

But I'm not sure if I would have had the risk tolerance to invest more money earlier, or if paying down the mortgage with the one-to-one reward helped train us for throwing more money into retirement now and helping reduce our lifestyle inflation. So I have regrets, but that is as the person who I am now. Which is partially because I made those decisions then.

[NoraLenderbee]

I didn't pay off early; instead I paid cash for my modest condo and never had a mortgage.

OMG! You're so bad at math, you must have a negative IQ!!1!!!1!

[boarder42]

I didn't pay off early; instead I paid cash for my modest condo and never had a mortgage.

OMG! You're so bad at math, you must have a negative IQ!!1!!!1!

you can continue to poke fun at it but it doesnt really add value to the discussion.  Math is math Feelings are feelings.

[TexasRunner]

I didn't pay off early; instead I paid cash for my modest condo and never had a mortgage.

OMG! You're so bad at math, you must have a negative IQ!!1!!!1!

you can continue to poke fun at it but it doesnt really add value to the discussion.  Math is math Feelings are feelings.

Ya, thats really not helpful to the discussion....  :/

[Bateaux]

I didn't pay off early; instead I paid cash for my modest condo and never had a mortgage.

OMG! You're so bad at math, you must have a negative IQ!!1!!!1!

you can continue to poke fun at it but it doesnt really add value to the discussion.  Math is math Feelings are feelings.

Ya, thats really not helpful to the discussion....  :/

It's fun ribbing B42.  I do listen to what he says however.  Way smarter than this dumb Cajun.

[Dicey]

I didn't pay off early; instead I paid cash for my modest condo and never had a mortgage.

OMG! You're so bad at math, you must have a negative IQ!!1!!!1!

you can continue to poke fun at it but it doesnt really add value to the discussion.  Math is math Feelings are feelings.

Ya, thats really not helpful to the discussion....  :/

It's fun ribbing B42.  I do listen to what he says however.  Way smarter than this dumb Cajun.

Clearly, you're not dumb. You recognize how smart and dedicated b42 is! Good for you, good for b42, good for who knows how many others who have taken the time to examine the issue and learn before acting.

[MsFrugal]

In reply to Dicey..You're correct.. I live in the uk which has an amazing National Health Service so no huge health charges and our mortgage rates are usually set for 3 years not for the lifetime of the mortgage.
 Mr Moneysaver...I've 'retired'...I made sure my house was in an area with all amenities within walking distance and close to friends and family so I was able to ditch the car..I borrow my daughters car one day a week to do any other running around..i cashed in a private pension which gives me a small monthly income and have enough in savings now to last me for the next 10 years before state pension kicks in.

[BlueHouse]

My IBL has been screaming at me since I sold the paid off house. She will just not shut up. Being without a debt-free place of my own and having a larger cash amount out floating around/invested than I'm comfortable with is bothering me more than I thought it would.  Probably the IBL fear is due to my unique situation (single, no kids, no extended family but a sister, being middle aged) coupled with seeing investments take a massive nose dive in the recession but the fear is there. Not sure what I'll do but perhaps a little hovel of my own again will quiet her - will pay cash if that happens. Guess my mustachian black belt will be revoked then ;-).

You have just described my fears and motivations perfectly.

[boarder42]

What do you mean put aside. You put 1/3 of your profits into cash in case you want to buy again?

[boarder42]

Sounds like a double waste. IMO.

[NoraLenderbee]

What do you mean put aside. You put 1/3 of your profits into cash in case you want to buy again?

yes...for the moment. Will reevaluate in.the next few weeks which way I'll go. Currently looking at places. 1/3 rd of my profit is the max I plan to spend on a new place....in cash ;-)

Oh no, your IQ just dropped by 1/3. So sorry.

[boarder42]

What do you mean put aside. You put 1/3 of your profits into cash in case you want to buy again?

yes...for the moment. Will reevaluate in.the next few weeks which way I'll go. Currently looking at places. 1/3 rd of my profit is the max I plan to spend on a new place....in cash ;-)

Oh no, your IQ just dropped by 1/3. So sorry.

Also see forum rule one. Personal attacks.

[boarder42]

On the other hand, even with my inner bag lady screaming and ranting in my head, I'll most likely stick to my original plan of travel and renting and stash the entire house sale proceeds ($600k) in the market. After losing 1/2 my NW in the great recession (and it taking almost 10 years to bounce back from that due to being ER then and not stashing anymore) I'm freaked out doing that but...what will be will be. The difference between ERing at 40 and seeing your money go bye-bye in a crash and potentially having that happen again at 50 or later (and again) is something I don't take as lightly as maybe Boarder 42 does.

I mean it's going to happen everyone FIRE on some type of 4% swr will have to deal with their money dropping alot in a bear market. But history has told us you will be fine in over 90% of cases. And you will also know in the first 5-8 years if you likely have to be considering dropping your withdrawal or making a little extra money to supplement for a couple years.  But something history also tells us is cash will lose lots of money to inflation and is riskier to keep on hand than stocks if you want your money to last an indeterminate amount of time.

[jim555]

Before I FIREd I bought a place outright.  This lets me live on very little.  The money is earning no return being tied up but it is still working for me in that I have no mortgage payment.  Implied interest is not taxed.  Also a good part of the equity is protected form creditors under homestead laws.  Capital gains are tax free up to 250k. 

[Daisy]

Before I FIREd I bought a place outright.  This lets me live on very little.  The money is earning no return being tied up but it is still working for me in that I have no mortgage payment.  Implied interest is not taxed.  Also a good part of the equity is protected form creditors under homestead laws.  Capital gains are tax free up to 250k.

Capital gains on a home sale are just that...a tax on the gain above 250k.

However, there are transaction costs to selling a house and buying a new one...on both ends! And commission fees are on the whole amount of the purchase, not just the gain.

Let's say you sell your house for $400k. That is $24k in commission fees. Then you buy a new house also for $400k. There is another $24k. So now you have paid $48k just to move to a similar priced house.

I used to think that capital gains exclusion was a good thing when comparing houses to stocks, but the benefit is not as great as you'd think.

Unless we have a revolution in real estate commissions, this won't go away.

Now, aside from that, I fully own my place as well without a mortgage. At the time, I thought it was a better thing to do...possibly erroneously. But I was also buying into a tight market with all cash sales so I didn't want to lose out on buying my current place which had almost everything I wanted.

Also, without a mortgage I can forego any insurance I don't wish to purchase.

[shawndoggy]

Seller pays RE commissions. You don’t pay on both ends. Also in my area 5% is more common than 6%.


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[Daisy]

Seller pays RE commissions. You don’t pay on both ends. Also in my area 5% is more common than 6%.


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You kind of are because the seller takes that 6% into account when deciding on selling price alright make it 3% on each end then. There are other transaction costs as well.

[shawndoggy]

Seller pays RE commissions. You don’t pay on both ends. Also in my area 5% is more common than 6%.


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You kind of are because the seller takes that 6% into account when deciding on selling price alright make it 3% on each end then. There are other transaction costs as well.

But then you also take the sellers commission into account when you sell your own property right?  Fact is seller pays commissions in residential RE transactions.


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[boarder42]

Seller pays RE commissions. You don’t pay on both ends. Also in my area 5% is more common than 6%.


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You kind of are because the seller takes that 6% into account when deciding on selling price alright make it 3% on each end then. There are other transaction costs as well.

Correct it doesn't really matter where the commission is paid from the seller wants a net return in their pocket.

Really putting it into the sale price just adds some more money to the commission the agents take. Real estate agents serve no purpose in most cases anymore.

[Daisy]

So if you take 3% on both ends of the sale, you get to a 6% commission rate. So in my case above, let's say you purchased a house for $400,000, and for some amazing reason a few years later when you sell it is still at $400,000, you didn't even have a capital gain and yet you paid $400,000 X 0.06 = $24,000 in commission fees - not to mention all of the other transaction fees of buying and selling a home.

You'd even pay this 6% even if the house depreciated to $375,000.

Such would not be the case if that $400,000 was invested in the stock market.

Like I said, I actually do not have a mortgage but in hindsight have realized that this "no capital gains" benefit to selling a house is hogwash. I used to believe the fable as well.

[Daisy]

Seller pays RE commissions. You don’t pay on both ends. Also in my area 5% is more common than 6%.


Sent from my iPhone using Tapatalk

You kind of are because the seller takes that 6% into account when deciding on selling price alright make it 3% on each end then. There are other transaction costs as well.

Correct it doesn't really matter where the commission is paid from the seller wants a net return in their pocket.

Really putting it into the sale price just adds some more money to the commission the agents take. Real estate agents serve no purpose in most cases anymore.

I found my previous place on my own on realtor.com. I tried to get the seller's agent (who was actually her sister) to reduce the 6% to 3%. She would still get paid her 3%. She declined to reduce the rate. So I ended up calling a real estate agent that had the easiest transaction ever as they barely did any work, but got their 3%. I surely wasn't going to let the seller's sister walk away with 6% because she didn't feel like negotiating it down.

[boarder42]

Seller pays RE commissions. You don’t pay on both ends. Also in my area 5% is more common than 6%.


Sent from my iPhone using Tapatalk

You kind of are because the seller takes that 6% into account when deciding on selling price alright make it 3% on each end then. There are other transaction costs as well.

Correct it doesn't really matter where the commission is paid from the seller wants a net return in their pocket.

Really putting it into the sale price just adds some more money to the commission the agents take. Real estate agents serve no purpose in most cases anymore.

I found my previous place on my own on realtor.com. I tried to get the seller's agent (who was actually her sister) to reduce the 6% to 3%. She would still get paid her 3%. She declined to reduce the rate. So I ended up calling a real estate agent that had the easiest transaction ever as they barely did any work, but got their 3%. I surely wasn't going to let the seller's sister walk away with 6% because she didn't feel like negotiating it down.

This is incredibly dumb. She could have gotten her sister and/or herself more money. Further proof these people shouldn't exist. There was an opportunity there completely passed by for who knows what personal reason.

[Dicey]

Like I said, I actually do not have a mortgage but in hindsight have realized that this "no capital gains" benefit to selling a house is hogwash. I used to believe the fable as well.

Dunno, but I think the $250/$500 Capital Gains exemption is after all costs, so it may not be cost free to acquire or dispose of a house, but the exemption is what it is.