is/was your home mortgage holding you back?

[FrugalFan]

I actually see your cashflow point and it is something that crosses my mind not because we want to spend more, but because we may want to earn less. Without a mortgage, we could easily live off just one salary. We could pay it off in 3 years if we invested everything there, but it's too big a sum of money for me to feel comfortable doing that. However, some of our investments are in accounts that we can easily tap into without penalty, so at some point in the future we can always decide to pay it off as a lump sum (e.g., at our next renewal).

[Dicey]

I don't know why I was so pigeon-holed in my thinking yesterday.  I still think paying the mortgage off early is a good idea like I stated.  However, yes investing the money on the side and then paying it off once the lump sum is available as many have suggested in this thread would probably be my route of choice.  Because the return is higher as stated and then also the flexibility it gives you in not having the money locked up in the house.

The reason this did not occur to me in my particular situation is all of my accounts are tax-advantaged and I cannot reach my money until I FIRE (except for Roth principle).  Sorry for being difficult and letting that blow right over my head.

Yessss!!!! Another one sees the light... Of course, the solution to your second paragraph is to put some of your investments into taxable accounts. Congratulations!

[Goldy]

Have you thought about refinancing?

[Slee_stack]

My mortgage has only 'held me back' because of my poor purchase timing a decade and a half ago.

Had my crystal ball have been working, I would have never have bought a house at the time.

Otherwise, a mortgage is fairly meaningless.

It is one number (or set of numbers) in the overall equation.

Personally (today and over the past decade), I have not spend one dime extra paying it down.  If/when the time comes that paying it off translates to overall greater net worth growth, it will be paid off.  Its also quite possible, that I'd just refinance, extract equity, and reset the mortgage clock if that made the most financial sense.  It all depends on too many future variables.  Its possible I'll escape personal real estate altogether and just rent someday.  Again, it depends on what makes the most sense.

Don't get emotional about this stuff.  'Peace of Mind' can come with a helluva expensive price tag attached.

[2buttons]

Or you can be handcuffed to a bank that owns you. No thank you.  No interest in remaining in financial slavery.  Happy to pay out some shot term interest and be master of my own universe. 

[KarefulKactus15]

I was in the "pay off mortgage" camp for a while.  I have since moved to "dragging out the cheap mortgage money as long as possible while making other investments" camp.


I didn't really care until I calculated my"return on equity" after reading it in a book.  I had always kept up with ROI on investments, but never ROE on my house.   That was the moment my thought process shifted.

[Milizard]

I'm about 5 years into a 15 year mortgage, and PITI is around $800 (a significant portion of which is property taxes).  No, my mortgage isn't holding me back.  I might have $350 more each month if I were to cash out some investments and pay the sucker off.  No thank you.

[Adam Zapple]

So my response to all of you is an attempt to convince myself as much as everyone else...but I think people underestimate the "feeling" of being free from their mortgage or any major debt for that matter.  Its not just about sipping a margarita on your back deck and knowing your house belongs to you, it's more than that.  My thought is that having my biggest expense completely erased would increase my cash flow (to the tune of 20K a year) and give me the confidence and cash flow to invest in great opportunities when they arise.  I think we all stumble across these opportunities in our lives but most of us are held back by two things...fear or lack of free cash to invest.  Guess what I was thinking to myself in the middle of the market crash of 2008?  "I wish I had the cash to dump into the S&P 500 right now, this is a once-in-a-lifetime opportunity."  But, like most people, my assets were all tied up in the stock market already, and I did not have the free cash flow to throw at this great opportunity.  Reducing expenses also gives me so much more freedom when it comes to choices like how much overtime to work, whether my wife needs to work full time, etc. 

For me to accomplish this sense of freedom would mean foregoing investing in index funds for the next four years.  I don't see anyone address timeframe in their arguments...are you really sure your investments you are making today will be worth more in 4 years?  Will they beat 3.5% annual return for the next 4 years?  Of course they will probably beat this number in the long-term, but a major market correction in the next couple years doesn't seem too far fetched to me.  It would be another argument altogether if I was talking about a long time period, say 10-15 years.  Feel free to tell me how wrong I am.

[smedleyb]

So my response to all of you is an attempt to convince myself as much as everyone else...but I think people underestimate the "feeling" of being free from their mortgage or any major debt for that matter.  Its not just about sipping a margarita on your back deck and knowing your house belongs to you, it's more than that.  My thought is that having my biggest expense completely erased would increase my cash flow (to the tune of 20K a year) and give me the confidence and cash flow to invest in great opportunities when they arise.  I think we all stumble across these opportunities in our lives but most of us are held back by two things...fear or lack of free cash to invest.  Guess what I was thinking to myself in the middle of the market crash of 2008?  "I wish I had the cash to dump into the S&P 500 right now, this is a once-in-a-lifetime opportunity."  But, like most people, my assets were all tied up in the stock market already, and I did not have the free cash flow to throw at this great opportunity.  Reducing expenses also gives me so much more freedom when it comes to choices like how much overtime to work, whether my wife needs to work full time, etc. 

For me to accomplish this sense of freedom would mean foregoing investing in index funds for the next four years.  I don't see anyone address timeframe in their arguments...are you really sure your investments you are making today will be worth more in 4 years?  Will they beat 3.5% annual return for the next 4 years?  Of course they will probably beat this number in the long-term, but a major market correction in the next couple years doesn't seem too far fetched to me.  It would be another argument altogether if I was talking about a long time period, say 10-15 years.  Feel free to tell me how wrong I am.

How could something so wrong, feel so right?

Went through the exact same thought process a couple of months ago and decided to cut a check for the rest of the mortgage.  Slashing 20% off my monthly expenses was ultimately a higher priority vs. investing the money for that extra 4% long term return.  Bumping my savings rate from 50% to a more Mustachian 60% seemed like a worthwhile goal and has provided a nice little mental bump to my cost cutting efforts.  In the meantime, the increased cash-flow gets plowed right back into investments.   The largest stumbling block, for me, to cutting that last mortgage check, was coming to terms with the fact that my thinking about houses over the past 12 years -- that they're assets with useful tax benefits -- was dead wrong.  Eventually I had to accept the fact that my home is just another consumer good, and my mortgage was just a payment on consumer debt.   Once I overcame that psychological hurdle, paying off the mortgage was easy. 

[nottoolatetostart]

We have a 15 yr fixed 2.875% mortgage. We are on target to pay it off in under 10 years total if we keep paying a little extra. We save 50-55% minimum of my husband's income (if we really worked at it, could be at 65%). Max out every tax-advantaged/tax-deferred account first, then decision between paying off mortgage and investing.

We are about 1 year from having enough cash in our taxable investments to pay it off (however, I may need to check the seat cushions since we will be that close in pennies). Will we sell funds and wire them to pay off the mortgage when the time comes? I doubt it. We may wait a little longer. Maybe it is good enough to FEEL like we could cash out any day and get rid of this thing.  I teter every day about whether to pay extra now vs. investing. Seriously, every day. I will let you know how it feels that we COULD sell our funds and then wire it the next. Sometimes the promise land is just the idea that you can and could.

Everyone (& I agree with the math that I have done myself for my scenario) says you fare better financially by having a mortgage payment. I think it depends on what is important to you. A board full of people from varying walks of life won't help you. What is important to you?    It is important to me to not have a mortgage payment and worry about coming up with the money when FIRE'd. Our home, whether paid off or not, will hold a smaller and smaller portion of our overall net worth (about 10-15%) if we keep on pace of paying a bit off extra each year. Yes, I could make more money, but it's not worth it to me to freight over 10% of our net worth. I want simplicity, peace. I want Bank of America out of our life.

Not sure if my 2 cents helps or not.

[smedleyb]

Deleveraging is trendy, that's why.  :-)

Since TARP, the whole economy has been deleveraging, including our investment firms, hedge funds and banks.

"Deleveraging", or shifting debt from private to public balance sheet?

But that's a topic for another thread.

On a personal level, I have zero problem with income generating leverage.  I plan to tap the equity in my home to buy cash flow positive real estate, 100% leveraged, thereby extracting even more benefit from my paid off mortgage (old HELOC about to be replaced with new one 3x the borrowing size).   Putting that dead equity to work should offset, if not exceed, expected stock market returns on the capital used to pay off mortgage.  I think there's many ways to skin the mortgage payoff cat, and people need to do what's right for them.  As long as debt is being reduced and the asset column expands on your balance sheet, it's hard to go horribly wrong regardless of which path you choose. 

[effigy98]

I have thought a lot about this, more than I should.

After maxing all retirement accounts I go for paying off the mortgage. Retirement accounts are a massive advantage, do that first.

I would not borrow to invest in the stock market. I am not disciplined enough to "enjoy" the crashes. I also tend to overspend when I see a huge number in my accounts. I like how paying off the house is "forced savings" and I get very little tax advantage since the standard deduction is not much different.

I have a shaky tech job where they seem to do layoffs every month despite the company making record profits. I feel like my skills have a shelf life. I want to enjoy my kids after school activities without being pressured to be one of the lemmings staying late at work, I want the ability to say no. I want to be able to take easier tech jobs that may be more fun and probably pay less but require a lot less from me so I can have low stress. When my investments got sliced in half 8 years ago, I had a very hard time saying no to Lumbergh and practically lived at work to make sure I was not on the chopping block, however I can never totally control that no matter how hard I worked.

What if we go thru deflation? What if I panic and sell at the wrong time? What if I get layed off, can't find another job for awhile, but my investments are at the worst possible time to sell? There are so many variables and I rather have the security of having the house payed and not worry about providing a roof over the families head.

Living without a mortgage seems like total freedom to me. Freedom to take more risks now and not having to wait out 10 years for investments to mature. Freedom to say no, freedom to get government handouts since I can reduce my income to a very low level if you wanted to and take a very long sabbatical. When my friends ask me how I am doing financially, they ALWAYS ask if my house is paid off, not if I have 800k or 1.2m in investments, it will be a nice little bonus to say yes for once and give them motivation to live more frugal and do the same.

[MrsPete]

I'm not talking about "We just paid off our mortgage and it feels great!"  I'm talking about, "We just paid off our mortgage, and feel much more secure, so we finally feel ready to pursue the following business ventures or personal goals...."  I feel as though having this large expense holds me back from jumping on good opportunities when the come along.  Anyone else agree?

I definitely feel more secure with a paid-off house.  As a child I lived with financial insecurity, and it's something to which I never want to return.  With my housing "paid", I can live on much less.  If I were suddenly 22 and just out of college again, buying a simple house and paying it off quickly is a choice I'd repeat.  People can gas on about investments vs. housing, but even with the math, I don't buy into it -- do it right, and you can pay off a modest house (without huge sacrifices, without skipping other investments) in 10-15 years ... and you can still be younger than the average American begins to worry about retirement. 

In our first years, the mortgage was a big chunk of our monthly expenses, but it was never unmanageable and did not "hold us back".  As our salaries grew (and housing /rent prices grew), suddenly our mortgage was downright small.  And now it's gone. 

[beastykato]

I don't know why I was so pigeon-holed in my thinking yesterday.  I still think paying the mortgage off early is a good idea like I stated.  However, yes investing the money on the side and then paying it off once the lump sum is available as many have suggested in this thread would probably be my route of choice.  Because the return is higher as stated and then also the flexibility it gives you in not having the money locked up in the house.

The reason this did not occur to me in my particular situation is all of my accounts are tax-advantaged and I cannot reach my money until I FIRE (except for Roth principle).  Sorry for being difficult and letting that blow right over my head.

Yessss!!!! Another one sees the light... Of course, the solution to your second paragraph is to put some of your investments into taxable accounts. Congratulations!

It's not so much that I couldn't see the light.  It's just the fact that all of my money goes to tax-advantaged accounts so I can't use it to pay mortgage off even though I have enough saved.  Yeah, my net worth increase on the computer screen keeps going up and it looks wonderful, but it doesn't help me on my daily living expenses pre-FIRE.   And I'm very reluctant to divert money away from the TA accounts because I'm well aware of the long-term benefit.   I was simply willing to take a small hiatus from it if it meant removing that huge expense.   

I'm still not completely decided on which route to take, but I am definitely looking at it from every angle.

[Highbeam]

I am not maximizing my TA accounts while stuffing a taxable account in preparation for paying off my 3% mortgage early. The "hiatus" you speak of.

I think it's worth it. I will accumulate the payoff amount in the taxable account and then go back to maxing out the TA accounts. Will I lump sum the mortgage? Probably but I may want to wait out a recession or I may want to know that I COULD pay off the mortgage. I may want to let that taxable account keep growing for awhile as my mortgage balance naturally declines.

Options. It's like being FI. You only have the option of paying off the house or not after you accumulate the funds to do so.

[Adam Zapple]

Since my mortgage (which I've held for only 1.5 years now) is for 30 years, I look at the 30yr average historical returns and have decided that investing in equities makes more sense vs paying down a 3.375% mortgage (which after tax breaks is closer to a 2.9% mortgage).  I don't know why, but I tried paying extra on my mortgage for a couple months.  I quickly put that to an end and put the extra monthly money back into investments.

Can I ask why you looked at 30 years of returns?  What if you could pay it in 3-5 yrs? 

[ender]

Since my mortgage (which I've held for only 1.5 years now) is for 30 years, I look at the 30yr average historical returns and have decided that investing in equities makes more sense vs paying down a 3.375% mortgage (which after tax breaks is closer to a 2.9% mortgage).  I don't know why, but I tried paying extra on my mortgage for a couple months.  I quickly put that to an end and put the extra monthly money back into investments.

Can I ask why you looked at 30 years of returns?  What if you could pay it in 3-5 yrs?

You answered your own question.

If you pay the mortgage in 3 years, you otherwise could have invested that money for nearly 30 years, so the best comparison mathematically is 30 years of market growth vs the 30 year interest rate.

[FrugalFan]

Since my mortgage (which I've held for only 1.5 years now) is for 30 years, I look at the 30yr average historical returns and have decided that investing in equities makes more sense vs paying down a 3.375% mortgage (which after tax breaks is closer to a 2.9% mortgage).  I don't know why, but I tried paying extra on my mortgage for a couple months.  I quickly put that to an end and put the extra monthly money back into investments.

Can I ask why you looked at 30 years of returns?  What if you could pay it in 3-5 yrs?

You answered your own question.

If you pay the mortgage in 3 years, you otherwise could have invested that money for nearly 30 years, so the best comparison mathematically is 30 years of market growth vs the 30 year interest rate.

Yes, and I think it's easy for people to make the mistake of thinking: "Well if I pay off the mortgage over the next three years and the markets don't do well during that time, I will have come out ahead" (e.g. three year market returns -5% vs. mortgage interest +3%). However, that actually means it would have been a great time to buy equities at a lower price and over the long term those three years of missed investments have a lot of growth potential.

[socalteacher]

I get all the points shared here and definitely agree that the math favors paying over the long haul. My personal experience was we started chipping away our mortgage from the beginning of 2005. We bought a medium sized home in SoCal. When the economy tanked we were able to refi down to a lower rate even though we lost equity in the downturn. While several friends started losing jobs and their homes, our payments started going down with each refinance. Our monthly payment is currently about $500 less than our home would rent for. The equity has all come back and the home is worth 70K more than we paid for it. People thought we were stupid to be paying down our mortgage when they were doing the opposite and pulling equity out through HELOC's etc. When  everything hit we felt so fortunate to have held on to the house and weathered the storm. I wish I would have started investing earlier but if I had during those years I would not have kept the house.

Now we are doing things differently. We have below average payments for our area and age group and have been paying the 30 year like a 15.  We have enough money to save for retirement and we have our pensions to look forward to. We just refinanced down to a 15 year fixed and pay just a tad extra so that it is paid off when my son is a junior in high school. I think the point is you do what is right for you and adjust as your needs change.

The last thing I will add is that I have two sets of friends (early 40's) that have a paid off house and I think it makes a big difference just from the outside looking in. They always say it was the best financial decision they ever made. They site not having to stress over money in their marriage and being able to pour everything at investments without fear of taking a risk.

[johndoe]

... the "feeling" of being free from their mortgage

If I may add my $0.02, my roommate and I were really looking forward to "freedom" and after paying off the mortgage we were let down by the continuing taxes and insurance.  Even though it was "paid off" it never really felt like freedom.

[PAstash]

I'm sorry to (potentially) rehash the most over-debated topic in the financial blog universe but I have been struggling with making the decision to payoff my home mortgage early.  I'm looking for stories from people who have paid off their mortgage early, and used the financial freedom associated with this choice to pursue great/fun things.  If you care to read my thoughts on this, see below.



I recognize all of the various benefits of borrowing money at 3.5% and investing to earn a potential 7-13% in the stock market and have done so for the last 15 years or so.  I now have a relatively healthy retirement account that is about 1/4 of the way to where I need it to be for FI.  If I continue down this path, I have a FI date that is about 9-10 years in the future, should markets cooperate. 

I have recently thought about possibly foregoing contributing to my retirement accounts and children's college savings accounts, and aggressively paying off my mortgage over the next 4 years.  I would then return to contributing to these accounts at my current rate plus contribute what are now my current principal/interest payments toward those accounts, or pursuing other investment opportunities.

I feel like many of the debates on this topic miss the following:

1.  Timeframe to payoff the mortgage and market timing

While I recognize nobody can predict the markets, we can make general assumptions toward where we are in the market cycle based on P/E ratios etc.  Obviously, making the decision to payoff your mortgage starting in the middle of 2008 thru 2012 instead of investing in the stock market would have proven to be a bad decision.  But is it a bad decision today?  Probably much less likely to be.

2.  The mental freedom associated with reducing expenses

I'm not talking about "We just paid off our mortgage and it feels great!"  I'm talking about, "We just paid off our mortgage, and feel much more secure, so we finally feel ready to pursue the following business ventures or personal goals...."  I feel as though having this large expense holds me back from jumping on good opportunities when the come along.  Anyone else agree?

When the market is high put the investment money on the mortgage. when it's low put it into stocks. I know I know HOW DO I KNOW WHEN ITS HIGH OR LOW?! Use value investment techniques to measure the market. Take a hard look at the economy as a whole.

[Jack]

When the economy tanked we were able to refi down to a lower rate even though we lost equity in the downturn. While several friends started losing jobs and their homes, our payments started going down with each refinance.

Okay, the ability to refinance in a decreasing interest rate/decreasing value market is a good point and a legitimate argument in favor of... well, not paying off a mortgage, but at least avoiding excessively-high loan-to-value ratios.

Still, 20% drops in value aren't particularly common occurrences and not being able to capture a lower interest rate (as long as you can continue to service the mortgage at a higher rate) isn't a disaster, so I'm not sure it's a situation worth planning your entire mortgage/investment strategy around. Under most circumstances, I think staying close to 80% LTV would be best.

... the "feeling" of being free from their mortgage

If I may add my $0.02, my roommate and I were really looking forward to "freedom" and after paying off the mortgage we were let down by the continuing taxes and insurance.  Even though it was "paid off" it never really felt like freedom.

If I were interested in paying down my mortgage, I would also be interested in trying to set up some kind of perpetuity inside a trust in order to simulate allodial title as closely as possible.

Is the market over valued, undervalued or fairly valued right now (e.g. Buy, hold or selling VTI)?  How about in February?

Clearly, the market is overvalued relative to February (or February was undervalued relative to today). Of course, without a time machine that information does me no good, and I have no clue whatsoever whether the market is fairly valued relative to the future!

[PAstash]

When the market is high put the investment money on the mortgage. when it's low put it into stocks. I know I know HOW DO I KNOW WHEN ITS HIGH OR LOW?! Use value investment techniques to measure the market. Take a hard look at the economy as a whole.

Please expand on these value investment techniques to measure the market and economy as a whole.  I am sincerely curious.

Is the market over valued, undervalued or fairly valued right now (e.g. Buy, hold or selling VTI)?  How about in February?

Value investing: Well a man named Ben gram and another one named David dodd began teaching at Columbia business school in 1928. They put out a book called "Security analysis" it's considered the bible of value you investing to most. Ben also put out "The intelligent investor" These two books will do a greater service in explaining value investing then i will. Ben gram taught warren buffet how to invest and if you listen to anything he says he is a value investor. The best way i can think of to sum it up without writing 10 pages is this.

 It is purchasing securities at or below intrinsic value. Then the real question comes how do you determine intrinsic value? In the same way you would value anything allow me to give one example.

Lets say you have a house. You determine how much the land is worth. How much the building materials are raw. How many man hours it would to take to construct that house(at what rate). Then you have a intrinsic value for that home. take into account the school district amenities police force ect...The same principal can be applied to a business (hypothetically) to businesses if you are of a certain mindset.

So a business has X in cash reserves it has X amount of vehicles it has intellectual property rights it owns a few buildings it has x number in overhead ect... add all these things up. Then take away any debts. See how much cash flow comes after. Then look at the management to determine competence. Then maybe look at the market as a whole in the sector to determine if the market sector has a future(invest in what you know here)

So take all those things into account and a lot more do your due diligence which is called "Fundamental analysis" to determine "intrinsic value." This form of investing is based on the concept of "capital preservation". to not loose money. it has been proven over the course of history to work. It is my opinion that it is the only other acceptable form of investing after indexing.

Here is my disclaimer.

Do not try and do this right away. Take the time read the books associated with the subject. Then if you do decide to try this. use only 5% of your portfolio to value invest to try and juice your returns.

So how does value investing apply for entire economy? Use the same techniques as above. So what are we investing in? How is the market we are investing in as a whole in terms of debt/equity ratio? What is the political/social/economical climate like in the areas that cover these markets? Hows the cash flow? are the banks healthy? are they on the brink of war? These are not questions you look to be answered in cable news. You need to read between the lines in major publications. I prefer the economist wall street journal and NY times. You need to find these types of publications in whatever country you are investing in. Also you have the internet. make international friends and speak to people directly. I have a friend in Brazil. if i want to invest in Brazilian i'll call him on skype and ask... So Javier what's the political climate like in this area? Hows this business performing? Are there a lot of jobs in this sector of work? i could go on but i will digress.

So when balancing a portfolio i like something like what is below. It is not how i am actually invested but it's a nice place to start.

 The entire US economy VTI. a portion allocated to a international fund. i prefer EAFE. a bond fund that is diversified it should capture Government Corp and municipal bonds. There are international however i prefer to keep my bonds state side. the traditional advice is to diversify out of the country and inside of it using all forms of bonds.  ill let you make that call. i prefer a 60% state side 30% international stock split with 9% bonds 1% precious metals.

I can hear a lot of people pounding their fists about putting money into bonds at all among many other things. I INVEST FOR LIFE. I am looking to capture large portions of the entire market place. i will continue to invest a small portion of anything i earn passively over time post FIRE. why wouldn't i?

The following are my opinions and not meant to be taken as financial advice: Yes it is my opinion that financial markets are over valued. as for how much? This does not mean that it could not continue to trend upward. I think you are referring to the election when you talk about Feb. I do not like to speculate which is what you are asking me to do but i'll put this in bold. of the last 21 election years there have been only 3 years where the S&P 500 index had a negative return during an election year.

Happy gambling =)

edit for spelling and such

[BlueHouse]

... the "feeling" of being free from their mortgage

If I may add my $0.02, my roommate and I were really looking forward to "freedom" and after paying off the mortgage we were let down by the continuing taxes and insurance.  Even though it was "paid off" it never really felt like freedom.

Were you unprepared for the continuation of taxes and insurance?  Were you unaware that these are long term expenses that are not part of a mortgage loan (just sometimes included in monthly payments for convenience)?    PITI includes Principal, Interest, Taxes, & Insurance.  A mortgage loan includes only the PI part. 

[Jack]

not part of a mortgage loan (just sometimes included in monthly payments for convenience)?

It's not done for convenience; it's done to protect the lender. They tend to get grumpy when their loan collateral is destroyed without insurance coverage or foreclosed by the government because the taxes weren't paid.

[johndoe]

Were you unprepared for the continuation of taxes and insurance?  Were you unaware that these are long term expenses

Oh no, I knew that I would continue to pay; my point is that I didn't feel a big sigh of "ahh...freedom!" since there was still a monthly bill of a few hundred bucks.  Just a psychological thing, I guess.

[Highbeam]

You don't "have" to pay for insurance... but taxes, yes.

[Papa Mustache]

Doesn't matter where you live or how you live - aside from a cave - you're going to have costs. You can rent and sometimes that is appropriate depending on time and place but then your rent can do funny (or not funny) things and rise b/c you have no control over your landlord. Aside from rent control.

At least my mortgage is consistent from day one to pay off day. My taxes and insurance can rise a bit but they won't likely rise much in my non-metro LCOL area. I want to have paved roads and fair to good fire/police protection. ;)

DW and I live with the assumption that our incomes will continue to rise a little each year and besides our mortgage payment is quite reasonable for what we have - smallish house in a nice neighborhood.

[boarder42]

EDIT - he said it was a bad decision ... sorry gonna leave this here anyways. b/c i dont have the crystal ball to know that "today would be a much less likely chance it would be a bad decision"

i dunno is someone already did this math but the OP indicated if you'd started doing this in 2008 you'd have come out ahead.  which i dont think is correct but i'm gonna do the math and find out. assumptions will be a 30 year mortgage at 3.5% on 200k or invest it in VTSAX.  so to pay it off in 4 years you would pump 50k per year into it... or you would make the minimum payment of 898 a month for a dfference of ~39k you could have invested annually for 4 years. 

so lets have some fun starting jan 2008

2008 - invest 39k - return is -36.99% - end with 24.57k
2009 - 24.57k +39k = 63.57 - return is 28.83% - end with 81.89k
2010 - 81.89k + 39k = 120.89 - return is 17.26% - end with 141.75k
2011 - 141.75k + 39k = 180.75 - return is 1.08% - end with 182.7k

at the end of 2011 you would owe 183k give or take if you had invested.  and you could look at this and say hey I WON!!! the OP tried to pick a time they thought would be awful and it turned out just fine almost equal.

and to a bigger point if we add in gains on that 182.7 that was invested in VTSAX vs a house in 2012 and 2013 vs the extra 11k the OP can now pump it lets see where we are

2012 - 182.7k - return was 16.38% - end with 212.62k
2013 - 212.62k - return was 33.52% - end with 283.9k

2012 - 11k - end with 12.8k
2013 - 12.8k +11k = 13.8k - end with 18.45k

the mortgage due at the end of 2013 is 174k

so in 2013 following the example of trying to time the market of 2008-2012 the OP was indicating as an example  we come out almost 100k behind by paying down our house in 4 years vs investing.

[protostache]

i dunno is someone already did this math but the OP indicated if you'd started doing this in 2008 you'd have come out ahead.  which i dont think is correct but i'm gonna do the math and find out. assumptions will be a 30 year mortgage at 3.5% on 200k or invest it in VTSAX.  so to pay it off in 4 years you would pump 50k per year into it... or you would make the minimum payment of 898 a month for a dfference of ~39k you could have invested annually for 4 years. 

so lets have some fun starting jan 2008

2008 - invest 39k - return is -36.99% - end with 24.57k
2009 - 24.57k +39k = 63.57 - return is 28.83% - end with 81.89k
2010 - 81.89k + 39k = 120.89 - return is 17.26% - end with 141.75k
2011 - 141.75k + 39k = 180.75 - return is 1.08% - end with 182.7k

at the end of 2011 you would owe 183k give or take if you had invested.  and you could look at this and say hey I WON!!! the OP tried to pick a time they thought would be awful and it turned out just fine almost equal.

and to a bigger point if we add in gains on that 182.7 that was invested in VTSAX vs a house in 2012 and 2013 vs the extra 11k the OP can now pump it lets see where we are

2012 - 182.7k - return was 16.38% - end with 212.62k
2013 - 212.62k - return was 33.52% - end with 283.9k

2012 - 11k - end with 12.8k
2013 - 12.8k +11k = 13.8k - end with 18.45k

the mortgage due at the end of 2013 is 174k

so in 2013 following the example of trying to time the market of 2008-2012 the OP was indicating as an example  we come out almost 100k behind by paying down our house in 4 years vs investing.

Average national mortgage rate in 2008 was 6.03%. I wonder what it shakes out at at that rate. Investing is probably still ahead, I suppose.

[boarder42]

the market doesnt have to have some huge correction everyone is clamouring for ... 2 years of a flat to slightly down market would easily put the shiller PE right back into the mid 20s it never has to go down 37% or up 34% etc.

[boarder42]

i dunno is someone already did this math but the OP indicated if you'd started doing this in 2008 you'd have come out ahead.  which i dont think is correct but i'm gonna do the math and find out. assumptions will be a 30 year mortgage at 3.5% on 200k or invest it in VTSAX.  so to pay it off in 4 years you would pump 50k per year into it... or you would make the minimum payment of 898 a month for a dfference of ~39k you could have invested annually for 4 years. 

so lets have some fun starting jan 2008

2008 - invest 39k - return is -36.99% - end with 24.57k
2009 - 24.57k +39k = 63.57 - return is 28.83% - end with 81.89k
2010 - 81.89k + 39k = 120.89 - return is 17.26% - end with 141.75k
2011 - 141.75k + 39k = 180.75 - return is 1.08% - end with 182.7k

at the end of 2011 you would owe 183k give or take if you had invested.  and you could look at this and say hey I WON!!! the OP tried to pick a time they thought would be awful and it turned out just fine almost equal.

and to a bigger point if we add in gains on that 182.7 that was invested in VTSAX vs a house in 2012 and 2013 vs the extra 11k the OP can now pump it lets see where we are

2012 - 182.7k - return was 16.38% - end with 212.62k
2013 - 212.62k - return was 33.52% - end with 283.9k

2012 - 11k - end with 12.8k
2013 - 12.8k +11k = 13.8k - end with 18.45k

the mortgage due at the end of 2013 is 174k

so in 2013 following the example of trying to time the market of 2008-2012 the OP was indicating as an example  we come out almost 100k behind by paying down our house in 4 years vs investing.

Average national mortgage rate in 2008 was 6.03%. I wonder what it shakes out at at that rate. Investing is probably still ahead, I suppose.

i mean we have to use today data. not some rate from 2008 b/c we are living today not in 2008

[Adam Zapple]

I realize you edited your post, boarder, but investing in the market starting in 2008, at the bottom of one of the worst financial meltdowns in history, was a great time to invest, so not really a great period to choose to prove a point when comparing to paying down a 3.5% mortgage.  When I have time, I'd like to go back several decades and find how many 8 year bull runs we've had (I think the answer is 0).  If there are none, I'd like to see the average time a bull market lasts over a certain period.  I'd then like to run the same comparison you just did starting one year earlier than whatever that average number is over the past, oh, 10 bull runs and see how it turns out.  I know, I know, I know past results are not indicative of yada yada yada.

[deeshen13]

the market doesnt have to have some huge correction everyone is clamouring for ... 2 years of a flat to slightly down market would easily put the shiller PE right back into the mid 20s it never has to go down 37% or up 34% etc.

This assumes earnings growth. Earnings growth is recently negative, which means a flat market would actually increase P/E.

S&P500 earnings last peaked in September 2014. The entire last two years increase in market price has been driven by P/E expansion not earnings growth (which obviously is not sustainable).

Mar 31, 2016    87.35
Feb 29, 2016    87.76
Jan 31, 2016    87.86
Dec 31, 2015    88.04
Nov 30, 2015    89.13
Oct 31, 2015    90.34
Sep 30, 2015    91.69
Aug 31, 2015    92.98
Jul 31, 2015    94.27
Jun 30, 2015    95.71
May 31, 2015    97.51
Apr 30, 2015    99.48
Mar 31, 2015    101.15
Feb 28, 2015    102.80
Jan 31, 2015    104.30
Dec 31, 2014    104.85
Nov 30, 2014    105.50
Oct 31, 2014    106.16
Sep 30, 2014    107.12

http://www.multpl.com/s-p-500-earnings/table?f=m

Not calling for continued negative earnings growth, just pointing out the above statement as not necessarily true.

[Petunia 100]

We all have different lifestyle ideas about what is suitable for us.  So, worrying about the mortgage isn't comlainypants nonsense.  If you can max and your accounts, and pay your bills, and then still have enough cash left over to satisfy your lifestyle, sure, by all means, keep your mortgage.  It's wonderful if you have that type of income and/or have reduced your spending that much. 

In my case, after I've maxed out my investment accounts and paid my bills there isn't a whole lot of cash left for me to enjoy life.  In this aspect, I feel deprived by mustachianism.  If I continue to pay the minimum on my mortgage that means I'll have to budget like this for 25 more years until it's paid off and I'll be 55 y/o.   I'd much rather lose some money and live those 20 years of my life with the piece of mind that I can save what I need and still live how I want on a month to month basis.

As I've stated I'm only semi-mustachian.  I've used the ideas here to reduce my monthly expenses and save nearly 50% of my yearly income.  As for daily life and entertainment though, I still like expensive toys, alcohol, sporting events, traveling 2-3 times a year, etc.  and am not willing to sacrifice that stuff just to have a bigger dollar sign in my retirement account.

So then, why not just cut back a little?    To me, that makes more sense than cutting back to nothing in order to hit the mortgage hard.

[boarder42]

We all have different lifestyle ideas about what is suitable for us.  So, worrying about the mortgage isn't comlainypants nonsense.  If you can max and your accounts, and pay your bills, and then still have enough cash left over to satisfy your lifestyle, sure, by all means, keep your mortgage.  It's wonderful if you have that type of income and/or have reduced your spending that much. 

In my case, after I've maxed out my investment accounts and paid my bills there isn't a whole lot of cash left for me to enjoy life.  In this aspect, I feel deprived by mustachianism.  If I continue to pay the minimum on my mortgage that means I'll have to budget like this for 25 more years until it's paid off and I'll be 55 y/o.   I'd much rather lose some money and live those 20 years of my life with the piece of mind that I can save what I need and still live how I want on a month to month basis.

As I've stated I'm only semi-mustachian.  I've used the ideas here to reduce my monthly expenses and save nearly 50% of my yearly income.  As for daily life and entertainment though, I still like expensive toys, alcohol, sporting events, traveling 2-3 times a year, etc.  and am not willing to sacrifice that stuff just to have a bigger dollar sign in my retirement account.

So then, why not just cut back a little?    To me, that makes more sense than cutting back to nothing in order to hit the mortgage hard.

yeah cut back the contributions to the retirement accounts and live how you see fit.  attacking your mortgage to get approval of internet strangers about your savings rate once it is gone doesnt really help.  you can have more money and retire faster by not attacking your mortgage.  so the reaction to your financial issue of not having enough left over after maxing retirement and paying mortgage.  and jumping to throw it all at the mortgage for 5 years is essentially backwards of your end goal. 

[EnjoyIt]

Why don't you just save up and equivalent amount of money in your investments and then have the option of bulk paying your mortgage? Depending on your timing, which you will have total control over, you can have the best of both worlds.

...or the worst.  It's also possible a big ass correction happens leaving your investments no longer able to pay it off AND you still owe money on your mortgage.   Is it likely to happen?  Probably not.  But if you are looking for a conservative approach, you should consider the possibility.

True but the same happens if you're halfway through paying down the mortgage and the economy crashes and you're out of a job. That's hardly conservative since the bank won't care that you've been making extra payments.

My mortgage lender takes early payments and makes my due date for next payment later. Prepaying mortgage by a year or two may make some sense if the mortgage lender allows it.

[beastykato]

We all have different lifestyle ideas about what is suitable for us.  So, worrying about the mortgage isn't comlainypants nonsense.  If you can max and your accounts, and pay your bills, and then still have enough cash left over to satisfy your lifestyle, sure, by all means, keep your mortgage.  It's wonderful if you have that type of income and/or have reduced your spending that much. 

In my case, after I've maxed out my investment accounts and paid my bills there isn't a whole lot of cash left for me to enjoy life.  In this aspect, I feel deprived by mustachianism.  If I continue to pay the minimum on my mortgage that means I'll have to budget like this for 25 more years until it's paid off and I'll be 55 y/o.   I'd much rather lose some money and live those 20 years of my life with the piece of mind that I can save what I need and still live how I want on a month to month basis.

As I've stated I'm only semi-mustachian.  I've used the ideas here to reduce my monthly expenses and save nearly 50% of my yearly income.  As for daily life and entertainment though, I still like expensive toys, alcohol, sporting events, traveling 2-3 times a year, etc.  and am not willing to sacrifice that stuff just to have a bigger dollar sign in my retirement account.

So then, why not just cut back a little?    To me, that makes more sense than cutting back to nothing in order to hit the mortgage hard.

yeah cut back the contributions to the retirement accounts and live how you see fit.  attacking your mortgage to get approval of internet strangers about your savings rate once it is gone doesnt really help.  you can have more money and retire faster by not attacking your mortgage.  so the reaction to your financial issue of not having enough left over after maxing retirement and paying mortgage.  and jumping to throw it all at the mortgage for 5 years is essentially backwards of your end goal.

The appeal was not for someone's approval but the reduced stress of having to juggle as many payments.  And still be able to max the accounts.  Never said it was the better long-term financial decision.

[Cyaphas]

I plan on paying off the house and no longer paying home owner's insurance. I believe the savings on house insurance alone far outweighs a lot of the arguments for keeping a mortgage. Granted, I'm prioritizing maxing my retirement accounts and then paying off the mortgage. I may take out a small loan from my 401k to pay the house off when the time comes.

[ender]

I plan on paying off the house and no longer paying home owner's insurance. I believe the savings on house insurance alone far outweighs a lot of the arguments for keeping a mortgage. Granted, I'm prioritizing maxing my retirement accounts and then paying off the mortgage. I may take out a small loan from my 401k to pay the house off when the time comes.

How much is your homeowners insurance?

Ours is only 0.3% of the purchase price per year. Hardly a significant amount, at all.

[Cyaphas]

I plan on paying off the house and no longer paying home owner's insurance. I believe the savings on house insurance alone far outweighs a lot of the arguments for keeping a mortgage. Granted, I'm prioritizing maxing my retirement accounts and then paying off the mortgage. I may take out a small loan from my 401k to pay the house off when the time comes.

How much is your homeowners insurance?

Ours is only 0.3% of the purchase price per year. Hardly a significant amount, at all.

Around $180 per mnth.

[ender]

Around $180 per mnth.

What percentage of your home value is that?

[Cyaphas]

1.8% annually.

[Spork]

1.8% annually.

This is just my opinion... but I think you'd be better off to get competitive quotes and/or raise your deductible than to just dump your insurance altogether.   Your profile says DFW...  I'm a couple hours away and I am paying less than 0.4% annually.

[Cyaphas]

1.8% annually.

This is just my opinion... but I think you'd be better off to get competitive quotes and/or raise your deductible than to just dump your insurance altogether.   Your profile says DFW...  I'm a couple hours away and I am paying less than 0.4% annually.

Definitely something I'll consider. With the note gone I'd be able to move up the deductible considerably. It's crazy to me how many people I know who pay house insurance and a LOT of it. In my lifetime I think I've only ever heard of 3 claims totaling maybe $20k.

I'd be curious to see a spreadsheet on how long it would take to recoup your rebuild cost by essentially self insuring. You could try the naked luck route if you own the note, you could also try putting a certain amount away and bumping up the deductible over time relative to your investment and once your investment reaches over 50-60% cutting the insurance.


EDIT: Also, I believe that our insurance is so high because the replacement cost of the home is worth more than current market price of the home. But, yes I agree ours is high.

[Spork]

1.8% annually.

This is just my opinion... but I think you'd be better off to get competitive quotes and/or raise your deductible than to just dump your insurance altogether.   Your profile says DFW...  I'm a couple hours away and I am paying less than 0.4% annually.

Definitely something I'll consider. With the note gone I'd be able to move up the deductible considerably. It's crazy to me how many people I know who pay house insurance and a LOT of it. In my lifetime I think I've only ever heard of 3 claims totaling maybe $20k.

I'd be curious to see a spreadsheet on how long it would take to recoup your rebuild cost by essentially self insuring. You could try the naked luck route if you own the note, you could also try putting a certain amount away and bumping up the deductible over time relative to your investment and once your investment reaches over 50-60% cutting the insurance.


EDIT: Also, I believe that our insurance is so high because the replacement cost of the home is worth more than current market price of the home. But, yes I agree ours is high.

Some of this is "Texas is high".  But, yeah, I think yours is high for Texas.

But, like you, I haven't seen or run the numbers, so I have no real idea of how self-insure vs actual-insure breaks down. 

One additional gotcha to toss out there:  Home owner's isn't just replacement cost.  There is usually a bunch of liability in there as well.  I am risk averse enough to want the liability.  In fact, I have an umbrella as well.  And... the umbrella requires a minimum base amount on the home owner's policy.   I could theoretically self insure for replacement cost of the house (but ... ugh.... that would be a pretty awful hit.)  I cannot self insure for the liability portion, as that pretty much is insuring my FIRE nest egg, not my house.

[Petunia 100]

My mortgage lender takes early payments and makes my due date for next payment later. Prepaying mortgage by a year or two may make some sense if the mortgage lender allows it.

All you are doing is paying a future payment now.  You aren't prepaying the principal and thus aren't reducing the interest cost at all.  You'd be ahead to put the payment into a savings account.

[Sid888]

My mortgage lender takes early payments and makes my due date for next payment later. Prepaying mortgage by a year or two may make some sense if the mortgage lender allows it.

All you are doing is paying a future payment now.  You aren't prepaying the principal and thus aren't reducing the interest cost at all.  You'd be ahead to put the payment into a savings account.

+1

[Cyaphas]

1.8% annually.

This is just my opinion... but I think you'd be better off to get competitive quotes and/or raise your deductible than to just dump your insurance altogether.   Your profile says DFW...  I'm a couple hours away and I am paying less than 0.4% annually.

Definitely something I'll consider. With the note gone I'd be able to move up the deductible considerably. It's crazy to me how many people I know who pay house insurance and a LOT of it. In my lifetime I think I've only ever heard of 3 claims totaling maybe $20k.

I'd be curious to see a spreadsheet on how long it would take to recoup your rebuild cost by essentially self insuring. You could try the naked luck route if you own the note, you could also try putting a certain amount away and bumping up the deductible over time relative to your investment and once your investment reaches over 50-60% cutting the insurance.


EDIT: Also, I believe that our insurance is so high because the replacement cost of the home is worth more than current market price of the home. But, yes I agree ours is high.

Some of this is "Texas is high".  But, yeah, I think yours is high for Texas.

But, like you, I haven't seen or run the numbers, so I have no real idea of how self-insure vs actual-insure breaks down. 

One additional gotcha to toss out there:  Home owner's isn't just replacement cost.  There is usually a bunch of liability in there as well.  I am risk averse enough to want the liability.  In fact, I have an umbrella as well.  And... the umbrella requires a minimum base amount on the home owner's policy.   I could theoretically self insure for replacement cost of the house (but ... ugh.... that would be a pretty awful hit.)  I cannot self insure for the liability portion, as that pretty much is insuring my FIRE nest egg, not my house.

3RD Time is a charm? Forgive my Paint/Excel skills:

[Cyaphas]

3RD Time is a charm? Forgive my Paint/Excel skills:

Attached Excel Spreadsheet. Nothing special but if you're curious.

Disclaimer: I haven't used excel but maybe twice in 10 years.