Author Topic: Payoff House?!  (Read 35454 times)

nereo

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Re: Payoff House?!
« Reply #50 on: July 21, 2016, 03:28:25 PM »
(snip)
Nope#2  How many replies about putting money in the market are needed from others before it is OK for *me* to say that "people are anticipating greater return in the market than they would have  paying off the house"?  In other words they are using leverage to try to get the most from their money, just like I said.  They feel they are missing market opportunity, not-guaranteed, but still possible market opportunity, if they sink it into paying the debt.  Never did I suggest they were betting on black 17 at the roulette table.  Funny though when I used those words it triggered that response, maybe because there are emotions. 

I should probably just go attend to other thigns, but I just can't. 
What I don't understand about your response is why you are focusing so much on the leverage aspect.  Reading back on this thread I haven't seen anyone talk about the leverage aspect that, while present, i wouldn't say influences my decision making.  If I were buying real estate for landlording it would definitely be a factor, but not here.  You're also talking about market opportunity being 'not-guaranteed' but the same can be said of the so-called 'guaranteed return' people talk about with mortgage paydowns.
Again, anticipated market returns are just one facet - protection against inflation is arguably the more important factor. Leverage is only a factor if you are planning on moving in the next few years (and then you need to start evaluating home-appreciation).

EnjoyIt

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Re: Payoff House?!
« Reply #51 on: July 22, 2016, 12:43:46 AM »
I will go tend to other things.  Not going around on the mulberry bush anymore.  I am enjoying being right about this and I am very content.  And I am sure you are, too.  We each get to decide what works for us and can dig in our heels all we want. 

No where did I tell anyone what they should do, I only relayed that I don't really get why debt is OK with some.  You get to do what you want and you get to see how it turns out for you, I won't be there to know or to care.  That is how it works, no point in going on with this.   

My opinion on when debt is OK question
If your net worth is low and your only debt is the mortgage, I think building a cash cushion is not only mathematically the most likely best decision, it can even be emotionally more satisfying than paying off that mortgage.  I can still remember the day when I realized I had enough in investments to pay off my very low interest rate school loan and mortgage.  It was awesome and felt great.  a few years later I am still not debt free, but now my net worth has dwarfed the value of debt.  At some point you have enough money that even the debt arbitrage just doesn't matter anymore and paying of the debt is a reasonable response.

I hate debt, wish I did not have it, and even at times wish the rates were higher on my school loan because I would just get rid of it.   But at 1.6% How can I pay that off?  Even bonds are better.  To be honest, I throw some extra cash into the account just to get rid of it a little sooner.  I would like it gone when I am getting close to my FIRE date.  Again because the arbitrage of a few percentage points would be a tiny benefit compared to my overall wealth.  Very similar to what OP is doing.

Fishindude

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Re: Payoff House?!
« Reply #52 on: July 22, 2016, 05:10:10 AM »
Someone who chooses to pay off low-interest debt instead of investing is making a mathematically sub-optimal choice in exactly the same way someone who chooses to buy some consumer good they don't need is. If you're going to make an emotional choice like that at least own the decision and admit that it's financially inferior instead of trying to rationalize it 

Untrue.
Paying off debt is a for sure thing.   The debt and interest associated with it is gone.
Gambilng with your money in an investment is just that gambling, you might win, you might lose.   You are basing your entire opinion on past historical returns.   There is no guarantee those returns will be there going forward.

zephyr911

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Re: Payoff House?!
« Reply #53 on: July 22, 2016, 07:48:35 AM »
Well, wow.  A tad whinypants to feel better about no debt?   I have heard it all on this forum, but did not realize that the badassity of paying off a house could ever even be a tad in the category of just wanna-feel-good like some $100 weekly pedicure.  Therfore, if it helps the financial calculators out there just tell yourselves that Nancy is diversified and has locked down a percentage of her net worth in a non-leveraged appreciating asset that is growing at the rate of real estate values.  The rest of her net worth is floating along with the market.  There, no emotion, just a statement that any accountant could get behind. 
That is factual, just as it is factual to say that she has voluntarily lowered the average ROI of her total portfolio for the sake of potential risk reduction.
Quote
I totally respect that others' opinions differ and am genuinely amazed that people don't want to shed debt.  That is all I am saying, not up for argiung that I am right and you are wrong.
That's really not accurate. All else being equal, virtually everyone here would choose to be debt-free. But all else is never equal (opportunity cost), so instead, most of us simply manage debt responsibly to increase total returns.
It would be more accurate to say that you're amazed people don't prioritize debt paydowns the same way you do... but the above discussion has already established that there is generally good, hard math behind that choice, as well as an element of personal preference that most of us are happy to acknowledge and accept.
(tl;dr: debt bothers me, but a slow-growing Stash infuriates me)

Someone who chooses to pay off low-interest debt instead of investing is making a mathematically sub-optimal choice in exactly the same way someone who chooses to buy some consumer good they don't need is. If you're going to make an emotional choice like that at least own the decision and admit that it's financially inferior instead of trying to rationalize it 

Untrue.
Paying off debt is a for sure thing.   The debt and interest associated with it is gone.
Gambilng with your money in an investment is just that gambling, you might win, you might lose.   You are basing your entire opinion on past historical returns.   There is no guarantee those returns will be there going forward.
I realize you probably don't intend to sound like someone who is about to cash out all your investments and hide cash under your mattress, or buy gold from those asshole shills on daytime TV... but the choice of words evoked that kind of imagery for me.
The best argument for paying off debt is indeed risk reduction, but the value thereof is highly sensitive to specific situational factors. The reason this debate keeps coming back is because there's no cookie-cutter answer, and the particulars matter. So the key is to socialize a better understanding of the criteria that can help each of us make the best decision for ourselves, in our present situation, to reach our goals.

boarder42

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Re: Payoff House?!
« Reply #54 on: July 22, 2016, 08:01:23 AM »
i love when people go to the gambling aspect ... its like everyone that pays down their mortgage is planning to have all their money stashed in CDs and safe fixed income accounts when they retire b/c the stock market is a gamble. 

the only time i find someone who is paying down their mortgage to lower their personal risk exposure acceptable (assuming 30 years fixed rates at the current standard) would be in the above case ... that you are just so damn risk averse and not willing to see the other side that you keep all of your funds in fixed income guaranteed assets b/c you believe its lower risk and plan to work for 40 years b/c thats at least what it will take to have enough to cover the rest of your life. 

i mean its still not acceptable but the gambling aspect is just an awful arguement.  The real returns of the stock market are what most around here are basing their retirement plans/spending on ... you cant work towards any SWR 3, 4 , 6% or whatever with money invested in VTSAX or the like and at the same time say ... i pay down my mortgage b/c its a sure thing.  those are opposite opinions.

Jack

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Re: Payoff House?!
« Reply #55 on: July 22, 2016, 08:20:31 AM »
They feel they are missing market opportunity...

No, you still don't get it. I do not "feel" I am missing market opportunity. I know, statistically that I am missing market opportunity. The point is that the decision is based entirely on a mathematical calculation of expected return, not emotion of any kind. Spock or Data from Star Trek would come to the same conclusion.

Someone who chooses to pay off low-interest debt instead of investing is making a mathematically sub-optimal choice in exactly the same way someone who chooses to buy some consumer good they don't need is. If you're going to make an emotional choice like that at least own the decision and admit that it's financially inferior instead of trying to rationalize it 

Untrue.
Paying off debt is a for sure thing.   The debt and interest associated with it is gone.
Gambilng with your money in an investment is just that gambling, you might win, you might lose.   You are basing your entire opinion on past historical returns.   There is no guarantee those returns will be there going forward.

No, you're wrong. It is true.

Your argument is a fallacy -- a "guarantee" is not even slightly required for my argument to be correct. While it is true that the comparison between paying off the mortgage vs. investing should be based on the risk-adjusted return rather than the nominal return, it is not correct to say that zero risk automatically trumps any non-zero risk, as you have claimed. Besides, the risk-adjusted return is higher for investing than it is for paying off the mortgage (over the 30-year time horizon I mentioned earlier), and as nereo has pointed out several times now, paying off a mortgage is not zero risk anyway because doing so reduces your hedge against inflation risk!

boarder42

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Re: Payoff House?!
« Reply #56 on: July 22, 2016, 08:27:38 AM »
They feel they are missing market opportunity...

No, you still don't get it. I do not "feel" I am missing market opportunity. I know, statistically that I am missing market opportunity. The point is that the decision is based entirely on a mathematical calculation of expected return, not emotion of any kind. Spock or Data from Star Trek would come to the same conclusion.

Someone who chooses to pay off low-interest debt instead of investing is making a mathematically sub-optimal choice in exactly the same way someone who chooses to buy some consumer good they don't need is. If you're going to make an emotional choice like that at least own the decision and admit that it's financially inferior instead of trying to rationalize it 

Untrue.
Paying off debt is a for sure thing.   The debt and interest associated with it is gone.
Gambilng with your money in an investment is just that gambling, you might win, you might lose.   You are basing your entire opinion on past historical returns.   There is no guarantee those returns will be there going forward.

No, you're wrong. It is true.

Your argument is a fallacy -- a "guarantee" is not even slightly required for my argument to be correct. While it is true that the comparison between paying off the mortgage vs. investing should be based on the risk-adjusted return rather than the nominal return, it is not correct to say that zero risk automatically trumps any non-zero risk, as you have claimed. Besides, the risk-adjusted return is higher for investing than it is for paying off the mortgage (over the 30-year time horizon I mentioned earlier), and as nereo has pointed out several times now, paying off a mortgage is not zero risk anyway because doing so reduces your hedge against inflation risk!

they wont ever get it.  it just doesnt compute. 

i've been waiting for a horror story to maybe scare some of these paydown people down the right path.  All it should take is one guy in the awful "paydown your mortgage thread" getting laid off with no income and losing his house ... and wising up to "i should have just been putting it in a taxable account b/c i could have kept  making my payments now i have no house" 


DISCLAIMER - i dont wish this on anyone but if it would prove a point and serve as a lesson for the masses here that assume paying down a mortgage is with out risk i would be ok with that

BoonDogle

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Re: Payoff House?!
« Reply #57 on: July 22, 2016, 09:00:36 AM »

they wont ever get it.  it just doesnt compute. 

i've been waiting for a horror story to maybe scare some of these paydown people down the right path.  All it should take is one guy in the awful "paydown your mortgage thread" getting laid off with no income and losing his house ... and wising up to "i should have just been putting it in a taxable account b/c i could have kept  making my payments now i have no house" 


DISCLAIMER - i dont wish this on anyone but if it would prove a point and serve as a lesson for the masses here that assume paying down a mortgage is with out risk i would be ok with that

Nice.  First you are on a forum where most of us save a large portion of what we earn and have assets we could tap into before we "lost our house".  The issue comes down to where are the best returns on your money.  If you are paying down the mortgage for a short period of time, say 3 to 5 years and the market has a correction during that time, taking the guaranteed 3.5% is a win.  Now, I also would assume that all of the "don't pay down any mortgage" crowd doesn't own any low risk investments such as bonds.  If you do, you are not going to be getting any better return on those assets than you would by paying down the mortgage.

For me it boils down to investment return.  I have not problem with the OP taking the 3.5% return and paying off the mortgage.  Only time will tell if it was the right decision from an investment return perspective.  If he had 30 years left on the mortgage, stocks will likely outpace the 3.5% he got.  If he had less than 10 or even less than 5 years, it is not quite so cut and dry.

nereo

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Re: Payoff House?!
« Reply #58 on: July 22, 2016, 09:17:18 AM »

i've been waiting for a horror story to maybe scare some of these paydown people down the right path.  All it should take is one guy in the awful "paydown your mortgage thread" getting laid off with no income and losing his house ... and wising up to "i should have just been putting it in a taxable account b/c i could have kept  making my payments now i have no house" 

There were lots of these cautionary/sad tales in California after the housing collapse in 2007/08.  Basically they all had a similar plot line: Joe and Jane American bought their first house five years ago in this once booming neighborhood.  For years they faithfully paid their mortgage, even channeling extra money each month towards the principle. Jane quit her job to stay home with the baby. Then Joe was laid off from his tech company and couldn't find any job for over 6 months and they started to fall behind. Property values have plummeted in this once-vibrant real-estate market. Unable to sell their home even at a loss and having exhausted their savings, Joe and Jane received this in the mail - a letter from the bank informing them of impending foreclosure. Now with all of their assets tied to their home, Joe and Jane can't move to greener pastures even if they wanted to.

The homeowners who lost their shirts in the last bust were ones that had little or no savings and investments they could draw from.  The banks didn't care that they had paid on time and even paid extra for 5, 10 or even 15 years. Owners couldn't sell their home even at steep discounts because the market was being flooded with foreclosures and few could obtain credit to buy in the first place.  If you're looking for specific news stories start poking around google archive circa 2009 for foreclosure stories in major housing markets. It was depressing hearing about so many people who thought they were doing the 'right' thing get put through the ringer because they allowed their NW to be tied almost entirely to their home.

Jack

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Re: Payoff House?!
« Reply #59 on: July 22, 2016, 09:20:51 AM »
The issue comes down to where are the best returns on your money.  If you are paying down the mortgage for a short period of time, say 3 to 5 years and the market has a correction during that time, taking the guaranteed 3.5% is a win.

It would be, but there's no way to know that ahead of time so it cannot be a factor in your decision making. Instead, you would have to guess at the probability of a correction 3 to 5 years into the future, and factor that into the expected return.

Besides, your time horizon is never really 3 to 5 years unless you're 90 or your doctor just diagnosed you with a terminal illness. Even if your mortgage payoff is 3 to 5 years, that's really only an "artificial" time horizon created by your decision not to refinance.

On the other hand I paid off my house and FIREd shortly before 2008 finanfial market and housing market crash. I had a fat stash invested and a house in a HCOLA area that would "never" depreciate by much according to all the wisdom. Then one day it dropped by 50% and the next day my investments dropped by 50% (bit of an exaggeration on both). The invest drop could have really hurt me if I had to draw on it's greatly diminished amount to pay a mortgage. May never have recuperated and would have had to go back to work (no jobs at that time either).

You got lucky with the timing. Imagine what would have happened if in 2008 you had been aggressively paying off your mortgage, but hadn't quite finished yet. Not only would you have still been faced with the situation of trying to make mortgage payments while potentially suffering unemployment, you wouldn't have even had investments to draw from (even at 50% of their normal value) either, making you worse off than people who chose to invest.

BoonDogle

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Re: Payoff House?!
« Reply #60 on: July 22, 2016, 09:39:18 AM »

It would be, but there's no way to know that ahead of time so it cannot be a factor in your decision making. Instead, you would have to guess at the probability of a correction 3 to 5 years into the future, and factor that into the expected return.

Besides, your time horizon is never really 3 to 5 years unless you're 90 or your doctor just diagnosed you with a terminal illness. Even if your mortgage payoff is 3 to 5 years, that's really only an "artificial" time horizon created by your decision not to refinance.


Disagree.  If I pay off my 5 year mortgage today with a windfall of 100K and you don't, over the next 10 years you will be paying the 100K back plus interest while I will be plowing that money into the stock market.  After 10 years, we will both have a paid off house and money invested in the stock market.  The difference will be the interest I saved vs the market gains you received in excess of what I received.  Until we get there, we won't know who comes out ahead.  Either way is a risk.  I risk losing out on a market rally.  You risk a market correction while you still have to pay the interest on the mortgage.  Historically we can agree that over a longer period of time, the market goes up.  The shorter the time period you look at the less certain that becomes.  That is why taking the guaranteed 3.5% over a shorter period is not always a bad idea.

As far as coming up with the probability of a correction, I wouldn't attempt to do that.  However, compared to history, the P/E ratios are well higher for the overall market than the historical mean (according to the CAPE).  Typically when that is the case, the market corrects.

onlykelsey

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Re: Payoff House?!
« Reply #61 on: July 22, 2016, 10:10:28 AM »
My HELOC just floated up 2% to 5.49% (~4% because I itemize) so i'm going to start paying that a little more aggressively than planned, because I am not certain that I will be outpacing 4% in the next two-five years while I pay off this HELOC.  For my 30-year mortgage, though, I am very confident in out pacing 4.25% (~3% because I itemize).

I think if the "pay it off now" folks openly said I am paying this 2.5 or 3% debt because I don't think the market will average that over the next 30 years, it wouldn't bother the mathematically inclined folks.  Predicting returns is always a bit of looking in to a glass ball.

boarder42

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Re: Payoff House?!
« Reply #62 on: July 22, 2016, 10:34:50 AM »

It would be, but there's no way to know that ahead of time so it cannot be a factor in your decision making. Instead, you would have to guess at the probability of a correction 3 to 5 years into the future, and factor that into the expected return.

Besides, your time horizon is never really 3 to 5 years unless you're 90 or your doctor just diagnosed you with a terminal illness. Even if your mortgage payoff is 3 to 5 years, that's really only an "artificial" time horizon created by your decision not to refinance.


Disagree.  If I pay off my 5 year mortgage today with a windfall of 100K and you don't, over the next 10 years you will be paying the 100K back plus interest while I will be plowing that money into the stock market.  After 10 years, we will both have a paid off house and money invested in the stock market.  The difference will be the interest I saved vs the market gains you received in excess of what I received.  Until we get there, we won't know who comes out ahead.  Either way is a risk.  I risk losing out on a market rally.  You risk a market correction while you still have to pay the interest on the mortgage.  Historically we can agree that over a longer period of time, the market goes up.  The shorter the time period you look at the less certain that becomes.  That is why taking the guaranteed 3.5% over a shorter period is not always a bad idea.

As far as coming up with the probability of a correction, I wouldn't attempt to do that.  However, compared to history, the P/E ratios are well higher for the overall market than the historical mean (according to the CAPE).  Typically when that is the case, the market corrects.

over a 10 year time frame the market has rarely failed to beat the current interest rates.  i would also have REFI'd to a 30 year lengthening my time horizon. which would give me certain terms to come out ahead.

boarder42

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Re: Payoff House?!
« Reply #63 on: July 22, 2016, 10:36:25 AM »
My HELOC just floated up 2% to 5.49% (~4% because I itemize) so i'm going to start paying that a little more aggressively than planned, because I am not certain that I will be outpacing 4% in the next two-five years while I pay off this HELOC.  For my 30-year mortgage, though, I am very confident in out pacing 4.25% (~3% because I itemize).

I think if the "pay it off now" folks openly said I am paying this 2.5 or 3% debt because I don't think the market will average that over the next 30 years, it wouldn't bother the mathematically inclined folks.  Predicting returns is always a bit of looking in to a glass ball.

the market would have to have an abominal 30 years which would also crush most of the retiremtn dreams here at the same time.  4.25% mortgage is high you should REFI

onlykelsey

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Re: Payoff House?!
« Reply #64 on: July 22, 2016, 10:49:24 AM »
My HELOC just floated up 2% to 5.49% (~4% because I itemize) so i'm going to start paying that a little more aggressively than planned, because I am not certain that I will be outpacing 4% in the next two-five years while I pay off this HELOC.  For my 30-year mortgage, though, I am very confident in out pacing 4.25% (~3% because I itemize).

I think if the "pay it off now" folks openly said I am paying this 2.5 or 3% debt because I don't think the market will average that over the next 30 years, it wouldn't bother the mathematically inclined folks.  Predicting returns is always a bit of looking in to a glass ball.

the market would have to have an abominal 30 years which would also crush most of the retiremtn dreams here at the same time.  4.25% mortgage is high you should REFI

Agreed!  I had a mistake on my credit report that I've only gotten fixed with one of the three bureaus, so I need to get the resolved and get my score back up before I can move forward.  It's like fighting a brick wall.

BoonDogle

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Re: Payoff House?!
« Reply #65 on: July 22, 2016, 11:01:40 AM »

over a 10 year time frame the market has rarely failed to beat the current interest rates.  i would also have REFI'd to a 30 year lengthening my time horizon. which would give me certain terms to come out ahead.

I actually started that discussion with a 5 year mortgage, then got off track and ended it with a 10 year.  Anyway, the point is the same.  The shorter the time frame, higher the risk that if the funds were invested instead of paying the mortgage you could come out on the losing end.  The longer the time frame, the more likely the stocks will win.

I understand the refi strategy, but it is not for me.  I plan to retire in the next 5 years and don't want to pay a mortgage with funds that I withdrawal.  In general, I don't want to have any debt at that time.  Rather keep expenses as low as possible with no payments for debt.  Sounds like you disagree and that is OK.

Dicey

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Re: Payoff House?!
« Reply #66 on: July 22, 2016, 11:17:53 AM »
One thing the OP, MNP, Spartana and I (among many others) have in common is that we are FIRE or close to it. If they are like me, part of why we're still here is to help others find the way.

If these resources had been available to me in my early twenties, I wouldn't have felt so alone in my journey, nor would it have taken so long or so many earned dollars to reach my goal.

The real issue is "How fast can I get to FIRE, using as few green soldiers as possible?" Part of the answer is strategic use of debt:
- leveraged debt
- leraged debt, with inflation protection
- leveraged debt, with inflation protection, at historically low interest rates
- leveraged debt, with inflation protection, at historically low interest rates, that is tax deductible

Getting the biggest, cheapest, fixed rate mortgage on the most house* you can comfortably afford and then throwing every additional green soldier you can muster into creating a balanced, low-fee portfolio is the fastest, cheapest way for the average wage earner to achieve FIRE. Hands down.

Some say they will sleep better without mortgage debt. I say the sleep of FIRE is the sweetest sleep of all.

Bottom line: There are many paths to FIRE. Short of a windfall, the strategy outlined above optimizes your chance for success. Isn't that what it's all about?

If you got to FIRE and have enough money to last your lifetime, you've won, no matter how you got there. You are to be congratulated and admired. Those of us who are working together to make the journey easier for others are not criticizing your choices, per se. We're just trying to help by showing others the most efficient way. Just like great coaches do, particularly those who volunteer.

* Rent vs. Buy is a totally separate issue. This convo applies only to those who have chosen to or want to own their own home..

Jack

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Re: Payoff House?!
« Reply #67 on: July 22, 2016, 12:06:17 PM »
Getting the biggest, cheapest, fixed rate mortgage on the most house* you can comfortably afford and then throwing every additional green soldier you can muster into creating a balanced, low-fee portfolio is the fastest, cheapest way for the average wage earner to achieve FIRE. Hands down.

I was expecting a different footnote:

* "Most house" meaning "as small and unfancy as you can stand, but in as nice a neighborhood as possible and/or with as much rental income as possible." Ideally you should buy something like a huge mansion in the best part of town, but then live in the servant's quarters while you rent out the rest...

NoraLenderbee

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Re: Payoff House?!
« Reply #68 on: July 22, 2016, 12:19:06 PM »
They feel they are missing market opportunity...

No, you still don't get it. I do not "feel" I am missing market opportunity. I know, statistically that I am missing market opportunity. The point is that the decision is based entirely on a mathematical calculation of expected return, not emotion of any kind. Spock or Data from Star Trek would come to the same conclusion.

Someone who chooses to pay off low-interest debt instead of investing is making a mathematically sub-optimal choice in exactly the same way someone who chooses to buy some consumer good they don't need is. If you're going to make an emotional choice like that at least own the decision and admit that it's financially inferior instead of trying to rationalize it 

Untrue.
Paying off debt is a for sure thing.   The debt and interest associated with it is gone.
Gambilng with your money in an investment is just that gambling, you might win, you might lose.   You are basing your entire opinion on past historical returns.   There is no guarantee those returns will be there going forward.

No, you're wrong. It is true.

Your argument is a fallacy -- a "guarantee" is not even slightly required for my argument to be correct. While it is true that the comparison between paying off the mortgage vs. investing should be based on the risk-adjusted return rather than the nominal return, it is not correct to say that zero risk automatically trumps any non-zero risk, as you have claimed. Besides, the risk-adjusted return is higher for investing than it is for paying off the mortgage (over the 30-year time horizon I mentioned earlier), and as nereo has pointed out several times now, paying off a mortgage is not zero risk anyway because doing so reduces your hedge against inflation risk!

they wont ever get it.  it just doesnt compute. 

Oh, FFS. Everyone in this thread who advocates paying off the mortgage has acknowledged that it is NOT the mathematically best choice. Just as in all the previous threads. NO ONE is saying that they get a higher *financial* return by paying the mortgage.

If it were only about making the highest return, then we'd all be working two jobs to make the most money possible as quickly as possible, and living in rented rooms in a trailer on the outskirts of Lima, Ohio. But we aren't, because most of us value some other things more than maximizing money.

So please STOP already with the "they don't understand math" crap.

Quote

i've been waiting for a horror story to maybe scare some of these paydown people down the right path.  All it should take is one guy in the awful "paydown your mortgage thread" getting laid off with no income and losing his house ... and wising up to "i should have just been putting it in a taxable account b/c i could have kept  making my payments now i have no house" 


Farrier1

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Re: Payoff House?!
« Reply #69 on: July 22, 2016, 05:36:57 PM »
Hello :-)
I would say payoff the house. The best thing I ever did was to be debt free. 5 years ago I got remarried and my wife wanted a house of our own ( I owned y home and still do so I have 2 homes ) I worked MAO but paid a 30 year mortgage off in 4 years and 4 months :-)

Make life decisions :-)

SeaEhm

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Re: Payoff House?!
« Reply #70 on: July 22, 2016, 05:46:05 PM »
Pay off your house so you don't have to waste money paying interest.

boarder42

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Re: Payoff House?!
« Reply #71 on: July 22, 2016, 05:57:07 PM »
Pay off your house so you don't have to waste money paying interest.

Nora.

This is the exact type of poster I'm trying to reach. See above. His point is Mathematically unfounded when considering the alternative. When people ask questions here they should be presented the option that benefits them both in financial well being and least risk.  If they won't to then choose to make an emotional decision over the Mathematically less risky and Mathematically better so be it

boarder42

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Re: Payoff House?!
« Reply #72 on: July 23, 2016, 09:55:57 AM »
Usingg a qualifying retirement account to make mortgage payments on a house that's losing value is not intelligent. Just file bankruptcy and all that money is protected.

Frugalman19

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Re: Payoff House?!
« Reply #73 on: July 24, 2016, 12:26:29 PM »
Being a financial advisor I was always about the hard numbers. The statistics show its better to invest and pay the debt payments. But I have recently changed my stance on this. For most people, I would say almost everyone should just pay their debt off. Here's my reasoning, dealing with average people, most would rather have a paid for house then risk their money in the market. It is a risk and emotionally they are going to have to deal with their investments going up and down, with no real guarantee that they will actually get the returns everyone on this thread is promising. If you are following the steps talked about on this site and have an emergency fund set aside, having a paid for house is a great insurance policy.
Dave Ramsey is a big reason why I have changed my stance on this. Those of you who are dead set on having the debt and investing, that's all well and good, but most people would rather take the assurance that they don't owe a dime. Now when I get asked this question, I tell all of my clients to pay their house off because it is the right thing to do financially and emotionally. You cannot discount the emotional aspect, we are all humans, not machines.

boarder42

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Re: Payoff House?!
« Reply #74 on: July 24, 2016, 12:44:03 PM »
Being a financial advisor I was always about the hard numbers. The statistics show its better to invest and pay the debt payments. But I have recently changed my stance on this. For most people, I would say almost everyone should just pay their debt off. Here's my reasoning, dealing with average people, most would rather have a paid for house then risk their money in the market. It is a risk and emotionally they are going to have to deal with their investments going up and down, with no real guarantee that they will actually get the returns everyone on this thread is promising. If you are following the steps talked about on this site and have an emergency fund set aside, having a paid for house is a great insurance policy.
Dave Ramsey is a big reason why I have changed my stance on this. Those of you who are dead set on having the debt and investing, that's all well and good, but most people would rather take the assurance that they don't owe a dime. Now when I get asked this question, I tell all of my clients to pay their house off because it is the right thing to do financially and emotionally. You cannot discount the emotional aspect, we are all humans, not machines.

Really hope you don't mean this bc its Mathematically incorrect which means it's financially incorrect. Glad to know you're putting emotion above math for ALL clients and not doing it on a case by case basis.

But another great post as an example of why everyone should learn finance and avoid financial advisors.

Frugalman19

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Re: Payoff House?!
« Reply #75 on: July 24, 2016, 02:22:12 PM »
Being a financial advisor I was always about the hard numbers. The statistics show its better to invest and pay the debt payments. But I have recently changed my stance on this. For most people, I would say almost everyone should just pay their debt off. Here's my reasoning, dealing with average people, most would rather have a paid for house then risk their money in the market. It is a risk and emotionally they are going to have to deal with their investments going up and down, with no real guarantee that they will actually get the returns everyone on this thread is promising. If you are following the steps talked about on this site and have an emergency fund set aside, having a paid for house is a great insurance policy.
Dave Ramsey is a big reason why I have changed my stance on this. Those of you who are dead set on having the debt and investing, that's all well and good, but most people would rather take the assurance that they don't owe a dime. Now when I get asked this question, I tell all of my clients to pay their house off because it is the right thing to do financially and emotionally. You cannot discount the emotional aspect, we are all humans, not machines.

Really hope you don't mean this bc its Mathematically incorrect which means it's financially incorrect. Glad to know you're putting emotion above math for ALL clients and not doing it on a case by case basis.

But another great post as an example of why everyone should learn finance and avoid financial advisors.

Because I do this for a living and I don't just do it for my own personal knowledge. I'm going to assume that with my masters degree in finance and multiple finance designations, I probably know a little more about finance than you. I could be wrong, you could be a finance genius, but I assume not. One thing you will never understand unless you have someone else's financial future in your hands is this, "personal" finance is a whole lot more than just numbers, it's emotions, it's comfort level, it's the ability to make your clients sleep comfortably at night. Statistically you are correct with the math, I've already admitted that. But if my client is stressing when they are looking at their account when the market corrects, all of the statistics mean absolutely ZERO. Money is emotional for most people, it's just part of the equation, it must be taken into consideration.

You are correct again, I was over generalizing when say ALL of my clients. I do have clients that love taking risks and are in a financial position to where their net worth is much higher than their mortgage amount. But for the most part, if people are asking me, they already lean toward paying off the loan and I agree with their gut on this one.

No need to be rude, I love my profession and I get to help a whole lot of people who have no interest in learning all of these things themselves. There are advisors out there that have very little knowledge about finances, mostly just insurance salesmen, that's not me. Some advisors would love to take your $200k and invest it(I would make more), I would rather you do what's best for you, emotionally and financially.


deeshen13

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Re: Payoff House?!
« Reply #76 on: July 24, 2016, 03:35:29 PM »
The reason that paying down debt, even lowish interest rate mortgages, is good for a lot of people is because it's a forced savings. I also work in the financial planning industry and thought Awgolfer was going to discuss this, but didn't. Avoiding debt pay down in order to earn market returns is superior if those dollars that were going to earn the interest rate in debt pay down actually make their way to investment accounts.

Instead, all too often there is significant leakage in this process. Secondly, if people are behavioral getting boosts in their debt pay down which inspire them to earn even more money and spend even less, that's a second common reason that debt pay down can be preferable. In general, the forced savings is a crucial aspect of debt pay down for most lay man out there. Many people are protected from themselves in this way, and I'm not one to let perfect get in the way of good.

I, nonetheless, concur that Mustachian's who want to seek more optimal can stay levered to invest in the market, and I do for the most part.

2buttons

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Re: Payoff House?
« Reply #77 on: July 24, 2016, 05:34:32 PM »
Give us your numbers and we can actually do the math for you, so you can see that huge pot of money that people claim you will make.

Frugalman19

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Re: Payoff House?!
« Reply #78 on: July 24, 2016, 08:24:33 PM »
The reason that paying down debt, even lowish interest rate mortgages, is good for a lot of people is because it's a forced savings. I also work in the financial planning industry and thought Awgolfer was going to discuss this, but didn't. Avoiding debt pay down in order to earn market returns is superior if those dollars that were going to earn the interest rate in debt pay down actually make their way to investment accounts.

Instead, all too often there is significant leakage in this process. Secondly, if people are behavioral getting boosts in their debt pay down which inspire them to earn even more money and spend even less, that's a second common reason that debt pay down can be preferable. In general, the forced savings is a crucial aspect of debt pay down for most lay man out there. Many people are protected from themselves in this way, and I'm not one to let perfect get in the way of good.

I, nonetheless, concur that Mustachian's who want to seek more optimal can stay levered to invest in the market, and I do for the most part.

This is a great point, I can list a lot of reasons to chose the paid off house. Paying down debt is great because it's a structured way for people to see the benefits of budgeting and putting extra toward their mortgage. You see on your statement how much you are saving, it's very clear. It can be much different then dumping money into an investment account and having a correction, it can make people feel like they are now losing money. Instead of getting that guaranteed savings. I too would stay leveraged, but that is my choice and I am very comfortable with market volatility, most aren't.

Jack

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Re: Payoff House?!
« Reply #79 on: July 25, 2016, 07:47:12 AM »
You got lucky with the timing. Imagine what would have happened if in 2008 you had been aggressively paying off your mortgage, but hadn't quite finished yet. Not only would you have still been faced with the situation of trying to make mortgage payments while potentially suffering unemployment, you wouldn't have even had investments to draw from (even at 50% of their normal value) either, making you worse off than people who chose to invest.
Im pretty sure I'd be way worse off. Everyone I know who lost their house (and that was pretty much everyone I knew and every single person in my neighborhood except older retired people with paid off houses and long term owners who didn't take a bunch of HELOC or equity loans everytime their house value increased - often to invest) AND lost all their investments including IRAs and 401Ks that they eventually had to use up trying to pay their mortgages to keep their houses.

Many of them had large mortgages, often several due to investment properties they bought (which were also foreclosed upon) that they could no longer find renters for. Many had big severance pavkages that were rapidly eaten up by their high mortgages when they couldn't find a decent paying  job for years. They literally lost everything. If I had a high mortgage and lost my job, or was FIREd, and had to rely on my much diminished investments to keep paying a mortgage on an unsellable underwater house I would've definitely been much much worse off.

 Again this was my personal experience and a very rare one historically so unlikely to happen again. But when you see every house on your street foreclosed and auctioned (and even then not have any takers) or all your friends literally spend everything they've accumulated over the years to try and keep the house and still lose it, and your own investments slide away bit by bit then having a paid off house looks good to you. Especially if your expenses are very low without a mortgage.

Of course I plan to sell the now very high cost paid off house and downsize to a paid off place for about 1/2 the price or less and invest the rest. THAT scenario gives me the greatest peace of mind. And yes I do.understand that financially, except in a worst case scenario, selling my house and investing ALL the money and renting studio apt or even a room would get me the greatest return. But it wouldn't give me the greatest long term comfort. Like Noralender said - we get it we just chose to not let the bottom line be our only guide.

My point -- which you seem to agree with, if only implicitly? -- is that having a house that's already paid off lowers your risk, but the process of aggressively paying off a mortgage instead of investing actually makes your risk steadily increase (even compared to paying it off at the normal amortization schedule) until that last payment actually clears the bank.
« Last Edit: July 25, 2016, 07:51:15 AM by Jack »

Fishindude

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Re: Payoff House?!
« Reply #80 on: July 25, 2016, 08:08:53 AM »
Something that doesn't get mentioned in these discussions is that it depends upon your cash flow also.
If you are not so burdened that you can continue to invest at a reasonable pace for your future and still pay off the mortgage, you'd be silly not to.
It's not always either / or.

Rollin

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Re: Payoff House?!
« Reply #81 on: July 25, 2016, 08:16:59 AM »
My comments are related to your question, but not directly answering them. They relate more to the discussion about paying off vs. investing that money elsewhere. This dawned on my while watching a movie this weekend about book and bust cycles in our economy, and how we continually repeat our mistakes. A lot of our problems start when we speculate (railroads, tulip bulbs, housing, etc.) and sometimes where people borrow money so that they can invest it. Now wouldn't having a mortgage be that? I know you have a house to live in, but isn't that essentially going to the bank and asking for money (with terms) and then putting that into the stock market. So instead of paying off your house you are taking that money and investing it?

I dunno, it seems so much the same. I'm curious about others thoughts on this, and I hope this isn't a derail of the OP's thread.

nereo

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Re: Payoff House?!
« Reply #82 on: July 25, 2016, 08:22:09 AM »
Something that doesn't get mentioned in these discussions is that it depends upon your cash flow also.
If you are not so burdened that you can continue to invest at a reasonable pace for your future and still pay off the mortgage, you'd be silly not to.
It's not always either / or.

I agree with you that it's not either/or, and that if your cash flow allows it one can choose the very reasonable 'middle' path of both investing and paying down the mortgage at an accelerated rate.  But to say that "it would be silly not to" is just incorrect.  Just because you have excess cash-flow doesn't mean the only sane course is to pay down the mortgage.

Rollin

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Re: Payoff House?!
« Reply #83 on: July 25, 2016, 08:22:52 AM »
If you have reached your FI number in investments (stocks/bonds/cash), then yes. Otherwise it really makes more sense to invest that money in the market and continue to pay the monthly mortgage. Our plan is to invest in mutual funds until we have our FI number plus the amount needed to pay off the house, then pay it off. Probably not all at once though because selling that much stock at once has tax implications.

If it's stressful to have a mortgage, meditate or something, don't make a bad financial decision.

Isn't the earlier you pay it off the more you save because you are paying so much to interest in the earlier parts of the loan? So if I wait 15 years to pay off my mortgage vs. waiting 5 years, I would think I am saving much more in the 5 year payoff. I know in your scenario you are investing at the same time, but you are not investing a large amount of $$, just payments (or smaller incremental amounts).  I just feel like there is more to this than just saying that "my house loan is 4%, so I'll just invest that payoff amount (if you have that much) in the market, etc. and get better than 4% and come out ahead." It just doesn't seem like it is that easy or clear.
« Last Edit: July 25, 2016, 08:25:19 AM by Rollin »

Jack

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Re: Payoff House?!
« Reply #84 on: July 25, 2016, 08:33:52 AM »
Something that doesn't get mentioned in these discussions is that it depends upon your cash flow also.
If you are not so burdened that you can continue to invest at a reasonable pace for your future and still pay off the mortgage, you'd be silly not to.
It's not always either / or.

On the contrary; cash flow is irrelevant. Investing instead of paying your mortgage is mathematically better even at very high cash flows.

Granted, if you're a billionaire then paying off a $100k mortgage might make sense just because your time is too valuable to worry about it, but at that point it'd be your accountant's (much cheaper) time being spent anyway, so that makes it worth holding again.

My comments are related to your question, but not directly answering them. They relate more to the discussion about paying off vs. investing that money elsewhere. This dawned on my while watching a movie this weekend about book and bust cycles in our economy, and how we continually repeat our mistakes. A lot of our problems start when we speculate (railroads, tulip bulbs, housing, etc.) and sometimes where people borrow money so that they can invest it. Now wouldn't having a mortgage be that? I know you have a house to live in, but isn't that essentially going to the bank and asking for money (with terms) and then putting that into the stock market. So instead of paying off your house you are taking that money and investing it?

I dunno, it seems so much the same. I'm curious about others thoughts on this, and I hope this isn't a derail of the OP's thread.

Yes. Speculating in tulips instead of paying off your mortgage would be a bad idea. It's all about maximizing risk-adjusted return, which means investing is better -- except when you pick something crazy and blow out the risk.

Isn't the earlier you pay it off the more you save because you are paying so much to interest in the earlier parts of the loan. So if I wait 15 years to pay off my mortgage vs. waiting 5 years, I would think I am saving much more in the 5 year payoff. I know in your scenario you are investing at the same time, but you are not investing a large amount of $$, just payments (or smaller incremental amounts).  I just feel like there is more to this than just saying that "my house loan is 4%, so I'll just invest that payoff amount (if you have that much) in the market, etc. and get better than 4% and come out ahead." It just doesn't seem like it is that easy or clear. [emphasis added]

Nevertheless, it is. Do the math (or play with a calculator, such as this one) and you'll see. Here are the results for my situation (I don't have my mortgage statement with me, so I estimated the numbers):

Quote from: calculator
Loan Balance80000.00
Current Payment375.00
Loan Interest Rate3.80 %
Loan Interest DeductibiltyNo
Investment Return Rate8.00 %
Tax Bracket30.00 %
Investment TypeAfter-Tax

Borrowed Investment - Payoff Investment : $ 78483.57
In your case it is better off to keep the loan

Jrr85

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Re: Payoff House?!
« Reply #85 on: July 25, 2016, 08:46:06 AM »

Isn't the earlier you pay it off the more you save because you are paying so much to interest in the earlier parts of the loan? So if I wait 15 years to pay off my mortgage vs. waiting 5 years, I would think I am saving much more in the 5 year payoff. I know in your scenario you are investing at the same time, but you are not investing a large amount of $$, just payments (or smaller incremental amounts).  I just feel like there is more to this than just saying that "my house loan is 4%, so I'll just invest that payoff amount (if you have that much) in the market, etc. and get better than 4% and come out ahead." It just doesn't seem like it is that easy or clear.

Mathematically, it really is that easy and clear.  But personal finances are largely about emotions.  If you're  basically the human version of Spock and won't be emotionally impacted by a 20% drop in your investments because you know that historically, the math says keeping a mortgage and investing in the stock market pays off, then it's a pretty easy decision.  You just have to decide what your risk preference is, and make a decision based on that. 

But for every one else, they have to decide how much psychological benefit they get from having a paid off house and having that portion of their living expenses locked in, and also think about how much psychological benefit they will get from having additional investments to grow, plus the psychological pain from having those additional investments go down. 

There really isn't a wrong answer though, unless you are the type of person that will panic if you see your investments drop while you also have a mortgage.  If that's you, then you pay off your house.  Or if you are the type of person that will stay up late fretting over lost efficiency.  If that's you, keep your mortgage balance as high as you can.  Otherwise, either route will work out for you, and you can more or less easily switch from one choice to the other, provided you don't do it in a counterproductive way (i.e., paying down debt when the market is low, levering up when the market is high).

nereo

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Re: Payoff House?!
« Reply #86 on: July 25, 2016, 08:54:59 AM »
My comments are related to your question, but not directly answering them. They relate more to the discussion about paying off vs. investing that money elsewhere. This dawned on my while watching a movie this weekend about book and bust cycles in our economy, and how we continually repeat our mistakes. A lot of our problems start when we speculate (railroads, tulip bulbs, housing, etc.) and sometimes where people borrow money so that they can invest it. Now wouldn't having a mortgage be that? I know you have a house to live in, but isn't that essentially going to the bank and asking for money (with terms) and then putting that into the stock market. So instead of paying off your house you are taking that money and investing it?

I dunno, it seems so much the same. I'm curious about others thoughts on this, and I hope this isn't a derail of the OP's thread.

Isn't the earlier you pay it off the more you save because you are paying so much to interest in the earlier parts of the loan? So if I wait 15 years to pay off my mortgage vs. waiting 5 years, I would think I am saving much more in the 5 year payoff. I know in your scenario you are investing at the same time, but you are not investing a large amount of $$, just payments (or smaller incremental amounts).  I just feel like there is more to this than just saying that "my house loan is 4%, so I'll just invest that payoff amount (if you have that much) in the market, etc. and get better than 4% and come out ahead." It just doesn't seem like it is that easy or clear.

This has been covered in great detail in this thread and earlier threads, but there's a few things that also need to be considered. 
One is inflation:  When you take out a mortgage with a fixed term it doesn't increase with inflation.  This means that your monthly payment goes down in real-adjusted terms over time.  For example, a person might have a mortgage payment of $1k. During year 1, $1k/mo may be a substantial (~30%) of their budget, but by year 29 it may only 10-15% of their budget.  Why?  Because $1k today is worth a lot less than what it was worth 29 years ago (to use data: $1,000 in 1987 would be worth $2,121 today).
Second, there's the time period being considered.  Certainly there are boom and bust cycles, but there has never been a 20 year period during which real-returns of the SP500 have been negative, and the average return has been about 7% per year. If you have a very short time period, say 1-3 years, then it can make a lot of sense to pay down the mortgage.  But if we're looking at decade+ time lines then it tilts heavily towards investing it.
Third - tax advantaged accounts. There is a huge difference when we start considering tax-advantaged accounts.  If you are not already maxing out all of your available tax-advantaged accounts it's very hard to come out ahead by paying down the mortgage.
Forth - risk. Paying off your mortgage instead of investing means your NW will be almost entirely tied to a single asset - your home. That's the exact opposite of diversification. Plus, during the time that you are paying down your home you put yourself at risk of all other economic emergencies (e.g. job loss, injury/sickness, natural disaster, falling home prices, etc). It doesn't matter if you've paid extra on your mortgage every month for 3+ years.  If you suddenly are unable to pay for a few months in a row you risk loosing your house and most of your NW.

As fishindude has argued, should you have the cash flow you can always take the middle road and both invest some and pay extra towards the mortgage.  Based on 100+ years of history it's unlikely this will result in the optimal outcome, but it's not a bad strategy to take if you are debt adverse.  By paying off your mortgage (a fixed debt) you loose one source of protection from inflation, which is arguably a much bigger threat to retirement than sub-average returns - there have been periods in the US when inflation has averaged >5% for a decade or more, and years when it has gone above 10%.  Other nations have experienced much worse. If you want to protect against inflation there are two common strategies; 1) have even more money invested and/or 2) carry some fixed debt at a low interest rate.
There's also the matter that a mortgage is "forced savings", and the idea that people are often very bad at saving and will instead spend extra money they don't have.  If this describes you paying extra towards your mortgage is not a bad idea.  But if this is a concern a much more valid goal is to max out all tax advantaged accounts each year and to increase automatic contributions to taxable account. If you decide that contributing to your 401(k)/IRA is not "optional", these become 'forced savigns" accounts too.

deeshen13

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Re: Payoff House?!
« Reply #87 on: July 25, 2016, 10:42:00 AM »
The reason that paying down debt, even lowish interest rate mortgages, is good for a lot of people is because it's a forced savings. I also work in the financial planning industry and thought Awgolfer was going to discuss this, but didn't. Avoiding debt pay down in order to earn market returns is superior if those dollars that were going to earn the interest rate in debt pay down actually make their way to investment accounts.

Instead, all too often there is significant leakage in this process. Secondly, if people are behavioral getting boosts in their debt pay down which inspire them to earn even more money and spend even less, that's a second common reason that debt pay down can be preferable. In general, the forced savings is a crucial aspect of debt pay down for most lay man out there. Many people are protected from themselves in this way, and I'm not one to let perfect get in the way of good.

I, nonetheless, concur that Mustachian's who want to seek more optimal can stay levered to invest in the market, and I do for the most part.

Looking for a response to this from anti-payoff camp! TIA

nereo

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Re: Payoff House?!
« Reply #88 on: July 25, 2016, 11:08:00 AM »
The reason that paying down debt, even lowish interest rate mortgages, is good for a lot of people is because it's a forced savings. I also work in the financial planning industry and thought Awgolfer was going to discuss this, but didn't. Avoiding debt pay down in order to earn market returns is superior if those dollars that were going to earn the interest rate in debt pay down actually make their way to investment accounts.

Instead, all too often there is significant leakage in this process. Secondly, if people are behavioral getting boosts in their debt pay down which inspire them to earn even more money and spend even less, that's a second common reason that debt pay down can be preferable. In general, the forced savings is a crucial aspect of debt pay down for most lay man out there. Many people are protected from themselves in this way, and I'm not one to let perfect get in the way of good.

I, nonetheless, concur that Mustachian's who want to seek more optimal can stay levered to invest in the market, and I do for the most part.

Looking for a response to this from anti-payoff camp! TIA

Read up-thread and you can see it's been addressed in a number of different ways by several different posters.
To sum up:
1) as stated by MMM, this is an advanced financial forum where we discuss optimal strategies and 'FI through badassity.' 

2) As several (including myself) have stated, if you think you'll wind up spending money instead of investing it, paying down the mortgage is the better choice. No one is arguing that spending the money is favorable to putting it towards the mortgage.

3) Extra payments on a mortgage is not the only kind of "forced savings".  Maxing out your IRA/401(k)/403(b) or increasing monthly contributions to taxable accounts are also options, and for most they are much better options. It's also a false assumption to say extra mortgage payments are "forced savings" - since they aren't forced at all, and even normal contributions can be taken back out via HELOCs and refinancing.

Cheers

Jack

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Re: Payoff House?!
« Reply #89 on: July 25, 2016, 11:23:14 AM »
The reason that paying down debt, even lowish interest rate mortgages, is good for a lot of people is because it's a forced savings. I also work in the financial planning industry and thought Awgolfer was going to discuss this, but didn't. Avoiding debt pay down in order to earn market returns is superior if those dollars that were going to earn the interest rate in debt pay down actually make their way to investment accounts.

Instead, all too often there is significant leakage in this process. Secondly, if people are behavioral getting boosts in their debt pay down which inspire them to earn even more money and spend even less, that's a second common reason that debt pay down can be preferable. In general, the forced savings is a crucial aspect of debt pay down for most lay man out there. Many people are protected from themselves in this way, and I'm not one to let perfect get in the way of good.

I, nonetheless, concur that Mustachian's who want to seek more optimal can stay levered to invest in the market, and I do for the most part.

Looking for a response to this from anti-payoff camp! TIA

Investing instead of paying off your mortgage is entirely predicated on the idea that you're looking for a higher risk-adjusted return. If you fail to invest and instead blow the money on consumer goods, that's just idiotic.

Obviously paying off the mortgage becomes better in that case, but that's because that case (pay off vs. blow the money on crap) is a different one than what we were discussing.

deeshen13

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Re: Payoff House?!
« Reply #90 on: July 25, 2016, 12:08:14 PM »
Appreciate the responses nereo and Jack. I don't think for most people it is as simple as to say it's payoff vs spend on consumer crap; hence I used the term 'leakage', in which I think people suffer creeping higher expenses due to the extra monthly cash flow. In other words, they don't have to run as tight of a ship at the expense side... so they don't.

Understood on the point about this being an advanced personal finance forum.

Over and out!

nereo

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Re: Payoff House?!
« Reply #91 on: July 25, 2016, 01:39:00 PM »
Appreciate the responses nereo and Jack. I don't think for most people it is as simple as to say it's payoff vs spend on consumer crap; hence I used the term 'leakage', in which I think people suffer creeping higher expenses due to the extra monthly cash flow. In other words, they don't have to run as tight of a ship at the expense side... so they don't.

Understood on the point about this being an advanced personal finance forum.

Over and out!
Man... I gotta point out one issue in your post that bugs the crap out of me (but isn't related to the discussion at all). 
The phrase "over and out" is nonsensical.
Even though it's become a staple of TV and Hollywood, it's completely the WRONG WAY to end a conversation.
"Over" means you are awaiting a response from the other person.
"Out" means you are ending the conversation. 
"Roger" means "yes/affirmative/I understand". 
So when people say "Roger, over and out" what they are really saying is "I understand and I'm awaiting your response but I'm going to hang up anyway."

A better way to sign off would simply be "Deeshen13 out"
~nereo out~

deeshen13

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Re: Payoff House?!
« Reply #92 on: July 25, 2016, 01:42:29 PM »
Lol, your tagline though.

deeshen13 out!
« Last Edit: July 25, 2016, 01:44:00 PM by deeshen13 »

2buttons

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Re: Payoff House?!
« Reply #93 on: July 25, 2016, 01:52:40 PM »
In sum, the people who paid off their mortgage are happy with their decision, and the people who invested their money are happy with their decision, and both groups will argue vehemently that they are right and the other side is wrong. 

To throw gas on the fire. MMM invested, and once he realized he could pay off his mortgage he paid it off.  So its antimustachian to not invest your payment, and its antimustachian to not pay off your house.

GoingConcern

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Re: Payoff House?!
« Reply #94 on: July 25, 2016, 02:02:54 PM »
It depends on many factors but let me flip the question would you take out a mortgage on the equity of your home and use the funds for other purposes? If not, then maybe paying off isn't a bad idea.

nereo

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Re: Payoff House?!
« Reply #95 on: July 25, 2016, 02:15:46 PM »
It depends on many factors but let me flip the question would you take out a mortgage on the equity of your home and use the funds for other purposes? If not, then maybe paying off isn't a bad idea.

This basic question has been asked many times, and the answer from many (including myself) is yes.  If my house was paid off and I could get ~80% of the appraised value of my home @3.x% over 30 years I would not hesitate to pull the trigger.
Others might hesitate.  Such is the debate.

boarder42

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Re: Payoff House?!
« Reply #96 on: July 25, 2016, 07:13:58 PM »
MMM LIVED IN A DIFFERENT RATE CLIMATE

Dicey

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Re: Payoff House?!
« Reply #97 on: July 26, 2016, 12:03:55 AM »
And here's another log for the conversational fire, courtesy of Cheddar Stacker.[from another thread]
This is one of my favorite posts from this journal on the topic. It has four links to other threads, websites, podcasts, etc. In summary, you can only spend a dollar once, so choose wisely.

Opportunity Cost

The fact that your low interest, tax deductible, fixed interest rate doesn't have to be adjusted for inflation is extremely valuable and rare. On top of that under the right conditions you can create Arbitrage which just multiplies the whole deal. The point of low interest rates is to stimulate the economy by encouraging people to borrow to purchasing things. This is typically done when the economy is weak, which means stock and real estate prices should be low. That does not appear to be the case now on a global level, but there is still value to be found somewhere and I can find a return > than 3.5%
« Last Edit: July 26, 2016, 07:32:09 AM by Diane C »

Metric Mouse

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Re: Payoff House?!
« Reply #98 on: July 26, 2016, 05:28:36 AM »
And here's another log for the conversational fire, courtesy of Cheddarstacker.
This is one of my favorite posts from this journal on the topic. It has four links to other threads, websites, podcasts, etc. In summary, you can only spend a dollar once, so choose wisely.

Opportunity Cost

The fact that your low interest, tax deductible, fixed interest rate doesn't have to be adjusted for inflation is extremely valuable and rare. On top of that under the right conditions you can create Arbitrage which just multiplies the whole deal. The point of low interest rates is to stimulate the economy by encouraging people to borrow to purchasing things. This is typically done when the economy is weak, which means stock and real estate prices should be low. That does not appear to be the case now on a global level, but there is still value to be found somewhere and I can find a return > than 3.5%



Bringing up market timing and value investing in a mortgage payoff thread... it's like a MMM hat trick! :D
« Last Edit: July 26, 2016, 06:21:06 AM by Metric Mouse »

boarder42

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Re: Payoff House?!
« Reply #99 on: July 26, 2016, 06:10:13 AM »
It depends on many factors but let me flip the question would you take out a mortgage on the equity of your home and use the funds for other purposes? If not, then maybe paying off isn't a bad idea.

This basic question has been asked many times, and the answer from many (including myself) is yes.  If my house was paid off and I could get ~80% of the appraised value of my home @3.x% over 30 years I would not hesitate to pull the trigger.
Others might hesitate.  Such is the debate.

correct.  but cash our REFI's typically come in at the standard market rate they always add a few points.  but would i still do it if if it wasnt the prime rate. hell yes.

 

Wow, a phone plan for fifteen bucks!