Putting FIRE on hold to pay off mortgage

[Boofinator]

After running out the numbers, I found that it makes more financial sense to pay off the mortgage (in a lump sum) at or around my FI date. The reduced expenses in retirement will be more beneficial than another $220k in the market at that time.

That's pretty normal thinking for mustachians, even if they don't typically apply it to the mortgage. $1 less in expenses annually means that we need $25 less saved. So $1,472 less in mortgage expense per month means that we'll need $440k less invested. That's well worth paying $220k at the end of our accumulation stage.

You don't need 25x your mortgage payment because a mortgage is finite (unless you have an interest-only loan). You really only need roughly the balance of the mortgage invested to cover the remaining payments. cFIREsim can model this with the "Extra Spending" section that allows you to set an expense that only runs for a set number of years.

Yes, I've run the models, and paying off your mortgage at retirement often reduces SORR (depends on a number of factors, including loan-to-portfolio value, interest rate, and years remaining, among others). See attached, based on cFIREsim data.

[big_owl]

...the context does likely imply a HCOL ($620k house) and high income ($185k of post-tax income going toward car + mortgage, plus maxed out pre-tax investments, plus enough leftover for food, utilities, etc.).

I raised my eyebrows at the $40k car purchase, but then OP probably makes 2x what I make, and we bought a $18k new car last year.

Housing prices are high here (or at least were really high back in 2004 when we bought).  But outside of that the COL is low and taxes are very low.  I've been driving the same subaru for just under 20yrs and we have 7-figures income and are in reaching distance for 8-figure stash so I don't feel too guilty for the purchase.  No kids or debt other than what's left on the mortgage.

Ok, 7 figure income and near-8-figure stash.  You're making ~10x more than many of us each year, and have a stash to match.  I unraise my eyebrows at the plan for the $40k car purchase and instead salute you for spending far less on your vehicles relative to your income than most people do.

At the risk of derailing this latest edition of "Mortgage Payoff -- Moronic or Mustachian", I'm unabashedly curious about what plans you have for an 8-figure stash, particularly living in a LCOL area.  I'm even more curious where the rest of your income goes, if only ~$185k is earmarked for mortgage payoff + car, and maybe...what, another $100k for miscellaneous living expenses (I'm being extremely generous here, relative to Mustachian standards, given your description of low taxes and LCOL area).  With the lowest possible 7-figure income, and the highest possible Federal taxes, you should still be clearing around $600,000/year in take-home pay.  That would leave $300k+ unaccounted for.  Give us a peek -- we voyeurs want to have a little fun too!

Even more impressive, I see I've attracted the attention of a mod!  I secretly hoped it was arebelspy but I'll take what I can get.  Good to see even pro-debtors get thin skin every now and then.

As for your question, we both grew up in the midwest from blue collar families so don't really engage in outwardly profligate spending for the most part.  Most of our money up until now has gone into investments, housing projects and general living expenses.  Some changes that have happened since increasing our income:

1. Vacations - we budget about $30k to $50k per year for vacations.  Sorry there's no way around it, it's good to have money and go on vacation.  You fly first class and go to the best places.  All the mundane stuff is done for you and you're able to enjoy it without worry.  As an ardent DIYer it was hard for me to adapt to this at first but now I'm starting to embrace it.  It's just really nice.

2. Help - I've been the subject of some derision on this board for the fact that I don't do my own grocery shopping anymore.  Sorry, not sorry.  It's awesome to pay people to do shit you hate to do.  You only get one trip around the merry-go-round known as life.  If I can buy back more of my time then I'm going to do it.

3. Everything else - we don't exhibit what I'd consider opulent consumerism, but the stuff that we do buy is generally top of the line.  I get much more satisfaction buying a very nice computer vs. a cheap-ass one (or a cheap-ass watch ;).  Or while doing home DIY projects I don't cheap out on material, we just appreciate higher quality stuff.  Where I used to buy only Suzuki motorcycles now it's Ducati, etc.  This adds up over time but I'm A-ok with it.

4. We donate quite a bit per year.  Selfishly some for tax reasons but also because we're pretty big treehuggers.

5. As for the stash - not having kids...whatever is left when we die, 90% goes to two environmental non-profits.  I don't pretend to be able to foresee out that far and what things will be worth in 40-50 years.  I'm not as confident as most on this forum about the state of markets going forward but it's not something I can control nor is it worth worrying about. 

6. Medical bills....life happens and even with insurance it adds up over time

7. Oh and I will own a Ferrari at some point, don't tell little owl though

[big_owl]

Isnt it peak mustachian to say F-it I don't want to pay a mortgage anymore and I'm already fully maxing my tax advantaged accounts and im fully aware this doesn't make the most financial sense but it brings value to my life and I'm at a point I don't need to care about money. ?

Well MMM continues to make about $400k/yr almost passively from the blog alone with a total Nw between $5-10mil and he doesn’t say fuck it with his money. So I’m not sure it’s peak mustachianism. Nonetheless people can do whatever they want with their money. End of the day paying your mortgage off early is an emotional, decision but not necessarily the best financial decision compared to save and invest. Sometimes people are guided by their emotions. That’s life.

Yeah he makes that much money and also prefers to not have a mortgage = paying it off early. So you may not want to use MMM as an example for NOT paying off mortgage early. See: https://www.mrmoneymustache.com/2015/01/21/mortgage-freedom/

I'm glad someone quoted this post!  There's nothing quite like owning your own house/property.  If you have a mortgage the bank still owns you despite what you tell yourself at night. 

Also it's a psychological milestone.  Meh seeing your stash go from 2M to 5M is cool but it doesn't really get the adrenaline flowing.  On the other hand going from being a debt slave to owning your shit, that's a milestone worth celebrating.  Nobody can take your home from you.  Sure you have to pay taxes on it, but if TSHTF and your stash collapses to the point where you can't afford your property taxes then I'm pretty sure ole uncle sam is going to have better thingsto do than try to reclaim your house.  Being in deb to the private banking system...I'd rather avoid that.  But to each their own, it's not for everybody.

[Buffaloski Boris]

I think that a reasonable argument could be made for paying off the mortgage or keeping it. In much the same way you could make arguments pro or con for homeownership in the first place.My personal preference is to not have debt. And let’s face it, none of us know what the stock market will do in the next year.

Uh, we use something called "History" to know that it always goes up over time. Sheesh.

Add: If it does go down, we know it's only temporary and we buy more of whatever's on sale.

Uh, we don’t have a crystal ball. And that thing called “history” has only limited value in predicting the future. We also know from “history” that there have been extended periods of time when the US stock market has been flat or dropping such as during the 1970’s. None of us know if one of those periods is coming in 20 years, 40 years, or next week.

[John Galt incarnate!]

if TSHTF and your stash collapses to the point where you can't afford your property taxes then I'm pretty sure ole uncle sam is going to have better thingsto do than try to reclaim your house.  Being in deb to the private banking system...I'd rather avoid that.  But to each their own, it's not for everybody.

In the event of a black-swan catastrophe it's likely various jurisdictions would establish a property-tax moratorium or  at least  reduce property taxes.

I think some mortgagees would allow their mortgagors  late payments and/or reduced payments.

[ysette9]

After running out the numbers, I found that it makes more financial sense to pay off the mortgage (in a lump sum) at or around my FI date. The reduced expenses in retirement will be more beneficial than another $220k in the market at that time.

That's pretty normal thinking for mustachians, even if they don't typically apply it to the mortgage. $1 less in expenses annually means that we need $25 less saved. So $1,472 less in mortgage expense per month means that we'll need $440k less invested. That's well worth paying $220k at the end of our accumulation stage.

You don't need 25x your mortgage payment because a mortgage is finite (unless you have an interest-only loan). You really only need roughly the balance of the mortgage invested to cover the remaining payments. cFIREsim can model this with the "Extra Spending" section that allows you to set an expense that only runs for a set number of years.

Yes, I've run the models, and paying off your mortgage at retirement often reduces SORR (depends on a number of factors, including loan-to-portfolio value, interest rate, and years remaining, among others). See attached, based on cFIREsim data.

This is really helpful, thank you. I finally understand. The trends I see from your charts are that paying off the mortgage makes more sense the higher your interest rate is (duh), the shorter the term (also makes sense as there is more volatility short term in the stock market), and the smaller the mortgage is as compared to your portfolio.

In my case my mortgage is big comparatively, the interest rate is low, and the term is long, so all of those stacked together firmly put me in the section of your graphs where it doesn’t make sense to pay it off. I see now why all permutations of my own scenario kept giving the same answer. Different answers only come when you start changing other variables, namely interest rate, loan term, and how large the mortgage is relatively.

[Dicey]

I think that a reasonable argument could be made for paying off the mortgage or keeping it. In much the same way you could make arguments pro or con for homeownership in the first place.My personal preference is to not have debt. And let’s face it, none of us know what the stock market will do in the next year.

Uh, we use something called "History" to know that it always goes up over time. Sheesh.

Add: If it does go down, we know it's only temporary and we buy more of whatever's on sale.

Uh, we don’t have a crystal ball. And that thing called “history” has only limited value in predicting the future. We also know from “history” that there have been extended periods of time when the US stock market has been flat or dropping such as during the 1970’s. None of us know if one of those periods is coming in 20 years, 40 years, or next week.

Sure, I'm old, I remember the 70's, 'cuz I was there. I remember the '80's too, when CD's were paying north of 15%. Pretty sure I scored one that paid 17%, but I digress...

The markets you cited all recovered eventually, and went on to achieve new highs, didn't they? Something to remember is while living in retirement, you're spending only a small percentage of your investments annually. The rest has a long, long, time horizon for recovery.

Of course, you're a wise mustachian, so you'll have multiple income streams, right? If the market tanked, DH and I could live off some combination of cash on hand/SS/Defined Benefit Pension/rental property income. Hell, we could take in roommates or downsize our house. We could even rent out the entire house and travel around the world. Except for RMD's, we could just leave all the equities alone for at least a decade, maybe more.

One more point: we've been investing for so long that even if the market tanked by 50%, we'd still have more dollars than we ever invested ourselves, thanks to the magic of compound interest. Technically, this means we wouldn't actually be losing money. It would just be a paper loss. Nothing to panic over. You only lose if you are forced to sell, right???

[dummy]

“Yeah he makes that much money and also prefers to not have a mortgage = paying it off early. So you may not want to use MMM as an example for NOT paying off mortgage early. See: https://www.mrmoneymustache.com/2015/01/21/mortgage-freedom/“

Thanks partgypsy for that link.

[Bird In Hand]

Give us a peek -- we voyeurs want to have a little fun too!

<snip>
As for your question...
</snip>

Thank you for being a good sport and answering!  Probably because we've been in a savings mindset for 2+ decades, along with minimal discretionary spending over that period, it's hard to imagine spending significantly more than we do now.  But I can think back to how we lived in near-poverty during college, and I know that our current income/spending (even adjusted for inflation) would have seemed unfathomable to us at the time.

[Dicey]

“Yeah he makes that much money and also prefers to not have a mortgage = paying it off early. So you may not want to use MMM as an example for NOT paying off mortgage early. See: https://www.mrmoneymustache.com/2015/01/21/mortgage-freedom/“

Thanks partgypsy for that link.

Sure, but he's speaking from the perspective of one who's way past FI and has been RE for years, so he didn't delay anything, did he?

[talltexan]

Wow, I see my post brought out the resident cadre of pro-mortgage mouthbreathers.

[MOD EDIT: We don't need to insult others on the board.  Rule #1]

Strangely enough I went back and read my OP and didn't see where I said it was more financially sound to pay the mortgage off early, or even that I recommended others do the same thing.  Nor did I see anywhere where I asked whether or not it was a good idea, just that I was switching things around for the year to get rid of my mortgage.

But I agree I posted up my plan so some criticism could be expected.  That said, you're wasting your breath on me, I don't care.

What's the bond allocation in your investments? If your goal is to live mortgage free, you probably need to up the risky part of those investments to get back to the optimal Sharpe ratio.

[Boofinator]

After running out the numbers, I found that it makes more financial sense to pay off the mortgage (in a lump sum) at or around my FI date. The reduced expenses in retirement will be more beneficial than another $220k in the market at that time.

That's pretty normal thinking for mustachians, even if they don't typically apply it to the mortgage. $1 less in expenses annually means that we need $25 less saved. So $1,472 less in mortgage expense per month means that we'll need $440k less invested. That's well worth paying $220k at the end of our accumulation stage.

You don't need 25x your mortgage payment because a mortgage is finite (unless you have an interest-only loan). You really only need roughly the balance of the mortgage invested to cover the remaining payments. cFIREsim can model this with the "Extra Spending" section that allows you to set an expense that only runs for a set number of years.

Yes, I've run the models, and paying off your mortgage at retirement often reduces SORR (depends on a number of factors, including loan-to-portfolio value, interest rate, and years remaining, among others). See attached, based on cFIREsim data.

This is really helpful, thank you. I finally understand. The trends I see from your charts are that paying off the mortgage makes more sense the higher your interest rate is (duh), the shorter the term (also makes sense as there is more volatility short term in the stock market), and the smaller the mortgage is as compared to your portfolio.

In my case my mortgage is big comparatively, the interest rate is low, and the term is long, so all of those stacked together firmly put me in the section of your graphs where it doesn’t make sense to pay it off. I see now why all permutations of my own scenario kept giving the same answer. Different answers only come when you start changing other variables, namely interest rate, loan term, and how large the mortgage is relatively.

Just to be clear, here were the rest of the inputs to the model: Portfolio Asset Allocation of 100% equities, Retirement Duration of 30 years, and Minimum Success Rate of 95%, along with the other default inputs of cFIREsim. The first input, 100% equities, was kind of a tricky one to decide on, because a mortgage is a bit like a negative bond (so you're kind of "buying bonds" when you pay off your mortgage, though of course it's more complicated than that). The reason I did decide on 100% equities is because that's usually the suggestion from those seeking to maximize yield by not paying off the mortgage.

[Saving4Fire]

I was always in "never payoff your mortgage early" crowd, but recently I've had a change of heart... 

My wife and I are getting close to FIRE, so we've decided to cool down the level of aggression of our 3-fund portfolio by increasing our bond allocation. After taking a closer look we realized our 2.75% mortgage is actually the best place to stash our excess post-tax cash when you consider yields on bonds indexes funds are paying around 2.2% . I think the mortgage is almost a guaranteed better rate in the near future and it's even more desirable now that we've lost our home mortgage interest tax deduction. Additionally, with new bond purchases, I'd either need to make room for them in my 401k or take a tax hit on the income in our taxable account. I'm not super hyped for either of those options.

I think the main arguments against what we're doing are the following:

1) You lose liquidity. This isn't a concern for us.
2) Mortgages are a hedge against inflation. This is a nice to have, but not a near term concern of mine.
3) Home equity is not a bond. This is true, but we still have around 19.5% bonds allocation in our invested assets, which is still slightly conservative given we are in our early 40's.
4) Long-term investing in equities would produce more wealth, but as noted above paying off our home will reduce our FIRE risk ruin. 

So yeah, we've decided to start aggressively paying off our mortgage.  Let me know if I'm missing anything.

[ysette9]

I was always in "never payoff your mortgage early" crowd, but recently I've had a change of heart... 

My wife and I are getting close to FIRE, so we've decided to cool down the level of aggression of our 3-fund portfolio by increasing our bond allocation. After taking a closer look we realized our 2.75% mortgage is actually the best place to stash our excess post-tax cash when you consider yields on bonds indexes funds are paying around 2.2% . I think the mortgage is almost a guaranteed better rate in the near future and it's even more desirable now that we've lost our home mortgage interest tax deduction. Additionally, with new bond purchases, I'd either need to make room for them in my 401k or take a tax hit on the income in our taxable account. I'm not super hyped for either of those options.

I think the main arguments against what we're doing are the following:

1) You lose liquidity. This isn't a concern for us.
2) Mortgages are a hedge against inflation. This is a nice to have, but not a near term concern of mine.
3) Home equity is not a bond. This is true, but we still have around 19.5% bonds allocation in our invested assets, which is still slightly conservative given we are in our early 40's.
4) Long-term investing in equities would produce more wealth, but as noted above paying off our home will reduce our FIRE risk ruin. 

So yeah, we've decided to start aggressively paying off our mortgage.  Let me know if I'm missing anything.

EarlyRetirementNow had a blog post I believe about mortgage and bonds. I can’t quickly find the link but in the discussion of reverse equity glidepath asset allocation he was arguing that it doesn’t make sense to have a mortgage and bonds for the reasons you state.

Which is exactly the suboptimal situation we are currently in. I haven’t sorted out for myself what the right move is. I just know we feel more comfortable with more bonds right now as I am on the cusp of FIRE and my husband is about a year behind me.

***
Edit: I think this was the article https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

[big_owl]

Give us a peek -- we voyeurs want to have a little fun too!

<snip>
As for your question...
</snip>

Thank you for being a good sport and answering!  Probably because we've been in a savings mindset for 2+ decades, along with minimal discretionary spending over that period, it's hard to imagine spending significantly more than we do now.  But I can think back to how we lived in near-poverty during college, and I know that our current income/spending (even adjusted for inflation) would have seemed unfathomable to us at the time.

Agreed, going back to high school or even college the thought of being just a millionaire was unfathomable to me.  How things change.  Of course there are some not-so-positive aspects of aging that if you'd have asked me about ten years ago I would have scoffed at as well, so it swings both ways for sure.

[big_owl]

Wow, I see my post brought out the resident cadre of pro-mortgage mouthbreathers.

[MOD EDIT: We don't need to insult others on the board.  Rule #1]

Strangely enough I went back and read my OP and didn't see where I said it was more financially sound to pay the mortgage off early, or even that I recommended others do the same thing.  Nor did I see anywhere where I asked whether or not it was a good idea, just that I was switching things around for the year to get rid of my mortgage.

But I agree I posted up my plan so some criticism could be expected.  That said, you're wasting your breath on me, I don't care.

What's the bond allocation in your investments? If your goal is to live mortgage free, you probably need to up the risky part of those investments to get back to the optimal Sharpe ratio.

I don't really know offhand, I don't track investments that closely month to month.  Every so often I'll look at things and maybe rebalance but mostly it's just been on autopilot which is why tapping the brakes on that and going full ahead on the mortgage is such a change for us. 

It seems to me if my goal is to live mortgage free then probably the most important thing to do is to pay off the mortgage. 

[talltexan]

Give us a peek -- we voyeurs want to have a little fun too!

<snip>
As for your question...
</snip>

Thank you for being a good sport and answering!  Probably because we've been in a savings mindset for 2+ decades, along with minimal discretionary spending over that period, it's hard to imagine spending significantly more than we do now.  But I can think back to how we lived in near-poverty during college, and I know that our current income/spending (even adjusted for inflation) would have seemed unfathomable to us at the time.

Agreed, going back to high school or even college the thought of being just a millionaire was unfathomable to me.  How things change.  Of course there are some not-so-positive aspects of aging that if you'd have asked me about ten years ago I would have scoffed at as well, so it swings both ways for sure.

When I was in HS, interest rates were 5%-9%. People could retire with a paid-off house and $400,000 in the bank.

[Dicey]

Give us a peek -- we voyeurs want to have a little fun too!

<snip>
As for your question...
</snip>

Thank you for being a good sport and answering!  Probably because we've been in a savings mindset for 2+ decades, along with minimal discretionary spending over that period, it's hard to imagine spending significantly more than we do now.  But I can think back to how we lived in near-poverty during college, and I know that our current income/spending (even adjusted for inflation) would have seemed unfathomable to us at the time.

Agreed, going back to high school or even college the thought of being just a millionaire was unfathomable to me.  How things change.  Of course there are some not-so-positive aspects of aging that if you'd have asked me about ten years ago I would have scoffed at as well, so it swings both ways for sure.

When I was in HS, interest rates were 5%-9%. People could retire with a paid-off house and $400,000 in the bank.

I don't know how old you are, but $400k earning 7% for 20 years would be worth $1,550.000-ish now. Except we all know interest rates didn't hold for that long.

[bearman]

I really don't think it's accurate to say that paying off the mortgage is simply emotional and not paying it off is simply mathematically superior. Assuming one has reason and strategy, either could easily be the right choice. If you are FI right now and considering RE in the next few years, the idea of a guaranteed 3.5% or 4% is pretty attractive, because you don't need to take risks for the 7% historical average (which as we all know involves plenty of down years to achieve). The goal of FIRE isn't maximum accumulation. It is freedom. Isn't a big part of freedom stuff like certainty, stability, etc? If you are not yet FI, then yes, it is clearly better to take risks and strive for faster accumulation, and relying on a mortgage to juice that phase.

[ysette9]

I really don't think it's accurate to say that paying off the mortgage is simply emotional and not paying it off is simply mathematically superior. Assuming one has reason and strategy, either could easily be the right choice. If you are FI right now and considering RE in the next few years, the idea of a guaranteed 3.5% or 4% is pretty attractive, because you don't need to take risks for the 7% historical average (which as we all know involves plenty of down years to achieve). The goal of FIRE isn't maximum accumulation. It is freedom. Isn't a big part of freedom stuff like certainty, stability, etc? If you are not yet FI, then yes, it is clearly better to take risks and strive for faster accumulation, and relying on a mortgage to juice that phase.

We really don’t need to re-open this debate on here. There is a separate massive thread dedicated to the pay-off-mortgage-early-or-not debate.

[Telecaster]

I really don't think it's accurate to say that paying off the mortgage is simply emotional and not paying it off is simply mathematically superior. Assuming one has reason and strategy, either could easily be the right choice. If you are FI right now and considering RE in the next few years, the idea of a guaranteed 3.5% or 4% is pretty attractive, because you don't need to take risks for the 7% historical average (which as we all know involves plenty of down years to achieve). The goal of FIRE isn't maximum accumulation. It is freedom. Isn't a big part of freedom stuff like certainty, stability, etc? If you are not yet FI, then yes, it is clearly better to take risks and strive for faster accumulation, and relying on a mortgage to juice that phase.

I get all that.  The part that isn't clear to me is the thread title is Putting FIRE on hold to pay off mortgage.  If the goal is free, Where does working a few extra years to pay off the mortgage fit into that?

Slight quibble:  7% is the historical market average return after in the historical inflation rate of about 3.5%.  To do apples-to-apples, the "guaranteed" savings is currently about 1.5% to 2% and likely to be something close to zero over the longer periods of time.  There's nothing wrong with guaranteeing a future savings, but you should calculate the savings correctly. 

[NorthernBlitz]

I like the method they talk about on Stacking Benjamins.

Put the money you'd put to paying down the mortgage into a taxable brokerage account (pick some allocation). Call this account "Mortgage Fund"

When "Mortgage Fund" > remaining mortgage, ask yourself "Do I want to use Mortgage Fund to pay off the mortgage or not?".

The relative liquidity of this money can be an advantage or disadvantage depending on your temperment. But, I assume any of us chasing FI aren't going to see money in an accessible account and blow it on lottery tickets and cruises.

The point they often bring us is that if something does go wrong, you don't get any advantage from having a 95% paid off home. The bank can still take it away. 100% owned is different (depending on where you live I guess?).

Note: This is not the method we used. We were living in Canada at the time and didn't know much about investing. We plowed tons of money into our mortage. We had enough equity in our home that when we moved to the US (after about 7 years of ownership), we just bought our house with cash. May have been sub-optimal, but since US credit agencies didn't have credit history on us our rate would have been fairly high. Haven't regretted buying in cash.

[Omy]

I'm not at all a market timer but I can't help but get the feeling that the market is getting a bit expensive at this point

Has anyone else noticed that the phrase "I'm not at all a market timer" is almost always followed by the phrase "but I really want to time the market"? Just sayin'.

That said, sometimes it's ok to make bad decisions because it makes you feel good. There are certainly worse things you could do than pay off a mortgage (like try to time the market with the rest of your investments).

My favorite related quote is "Everything before the "but" is bull$hit." I love you, but...  I'm not a market timer, but ...

That being said, I paid off my mortgages before FIRE and don't regret it a bit.

[johndoe]

When my roommate and I paid off a mortgage I expected it to be this big weight off shoulders... Then I just had to pay insurance and tax.  Keep in mind you'll never really be done.  My current mortgage can be "recast" so now the principle+interest is pretty modest and overall my payment is pretty small.  That might be something to consider

[Goldielocks]

@big_owl

When you are at the point of FIRE, and you have more than enough money, it is all about optimizing money for happiness, not optimizing money for getting more money.   Most people like reducing risk overall when they have "much more than enough".

Some things in life that will improve by paying off the mortgage:

1) You will make your life simpler with one less (large) payment to babysit.  Even on autopilot, most of us are watching to ensure that there is always sufficient funds in the right account for the mortgage.

2)  Your expenses per month are greatly reduced, providing a lot more time before you need to withdraw in a down market. Selling at a loss from time to time is normal, but stressful during retirement.  This gives you time for the market to rebuild, if you choose to wait it out.

3) Fewer decisions needed in when to sell to cover your expenses.    Without a mortgage, your SS or other monthly income streams may be enough to get by and you only draw down a smallish sum once a year for "fun" things like vacations.

4) In the event that you sell, die, divorce or move away, no mortgage makes this process a lot cleaner / easier as well.

5) As we age, monitoring transacations can become more difficult to track.

6) In my case, my mortgage needs renewal every 5 years, and it was stressful last time to "validate income" while FIRED, using a very low income and our investments.  Banks are not set up to recognize asstes when you renew a mortgage. It becomes more complex for them and more expensive for you.  Very stressful to me over a 3 month period to go through all that work of renewal.  I am seriously thinking of paying it off in full at the next renewal time to avoid this.

No Mortgage => Fewer buys / sells / monitoring bank accounts on a "need to" basis ==> more mind space for pursuing happiness.


That's my opinion, obviously.   The $140k amount you are talking about won't make a significant difference to your net worth, but monitoring the above monthly / quarterly, whatever, certainly will decrease life enjoyment in retirement.


The key disadavantage to paying off the mortgage, in addition to the money increases missed:
1)  That money is not just sitting in a fund for you to draw down in emergencies, and you can't just get a random line of credit on your property at low rates when you have low income.  Lines of credit require income to set up.

So -- Get a line of credit on your home after you pay off the mortgage, and before you retire.

ETA -- you need to change your topic title from "Putting FIRE on hold to pay off mortgage" to "Paying off Mortgage early to enjoy life more in FIRE".  I think your title got people thinking that you need more $$ to FIRE, but that is not the case here.

[big_owl]

@big_owl

When you are at the point of FIRE, and you have more than enough money, it is all about optimizing money for happiness, not optimizing money for getting more money.   Most people like reducing risk overall when they have "much more than enough".

Some things in life that will improve by paying off the mortgage:

1) You will make your life simpler with one less (large) payment to babysit.  Even on autopilot, most of us are watching to ensure that there is always sufficient funds in the right account for the mortgage.

2)  Your expenses per month are greatly reduced, providing a lot more time before you need to withdraw in a down market. Selling at a loss from time to time is normal, but stressful during retirement.  This gives you time for the market to rebuild, if you choose to wait it out.

3) Fewer decisions needed in when to sell to cover your expenses.    Without a mortgage, your SS or other monthly income streams may be enough to get by and you only draw down a smallish sum once a year for "fun" things like vacations.

4) In the event that you sell, die, divorce or move away, no mortgage makes this process a lot cleaner / easier as well.

5) As we age, monitoring transacations can become more difficult to track.

6) In my case, my mortgage needs renewal every 5 years, and it was stressful last time to "validate income" while FIRED, using a very low income and our investments.  Banks are not set up to recognize asstes when you renew a mortgage. It becomes more complex for them and more expensive for you.  Very stressful to me over a 3 month period to go through all that work of renewal.  I am seriously thinking of paying it off in full at the next renewal time to avoid this.

No Mortgage => Fewer buys / sells / monitoring bank accounts on a "need to" basis ==> more mind space for pursuing happiness.


That's my opinion, obviously.   The $140k amount you are talking about won't make a significant difference to your net worth, but monitoring the above monthly / quarterly, whatever, certainly will decrease life enjoyment in retirement.


The key disadavantage to paying off the mortgage, in addition to the money increases missed:
1)  That money is not just sitting in a fund for you to draw down in emergencies, and you can't just get a random line of credit on your property at low rates when you have low income.  Lines of credit require income to set up.

So -- Get a line of credit on your home after you pay off the mortgage, and before you retire.

ETA -- you need to change your topic title from "Putting FIRE on hold to pay off mortgage" to "Paying off Mortgage early to enjoy life more in FIRE".  I think your title got people thinking that you need more $$ to FIRE, but that is not the case here.

Thanks for the insight Goldielocks - all of your points ring true to me.  For us it is a lot about simplifying life and having one less worry out there occupying the back of our minds when we choose to FIRE or not. 


YOu're right about the thread title, when I made the thread I wasn't anticipating it to turn into another mortgage debate or accusations of market timing (ironic because I literally haven't cashed out a single stock I've ever owned in 20yrs of investing :/

In any case...we just made our first mortgage payment of the year.....only 11 more to go!

[Kem]

Another option would be to stick a fresh 30 year fixed on the ~145K and consider some automation using segregated accounts.  Generally, for most people, in most scenarios, I believe keeping the mortgage humming at a low interest rate for as long as possible has a high likelihood of working out in their favour. 

In addition to cleared headspace, I agree that at certain points one can hit their FI SWR at a lower number by paying off the mortgage in lump early.  This is certainly an emotion>probability choice but it does skew first few year’s sequence of returns risk in your favour.  For example, today my mortgage balance is 198K, my FI # including the mortgage payments is 1.2MM, while my FI # if I lump sum pay off the mortgage is 960K.  That is ¼ Million less that I would need to accumulate.  If I decided to make this choice I would enable a HELOC after paying it off so I could grab some liquidity back should the need arise. 

One concept that I used to believe and no longer do is the oft quoted tenet that the bank is the Primary lien holder: “if you have a mortgage the bank still owns you despite what you tell yourself at night.”

The primary lien holder is never the ‘owner’ and it can never be removed - it is first the state government (through taxation), then any other governmental agencies (through eminent domain – one never knows when a community is best going to be served by building a new mega-mart), then any mortgage holding bank, and finally the ‘owner’.

[ysette9]

In addition to cleared headspace, I agree that at certain points one can hit their FI SWR at a lower number by paying off the mortgage in lump early.  This is certainly an emotion>probability choice but it does skew first few year’s sequence of returns risk in your favour.  For example, today my mortgage balance is 198K, my FI # including the mortgage payments is 1.2MM, while my FI # if I lump sum pay off the mortgage is 960K.  That is ¼ Million less that I would need to accumulate.  If I decided to make this choice I would enable a HELOC after paying it off so I could grab some liquidity back should the need arise. 

That doesn’t make sense. Your FI number should be $960k plus the outstanding mortgage balance. You aren’t going to service that mortgage for the rest of your life so it doesn’t make sense to include it in the 25x stash calculation.

[Kem]

The Mortgage free FI # is $729,462
The Mortgage FI # is $1,194,159

If the primary residence mortgage has a material amount of time left on it, paying full lump at $966,938 can accelerate FI and reduce the initial returns risk.

edit: sorry, i lumped mortgage & remaining SL here - but i refi both every x years to max term so long as the cashflow improvement is significant.

During accumulation to FI I see no reason to pay extra towards the mortgage - and have extended out the term back to 30 years fixed twice in 12 years so that I can instead invest the increased cashflow.   

I also am planning on moving from this home and allowing tenants to pay down the mortgage - after I have the next primary residence mortgage secured if the cashflow improves further I will again refi this current mortgage back out to 30 years.

The next primary residence/home(s) I also plan on refinancing every few years to 30 year fixed, and jumping to the next primary residence (so long as each on can be converted into a cashflow even or better rental) when the numbers make sense to do so.

So - as I approach FI funded by VTI - I anticipate that I will have  2 debts of Primary House Mortgage & 1 Student Loan sitting at 15-30 years out. 

I will also have a growing portfolio of RE.  This is segregated from my FI number, with cashflow that covers the mortgage, vacancies, management, sinking maintenance fund, etc.  The initial primary purpose of this Portfolio is to be a cashflow-covered leverage source to allow my children each an option to venture into the world debt free.  Once the kiddos are all out in the world, post-Fi, this will simply be icing. 

[Bloop Bloop]

I find it funny that when it comes to paying off your mortgage, some posters on this forum are hell-bent on imposing a mathematical model, but they don't necessarily impose the same rigorous, unemotional maths-based approach when it comes to taking on more responsibility at work (more pay vs more stress), deciding which school to send the children to, buying insurance (insurance usually has a negative EV, unless your baseline risk is greater than average). Suddenly other non-mathematical elements come into play. But then a mortgage just has to be a purely mathematical choice.

[Kem]

It's all where we choose to balance.

The mortgage game is only that - a game.  I like some of the viewpoints chipped in here - - - but in the end aggressive debt reduction followed by extra aggressive investing - or aggressive investing combined with minimal parallel debt reduction - are both far better choices than the average citizen would make.  One extream is usually more emotional the other more statistical - but it comes down to the individual which is more appropriate.

I took a 3 month sabbatical and essentially no starting pay to build an ethically founded firm with a few others - slashing my compensation by far more than 50% to do so.  My retirement account is fully funded (at full retirement age), some cash funds are kicking, and life is good as (my fairly optimal) expenses are covered.  The low stress combined with more family time is wonderful.  It's amazing to not be working as an employee.  It also gives the bandwidth to potentially accelerate FI.

On insurance I reduce it as the stache grows - and it is only enough to cover gaps due to catastrophic conditions.  Also comp shop each time.  Otherwise I'm self insured.

The emotional points are valid
The mathematics are valid

It's bloody awesome to be part of a community where we can have a sounding board to bash out the finer points of each

[Simpli-Fi]

Thanks for informing internet strangers of your new plan, that you didn't want to hear opinions about, with a misleading title, on a controversial subject.  you win

[big_owl]

Thanks for informing internet strangers of your new plan, that you didn't want to hear opinions about, with a misleading title, on a controversial subject.  you win

Lolz, you're right, I do win!  Shoo fly!

[DirtDiva]

and we have 7-figures income and are in reaching distance for 8-figure stash[/b] so I don't feel too guilty for the purchase.  No kids or debt other than what's left on the mortgage.

I think you’re good to go to pay off 145k. 😉. Chump change!

[Cassie]

When we retired we sold our old house and bought a new one for cash.  At this point do what’s most comfortable for you.

[big_owl]

10 payments left...

So far it's been worth putting a hiatus on post tax investing thanks to Coronavirus. I need the panic to last a few more months or maybe trigger recession before I come back and brag about my market non-timing. 

[Kem]

That's a hoot 😂

[marcus_aurelius]

Maybe it's because little owl and I have been listening to Dave Ramsey a lot in the past 6mo or maybe because we're just sick of having a mortgage, but today we decided that we're going to put all our post-tax investment on hold this year and shovel that money into paying off our mortgage. 

We were originally on track to pay it off in about 25mo with our current strategy but this will accelerate it to being paid off in December of this year.  The mortgage itself is pretty small at this point ($145k outstanding out of original $620k).  Up until today we've been been on autopilot with our investments and payoff strategy. 

Thinking about it I guess there are a few reasons for the change in strategy:

1. Our stash is pretty big.  An extra $150k added really doesn't make a material difference relative to the overall market direction on a year's time horizon
2. I'm not at all a market timer but I can't help but get the feeling that the market is getting a bit expensive at this point
3. Neither of us will FIRE until the mortgage is paid off, so doing this means I'm one bad day away from FIRE.  It will feel so good to not have any debt or financial obligations in life.

Anyway, that's the plan, we're still maxing out our pretax investments and with bonuses we should be able to put maybe some money into after tax investments though I do have $40k earmarked for a new car at the end of the year.  Let the countdown begin....

I'm in the same boat and have decided to make a large mortgage payment as well. We have ~$1.6M in retirement and post-tax index funds that we won't touch. Even with the current Coronavirus scare this week, the market still seems expensive. My wife and I are still maxing out our 401ks to Vanguard (with company match) but our $120K bonus will go towards the $370K mortgage balance. It shaves off almost 3 years from the 8 years balance. Even though our interest is 2.5%, this still seems a better use of our cash.

[EngagedToFIRE]

Maybe it's because little owl and I have been listening to Dave Ramsey a lot in the past 6mo or maybe because we're just sick of having a mortgage, but today we decided that we're going to put all our post-tax investment on hold this year and shovel that money into paying off our mortgage. 

We were originally on track to pay it off in about 25mo with our current strategy but this will accelerate it to being paid off in December of this year.  The mortgage itself is pretty small at this point ($145k outstanding out of original $620k).  Up until today we've been been on autopilot with our investments and payoff strategy. 

Thinking about it I guess there are a few reasons for the change in strategy:

1. Our stash is pretty big.  An extra $150k added really doesn't make a material difference relative to the overall market direction on a year's time horizon
2. I'm not at all a market timer but I can't help but get the feeling that the market is getting a bit expensive at this point
3. Neither of us will FIRE until the mortgage is paid off, so doing this means I'm one bad day away from FIRE.  It will feel so good to not have any debt or financial obligations in life.

Anyway, that's the plan, we're still maxing out our pretax investments and with bonuses we should be able to put maybe some money into after tax investments though I do have $40k earmarked for a new car at the end of the year.  Let the countdown begin....

Love the idea.  I have no mortgages or debt at all, nothing.  And it's a damn good feeling.  That's all I'll say about it :)

[EngagedToFIRE]

...the context does likely imply a HCOL ($620k house) and high income ($185k of post-tax income going toward car + mortgage, plus maxed out pre-tax investments, plus enough leftover for food, utilities, etc.).

I raised my eyebrows at the $40k car purchase, but then OP probably makes 2x what I make, and we bought a $18k new car last year.

Housing prices are high here (or at least were really high back in 2004 when we bought).  But outside of that the COL is low and taxes are very low.  I've been driving the same subaru for just under 20yrs and we have 7-figures income and are in reaching distance for 8-figure stash so I don't feel too guilty for the purchase.  No kids or debt other than what's left on the mortgage.

Ok, 7 figure income and near-8-figure stash.  You're making ~10x more than many of us each year, and have a stash to match.  I unraise my eyebrows at the plan for the $40k car purchase and instead salute you for spending far less on your vehicles relative to your income than most people do.

At the risk of derailing this latest edition of "Mortgage Payoff -- Moronic or Mustachian", I'm unabashedly curious about what plans you have for an 8-figure stash, particularly living in a LCOL area.  I'm even more curious where the rest of your income goes, if only ~$185k is earmarked for mortgage payoff + car, and maybe...what, another $100k for miscellaneous living expenses (I'm being extremely generous here, relative to Mustachian standards, given your description of low taxes and LCOL area).  With the lowest possible 7-figure income, and the highest possible Federal taxes, you should still be clearing around $600,000/year in take-home pay.  That would leave $300k+ unaccounted for.  Give us a peek -- we voyeurs want to have a little fun too!

3. Everything else - we don't exhibit what I'd consider opulent consumerism, but the stuff that we do buy is generally top of the line.  I get much more satisfaction buying a very nice computer vs. a cheap-ass one (or a cheap-ass watch ;).  Or while doing home DIY projects I don't cheap out on material, we just appreciate higher quality stuff.  Where I used to buy only Suzuki motorcycles now it's Ducati, etc.  This adds up over time but I'm A-ok with it.

What kind of blender do you have?  Asking for a friend....  :P

[EngagedToFIRE]

Maybe it's because little owl and I have been listening to Dave Ramsey a lot in the past 6mo or maybe because we're just sick of having a mortgage, but today we decided that we're going to put all our post-tax investment on hold this year and shovel that money into paying off our mortgage. 

We were originally on track to pay it off in about 25mo with our current strategy but this will accelerate it to being paid off in December of this year.  The mortgage itself is pretty small at this point ($145k outstanding out of original $620k).  Up until today we've been been on autopilot with our investments and payoff strategy. 

Thinking about it I guess there are a few reasons for the change in strategy:

1. Our stash is pretty big.  An extra $150k added really doesn't make a material difference relative to the overall market direction on a year's time horizon
2. I'm not at all a market timer but I can't help but get the feeling that the market is getting a bit expensive at this point
3. Neither of us will FIRE until the mortgage is paid off, so doing this means I'm one bad day away from FIRE.  It will feel so good to not have any debt or financial obligations in life.

Anyway, that's the plan, we're still maxing out our pretax investments and with bonuses we should be able to put maybe some money into after tax investments though I do have $40k earmarked for a new car at the end of the year.  Let the countdown begin....

I'm in the same boat and have decided to make a large mortgage payment as well. We have ~$1.6M in retirement and post-tax index funds that we won't touch. Even with the current Coronavirus scare this week, the market still seems expensive. My wife and I are still maxing out our 401ks to Vanguard (with company match) but our $120K bonus will go towards the $370K mortgage balance. It shaves off almost 3 years from the 8 years balance. Even though our interest is 2.5%, this still seems a better use of our cash.

For what it's worth, why not put the funds away in the market until you have enough to lump sum the mortgage?  Maybe start a separate fund just for that.  Put it in bonds if you want.  It's what I did, personally.  I didn't get ANY satisfaction making extra payments that didn't wipe out the mortgage.  So I held on to the money until I could do it all at once.

[big_owl]

...the context does likely imply a HCOL ($620k house) and high income ($185k of post-tax income going toward car + mortgage, plus maxed out pre-tax investments, plus enough leftover for food, utilities, etc.).

I raised my eyebrows at the $40k car purchase, but then OP probably makes 2x what I make, and we bought a $18k new car last year.

Housing prices are high here (or at least were really high back in 2004 when we bought).  But outside of that the COL is low and taxes are very low.  I've been driving the same subaru for just under 20yrs and we have 7-figures income and are in reaching distance for 8-figure stash so I don't feel too guilty for the purchase.  No kids or debt other than what's left on the mortgage.

Ok, 7 figure income and near-8-figure stash.  You're making ~10x more than many of us each year, and have a stash to match.  I unraise my eyebrows at the plan for the $40k car purchase and instead salute you for spending far less on your vehicles relative to your income than most people do.

At the risk of derailing this latest edition of "Mortgage Payoff -- Moronic or Mustachian", I'm unabashedly curious about what plans you have for an 8-figure stash, particularly living in a LCOL area.  I'm even more curious where the rest of your income goes, if only ~$185k is earmarked for mortgage payoff + car, and maybe...what, another $100k for miscellaneous living expenses (I'm being extremely generous here, relative to Mustachian standards, given your description of low taxes and LCOL area).  With the lowest possible 7-figure income, and the highest possible Federal taxes, you should still be clearing around $600,000/year in take-home pay.  That would leave $300k+ unaccounted for.  Give us a peek -- we voyeurs want to have a little fun too!

3. Everything else - we don't exhibit what I'd consider opulent consumerism, but the stuff that we do buy is generally top of the line.  I get much more satisfaction buying a very nice computer vs. a cheap-ass one (or a cheap-ass watch ;).  Or while doing home DIY projects I don't cheap out on material, we just appreciate higher quality stuff.  Where I used to buy only Suzuki motorcycles now it's Ducati, etc.  This adds up over time but I'm A-ok with it.

What kind of blender do you have?  Asking for a friend....  :P

We have a bluicer.  Blenders aren't high on my give too much a shit list but the bluicer has been pretty good for us.

[big_owl]

9 payments left.   Strategy is still lookin' diesel.

[Jack0Life]

Usually I pretty neutral about paying off mortgage or not as I have a paid house myself.
However this would be like the worst time to accelerate paying off your mortgage.
This is a once in a decade chance to buy equities at a huge discount.
If I had extra money sitting around(which I do actually), I'm putting it all in the markets.

[ysette9]

I agree with this being a a amazing time to buy into the market. As grateful as I am to be FIREd as I have zero clue how we would manage right now if we were both working, I am bummed about not having a paycheck to throw at vanguard every week.

[Dicey]

...the context does likely imply a HCOL ($620k house) and high income ($185k of post-tax income going toward car + mortgage, plus maxed out pre-tax investments, plus enough leftover for food, utilities, etc.).

I raised my eyebrows at the $40k car purchase, but then OP probably makes 2x what I make, and we bought a $18k new car last year.

Housing prices are high here (or at least were really high back in 2004 when we bought).  But outside of that the COL is low and taxes are very low.  I've been driving the same subaru for just under 20yrs and we have 7-figures income and are in reaching distance for 8-figure stash so I don't feel too guilty for the purchase.  No kids or debt other than what's left on the mortgage.

Ok, 7 figure income and near-8-figure stash.  You're making ~10x more than many of us each year, and have a stash to match.  I unraise my eyebrows at the plan for the $40k car purchase and instead salute you for spending far less on your vehicles relative to your income than most people do.

At the risk of derailing this latest edition of "Mortgage Payoff -- Moronic or Mustachian", I'm unabashedly curious about what plans you have for an 8-figure stash, particularly living in a LCOL area.  I'm even more curious where the rest of your income goes, if only ~$185k is earmarked for mortgage payoff + car, and maybe...what, another $100k for miscellaneous living expenses (I'm being extremely generous here, relative to Mustachian standards, given your description of low taxes and LCOL area).  With the lowest possible 7-figure income, and the highest possible Federal taxes, you should still be clearing around $600,000/year in take-home pay.  That would leave $300k+ unaccounted for.  Give us a peek -- we voyeurs want to have a little fun too!

3. Everything else - we don't exhibit what I'd consider opulent consumerism, but the stuff that we do buy is generally top of the line.  I get much more satisfaction buying a very nice computer vs. a cheap-ass one (or a cheap-ass watch ;).  Or while doing home DIY projects I don't cheap out on material, we just appreciate higher quality stuff.  Where I used to buy only Suzuki motorcycles now it's Ducati, etc.  This adds up over time but I'm A-ok with it.

What kind of blender do you have?  Asking for a friend....  :P

We have a bluicer.  Blenders aren't high on my give too much a shit list but the bluicer has been pretty good for us.

Never heard of it. Amazon says the Breville 3X "Bluicer" is $299.00. I think I'll go pop some popcorn :-)

[big_owl]

Usually I pretty neutral about paying off mortgage or not as I have a paid house myself.
However this would be like the worst time to accelerate paying off your mortgage.
This is a once in a decade chance to buy equities at a huge discount.
If I had extra money sitting around(which I do actually), I'm putting it all in the markets.

Nah, this isn't about making the most money, it's about achieving the no-mortgage milestone. 

[Josiecat]

Big-Owl - Good job.  I'll cheer for you when you become mortgage free! 

[nht]

Heh, I saw this thread as I was debating paying off the mortgage or not but quite a few comments didn’t age well.

I liked the early one about 30% gains...the assumption that the market will only go up during the timeframe of your mortgage is as much market timing as expecting the market to go down in that timeframe.

Also the comment about the ability to geoarbitrage and travel or taking on boarders.  Both not optimal choices for the next year or so.  We don’t always get to pick what circumstances will be.

I’m likely keeping my mortgage even though we aren’t close to 8 figures, lol. My dad has a saying tho’: “debt is the only luxury I can’t afford”.

The global circumstances we’ve gone through the last 50 years is peanuts in comparison to the prior 50 years...if the older generation (and I ain’t talking boomers) say debt is bad then maybe the math doesn’t hold all of the variables in the equation.

[big_owl]

Update:

1. Seven more payments to GO!  Current loan balance is $87k so it's getting pretty small.

2. The "best opportunity in a generation" to buy stocks turned out to be a pretty big bust. Stocks are already back to what they were when we changed to this strategy, and there was really only one mortgage payment's worth of dip that was respectable, so I only missed out on a few thousand dollars worth of gains.  Didn't really even move the needle.   

Who knows what will happen this summer but for now I'm still feeling good about our decision to prioritize the mortgage.