Putting FIRE on hold to pay off mortgage

[big_owl]

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....

[CheapScholar]

I’m in the same position.  We still max out pretax stuff but I just have more peace of mind throwing my dollars at the mortgage than post-tax things.  I’m sure a bunch of people will chime in and criticize with the whole “it’s emotional but not mathematically or historically” the right decision.

Our mortgage is down to 61k.  I guess part of my viewpoint is shaped by how I was raised.  I’m only 39 but was largely raised by grandparents.  Debt was always considered bad, even mortgage debt.  Also, I don’t even anticipate revisiting the post-tax stuff after the mortgage is paid off.  No idea what I’ll spend the money on, but I’m on track to be FI at 43 and I absolutely love my job.

Looking forward to burning my mortgage papers in the backyard this fall.

[BTDretire]

 You didn't mention a mortgage rate, but I can sure understand not taking a chance on another year like this one, where VTSAX gained 30% when you have a chance to pay of a 4% mortgage. /s/
  Yes, that is a sarcastic comment, You probably made an extra $35,000 having that $145k in the market instead of having paid it on your mortgage last year. True we don't know what the market will do this year, so, if you feel the security is worth more than the possibility of nice gains go for it.

[Cranky]

The math usually makes more sense to keep the mortgage.

If you are close to retiring, though, a paid off house can definitely be part of your overall plan. I like keeping my basic expenses low, and not having a mortgage is a big part of that.

[Thoughtful Mule]

I was in the same boat. It becomes more psychological than actually about money optimization. In your case, I don't think it would make much of a difference in your net worth either way. Think of it as contributing more to your fixed/bond allocation. If your stache is in good shape, no reason not to take a little risk off the table in exchange for guaranteed low returns.

Careful with Ramsey though, I've seen some people do strange things after listening to him. He really caters to people who are terrible at money.

[RWD]

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.

1. $150k compounded over 10, 20, or 30 years (or however much time is left on the mortgage) does make a material difference
2. You are detailing your plan for market timing
3. This is an arbitrary restriction you have placed on yourself and is much more stringent than necessary for comfortable FIRE

You didn't mention an interest rate (as seems common for people who advocate early payoff) but I'm just going to assume it's 6.8% so I can tell you "sounds like a good plan."

[EvenSteven]

2. You are detailing your plan for market timing

P1: Market timing is bad.
P2: I am not bad.

C: Therefore, whatever I do is not market timing.

[John Galt incarnate!]

The math usually makes more sense to keep the mortgage.

If you are close to retiring, though, a paid off house can definitely be part of your overall plan. I like keeping my basic expenses low, and not having a mortgage is a big part of that.

A paid-off mortgage is inseparable from  my FIREtirement.

[Dicey]

https://forum.mrmoneymustache.com/investor-alley/investment-order/

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

Once you've read and understood the above concepts, knock yourself out, do whatever you want. But please don't come here seeking approval for sub-optimal choices*. Do your homework first, then decide.

*Not saying it is or it isn't,  just that you should make an informed decision, not an emotional one. Typically, the cheapest mortgage money is for home acquisition. You can't get it back once it's gone...choose wisely.

[John Galt incarnate!]

You didn't mention a mortgage rate, but I can sure understand not taking a chance on another year like this one, where VTSAX gained 30% when you have a chance to pay of a 4% mortgage. /s/
  Yes, that is a sarcastic comment, You probably made an extra $35,000 having that $145k in the market instead of having paid it on your mortgage last year. True we don't know what the market will do this year, so, if you feel the security is worth more than the possibility of nice gains go for it.

For me security of ownership of my  home (no mortgage) was paramount so opportunity cost was not a consideration.

[Greystache]

I didn't exactly put my FIRE on hold until I paid off the mortgage, rather I hit my FIRE number and still had a $33K mortgage balance. I decided to simply write a check and payoff the balance before I retired. It may not have been the optimal solution money-wise, but emotionally, it felt great to go into retirement completely debt free. I have no regrets. Just for fun I decided to go back and see how I would have done if I kept my $33k invested and continued to make mortgage payments. I retired Jan. 1st 2015. It would have taken another 2 years to pay off the mortgage so I missed out on investment returns for 2 years.  The S&P 500 returned -.75% in 2015 and +9.5% in 2016. I was 60% invested in equities at the time. The difference between paying off the mortgage and keeping the money invested was negligible. By my rough calculation, I would have been around $250 better off leaving the money invested.

[Davnasty]

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.

1. $150k compounded over 10, 20, or 30 years (or however much time is left on the mortgage) does make a material difference
2. You are detailing your plan for market timing
3. This is an arbitrary restriction you have placed on yourself and is much more stringent than necessary for comfortable FIRE

You didn't mention an interest rate (as seems common for people who advocate early payoff) but I'm just going to assume it's 6.8% so I can tell you "sounds like a good plan."

2. I would add a caveat to this. If the decision to pay down the mortgage is based on the feeling that the market is getting a bit expensive, then yes, it is the definition of market timing. If however, the decision was made independent of OP's feelings about current markets, then it is not market timing. Context makes it sound like the former, but perhaps OP can elaborate?

[John Galt incarnate!]

https://forum.mrmoneymustache.com/investor-alley/investment-order/

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

Once you've read and understood the above concepts, knock yourself out, do whatever you want. But please don't come here seeking approval for sub-optimal choices*. Do your homework first, then decide

*Not saying it is or it isn't,  just that you should make an informed decision, not an emotional one. Typically, the cheapest mortgage money is for home acquisition. You can't get it back once it's gone...choose wisely.

Agree.

Rational agents always seek to maximize their satisfaction.

Paying off a mortgage as soon as possible is rational if it maximizes satisfaction which in my case it did.

[terran]

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).

[RWD]

For me security of ownership of my  home (no mortgage) was paramount so opportunity cost was not a consideration.

You can still lose your house by failing to pay real estate taxes.

[thesis]

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 love how everybody is engaging the old mortgage-vs-market debate and ignoring this piece that I've bolded. $40k for a new car?! But then you also paid $620k for a house. Wait, $620k FOR A HOUSE? Geez, geoarbitrage yourself to a paid off mortgage instead, then you can keep putting money in the market. Everyone's got circumstances, maybe you live in an HCOL, but I can't help but think maybe your approach is off if you've been buying or looking to buy such expensive things. Not trying to be harsh, it's just early and my filter hasn't warmed up yet :)

[Psychstache]

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).

[DadJokes]

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.

[RWD]

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.

[Bird In Hand]

I love how everybody is engaging the old mortgage-vs-market debate and ignoring this piece that I've bolded. $40k for a new car?! But then you also paid $620k for a house. Wait, $620k FOR A HOUSE? Geez, geoarbitrage yourself to a paid off mortgage instead, then you can keep putting money in the market. Everyone's got circumstances, maybe you live in an HCOL, but I can't help but think maybe your approach is off if you've been buying or looking to buy such expensive things. Not trying to be harsh, it's just early and my filter hasn't warmed up yet :)

I noticed that too.  But 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. 

[Davnasty]

https://forum.mrmoneymustache.com/investor-alley/investment-order/

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

Once you've read and understood the above concepts, knock yourself out, do whatever you want. But please don't come here seeking approval for sub-optimal choices*. Do your homework first, then decide

*Not saying it is or it isn't,  just that you should make an informed decision, not an emotional one. Typically, the cheapest mortgage money is for home acquisition. You can't get it back once it's gone...choose wisely.

Agree.

Rational agents always seek to maximize their satisfaction.

Paying off a mortgage as soon as possible is rational if it maximizes satisfaction which in my case it did.

A fair point, but isn't it possible to find satisfaction from irrational sources due to an incomplete understanding of reality?

In other words, one might feel more secure by paying down their mortgage even when they are in fact less secure simply because they don't have all of the information*

As an analogy, if you had a choice between a fire extinguisher and a water gun for use in case of a fire in your home, which would you choose? The fire extinguisher would be the rational choice as it would be much more effective and should therefore maximize satisfaction. Now what if it was known that the fire extinguisher is empty? With that knowledge the water gun is now the more effective tool and is the rational choice to maximize satisfaction.

Imagine that two individuals are debating whether the extinguisher or the water gun is the better choice. Individual one makes their case as to why they believe the extinguisher is empty and therefore a suboptimal choice. Individual two can make two counterarguments:

a) reject the argument that the extinguisher is empty.
b) accept that the extinguisher is empty but choose it anyway on the basis that it makes them feel more satisfied.

I believe argument a is rational but b is not. Emotions may be a legitimate reason to make a decision, but those emotions are based on underlying beliefs.

As such I also believe that those who claim it helps them sleep at night are actually rejecting the argument that paying off their mortgage is suboptimal, whether they acknowledge that position or not.

*I'm not stating that this is the case, only speaking hypothetically. I do not take a strong position on the POYM debate, especially without all the variables such as mortgage rate, allocation of all other assets, and personal timeline.

[DadJokes]

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.

Yeah, that was dumbing it down, but it still worked out, assuming that the alternative was to pay it off on schedule (~15 years after FI date). I didn't calculate assuming a refinance, though I might when I am closer and know what the rates are.

Something else that I keep in mind is the fact that the reduced expenses from not having a mortgage makes ACA subsidies easier to get, and they make it easier to get an EFC of zero for the FAFSA (ethics of manipulating income to appear poor aside).

[Cranky]

For me security of ownership of my  home (no mortgage) was paramount so opportunity cost was not a consideration.

You can still lose your house by failing to pay real estate taxes.

My real estate taxes are cheap (and really, so was my house.) It takes years and years around here for a house to go up for tax sale.

[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.

[John Galt incarnate!]

A fair point, but isn't it possible to find satisfaction from irrational sources due to an incomplete understanding of reality?

Yes.

 Emotions may be a legitimate reason to make a decision, but those emotions are based on underlying beliefs.

As such I also believe that those who claim it helps them sleep at night are actually rejecting the argument that paying off their mortgage is suboptimal, whether they acknowledge that position or not.


I won't ever argue that in  terms of $,  paying off a mortgage as soon as possible is invariably  optimal.

[partgypsy]

I know I want in part to get rid of my mortgage, because I like simplifying my life. Right now I have 3 credit/debit cards when my ideal is to only have two (one less place to look at each month). My mortgage is one of the few payments I don't automatize. Sometimes having a less cluttered life including having few big bills that have to be timed and planned, etc, is not just an emotional but a time-saving and psychological benefit. When you have a less cluttered ingo/outgo, you can focus on other ways to maximize your life effort/what your next big goal is because that mortgage is no longer distracting you. You can also see a little more clearly where you are spending money once that big line item is gone. It's not just a feel-good thing.   

[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.

[John Galt incarnate!]

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.

 Same for me.

And let’s face it, none of us know what the stock market will do in the next year.

We also don't know when  UFOs (unforeseen occurrences) may adversely  affect one's personal finances.

Suppose  after 13 years of paying off a 15-year mortgage, due to UFOs,  the mortgagor is no longer able to pay it.

Losing their home after 13 years of payments is a financial nightmare  and setback of enormous proportions that may have been avoided by paying off the mortgage ASAP.

If a mortgagor is worried about UFOs  they've acted rationally if they pay the mortgage off ASAP  because peace of mind is their priority.

[ysette9]

Damn, @Dicey. You are on fire today with your postings. :)
(Saw some other threads you are on recently)

[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.

[big_owl]

I love how everybody is engaging the old mortgage-vs-market debate and ignoring this piece that I've bolded. $40k for a new car?! But then you also paid $620k for a house. Wait, $620k FOR A HOUSE? Geez, geoarbitrage yourself to a paid off mortgage instead, then you can keep putting money in the market. Everyone's got circumstances, maybe you live in an HCOL, but I can't help but think maybe your approach is off if you've been buying or looking to buy such expensive things. Not trying to be harsh, it's just early and my filter hasn't warmed up yet :)

I noticed that too.  But 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.

[Mustache ride]

What's the point of your post?

[feelingroovy]

I think your plan makes sense.

There is a huge difference between the long term advantages of not paying off a mortgage at the beginning in order to start building a stash and finishing it a year or two early when you already have a huge stash.

We're still in accumulation mode so we're letting ours ride for now. But at some point it's worth reducing risk and preserving what you already have.

[jps]

7-figures income and are in reaching distance for 8-figure stash

Oh jeez. This whole decision isn't any bigger than a rounding error, either way it goes. Nice work!

[Davnasty]

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

Forum rule #2, no need for name calling.

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.

So what was your goal in posting?

As far as I can tell, your post led to what was largely a respectful and thoughtful conversation. then you came back to call half the posters dumb.

[moof]

Paying off you mortgage in 2 years instead of 1 year probably makes no real difference, go nuts, I'm jealous of you.

In my own situation I compared paying off my mortgage over ~5 years to be paid off at FIRE instead of the remaining 11 years.  With a 3% interest rate I was modestly better off spreading it out, basically I can either withdraw about 2.5% more at the same FIRE date, or FIRE a few months earlier by spreading things out.

I also like having more cash on-hand in the interim.

[MrThatsDifferent]

What's the point of your post?

Honestly, this was my question too. The OP clearly knows the controversy and debate around this and wasn’t looking for guidance to testing thinking, so what was the point? Why not just pay it off and then post in the forum for celebrating achievements? To me this is just shit stirring and then faking outrage when people take the bait. Weird.

[Firehazard]

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....

This is exactly what we did.  We had enough to FIRE but wanted that mortgage gone first.  No regrets.

[RWD]

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

Nice ad hominem...

[martyconlonontherun]

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. ?

[MrThatsDifferent]

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.

[Dicey]

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. ?

Once you've hit your number, I fully see your point. If you're trying to get to FI asap, using leverage is a powerful tool to help you get there faster. Two completely different scenarios.

[Bloop Bloop]

People make lots of value based decisions which don't optimise their income. Some people have chosen to work fewer hours than they can tolerate or have chosen to work in a field or a job that doesn't maximise their market income in order to do something that's meaningful to them. Likewise, some people like the security of having their own piece of land paid off. It's not something you can criticise as long as it's an informed decision.

[Arbitrage]

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.

Yeah, that was dumbing it down, but it still worked out, assuming that the alternative was to pay it off on schedule (~15 years after FI date). I didn't calculate assuming a refinance, though I might when I am closer and know what the rates are.

Something else that I keep in mind is the fact that the reduced expenses from not having a mortgage makes ACA subsidies easier to get, and they make it easier to get an EFC of zero for the FAFSA (ethics of manipulating income to appear poor aside).

Agreed on these points.  Paying off a mortgage when entering retirement actually does make mathematical sense, because your goal at that point is not to maximize your average final balance, but to minimize your chance of failure (thus bond tenting). 

Running two FIRE sims, if I pay off my mortgage when RE, failure rate is lower than if I keep my low-interest rate mortgage.  (8 failure cases investing the mortgage in equities, 2 failure cases when paying off the mortgage). 

That ignores the ACA/college benefit as well as the tax benefits of keeping my income lower during RE, which further sway the balance toward mortgage payoff at RE.  This is not to advocate paying it off before RE, which isn't mathematically optimal (but I understand the emotional benefit).

[Bird In Hand]

...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!

[partgypsy]

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/

[thesis]

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.

Agreed. With those figures you can pretty easily do whatever you want :)

[bigblock440]

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.

 Same for me.

And let’s face it, none of us know what the stock market will do in the next year.

We also don't know when  UFOs (unforeseen occurrences) may adversely  affect one's personal finances.

Suppose  after 13 years of paying off a 15-year mortgage, due to UFOs,  the mortgagor is no longer able to pay it.

Losing their home after 13 years of payments is a financial nightmare  and setback of enormous proportions that may have been avoided by paying off the mortgage ASAP.

If a mortgagor is worried about UFOs  they've acted rationally if they pay the mortgage off ASAP  because peace of mind is their priority.

If the mortgagor just spent the extra payments, sure, but nobody is advocating not paying off the mortgage and spending the difference, the point is to save the difference in somewhere more liquid, and they'll always be able to pay it. 

Suppose after 10 years of paying ahead on a 15 year mortgage, with only a year or two remaining, due to UFOs,  the mortgagor is no longer able to pay it.

Losing their home after 10 years of payments is a financial nightmare  and setback of enormous proportions that may have been avoided by making minimum payments and saving the difference.

[partgypsy]

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.

 Same for me.

And let’s face it, none of us know what the stock market will do in the next year.

We also don't know when  UFOs (unforeseen occurrences) may adversely  affect one's personal finances.

Suppose  after 13 years of paying off a 15-year mortgage, due to UFOs,  the mortgagor is no longer able to pay it.

Losing their home after 13 years of payments is a financial nightmare  and setback of enormous proportions that may have been avoided by paying off the mortgage ASAP.

If a mortgagor is worried about UFOs  they've acted rationally if they pay the mortgage off ASAP  because peace of mind is their priority.

If the mortgagor just spent the extra payments, sure, but nobody is advocating not paying off the mortgage and spending the difference, the point is to save the difference in somewhere more liquid, and they'll always be able to pay it. 

Suppose after 10 years of paying ahead on a 15 year mortgage, with only a year or two remaining, due to UFOs,  the mortgagor is no longer able to pay it.

Losing their home after 10 years of payments is a financial nightmare  and setback of enormous proportions that may have been avoided by making minimum payments and saving the difference.

Yes, but that would only happen if people were putting all their monies towards the mortgage and none towards any other kinds of saving. However I have seen this criticism trotted out before even when it does not personally apply, including this thread (poster has other savings, investments such that they could pay off house). 

I know it sounds crazy but paying off the house sooner is optimal for me. I am motivated to put money towards paying off house sooner even if it means a little deprivation, in a way I'm not motivated to put that money towards retirement. I imagine there are other people like me (who find debt more averse and hence motivating, than the converse). It seems to drive some people nuts, but you have to accept everyone is built different. 

[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.

Yeah, that was dumbing it down, but it still worked out, assuming that the alternative was to pay it off on schedule (~15 years after FI date). I didn't calculate assuming a refinance, though I might when I am closer and know what the rates are.

Something else that I keep in mind is the fact that the reduced expenses from not having a mortgage makes ACA subsidies easier to get, and they make it easier to get an EFC of zero for the FAFSA (ethics of manipulating income to appear poor aside).

Agreed on these points.  Paying off a mortgage when entering retirement actually does make mathematical sense, because your goal at that point is not to maximize your average final balance, but to minimize your chance of failure (thus bond tenting). 

Running two FIRE sims, if I pay off my mortgage when RE, failure rate is lower than if I keep my low-interest rate mortgage.  (8 failure cases investing the mortgage in equities, 2 failure cases when paying off the mortgage). 

That ignores the ACA/college benefit as well as the tax benefits of keeping my income lower during RE, which further sway the balance toward mortgage payoff at RE.  This is not to advocate paying it off before RE, which isn't mathematically optimal (but I understand the emotional benefit).

I’m interested in how you did this simulation because every time I have modeled the mortgage-or-not in cFIREsim it always tells me keeping the mortgage is better. I intellectually resonate with the argument about increasing the SRR by keeping the mortgage but I have never been able to see that in modeling .