Author Topic: I'm going to pay off my mortgage  (Read 14004 times)

boarder42

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Re: I'm going to pay off my mortgage
« Reply #50 on: November 04, 2017, 06:16:27 AM »
I was in your shoes, and paid mine off. My interest rate wasn't even as high as yours, and I still did it, and would again in a second. Mathematically it's not usually the best choice, but there's almost no better feeling. I could be let go tomorrow, and almost no f's would be given, because my bills are so low with everything paid for.

Op is in a much different situation with a 5.5% you likely put yourself in a worse situation vs investing the difference and getting laid off. More liquidable capital in a layoff situation is better than it tied up in a house. So mathematically you made the higher risk decision thinking it was lower.

frugalnacho

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Re: I'm going to pay off my mortgage
« Reply #51 on: November 04, 2017, 10:37:57 AM »
CASH IS KING!!!

Don't hand over the king.  Maintain your power over the king.  At least until baby is born and confirmed to be healthy.  You don't want to lose the option to spend money if you need it.

I've still got like $75k cash/taxable.  Some of that is earmarked for spending and for paying off CC balances (about $10k @ 0% that I'm not gonna pay off just yet). 

I could be fired tomorrow, not be able to find a job, and still probably live for 3+ years without touching my retirement accounts.

Also baby came on 10-29-17 and is healthy and happy.  Watching him sleep right now.

frugalnacho

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Re: I'm going to pay off my mortgage
« Reply #52 on: November 04, 2017, 10:47:30 AM »
The college savings plans don't seem like that great of a deal, especially considering it locks them into using it for school.  We are planning to be FIRE by the time the kid is age 5, so I'm sure by 18 we will be able to help them attend college if that's what they want to do.

I waffled back and forth between paying the mortgage off and just keeping it and investing it, but my wife really wants the peace of mind of a paid off mortgage so I just scheduled the payment today.  We also topped off our IRA's, and put aside about $35k for lots of stuff (taxes, max medical through 2018, IRA contributions through 2018, some planned spending, and enough money to cover all our 0% CC for when the promo rate expires).  We probabl set aside too much, and will invest the excess over the next year as we get a clearer picture of expenses going forward.  We had about $35k left over so I dumped it in our vanguard taxable account.

Agree with you on the college plans. And as strong an advocate as I am for keeping a mortgage your in such a grey area it's likely insignificant

Yea.  On one hand I think I'll beat that rate in the market over the next 25 years.  On the other hand there is a very real amount of stress an anxiety that I feel while carrying debt.  In the case of 0% credit cards I'm obviously going to just roll with it (it's also only for 1 year so the end is much closer with those).  I'm undecided if it really was the best decision to pay it off, but my wife also feels stress and anxiety by carrying debt and she really wanted it gone.  It was a coin flip for me, but she was the deciding factor. 

When I tried to pay it off they wouldn't let me.  I had to request a final pay off, which they snail mail to my house, despite me seeing the full balance online, and having the ability to make payments online.  But I have the money sitting in my checking account, and meanwhile I'm adding like $6-7 each day in interest while I wait for the pay off.  So I just scheduled a principal only payment for $0.01 less than the full balance.  So now my mortgage balance is $0.01 and should get sorted out next month when my regular payment goes through.  Despite technically still having the mortgage I feel the stress is gone already.  It is a great feeling to load up mint and see $0 for my mortgage.

Hotstreak

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Re: I'm going to pay off my mortgage
« Reply #53 on: November 04, 2017, 12:19:43 PM »
Awesome, congrats!

v8rx7guy

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Re: I'm going to pay off my mortgage
« Reply #54 on: November 04, 2017, 01:06:57 PM »
Just in time for the new baby!

gggggg

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Re: I'm going to pay off my mortgage
« Reply #55 on: November 05, 2017, 01:10:50 AM »
I was in your shoes, and paid mine off. My interest rate wasn't even as high as yours, and I still did it, and would again in a second. Mathematically it's not usually the best choice, but there's almost no better feeling. I could be let go tomorrow, and almost no f's would be given, because my bills are so low with everything paid for.

Op is in a much different situation with a 5.5% you likely put yourself in a worse situation vs investing the difference and getting laid off. More liquidable capital in a layoff situation is better than it tied up in a house. So mathematically you made the higher risk decision thinking it was lower.
I realize that, but I don't care. I don't want ANY debt, math or no math.

nottoolatetostart

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Re: I'm going to pay off my mortgage
« Reply #56 on: November 05, 2017, 07:43:47 AM »
I am happy to hear baby arrived healthy.
Congrats on everything!!!!!

Evgenia

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Re: I'm going to pay off my mortgage
« Reply #57 on: November 05, 2017, 08:32:12 AM »
Do it! I love your plan, every bit of it. We did it 2.5 years ago and have never looked back. It's the BEST feeling, knowing you have a roof over your head that is all yours, forever.

We agonized over it for months, compared it to investments, etc. We're glad we chose what we did. Congratulations on your investment working out, and enjoy!

Dicey

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Re: I'm going to pay off my mortgage
« Reply #58 on: November 06, 2017, 08:04:09 AM »
I was in your shoes, and paid mine off. My interest rate wasn't even as high as yours, and I still did it, and would again in a second. Mathematically it's not usually the best choice, but there's almost no better feeling. I could be let go tomorrow, and almost no f's would be given, because my bills are so low with everything paid for.

Op is in a much different situation with a 5.5% you likely put yourself in a worse situation vs investing the difference and getting laid off. More liquidable capital in a layoff situation is better than it tied up in a house. So mathematically you made the higher risk decision thinking it was lower.
I realize that, but I don't care. I don't want ANY debt, math or no math.
The mortgage is just one part of the cost of home ownership. Paying it off is fine until your house needs a new roof, HVAC, appliances and your taxes increase, all in the same year. Happens. What I want is a huge amount of investments that can pay for anything life throws at me. In FN's case, I voted for paying it off because he has lots of other assets. In your case, I do not know. But prizing an emotional decision over an analytical one is not mustachian.

frugalnacho

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Re: I'm going to pay off my mortgage
« Reply #59 on: November 01, 2019, 07:55:34 AM »
Well it's been 2 years since I paid my mortgage off.  It's been nice not having a mortgage, and it relieved a lot of stress for us, but that stress vacuum was quickly filled by many other areas, so I don't know how much my total stress levels actually dropped.  Seems like we quickly normalized to not having a mortgage and got stressed about other areas of life. Having a baby and multiple job changes will do that I guess.  Maybe it would have been more stressful to have a mortgage in addition to that, I don't know.  I'm revisiting this thread to see if it really was the right decision.  Had I not paid off the mortgage I would have dumped it all into my vanguard brokerage account according to my IPS.  60% VTSAX, and 40% VTIAX.    VTIAX is basically flat with an adjusted price of 28.36 on 11-3-17 to 28.66 today.   VTSAX has increased from 62.32 to 75.05 over the same period.  Missed some gains in VTSAX, but didn't miss anything in VTIAX, and avoided 5.5% interest on a mortgage.  All in all it's been about a wash so far. 

Currently debating about paying off a $10k car loan @ 2.99% interest.  On one hand I'd like to be free and clear of debt...on the other I have faith my long term gains in the market will be greater than 2.99%.  Wife is in favor of paying the car off.  I am on the fence and struggling between my emotional and rational brains.  I am getting deja vu about this as it feels very similar to when I was debating paying off the mortgage, but this time it's a smaller amount, and also a lower APR.  My gut is telling me to just pay it off, but my brain is saying "Hold up, you are planning to FIRE using the 4% rule and this is only 2.99%...don't you have faith in your own FIRE plan? If so keep the debt!".   I think my brain is right and I should just dump the entire chunk into my brokerage account and be done with it.

Chris Pascale

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Re: I'm going to pay off my mortgage
« Reply #60 on: November 01, 2019, 07:58:45 AM »
@frugalnacho you are awesome. Excellent job.

Raenia

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Re: I'm going to pay off my mortgage
« Reply #61 on: November 01, 2019, 08:03:44 AM »
Well it's been 2 years since I paid my mortgage off.  It's been nice not having a mortgage, and it relieved a lot of stress for us, but that stress vacuum was quickly filled by many other areas, so I don't know how much my total stress levels actually dropped.  Seems like we quickly normalized to not having a mortgage and got stressed about other areas of life. Having a baby and multiple job changes will do that I guess.  Maybe it would have been more stressful to have a mortgage in addition to that, I don't know.  I'm revisiting this thread to see if it really was the right decision.  Had I not paid off the mortgage I would have dumped it all into my vanguard brokerage account according to my IPS.  60% VTSAX, and 40% VTIAX.    VTIAX is basically flat with an adjusted price of 28.36 on 11-3-17 to 28.66 today.   VTSAX has increased from 62.32 to 75.05 over the same period.  Missed some gains in VTSAX, but didn't miss anything in VTIAX, and avoided 5.5% interest on a mortgage.  All in all it's been about a wash so far.

When you do this calculation, don't forget about all the dividend payments you also missed, and the gains from the shares those dividends would have bought!  Both those funds pay out quarterly, so even the VTIAX did miss out some. ;)

https://seekingalpha.com/symbol/VTSAX/dividends/history
https://seekingalpha.com/symbol/VTIAX/dividends/history

Quote
Currently debating about paying off a $10k car loan @ 2.99% interest.  On one hand I'd like to be free and clear of debt...on the other I have faith my long term gains in the market will be greater than 2.99%.  Wife is in favor of paying the car off.  I am on the fence and struggling between my emotional and rational brains.  I am getting deja vu about this as it feels very similar to when I was debating paying off the mortgage, but this time it's a smaller amount, and also a lower APR.  My gut is telling me to just pay it off, but my brain is saying "Hold up, you are planning to FIRE using the 4% rule and this is only 2.99%...don't you have faith in your own FIRE plan? If so keep the debt!".   I think my brain is right and I should just dump the entire chunk into my brokerage account and be done with it.

Your brain is almost certainly right.  In this case, though, I'd have to consider why your wife wants to pay the car off and if it would be a point of contention in the future.  If she's mostly leaving it to you and just expressed an opinion when asked, you should be fine.

frugalnacho

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Re: I'm going to pay off my mortgage
« Reply #62 on: November 01, 2019, 09:15:37 AM »
When you do this calculation, don't forget about all the dividend payments you also missed, and the gains from the shares those dividends would have bought!  Both those funds pay out quarterly, so even the VTIAX did miss out some. ;)

https://seekingalpha.com/symbol/VTSAX/dividends/history
https://seekingalpha.com/symbol/VTIAX/dividends/history


That's what the adjusted price is for.

Raenia

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Re: I'm going to pay off my mortgage
« Reply #63 on: November 01, 2019, 09:21:04 AM »
I don't think that's what adjusted price does...  I'd be happy to learn something new today, though.  And it certainly doesn't account for the fact that you'd own more shares by the end than you did at the beginning.

"Adjusting for Dividends
Common distributions that affect a stock's price include cash dividends and stock dividends. The difference between cash dividends and stock dividends is that shareholders are entitled to a predetermined price per share and additional shares, respectively. For example, assume a company declared a $1 cash dividend and is trading at $51 per share on the ex-dividend date. On the ex-dividend date, the stock price is reduced by $1 and the adjusted closing price is $50.

While dividends are welcomed by shareholders, they actually lower the value of each share of company stock. The reason is that profits are being disbursed to shareholders instead of being reinvested back into growing the company which is seen as devaluing the company. This devaluation will be captured by the adjusted closing price."

https://www.investopedia.com/terms/a/adjusted_closing_price.asp

Dicey

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Re: I'm going to pay off my mortgage
« Reply #64 on: November 01, 2019, 09:54:59 AM »
The problem with the car payment is the nagging monthly reminder. I hate recurring bills rather passionately. One solution that worked for me is to just automate and forget it. An even craftier way it to have the amount of the car payment auto transferred from your savings bucket, then auto transferred to the car loan. Your brain says "Oh, look, money coming in!", then the payment makes it a wash, and brain doesn't freak out. I know this seems illogical, but we already know our brains aren't always fed by logic. Sometimes tricks have to be used for one's own best interests, even with one's own brain.

I'll always remember two different conversations, one with each parent. In the first, my dad and I were standing in their laundry room and he was complaining about their utility bills. Well, let's see Dad, you FIRE'd at 50. You have a gubmint pension, outstanding healthcare benefits, your house is paid off, your property taxes are artificially low because of Prop. 13, you have no other debt. You look at your utility bills every month, of course they seem high, because you're not seeing those other ones any more. I'm pretty sure I was in my early twenties at the time and MMM wasn't even born yet.

Another time, I was going over finances with my mom. She listed all of their sources of income. I looked at her and asked if she realized that she had adult children with full-time jobs, families, and mortgages who made less than they did. She looked me straight in the face and said. "Yeah, but we can't go out and make more money if we needed to." WTF, mom? You don't spend your full income as it is.

Our brains are weird.

Okay, one more. My parents decided to buy a new Toyota Camry. At the dealership, my mom whipped out her checkbook to pay cash. The salesperson gently explained that at 0 percent, it didn't make sense to pay cash. Mom, with the support of my Dad, reluctantly agreed, but never stopped grumbling about that damn car payment.

frugalnacho

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Re: I'm going to pay off my mortgage
« Reply #65 on: November 01, 2019, 11:42:02 AM »
I don't think that's what adjusted price does...  I'd be happy to learn something new today, though.  And it certainly doesn't account for the fact that you'd own more shares by the end than you did at the beginning.

"Adjusting for Dividends
Common distributions that affect a stock's price include cash dividends and stock dividends. The difference between cash dividends and stock dividends is that shareholders are entitled to a predetermined price per share and additional shares, respectively. For example, assume a company declared a $1 cash dividend and is trading at $51 per share on the ex-dividend date. On the ex-dividend date, the stock price is reduced by $1 and the adjusted closing price is $50.

While dividends are welcomed by shareholders, they actually lower the value of each share of company stock. The reason is that profits are being disbursed to shareholders instead of being reinvested back into growing the company which is seen as devaluing the company. This devaluation will be captured by the adjusted closing price."

https://www.investopedia.com/terms/a/adjusted_closing_price.asp

Yea, there are a few ways to think about it.  Would I invest the money in VTSAX, then apply the dividend payments to my mortgage payment? Or let them reinvest while I pay my mortgage from other funds? What's the best apples to apples comparison I could make?  It would seem that putting the full mortgage amount into a brokerage account in proportion to my IPS (60/40 domestic/international), then selling an equivalent amount each month to make my mortgage payment would be most true, but that would be complicated and introduce all kinds of other problems like taxes and wash sales.  I just wanted a quick back of the napkin math calculation to ballpark where I'd be.

The unadjusted price for VTSAX on 11-3-17 was 64.67 and the adjusted price is 62.32.  If I purchased a single share for $64.67 I would have received 8 dividend payments, and had I reinvested those at the then-current share price I would own 1.0325 shares of VTSAX worth a total of about $77.49 based on today's price of 75.05.  77.49/64.67 * 100 = 19.8% total return by including dividends.

Just using the unadjusted price gives 75.05/62.32 * 100 = 20.4%.

Slightly different but close enough for me without having to go back and do a million calculations. 

Of course I'm only 2 years in as well.  Who knows where I'd stand in another 10, or 20 years.


frugalnacho

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Re: I'm going to pay off my mortgage
« Reply #66 on: November 01, 2019, 11:51:39 AM »
The problem with the car payment is the nagging monthly reminder. I hate recurring bills rather passionately. One solution that worked for me is to just automate and forget it. An even craftier way it to have the amount of the car payment auto transferred from your savings bucket, then auto transferred to the car loan. Your brain says "Oh, look, money coming in!", then the payment makes it a wash, and brain doesn't freak out. I know this seems illogical, but we already know our brains aren't always fed by logic. Sometimes tricks have to be used for one's own best interests, even with one's own brain.

I'll always remember two different conversations, one with each parent. In the first, my dad and I were standing in their laundry room and he was complaining about their utility bills. Well, let's see Dad, you FIRE'd at 50. You have a gubmint pension, outstanding healthcare benefits, your house is paid off, your property taxes are artificially low because of Prop. 13, you have no other debt. You look at your utility bills every month, of course they seem high, because you're not seeing those other ones any more. I'm pretty sure I was in my early twenties at the time and MMM wasn't even born yet.

Another time, I was going over finances with my mom. She listed all of their sources of income. I looked at her and asked if she realized that she had adult children with full-time jobs, families, and mortgages who made less than they did. She looked me straight in the face and said. "Yeah, but we can't go out and make more money if we needed to." WTF, mom? You don't spend your full income as it is.

Our brains are weird.

Okay, one more. My parents decided to buy a new Toyota Camry. At the dealership, my mom whipped out her checkbook to pay cash. The salesperson gently explained that at 0 percent, it didn't make sense to pay cash. Mom, with the support of my Dad, reluctantly agreed, but never stopped grumbling about that damn car payment.


Everything is automated.  I don't even think about the car note other than when I update my monthly networth spreadsheet and see that it's the only debt I have.  And each month I ask myself "hmm, should I just pay that off so I have no debt at all? Or just keep it?...." 

Raenia

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Re: I'm going to pay off my mortgage
« Reply #67 on: November 01, 2019, 12:03:18 PM »
I don't think that's what adjusted price does...  I'd be happy to learn something new today, though.  And it certainly doesn't account for the fact that you'd own more shares by the end than you did at the beginning.

"Adjusting for Dividends
Common distributions that affect a stock's price include cash dividends and stock dividends. The difference between cash dividends and stock dividends is that shareholders are entitled to a predetermined price per share and additional shares, respectively. For example, assume a company declared a $1 cash dividend and is trading at $51 per share on the ex-dividend date. On the ex-dividend date, the stock price is reduced by $1 and the adjusted closing price is $50.

While dividends are welcomed by shareholders, they actually lower the value of each share of company stock. The reason is that profits are being disbursed to shareholders instead of being reinvested back into growing the company which is seen as devaluing the company. This devaluation will be captured by the adjusted closing price."

https://www.investopedia.com/terms/a/adjusted_closing_price.asp

Yea, there are a few ways to think about it.  Would I invest the money in VTSAX, then apply the dividend payments to my mortgage payment? Or let them reinvest while I pay my mortgage from other funds? What's the best apples to apples comparison I could make?  It would seem that putting the full mortgage amount into a brokerage account in proportion to my IPS (60/40 domestic/international), then selling an equivalent amount each month to make my mortgage payment would be most true, but that would be complicated and introduce all kinds of other problems like taxes and wash sales.  I just wanted a quick back of the napkin math calculation to ballpark where I'd be.

The unadjusted price for VTSAX on 11-3-17 was 64.67 and the adjusted price is 62.32.  If I purchased a single share for $64.67 I would have received 8 dividend payments, and had I reinvested those at the then-current share price I would own 1.0325 shares of VTSAX worth a total of about $77.49 based on today's price of 75.05.  77.49/64.67 * 100 = 19.8% total return by including dividends.

Just using the unadjusted price gives 75.05/62.32 * 100 = 20.4%.

Slightly different but close enough for me without having to go back and do a million calculations. 

Of course I'm only 2 years in as well.  Who knows where I'd stand in another 10, or 20 years.

Thanks for explaining!